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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 20 Comments on CMHC, Genworth double charge…. did you pay twice and not know it? Case study

CMHC, Genworth double charge…. did you pay twice and not know it?

We’ve all heard the saying, ‘necessary evil’….. You know… something that we need or must have but don’t necessary like….  kinda like that cough syrup that doesn’t taste so good but you know you need it to feel better.

Default mortgage insurance is a ‘necessary evil’…. without it, we wouldn’t be able to buy a home with less than a 20% down payment with low interest rates.  But what if you bought a house, paid the CMHC or Genworth insurance….and a few years later you bought a bigger home or you refinanced your house for some home renos or debt consolidation?  Do you have to pay CMHC or Genworth insurance again?  If so, how much will this cost?

A Financial Planner’s story gives new meaning to ‘necessary evil’

One of my reader’s, a Financial Planner, shared a recent experience…. and I must admit, this isn’t the first time I have seen or heard about this happening…His client had a CMHC insured mortgage and then later wanted to refinance the mortgage for some home renos… It appears his client was charged FULL CMHC insurance premiums on the entire mortgage, AGAIN!!   This is not right…. and we call this DOUBLE CHARGING.…

A CMHC or Genworth or Canada Guranty insured mortgage can be refinanced with REDUCED insurance premiums charged ONLY on the new funds. It is up to the submitting Lender or Banker to inform the Insurer that the current mortgage is already insured.    Unfortunately, I have seen and heard of other cases where the Banker did not have the experience or knowledge or cared to take the time to inquire if the current mortgage was already insured…  and then went on to simply process the application as a NEW CMHC or Genworth insured loan (Canada Guaranty is fairly new and I have not seen any cases involving them yet)…  And the borrower gets stuck paying the FULL COST again….

How much would a mistake like this cost?

Well, here’s an example and some formulas to follow…

Let’s assume we have someone who bought a house for $350,000 in January 2008 and they required a 95% loan to value mortgage, or $332,500.  They took a 35 year amortization. They would have paid mortgage insurance of 3.15% or $10,473.75 giving them an original starting mortgage balance of $342,973.75 (the insurance gets added to the mortgage and is not payable up front).

Fast forward to today…. their home is worth $402,000…their mortgage balance is approximately $331,149 with a 32 year amortization remaining…. they want to refinance up to 90% of the value of the home…  that would give them $40,200 in new funds and their mortgage would be $361,800 (before insurance)…  The borrower will be charged additional insurance on the new funds only at the rate of 4.65% or $1,869.30.….the new mortgage is $363,669.30.

But what if your Banker didn’t submit your application to CMHC or Genworth as a previously insured mortgage?  What if your Banker sends your CMHC insured mortgage to Genworth or your Genworth insured mortgage to CMHC?   What if you weren’t given credit for the previous insurance you had paid?   Think this can’t happen?  Guess again…it’s happened before and it sounds like it’s happening again.

And now the results of the Banker’s mistake

That same mortgage will cost you $6,813.90 in extra mortgage insurance.  That’s because your banker submitted your application to the insurer as an entirely new mortgage application.   You will be paying new insurance on the entire mortgage….  Here’s the formula:  $361,800 x 2.40% or $8,683.20… your new mortgage is $370,483.20….a difference of $6,813.90…. that’s right….an overcharge of $6,813.90…. and remember, this gets added to your mortgage so you are paying interest on this for 32 years!!… The additional interest will cost you another $4,915 in interest… that’s a grand total of $11,728.90 of unnecessary expense… this isn’t necessary, it’s just evil.

We can only hope that this problem isn’t widespread.   If you’ve experienced something similar then I suggest speaking with your Mortgage Broker to get a review… I would certainly be interested in hearing about it.

Posted 88 Comments on Mortgage Penalties exposed…. an in-depth study reveals unjust penalties. Case study

Mortgage Penalties exposed…. an in-depth study reveals unjust penalties.

On November 26, 2010, we reported that a good source told us the govt would not follow through on their promise to standardize mortgage penalties until this spring, at the earliest.

On December 15, 2010, we also reported that discounted Fixed mortgage rates were going up but Posted mortgage rates were staying the same… we stated that your mortgage penalty would not decrease as it normally does when rates go up.

We received some inquires about this article.   Questions like ‘shouldn’t my penalty go down if rates are going up?’ and ‘how could a mortgage penalty be more expensive if the Bank’s didn’t increase their posted rate?’

Okay, here’s my shocker statements….  A $200,000 mortgage taken in December 2008 will cost you $16,800 to get out of today…. but 12 years ago it would have cost you approximately $8,340 and even today, it should only cost $11,640.      Got your attention?   Please read the entire report to better understand. Continue reading “Mortgage Penalties exposed…. an in-depth study reveals unjust penalties.”

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Bank of Canada dates for 2011

Happy New Year!  Wishing you all the best in 2011….

Here’s the Bank of Canada’s schedule for key interest rate announcements in 2011.

January 18, March 1, April 12, May 31, July 19, September 7, October 25, December 6.

The Bank meets eight times a year to set the Target Interest rate.   This rate directly affects the Bank Prime rate and Variable rate mortgages.  It also affects Fixed rate mortgage indirectly.

Historically, the Bank adjusts this rate up and down between 2 and 3 times a year.   In 2010, we had 3 rate increases of 0.25% each after a full 12 months of no changes.  And most experts were forecasting for even greater rate hikes…   This all changed when the economic recovery stumbled in many parts of the world, raising fears of a double dip recession.

Even today, there is still uncertainty about the economy in many parts of Europe and the U.S.   At home, in Canada, we seem to be doing well….not great, but okay.

This uncertainty is delaying the expected interest rate hikes that so many experts were calling for in 2010….  Best guess now is for rates to remain stable until April or even July.

Enjoy the low rates…!

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Everyone deserves a break

Yes, everyone needs some time off, including me.  I am taking a little break.   Back in January 2011.

But before I go, I want to say thank you for making our first full year at CanadaMortgageNews.ca a great one!   My personal goal was to write 2 posts a week  and get the word out to as many Canadians as possible…  122 posts later, we had tens of thousands of hits… the site has really taken off in the past 3 months… all thanks to you…  no advertising, no sponsors… all word of mouth…it’s all you…  Thank you.  I hope you have found the info and opinions helpful.

Let me take this opportunity to wish you and your loved ones a safe and happy holiday at this festive time of the year.

Steve Garganis

Editor, CanadaMortgageNews.ca

PS.  Watch for more breaking news in the coming year.. including possible changes to mortgage rules (yes, more), the long-awaited standardized prepayment penalty calculations (sounds like it’s coming) and a real estate market that is expected to be flat, but that’s not everyone’s opinion.  Oh, and of course, mortgage rates…where are they going?   We’ll bring you the latest… but right now, rates are expected to remain flat for the next little while…