Global troubles bring some good news for Canada: low interest rates

Looks like Canadians may be enjoying the record low interest rates for some time. Since June the Bank of Canada has been trying to normalize the banks overnight rate, they attempted to do this by increasing the overnight rate by .75% this past summer to 1% (3% bank prime rate). The Bank of Canada would like to see the rate increase to around 3.5% (5.5% bank prime rate) which is ideal for a balanced economy, economists believe.

This is now unlikely for some time due to the recent developments of a slower recovery in the US and in Canada, as well as the re-emergence of the European debt crisis.

Look for bank of Canada governor, Mark Carney to hold off hiking rates until at least July 2011. This is good news for most Canadians borrowing money and especially if you have a variable rate mortgage.

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Don't Expect Housing Prices to Drop Dramatically in 2011

Claims that Canada’s housing market is ready to pop are exaggerated, say economists at BMO Nesbitt Burns.

Instead, they say the market can more realistically be labelled “moderately overvalued” based upon a comparison of house prices with personal income. They also note that mortgage servicing costs for “typical” homebuyers are running near the long-term norm of 34%.

“Barring a sharp spike in mortgage rates or a relapse into recession, a substantial price correction is unlikely to occur,” economists Earl Sweet and Sal Guatieri wrote in their research report.

They noted, however, that Canadians would have a hard time dealing with a sudden 3% hike in mortgage rates. That would weaken affordability “substantially” and, in turn, drive down demand and home prices.

Click here to read the BMO Nesbitt Burns research report.

Slow Economic Growth slows interest rate hikes

Interest rate hikes appear to be on the back burner for the foreseeable future after Bank of Canada Governor Mark Carney said Thursday that overstretched households and weak US demand would crimp economic growth in the coming months.

At a speech in Windsor, Ontario, Carney said Canadians should brace for months of “modest” economic growth, acknowledging this will be reflected in the bank’s revised forecast to be released October 20th, in which third- and fourth-quarter estimates would be lowered. Any additional increases to interest rates in this environment would warrant “caution,” he added.

The remarks reinforced a growing belief among Bay Street traders that the odds of another rate hike this year were dwindling to nearly zero. Plus, data released Thursday indicated the economy contracted in July by 0.1% from June levels, the first monthly decline in almost a year.

Economists said Thursday’s speech and the GDP report point to a central bank that’s done with rate hikes for now. Click here to read the full article

Bank of Canada Raises Rates

Bank of Canada Governor Mark Carney raised his benchmark interest rate for the third straight time today, but left himself room to pause at his next scheduled decision by saying that while borrowing conditions in Canada remain “exceptionally stimulative,” the overall economic climate is fraught with “unusual uncertainty.”

In the statements on his decision to lift the overnight rate by another quarter of a percentage point to 1% (Bank lending rate is now 3%) Carney reiterated – arguably more strongly than in the past – that future moves will depend on developments around the world and, in turn, how they are affecting Canada’s export-heavy economy.

“Any further reduction in monetary stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” the central bank said, tweaking language in the all-important last line of the statement, which in the two previous versions referred to “considerable” uncertainty. Click here to read the full article in the Globe and mail

10 easy ways to build a credit history

I constantly run in to couples where one of them has no credit due to the fact that their spouse has the credit and they have a spousal card and assume that they have credit as well. This is not true and the reality is if they do not have their own credit cards or loans they will not be building credit, which can seriously affect their ability to borrow.

Everyone needs to have the ability to borrow money. That’s true whether you’ve just found yourself in the new role of single parent without an emergency fund, you’re a young adult starting out, or in the case above. The reality is that if you want to borrow money you must have a strong credit history. Gale Vaz-Oxlade of Yahoo Canada Finance outlines 10 easy ways to build your credit history. Click here to read the full article.

5 Expenses That Will Consume 50% of Your Lifetime Earnings

Ever wonder where all of your money goes? below are the top 5 expenses for North Americans that will consume at least 50% of your income.
1. home
2. vehicle
3. kids
4. Education
5. retirement

Click here to read the full article from Forbes for some helpful hints and guidelines to keep this in check.

Variable Rate May No Longer Win

Over the past 50 years consumers have saved money by choosing a variable rate mortgage, as long as they hold onto that variable rate over their term. Variable rate is still a lower option, but with the pending increase in the prime rate of another 1/4% in September and fixed rates close to historic lows, more Canadians may be favoring the fixed rates.

Fixed or variable, this seems to always be the question. One answer is if you are currently in a variable rate mortgage and are comfortable with your financial situation and don't need to fix your mortgage payments, you may want to ride it out. Click here to see the complete article form the Financial Post