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The credit crisis that has gripped major brokerage firms by the throat in the US is beginning to have an impact on Canada. The 33 billion tied up in asset based commercial paper (ABCP) is evidence of that. Some of the firms who are deeply involved in the ABCP have begun to seek bankruptcy protection.

The crisis is not as severe in Canada as it is in the US. The impact of a US economy, upon which Canada relies, being choked to dead by the credit crisis casts a long shadow over Canada. The Canadian experience is different from the perspective that the parity of the CAN dollar with the US dollar has moderated inflation. Inflation is expected to be at the lower end of the range.

The flexibility given by low inflation to The Bank of Canada is that it can use interest rate cuts to stimulate the economy without the correspondence increase in inflation. The Bank of Canada has worked to moderate the situation in an even handed and consistent fashion. Rate drops are expected in the April meeting. The challenge to Canadian home buyers and investors is weaving their way through fallout of the US credit crisis.

A slowing economy will drive home prices down. The easy credit provided by the banks is going to go by the wayside as they protect their positions. Careers are made and crushed by the credit decisions loans officers make. You can be sure that they are going to be conservative. The rate spread in consumer loans is at its highest in the last five years. Canadian mortgage buyers watch the mortgage rates like hawks but the consumer side is not as available to the average Canadian.

If you are in the mortgage market then it will be good practice to watch you total available credit and how you pay your credit. Mortgage lenders will look for ways to charge a risk premium on their files. Areas were Canadian borrowers are vulnerable are on the outstanding balances of revolving accounts and the total credit available under those accounts. Count on the banks looking to increase their margins when it is time to apply for a mortgage.

The 35 & 40 amortizations will come with a price. The increase in rate premium will move people back to 25 to 30 amortizations along with that affordability will be impacted and as a result house prices will need to fall to come into line with the new reality associated with mortgage lending.

The lowering of interest rates will be attractive for refinancing, if you are considering refinancing look at the next 3-6 months to get the best rate options..

The next few years will provide outstanding values for the mortgage applicant. But those applicants will need to be careful of their credit and credit standing to get the best rates available in the market.

Duncan Seward is a mortgage broker in BC. He is an expert in second mortgage loans for people with bad credit. He works to help clients refinance their mortgage in order to consolidate their debts.

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