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When this guy can’t qualify for a mortgage, you know the mortgage rules are too tight!

BernankeFORMER US FED CHAIRMAN CAN’T GET A MORTGAGE.

Anyone remember this guy?  Ben Bernanke.   He’s just the former Chairman of the US Federal Reserve Bank. He served two terms from 2006 to 2014.   Earlier this month, he revealed that he was declined for a mortgage refinance.  Now, just to put this in perspective, he used to make a nice 6 figure salary.  And today, he is paid an estimated $250,000 per speaking engagement.

How can he not qualify?  Clearly, the mortgage rules tightening process has gone waaaaaay overboard.   But this isn’t just happening in the US.   Canada’s mortgage lending rules have always been tighter than the US.  And over the past 6 years, the Canadian govt has brought in numerous changes to tighten the rules even further.  (Actually, experts agree that they went way overboard.  And we are only now seeing the effects of the rule changes.. Look out.  You’re in for a big surprise the next time you need mortgage money).

CANADIAN MORTGAGE RULES ARE EVEN TIGHTER!!

Canada’s Banking industry has been the envy of the world.  We came out of the 2008 US sub-prime mortgage crisis with no visible scars.   Continue reading “When this guy can’t qualify for a mortgage, you know the mortgage rules are too tight!”

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.

THE GOVT HAS IT WRONG

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 REAL IMPACT OF THESE CHANGES

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.

TALK ABOUT BAD TIMING

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.

WATCH HERE FOR MORE DETAILS

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.

 IT’S OKAY TO FEEL GOOD ABOUT LOW INTEREST RATES

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…)

NEW STATISTICS SHOW WE ARE RESPONSIBLE AND NOT SHOWING ANY SIGNS OF TROUBLE

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

Govt pondering tightening mortgage rules further?

The Federal Minister of Finance, Jim Flaherty, made some comments about possible mortgage tightening policies…. see both Winnipeg Free Press, Reuters, and the Financiap Post.  The govt is concerned about a possible ‘overheating’ of the housing market.

The honorable Minister just needs to wait for September’s figures to put that concern to rest.   The numbers aren’t out yet, but early indications show that the housing market has definitely slowed down.  Prices are flat and in some cases, have decreased.

Further tightening of Canada’s mortgage policies are not necessary in my opinion… but this does bring up an interesting situation for anyone that is refinancing their mortgage or looking to buy a house…

My advice…get your mortgage preapproved immediately….no need to chance any possible rule change….

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