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"How does the new budget affect your mortgage?!"
2010-03-04 | 22:59:43
(Quoted from the budget release)
The federal budget has just been announced. Below are some of the implications for the mortgage market:
- Pre-payment Penalties: The government will “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally regulated lenders.)
This measure will likely be applauded by consumer groups. Interest rate differential (IRD) penalties have got tons of bad press in the last year.
- Credit Unions: The government will introduce a “legislative framework to enable credit unions
to incorporate and continue federally.”
This, too, could be a boon for mortgage shoppers. If credit unions are allowed to expand beyond their provincial borders, it will add further rate competition, more new products, and cross-border mortgage portability.
- Covered Bonds: The government will “help federally regulated financial institutions diversify their funding sources by introducing legislation setting out a framework for covered bonds. Covered bonds are debt instruments that are secured by high quality assets, such as residential mortgages. The legislation will increase legal certainty for investors in these debt instruments, thereby making it easier for Canadian financial institutions to access this low-cost source of funding.”
- Insured Mortgage Purchase Program (IMPP): “The Insured Mortgage Purchase Program will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has been successful in moderating the impact of the global financial crisis on credit conditions in Canada by providing funds to financial institutions that were then able to continue lending to businesses and consumers. To date, over $60 billion of term funding has been provided to banks and other lenders at a positive spread to the Government’s funding costs. Recently, lenders have not participated as aggressively in the program, as access to funding through capital markets has improved and investor demand for issuance from financing institutions, particularly Canadian banks, has resurfaced.”
The Georgia Straight Newspaper's Article on CMHC Requirements and new borrower qualifications.
2010-02-20 | 12:12:33
Federal government target Canada Mortgage and Housing Corporation rules
On February 16, the Conservative government announced three new measures to make it more difficult for some Canadians to finance home purchases. Finance Minister Jim Flaherty’s news release dealt exclusively with mortgages insured by Canada Mortgage and Housing Corporation, which is a federal Crown corporation.
Just a week earlier, the Fraser Institute, a Vancouver-based right-wing think tank, released a report calling for the privatization of CMHC’s mortgage-insurance business and withdrawing government guarantees from all mortgage insurers. Several directors of the Fraser Institute work in the financial-services sector, which could pick up a part of this business should the federal government retreat from this area.
Make no mistake—this is big business. CMHC vice president Pierre Serré told Canadianmortgagetrends.com late last year that the Crown corporation has $480 billion in insured mortgages. CMHC “securitizes” these mortgages, bundling them into financial products and selling them to banks, insurance companies, and other investors.
Earlier this month, an unnamed senior banker told the Globe and Mail that his industry wanted Ottawa to increase minimum down payments for homes from five percent to 10 percent. In addition, the industry wanted the federal government to reduce the maximum amortization from 35 to 30 years. With a shorter amortization, homeowners would have to make larger monthly payments. These moves would have curbed the overall amount of borrowing for homes, thereby having a negative impact on CMHC’s securitization business.
Flaherty didn’t go that far. Instead, he stated that all borrowers must be able to qualify for a five-year fixed-rate mortgage even if they choose a cheaper mortgage at a variable rate over a shorter term. He also reduced the maximum withdrawal amount from 95 percent to 90 percent in home refinancings. The third measure will force investors to put 20 percent down to qualify for CMHC-insured mortgages on homes that they won’t occupy.
“Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it,” Flaherty stated in the news release.
This came the day before the Canadian Real Estate Association reported that seasonally adjusted housing sales fell 2.8 percent across Canada in January over the near record high of the previous month. The CREA stated that the average residential price in January was up 19.6 percent over January 2009.
Vancouver real-estate marketer Cameron McNeill told the Georgia Straight that Flaherty’s decision to force buyers to qualify for five-year fixed-rate mortgages is like a “short-term Band-Aid”, which could make it more difficult for some first-time purchasers to enter the market. He added that they’re not responsible for the “frothy, hot market”, which the federal government wants to restrain from getting overheated. “The speculative buyers—the ones that I think they’re trying to slow down—they’re putting down more than 10 percent,” he said, noting that developers who presell condominiums usually require down payments of at least this amount.
Canadianmortgagetrends.com praised forcing buyers to qualify for a five-year, fixed-rate mortgage, but added that it wouldn’t make a big difference for those qualifying for variable-rate mortgages. However, it slammed the requirement for 20-percent down payments on speculative housing purchases, saying Ottawa could have adopted different measures, such as changing the rules for net worth or limiting the number of insured mortgages per person. “Instead, the solution was near-draconian, and it will have an effect on the rental stock in Canada,” the site stated. “Will it cause a material rise in rents? That’s a tough call, but it will definitely reduce the supply of rental units and limit Canadians’ investment options.”
Maurice Levi, a finance professor in UBC’s Sauder School of Business, told the Straight by phone that the government wants to slow the housing market, which normally it would do by allowing interest rates to rise. “But that will slow down the rest of the economy,” he said. “They had to be pretty ingenious to come up with a way that makes it more restrictive for capital for the housing market without overdoing it for all the other sectors of the economy that are still pretty weak. I think they’ve done a pretty decent job.”
Refinancing: "we read it in the Financial Post"!
2010-02-18 | 22:02:09
Read what the Financial Post has to say on Refinancing:
Refinancing your mortgage may seem like a tempting idea since interest rates are only expected to rise from their lowest levels in history, especially if you want to consolidate some other debts or are making another large purchase. But there are penalties and the savings may not be as great as you might think if all you're doing is comparing rates online.
The most obvious drawback in refinancing an existing mortgage is that the bank will charge a penalty for breaking what is, after all, a contract. In some cases, the penalty is a set amount agreed upon at the time the mortgage was signed, but banks typically charge either three months of interest or an interest rate deferential, whichever is higher, usually the latter. The interest rate differential is the difference between the existing rate and what was the posted rate-not your actual rate-for the term remaining, multiplied by the principal outstanding and the length of time left on the mortgage.
It's important to understand that the differential is calculated using the posted rate at the time the mortgage was signed, even though your rate may be lower because of a promotion or because you were considered a valued customer. Any possible savings also depend on the existing and new mortgage terms and conditions, the length of time left and the outstanding principal.
"Just taking rates off the Internet or from the newspaper and comparing them to your mortgage rate today doesn't work," says Kevin Moffatt, vice-president, retail products, residential secured lending, at TD Bank in Toronto. "It just doesn't work that way."
Consumers should also keep in mind that the going rate on a five-year fixed-rate mortgage has not changed too much, despite the quick drop-off in the prime rate during the last 18 months. Over the past decade, the five-year rate generally hovered somewhere between 5% and 7%, only dropping to just above 4% recently. That means refinancing today could take less than a point off your existing mortgage.
But taking advantage of lower rates is only one reason people consider refinancing their mortgages before they're due. "A lot of Canadians are refinancing their existing mortgages and paying off their high-interest credit cards, lines of credit and loose debt by consolidating them into a single low-interest mortgage payment," says Gary Mauris, president of Dominion Lending Centres, a broker network based in Vancouver. "This is easier to do today and is extremely prudent in many situations, because the low cost of borrowing makes it more feasible than ever before."
But if consumers don't need the extra cash to make a purchase or consolidate their debts, Mr. Moffatt says they may still want to renew their mortgage early to lock in today's low rate for the future. Some banks call this early renewal a "blend and extend" mortgage because it blends two mortgage rates together and extends the mortgage term. The new rate will be higher than the current rate, but likely lower than your existing rate.
"People aren't going to get that basement rate they see advertised, because, of course, there's an existing chunk of their term at the old rate," Mr. Moffatt says. "It's a blended rate coming into play, but it extends the mortgage out then for another five years."
George Small, co-founder of Kanetix, an online insurance and mortgage comparison service, says it only makes sense for consumers to take look at refinancing if there's a chance to save money. But he advises people to treat the process as seriously as they did when they obtained their first mortgage because they are making another large financial commitment.
"The first thing we recommend to consumers is to get some rates, see what their target instrument would look like in terms of costs at a high level and then work with a professional," Mr. Small says. "There's quite a bit involved with a refinancing in terms of costs. It's not that a consumer couldn't do that themselves, but having professional help, particularly with a refinancing because there is a penalty side to consider, is worthwhile." A quick look on the Kanetix.ca website shows five-year closed rates can range from 3.99% to 5.5%, so it will pay to shop around to compare rates as well as terms and conditions.
If you don't want to refinance, but still want to save some money, the banks typically offer a series of other tactics to lower interest-rate payments over the length of a mortgage. These include accelerated payment schedules, an increased payment amount, shorter amortization periods and making lump-sum payments. The benefit of paying more now is, of course, paying less later when interest rates are higher.
Financial Post
Changes to Mortgage Qualifications - How will they affect you?
2010-02-16 | 17:17:51
How will the new changes affect you? The amount you can borrow against your property, expressed as a percentage of Loan to Value: (divide borrowed amount by the value for the resultant percentage)
Federal Finance Minister Jim Flaherty announced this morning that homebuyers looking to qualify for a government-backed mortgage after April 19, 2010 will need to meet three new requirements. The changes revealed this morning include:
1. Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.
2. Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.
3. There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," Minister Flaherty said in a press release.
Call us to help you caluculate your options when you are ready to refinance!
"Will Interest Rates Go Up?" Read what the experts have to say!
2010-02-09 | 22:30:38
Vancouver Sun December 18, 2009
VANCOUVER — Homeowners are being warned any rise in interest rates later next year risks putting a financial squeeze on the large number of debt-laden Canadians who took out variable mortgages at rock-bottom rates.
This is a particular concern in Metro Vancouver, Canada’s most expensive housing market, where buyers have been drawn into the market in numbers large enough to drive prices back up to near their previous peaks following the recent market correction.
“Canadians are potentially leaving themselves wide open for significant financial obligations once interest rates begin to rise,” the Mortgage Brokers Association of B.C. said in a statement Wednesday.
In the statement, the association estimated that some 40 per cent of homebuyers are taking on variable mortgages.
“There certainly has been more of a trend for people deciding to choose variable rates,” association president Joe Santos said in an interview.
And the mortgage association’s call was on top of a warning from Bank of Canada Governor Mark Carney that Canada “must be vigilant” in containing the threat rising rates would have on increasing the debt-servicing costs for Canadians who have taken on increasing levels of debt.
Carney’s advice, delivered a week after he first voiced concern about the high levels of debt Canadians are carrying, followed from the bold prediction of economist and author Jeff Rubin that the jump in rates could be as steep as three to four percentage points over the next two years as the Bank of Canada raises rates to keep inflation caused by increasing energy costs in check.
That increase could add up to $1,000 dollars a month to the payment on a typical-for-Metro-Vancouver $400,000 mortgage.
“Mortgage rates and debt loads aren’t particularly onerous at today’s interest rates,” Rubin said to Reuters.
“Where the concern comes into the equation is that people strap on record debt levels at today’s unsustainably low interest rates to find out that, two years from now, [when rates have risen], that those housing purchases are no longer affordable.”
Rubin, former chief economist of CIBC World Markets and more recently author of the book Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization, predicts oil prices, already $71 a barrel, will rise to $90 a barrel by the end of the winter and $100 by the end of 2010, which will stoke inflation.
However, interest rates depend on whether or not inflation takes hold quickly, with many arguing that Canada’s still weak economy shows few signs that it will.
Carol Frketich, regional economist for Canada Mortgage and Housing in B.C., said recent figures from Statistics Canada indicate that Canada’s manufacturing sectors are running well below capacity.
Unemployment, she added, also remains relatively high which takes the pressure off employers to raise wages. Both factors, Frketich said, are signs that the economy has room to grow without sparking inflation.
In that environment, “the general outlook is for gradually rising [mortgage] rates, but when you look at where they’re at, they are just incredibly low, that’s no big surprise.”
Cameron Muir, chief economist for the B.C. Real Estate Association, noted that Bank of Canada governor Carney slashed the bank’s key overnight lending rate to a record low 0.25 per cent as a measure to encourage spending in the economy, and promised to keep it there until next June.
However, with the economy’s recovery proceeding slowly, Muir said “it might not be until the fourth quarter of 2010 by the time we see that target, trendsetting rate increase.”
Muir is forecasting mortgage rates might increase 1.30 percentage points on short-term mortgages and perhaps 0.75 of a percentage point on five-year rates by the start of 2011.
That modest increase in interest rates will still dampen sales as they combine with Metro Vancouver’s high prices, he added.
Muir said that Metro Vancouver’s home prices, which dropped as much as 15 per cent during the depth of B.C.’s recession, have recovered almost all of those losses.
Santos said his biggest concern from rising rates mortgage rates is with buyers who purchased homes in 2006 and 2007, when credit was a little more easily obtained and borrowers could get 100-per-cent mortgages, than he is for recent buyers who have taken out variable mortgages.
“I think [steep rate increases] would certainly create some issues for some consumers who were stretched when they initially qualified [for mortgages],” he said.
Recent buyers, Santos said, would have qualified under rules that call for an ability to pay a higher rate than the current variable rate and should have room in their budgets for bigger mortgage payments.
Santos added that good mortgage brokers will be advising clients on when it might be the best time to lock into a fixed-rate mortgage.
And Carney said consumers need to be ready to do that. “When risks are still manageable is precisely the best time to act,” he said.
