The Crown corporation – which insures Canadian mortgages – has had a consistently rosier view of the market than many private sector forecasters.

Canadian banks have recently issued reports probing the consequences of cheap money, and trying to predict whether there is a bubble in prices that will eventually pop and cause prices to crash. They are particularly concerned about Vancouver and Toronto, where some have predicted price corrections of up to 10 per cent because of overbuilding in the condo market.

But CMHC said Monday Canadian markets would “remain steady in 2012 and 2013.

“With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011,” said Mathieu Laberge, deputy chief economist.

Also in the forecast: “Housing starts will be in the range of 164,000 to 212,700 units in 2012, with a point forecast of 190,000 units. In 2013, housing starts will be in the range of 168,900 to 219,300 units, with a point forecast of 193,800 units.

Existing home sales will be in the range of 406,000 to 504,500 units in 2012, with a point forecast of 457,300 units. In 2013, MLS sales are expected to move up in the range of 417,600 to 517,400 units, with a point forecast of 468,200 units.

The average MLS price is forecast to be between $330,000 and $410,000 in 2012 and between $335,000 and $430,000 in 2013. CMHC’s point forecast for the average MLS price is $368,900 for 2012 and $379,000 for 2013. The moderate increases in the average MLS price are consistent with the balanced market conditions that occurred in 2011, and that are expected to continue in 2012 and 2013.”

Steep mortgage discounts from the major banks have all but disappeared from the market, leading mortgage brokers to make sacrifices for market share amid new rumours that another major Canadian bank is going to bring its business completely in-house.

“There are so many options out there besides the banks. [These latest rate hikes] have given brokers an edge because bank pricing is notably higher,” said Rob McLister, editor of Canadian Mortgage Trends.

Mr. McLister reported on his blog canadianmortgagetrends.com that Canadian Imperial Bank of Commerce is rumoured to be putting its discount arm, FirstLine Mortgages, up for sale.

He cited sources that said CIBC would exit the broker channel after the sale.

A CIBC spokesman said it is policy not to comment on industry speculation.

CIBC, which would be joining Royal Bank of Canada and Bank of Montreal in abandoning mortgage brokers, is said by Mr. McLister to have been the largest broker lender in the market in second quarter of 2011 with a mortgage book of $47-billion.

By the third quarter CIBC had fallen to fourth as it pulled back from the mortgage broker channel in favour of selling through branches.

Mortgage brokers have been facing more competition from banks, which are using so-called mobile mortgage specialists who are employed by financial institutions but go into the community to reach out to consumers.

The Canadian Association of Accredited Mortgage Professionals noted in its fall survey that 27% of consumers had obtained a mortgage from a broker in the previous 12 months, up from 25% a year earlier.

It was a month ago today that Bank of Montreal surprised the market by lowering the rate on its five-year, fixedrate closed mortgage to 2.99%. It came with conditions – limits on prepayments and only a 25-year amortization period – but it was the lowest rate in history for the most popular term among Canadians.

The BMO offer was quickly matched: Some banks offered the same rate over a four-year term with fewer restrictions. However, the all-time low rates have since disappeared.

BMO, which advertised its offer as a two-week special, now has a special low rate on a five-year term that is back up to 3.49% – still a discount from its 5.24% posted rate – but nowhere near what Mr. McLister said is obtainable by shopping around. “Since the special ended, we have had improvements in rates from a variety of our lenders,” he said.

“What I hear from my sources is there is less discretion from the bank’s mortgage specialists to lower rates,” Mr. McLister said.

On the discount front, fiveyear fixed mortgages can still be found for as low as 2.99%, if you accept some restrictions. A mortgage with full features like 20% prepayment of the principal per year is closer to 3.19%.

What has put the broker community back in the game are rising bond rates, which have increased the cost of capital for banks and squeezed their profits.

Farhaneh Haque, director of mortgage advice and real estate secured lending at Toronto-Dominion Bank, which had dropped its rate as low as 2.99% for a four-year fixed closed mortgage before increasing it to 3.39%, said competition drove the discounts.

“But bond yields changed and your cost of funds changed, therefore the banks had to [raise rates],” Ms. Haque said.

Kelvin Mangaroo, president of ratesupermarket.ca, said the banks had discounted so low they were squeezing brokers out of the market. “We never expected them to get that low [with rates] and that aggressive,” he said.

Sensing opportunity, brokers are fighting back. Some are willing to eat into their commission to lower rates.

Mr. Mangaroo says brokers in Montreal have gotten into a battle that has seen variable mortgage rates in the city drop by almost 50 basis points off the 3% prime rate.

Peter Aceto, chief executive of ING Direct Canada, which has been pretty consistent in discounting rates and offers a five-year mortgage for 3.34%, says consumers should ensure the product fits their needs before signing.

“Ask questions about the flexibility [of a mortgage product] and if you get the answers you want, take it, don’t come to us,” says Mr. Aceto, adding that was his response to BMO’s 2.99% mortgage.

“If you don’t get answers you like and are surprised by anything, turn and run.”

The bad boy of borrowing products – that’s the line of credit. Recently, the federal government asked the banks to stop blithely handing out home-equity credit lines to people. In his new book The Wealthy Barber Returns, David Chilton writes that credit lines can be an excellent financial tool for disciplined people. “The other 71.9 per cent of Canadians, however, should be careful. Very careful.”

Debt is never more comfortable than it is with the line of credit because money is instantly accessible and the rules for paying it back are slack. You can’t ignore a credit line, but you can stretch repayment out indefinitely. And then there’s the rising interest rate risk. Lines of credit are floating rate debt, and that means you’ll pay more every time rates edge higher.

Here are some tips for managing a line of credit from Stephanie Holmes-Winton, who as president of The Money Finder trains financial advisers to address their clients’ debt problems:

1. If you’re bad with debt, a line of credit won’t save you

Ms. Holmes-Winton says she used to advise people with high credit card debts to switch to a credit line where the interest rate is vastly lower. What she found was that these people simply went and ran up the credit line balances.

“I might as well have been blindfolding these people, spinning them in a circle, handing them a Skilsaw and then wondering why they cut their finger off,” Ms. Holmes-Winton said.

2. Your LOC is not an ATM

Ms. Holmes-Winton has come across people who take out $100 here and there from their credit lines to help them make it through the week. That’s called living beyond your means. You end up with an amorphous mass of debt racked up for purchases that brought only a moment’s satisfaction.

3. Beware the LOC-dependent lifestyle

Having a permanent balance on your LOC is an admission that you can’t afford your current level of spending. Even if the payments are affordable, they’re burning up money that could be used for savings or other more productive purposes. “What I don’t want people to do is get in the habit of paying $10,000 down on their line of credit, and then racking it back up again by $10,000,” Ms. Holmes-Winton said.

She sometimes suggests people take advantage of the comparatively low cost of a credit line to pay off debt at much higher interest rates (credit cards are the classic example). She says that 10 years is the maximum timeframe for getting this line of credit debt paid off. Smaller purchases, say $5,000 or less, should be paid back in 24 months or less, while 48 months is realistic for purchases in the $10,000 range.

4. Turn your LOC into a loan

Home-equity lines of credit often allow you to divide your borrowing into different chunks, or sub-accounts, Ms. Holmes-Winton said. To impose some discipline in repaying a line of credit debt, ask your lender to set up automatic monthly payments to a sub-account that combines both principal and interest. Set the payments so you’ll have your debt paid down over a set period of time.

5. Plan for higher interest rates

Credit lines are priced off the prime rate, which today is 3 per cent. As recently as 2006-07, the prime sat around 6 per cent. That’s the background for Ms. Holmes-Winton’s suggestion that people estimate whether they can afford to carry the current balance on their LOC at double today’s rates.

6. Don’t buy a car with your line of credit

People with small credit lines may find that the cost of buying a car uses up too much of their borrowing room, Ms. Holmes-Winton said. Also, adding the car to a bunch of other debts on the credit line can slow the repayment process. “It’s very easy for the lines to get blurry. We end up paying for these cars for 12 or 15 years and we can’t even tell when we’ve fully paid for them.”

7. LOCs can be a lifesaver

Ideally, you won’t buy things until you’ve saved enough money to pay cash, Ms. Holmes-Winton said. “That works with maybe a new sofa or redoing your bathroom for aesthetic reasons, but it’s not the same reality as if you have a leak in your bathroom that you must fix.”

In money emergencies like this, a LOC is the smart way to borrow. If you can handle it, that is.

___________________

Home equity vs. unsecured lines of credit

If we had one, we would probably do a better job of co-ordinating our savings to reach our goals and pay down debt faster.

Related: How to have that difficult couples and money talk

I realized this after listening to financial author, speaker and money management guru Gail Vaz Oxlade, who delivered an early Valentine’s Day talk for couples. She spoke at ING Direct’s café in downtown Toronto.

Vaz Oxlade discussed the six biggest money mistakes that couples make:

1)      Hiding or lying about purchases.

2)      Not having a budget

3)      Giving one person control over all the finances

4)      Denying the debt

5)      Sweating the small stuff

6)      Not having an emergency fund

Marc and I have been married for 10 years and we are generally on the same page when it comes to money. Neither of us is extravagant and we talk to each other about major purchases. (Right now that’s anything over $200.) We don’t sweat the small stuff. (according to Vaz Oxlade, that means getting your britches into a knot about what your partner does with his or her personal money.)

I have my own emergency fund, and access to credit if I need more. Marc keeps a cushion in his chequing account also helps him maintain a minimum monthly balance and reduce his banking fees. If we work out a joint budget, we could probably come up with a joint emergency fund, too.

Vaz Oxlade, who coaches couples to get their finances in order on her hit show ‘Til Debt Do Us Part, says “It’s really strange that you can talk to this person about what satisfies you sexually, where you want to live, what you like to eat, and to whom we pray, but we won’t talk about money.”

For those in a new relationship, or one that’s getting more serious, Vaz Oxlade suggests seven questions to ask your partner:

1)      Where do you do your banking and how long have you had your account?

2)      Do you have a pension plan?

3)      How much credit do you have?

4)      How much research do you do before you buy something?

5)      Do you keep your paperwork in working order?

6)      Do you have an emergency fund?

7)      Do you have a budget?

A budget is crucial, she says, because it’s a plan for how you are going to use your money.  “It’s not concrete shoes. If something changes in your life, you can go back and change your budget,” Vaz Oxlade said.

Also read:

 Why you should have a couples and money talk
How couples can merge finances easily

Toronto-Dominion Bank, Canada’s second-largest bank, raised its special four-year closed fixed rate mortgage 40 basis points to 3.39%, effective Wednesday, while also introducing a special five-year closed fixed rate mortgage at 4.04%.

The bank also hiked its five-year closed mortgage 10 basis points to 5.24%.

TD had said it would offer the special rates until Feb. 29.

The moves put TD back in line with Royal Bank of Canada, which made the same rate decisions on Monday, coming into effect Wednesday.

RBC had also initially planned to keep its special rates available until Feb. 29

The only difference is RBC already had the special five-year closed fixed rate mortgage product, which it increased 10 basis points to 4.04%.

RBC had first cut its rate to 2.99% in January in response to a similar cut from BMO.

Matt Gierasimczuk, a spokesman with RBC, said the bank had to end its special prematurely because of rising funding costs.

“Our long-term funding costs have gone up considerably due to global economic concerns and, while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” he said in an interview with Bloomberg News on Monday.

With household debt-to-income ratios at at historic highs and still on the rise, the Bank of Canada has repeatedly voiced its concerns over the past year that Canadians are living beyond their means.

“We have expressed on numerous occasions our concerns about rising household indebtedness,” senior deputy governor Tiff Macklem said in a question-and-answer session following a speech in Toronto Tuesday. “The simple fact is that consumers are consuming more than they’re earning.”

With files from Reuters and Bloomberg News

If you want to break your mortgage, there are two ways to calculate the penalty. One uses three months’ interest and the other uses the Interest Rate Differential (IRD).  The bottom line is that with either method, if you want to take advantage of lower interest rates, it’s going to cost you. And it will be a mind-numbing exercise trying to understand the penalties.

I want to take advantage of an offer by the Royal Bank for a 2.99 per cent five-year mortgage. But to do so, I must break my existing $116,000 mortgage with PC Financial.

When the penalty is calculated using three months’ interest, the process is straightforward. Since $450 of my monthly payment goes towards interest each month, the cost is $450 times three months which is $1,350.  But when I use the Interest Rate Differential (IRD) method, the choice becomes difficult because the penalty is more and getting a straight answer on how the penalty is calculated is difficult.

An interest rate differential is the difference between the interest you would have paid over the balance of the mortgage, versus the new rate the bank can charge another client for the remainder of your term. If  interest rates fall, the bank increases your penalty because it can get less from that other client.  This so-called  “reinvestment rate”  is  blamed for the constantly changing penalties.  In my case, during the few days I was  asking questions my IRD penalty at PC grew by $90 because the reinvestment rate decreased.

PC calculated my penalty on the 21 months left on my mortgage as $4,019 or 200 per cent more than the three months’ fee.

It’s almost impossible to figure out the IRD.   Each bank follows its own formula so calculations differ. When I used the Royal Bank calculator , the IRD penalty dropped dramatically – just $2,878. The amount increased by almost $400, however, when I spoke to a RBC mortgage specialist. The calculator omitted the key reinvestment rate.

More terms bandied about when calculating the IRD are “posted” versus “discounted” rates but that’s a blog for another day. Suffice it to say, I’m more confused than ever. The only lesson I’ve learned during this exercise is to read your mortgage contract fine print and get a non-partisan expert to dumb it down for you.

Read also: Roseman: How to reduce the pain when you break a mortgage

My $3,900 mortgage penalty: How do they figure?

Contact Peggy Mackenzie at pmackenzie@thestar.ca or follow her on Twitter: @PeggyMackenzie

At a speaking engagement Thursday night in Scarborough, Ont., Chilton discussed various mistakes people make while managing their financial affairs. Taking out reverse mortgage, he pointed out, was one of them and against the grain of common sense.

     Read: Reverse mortgages soar

“When you take out a reverse mortgage, you’re turning compounding into your enemy instead your friend,” said Chilton. “Experts intuitively think negative of reverse mortgages. All the David Chiltons of the world have spent their entire life telling you to harness compound, not to fight it.”

Things could spin out against the borrower quite quickly, he explained, if interest rates were to shoot up to 10%. Admitting it was a highly unlikely scenario given what the world economy is doing what it’s doing, but Chilton said anything can happen down the road.

     Read: Rate hikes may mean half million foreclosures

“In essence, what you’re doing with a reverse mortgage is spending your kids’ inheritance; that’s really what you’re doing,” he said. Not that he has a problem with that. “Seniors should try and spend a little bit of their money. It’s interesting the number of senior that I have met aged 70-72, trying so desperately to save so they can leave for their 45-year-old kids who have way more money than the senior.”

Chilton, as he is known to do, peppered his speech with wit and humour to drive his message home.

“My father once asked me ‘Dave, I’ve heard of this reverse mortgage idea, what do you think of that?’ I said they are illegal in this country, dad,” he joked.

On a more serious note, he pointed out that seniors don’t want to sell their homes in retirement and downsize. This has led to explosive growth in reverse mortgages.

“In Canada we have an incredible number of people living in quite nice homes, often fully paid for. They are 65 or 70 years old, but they don’t have much cash flow,” he said. “It’s a myth that all seniors will one day sell their homes and move into a much humbler place. People don’t like moving. They are in an established neighborhood [where] they have friends and everything else.”

     Read: No place like home, retirees say

What they want, he said, is to gain access to their home equity without moving. “And reverse mortgage is one way to do it—not in a perfect way, but it’s one way to do it.”

Chilton maintains his negative slant on reverse mortgage in his latest book The Wealthy Barber Returns, in which he discusses the product in a section titled ‘A Controversial Solution’, but tempers his criticism a touch with “don’t rule them out.”

     Read: Surprise! Your client has a second mortgage

“Reverse mortgages have several drawbacks and shouldn’t be used without looking at all the other alternatives carefully. And even when they seem appropriate, a HELOC [a home equity line of credit] may be a better move,” reads a passage in the book.

 “But don’t rule them out—they are one possible solution to an all-too-common problem.”

A number of companies offer debt reduction deals to help provide relief from creditors. But the Financial Consumer Agency of Canada (FCAC) haswarned that by using them, sometimes consumers can wind up in worse financial shape.

Fees, late payment charges and interest can all conspire to sink them into a bigger hole. And missed payments and misinformation can end up hurting their credit rating, which consumers may be desperately trying to protect.

“If an offer to reduce your debts seems too good to be true, it probably is,” FCAC commissioner Ursula Menke said in a statement.

For Blair Mantin, trustee in bankruptcy at Sands & Associates in Vancouver, the recent federal missive marked an unusual and “seismic” wakeup call, but he’s not surprised. His business – guiding people through the consumer proposal or bankruptcy process – has never been busier, but at the same time, Mr. Mantin has watched the debt relief outfits, with limited government regulation, ramp up their marketing. Sometimes they employ Glengarry Glen Ross-style sales tactics on vulnerable consumers.

“In general, and I’m speaking a bit harshly, but it is bald-faced lies at the end of the day,” Mr. Mantin said.

When considering debt reduction strategies, the federal government advises consumers to watch for:

• Aggressive, high-pressure sales tactics over the phone, especially by an unsolicited telemarketer; don’t agree to anything right away.

• Promises to cut large amounts of debt, such as 60 per cent or more. Creditors might not even agree to participate in debt negotiations, much less actually reduce debts.

• Claims there won’t be a negative impact on credit ratings. Some debt reduction companies will delay paying creditors as a negotiation tactic, but in doing so, creditors may report missed payments and in turn, credit ratings suffer.

There are several things to consider:

• Research the company through the Better Business Bureau, as well as with your provincial or territorial government office that deals with consumer affairs. Keep in mind that while these companies generally need to be registered or licensed, it doesn’t mean the government endorses the firm. Some companies might even give the impression they are approved by, or are part of, a government program.

• Be cautious of upfront fees, someTIMES upwards of $1,000, charged even before debt reduction is confirmed, or continuing fees, such as required monthly payments or for cheques issued to creditors.

• Keep in touch with your creditors to monitor for problems, such as late payments or no payments, even if the debt reduction company tells you to cut all contact and let it handle things. Some outfits may even ask consumers to sign over power of attorney.

The experts suggest consumers first attempt to handle the situation on their own.

Ask creditors for interest rate reductions or make payment arrangements. Consumers could approach their financial institutions for a debt consolidation loan.

Financial education can help through credit counselling agencies or debt management programs. Some jurisdictions even have debt assistance programs or links with local organizations. Meet with a trustee. The person can help people file for a consumer proposal, which is a legal process that allows certain consumers with financial woes repay a portion of what they owe, or as a last resort, file for bankruptcy.

For the 12 months ended Oct. 31, 2011, 44,702 Canadians filed consumer proposals, compared with 80,184 who declared bankruptcy, according Industry Canada.

Mr. Mantin now has a number of clients trying to get back on their feet after they said debt reduction companies failed them.

“They are really taking money from folks at their weakest, most vulnerable, and taking it for, I would suggest, no good value because you can get that advice free if you go and see a trustee,” Mr. Mantin said.

Mr. Mecham, creator of YouNeedABudget.com (YNAB) and author of a book with the same title, says that a budget should be the foundation of every financial decision we make and is a liberating financial tool.

Most of us would likely describe budgeting as something other than liberating, like restrictive or monotonous, but he has a point: If we’re in debt or having a hard time increasing our savings, then tracking our finances is the fastest way to a financial fix.

We have a lot of options when it comes to tracking our money online. I’ve tried the Excel spreadsheet, tested out Quicken, and more recently, Mint.com. Mint is a fantastic site for obtaining a big-picture view of your finances, and it’s free. YNAB falls into the online tracking category, but it is solely dedicated to helping us create and stick to our budgets. The theory behind the site’s origins comes from Mr. Mecham’s personal struggles tracking spending when he was a young married student with a baby on the way. As a result he created four budgeting principles that form the basis of the site.

The mission behind YNAB is to help others stop living paycheque-to-paycheque. Generally, we look ahead to what we think will be coming in and plan our month accordingly. On this site, it’s impossible to do that. You can only allocate funds if you currently have them in your bank account. After syncing up your accounts, you can’t budget for a $3,000 month if you only have $2,600 sitting in your bank account. Using last month’s income to support this month’s expenses is back-to-basics money managing. If you don’t have the cash, you’re not getting the item.

The second principle of the site is to “Give Every Dollar a Job.” This is something we all need to consider, especially those of us who want to be more mindful of where our money is going. It’s a zero-based budgeting system where we earmark every dollar sitting in our accounts for something, whether it be rent, taxes, groceries or vacations. We make a conscious choice as to where our money is going. The site will also prompt you to start rainy-day savings categories, another foundational principle, for the predictable upcoming expenses, such as Christmas, and the not-so-predictable expenses, such as a leaky roof.

The final principle “roll with the punches,” corrects the months we are over or under on our estimations. The site’s software automatically takes any unspent money from a monthly category and rolls it into the next month’s balance. If you overspend in a category then by default the site reduces the amount you have in that category for next month. If you budget $200 for meals and this month you spend $240, then next month you have $160. It’s a simple way to keep your spending in check.

Moving to an online system is the easiest way to track finances. If you prefer the “money jar” system, made popular by TV host Gail Vaz-Oxlade, and choose to put a set amount of cash in a number of labelled jars and only stick to the allotted cash for the month, or a simple Excel sheet, then do what works for you. If you haven’t found your ideal system, then check out a free trial at YNAB or explore a site like Mint.com and start tracking your money. If you’re in debt or looking to boost your savings, then budgets are essential. You have to know that what is going out is less than what is coming in, and the best way to do this is to track your flow of money.

Angela Self is one of the founders of the Smart Cookies money group. Readher weekly column on managing debt and saving money at the Globe’spersonal finance site.

While credit risk topped the list of concerns for Canadian bankers participating in the 2010 Banking Banana Skins survey – produced by the Centre for the Study of Financial Innovation in association with PwC – it fell to fifth place in this year’s polling.

More pressing concerns for Canadian respondents were macro-economic risk, liquidity and regulation, with the availability of capital also moving up ahead of any risk associated with their mortgage and consumer loan portfolios.

The survey results lend support to brokers and others who continue to challenge the need for additional tightening of mortgage rules.

The new survey suggests there are other risks to contend with, more specifically thoes from Europe.

“While Canada may be better prepared to handle some of these risks, the issues are intertwined with the global banking system,” says John MacKinlay, national leader of the Financial Services Consulting practice for PwC in Canada. “Everyone is concerned about contagion from more troubled economies, particular in the U.S. and Europe.”

What bankers in this country are less concerned about is the ability of Canadians to manage their mortgage and other consumer debt. That’s even with the real possibility of recession and a resulting correction in housing prices, mostl likely in the condo market.

The survey results may help quiet concerns that the government is now preparing to introduce more changes to mortgage rules, including axing the 30-year amortization for default-insured mortgages.

Both mortgage and consumer credit debt spiked in the third quarter of last year, increasing to $1 trillion and $448 billion, respectively, according to a StatsCan. Those individual debt levels increased even as personal disposable income remained unchanged.

In December, top bankers were among the first to sound the alarm about those new national debt numbers, little more than a month before this recent survey suggesting bankers see little risk of a spike in defaults.