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What’s next for oilpatch hit by ‘perfect storm’?





Alberta oil producers have been struggling with low crude prices for months, but the situation leapt to national prominence this week as prices skidded below $14 US a barrel and some companies began calling for the provincial government to mandate production cuts.

Opinion on whether Premier Rachel Notley should intervene in the marketplace is divided — not all companies agree that the market is failing. But the fact the idea is being raised at all highlights the extraordinary concern now surfacing in the oilpatch.

These kinds of interventions weren’t even brought forward during the 2014 oil price collapse that lead to thousands of job losses.

There’s much at stake for the industry and government, which benefits from taxes and royalties, says Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy. He estimates that the situation is costing the provincial and federal governments, cumulatively, tens of millions of dollars every day.

“It’s a huge loss for all of us,” said Masson, former head of the Alberta Petroleum Marketing Commission. 

“The challenge is, as this loss continues, people are going to have to scale back on the number of barrels produced and it’s going to impact jobs in the near term as we go through this pain.”

CBC News asked Masson — who has three decades of experience in oilsands development, energy marketing and finance — about how the oil sector arrived at this situation and the idea of mandated production cuts.

The interview has been edited for length and clarity.

Richard Masson is the former head of the Alberta Petroleum Marketing Commission and an executive fellow at the University of Calgary’s School of Public Policy. (Anis Heydari/CBC)

Why are we at this point where the price of Western Canadian Select oil is trading so low?

“A few years ago oil prices were quite strong and there was a lot of development in the oil sector. A lot of big oil sands projects were approved. Many of them take four years to construct and employ thousands of people during that process. A number of them have actually started up in the last year or so.

“There’s been a lot of big projects come on stream, bringing on hundreds of thousands of barrels a day of new production. The challenge has been the pipelines that folks were counting on to move that production to market have found either cancellations or delays.

“So we end up with a lot of production coming out of Alberta that doesn’t have a physical way to get to a good refinery that could process process it.”

Canadian drivers are seeing the lowest prices for gasoline in months, as a slump in the price of crude oil has hit gas stations. That slump though has been a big blow for the industry as the price of oilsands crude has fallen to a record low of less than $14 a barrel, sparking calls for production cuts and government intervention. 4:39

Since September prices have really crashed. What’s happened more recently? 

“There’s been refineries go through a process called a turnaround where they have to take down their processing units and typically change out catalysts to make sure everything is going to be safe. That can last a period of weeks. So there are big refineries in the U.S. and the Midwest — in Minnesota for example — that have gone down that typically process a few hundred thousand barrels a day of Alberta’s bitumen production.

“So there’s even less of a market right now than there typically is because of those turnarounds. We have the challenge of increasing production from from new projects, no new pipelines to move it to market, and at the other end of the line some refineries that are not online making sure that the market isn’t even there for what we had intended to produce. It’s made it into a perfect storm.”

How long might this perfect storm last?

“The challenge is we’ve filled up all the storage that’s available and we don’t have any near-term options to reduce that storage. So people are trying to ramp up rail but that’ll take a period of months — to ramp up rail exports. So it’s unclear how long these big differentials of $40 to $50 dollars a barrel are going to last. Clearly we’ve got to get the market back in balance and then start to drive down inventories for us to get back to the normal kind of $12 to $15 per barrel differential.”

We know that some of those big refineries are going to come online shortly. Does that make much of a difference?

“Well, I sure hope it does. I mean we’re losing so much money as a country right now because we’re essentially getting $15 a barrel for our Western Canadian Select production. So if the big refineries coming back online can help that, and if new rail can help, maybe we’ll move into the high $30s but it’s still probably a tough go for the next few months until the supplies from Alberta balances back up with where it should be.”

This situation has led some companies to talk about government needing to step in and mandate production cuts. Has the province done anything like this before? 

“Folks recollect back to when Peter Lougheed turned down the taps in response to the National Energy Program and reduced exports out of Alberta by 15 per cent. However, we haven’t had to do anything like that for a very long time. 

“There are risks involved with trying to turn back production. They would affect different companies differently. So some would be supportive; some would be against. Companies have different commitments on pipelines. If you don’t give them all the production that they are committed to down a pipeline, that’s not a good situation for that particular company. The production reservoirs can be impacted if production is turned down, so you need to plan.

“Oil is traded in the marketplace, and so you’ve got to be careful about any information leaks around these kind of things because people could use it to their own financial advantage. So the government, I’m sure, is giving serious consideration to these ideas, figuring out if it’s possible. But there’s a lot to think about.”

What do you think the likelihood is that we could see mandated production cuts?

“I think it’s difficult to say whether this is going to happen or not. But I do know Alberta has to be very motivated to try and find a solution. As I said, we’re losing — as a province and as a country — so much money right now by selling our product way below market prices that it’s unprecedented.”


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Real Estate

Mortgage insurance vs. life insurance: What you need to know





Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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Real Estate

5 common mistakes Canadians make with their mortgages





This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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Real Estate

Canadian mortgage rules: What you should know





If you’re a new homebuyer seeking a mortgage, or an existing homeowner looking to switch or refinance, it’s important that you’re up-to-date on the new mortgage rules in Canada. Here are some of the top things you should keep in mind if you’re looking for a new home. 

The Canadian Mortgage Stress test in 2021

The stress test was introduced on January 1, 2018, as a way to protect Canadian homeowners by requiring banks to check that a borrower can still make their payment at a rate that’s higher than they will actually pay.  The purpose of the stress test is to evaluate if a borrower (a.k.a. the potential homeowner) can handle a possible increase in their mortgage rate.

For Canadians to qualify for a federally regulated bank loan, they need to pass the stress test. To do this, homebuyers need to prove that they can afford a mortgage at a qualifying rate. For homebuyers who have a down payment of 20% or more, currently the qualifying rate is determined using the Bank of Canada’s five-year benchmark or the interest rate offered by the lender plus 2%, whichever is higher. For homebuyers who have a down payment of less than 20%, the qualifying rate is the higher of the Bank of Canada five-year benchmark rate and the interest rate offered by the lender.

This stress test is also performed with homeowners looking to refinance, take out a secured line of credit, or change mortgage lenders. Those who renew with the same lender will not have to undergo the stress test.

Other new mortgage rules in Canada

As of July 2020, a number of changes were implemented for all high-ratio mortgages to be insured by the Canada Mortgage and Housing Corporation (CMHC).

A high-ratio mortgage is one where the borrower has a minimum down payment of less than 20% of the purchase price of the home. A high-ratio mortgage is also referred to as a default insured mortgage. Let’s break down what recent changes have been made.

Qualification rate

The new CMHC rules will lower the amount of debt that borrowers with a default insured mortgage can carry. Mortgage applicants will be limited to spending a maximum of 35% of their gross income on housing and can only borrow up to 42% of their gross income once other loans are included. This is down from the previous 39% and 44%.

Credit score

The new rules also require the borrower to have a minimum credit score of 680 (good score). If you are purchasing a home with your partner, one of you must have a score of 680. This is up from the previous minimum score of 600 (fair score).

Down payment

Homebuyers are now required to use their own money for a down payment instead of borrowed funds. This means homebuyers are no longer able to use unsecured personal loans, unsecured lines of credit or credit cards to fund their down payment.

Homebuyers with a down payment of less than 20% of the purchase price are required to purchase mortgage default insurance. Properties costing $1 million or more are not eligible for mortgage default insurance.

CMHC and CREA projections

Due to the pandemic, job loss, business closures, and a drop in immigration, CMHC predicted a 9% to 18% decrease in housing prices from June 2020 to June 2021.* However, this prediction hasn’t come to fruition.

Instead, 2020 ended up being a record year for Canadian resale housing activity, according to Costa Poulopoulos, the Chair of the Canadian Real Estate Association (CREA).**

The CREA predicts that all provinces except Ontario will see an increase in sales activity into 2021 as a result of low-interest rates and an improving economy. As for the CMHC, they stand by their original prediction.

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