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Fed govt tightens mortgage rules again… 4th time in 4 years.

The Harper govt and the Minister of Finance are making it even harder to qualify for a mortgage..  they are also cutting back on how much you can refinance your mortgage.   With the 4th set of major rule changes in as many years, the govt is acting like a big brother, looking over your shoulder when it comes to borrowing on a mortgage.   Yet, they don’t seem too concerned with Credit Card rules or unsecured lines of credit or other higher interest loans that are very easy to qualify for…

In fact, it’s common knowledge in credit and collections, that most defaults and losses occur on unsecured debts and credit cards.   That’s really easy to understand…  these debts carry 18% and 20% interest rates… they have little or no qualifying rules, and little or no security…. (we get in that in more detail further in this article).

So we must ask why the govt feels is necessary to impose so many changes and restrictions when it comes to borrowing for the roof over our heads?

THESE CHANGES ONLY AFFECT HI-RATIO MORTGAGES, FOR NOW…..OR THOSE MORTGAGES THAT ARE GREATER THAN 80% LOAN TO VALUE AND REQUIRE CMHC INSURANCE.   (Although these changes are specifically for hi-ratio insured mortgages, we know that historically, Banks and other Lenders have followed these rules for all mortgages… even for those that are less than 80% loan to value….  No word yet, if and when, the Banks will embrace these changes and make them standard practice for all mortgages…:

  1. The maximum amortization for insured mortgages or those with less than 20% down payment will be 25 years.
  2. Refinancing your mortgage just got a little tougher… the govt has cut back the maximum loan to value from 85% to 80%.  In other others, the govt is out of the insurance business when it comes to refinances sine you you can get a conventional mortgage up to 80% with no insurance.
  3. Fixed the qualifying Gross Debt Service Ratio (GDSR) to 39% and the Total Debt Service Ratio (TDSR) to 44%… no real changes here since very few lenders allowed anyone to go above 35% on the GDSR…
  4. Limit the maximum home value to $1million.   This one will affect very few of use since most home buyers in this price range have adequate resources to qualify.

Here’s a link to the Department of Finance website which announces the changes in more detail with a little political spin to make you feel good about the changes.


One of my client’s is also an executive with a Major Cable provider.  He encourages his staff to buy a home and get a mortgage.   His motives are simple.   If you own a house and have a mortgage, you will be motivated to work hard and perform.   You have more to lose.   This philosophy has served his staff well.  He tells me that those with more financial responsibility are also the ones that perform best.

If the govt is really concerned that we are getting in over our heads, because of the low interest rates… and they are truly concerned that we are taking on too much mortgage debt… and they don’t want us to suffer from interest rate shock, if and when interest rates do rise, then why not just make qualifying for a mortgage more difficult?   Why not make the qualifying rate as the Bank Posted rate for a 5 yr fixed rate product?    Today, that rate would be 5.24%… that’s a full 2.00% higher than the contract rate of a 5 yr fixed rate mortgage… If you can qualify for a mortgage that is 2.00% higher, then isn’t your risk of interest rate shock less?   Wouldn’t that solve the problem?  By the way, we already have to qualify at Bank Posted if you take a Variable rate or a Fixed rate if the term is shorter than 5 yrs.

Not high enough?  Make it Bank Posted plus 1.00%… That would resolve all concerns about interest rate shock…   but it would also allow qualified borrowers to leverage and take advantage of these historical low rates….  There are a great number of articles lately, being written by those with huge exposure in the stock market or mutual funds or pension funds, that want to see more money diverted back into the stock markets to protect their investments…

I’m not interested in building a stock portfolio…  I’m interested in building my own pension plan… my own investment and income stream… Real Estate is a proven winner.  It’s where the richest of the rich, make their fortunes… Even today, you will see pro athletes, rock stars, movie stars, or other wealthy individuals buy real estate… That’s because it’s regarded as a safe, long term investment…   We seem to be losing sight of that fact..


The Fed govt wants us to believe they are looking out for our best interests… they have repeatedly said we aren’t managing our finances properly… we need big brother to watch over us….does anyone really believe this?   Their actions aren’t helping us benefit from the lowest interest rates in history… and I have a problem with this… paying less interest is a good thing to me… paying less to own my home is a good thing…

The govt seems to be grouping all of us together…  It’s like throwing out the bath water with baby….. their concerns are with a small percentage of us.. the data doesn’t back up their claims...  the stats show our mortgage arrears are lower than ever.. affordability is as high as it’s ever been (yes, low interest rates are a huge reason why)….we are spending our money wisely, on investments, not just buying TVs or new cars…. and we are paying our mortgages off faster than ever before with a large percentage of us  (we can thank low interest rates)… 23% of us are making more than the minimum payment… 19% of us are making lump sum payments towards our mortgage…. Does this sounds like a nation in trouble?

The govt changes are only doing 2 things here… they are pushing us into higher interest rate products such as unsecured lines of credit or credit cards… and they are making it harder for us to access the capital in our homes..  The HELOC limit from 80% to 65% loan to value was probably the most ridiculous change ever… No data was given to back up this move…  It was already to tough to qualify for a HELOC… this was just unnecessary.


We need to question the timing of these changes… there really hasn’t been enough time to see what the true impact of all  will be… If you’re one of those people that fully trust our govt’s decision, then I only need point you to 2002 when the govt prematurely raised rates, only to slow the economy and reduce them just months later… it was a huge miscalculation.   We ended up lowering rates for several years to come…

By making it harder to qualify for a mortgage and by reducing how much we can leverage our homes for (HELOC’s to 65% maximum loan to value), we are taking money out of the market… out of the economy… I just don’t get it…

I for one, am fed up with all this negative news coming from the media.. the fear mongering has to end!   I keep seeing prudent and responsible people wanting to enter the housing market.   They want to invest in homes…..they don’t want to ride the stock market roller coaster.    We should support this segment of the population, not punish them.


We will keep you up to date with how this unfolds… and what options you will have in the future…   My sources tell me that some Lenders are already coming up with some options to assist responsible borrowers with some new products…. stay tuned for more info..

As always, I welcome your inquiries… We’re here to help… Feel free to contact me anytime.

Steve Garganis

Shhh…Interest rates are still at record lows… and Canadians are making huge prepayments.


I’m sure this isn’t what our Federal govt wants you to hear.   But it’s true… Fixed rates are in the low 3.00%s….  So why aren’t we feeling good about this?   Why isn’t everyone happy?   Record low interest rates means less interest cost to you… it means low housing costs…It means you are saving money.

A mortgage is the biggest debt most of us will ever have…  We all talk about mortgage rates with our friends, co-workers and family…. It’s a popular subject… But for some reason, we aren’t feeling good about these low rates…  It’s almost like we should be feeling a little guilty, like the cat that swallowed the canary… do you feel like that?

Could it be that we have been beaten to death with negative messages by the Federal Minister of Finance?   Housing Bubble coming!!!…. personal debt levels rising!!… higher interest rates coming…!!   Maple Leafs win Stanley cup (oops, had to throw that one in)… we’ve been talking about these same things for years… yet they haven’t happened!  I’m not saying these aren’t concerns but I think some of these have been overstated without providing enough proof or evidence.

The govt doesn’t want you to borrow at these rates…   They are afraid you would be too irresponsible and would borrow more than you could afford… (never mind the fact that you must qualify at BANK POSTED rates which are 2.00% higher than these wholesale mortgage rates…)


By the way… the strange part about all this “boy that cried wolf” noise from the govt, is that there really isn’t any proof that we are in trouble….  That’s right..  Mortgage Arrears are low and have been low for over a decade… Affordability is better than it was 20 years ago!   (low rates have helped but increases in income have also factored in)…

And how about this stat that just came out….Around 23% of Canadian mortgage borrowers have increased their regular mortgage payments by $400 to $500 per month.  19% are making lump sum payments of around $12,500 per year.   That works out to over $20billion in extra payments towards their mortgages.  Or put another way, over 1 million mortgage holders out of the estimated 5.85million mortgage holders in Canada are paying far more than the minimum payment.   Does this sound like a country of irresponsible borrowers? … (source Financial Post).

Either the govt’s message has sunk in, or there really wasn’t as big a problem as we were led to believe…. I’ll let you be the judge…

But we could be facing a ‘Made in Canada’ problem as this article states… .  With the govt planning to make the biggest changes in history with  mortgage and HELOC lending, they will be affecting a large segment of new borrowers but even more EXISTING borrowers… they will force a large percentage of Canadians to sell their homes, close their businesses or seek higher interest debt….  And why?  What purpose does it serve?  The stats tell us we are fine…

House prices are hot in Toronto but they are cold in the rest of Canada…  The govt is providing a solution to problem that doesn’t exist.

If you aren’t sure if you could benefit from today’s low rates,  or how these proposed new lending changes will affect you, give me a call or send me an email…  I’d be happy to discuss your options.

Steve Garganis

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.

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 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.


OSFI’s latest proposals will affect every mortgage and line of credit..

Earlier this week we saw a draft guidelines proposed by Brock Kruger from  The Office of the Superintendent of Financial Institutions.  Yes, more tightening of mortgage and secured real estate lending……  To put this in plain language, the proposal will affect almost everyone… it will change how mortgages and secured lines of credit are offered….. in shorty, I think this plan is trying put out a fire that doesn’t exist.  There is no need for the changes.

Draft B-20 just goes too far…..   they target mortgages but also Home Equity Lines of Credit (HELOC).    Most of the media coverage on this has been somewhat neutral.. but finally we have seen one reporter question these proposed changes.  This article by Peter Foster in the National Post was great…   He questions why we need any more changes when our mortgage and banking system is the envy of the world….  There is no emergency, no arrears problem, nothing to indicate our mortgage lending policies are overly generous.

It should be noted that non-bank lenders will not be affected by this… leaving them as a potential winner if these guidelines become policy…

Here’s a link to the entire 18 page draft.


Cash back mortgages could disappear.. currently, one could get a mortgage for 95% of the purchase price at Bank posted rates and then get a 5% cashback.  The cashback can be used as the down payment.  ( I don’t see many reasons for applicants to buy with no money down so this isn’t a big issue for me)

-homes would have to be appraised at renewal timethis is just crazy… can you imagine if your property value dropped and the bank asked you to pay down your mortgage at renewal time or even worse, call in your mortgage?  What’ s OSFI trying to do.. force everyone to take a 10 yer fixed rate mortgage?   They have already made Variable Rate mortgages harder to qualify for…. what’s the matter, they don’t want us to pay less interest?  

HELOC’s would have to be amortized meaning NO MORE INTEREST ONLY PAYMENTS...  this one will affect more households and business owners than the OSFI probably realizes… businesses use their homes to finance businesses… that’s been going on for decades… but they aren’t borrowing with no assets.. remember, they are putting up their homes as collateral.. if we start to make it even more difficult for self-employed to obtain financing, this will affect the economy almost immediately.  But how about the 2nd or 3rd time buyer in their 30’s or 40’s that wants to tap into their equity for investments… ?  Are we going to eliminate all interest only payment facilities?  

-HELOC’s maximum would be reduced from 80% to 65% loan to value of your house…. and let’s not forget that just a few years ago we could have obtained up to 90% loan to value through CMHC insured products. Again, just another crazy idea and very radical change in just a few years… where is OSFI taking us?

mortgages would require tighter debt servicing guidelines including fewer exception approvals by your lender…

Mr. Kruger, your intentions may be honorable, but you are not being practical or realistic.   Why have you introduced these proposals?   To reduce access to credit?   To make it more difficult for Canadians to tap into their home equity?   To make it tougher to buy a house?     Whatever you think these changes might do, I can tell you, as a 22 year mortgage industry veteran and industry insider, that these proposed changes will just shrink our economy, force us to take longer fixed rate products resulting in even higher mortgage penalties for the Banks…  It will force us to tap into our credit cards and unsecured, higher interest credit facilities.… It will force business owners to pay more for raising capital… it will discourage investors….

Give this one a rethink… you are searching for a solution to a problem that doesn’t exist.