I receive calls every month from people who want to know how to qualify for a mortgage because they were declined by their bank. In many cases I can help them and in some cases they have to wait – but we identify what they need to do to get in a better situation to qualify.

Here are the top 5 reasons why people don’t qualify for a mortgage with their bank and come to see an independent mortgage specialist.

#5 Lack of a Down Payment or Equity

With the end of cash-back mortgages offered by the banks, borrowers now have to come up with the down payment on their own. They can receive it as a gift from a family member – but no more cash-back from the lender used for down payments. Minimum down payment is 5% for the purchase of an owner-occupied home or 20% for a rental property. Minimum 20% equity in the home if it is a refinance. This will help you qualify for a mortgage.

#4 Insufficient Income

With the high price of homes in the Vancouver area, sometimes people simply don’t earn enough money to manage a mortgage payment, property taxes and strata fees along with existing consumer debt and still have a life. For some home buyers, the only other option is to access more money for a down payment (gifted) or try to purchase a home with suite income or look at alternative lenders who accept room and board and other sources of income to help you qualify for a mortgage. In some instances, home buyers will look for someone else to go on title to add income to the application.

#3 New Mortgage Rules

For those with less than 20% down payment, the new mortgage rules are adjusted to the debt servicing ratios and amortization for borrowers. The new rules for debt servicing apply to those with good credit scores and allow for a max of 39% (gross debt servicing – GDS) of gross monthly income to cover the mortgage payments, property taxes and 50% of the strata fee. In addition a max of 44% (total debt servicing – TDS) of gross monthly income is allowed to cover the same and other consumer debts such as loans, credit cards and lines of credit. The maximum amortization was also reduced from 30 years to 25 years – effectively tightening qualification for borrowers equivalent to a 1% interest rate hike.

#2 Credit Issues

Some people don’t realize if they are late on credit card payments, their mortgage or loan payments the lender will update the credit bureau agencies and the late payments will reflect on their credit report, lowering their credit score. Other items can also effect credit scores such as a collection (if you didn’t pay that parking ticket or fitness membership fee they can send to a collection agency) and those marks on your credit report make your score drop like a rock. Going over your credit card limit, and applying for credit often requiring your credit report to be pulled by the bank, auto dealership and credit card companies will lower your score. Finally, consumer proposal and bankruptcy will greatly impact your score, which can stay on your report for up to 7 years if real estate was involved as is the case with bankruptcy.

#1 Too Much Debt

There are a growing number of consumers doing – well – too much consuming. Credit card debt is on the rise and over use of lines of credit are putting some people in a debt overload situation. Some pre-home-buyers go out and purchase that amazing new truck, along with a large monthly payment, which pushes their total debt servicing (TDS) ratio over the limit. Nice new truck – no home with a garage. Some home owners have so much consumer debt that they are unable to refinance their home to consolidate the mortgage and the credit card debt because the amount exceeds the maximum loan to value allowable (currently 80% of the value of the home) and if housing prices stabilize or drop in some areas – this makes it more difficult for home owners to qualify for that new mortgage and lower payments. Paying off your debt will help you qualify for a mortgage.

Do you want more information for your next mortgage? Contact any of us here at Dominion Lending Centres – we’re here to help!

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability .

You must be considered a first-time home buyer.

You are not considered a first-time home buyer if you or your spouse or common-law partner owned a home that you occupied as your principal place of residence during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal. (Dec 31, 2010 or prior for anyone buying in 2015)

However, if you are a person with a disability, or you are buying or building a home for a related person with a disability or helping such a person buy or build a home, you do not have to meet this condition.

In addition, ALL of the following conditions must apply:

• You must enter into a written agreement (Offer of purchase) to buy or build a qualifying home. The agreement may be with a builder, contractor, realtor or private seller.
• You intend to occupy the qualifying home as your principal place of residence. When you withdraw funds from your RRSPs under the HBP, you have to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building it. Once you occupy the home, there is no minimum period of time that you have to live there.
• Your repayable HBP balance on January 1 of the year of the withdrawal is zero.
• Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal.
• You are a resident of Canada.
• You buy or build the qualifying home before October 1 of the year after the year of withdrawal.

Your RRSP issuer will not withhold tax from the funds you withdraw if you meet the HBP conditions and complete Form T1036.

You can withdraw a single amount or make a series of withdrawals throughout the same year and January of the following year, as long as the total of your withdrawals is not more than $25,000.

If you buy the home with your spouse or common-law partner, or other individuals, each individual can withdraw up to $25,000 from his or her RRSP, provided each of you meet the HBP conditions.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP.

Your first repayment is due the second year following the year in which you made your withdrawals.

You have up to 15 years to repay the amount that you withdrew under the HBP. Generally, for each year of your repayment period, you have to repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSPs.

Courtesy of Len Anderson, AMP – DLC Origin 

In the spring of 2012, after a 15-year roller-coaster ride on the stock market (huge gains and sharp drops) with a net gain of less than 2% on the total contributions made, it was decision time. My wife and I took a hard look at our RRSP investment ‘strategy’, such as it was. Our conversations about investing always came back to the one area in which we always had great success: Vancouver real estate.

We had always felt a greater amount of control and flexibility over our real estate investments than we ever had over mutual funds parked in the equity markets. Our rock-star tenants’ departure clearly had less impact on the value of our investment than the departure of a rock-star CFO can have on a company. Overall movement in the value real estate tends to be gradual and somewhat simpler to predict than that of a corporate share certificate.

There is a certain confidence that is hard to duplicate around a brick and mortar investment as opposed to ones and zeros.

In the stock market, a loss of confidence can have an immediate and real impact on your net worth within minutes. Even a false Tweet can trigger a tumble.

Tweets do not rock the value of real estate. The impact of market sentiment is slower and less radical because the product itself is far less liquid. Thus, it is far more difficult to allow emotion to drive buying and selling decisions and, accordingly, values in erratic short term patterns.

This is like slow-cooking. Things happen gradually.

Based on these and other conclusions, my wife and I took what felt like a pretty radical step and cashed out our entire RRSP in the spring of 2012 and invested it all in a piece of real estate.

I plan to update this post with each passing year.

In the spring of 2012 we put $60K down on a $240K townhouse. Here are the numbers as they stand today:

We now have a positive cashflow of $400.00 per month, which I liken to a 6% ‘dividend’. The $4800.00 of positive cash flow in our hands each year represents a 6% return on the $60,000 invested in the property.

This money remains in the holding corporation’s bank account as a buffer against vacancies, special assessments and future interest rate hikes. Also worth noting is that over time the rents charged will continue to rise with inflation, and of course the mortgage balance will decline, setting us up for our own indexed pension income of sorts.

… AND VANCOUVER REAL ESTATE

This $4800.00 return is over and above the mortgage principal paydown.

The mortgage principal paydown over the first three years has consistently been $3,600.00 per year. Another 6% return on the initial investment.

This gives us a 14% annual return, assuming the market remains stable and values flat. For three-bedroom townhomes in Port Moody, I have little doubt population growth and inflation will ensue. More likely we will see appreciation in the asset of at least 1% per year.

1% per year on the asset itself is an effective return of 4% on the initial investment.

Since purchasing the property, we have actually seen sales in the complex reflecting about a 3% gain per year on the value, or 12% based on our investment.

Collectively we stand to see a return for 2015 of 28%.

How do we sleep at night with tenants in our lives? Quite well in fact.

Vacancy rates on three-bedroom units in particular, which ours is, are extremely low. With the 2009 – 2013 rounds of mortgage guideline changes, which pushed many Lower Mainland first-time buyers from the market, vacancies are likely to remain extremely low as many of them will be forced to rent for additional years, waiting for their incomes to rise and down payment savings to grow.

Finding positive cashflow in the Lower Mainland is not easy, but it can be done. Arguably, if one is at least breaking even on a monthly cash-in-over-cash-out basis, then the math on the mortgage principal pay-down by the tenant still represents potential for tremendous gain over the long haul.

Real estate investing is mostly boring, as it should be. It is a ‘get-rich-slow’ proposition. Slow and boring, which, as I am now in my forties, I can live with. (At least, more so than when I was in my twenties—back then I was overexposed to late-night TV personality Tom Vu: ‘A lot of your friends will tell you, “Don’t come to the seminar. It’s a get-rich-quick plan.” Well, tell them, it is a get-rich-quick plan because life is too short to get rich slow.’)

Thanks for that, Tom. Life as it turns out is not quick… it is long and slow.

Too bad I cannot go back in time and advise myself that getting rich slow, over say 20 years, would have been fine. Of course today we use more refined vernacular and it is all about ‘building wealth’.

So get out there and build some wealth.

FULL DISCLOSURE

There is one other facet of our overall investment strategy worth noting: we personally have the benefit of being incorporated, and thus we do have some diversification implemented around our investments via a Corporate Asset Transfer strategy which in many ways acts like an RRSP, but thankfully never an RRIF. However I will let another expert pick up that topic in depth.

The bottom line is that, although we do in fact have an investment vehicle in our lives similar to an RRSP, our main focus moving forward will continue to be real estate, as year over year the real estate investments continue to trump anything we attempt in the equities market.

Some may see this as the biased comments of a person deeply connected to the real estate market; others may see it as biased from 24 years of owning investment properties and having 24 years of success with them on a personal level. The truth is perhaps a combination thereof.

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts 

In hot real estate markets, it’s common for both buyers and agents to consider having no subjects to financing when making a purchase offer.

It’s important to realize, however, that no professional is in a position to legally advise you to enter into a real estate transaction with no subjects, especially no subject to financing.

This is a personal choice that you must carefully consider. Understanding the risks involved will help you make an informed decision.

Keep these three points in mind when making the choice with which you will be most comfortable:

1. Regardless of whether you have secured a rate hold / pre-approval, the lender has the right at any time to decline the property. This can occur for a number of reasons including but not limited to: value, condition, wiring, tanks, strata documents, zoning, work completed without permits, full fix completed without proper documentation, rental components or remaining economic life. Lenders only review property details once an accepted offer is in place – not when you’re simply considering making an offer or during the time you’re going back and forth as part of the negotiating process. They then review the contract, property disclosure statement (PDS) and anything else accordingly.

2. Even if a lender has approved you based on credit and income, if your scenario has since changed and they request further documentation (eg, you haven’t received enough overtime, you spent more on your credit cards, your employment/credit has changed or there was something you may have forgotten to disclose), they have the right to alter or cancel the approval. All lenders only do a full review of your credit and income once you have an accepted offer in place. They only view an application for rate hold or pre-approval purposes and verify once an accepted offer is in place with the right reserved to disregard the pre-approval, or even an approval at any time for the above reasons while doing their due diligence, right up until closing.

3. Who is in the best position to go into a purchase with no subjects? Borrowers who:

– Are overqualified for the purchase

– Can afford a higher payment if the original plan doesn’t work out with any of the above points

– Have their own cash (not a gift pending qualifications) far in excess of what was intended

– Have income that far surpasses what is required

As Accredited Mortgage Professionals, it’s our responsibility / fiduciary duty to be honest and transparent, and give you the power of choice with clarity on all the considerations to anticipate scenarios that may arise, so you can make the best choices for your family. It would be much easier to be a yes person and cross our fingers that none of this comes up, but it’s not how a professional should guide you, as you come to trust in our clarity, knowledge and experience. When you have this expertise coupled with the right real estate agent, they too will ensure you take the emotion out of the purchase, and protect you accordingly with subjects you’re comfortable with for your personal circumstances so your choice is calculated, clear and comfortable long term.

Courtesy of Angela Calla, AMP – DLC Angela Calla Mortgage Team 

Before home buyers go shopping for a home, it is important to know what you can afford before you buy. It is becoming more common for home buyers to make an offer, get declined for the mortgage and the deal collapses. This is stressful for everyone involved, including the buyer, the seller and the realtor. Make it easier on yourself by understanding what you can afford and all your options first.

Always start by asking yourself “How much do I think I can reasonably afford to pay for my mortgage, taxes, strata and heating costs per month?” Then we can use that number and work backwards to see what you can afford within your budget. This approach can help to ensure that your monthly housing costs meet your means.

As a mortgage professional, we consider three things for mortgage approval, your credit history and score, your ability to make the mortgage payments (gross monthly income) and your monthly debt obligations (loans, credit cards, other mortgage payments, child support,etc). I also suggest buyers have a monthly amount in mind they feel comfortable paying for their mortgage, property taxes and strata fees. For example if your budget allows for $2,000 per month after we allow for $200 for property taxes each month and $300 for strata fees each month we have $1,500 per month left to cover the mortgage payment.

Even if you think you can afford that payment each month, the lender uses two simple calculations to determine the maximum mortgage and payment you can actually qualify for. The first calculation, your Gross Debt Service Ratio (GDS), requires your monthly housing costs (mortgage principal and interest, property taxes, and half of the monthly condo fee if you are purchasing a condominium) should not be more than 32% -39% of your gross monthly income. The second calculation requires your entire monthly debt load (including housing costs and other debts such as car loans and credit card payments) not exceed 40%-44% of your gross monthly income. This figure is your Total Debt Service ratio,(TDS). The range of debt servicing will depend on your credit score, so it is wise to estimate on the lower numbers to start. To qualify for $2,000 per month in payments you would need to earn at least $6200 per month gross (before taxes), which represents 32% of your income for the GDS. Any additional debt for loans and credit cards should then not exceed the 42% TDS limit.

Once you determine your fit within these limits, you can get some idea of your monthly payment. I can then determine the maximum mortgage added to your down payment to set the maximum purchase price and you will know what you can afford before you buy to avoid any last minute pitfalls in buying your home.

The mortgage pre-qualification process is as simple as completing an application online via our Dominion Lending Centres website and then a conversation to review – approval can happen 0n the same day and you can be on your way.

Courtesy of Pauline Tonkin, AMP – DLC Inovative Mortgage Solutions 

This is a sequel to This vs That, which I published last week on the Dominion Lending Centres website.

A good idea always has an encore presentation. Heck, Rambo was so good they made another four movies. Here are a handful of additional terms used in the real estate and mortgage industry and hopefully the explanation will provide some clarity.

Mortgagor vs Mortgagee

The mortgagor is the borrower and the mortgagee is the lender.

Portable vs Assumable Mortgage

The act of porting a mortgage allows the borrower to transfer the terms, conditions and interest rate of the current mortgage to the home the borrower would like to purchase. There is sometimes a blend and extend that occurs as well. An assumable mortgage allows the purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.

Deposit vs Down Payment

The deposit is a sum of money negotiated in a real estate purchase/sale transaction by the seller and buyer upon removing subjects. It’s a sign of following through with the transaction in good faith. The deposit is then held “in-trust” with the Realtor and transferred to the lawyer for completion. The down payment is a sum of money required by the lender to seek financing to purchase the subject property. The percentage of down payment may vary from scenario to scenario as lender policies can shift with the economy. The deposit is a portion of the down payment. For example, if the purchase price of the home is $450,000 and the buyer is putting $45,000 (10%) down to secure 90% financing, the deposit is $15,000 (held in “in-trust”) upon removing subjects, then only $30,000 is required to be paid to the lawyer at completion.

Closed vs Open Term

A closed mortgage that is terminated prior to the maturity date will be levied a penalty, either 3 months interest or an Interest Rate Differential calculation. An open mortgage, if terminated prior to maturity, will not be charge a penalty at all. One could have a Fixed Closed or Fixed Open mortgage and the same applies to variable – one could have either an open or closed term.

Term vs Amortization (Life of the Mortgage)

The term of the mortgage represents the duration of the contractual obligation to the lender. Terms range from six months to five year with some lenders offering seven and 10 year terms. Amortization or the life of the mortgage is the process of repaying a loan by way of periodic payments. These payment amounts are a combination of principal and interest. The most common amortization schedule that borrowers follow is 25 years. The Latin word admortire means “to kill.” Most borrowers want to kill their mortgage as fast as possible.

Chattel vs Fixture vs Real Property

Chattels are articles of personal property like TVs, cars, computers, bikes etc. A fixture is a chattel that has become attached to real property over time. There is a 2 part test to consider the intended and purpose of affixation. Real property generally consists of land and whatever is erected, growing upon or affixed to the land.

Freehold vs Leasehold Property

The owner of the freehold interest has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase. In some cases, you might purchase the right to use a residential property for a long, but limited, period of time – this is called a leasehold interest. Leasehold interests are frequently set for periods of 99 years.

Will there be a This Vs That Volume 3 – stay tuned to find out!

Courtesy of Michael Hallett, AMP – DLC Producers West Financial 

Since the September Bullying Ends Here presentation in Whistler, BC, where I had the opportunity to personally meet so many of our Dominion Lending Centres family members, a lot has happened.

I am in daily contact with many of the DLC offices throughout the country who are all interested in planning fundraisers, community events and reaching out to their local schools to raise awareness for Bullying Ends Here.  Some offices are planning to have the program come to their area to share with their colleagues.  It seems that our connection has really spurred a lot of interest in recognizing that we truly can make a difference.  We can not only change lives, but SAVE them.

As we all know, one of the biggest difficulties for charities is fundraising. When I started this journey, I committed to doing all that I could to have this presentation ‘free’ for schools.  I didn’t want money to stand in the way of the program reaching a youth who might feel alone, who might be struggling in silence, who might be contemplating doing the unthinkable.  I wanted to do what I could to be able to help and just hope that, in time, the funding would just happen.  When Dominion Lending Centres came along with their National Founding Sponsor support, I had no idea how amazing this new ‘chapter of the book’ would be written. Although we have just begun our journey together, I am confident that we will truly save lives.  In fact I know we will.

When I went to Whistler, I knew it would be a fun time.  I just had no idea that it would change my life.  Even a month  later, I still receive emails daily from DLC asking how they can help, their desires to get involved and their own personal stories.  I am humbled to say the least.

I want to share with you a quick story of a youth that reached out this week.  They wanted to thank me for coming to their school in BC back in 2013 and how they think about the words I said every single day.  It took the youth until this week to have the courage to share their own struggles and their courage to overcome them.  This person went so far as to say that they have stopped self harming and the thoughts of suicide have subsided because of the presentation.  This presentation was over two years ago and yet this individual still remembers the words that were spoken and held them close to their heart, knowing that I (and the program) would be right here for them anytime they wished to reach out.

Of course I have since responded and can proudly say that they are still here with us.  That is now 33 young people that I am so very proud to say are still here because of my story.

I am have just left on a 15 day, 15 city tour that will include 4 Provinces and 22 presentations. All in all, I should present to close to 10,000 youth and adults along the way. Manitoba, Ontario, Nova Scotia and New Brunswick……here I come. As you can see, the program is stronger than ever!

You know, I have always realized that I would not be able to change the world, but that if I could change just one person’s world then it was all worth it.  The truth of the matter is that this program is working.  I have never been more inspired as I am currently, and to now realize that I have all of the love and support a person could ever need with a family such as DLC by my side, I am starting to think that we just might be able to change the world!

Courtesy of Tad Milmine, Founder, Bullying Ends Here 

I have heard from many people that mortgages are boring. I completely agree! If I was building a rocket or a doctor saving a life, that would be exciting. But I don’t build rockets and I’m not a doctor. I just set up mortgages. They’re uneventful, and require a large amount of money you have to pay back.

Like most people, you’re probably falling asleep because it’s a topic that’s so uninteresting to so many people. Now most people love to talk real estate. That’s different. It’s rare for me to be at a party or family gathering where we’re not talking real estate. Real estate (especially Vancouver real estate) is and will continue to be a hot topic. As soon as the word “mortgage” comes up, get that full glass of wine, grab the pillows and make room on the couch cause it’s a snoozefest!

Now for being such a boring topic, it can be one of the most impactful topics in your life. It should be! It’s probably going to be the biggest debt you’re ever going to have. Why am I telling you something that you already know? Well it’s because I, as a Mortgage Broker, want you to pay off your mortgage as fast as you can. I’m not a bank so I don’t want you to pay as much interest as possible. I don’t want you to unknowingly take more money out of your pocket, your spouse’s wallet, or your child’s wallet and give it to the bank.

I want you to pay down your mortgage faster. I want you to save money. I have the knowledge and tools to do that. This is where the exciting part comes in. What if you paid your mortgage off five years sooner or ten years sooner? Think about all of the stress of having a mortgage just vanish. You can buy more things, go on more trips, etc. Now that’s exciting!

This is important as, just like in any financial plan, you should talk to your Mortgage Broker at least every year to see if your mortgage is still on the right path or if we need to make tweaks to it. The information that we provide is completely unbiased as we’re not tied in to any one bank or lender. Life changes. Families grow and families shrink. There are good times and bad times. We want to minimize those financial impacts and we can.

So no matter what, have a DLC Mortgage Broker go over the “boring” part of your finances annually. You may prefer to watch the grass grow but just an hour a year (did I mention that this service is free?) with your DLC Mortgage Broker can save you thousands of dollars and help get rid of that mortgage faster.

Courtesy of Joe Cutura, AMP – DLC Origin Mortgages 

Beware of the term PRE-APPROVAL!

Here are some facts:

• Pre-approvals mean something different to every mortgage professional and lending institution
• For mortgage approvals both the applicants AND the property they are buying need to be adjudicated and approved before funds are advanced…detailed borrower information and documents are typically required for a full pre-approval, however property info is seldom available. For this reason a full blown adjudicated pre-approval is very difficult to obtain
• Many lending institutions will not adjudicate pre-approvals, and many others charge rate premiums to do so
• Applicants’ assets, liabilities, and income need to be verified in writing before a mortgage can be approved…many mortgage agents don’t even pull credit or verify employment and down payment before issuing a pre-approval
• For a high ratio mortgage (less than 20% down), both the lending institution AND the default insurer must approve the lender and the property….default insurers will only adjudicate live applications
• Rate holds and pre-approvals are different everywhere….rate holds seldom include any form of verification or viewed documents
• In a rising interest rate environment, a previous pre-approval may no longer be acceptable due to excessive debt service ratios based on the current higher rate
• For very long closings over 90-120 days, assets, liabilities, and income may need to be fully verified again prior to closing
• Approved mortgage amount is always based on the lesser of the purchase price OR the appraised value…any shortfall from an appraisal needs to be made up by client

We here are Dominion Lending Centres can help sort through this mine field, and provide you with meaningful feedback and information for your mortgage needs.

Courtesy of Tom Neeb, AMP – DLC Home Capital Solutions

With the Bank of Canada announcement today, have you ever wondered who the Bank of Canada is and what is its role in our economy?

The Bank of Canada is the country’s central bank. Its role, as defined in the original Bank of Canada Act of 1934, is “to promote the economic and financial welfare of Canada. “

The Bank was founded in 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the federal government. Since that time, the Minister of Finance has held the entire share capital issued by the Bank.

The Bank of Canada is not a department of the government but rather a special type of Crown Corporation. The Bank has considerable autonomy to carry out its responsibilities.

The Bank of Canada is responsible for:

• Monetary Policy – the goal of monetary policy is to contribute to solid economic performance and raising living standards for Canadians by keeping inflation low, stable, and predictable.
• Bank Notes – the Bank of Canada designs and issues bank notes that Canadians can use with the highest confidence.
• Financial System – the Bank of Canada actively promotes safe, sound, and efficient financial systems, both within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
• Funds Management – the Bank of Canada provides high-quality, effective, and efficient funds-management and central banking services for the federal government, the Bank, and other clients.

The Bank of Canada was created to be the sole issuer of bank notes and to facilitate management of the country’s financial system.

By having an independent monetary institution it allows for the separation of the power to spend money from the power to create money.

Separating the central bank from the political process enables it to adopt the medium and long-term perspectives essential to conducting effective monetary policy.

The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s key interest rate or key policy rate.

Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.

In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the key policy rate.

The Bank of Canada does not set the prime rate; financial institutions set their own prime rates based on the cost of short-term funds, and on competitive pressures among them. The Bank of Canada influences the cost of short-term funds by setting the target for the overnight rate.

The Bank Rate is the rate at which the Bank of Canada lends funds to financial institutions. It is set at 0.25 per cent above the target for the overnight rate, which is the Bank’s key policy rate. As seen in the past, larger banks don’t always pass the discount along to their clients when the Bank of Canada lowers its bank rate.

All the information gathered here for you was gathered from http://www.bankofcanada.ca/about/educational -resources/fgg/

I encourage you to go to the website or click on the highlighted links to expand your knowledge of our Canadian banking system.

Courtesy of Gerry Puhn, AMP – DLC Mountain View