Interest Rates and You

Posted by Moishe Alexander

How interest rates affect you, whether you are a renter, owner or investor in the Australian property market.

With the current state of the economy, most are placing their bets firmly on more interest rate slashings for 2009.

Interest rates have a direct impact on everyone's finances, whether it's their mortgage payments, credit card bills or savings account. Understand where you fit in the grand scheme of all things interest rate related with these useful facts and statistics.

Renting Property

• 30% of Australians are renters (approx. 5 million people) - it's a tough and competitive market.
  
  
• In most capital cities, the vacancy rate of residential properties is about 1%.
  
  
• Fewer rental properties = higher rents:
  
  In Brisbane, rents are at an average of $295/week.
  In Sydney, rents are at an an average of $350/week.
  In Perth, rents are at an an average of $300/week.
  In Darwin, rents are at an an average of $360/week.
  
  
• 89% of renters experience negative psychological effects directly related to the dire rental climate.



• 33% of renter doubt that they will ever be able to afford their own home.



• The proposed a National Affordability Rental Scheme will see about 50,000 new rental properties built, hopefully easing strain across the country.
• Read more HERE
  

Bank of Canada interest rate remains at 0.25 per cent

Ottawa - The Bank of Canada has left its key overnight interest rate unchanged at 0.25 per cent, Thursday.

It previously said it would commit to keeping the rate fixed until at least 2010.

At its last interest rate decision in April, the central bank lowered the trend-setting rate to about as low as it could go.

The unchanged rate is unlikely to affect the rates Canadians will pay for mortgages and other loans.

In its policy announcement Thursday, the central bank said the rise of the loonie is becoming a major concern that could threaten the country's economic recovery.

The central bank also hinted it is prepared to intervene if the dollar's rise proves persistent.

It noted that while it cannot cut rates further, it has the option to resort to so-called quantitative easing, including increasing the money supply, to keep the strong dollar from strangling the recovery.

In an assessment of the economy, the bank said conditions are improving but warned the outlook remains uncertain and things could deteriorate.

Posted by Canadian Funding Corp. Read more HERE

Canadian students pay the price

Canada's student loans boast some of the highest interest rates in the world and some critics believe it is unfair for governments--both provincial and national--to run their student loan programs as anything but a social assistance program.

The Coalition for Student Loan Fairness released a report titled The Canada Student Loans Program: Solutions to Improve Public Confidence and Operational Effectiveness Tue., Jul. 24 outlining its recommendations for the government to improve their student loan program. According to the Canada Student Loans website students are paying anywhere from 8.25­-11 per cent in interest.

"Currently, students in Canada are paying more than double the actual cost of governments borrowing," said CSLF director and author of the report Julian Benedict. "So we're actually subsidizing the cost of running the system even though we're asking for loans because we can't afford to pay for our own education up front."

The government often counters that many students default on their loans, forcing them to charge higher interest rates, explained Benedict. Defaulting on a student loan is when a borrower goes more than 270 days without paying. Anywhere from 25-26 per cent of students default on their student loans, most within the first three years of finishing school.

"The government is running the student loan system almost unlike any department," he said. "It's not considered an imperative for the government to make money off of the health care system and no one expects it to. However for some reason student loan borrowers are being asked to pay far more in interest so that the government can attempt to run the program as a revenue-neutral operation. We believe that this is a social program like anything else and it's here to help Canadians--because the more of us that are educated, the better the economy is going to be."

University of Calgary Students' Union vice-president external Mike Selnes has also been advocating the reduction of interest rates on student loans with the provincial lobby group.

"Through the Council of Alberta University Students we recommended that they reduce the interest rates from prime plus 2.5 per cent to simply prime," said Selnes. "That's more of a fair interest rate in the sense that students aren't being unnecessarily gouged for their interest. Right now a lot of people are under the opinion that the government actually makes a profit off of student loans because they are taking the prime interest rate and then adding an extra couple per cent on to it."

One of the difficulties with the student loan program is it's jointly run by both the federal and provincial governments, he explained.

"Right now one of the recommendations we make is that students--regardless of how much they borrow--aren't required to pay back more than $5,000 of that loan," said Selnes.

Selnes explained that in addition to lobbying the government to lower interest rates for student loans he is also advocating for the government to change their remission policy on student loans, meaning the amount of money students have to pay back is lower. Read more HERE

Posted by Canadian Funding Corp

Interest rates: News and predictions

Rates were unchanged again at 0.50% in June - and they are very unlikely to go lower. The Bank of England's June meeting (4 June) was watched only for news on the progress of its quantitative easing policy. It signalled no increase in QE.

So when will rates be raised again?

The Bank of England's quarterly report suggested it could be a while with inflation expected to remain low for another two years. Inflation fell again in April but by less than expected in May. And economists took minutes from the MPC meeting on 20 May as further confirmation of low rates remaining well into 2010. MPC member Kate Barker echoed this view on 10 June.

However, markets are getting twitchy. Some very nascent signs of economic green shoots has caused a surge in City traders betting on a rate rise before the end of the year, although this remains a long-odds punt. This trend was also reflected in a sharp increase last week in swap rates - a market banks use for borrowing and lending money over a fixed period of time. It attempts to anticipate future interest rates.

The hawks were given further support on 16 June when CPI inflation for May was reported at 2.2% against an expectation of 2.0%.

Captial markets in the US also became more hawkish last week, pricing in a rise in rates by the Fed before the end of the year.

The problem is that inflation fears are growing. The oil price has more than doubled in recent months. That, coupled with an improvement in economic fortunes and huge stimulus packages, has raised concerns that rates may need to rise to quell rising prices. More here posted by Canadian Funding Corp.

Should I lock my mortgage rate and how does a lock work?

Whether or not you should lock a mortgage rate can depend on several factors.

Let's first talk about what it means to lock a loan. In general, there are a couple stages at which a loan might be locked. The first is an agreement between you and your mortgage broker (unless they are a direct representative for the bank). This lock is usually as good as the broker's word and must be disclosed as such.

Unless you have an actual "Lock Confirmation" generated by the lender who will be funding your loan, you do not have a guaranteed access to that particular rate. Furthermore, in many cases, loans can be locked with lenders even if they are not actually approved. In this manner, Jane Doe could request a rate lock with XYZ lender and the broker could lock that rate at XYZ. However, if XYZ denies the file for whatever reason, the borrowers file would have to go to a different lender, and it would be subject to whatever the current pricing is at the new lender. read more here

Monetary Policy in Extraordinary Times

The financial turbulence that began in the U.S. subprime-mortgage market in August 2007 reached maximum intensity towards the end of 2008, and enveloped the entire global economy. Strains that had previously been concentrated in a few major financial centers turned into a full-blown crisis, affecting both industrial and emerging-market economies through trade, financial, and confidence channels.
Policy-makers reacted quickly, applying unprecedented monetary and fiscal stimulus as the gravity of the situation became clear. For central banks, this involved pushing target interest rates to historic lows and providing emergency liquidity on an extraordinary scale. Although a number of "green shoots" have recently appeared and the global economy is no longer deteriorating at an accelerating rate, we remain in the midst of the deepest and most synchronous contraction of the postwar period.
Many central banks have tested the limits of their traditional monetary policy instruments and have turned to so-called "unconventional" measures. Others are giving unconventional measures serious consideration. These instruments are unfamiliar and there is a great deal of confusion over exactly what they are and how they work. Some observers believe that they will be largely ineffective, making a deflationary spiral inevitable. Others worry that they will be too effective, or will be left in place too long, leading to an inflationary spiral. Either way, unconventional monetary policy instruments are regarded by many as a decidedly risky option. While it's too early to draw strong conclusions, the experience to date with unconventional measures has been largely positive. Brought to you by Moishe Alexander.

Canadian Funding Corp’s Review on the Fall of Canadian Interest Rates

Canadian Funding Corp’s Review on the Fall of Canadian Interest Rates

In a stunning announcement today, Mark Carney declared that the Bank of Canada has taken an axe to the short-term interest rates and has reduced those rates to 1.5% - the lowest level in over half a century.

[read more on Canadian Funding Corp's Review on the Fall of Canadian Interest Rates...]