From my favourite mortgage guy, Mr. Jon Sowerby; Verico TvH Mortgages October 29th, 2013 1. A Significant Shift in Policy - The Bank of Canada changes its mind. Sort of... 2. Working with Professionals: The TvH Group 3. Question? Comment? Know someone who might need some help? 1. A significant Shift in Policy - the Bank of Canada changes its mind. Sort of... Last week, Bank of Canada governor Stephen Poloz made his comments on interest rates and the Canadian economy in his usual market commentary released approximately every six to seven weeks. The summary is provided in the attached link. Although packaged as usual in a fairly technical way, the most recent release did get markets buzzing. Governor Poloz did not refer to something for the first time in over a year, specifically the likelihood that Canadian interest rates are on the cusp of being increased: http://www.bankofcanada.ca/2013/10/publications/press-releases/fad-press-release-2013-10-23/ Now, while such an omission may not seem like a big deal it has been getting plenty of press. Many of the points well summed up by this CBC article: http://www.cbc.ca/news/business/bank-of-canada-ends-rate-hike-warning-cuts-growth-outlook-1.2186658 The crux of the issue as explained by the Governor is that the Canadian economy has simply not performed according to plan. Exports, expected to be a key driver have continued to lag as the Canadian dollar has maintained its strength in the face of a slowly (very slowly) recovering US economy. Ironically, the announcement had a short term impact on the Loonie pushing it lower, something some pundits figure was exactly the Governor's aim. But a little posturing is likely to only take things so far with the dollar and more concrete actions will likely be required if driving the dollar lower to jumpstart exports is the ultimate goal. So what does that mean for mortgage holders or prospective home buyers looking for a mortgage? It means the low interest rate ride is not over yet. While fixed rates have seen some pricing pressures in recent months, some more policy driven than market driven, variable rates may be the big beneficiaries. Fixed rates first: As mentioned in my previous article fixed rate pricing has been under some pressure. At least a portion of this has been as a result of changes to the cost of doing business based on recent revisions to government policy. These changes have been pushed onto lenders and ultimately consumers. Furthering the government's aim to increase the cost of credit this kind of change is not likely to be reversed anytime soon. However, the bond market which is the underlying source of fixed rate mortgage funding may see a roll back and if this happens while it might be tough to see rates dip below 3 per cent again we might see them in the low 3 per cent range. Now variable rates: Well, assuming funding continues to be readily available in the money market the net result of these recent changes is variable rates potentially becoming once again the more attractive option. Currently variable rates look pretty attractive in the sub 3 per cent range but we may see some room for improvement on 2 fronts: First, pricing could improve meaning the discount offered against the prime rate (currently 3 per cent) could potentially go lower. It's been a few years since we saw prime minus 90 basis points but we might yet see something close to that given time. Any decreases in discounts are good for consumers as ultimately they pay less interest on the borrowing. Secondly, and this would be a direct result of what Governor Poloz's announcement covered, is the chance that they Bank of Canada lowers the overnight lending rate. It was only a few years ago that the overnight lending rate was at 0.25 per cent (currently holding for the last 3 years at 1.00 per cent). Assuming lenders passed the savings along (they haven't always done that) the potential to see variable mortgage rates back in the low 2 per cent to high 1 per cent range does exist. What I think about all this: I think it is interesting that Governor Poloz made the shift he did and I think on the surface it seems like a wise move. Frankly, no one was taking the previous message about moving to increase rates terribly seriously anymore as the economy sputtered along and inflation was essentially non-existent. The broken record about moving rates up, which has been playing since April of 2012 had largely lost the attention of the market and I think was hurting the credibility of the BofC. Now, saying - or in this case not saying - you're going to do something isn't necessarily an indication you're going to do something. In other words, just because the Governor is not saying rates decreases are off the table doesn't mean he's going to engage in a race to the bottom. So while I think it was smart to leave the option open, I also don't think it is Mr. Poloz's first choice. So don't be disappointed if nothing much happens to the Bank of Canada's key overnight lending rate, certainly in the short term. Finally, it appears the time for variable rates to be in the spotlight might once again be making a comeback. For many, it was going to be at least late 2014 before the BofC looked to increase rates and I know personally, I have been suggesting probably more like middle 2015. Now, it might not be unreasonable to suggest we are looking at 2016 before something truly happens. But keep this one thing in mind - if the economy turns around next quarter and we see a pick-up in exports and inflation this will all go out the window. So to people who have chosen fixed in recent months you're going to be just fine. To those looking at the future fixed vs. variable is still a valid discussion as opposed to just a default in variables favour. As always I am happy to discuss whenever you are, so should you have any questions or concerns just let me know and we will work through your specific situation. 2. Working with professionals: One of my goals as a financial professional over and above my goals as your mortgage professional is to provide you with a support network that will help you manage your complete financial and real estate situation in the way we have managed your mortgage situation - by putting you in touch with ethical, principled and knowledgeable specialists from a variety of fields. If you have questions or needs in any of the following areas: TvH Mortgages, run by yours truly, Jon Sowerby as Mortgage Broker and Broker of Record TvH Financial, dealing with Investments and Insurance is headed by Jim Lao , Financial Advisor TvH Legal, dealing with Real Estate and Estate law in addition to civil litigation is headed by Sonia Kociper, Lawyer TvH Accounting, dealing with personal and business tax matters headed by David Jamestee, Chartered Accountant TvH Real Capital, dealing with mortgage investing, a subsidiary of TvH Mortgages We also know some excellent people in the following fields: Real Estate Property Insurance Contracting Even if you don't have a mortgage need at the present time but you need some help in one of the above areas please call or email me. I am privileged enough to work with some of the best in the business and I know they will take excellent care of you and yours. *Have a need in a field you don't see above? Let me know, I might still be able to help! 3 . Question? Comment? Know someone who might need help? Do you have a question or a comment? Do you know someone who is considering their financing options and would like some straight forward advice? Why not take a moment to send me your question? Email or phone me, whichever is more convenient. I'm always happy to help. Why wonder and maybe miss an opportunity when a few minutes of your time could provide all the help you need? Take care and stay in touch! Warmest Regards, Jon Sowerby Verico TvH Mortgages

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