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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.

Deal with recognized professionals….

It’s been almost 2 years since the rules that govern Mortgage Brokers and Agents came into effect…so why hasn’t everyone complied with the smallest of requests?

On July 1, 2008 new rules governing Mortgage Brokers and Mortgage Agents came into effect in Ontario.   One of the changes was to make it easier for consumers to identify who they were dealing with.  Prior to July 1, 2008 we saw all sorts of titles out there.. Mortgage Consultant, Mortgage Planner, Mortgage Specialist, etc… the list was endless…. and qualifications were sketchy.

Well, that’s all changed.  In Ontario, there are only 2 designations.  Mortgage Broker and Mortgage Agent.   Both are authorized by a Brokerage to deal or trade in mortgages on its behalf and who have achieved other educational, proficiency and eligibility criteria.

But I’m still amazed at how many individuals and companies have not made the change.  They still advertise and refer to themselves as Mortgage Planners or Mortgage Consultants, Mortgage Specialist…etc…  My advice to Brokers and Agents is to make the changes immediately…These people are at risk of being fined and or having their license suspended.

My advice to consumers….BEWARE of anyone that has not taken the time to adjust and make the changes…if they won’t respect a minor change such as this, it makes you wonder what other regulations are not being respected.

Long term contracts have a price

Here’s a great article written by consumer advocate, Ellen Roseman.  She points to different industries where signing in for the long term protection can be very costly and expensive.

Ever wanted to change cell phone providers?  How about internet providers?  Move your investments or rrsps?  Cancel that hydro or gas contract because you moved?

And how about mortgages?  When interest rates started heading downward about 12 months ago, thousands of borrowers in fixed rate mortgages wanted to get out of their higher rates and start benefitting from the record low interest rates we have been seeing.

But they were shocked to hear of unbelievably high early prepayment penalties… the example Ellen uses is about a $46k penalty on a $530k mortgage with a major bank…  I’ve seen dozens and dozens of situations like this.

Beware of long term mortgages… with the average person moving or refinancing about every 3 years, choosing a 5 year fixed rate term is usually not the best option.  It could cost you more than you think… always seek professional advice from a reputable mortgage broker before selecting your mortgage.

(Just a personal note… It sure would have been nice to see some mortgage relief given to the average homeowner during the recession.   CMHC used to cap their penalties to 3 months interest but removed this cap in 2000…quietly, all financial institutions are free to charge a higher penalty…and they all do.. the longer the term, the greater the penalty…)

Should they buy a bigger house?

Here’s a case study from the Financial Post about a young couple with a young child looking to move out of their condo and into a house with a yard.  They have a good combined income of $118k per year.  Debt load is low.  They own a condo and have a small mortgage.

In the end, they will need a $300k mortgage. Can they afford to buy a larger home today?   The experts say yes… and I agree based on the data provided.

One more thing that isn’t mentioned but I wanted to point out… affordability.. given interest rates are at record lows, their mortgage payments would be lower than ever… Cashflow is always important and must be considered.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

58% of Canadians want to pay down their debts

The latest Canadian Consumer Outlook index showed that 58% of Canadians are worried about their debt.  This is a great time to get your debts reviewed…. a financial check-up…

With December credit cards bills coming in and your property tax bills coming up in the next few months, now is the time for a review… and guess what.. you might be pleasantly surprised to discover that there is some savings potential in your mortgage.  Debt Consolidation is not a bad word.

Call your mortgage broker for a review today.

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