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by Helen Morris
The National Post
As the summer draws to a close and our vacation away from the office feels like a distant memory, thoughts may turn to taking a longer sabbatical. Perhaps you have always had a burning desire to write a novel. In order to determine whether you can afford to take a year off to write the next War and Peace, you will need to take a good look at your finances — and that includes the mortgage.
“Sit down with a mortgage adviser, a financial planner and really take a look at how you’re going to go about taking a financial holiday and ask yourself if you can truly afford it, then figure out a strategy,” says Jim Rawson, regional manager of Invis mortgage brokerage firm in Toronto. You might have several options, “whether it be that you have saved [for] payments, or whether you need to refinance your mortgage to have some money put aside for those rainy days.”
Depending on the level of equity in your home and your own credit record, some lenders may allow you to take a holiday from payments.
“The payment holiday is going to be based on the parameters of your mortgage and your credit quality. If you happen to have a 30% loan to value and you’ve decided you want to take a year off … your mortgage lender could probably be convinced to capitalize the payments for that 12-month period without any real risk to them,” says Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group. “The interest amount would be added to principal on a monthly basis, as opposed to you actually making a payment, so your principal balance on your mortgage would go up over that period of time.”
Your cash-flow situation improves but the cost will be higher interest payments over the lifetime of the mortgage.
If a complete payment holiday is not an option, there are ways to plan ahead for reducing mortgage payments.
“If you’ve got a mortgage and it’s registered for a 35-year amortization, say, your payments are $1,000 and you could afford $1,600, pay that,” says Paula Roberts, a mortgage broker for Mortgage Intelligence in Unionville. “The extra money will go right towards principal and reducing the amortization. [If] all of a sudden you need to take some time off, you can reduce your payments to the $1,000 [without re-negotiating the loan]” she says. “You’re not in arrears and all you’ve done is started from a 35-year amortization, gone to a 25-year amortization, and then you just go back to a 35-year amortization.”
Ms. Roberts says some lenders will allow you to attach a line of credit to your mortgage, which you can use to finance payments during your sabbatical.
However, Mr. Veselinovich cautions that a line of credit may not provide the best interest rate and, during and after the sabbatical, you will now have additional payments on top of your regular outgoings.
Read more:
http://www.nationalpost.com
Canada isn’t at risk of a U.S.-style real estate meltdown, OECD says
Canadians have spent the past year rushing into a housing market fueled by low mortgage rates, despite prices many could not afford if rates were to rise to more historically normal levels. About 375,000 homeowners are already being forced to cut spending in other areas, despite ultra low rates, the Canadian Association of Mortgage Professionals said in a recent report. A further 475,000 would find themselves in the same position if rates were to climb to 5.25 per cent.
The rebound in the housing market has been key to Canada’s recovery from the recession. But it has left some facing a toxic combination of hefty debts and rising interest rates as the Bank of Canada pulls back from the emergency low rates used to juice the economy back to life.
The Organization for Economic Co-operation and Development warned in an annual review of the Canadian economy that record high debt levels have left many vulnerable “to any future adverse shocks.”
On a recent report, the OECD said more measures could be taken by the federal government to keep marginal buyers out, suggesting an “overpriced” housing market needs to cool off before allowing more people to plunge in.
Some 7.5 per cent of Canadian households could be “financially vulnerable” by mid-2012 if borrowing keeps up at the same pace and interest rates rise as expected, the report said.
Economists have warned that while Canadians aren’t likely to default on their mortgages, they are likely to stop spending in other key areas, which would put a strain on the economy.
Canada isn’t at risk of a U.S.-style real estate meltdown, OECD senior economist Peter Jarrett pointed out. But he said “there’s somewhat of an excess” in the market that must be worked off.
The report also touches on the financial health of Ottawa and the provinces. And while the OECD said Canada stacks up well compared to other member countries, the country’s fiscal health is deteriorating.
The OECD said it’s concerned about the deteriorating finances of some provinces, particularly Quebec and Ontario. The report said all levels of government must work to curb spending.
About the OECD
The Organization for Economic Co-operation and Development (OECD) is an international economic organization composed of 33 countries, that defines itself as a forum of countries committed to democracy and the market economy, providing a setting to compare policy experiences, seeking answers to common problems, identifying good practices, and co-ordinating domestic and international policies of its members.
For more than 40 years, the OECD has been one of the world’s largest and most reliable sources of comparable statistics, and economic and social date. OECD brings together the governments of countries committed to democracy and the market economy from around the world to:
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Support sustainable economic growth
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Boost employment
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Raise living standards
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Maintain financial stability
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Assist other countries’ economic development
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Contribute to growth in world trade
The Organization provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies.
Read More:
- http://www.theglobeandmail.com
- Overview of the Economic Survey of Canada
- OECD Economics Department Working Paper No.800
“A simulation model of federal, provincial and territorial government accounts for the analysis of fiscal-consolidation strategies in Canada”
Present break-even rates do not reflect long-term deflation
The break-even rate is the difference in yields on fixed-income securities, such as Treasury bonds, priced in the money of the day and comparable inflation-linked bonds. According to Mark Chandler, head of North American fixed income strategy for RBC Capital Markets, present break-even rates do not yet reflect long-term deflation.
“Break-even rates are running near or below 1% on terms of less than three years in the U.S., but still in excess of 2% in the very long end,” Mr. Chandler says in a report.
That means inflation would have to average more than 1% per year until the maturity of the near-term bond, and 2% per year on the long-term bond for the inflation-linked bond to do better than another nominal value bond of similar term. Markets are predicting mild inflation and not deflation, which would drag the break-even rate into negative territory.
The highest break-even rates on 10-year treasury bonds are seen in the U.K. at 2.7%, and 2.6% in Australia. In Canada, break-even rates on 10-year treasury bonds are 2%.
Selected benchmark bond yields are based on mid-market closing yields of selected Government of Canada bond issues that mature approximately in the indicated terms. The bond issues used are not necessarily the ones with the remaining time to maturity that is the closest to the indicated term and may differ from other sources. The selected 2-, 5-, 10-, or 30-year issues are generally changed when a building benchmark bond is adopted by financial markets as a benchmark, typically after the last auction for that bond. The selected 3-year issue is usually updated at approximately the same time as changes are made to the 2-year, and sometimes with the 5-year. The selected 7-year issue is typically updated at approximately the same time as the 5- or 10-year benchmarks are changed.
The current benchmark bond issues and their effective dates, shown in brackets, are as follows.
2 year – 2012.09.01, 2.00% (2010.07.09);
3 year – 2013.09.01, 2.50% (2010.08.10);
5 year – 2015.12.01, 3.00% (2010.08.19);
7 year – 2016.06.01, 4.00% (2009.08.27);
10 year – 2020.06.01, 3.50% (2010.04.30);
Long – 2037.06.01, 5% (2008.01.18);
RRB – 2036.12.01, 3.00% (2007.06.14)
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Govt. of Canada marketable bonds, avg. yield: 1-3 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada marketable bonds, avg. yield: 3-5 year Previous data |
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Govt. of Canada marketable bonds, avg. yield: 5-10 year Previous data |
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Govt. of Canada marketable bonds, avg. yield: +10 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: 2 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: 3 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: 5 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: 7 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: 10 year Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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Govt. of Canada benchmark bond yields: Long-term Previous data |
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Real return bond, long term Previous data |
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 GRAPH PERIOD: 10 Sep 2009 - 10 Sep 2010 |
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NOTE: Government of Canada bond yields are mid-market closing rates.
See also:
Read more:
CAAMP Stats September 2010
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