Canada’s Minister of Finance, Flaherty, surprised many today by tabling a budget bill with a major legislation change. The bill would move Canada Mortgage and Housing Corporation (CMHC) under the control of the Office of the Superintendent of Financial Institutions (OSFI). This would also give the Minister of Finance even more control over CMHC. Here’s an article in the Globe and Mail.
So let’s think about the impact of this proposed legislative change… Over the past 4 years, we have seen numerous changes to CMHC lending policies…
- Maximum amortization has dropped from 40 to 30 years.
- interest-only payment mortgages came and went in 2 years.
- 100% loan to value or no money down mortgages came and went over a 2 year period….. you must now put at least 5% down payment.
- rental property mortgages could be had for up to 100% loan to value and are now not being insured at all.
- Business for self could get mortgages up to 95% for purchases but are now capped at 90% ltv.
- You could Refinance your mortgage for up to 100% ltv and now it’s capped at 85% ltv.
- Variable rate borrowers have to qualify at BIG SIX Bank posted 5 yr rate, compared with discounted 5 yr rate or 3 yr fixed rate. A clear move to force you into the higher 5 yr fixed rate…. supposedly it’s safer to be in a 5 yr fixed rate…(guess the govt has looked at any rate comparison charts for the last 20 yrs).
- Secured lines of credit could be had for up to 90% ltv CMHC insured, then CMHC pulled out altogether leaving the max at 80% ltv and now OSFI wants to cut them back to 65% ltv (this move has everyone confused and puzzled).
Aren’t all these changes enough? How much tighter does the govt need to make it? And all these changes have come prior to Julie Dickson, head of OSFI, being involved…. What scares me and should scare you, is that OSFI has come out and stated they want to cap the amount of equity you can access in your home…. That’s right… OSFI wants to limit your secured line of credit to 65% loan to value. This proposed change is beyond my understanding. It’s so out of line that it defies any common sense. For the first time that I can remember, the govt is telling Lenders and Banks how much they can lend to you for uninsured loans. If you don’t like this, then stand and up and have your say… write to OSFI and tell them you don’t agree…
I can tell you that within my own base of clients, this will affect a great number of people… the professionals, the business for self, the investor that wants to borrow to invest… remember, these are everyday people that want to do better but will now be handicapped by your govt because they can’t access the equity in their homes.. It won’t stop them, it will just cost them more to borrow as they seek other, higher interest credit products…. (Banks will win yet again).
If OSFI does gain control over CMHC, then lookout… we can only imagine the possible changes that they are conceiving.
This week I received a few more examples of the ridiculous penalty calculations that the BIG SIX Banks have been using… If these penalties don’t scare you, then continue to deal with the BIG SIX.
One client has a mortgage with Scotiabank….$109k balance with a 3.60% interest rate and 3 yrs remaining… her penalty to get out is $4,000…! That’s 10 months worth of interest.
Another client has a mortgage with TD Bank…. $213k balance with a 5.35% interest rate and 1 yr remaining… his penalty is over $8,000…..! That’s equal to almost 9 months worth of interest.
If these penalties scare you then keep reading…there is a solution…
There are better alternatives to the BIG SIX Banks…. There are several smaller Lenders, good reputable firms, that don’t use the same formula to calculate your penalty….. and you don’t have to give up anything on rate, terms or prepayment privileges…
Had the Scotiabank client gone with one of my other Lenders, then her penalty would have been around $1340… and the TD Bank client’s penalty would have been around $5140.
Get an unbiased opinion…. Speak with a neutral party…. Call your Mortgage Broker before making any decisions…. If you don’t have a broker, call me…I’ll be glad to help.
We’ve seen a growing trend lately… Customers calling to find out if there was any way to take advantage of today’s record low rates….. If you are buying for the first time or are renewing a mortgage, then the answer is simple… YES.. But what if you are one of the thousands of Canadians that listened to their Bankers and the media or so-called ‘Experts’ and took at Fixed rate mortgage a few years ago.
You have a rate of 4.00% to 5.50% and you keep reading about record-low interest rates in the low 3.00% range….. what can you do? Well, here are 2 recent examples…. These are real clients…. These are real savings…
So where was the Banker in all this? Why didn’t the Banker call these clients to make them aware of the huge savings? In case you didn’t know it, the Banks are a business… and they want to maximize their profit. Don’t ever forget that.
CASE STUDY #1… 6 YEARS REMAINING AT 5.45%
We had a new client contact us with a $350k mortgage… they were with a BIG SIX bank.. their penalty to exit would be $10k… that’s a lot of money, and we don’t like anyone to pay penalties…..but we did the math and found this client a 3.29% mortgage for 5 years… the end result worked out to be a gross savings of $34,000… After paying the penalty, they realized a savings of $24,000 over the next 5 years. WOW! That’s an easy decision to make.. the clients also decided to add the penalty into the mortgage…. imagine savings almost $5,000 per year!
CASE STUDY #2… 7 REMAINING AT 5.25%
Another client had a $235k mortgage… also with a BIG SIX Bank… penalty to exit was $4k…. we also found a 5 yr mortgage at 3.29% for this client… the savings worked out to $23,000…less the penalty, that worked out to $19,000 in savings over the next 5 years!… Again, a no-brainer… Clients moved on this right away… we added the penalty into the mortgage and put almost $4,000 per year, into their pockets.
CAN YOU SAVE ON YOUR MORTGAGE?
We’re seeing more opportunity to save money by taking advantage of today’s low rates…. Don’t wait for your Bank to call. These are just a few, recent examples. If you’ve been thinking about how you can save on your mortgage, then take a few minutes and look into it. Get your mortgage reviewed by an unbiased person. Call a good Mortgage Broker. It could be worth a closer look. If you don’t have a broker, then feel free to contact me and I’ll do some quick math. You might be pleasantly surprised with the results.
We’ll be sharing more of our success stories and tips on how you can save money on your mortgage.
The Bank of Canada met on Tuesday for the 3rd of eight scheduled meetings this year to set the Bank of Canada rate. As expected, no rate change… But there were some language in the meeting that suggests we could start to see rates go up as early as this year…. here’s an article from The Star and reaction from TD’s Economist.
In short, it appears and I stress the word, appears, as though Mr. Carney is warning us that interest rates will be rising sometime soon. But Economists aren’t buying into that warning just yet. There is still too much uncertainly about the global, U.S. and domestic economies. And as long as these concerns persist, then interest rates should remain low.
SOME EXPERTS DON’T BELIEVE ALL THE DOOM AND GLOOM STORIES
It’s true, we have experienced emergency interest rates for over 3 years now… It’s no secret the govt is concerned about Canadians get into too much debt. You’ve heard the figures. The average Canadians owes around 153% of their annual income…. concerns about a housing bubble. But how does that compare with the rest of the world? Here’s an interesting article from the Financial Post’s Andrew Coyne, which says there are other countries that carry 200% and 300% of their annual income in personal debt… there doesn’t seem to be the level of concern about their economies. So why are we in such a panic?
It appears we are at a point where rates could go up but a lot of things would have to fall into place before that happens… it could take 6, 9 months or even a few years before that happens… maybe longer…? Any rate increase is sure to be slow…. Don’t panic… if you see an opportunity where you can benefit from these low rates, then act on it… don’t let the media scare you into inaction or lack of action…..
And as always, speak with a professional that can discuss and explain the different mortgage products and trends… make an informed choice.
So which report do you want to believe….? 2 separate reports… both from April 10, 2012. We have Reuter’s reporting that Canada’s Finance Minister Flaherty, isn’t making any changes to mortgage rules…. Click here for their report. Here’s a quote from the article “I have no present plans to intervene in the housing market in Canada,” Flaherty told reporters in New York.
And here’s another report from Bloomberg.com entitled “Flaherty Says He’s Planning Changes on CMHC Rules.” Click here for their report. Are you confused yet? Well, you’re not alone. The mixed messages are everywhere today. Bank of Canada Carney warning about record high Personal Debt Levels…. you’ve seen this one, I’m sure. We have too much personal debt… and then another report says Canadians are ready to tackle their debt level… and yet another one that say the economy is very fragile and is at risk of slowing down…
It’s hard to know which report is correct. One thing is certain… today’s mortgage rates are at historical lows. The govt and the BANKS don’t want them to last. If you have a house and some debt, or if you are considering buying a house, then why wouldn’t you take advantage of these low rates…? I’m NOT saying to go out and borrow more money for a TV or new car or other luxury items… If you have high interest debt, or higher interest debt than today’s 3.00%+ interest rates, then take action and restructure your finances… Today’s record low rates won’t last… You can still benefit from these historically low interest rates.