Mortgage rate increases at Big Six banks could trigger rise in qualifying rate

By Armina Ligaya

THE CANADIAN PRESS

TORONTO _ Canada’s Big Six banks have all increased their benchmark fixed-rate mortgage rate, a move analysts say could trigger a rise in the Bank of Canada’s qualifying mortgage rate as early as Wednesday, making it more difficult for some to take on home loans.

The Bank of Nova Scotia on Tuesday became the last of Canada’s biggest lenders to raise its posted rate for a five-year fixed-rate mortgage  from 5.14 per cent to 5.34 per cent. They also increased the posted rates for other fixed-rate term lengths.

Such rates are different from the actual mortgage rates offered by banks to borrowers, which are not seeing the same increases. But the Bank of Canada uses the posted five-year fixed mortgage rates at Canada’s biggest banks to calculate the rate used in stress tests to determine whether borrowers can qualify for both uninsured and insured mortgages.

The central bank’s conventional mortgage five-year rate, which is updated weekly, was 5.14 per cent as of May 2. It posts the rate every Wednesday.

“This will raise the qualifying rate,” said Cormark Securities analyst Meny Grauman.

“On the margin, every time that goes up, you’re excluding more people from being able to get mortgages, all else equal… But people have different strategies to bring themselves on side.”

Homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate. And as of Jan. 1, buyers who don’t need mortgage insurance must prove they can make payments at a qualifying rate of the greater of two percentage points higher than the contractual mortgage rate or the central bank’s five-year benchmark rate.

Nearly half of all existing mortgages in Canada will need to be renewed this year, according to a CIBC Capital Markets report released earlier this month.

In late April, TD Bank was the first of the Big Five lenders to raise the benchmark rate, increasing it from 5.14 per cent to 5.59 per cent, due to factors including the “competitive landscape, the cost of lending and managing risk.”

Royal Bank later raised its benchmark rate to 5.34 per cent, followed by CIBC which raised its posted rate for five-year fixed term mortgages to 5.14 per cent. Earlier this month, National Bank of Canada raised its posted five-year fixed rate to 5.34 per cent while the Bank of Montreal upped the benchmark rate slightly to 5.19 per cent.

Mortgage planner and rate comparison website founder Robert McLister said after the recent string of rate increases, he expects the central bank’s minimum mortgage qualifying rate will jump 0.20 points to 5.34 per cent on Wednesday.

Grauman said a higher qualifying rate will make it more difficult for some borrowers to qualify for a mortgage, but expects that some may make some adjustments such as seeking a smaller home as a result. He anticipates that this will have a “small impact” on the banks’ mortgage portfolios.

The mortgage rate increases from Canada’s biggest lenders come as government bond yields rise, signalling higher borrowing costs for corporations. The yield on the Government of Canada benchmark five-year bond was 2.14 per cent on Monday, compared to 1.01 per cent roughly one year ago.

Grauman said there are a number of factors which are driving these increases, including higher funding costs.

“There’s that element which motivates the banks to raise the rates at which they charge their clients,” he said. “But you also have competitive dynamics as well that are at play.”

At the same time, several of Canada’s biggest banks have cut their posted variable mortgage rates, which are more directly tied to changes in the Bank of Canada’s interest rate.

BMO is now offering a five-year variable closed mortgage rate of 2.45 per cent until the end of May.

“Our five year variable rate is reflective of the competitive environment and is a great rate for customers seeking a variable mortgage,” said a BMO spokesperson in an emailed statement.

“Customers that choose this product can also renew to a fixed rate mortgage with the same or longer term at any time with no fees.”

RBC late last month said it will reduce its offered rate for a five-year variable closed mortgage to 3.3 per cent from 3.45 per cent.

TD Bank last month cut its five-year variable closed rate offering for new and renewed mortgages earlier this month to 2.85 per cent which is 75 basis points less than its prime rate. Previously it was 2.95 per cent.

McLister said in a rising rate environment, banks are inundated with demand for fixed rates and these discounts in part reflect banks’ efforts to balance their books.

As well, the margins or profit made on loans on variable rate mortgages will improve if interest rates rise, he added.

Still, the difference between mortgage rates banks offer and their funding costs for a given term, known as the spread, is shrinking, McLister said.

“This is true for both fixed-rate mortgages and variable rates,” he said in an email.

“In short, banks are accepting less profit as competition gets more aggressive for the fewer and smaller prime mortgages that now exist.”

BC Psychologists Speak Out Against ICBC Plan to Label Psychiatric Conditions as “Minor Injuries”

Today’s guest post comes from B.C. injury claims lawyer Erik Magraken

As recently discussed the BC Government, at the lobbying of ICBC, are trying to pass a law reducing the rights of British Columbians who are injured by distracted, impaired or otherwise at fault drivers.

As part of the overhaul ICBC is trying to label all psychological and psychiatric conditions as “minor” injuries, taking away the judicial rights of people who suffer these injuries in collisions and capping compensation for these.

Today the BC Psychological Association weighed in on these proposed laws and unsurprisingly are harshly critical.  In discussing the medical reality of psychological injuries the BCPA notes as follows –

The British Columbia Psychological Association opposes the inclusion of “a psychological or psychiatric condition” in the definition of “minor injury” in Bill 20.  We feel it will be detrimental to the health and care of British Columbians who sustain injuries in motor vehicle accidents.

Under Bill 20, any psychological or psychiatric condition arising from a motor vehicle accident is deemed to be minor, unless it has not resolved within 12 months from the MVA, and also meets, as yet undefined, prescribed criteria. 

BCPA disagrees and takes the positions that:

  • Psychological injuries are not minor injuries. Each individual is unique in their symptoms. 
     
  • It is very difficult to determine the twelve-month outcome of a psychological injury as it may be affected by pain, restrictions in functioning due to physical injuries, and pre-accident history, including prior history of depression, anxiety, substance use, adverse early childhood experiences, including neglect and trauma, poor coping styles, and cultural factors.
     
  • The duration of symptoms after an event is not an appropriate scientific measure of the severity of the psychological injury.
     
  • Psychological conditions may arise at different times after a collision, depending upon a number of factors. Many potentially severe psychological conditions, such as post-traumatic stress disorder, depression, and anxiety, may have an initial onset shortly after, or months after, a collision. 
     
  • Psychological conditions may appear to resolve, only to recur at a later date due to a change in circumstance, prolonged recovery, or a triggering event such as a return to work, a return to driving, or anniversary of the collision. 
     
  • Bill 20 gives Government the authority to make regulations with respect to assessment, diagnosis and treatment of minor injuries (including psychological injuries). Because of the unique circumstances of each individual, psychological injuries do not lend themselves to such an approach. Each individual must be assessed by a qualified psychology professional and prescribed the treatment that will best lead to an optimal recovery for them. 
     
  • If the appropriate treatment is not commenced as psychological symptoms manifest, it may lead to prolonged suffering, delayed return to work, impaired activities of daily living, and in increased treatment and wage loss costs in the long run.
     
  • Removing psychological and psychiatric conditions from the “minor injury” designation will help achieve the goal of people receiving better care and optimal recovery in the shortest time possible.
     
  • BCPA is also concerned with the proposed amendments to the Civil Resolution Tribunal Act.
     
  • Under the Act, the determination of whether an injury is “minor” and the entitlement to benefits from ICBC, is exclusively given to the Civil Resolution Tribunal.
     
  • Those suffering from psychological conditions are ill-equipped to deal with an appeal process on their own.
     
  • It is also unlikely that many of those people will be able to have the assistance of a lawyer in this process.
     
  • This process, online and/or in person, also puts at a disadvantage the elderly, people without computers or computer skills, those with poor English language skills, and those of limited means.
     
  • BCPA applauds this government’s efforts to address the mental health and addictions issues of British Columbians, but classifying psychological and psychiatric conditions as “minor” runs the risk of taking a step back in the treatment of psychological injuries arising from a car accident.

 

BC & Nova Scotia homeowners can now be insured for storm surge damage

Today, The Co-operators announced the addition of storm surge coverage to its Comprehensive Water product, becoming the first and only insurer in Canada to offer it. Waves caused by storms and hurricanes, known as storm surges, present a significant flood risk, especially in coastal regions where extreme weather patterns have noticeably intensified with the changing climate. Until now, storm surges have been uninsurable.

“Overland flooding has been identified as the most pervasive and costliest cause of damage to Canadian homes, yet most are inadequately protected against this growing risk. As a co-operative, it’s our priority to protect the financial security of Canadians. This is why we first introduced overland flood insurance in Canada,” said Rob Wesseling, president and CEO of The Co-operators. “Now, with the inclusion of storm surge coverage, we’re adding another layer of protection and providing peace of mind for those who need it most.”

Comprehensive Water is the only overland flood insurance in Canada available to those at the highest risk of flooding. Homeowners in British Columbia and Nova Scotia can now add this coverage to protect against the most common causes of water damage: overflowing lakes, rivers and creeks, sewer or septic backup, heavy rain and storm surge.

“The insurance industry has a critical role to play in building resilience in Canadian communities and addressing major risks like flooding,” said Paul Kovacs, executive director, Institute for Catastrophic Loss Reduction. “It’s encouraging to see companies like The Co-operators providing risk-appropriate options for coverage, while taking an active role in educating Canadians on their flood risk.”

According to a study by Partners for Action Network, 94 per cent of Canadians living in high-risk flood zones are unaware of their risk. To get a personalized flood assessment, Canadians can visit water.cooperators.ca.

In 2015, The Co-operators became the first Canadian insurer to offer overland flood insurance in Alberta and expanded this coverage to Ontario in 2016. Today, more than a quarter of a million Canadians are covered by the organization’s Comprehensive Water product. The flood model used by The Co-operators is recognized as one of the most advanced in Canada, and incorporates data on elevation, soil, rainfall, river flow, government-controlled defences like dams and channels, and other factors that help predict areas at risk of flooding.

Homeowners can add this coverage by contacting a local Co-operators insurance and financial advisor, using the “Find an Advisor” function at www.cooperators.ca.

About The Co-operators:

The Co-operators Group Limited is a Canadian co-operative with more than $41 billion in assets under administration. Through its group of companies it offers home, auto, life, group, travel, commercial and farm insurance, as well as investment products. The Co-operators is well known for its community involvement and its commitment to sustainability. The Co-operators is listed among the Best Employers in Canada by Aon Hewitt and Corporate Knights’ Best 50 Corporate Citizens in Canada. For more information, visit www.cooperators.ca.

BACKGROUNDER: Flood facts and The Co-operators flood model

Flood facts:

  • In Canada, floods have surpassed home fires as the costliest cause of damage to homes.
  • 94% of Canadians living in high-risk flood zones are unaware of their risk and Less than 30% of Canadians are taking action to protect their property from flood risk, according to a recent study by Partners for Action.

THE IMPACT

  • $79,000The average cost to homeowners that suffered losses during the 2013 Calgary flood1.
  • $40,000: The average cost to homeowners that suffered losses during flooding during the 2013 GTA flood2.

The Co-operators flood model

What factors go into assessing water risk?
Working with the world’s most established and advanced flood risk modeling experts, we created a risk model that enables us to offer water damage insurance that includes overland flooding and risks associated with water, septic and sewer backup, accumulation of water from extreme rain, overflow from lakes, rivers and other nearby bodies of water, and storm surge or waves from a storm or hurricane.

This flood model is recognized as one of the most advanced tools in Canadian flood mapping. It incorporates data on elevation, soil, rainfall, river flow, government-controlled defences like dams and channels, and other factors that help predict areas at risk of flooding.

How is storm surge risk determined?
The risk of storm surge is assessed in many ways. This includes historical water and sea-level rise in coastal regions, digital elevation models and loss mitigation efforts.

Canadians can take action to protect themselves using the following tips:

  1. Inspect plumbing pipes for corrosion or leaks and make any necessary repairs. Avoid discarding fats, oils and grease down drains; they can cause clogs when they solidify.
  2. Install a water damage alarm to serve as an early warning. This will give you a chance to turn off the water to your home and minimize damage.
  3. Installing an automatic back-up pump to your existing sump pump if you have one. Batteries or a generator can be used to power the back-up pump.
  4. Installing a backwater valve.
  5. Install downspouts to direct water away from your home.
  6. Keep foundation and window wells clear of snow so melt water doesn’t accumulate.
  7. Seal any cracks in your foundation walls and basement floors where accumulated water might get in.
  8. Install window wells around your basement windows to keep water out of your basement. Check them each spring to make sure drains aren’t clogged with debris.
  9. Maintain your eaves troughs regularly to keep them clear of leaves, twigs and other debris so they can steer water away from your home.
  10. Consider using a rain barrel to collect overflow water to prevent accumulation around your home.
  11. Keep storm drains clear of leaves and other debris to keep water from accumulating outside your home.
  12. Review rain checklist for simple steps you can follow to adapt to risks during periods of heavy rainfall.

1 2017. “Rising Waters, Difficult Decisions: Findings and Recommendations from the Calgary Flood Project” Mount Royal’s Centre for Community Disaster Researchhttp://www.mtroyal.ca/AboutMountRoyal/MediaRoom/Newsroom/report-unaware-flood-risk.htm

2 A 2014 IBC Survey

SOURCE The Co-operators

The ice storm that wreaked havoc across Ontario and Quebec in mid-April left behind a hefty price tag.

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IBC aims to help CDN homeowners better understand the risk of flooding

 Insurance Bureau of Canada (IBC) today kicked-off a new consumer flood education campaign that will take place this spring and summer in communities in British ColumbiaAlberta and Ontario. IBC “Flood Factor” interactive booths aim to raise awareness of flood risks and educate homeowners on how they can protect their property from flood damage and prepare themselves for emergencies.

*

A recent public opinion poll conducted by IBC found that almost 45% of Canadian homeowners with a ground-level home think they have flood insurance as part of their regular home insurance policy, and 26% don’t know if they have it or not. At the same time, only 37% admit feeling confident in their level of knowledge about what is covered and what is not in their home insurance policies.

“The fact is that most Canadians are not financially protected against flooding, and they may not realize it,” says Craig Stewart, Vice-President, Federal Affairs, IBC. “Climate change is not a future threat – it’s happening now. Over the past three decades we have seen an increase in insured damages, and it is up to all of us – the insurance industry, governments and citizens – to do our part in responding to the effects of climate change.”

The insurance industry and governments have a role to play in educating citizens about the risks associated with floods, and the industry will continue to invest in consumer education such as the Flood Factor interactive displays to show Canadians the steps they can take to protect themselves. At the booths, consumers will see interactive maps that provide a view of residential flood risk, as well as learn how to mitigate that risk. People can also visit http://www.floodfactor.ca/ to test out their knowledge of floods for a chance to win instant prizes.

“Adapting to the impacts of climate change takes a whole-of-society approach,” says Stewart. “It is imperative that we raise Canadians’ awareness of the escalating climate-change risks that we all face. Floods in Canada will continue to happen, and only together can we build a resilient country.”

Key findings of IBC’s public opinion research include:

  • Canadian homeowners think they have flood coverage but are not confident in their policy knowledge.
    • Almost 45% believe they have flood insurance coverage
    • 29% say they do not have coverage and 26% don’t know if they have coverage.
  • Canadian homeowners have taken some action to protect their homes from flooding.
    • 56% have cleared leaves from eavestroughs and other areas around the house
    • 44% have ensured proper lot grading so that water drains away from the home
    • 40% have ensured downspouts extend at least 6 feet from the basement wall
    • 35% have checked sidewalks, patios and driveways to ensure they have not settled and caused water to drain toward the house
    • 27% have checked window water wells to ensure there is no accumulated water
    • 23% have created an inventory of the home’s contents, including all valuables
    • 22% have installed backflow valves for drains, toilets and basement sewer connections
    • 22% have informed themselves and household members on how to shut off electricity to areas that might be affected by flooding.
  • Canadian homeowners don’t feel the threat of flooding.
    • 53% say they are not planning to take any action to protect their homes from flooding in the next several months
    • Only 11% have a disaster safety kit in their homes, and 42% of those who do not already have one say they are not willing to assemble one in the near future.
  • Insurers have a role to play in education.
    • The most trusted source for information on how to reduce the risk of flood in the home is a science or flood expert (61% trust this source)
    • Insurance companies are the second-most-trusted source of information (54%).

About the Research
IBC commissioned Navigator Ltd. to conduct a nationwide online study of 1,200 Canadian residents 18 years of age or older between February 5 and February 23, 2018. The margin of error for a strict probability sample for a sample of this size would be ±2.83%, 19 times out of 20. All sample surveys and polls may be subject to multiple sources of error, including, but not limited to, sampling error, coverage error and measurement error.

Additional Resources

About Insurance Bureau of Canada
Insurance Bureau of Canada (IBC) is the national industry association representing Canada’s private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.

P&C insurance touches the lives of nearly every Canadian and plays a critical role in keeping businesses safe and the Canadian economy strong. It employs more than 120,000 Canadians, pays $9 billion in taxes and has a total premium base of $52 billion.

For media releases and more information, visit IBC’s Media Centre at ibc.ca.   Follow IBC on Twitter @InsuranceBureau or like us on Facebook. If you have a question about home, auto or business insurance, contact IBC’s Consumer Information Centre at 1-844-2ask-IBC.

If you require more information, IBC spokespeople are available to discuss the details in this media release.

SOURCE Insurance Bureau of Canada

To date, 89.5 per cent of funds raised have been spent or committed

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