MORTGAGE

For more information about our team of mortgage professionals please go to our main website www.GreatRealEstateAdvice.com

As expected, the Bank of Canada announced today that it is holding the overnight rate at 0.5%, noting that “the global and Canadian economies have been consistent with the Bank’s projection of improving growth” although “exports continue to face ongoing competitive challenges” and that even with gains in employment, there still is “subdued growth in wages.” As uncertainties continue to weigh on the economy, the Bank “judges that the current stance of monetary policy is appropriate.”

Overall, the global economy is strengthening largely as anticipated and prices of some commodities, including oil (at $54 US), have risen. In contrast to the United States, Canada’s economy continues to operate with material excess capacity. The US unemployment rate has fallen well below Canada’s and is widely expected to continue to run below Canada’s over the next few years. Meanwhile, the Canadian dollar (at $0.76 to $1 American dollar) has strengthened along with the US dollar against other currencies, hampering the outlook for exports. Consumption is expected to remain solid, while residential investment will continue to be tempered by previously announced changes to housing finance rules. The Bank of Canada projects that Canada’s real GDP will grow by 2.1% in both 2017 and 2018.

We expect to see interest rates staying low in Canada well into 2020. The Bank of Canada believes it must continue its monetary policy of ultra-low rates to control inflation, stimulate other sectors of the economy besides housing and spur our Canadian export market.

The new mortgage rules announced in 2016 mean lenders now have different rules and rates for insurable vs. uninsurable mortgages. If a mortgage is insurable, it will qualify for the best rates. Most homebuyers know that if they have less than 20% downpayment, they need to pay for mortgage insurance as a way to protect the lender. In order to obtain the lowest cost of funds, some lenders use this insurance to insure mortgages with more than 20% equity.

Mortgages that are “uninsurable” can include rental properties and second homes, switch mortgages that move to another lender, 30-year amortizations, refinance mortgages, mortgages over $1 million, and even some conventional 5-year mortgages. These mortgages are now charged a rate premium and some lenders no longer offer them. Additionally, interest rate surcharges are often charged if it’s difficult to prove your income or you have bad credit, the property is in a rural location, you want a long rate hold, you want the best pre-payment privileges and porting flexibility, and you don’t want refinance restrictions. As a result, be wary of rates you see online, because you might not qualify for them.

Without a doubt, insurable vs. uninsurable has made the mortgage landscape significantly more confusing. Getting good solid advice is critical, and Mortgage Brokers, with access to alternative lenders with flexible guidelines, have never been more important in the home financing process.

Get in touch today if you are planning to purchase or move to another property and subscribe to my blog for the next mortgage update.

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Previously, and up to November 30, 2016, buyers who put down more than 20% of their home price and owners who have more than 20% equity in their homes were considered “low-ratio” borrowers. They could enjoy “low-ratio” mortgage insurance at a much better rate due to the fact that their loans were less “risky”. However, starting on November 30, 2016 a big chunk “low-ratio” borrowers will not qualify for this plan anymore.

Buyers will not qualify for “low-ratio” insurance if one of the following applies:

  • amortization period is longer than 25 years
  • home’s purchase price is over $ 1 million
  • buyer has a credit score below 600
  • property is not owner occupied
  • if you are a self-employed individual applying for a stated income deal

What to expect?

In other words, when this huge segment of properties becomes ineligible for low-ratio insurance, lenders will have to pay higher insurance premiums, which will get passed down to borrowers in terms of higher interest rates on mortgages. In fact, this is already happening. Multiple key mortgage rates climbed higher since Wednesday, and are expected to continue rising, especially after new rules come into play. Keep in mind that when rates rise it will become very difficult to refinance in a constrained market.

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What you should know about new mortgage rules.

On October 3rd, Finance Minister Bill Morneau announced that new mortgage rules will include more stringent “stress testing” for borrowers. The new rules are designed to lower debt levels, enforce some belt-tightening, and protect the housing market over the long term. Here’s how these new rules will affect Canadians.
THE HIGH-RATIO RULE

There has been a long-time rule that you must have “high-ratio mortgage insurance” if you have less than 20% downpayment. This insurance is there to protect the lender, and the premium is almost always added to your mortgage amount.

What’s changed? If you require an insured mortgage, you must qualify for your mortgage using the Bank of Canada qualifying rate (currently 4.64%) regardless of what your actual mortgage rate will be.

That means that – although lender/broker can find you a much better mortgage rate – you’d still need to show you can handle the mortgage using the qualifying rate. This financial “stress test” was already applicable for fixed and variable mortgages with terms of 1 to 4 years. Now, it also applies to fixed-rate mortgages of 5 years or longer.

Why the new rule? The government wants to be sure that borrowers can withstand any increases in mortgage rates when their mortgages come up for renewal.

Will my payments be higher? No. Your payments will still be based on your much lower actual mortgage contract rate. Keep in mind that mortgage rates are expected to stay at record lows into 2020. So this new rule isn’t costing you more. The potential change will be in how much mortgage you will qualify for: up to 20% less. You may need to plan on purchasing a less expensive home, or save up a larger downpayment, or ensure you eliminate all or most of your other debts.

Are any loans grandfathered? The new mortgage stress test does not apply when:

  • A mortgage loan insurance application was received before October 17, 2016;
  • The lender made a legally binding commitment to make the loan before October 17, 2016; or
  • The borrower entered into a legally binding agreement of purchase and sale for the property against which the loan was secured before October 17, 2016.

THE CONVENTIONAL MORTGAGE RULE

Maybe you have more than 20% down or equity in your home and you are planning to purchase, renew or refinance. Since you have strong equity, you aren’t considered a “high-ratio” borrower.

What’s changed? Effective November 30th, any mortgage loans that lenders insure using portfolio insurance must now meet eligibility criteria applicable to “high ratio” mortgages, including the new qualifying stress test. This means that rental properties, properties over $1 million, and mortgages with an amortization greater than 25 years will no longer be eligible for portfolio insurance.

Does this mean I will have trouble getting a mortgage? Certainly not. The change will only affect certain lenders that insure or securitize these types of mortgages. I have access to a wide range of lenders, which means I can help you find the best mortgage for your situation. But if you are thinking of refinancing, get in touch now just to be sure you lock in a low rate.
THE CAPITAL GAINS REPORTING RULE

Canadians love the capital gains exemption they get on their primary residence: if your home grows in value, you aren’t taxed on that growth when you sell.

What’s changed? Starting this tax year, the sale of a primary residence must be reported at tax time to the Canada Revenue Agency, even though all capital gains are still tax exempt.

Why? This new rule was designed to prevent foreign property purchasers from claiming a primary residence tax exemption to which they are not entitled.

Although there are definite regional variations, the Canadian housing market is strong. A good part of the reason for that strength is that we have had stringent mortgage requirements. Mortgage defaults in Canada continue to be very low: in spite of the ups and downs of the economy.

The new rules are aimed at ensuring home ownership continues to be a solid, long-term investment. Give me a call: I’ll help ensure you make the most of it!

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Preliminary official estimates are that 1 in 12 home buyers could be affected. Personally I don’t buy it. We’ve heard from numerous lenders and brokers today who estimate the actual number is twice that, maybe more.

Here’s what all of this really means to you:
Mortgage Approval Just Got Tougher

  • If you get a variable or 1- to 4-year fixed mortgage, most lenders make you prove that you can afford payments at the Bank of Canada’s posted 5-year rate (currently 4.64%).
  • This rule currently does not apply to fixed terms of five or more years. But effective October 17, it will. From a mortgage qualification standpoint, that’s a ginormous change—equivalent to a 2.25-percentage-point rate hike.
  • Today, someone with 10% down who makes $50,000 a year can qualify for a $300,000 home purchase. That hypothetical maximum mortgage amount will plunge 18% to $246,000, once this rule takes effect in two weeks.
  • This one regulation alone could shut out more buyers from the market than possibly any of the prior rule changes, including the reduction in the maximum amortization from 30 to 25 years (announced in 2012).
    • Way back in 2012 when home prices were lower, Altus Group found that 20% of buyers could not qualify without an amortization over 25 years. So one might assume that at least 20% of homebuyers will have to reduce their purchase price, or find a bigger down payment or co-signor, because of today’s announcement.
  • Key points:
    • If you’re renewing with your current lender, you won’t have to requalify at these inflated rates. In fact, it’s routine that lenders don’t requalify you at all if you stay with them for another mortgage.
    • If you were planning to refinance to 80% loan-to-value (the legal maximum for a prime mortgage), try to get your application in by mid- next week. Borrowers will be sprinting to meet the deadline, so the sooner the better.
    • Is this new rule warranted? Perhaps if you put down less than 10% it is. But if you put down 10% or more, most people could refinance after five years into a 30-year amortization (if they really had to). Even at 4.64%, their refinanced payments would be lower than when their rate was 2.39%. So the government’s “reducing risk” argument is questionable if we’re talking about payment risk.

Mortgage Rates are Headed Up

  • Countless lenders rely on default insurance in order to resell mortgages, mainly because investors demand it.
  • Effective November 30, the government will no longer allow lenders to insure:
    • Refinances
    • Amortizations over 25 years (today you can get up to a 35-year amortization if you have 20%+ equity)
    • Purchase prices of $1 million+
    • Non-owner-occupied rental properties.
  • You may wonder, “OK, so what?” Well, here’s what: It means that all of these mortgage types above will have to be sold to, or originated by, lenders who hold them on their balance sheet. That will meaningfully limit your choice of lenders, and seriously dent rate competition.

Mortgage Rates are Headed Up – Part II

  • Another rule taking effect soon is the new higher capital requirements for insurers. This rule, announced well before today, will lead insurers to double insurance premiums on some mortgages, particularly those at 80% loan-to-value or less.
  • Again, many non-bank lenders rely on this insurance. It could force them to jack up rates by 10-20 basis points, depending on the lender, borrower qualifications and down payment.
  • Big banks don’t need to insure and sell their mortgages, so they should be less impacted than most lenders. The net effect is further deterioration of competition.

Mortgage Rates are Headed Up – Part III
The Feds reaffirmed their intention to evaluate “risk sharing,” whereby lenders must pay a deductible if an insured borrower defaults.
Depending on how it’s implemented, this rule could turn the lending industry on its head. It would force prudent lenders with less capital out of the market (or make them pay banks to cover the deductible for them). Either way, the costs will be borne by Canadian borrowers.
Fewer Cost-Effective Refinance Options

  • Fewer lenders will be able to offer competitively priced refinances, due to the new prohibition on insuring them.
  • Borrowers who can no longer roll their debt into a prime mortgage may have to resort to higher-cost non-prime lenders or unsecured debt. (Does increasing borrowers’ interest costs make for a more stable housing market? Not on this planet.)

Stealth Rate Hike

Regulators have taken a systematic approach to raising lenders’ costs, and that’s not by accident.

This past summer there was reportedly a secret meeting between lenders and the Department of Finance (DoF). Sources tell the Spy that regulators indicated a preference to see mortgage rates rise, and were prepared to keep tightening regulations to make that happen.

It’s not clear if a specific rate target was set out by the DoF. What officials did reportedly indicate, according to my sources at that meeting, is that their plans (stricter capital requirements, securitization limits, insurance rules, etc.) will raise lenders’ funding costs and that is desirable. Regulators reportedly suggested that their policies could jack up rates more than 75 bps with minimal ill effect on borrowers.

Make no mistake. What we’re dealing with here is a stealth rate hike.

If Bank of Canada Governor Stephen Poloz can’t drive up Canadian interest rates, it looks like federal policy-makers are going to do it for him. And that’s going to cost you megabucks in mortgage interest.

Let’s hope the benefit (a more stable housing market) is truly worth it. Only 1 in 357 borrowers default as it is.

Moreover, let’s hope that housing stability is the actual outcome here, not the opposite. I can tell you one thing for sure. There’s going to be a lot of home sellers moving up their sale plans when they realize what just happened.

 

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Summary of Concerns Over Department of Finance Announcement

By now, you will have seen yesterday’s announcement from Finance Minister Morneau outlining mortgage insurance and qualification changes effective October 17 and November 30 respectively.

These changes were announced with no warning to our industry and, based on conversations we’ve had with a number of industry leaders, almost no consultation. The qualification changes requiring all ‘insured’ (bulk or high ratio) loans to meet 25-year amortizations and be qualified at the Bank of Canada benchmark rate (currently 4.64%) will force many would-be homeowners into the sidelines. The benchmark rate is generally 200+ bps higher than actual rates available in the market and will require anywhere from a 20-40% exaggeration of actual mortgage payments to be used to meet servicing ratios.

Additionally, the changes to mortgage insurance eligibility significantly impacts our monoline lenders. It has the potential to severely restrict their access to capital, their ability to compete with the traditional banks and the million-dollar purchase price limit effectively excludes them from the very markets that arguably have the greatest need for funding accessibility and availability.
These are just two of the issues in a very large list of complications these changes will bring to our marketplace.
Mortgage Professionals Canada is in communication with the Ministry of Finance and the Financial Sector Policy Branch and discussing the impact and unintended consequences to the marketplace these changes will bring. The mortgage broker channel originates approximately 33% of all mortgages in Canada, and approximately 50% of mortgages for first time buyers. We are an incredibly important segment of the economy and help maintain a healthy and competitive marketplace. We will keep you informed of our discussions and communications with government in the coming days.

If you have not yet seen the announcements, see below
To summarize:

  1. All insured mortgages will now need to qualify at the Bank of Canada benchmark rate (4.64%) instead of the contract rate offered on their commitment. This change is scheduled to come into effect on October 17, 2016.
  2. Portfolio (‘bulk’) insurance must now meet the same criteria as those that are high ratio insured. This change is scheduled to come into effect on November 30. This means that amortizations greater than 25 years, rental and investment properties and homes with values greater than $1M can no longer be portfolio-insured.
  3. Capital gains exemptions on principal residences will apply only to residents of Canada.
  4. In addition, there is further discussion about ‘sharing in risk’ that is currently borne in large part by the three mortgage insurers. While high ratio customers and portfolio insurance funders pay for this risk, there is discussion about sharing in the cost of losses beyond just the mortgage insurers. This in and of itself could have significant implications. We will continue to monitor any discussion around this as well.

Mortgage Interest Rates March 2016

Good news! The Bank of Canada announced today that it is holding the benchmark rate steady for the fifth straight time, noting that “the low level of oil prices will continue to dampen growth in Canada and other energy-producing countries,” although “Canada’s GDP growth in the fourth quarter was not as weak as expected.”

Global growth is expected to strengthen this year and next, and U.S. expansion remains broadly on track. Inflation in Canada is also evolving as anticipated. Taking into account all of these considerations, the Bank “judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate.”

Great news if you’ve got a variable-rate mortgage, need a new mortgage, are renewing, or want to consolidate debt at the lowest cost funds. The next rate-setting day is April 13, 2016.

If you need help in mortgage financing let our team of professional assist you. Please visit www.RequestYourFreeHomeGuide.info for more information.

On the real estate market news what’s even more fascinating is that there are very low supply of homes in the market against the demand compare to last year making the price of homes jump again this year making the average 2 storey 3 bedroom detached home at $700 – $800 thousand mark in Scarborough. So it is definitely a sellers market!

If you are interested in market watch or would like to find out when the market will shift to a Buyer’s market please subscribe to our blog. We also provide a free home market analysis of your home if you are curious about what your home is now worth at today’s market. Please go to www.RequestYourFreeHomePrice.info for more information.

See you on the next update!

Home

First time home Buyers. Here are the recap of a new mortgage rules to take effect next year Feb. 15, 2016.

Example:

Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from 5 per cent to 10 per cent for the portion of the house price above $500,000. The 5 per cent minimum down payment for properties up to $500,000 remains unchanged.

For Example: A $600,000 home now require $35,000 down payment

5% for the first $500,000 = $25,000
10% for remaining $100,000 = $10,000

For more information about this new rules you can read it on The Glob and Mail. Click Here

Income Property

Canada’s big banks have all cut their prime lending rates following the announcement that the central bank had lowered its benchmark interest rate to 0.5 per cent.

It was the second time this year the Bank of Canada had dropped the rate to stimulate the economy, after holding the rate steady for about four years.

The bank is now forecasting a rebound later in the year, but a small one: 1.1 per cent growth in GDP for all of 2015. As recently as April, the bank was expecting 1.9 per cent growth this year.

What is this mean for home buyer? More chances to qualify for mortgage financing.

For Home Investors:

Thinking of paying off your mortgage in 10 years? Perhaps paying for your children education in full? Or maybe building for additional wealth for retirement?

The answer to this questions may be: BUY AN INVESTMENT PROPERTY

Let us show you how you can take advantage of the equity of your home to acquire an investment property without having to change your finances.

Contact Us For More Information “How To Acquire A Secondary Investment Property” using your home equity.