28 Jan

More from the rate front …


Posted by: Brad Lockey


Borrowers got what they were asking for. It just wasn’t as big as they were asking for.

The major banks cut their prime rates by just 15 basis points today, to 2.85%. It’s the first time ever that Canada’s official bank prime will have changed by less than ¼% (at least back to 1935 when the Bank of Canada started publishing this data).

RBC showed leadership by being first out of the gate with its prime rate announcement. Then came BMO 50 minutes later, follow by the rest of the pack.

This all comes after TD Canada Trust worried borrowers last week, telling them it wouldn’t cut prime rate at that time.

In a statement, RBC characterized its unorthodox 15 bps cut by saying:

“We believe our announcement is a balanced approach which reflects our actual cost of funds and helps clients save money on products such as variable-rate mortgages, lines of credit and floating-rate loans…Our decision was driven by a number of factors, including our wholesale funding costs, the competitive, operating and macroeconomic environments, and the Bank of Canada’s recent rate decision and its impact on other market rates across the yield curve.”

Some other rate observations of note:

Last time the BoC cut its overnight rate, banks followed suit within 60 seconds. This time it took six days. Anyone notice?

This isn’t the first time an individual bank has dropped prime by less than a quarter point. TD Canada Trust and CIBC did it in October 2008, but none of the other Big 6 followed suit, so Canada’s prime rate officially fell by 25 bps. (TD and CIBC later gave back that 10 bps by lowering their prime to 4.00% just 11 days later.)
The 5-year bond yield, which leads fixed mortgage rates, closed at another forever-low today: 0.76%. If this level were to hold, the theoretical “fair value” for a deep discount 5-year fixed rate would be in the 2.25% neighbourhood.
TD’s 3.09% is the lowest widely advertised five-year fixed rate of any major bank. Yet, TD was at 2.99% back in June 2014 when the 5-year yield was 80 bps higher. (Don’t try to figure that out. It’s the new math of the mortgage market.)
Markets are now pricing in a 61% chance of another rate cut in March. (Source: Bloomberg).

The Bank of Canada reminded everyone of how banks actually work, telling Bloomberg: “Financial institutions set their prime rates based on a number of factors, including the cost of short-term funds and competitive pressures…It is up to the management of these institutions to decide what to charge their customers.”
Here’s what the Department of Finance (a Department of few words) had to say about the banks’ moves on prime: “That is a decision for the banks to make.” (via The Globe and Mail).



27 Jan

Purchasing a home: 11 fees to keep in mind besides your mortgage


Posted by: Brad Lockey

​To make sure you don’t forget anything when drawing up your budget for purchasing a home, we’ve put together a list of essential elements to include. 

​According to Jonathan Haziza, a product manager for mortgage solutions at National Bank, the scale of the costs linked to buying a property tend to be underestimated by first-time buyers. So without further ado, here are some expenses to keep in mind for a realistic portrait of what lies ahead. 

1. Appraisal Fee: Your financial institution may ask for an evaluation of the property’s market worth. This happens when the cost is steep or the property contains various risk factors. Requesting an appraisal is a means of protection: either to ensure that payments won’t be above your means, or to verify that the property is truly worth what you’re about to pay. You’ll therefore need to hire an appraiser to produce the necessary documents. 

2. Inspection fee: Hiring a building inspector to check for hidden defects in pre-existing houses is crucial. This will help you avoid bad surprises that could cost you a lot; you’ll have peace of mind knowing that everything is as it should be.

3. Notary fee: In Canada, any mortgage deed requires the services of a notary. The cost of this transaction varies depending on a number of criteria.

Maître Pascale Gagnon, notary, says that: “The type of building, the number of buyers, and the number of separate accommodations, to name only a few, are some of the factors that could impact a notary’s rate. The best way to gauge fees is to directly contact a notary, who will evaluate your case taking into account all of your future residence’s parameters.”

4. Taxes: As a home owner, here are the five most important taxes you’ll need to keep in mind:

Welcome (land transfer) tax, which municipalities apply whenever a property changes hands;

Sales tax, including GST and QST if you’re buying a new home;

CMHC tax (8% of premium value in Ontario);

Municipal tax;

School tax.

These taxes vary per municipality and according to property value. When preparing your budget, note that municipal and school taxes are recurring and need to be paid year after year, whereas the others only apply once, when you move.

5. Mortgage Insurance: If your down payment is smaller than 20% of the cost of your home, you’ll need to take out mortgage insurance. This insurance does not cover your assets, but rather your mortgage payments. Your financial institution may request that you take out mortgage insurance even if your down payment is bigger than 20% of your property value. A financial advisor can let you know whether mortgage insurance will be requested of you.

6. Electricity, television, and Internet connection fees: Electricity connection fees are often forgotten by first-time buyers, as well as fees related to opening new Internet and television accounts. Contact your suppliers to check service availability in your new neighbourhood. If you’re moving into a new development, you may need to pay additional fees to connect your neighbourhood to various networks.

7. Renovations: Keep some money aside for renovations. Take time to walk through your future dwelling to pinpoint improvements and repairs you’d like to take on.

8. Furniture and appliances: Your current furniture and appliances might not fit in your new home, or you might simply need to buy more.

9. Moving costs: Whether you hire professional movers or decide to do everything yourself, you’ll certainly need to take on a few moving-related expenses. Don’t forget to include them in your budget.

10. Cohabitation fees: If you’re buying a condo, you’ll need to pay cohabitation fees, which include communal expenses such as interior and exterior maintenance, snow removal, etc.

11. Emergencies: Since it’s impossible to plan for everything, we recommend keeping some money aside for emergencies. National Bank’s Jonathan Haziza’s advice is to set aside at least 2 or 3% of your property value in case anything unexpected happens. 

With this list, you can now draw a more accurate portrait of all the expenses associated with purchasing a home. But the best tool to help you figure everything out remains the experience of a financial advisor. Consult our branch locator to find an advisor who can suitably guide you.


21 Jan

Five things to know about the Bank of Canada’s interest rate cut


Posted by: Brad Lockey

The Canadian Press
Published Wednesday, January 21, 2015 12:53PM EST

OTTAWA — The Bank of Canada cut its key interest rate by a quarter point to 0.75 per cent Wednesday to soften the blow of dropping oil prices.
Here are five things to know about the announcement:
1. The Bank of Canada believes low oil prices are overall negative for the Canadian economy.
Bank of Canada rate announcement
2. By cutting its target for the overnight rate, the central bank is trying to push down the interest rates charged by Canada’s big banks, making it cheaper for companies to borrow money to grow their businesses.
3. A rate cut by the central bank likely means lower interest rates for variable rate mortgages, lines of credit and other loans based on the prime rate, likely to boost consumer spending.
4. The loonie immediately fell by more than 1.5 cents against the U.S. dollar. A lower dollar makes Canadian goods cheaper for U.S. buyers, helping to stimulate exports but increasing the cost of imports.
5. The Bank of Canada used an estimate of US$60 for the price of oil in making its decision. Oil is trading below US$50 today. If oil stays where it is the central bank expects the economy to grow even slower than it has forecast.



12 Jan

7 things you didn’t know about TFSAs


Posted by: Brad Lockey

Pay special attention to these rules when you make your TFSA contribution

by Julie Cazzin
January 8th, 2015
From the January 2015 issue of the magazine.

Tax-free Savings Accounts are relatively simple to understand and use, but they do have some quirks that can be confusing. Pay special attention to these rules when you make your TFSA contribution and you’ll be cruising toward higher investment gains in no time.

// 1 // Whatever amount you withdraw from a TFSA is added to your contribution room in the following calendar year. It doesn’t matter whether the withdrawn amount is just your original contribution or the interest, dividends or capital gains your investments earned. And just as capital gains are not taxable in a TFSA, capital losses are not deductible.

// 2 // Interest, dividends and capital gains in your TFSA are not considered income, even when you withdraw the money. That means federal income-tested benefits and credits such as Old Age Security, the Guaranteed Income Supplement and the Canada Child Tax Benefit will not be reduced as a result of investment growth inside your TFSA.

// 3 // Interest on money borrowed to invest inside a TFSA is not tax-deductible.

// 4 // Accidental overcontributions to a TFSA are subject to a penalty of 1% for each month the overcontribution remains in the account. Deliberate overcontributions are subject to a penalty tax of 100% of income or gains from the overcontribution.

// 5 // You can’t claim the tax credit on Canadian dividends if the stock producing those dividends is held within a TFSA. If you have run out of contribution room in your RRSP and TFSA, it may be best to hold your Canadian dividend stocks in a regular, non-registered account. With foreign stocks, there is no dividend tax credit, but you have foreign withholding taxes to consider. In a non-registered account, you can recover at least part of the withholding tax by way of the foreign tax credit. Also keep in mind that while the U.S. does not withhold tax on dividends paid into an RRSP or RRIF, that favourable treatment doesn’t apply to dividends paid into a TFSA.

// 6 // The management fees paid by a TFSA account holder will not be counted as part of your contribution, but they will also not be tax deductible for income tax purposes.

// 7 // You can open a TFSA for a child when he or she turns 18. But beware: “If you gift money to your child for a TFSA contribution, that money becomes the child’s,” says Jason Heath, a Toronto planner.

6 Jan



Posted by: Brad Lockey

1. Always pay your bills on time. (The payment of utility bills such as phone, cable and electricity are not recorded in your credit report, however many cell phone companies report late payments.)

2. Pay Debts as quickly as possible.

3. Try to pay your full balance off on all cards every month whenever possible.

4. Don’t go over the credit limit on your credit cards.

5. Don’t make too many credit applications (use a Mortgage broker). Your score doesn’t change if you personally make credit inquiries.

6. Contact creditors if you’re having trouble making payments and work out solutions.

7. Read the statements you receive from your credit card company carefully. Keep yourself up-to-date with any changes or fee increases.

8. Keep your credit usage to no more than two credit cards and one Line Of Credit. Avoid store credit cards.

9. Get a copy of your credit report from all three credit-reporting agencies at least once a year and make sure they’re in order.

6 Jan

Bank Profits for 2014


Posted by: Brad Lockey

Year-End Bank Earnings – Mortgage Morsels

Sure, you paid out the nose in interest charges and assorted bank fees this year, but take comfort in knowing that you helped pad the Big 6 Banks’ bottom lines—to the tune of $33 billion of net income in 2014.

That enabled Canada’s banks to post a reasonably strong year, despite a modest spring housing market and the continued low interest rate environment.

On the mortgage end of things, loan losses were down and most of the majors saw their ratio of insured mortgages fall—not surprising given Ottawa’s push to de-risk its mortgage exposure. As of October, banks had grown their mortgage books by 4.8% year-over-year.

As we do every quarter, CMT has dug through the Big 6 Banks’ quarterly earnings reports, presentations and conference calls, and pulled together these mortgage tidbits. The more notable observations are in blue.


Bank of Montreal


Q4 net income: $1.07 billion
(<1% Y/Y)
Earnings per share: $1.56
2014 net income: $4.33 billion

BMO’s residential mortgage book grew 6% YoY and 2% QoQ. (Source)
BMO’s total Canadian residential mortgage portfolio stands at $93.0 billion, up 1.4% from $91.7 billion in the previous quarter. (Source)
63% of BMO’s portfolio is insured, down from 64% in the previous quarter. (Source)
The loan-to-value on the uninsured portfolio is 58%, unchanged from Q3. (Source)
The condo mortgage portfolio stands at $13.3 billion (up from $13 billion in Q3) with 54% insured (unchanged from Q3). (Source)
The loss rate for the trailing four-quarter period was less than 1 bp. The 90-day delinquency rate was 27 bps, unchanged from Q3. (Source)


Q4 net income: $911 million
-1.7% Y/Y
Earnings per share: $2.24
2014 net income: $3.7 billion

CIBC’s residential mortgage portfolio rose to $152 billion in Q4, up from $149 billion in Q3. (Source)
CIBC brand mortgage balances grew 14%, or 12% excluding the benefit from FirstLine conversions. (Source)
Condos accounted for 11% ($17 billion) of the total Canadian mortgage portfolio. (Source)
The bank’s residential mortgage portfolio was 67% insured (down from 70% in Q3). Ninety percent of that insurance was provided by CMHC. (Source)
Of CIBC’s uninsured portfolio, the average LTV was 60% (Source)
“The conversion of FirstLine mortgages into CIBC brand continues to grow very well. Since we stopped originating broker mortgages in the FirstLine channel in July of 2012, $81 billion or 65% of the portfolio has runoff. Of that amount, we have retained approximately 50% into our own brand mortgage portfolio,” said Kevin Glass, Chief Financial Officer. “We are optimistic that we will continue to maintain current retention levels as the balance of the portfolio runs off.” (Source)
Asked if the benefit from the bank’s exit of the mortgage broker channel has finally run its course, David Williamson, Senior EVP and Group Head, Retail and Business Banking, said, “…The FirstLine runoff and conversion over to CIBC…is a lift. So that’s kind of helping us each quarter. That’s not huge, but it’s a net tailwind for sure…We are net, net growing in mortgages…We’ve got a mix shift, mortgages being an important product but not the highest spread product.” (Source)

National Bank of Canada

Q4 net income: $407 millionNBC
(+15% Y/Y)
Earnings per share: $1.14 a share
2014 net income: $1.6 billion

Residential mortgages rose 7% YoY to $39.3 billion as of October 31, 2014. (Source)
Personal Banking’s total revenues rose $22 million, mainly due to higher loan volume, “particularly mortgage loans and home equity lines of credit.” (Source)
“66% of the bank’s credit portfolio is based in Quebec, 19% in Ontario and 15% in the other provinces…Residential mortgages in Toronto and Vancouver represent approximately 13% and 2%, respectively…Insured mortgages are still the largest asset in the book, accounting for 34% of the portfolio. HELOCs and uninsured mortgages represented 26% and 18%, respectively.” (Source: Q4-2014 Conference Call)
“The average loan to value on the HELOC and uninsured mortgage portfolio was approximately 59% and 58%, respectively.” (Source: Q4-2014 Conference Call)
The latest available data from D+H shows National Bank ranked 9th in broker channel market share, with approximately 4% of the market.

Royal Bank of Canada

Q4 net income: $2.33 billion
(+11% Y/Y)
Earnings per share: $1.57
2014 net income: $9 billion

RBC’s residential mortgage portfolio rose to $192 billion in Q4, up from $189 billion in Q3. (Source)
60% of its mortgages are uninsured while 40% are insured. (Source)
The bank repeated that it follows “strong underwriting practices resulting in continued low loss rates and stable delinquency rates with good LTV coverage and low exposure to condo market.” (Source)
RBC’s condo exposure is 9.5% of its mortgage portfolio, representing approximately $4 billion. (Source)
“We’ve been investing heavily in technology for the past 5 or 6 years. We’ve recently put in a new mortgage system, a new data centre and we’ve invested in our commercial lending systems. These costs are already built into our run rate,” said David McKay, President and CEO. (Source)
“…on this oil price point … We are able to monitor at even a community type basis of where our exposures are. So far we have not seen outstandings or delinquencies increase in, say, the Alberta region. But that is part of our early warning signal approach. So we are monitoring that as well,” said Mark Hughes, Chief Risk Officer. (Source)


Q4 net income: $1.44 billion
(-14% Y/Y)
Earnings per share: $1.10
2014 net income: $7.3 billion

The total portfolio of residential retail mortgages was unchanged at $189 billion in the quarter. (Source)
52% of the residential mortgage portfolio was insured in the fourth quarter, unchanged from Q3. The uninsured portfolio has an average loan-to-value ratio of approximately 54%, down from 55% in the previous quarter. (Source)
“The net interest margin was up 2 basis points year-over-year driven primarily by higher mortgage spreads and growth in credit card balances, partly offset by lower spreads on deposits.” (Source)
“Excluding Tangerine’s run-off (mortgage) portfolio, loans grew 5%, mainly driven by mortgages.” (Source)
The portfolio consists of $169 billion in freehold dwellings and $20 billion in condos (unchanged from Q3). (Source)
The latest available data from D+H shows Scotiabank ranked 1st in broker channel market share, with approximately 17.7% of the market.

TD Bank

Q4 net income: $1.86 billion
(+8% Y/Y)
Earnings per share: $0.98
2014 net income: $7.45 billion

TD’s residential mortgage portfolio rose to $173 billion, up from $168 billion in the previous quarter and $163 billion in Q4 2013. (Source)
The bank reported real estate secured lending growth of 4% YoY, up from 3% in the previous quarter. (Source)
62% of the portfolio is insured, down from 63% in the previous quarter. The loan-to-value of the uninsured portfolio is 60%, down from 61% in Q3. (Source)
72% of the bank’s condo mortgages are insured, down from 73% in the previous quarter. (Source)
“Hi Rise Condo Developer Exposure represents 1.7% of the Canadian commercial portfolio.” (Source: BMO Capital Markets)
The latest available data from D+H shows TD Canada Trust ranked 5th in broker channel market share, with approximately 8.7% of the market.