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12 Jan

Recession Or Not? No Rate Hikes In Sight!


Posted by: Gerry Gillan

Canadians think we’re in a recession, but economists don’t

 A surprising majority of Canadians – 70% of them – say the country is in the middle of an economic recession, even though economists will tell you Canada hasn’t been in one since 2009, and is nowhere close.

 The results, from a new online survey sponsored by the Economic Club of Canada and conducted by Pollara Strategic Insights, highlight a growing disconnect between how financial professionals quantify and measure the health of the economy, and how Canadians feel about their every day prospects.

 Michael Marzolini, chairman of Pollara, called the results the most pessimistic in 16 years.

 “Canadians are more self-centred. They believe themselves under siege,” he said at a breakfast presentation hosted by the Economic Club in Toronto that included top economists from Canada’s Big Five banks.

 Click here for more details from the Financial Post.

 No BoC rate hike until Q1 2013: poll

 A deteriorating European economy and weak global growth will keep the Bank of Canada from raising rates for at least another year, though an interest rate cut looks highly unlikely, according to a Reuters survey.

 The Reuters poll of 41 economists and strategists released on Tuesday showed the median forecast for the next interest rate hike was pushed back by three months to the first quarter of 2013 from the fourth quarter of 2012 projected in a November poll. The Bank of Canada’s target for the overnight rate – its main policy rate – has been at 1% for more than a year.

 “The longer we spend struggling with slower growth and the longer we go without the Europeans coming to some cohesive policy solution, the worse the economic drag will be,” said David Tulk, Chief Canada Macro Strategist at TD Securities.

 “You get the sense that growth I think is likely to remain lower for longer, just like interest rates.”

 Click here for the full Financial Post article.

 Debt still rising, but Canadians better at paying credit cards: Equifax

 Canadians are paying off more of their credit card debt as they cope with a weaker economy and some restrictions on credit expansion.

 The latest national credit trends report from Equifax Canada, released early Tuesday, says the average credit card debt fell in 2011 by 3.4%.

 Despite that improvement and a reduction in consumer bankruptcies last year, overall debt continues to rise – though much more slowly than before.

 “The only product that has shown a reduction in balances over the course of 2011 are credit cards,” says Nadim Abdo, Vice President of Consulting and Analytical Services for Equifax Canada. “That in large part is due to changes in legislation and some restrictions placed on credit card issuers.”

 Click here to read more from the Globe and Mail.

 The Tradeoff With Big Prepayment Privileges

 Most decent mortgages come with at least 10% lump-sum prepayment privileges.

 Since the average mortgage is about $151,000, that means the typical borrower can prepay at least $15,000 per year in lump sum(s) with no penalty.

 The thing is, most Canadians don’t come close to paying 10% extra on their mortgage over the course of a year. In fact, only 17% of mortgage holders made any lump-sum prepayments at all in 2011. Those who did likely prepaid an average of ~7.8% of their mortgage balance over the course of the year.

 It’s therefore safe to say that most people will never max out their prepayment privileges.

 Click here for the full article.

 Know your rights when you share a property

 If you buy a home with your spouse or another person this year, you’ll have to decide how to take title together. It can be either as a joint tenancy or tenancy in common. It’s important that you first understand the main difference between these two options before making your decision.

 In a tenancy in common, if one of the owners passes away, they can leave their share of the property to anyone they choose. But, in a joint tenancy, there’s a principle called survivorship. What this means is that if two owners are joint tenants and one dies, their share automatically passes to the surviving joint tenant upon death. They cannot leave it to anyone else in their will.

 There are some tax advantages in holding property as joint tenants as it can reduce estate taxes. David Ramnarine and his common law partner, Meera Ragoo, bought a home together at 840 Eighth Street in Mississauga in September 2007 and took title as joint tenants. David passed away in July 2010. His share of the home automatically transferred to Meera, by the principal of survivorship.

 But, his mother, Joyce Ramnarine, produced an agreement that was apparently signed by David in 2009, where he said that he was holding all of his property in trust for his mother. Joyce claimed that this agreement broke the joint tenancy, since it proved that David never intended to hold the property solely with Meera. Meera claimed that she never was told about the agreement – it was only produced after David passed away and that the signature was a forgery. The agreement was never registered against title to the property.

 Click here to read more in The Star.

 Reverse mortgages hit record high

 Canadians looking for sources of cash in their retirement are tapping into reverse home mortgages in record numbers, according to data released this week.

 The parent company of HomEquity Bank, the country’s sole provider of reverse mortgages, said that in the fourth quarter of 2011 it closed a record number of reverse mortgages worth $67.2 million. That’s up 42% from the fourth quarter of 2010.

 On an annual basis, the value of reverse mortgages reached $239 million last year – a 16% rise over the previous record set in 2010.

 “Since its inception 25 years ago, HOMEQ Corporation has analyzed the demographic wave of Canadian seniors and how our business can address these trends,” Steven Ranson, the company’s President and CEO, said in a release. “Now, the wave is here and we are meeting seniors’ needs for improved cash flow in retirement. This tremendous market demand is fuelling our strong growth in originations, while our disciplined approach to operating the business is resulting in healthy net income growth.”

 Click here for more details in the Globe and Mail.

 RRSP Loans vs Cash Back Mortgages

 The deadline for making a 2011 RRSP contribution is February 29th, 2012.

 Making that contribution can save you anywhere from hundreds in taxes to more than $10,000 depending on your province and tax bracket. Plus, you’ll enjoy the tax-deferred long-term growth of that investment while it sits in your RRSP.

 The challenge for some, however, is not having enough money to make an RRSP contribution. According to Investors Group, 58% of those not investing in an RRSP say it’s because they don’t have the funds.

 One possible solution if you’re cash strapped is an RRSP loan. Another is a cash back mortgage.

 Click here to see’s list of pros and cons for both options.

 How dangerous are lines of credit?

 The Globe and Mail’s Rob Carrick recently sat down with The Wealthy Barber author David Chilton to discuss the dangers of lines of credit.

 Click here to view the Globe and Mail’s short video interview.