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CategoryMortgage News

No housing bubble but possible tighter mortgage rules?

Last December, there was a report by CTV that the Federal Government was considering making some changes to mortgage rules if he saw evidence of a housing bubble.  These included increasing the minimum down payment from 5% to 10% and shortening maximum amortizations to 30 years from 35.

Today, the Globe and Mail reported Jim Flaherty, the Minister of Finance, has no plans to tighten Canadian Mortgage Rules.    He sees no evidence of a housing bubble.  The article goes on to say, the Big Six Banks have been putting some pressure on the Government to tighten mortgage rules.   Are you paying attention Mr. or Ms. Homeowner?  This could affect the value of your home.

Anything that makes is tougher for buyer’s to qualify for a mortgage will reduce housing sales and this ultimately will affect the value of real estate.  But probably the bigger and unwelcome effect is that it will make owning a home more difficult for first time homebuyers.

Let’s not forget that our government took action in October 2008 by reducing the maximum amortization to 35 years from 40.    They also abolished $0 money down and brought in a 5% minimum down payment. Is more action needed at this time?  I don’t think so…what troubles me a little is how the government and the Big Six banks are reportedly having secret meetings that concern mortgage rules.

Affordable housing is part of the Canadian dream.   The record low interest rates were brought in as part of the stimulus plan to help us get out of the recession.  We’re not completely out yet… let’s hope the government takes action that will help Canadians, not hinder their ability to own a home.

My suggestion to the government is to flex some muscle and get the banks to cap or standardize how they calculate prepayment penalties on residential mortgages.  We’ve seen far too many borrower’s with job troubles  that tried to benefit from the record interest rates, only to be hit with enormous prepayment penalties of $10,000, $15,000 and even $20,000.  Let’s help these Canadians.

Canadian mortgage lessons 101

Here’s a good article from the Financial Times about Mortgage Lending in Canada…..and the lessons the U.S. can learn about prudent mortgage lending…  The article points to 3 important differences between the 2 countries.

Here’s another article that points to a great study done recently by the Canadian Association of Accredited Mortgage Professionals (CAAMP).   The study showed that Canadians more cautious than our American friends when it comes to taking on debt.  And they chose fixed rates over variable rates in 86% of the cases…

It’s good to see that Canadians are perceived as cautious people, however, we shouldn’t assume that variable rate mortgages are a riskier proposition… there was a great study done by Professor Moshe Milevsky, in 2001, that compared fixed rates and variable rate mortgage….. in that study, Professor Milevsky concluded that variable rate mortgage borrowers were better off being in a variable rate mortgage….

The study was updated in 2008 and the findings were even better… the variable rate mortgage was a cheaper option than fixed rate in over 80% of the time.   Of course, we each have different needs and risk tolerances… always seek professional advice.. speak with your mortgage broker.

When will rates go up and by how much?

It’s interesting to see all the forecasts in the media these days.   Just last month we saw the bond market go up which caused Experts to forecast for an increase in fixed rates (bonds affect fixed rates, Bank of Canada rate affects variable rates).   Economic recovery was going great…but then we saw some poor job creation data….. and less jobs means less cause for inflation (if inflation is lower than the bank’s target, then the Bank of Canada is unlikely to raise the Bank rate).

Looks like the recovery will be slower and take longer than expected…and this will be good news for borrowers as rates should remain low a little longer now…. maybe no increases til 2011? Financial Post

Renovation Tax Credit ending Jan 31 2010

The Federal Govt’s Home Renovation Tax Credit is coming to an end this month.  According to Bloomberg.com. The tax credit was brought in last year as a way to help stimulate spending and create jobs.   A family could claim up to $1,350 in tax credits per family for projects costing between $1,000 and $10,000….provided the renos take place before February 1st, 2010…..

There was some speculation that the Home Reno Tax Credit would be extended or even continue with some modifications.  According to one conversation with an industry insider.   If you’re looking at getting some renos done, it’s not too late to take advantage of this program.

No increase expected by Bank of Canada

The Bank of Canada meets Tuesday to set the overnight rate, which in turn affects the Bank Prime rate… and as expected, no one thinks they will raise rates… Great news for borrowers.. money remains cheap…   Read the full report. Interesting little aside… the activity for mortgage underwriters has really picked up in the past 3 weeks…  looks like borrowers are taking advantage of the low rates….

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