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CategoryMortgage News

Posted Case study

A complete overhaul of Mortgage Lending in Canada?

  FED GOVT KEEPS TALKING ABOUT TIGHTENING MORTGAGE LENDING POLICIES

But why?  Why does the govt believe there is a need for all this change?  That’s the question most industry insiders are asking.  Here are some facts with my thoughts mixed in….  tell me if you see some contradiction between the different branches of the govt or a lack of consistency:

  • Surprise…we don’t have a mortgage default problem… Mortgage arrears in Canada are 0.38% as of January 2012.   In Ontario, the housing hot spot, arrears are only 0.28%.   These figures are very low by anyone’s standards.
  • The average resale price dropped 0.5% nationally.  But resale prices in Toronto, are up around 7.3% in a year-over-year comparison.  But that trend is cooling according to The Canadian Real Estate Association.
  • Inflation isn’t a problem… it’s hovering at 1.9%, well within acceptable levels.
  • Housing affordability hasn’t really changed in 10 yrs according to the RBC housing affordability index and it actually improved in Q4 of 2011 (it’s probably even better this year as interest rates are even lower).
  • Personal household debt is around 153% of income.  That’s a record high number, it’s true, but what are Canadians borrowing for?  Studies tell us it’s not for big screen TVs or trips to Bahamas…  We’re actually investing… in stocks, mutual funds, real estate here and in the U.S.  In fact, we are the biggest foreign buyers in Florida and we are also buying in Phoenix, Arizona in record numbers…. Is buying a second home a bad investment?
  • Did you know that 1/3rd of Personal Debt is non-mortgage debt including high interest credit cards, loans and unsecured lines of credit…. yet, there is little to no regulation for these products…
  • Speaking of credit cards… the arrears rate is just over 1.00%... that’s around triple what mortgage arrears are!  Why isn’t the govt clamping down on these credit products?
  • Record-low interest rates were brought in to stimulate the economy.  Haven’t Canadians played their role to kick-start the economy?  Why does the govt want to punish homeowners now with tougher qualifying rules?  OSFI has even proposed you re-qualify for your mortgage at renewal time!!   How absurd is that?
  • The Bank of Canada wants to raise rates to slow our personal debt growth…   but can’t for fear of slowing the economy…
  • The Federal Minister of Finance, Flaherty, wants to tighten mortgage lending to slow the housing market and reduce the amount of mortgage debt we take on.
  • The housing market accounts for up to 40% of this country’s GDP… all these changes will affect our economy.
  • Business for Self mortgage programs have been eliminated by some banks and other Lenders… making borrowing more expensive for this segment of our population…. by the way, they are paying their mortgages just fine.. there is no evidence suggesting Business for Self borrowers have repayment problems…
  • CMHC opted out of rental property mortgages last year in an attempt to slow real estate investment… so you must come up with 20% down or use equity from other sources for the down payment..

FED GOVT’S LATEST MOVE IS TO PUSH CMHC UNDER OSFI CONTROL

  • OSFI will assume control over CMHC, the country’s national housing agency…. You will have an audit dept overseeing a social program… hmm, I wonder what will happen to CMHC??  The possibilities frighten me and should frighten most Canadians… (more on this later).
  • Minister Flaherty made a comment that maybe the govt should consider selling CMHC…  say goodbye to a business that nets over $1billion a year.. $16billion since 2002.   Here’s an idea…why not split CMHC into 2 business… bulk insurance business and the traditional low down payment business… wouldn’t that keep the Canadian dream of home ownership alive and also satisfy the auditors, like OSFI??
  • OSFI wants to limit Secured Lines of Credit to 65% loan to value from today’s 80% loan to value…  This one makes no sense and has received harsh criticism from Financial Experts…. scares me to think that it’s even gone from thought to paper to print… what other changes were they considering that didn’t make it to print??

MY SUMMARY OF IT ALL…

In short, the govt wants to keep the economy stable but they are going to make it harder for you and I to qualify for a mortgage….  Yet, there are no changes coming for the most expensive of debts… Credit cards, loans and unsecured lines of credit rules either don’t exist or will not change…  For some reason, the govt thinks it’s okay to borrow at 7% , 8% for unsecured lines of credit and pay 18% to 20% on credit cards, but please don’t borrow for a home, at 3% and 4%??

If we continue to make it harder for Canadians to get a mortgage, then we will have fewer home sales.. Fewer home sales will affect ALL HOME VALUES and slow the economy.  It’s really that simple…  this affects the biggest asset that most of us will own… our home!

Let’s hope the govt thinks like a carpenter… measure twice and cut once… !

If you’re a homeowner and aren’t sure how these and other changes might affect you, feel free to contact me anytime.   I’d be happy to help.

Posted 2 Comments on OSFI will now oversee CMHC…. lookout Canada…! Mortgage News

OSFI will now oversee CMHC…. lookout Canada…!

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.

Posted 5 Comments on $4k penalty on a $109k mortgage… $8k penalty on a $213k mortgage. Money saving tips

$4k penalty on a $109k mortgage… $8k penalty on a $213k mortgage.

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.

Posted Interest rates

Bank of Canada suggests rate hikes soon…

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.

Posted Interest rates

Flaherty is, isn’t, is, isn’t changing mortgage rules?

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.