It’s official… CMHC just announced further changes to their mortgage rules along with more details of the rule changes announced February 16.
-Qualifying mortgage rates…..up til now, borrowers were qualified on the contract rate of the mortgage or the 3 year rate ….on April 19, that will change to qualifying at the posted rate of the chartered banks …..Effectively, the govt has increased the rate without increasing the rate….quite a magic act…
Let’s think about this for one minute… we have been hearing about the devastating affect to consumers and the housing market should interest rates increase by 1.00% or more… well, the new qualifying rate is 5.39% as of today vs. 3.79% or 3.89% for a 5 year fixed contract rate…. but there’s more.. read on..
-Business for Self individuals will now have to qualify with traditional income validation if you are in business for more than 3 years… the logic is that the majority of self employed individuals can provide traditional income documents and that the business for self programs were for a small segment of the population…
This new change really leaves me scratching my head…. With 20 years experience in the Financial Services industry, I can tell you that the trend is for more Canadians to become self employed.. more contractual workers, less ‘Employees of a company’… And one of the benefits of being self employed is that there are certain tax advantages that are not available to employees…resulting in a lower net income…
A lower net income will mean you better be able to come up with a 20% down payment because you won’t qualify under these new Mortgage rules that will be administered by CMHC…. I can only hope that the govt will be able to act just as quickly if they see the housing market slow down…
Minister of Finance, Jim Flaherty released the 2010 Federal Budget yesterday… There were a lot of headlines in the media but for the most part, very little change for the average Canadian…
Here are the numbers….
One change I did like is the standardization of mortgage prepayment penalties… No details were released but this could be welcome news for tens of thousands of Canadians that are in a fixed rate mortgage and can’t get out…..
You’ve been hearing about the govt stimulus plan… record low interest rates to help out Canadians… and then you contact your bank to see how much you save… it’s good news.. your payment on a $250,000 mortgage with a 5.25% rate will drop by $189/mth with a 3.89% rate… it’s so exciting… that’s $11,340 over a 5 year term…. but WAIT… now you get told there is a penalty.. and it will cost you $13,000 to break your mortgage….
Sound unbelievable? Call your bank to see how they calculate their penalties… Those who have already done so know the reality of these numbers….. The govt forgot about helping existing homeowners… the tens of thousands of taxpayers that needed and wanted a break…
How do you feel about the Big Six Banks reporting Billion $ profits in the first quarter? After all, didn’t the govt offer financial support to help the banks in case they ran into trouble? Profit is good.. but not like this.. not at this time.. not when average Joe or Sally homeowner can’t benefit…
BANK PRIME RATE FORECAST
The CIBC’s Senior Economist, Ben Tal, says Bank Prime rate will start to increase this summer… but only by 0.50% to 0.75% by end of the year… and then will pause in 2011 to see where the U.S. rates are headed…. click here Feb 26 2010 CIBC Forecast.
Mr. Tal thinks this is “risk move” pointing to similar Bank of Canada action in 1992 and 2002 when the Bank hiked rates only to reverse the decision a few months later…
Mr. Tal also points out that real inflation is around 1.5% and will continue to remain low into 2011.
Does this mean we should lock in our variable rate mortgages? For most of us, probably not… but if you aren’t sure, then speak with your Mortgage Broker.
NEW MORTGAGE RULES EFFECT
Mr. Tal sees the new mortgage rules having little effect on most of us. Here are his calculations…
- Increase down payment requirement for refinancing: 7%-8%
- Increase down payment requirement for non-primary residence: 2%-3%
- Increase qualifying rate on variable mortgages: 5%-6%
This is the first outlook I have seen…and it’s really not bad at all… Enjoy the weekend… and GO CANADA GO!
As we reported last week, the speculation about possible Mortgage Rules changing has become a reality…. the Federal government is going ahead with changes in Mortgage lending policies…..and these will come into effect April 19, 2010. Here are the 3 changes as reported on CBC.ca:
- all borrowers will now have to qualify using a 5 year fixed rate even if they choose a shorter term or a variable rate mortgage. (3 years fixed was the standard qualifying rates)
- refinancing your mortgage is now capped at 90% of the value of the home instead of 95%.
- investment properties will now require a 20% down payment instead of the current 5% down.
This last change will probably have the greatest impact in my opinion… It’s designed to discourage buying condos and houses for speculation purposes. However, ask anyone how their RRSPs are doing lately… the answer will probably not be good… A great many Canadians starting turning to real estate as means of buying a safe, long term investment… this could be done with as little as 5% down… but no more.
Early reaction is that these rule changes will create a small surge in house sales and then we should see a cooling off in the market…. only time will tell if these measures will have the desired effect or if they will simple force Canadians to get back into the Mutual Fund and Stock Market…. stay tuned as we follow this story..
TIGHTER MORTGAGE RULES
Too many articles this week about possible changes coming from the Minister of Finance, Jim Flaherty, on budget day March 4th. Globe and Mail and CTV.ca Where there’s smoke, there’s fire… or at least there is some serious consideration being given to changes in mortgage lending. If you’re a first time homebuyer that’s looking to buy this year, you may want to get your mortgage preapproved sooner than later… talk to your Mortgage Broker.
HIGHER HOME SALES AND HIGHER HOUSE PRICES
And how about the effect of CREA making the MLS public or more accessible? Will this affect house prices? Some think it will fuel house price increases…. Read this article from the Financial Post.
Here’s an article from The Star that shouts out ‘home sales skyrocket 87%’. Wow, that’s a scary number…And here’s another article from The Star that paints a clearer picture… ‘Some encouraging news and numbers’ they say…it can be confusing … but here’s an article with a good graph from The Financial Post .. look at the figures.. we are still below pre-recession figures… January 2010 sales were about the same as January 2008 sales.. maybe the market isn’t on fire, maybe it’s just active?