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Posted 3 Comments on New Mortgage rules… let’s make it an annual event! Consumer Debt

New Mortgage rules… let’s make it an annual event!

The Minister of Finance, Jim Flaherty, announced some changes to Canada’s mortgage rules that come into effect March 18, 2011…… these rules apply to hi-ratio insured mortgages… those with less than 20% down payment….

-The maximum amortization is reduced to 30 years from 35 years.

-The maximum loan to value available for refinancing your home is 85%, down from 90%.

-Secured lines of credit (or HELOC’s Home Equity Lines of Credit)  will not longer be insured meaning the maximum loan to value will now be 80%.

Click here for the official government announcement.

Not the first time for mortgage rule changes.

This is becoming an annual event with the Government:

–In 2008, the Govt reduced 40 year amortizations to 35 years, eliminated the 100% loan to value mortgages and the interest only mortgages.

–In 2010, the Govt brought in some of their biggest changes yet…borrowers would have to qualify for variable rate mortgages or short term mortgages at Bank posted rates…Self employed individuals would now have to qualify with traditional income verification if they were in business for more than 3 years…. Refinancing would be capped at 90% loan to value, down from 95% loan to value… and investment properties or rentals would require a 20% down payment…

(By the way, the govt also announced they would be standardizing mortgage prepayment penalties… we STILL haven’t seen any announcement… Mr. Flaherty, you want to help Canadians?  Change the mortgage penalty calculations!)

Has the govt gone too far?

Apparently, rising personal debt levels are the driving force behind these changes… The govt wants to make sure we don’t borrow more than we can afford…. But with mortgage defaults well under 1.00% (that’s extremely good), why would the govt pick on mortgages?   After all, wouldn’t any Financial Advisor recommend that you consolidate your high interest credit cards, lines of credit, car loans, student loans and other personal debts into a LOWER RATE product?

Why isn’t the government making changes to loans, unsecured lines of credit, credit cards….?   All these products have higher rates of interest and higher rates of default.   Think about this for a minute… we are making it harder for Canadians to take lower interest rate products (mortgages)… Where will they go?   Yes, that’s right… directly to the higher interest rate products…. Credit cards, loans, etc….  (I think I might buy some Bank stock today… or any other financial institution that offer credit cards or loans.)

So let’s see if I’m getting this straight…. we want to stimulate the economy and spending so we’ll keep interest rates low… but we are concerned about rising personal debt levels so we’ll make it tougher to get a mortgage (even though mortgage defaults are extremely low)… but we’ll keep those high interest rate loans, credit credits, etc as is…..  Is this making sense to anyone?

We’ll be sharing more on this latest announcement in the coming weeks…

Posted Mortgage News

Social networks, internet and Personal referrals….The test of time.

Information is hitting us at an astounding rate… Used to be radio, TV and newspapers ….then came the internet…now it’s social network like twitter and facebook or personal blogs…. Mortgage info and opinions are everywhere…It’s as simple as doing a Google or Bing search on your iPad or mobile phone..

But how reliable is the info you are getting and can you find what you really want online?  After all, we’re not buying a new TV or appliance…. this is a mortgage, a huge debt…

I did a search on ‘mortgage’ and got 3.5million possibilities.   I narrowed it down to ‘mortgage rates canada’ and still got 1.3million sites…how could anyone know which site is best for them?  Or credible?

I tried one more time…‘ best mortgage product for married couple buying their third home with one child in Ontario’… there, that’s quite specific.. only got 5,710 possibilities…

Many of the sites were small businesses but a lot were blogs, and that’s ok…I like blogs… Some of the sites are great.  But how many of these sites really know what they are talking about?   I was quite disappointed to see that many of these sites were being run by unqualified people with little or no practical experience in the Mortgage or Financial Services industry.  And this really troubles me.

So here are a few tips to finding a credible site or blog expert:

-is the writer or editor easily found and identifiable?

-how many years of experience does this person have in this industry?

-what makes that person an expert or an authority?

-how much practical time does this person have in the business? (are they all theory and no practical experience?)

-is the site or blog personally managed by the creator or editor?

-are there any sponsored links or banner ads on the site and if so, is there any possible conflict by having that sponsor?

-would that sponsor still allow for impartial writing or distribution of information? (careful, the answer isn’t always that easy)

THE TEST OF TIME…..In the end, I find that most of us still value the opinion of a trusted friend, a colleague or business associate or a family member.  These people’s opinions, within our circle of trust, still carry more weight than any internet site…  The internet is great for gathering info and opinions but be sure you know where that info is coming from and what the motives are behind that info…

Posted Mortgage News

TD taking action with new collateral mortgage

No, the hand-cuffs are still on if you took a TD Mortgage recently.. yes, they are still being registered as a collateral charge and not the normal, conventional charge…

But I heard from a good source that TD is working on changing their policies to allow for the transfer-in of collateral mortgages.  That would mean that TD would accept collateral mortgages from other financial institutions should new clients wants to bring their mortgage to TD.

But how does this help a TD client that is up for negotiation with their mortgage when TD knows they cannot transfer that mortgage out without having to pay new legal fees to move that mortgage?   The borrower loses their leverage to negotiate…it’s really that simple…  here’s a great article from Gail Vax-Oxlade telling us what she thinks about TD’s new collateral mortgage.  Remember, collateral mortgages are not accepted by other financial institutions for transfers….

This subject isn’t going away… we will see if other Banks will follow TD’s lead and go with a collateral mortgage charge or whether they will accept collateral mortgages for transfers.  Stay tuned for more on this major shift in mortgage registration.

And who will pay that extra cost to transfer mortgages in and convert them to TD’s collateral charge?   For now, it’s TD picking up the cost, but does anyone really expect that to continue?   At some point, that cost will most likely be passed to the consumer.

TD is taking a big risk.. maybe it’s a calculated risk… they certainly have the deep pockets to pay for this.. at least for a little while…. I’m sorry to say it looks like the TD borrower is going to lose out in the end.

Posted Mortgage News

Vacancy rates fall in Canada…there’s an opportunity here.

Here’s some interesting stats  from Canada Mortgage and Housing Corp.    Apartment vacancy rates are down…

The national vacancy rate is 2.6% compared with 2.8% from October 2009.  CMHC attributes this to the economic recovery.. according to CBCnews.ca.

We are also hearing reports of Real Estate Investment Trusts (REITs) buying up properties as they expect  the rental market to remain strong.

And here’s one more article about the Florida housing market… 90,000 homes and condos were bought by International Investors…  read more here.

Add in historical low mortgage rates and this looks like a good time to buy an investment property…. Consider that a $250,000 mortgage will carry for around $1072/mth based on a 5 year fixed rate of 3.79% (lower rates are available but we’re using a higher rate for illustration purposes).      Something to consider….

Posted Mortgage News

CIBC Economist gives us the stats

CIBC Senior Economist, Ben Tal, spoke at this year’s annual Mortgage Broker conference in Montreal.  The conference, organized by the Canadian Association of Accredited Mortgage Professionals, is a great place for Mortgage Brokers to meet all the Lenders and service providers under one roof.

It’s also a great opportunity to hear some of Canada’s experts talk about the economy, real estate, interest rates and the mortgage market.  Here are a few highlights from Mr. Tal’s presentation.

-there are 12.5million households in Canada…31% rent, 69% own..

-of the 69% that own, 39.9% have a mortgage and 28.9% have no mortgage.

-69% of homeowners with a mortgage have more than 20% equity in their homes… only 30% have less than 20% equity in their homes.

-Renters have excellent cashflow… 96% of renters are using less than 40% of their income to pay for all their debts… so in reality, these renters could qualify for a mortgage based on their debt servicing ratios.. (most lenders allow borrowers to use up to 42% of their gross income towards a mortgage payment)…

One more comment that caught our attention was about Variable rate mortgages vs. Fixed rate… The historical data is overwhelmingly in favour of Variable rates….it’s really been a no-brainer… But what about now?  Fixed rates are at historical lows…  Mr. Tal said that Fixed rates might outperform Variable rate over the next 5 years… BUT it is so close that a 0.50% increase in Fixed rates would probably tip the scales back in favour of Variable…

That being said, we must also consider the flexibility of a Variable Rate product.. it does allow one to lock into a fixed rate at any time and it does allow for an early exit at a minimal cost….   For me, Variable rate is still better choice…for most of us.