Bank Of Canada December 7 2016
Good morning
So with the snow falling and the beautiful colours and lights of the holiday season approach, we have some great news..
As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.
At 10:00 am EST, Wednesday December 7, 2016, the Bank of Canada again maintained their overnight rate which in essence means no change to your interest rate. I feel like I have been repeating myself over and over again as they haven’t increased the rate since July 2007 – nine years ago! You continue to benefit from low rates which for sure puts a smile on your face during this holiday season – which if we are honest can be a little stressful at times!
I wanted to reiterate again that there have been a lot of changes in the mortgage legislation and qualifying guidelines recently, and potentially more to come, all in the hope of stabilizing the real estate market as well as ensuring home owners and those with significant debt can handle future interest rate increases. Some of those changes involved refinancing your home in the future to pull equity might result in limited options and tighter qualifying. With all of this comes a lot of confusion and most importantly, how will all these changes potentially impact you and your plans for borrowing funds in the future – whether it is refinancing to maximize the low interest rates and equity in your home, purchasing rental properties or moving up into a bigger home? Call me now for a pro bono consultation to review your current financial situation and let’s start planning now for 2017 - let’s make sure we get you prepared now and ensure the changes won’t impede your future borrowing plans.
To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:
“Economic data suggest that global economic conditions have strengthened, as the Bank anticipated in its October Monetary Policy Report (MPR). However, uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished. Following the election in the United States, there has been a rapid back-up in global bond yields, partly reflecting market anticipation of fiscal expansion in a US economy that is near full capacity. Canadian yields have risen significantly in this context.
In Canada, the dynamics of growth are largely as the Bank anticipated. Following a very weak first half of 2016, growth in the third quarter rebounded strongly, but more moderate growth is anticipated in the fourth quarter. Consumption growth was robust in the third quarter, supported by the new Canada Child Benefit, while the effects of federal infrastructure spending are not yet evident in the GDP data. Meanwhile, business investment and non-energy goods exports continue to disappoint. There have been ongoing gains in employment, but a significant amount of economic slack remains in Canada, in contrast to the United States. While household imbalances continue to rise, these will be mitigated over time by announced changes to housing finance rules.”
Given the downward revision to economic growth, the Bank considers the risks around its updated inflation outlook to be roughly balanced, albeit in a context of heightened uncertainty. It is still anticipated that rates won’t start increasing until well into 2017 depending on how the recent changes will impact the economy. Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.
Fixed rates have increased slightly since the last announcement, and are around 2.59% to 2.89% for a five-year fixed term.
Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. I’ll be in touch again for the next announcement on January 18, 2017.
I wonder if I can ask a favour; this time of year can be really tough for many that are not as financially fortunate as us; whether it is mountains of debt that they can’t get a handle on, low income or even unemployed… I can help. If you hear a colleague, friend or family member talk about going thru a financially tough time would you mind letting them know I might be able to help. I can assist home owners, no matter their credit or income, access their equity to get them back on their financial feet and relieve some stress – especially during this time when it should be smiles and joy instead of stress and sleepless nights. My expertise in helping everyone thru budgeting, credit counselling and debt consolidation can make a huge difference to their outlook. Would you mind passing my contact information on to them – I’ll provide a pro bono consultation to provide some great options on how I can help – this is very much appreciated.
5 ways to improve mortgage qualifying success
5 ways to improve mortgage qualifying success
Yes new mortgage rules have made it harder to qualify for a mortgage, whether you are a first-time buyer or looking to renew or refinance your mortgage with a new lender. That’s why you should get yourself mortgage ready well in advance. Here are 5 tips to help you do just that:
1. Get your credit report. Getting a copy of your credit report will let you know how you will be viewed by lenders. You can order yours for free through the mail or for a small fee online at www.equifax.ca. If you spot a problem, contact Equifax to resolve the issue.
2. Polish your credit. You can boost your score by several points fairly quickly with continual good credit habits. Most importantly, pay your bills on time, every time. Don’t let your credit accounts exceed 50% of the credit available. Before you cancel any credit cards, get advice. And don’t apply for a store card just to save on your purchase that day. Make a habit of checking your credit score each year, and watch how those good credit habits push your credit score skywards!
3. Cash is king. Plan to go into homeownership with the maximum downpayment possible. If you are in the "saving up" stage of preparing for homeownership, now is the time to meet. There are several downpayment savings strategies available that we can put to work for you.
4. Get a boost from family. Parents and grandparents have enjoyed the personal and financial benefits of home ownership themselves, and see how hard it is today to make that important first step into the market. Check to see if they are willing to help by gifting or loaning some or all of the downpayment, or by helping you with other debts.
5. Start a dialogue early. Get in touch early to talk about your purchase, refinance or renewal plans. I can help you be fully prepared to get you where you want to go, and to make sure you can take advantage of any opportunities that come your way.
Also remember, history has proven that it is almost impossible to perfectly time the market. Home ownership has proven to be a very solid investment over the long term, so focus on buying a home when you are financially ready and when it fits your lifestyle;
Home maintenance tips tor the most grueling season - winter
Home maintenance tips tor the most grueling season - winter
Your house is an important investment that you want to keep in tip top shape, especially if you are planning to be there for the foreseeable future. It’s also your home, which means regular maintenance is necessary to ensure your family’s safety and ongoing enjoyment.
Winter can be the most grueling season for your home. CMHC (Canada Mortgage and Housing Corporation) has compiled this general maintenance checklist to help you keep your home in top shape:
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TD Bank joins Royal Bank of Canada in increasing fixed mortgage rates
ORONTO -- TD Bank (TSX:TD) has quietly increased its fixed mortgage rates ahead of a similar move by Royal Bank of Canada (TSX:RY) to take effect Thursday, the latest sign that Canada's big banks are hiking the costs of borrowing for homeowners.
Cheryl Ficker, a spokeswoman for TD, said Wednesday that the lender raised its special rate offer for a four-year fixed mortgage by five basis points to 2.44 per cent and for a five-year fixed mortgage by 10 basis points to 2.69 per cent. The changes kicked in Tuesday and affect all amortization periods, Ficker said.
Rob McLister, a mortgage broker at IntelliMortgage and founder of RateSpy.com, said he expects the other big banks will quickly move in lockstep because of a massive sell-off in the bond market that has made it more expensive for banks to get access to cash.
"When bond yields shoot up 25-plus basis points like we've seen in the last week, the big banks move like a herd," said McLister.
"Some lift rates within 48 to 72 hours and the stragglers take two to four more days. But the herd always moves in the same direction."
McLister said he expects the other big banks to boost their five-year fixed mortgage rates by 10 to 40 basis points.
TD's decision comes ahead of Royal Bank's hikes to its special offer for fixed mortgage interest rates.
As of Thursday, RBC's special offers for a four-year fixed rate mortgage will rise by 30 basis points to 2.79 per cent. A five-year fixed mortgage rate will be 2.94 per cent, an increase of 30 basis points.
The bank's changes are based on amortization periods of 25 years or less.
RBC homebuyers who opt for an amortization period longer than 25 years will have to pay higher rates than those with shorter amortization periods. The special offer rates for four- and five-year fixed rate mortgages are 10 basis points higher than for those with an amortization of 25 years or less.
McLister said the wide gap in the banks' new rates indicates that RBC is intentionally overpricing its competitors.
"I suspect RBC, acting as market leader, is displaying these extreme rates to create a perception that rates should be higher than they are," he said. "It also generates more revenue when RBC's variable-rate customers lock in."
Source: http://www.ctvnews.ca/business/td-bank-joins-royal-bank-of-canada-in-increasing-fixed-mortgage-rates-1.3164010
TD Bank raises mortgage prime rate to 2.85%
Toronto Dominion Bank has become the first major lender to hike its mortgage rates after Ottawa's move last month to change some of the rules that govern insured mortgages.
The bank's mortgage prime rate is rising 0.15 points to 2.85 per cent, effective immediately, after it had remained steady for 15 months.
Only customers with variable rate mortgages will be affected, the bank said in a statement, while fixed-rate customers should see no change. Other products such as lines of credit are not affected.
"We regularly review our rates and adjust them based on a number of factors, including the cost that TD pays to fund mortgages," the bank said. "Increasing our rates is not a decision we take lightly. We consider the impact on our customers before proceeding with any rate change, and we communicate directly with customers whose loans or mortgages are affected."
It's rare for the big banks to leave much gap between themselves on their prime lending rates, so other major lenders are expected to follow suit. CBC News has reached out to Royal, CIBC, Scotiabank and BMO for comment, but none was immediately available.
James Laird, a co-founder of rate-comparing website RateHub and president of mortgage brokerage Canwise Financial, says he can't recall the last time a major bank moved its prime lending rate out of step with the Bank of Canada, which has been on the sidelines for all of this year and is next scheduled to meet next month.
"That being said, there's been some very major changes to the mortgage industry," he said in an interview. "This could be in anticipation of higher funding costs when the new rules come in."
In addition to a new stress test for borrowers, Ottawa also implemented new rules set to kick in at the end of this month that will make many types of mortgages ineligible for bulk insurance — which is one of the cheapest ways for lenders to insure their loans.
That means in less than a month, many lenders won't be able to cut their costs by packaging their mortgages together and selling them to investors. That will raise the cost of mortgages everywhere, especially for non-bank lenders.
So TD moving to raise their mortgage rates could be a way of getting out ahead of those changes, Laird said.
"Without being able to ensure those mortgages," Laird said "we can point to that as a likely reason for today's news."
SOURCE: http://www.cbc.ca/news/business/td-bank-mortgage-prime-rate-1.3830878
I HEARD OF A GREAT OPTIONS – RENT TO OWN
I HEARD OF A GREAT OPTIONS – RENT TO OWN
With the new rules in place, rent to own may be a very tempting offer to reach home ownership. Is this truly a great option?
Rent to own could be an option if it is set up correctly. Let’s look at what a rent to own agreement would need to look like to make the contract work.
- Market rent must be the base price for the property. The portion over the market rent would be going towards the down payment. An appraisal report for the market rent should be included in the agreement.
- Only the portion over that amount can be used as down payment and should be paid with 2 separate cheques.
- Contract should be signed and dated at the beginning of the term when the tenant moves in. If you are already renting the unit and are switching to a rent to own then a new contract should be drafted.
- A high deposit is often requested (usually around 10K). This deposit should be refundable and should be stipulated in the contract. As well as any other lump sum payment should be stipulated in the original agreement.
- Purchase price and date of purchase must be set at the onset of the contract.
Looking at this list, rent to own looks like a great option. Let’s look at the pitfalls of this kind of scenario.
- You will be paying higher rent than you would normally pay for the unit. The extra portion is not refundable if you do not purchase the unit. If you can pay that amount why not include that amount in your own bank account until you are in a position to purchase a home.
- If you cannot prove the actual amount paid towards the down payment, you might not be able to use that amount. Also, many lenders would consider this like ‘gifted equity’ and since it is not from a family member it would not qualify for the down payment. Mortgage lenders/ banks would be limited.
- Should part of the contract not align with the insurers (CMHC, Genworth and Canada Guarantee) the insurers will not insure the deal and you will require a higher down payment (20%) to make the deal work.
- Deposit should be refundable – many times rent to own sellers do not want to stipulate that the deposit is refundable. Should this not be stipulated, again the insurers will not accept the mortgage application. As well, it would be highly recommended if this amount was held in trust at a lawyer’s office. This would be better protection for your assets.
- Purchase price is established at the beginning of the contract. The downside is should the market stay the same or reduce in value then the higher purchase price may result in a non purchase , you pay the difference out of pocket which means you have over paid for the property or the landlord may not want to sell .
- If the mortgage rules change within the time frame of paying rent , your financial situation changes, employment changes , you end up having any credit issues or your debts are too high resulting in the inability to borrow as much as the agreed price of the home, you will be able to qualify for the purchase. You may need to look at alternative lending, thus requiring more money downand higher mortgages rates.
- The contract date is often not flexible and if you do not qualify for a mortgage at the end of the term, you will lose all the extra money you have paid for the rental unit. Also should life get in the way and you are late on the rent payment, the contract may become null and void.
Rent to own are very lucrative for the seller and very seldom work out for the positive - the renter. Should the seller declare bankruptcy, you will need to be added to the list of creditors and be paid pennies on the dollars. You will lose your deposit money. ( how do you know this? )
Other things to be considered:
Making sure you have your own legal advice
Who is the rightful owner of the property?
Are you actually paying the correct party?
Look into registering the lease against the title of the property that will prevent the owner from selling the property from under you. There is a cost associated to registering a lien.
Before you enter in such an agreement it would be best to talk to reputable mortgage brokers. They will provide you with all the ins and outs of these types of structures. You may be better at looking at other options than signing on the dotted line. Start your own RRSP account for the down payment. Collect the tax break and invest that money in your down payment. Look at a flex down program or gifted down payment program. Work alongside The Wilson Team to get your purchase power on track. Lots of different options are available and would be a more reliable way of purchasing a home.
Should you stress about the stress test? What you should know about new mortgage rules.
Should you stress about the stress test? 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 (for buyers with less than 20% downpayment)
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 I 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 rate 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 (with more than 20% down/equity).
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!
Reverse Mortgages – Home Equity Bank Or Known as CHIP Mortgage
When you have reached the young age of 55 years, there are many options available that can start to open up in terms of how you would like to spend retirement and how much equity you have built up in your home. With baby boomers coming into an all-time record, reverse mortgages are getting much more popular and in demand. A reverse mortgage is secured by the equity/ funds in the home, which is the portion of the home’s value that is debt-free. It allows homeowners to obtain cash, without having to sell their home. Not all lenders offer reverse mortgages. The main lender of reverse mortgages in Canada is CHIP and is offered through The Wilson Team your local mortgage brokers. In Fact the only provider of reverse mortgages in Canada is Home Equity Bank.
A reverse mortgage is certainly one very viable option but it is always best to sit down with your mortgage and look at all the possible options that are available. You must also note that Home Equity Bank must be in first position so there can be no other debts registered against the property when its funds.
The CHIP mortgage allows you access the value in your home without having to sell or move away. The money you receive is also tax-free and yours to use as you wish so long as it is your principle residence. The CHIP can do the following:
Advantages:
- Pay off debts to lower monthly budget
- Handle unexpected expenses easily
- Help your children or grandchildren
- Improve your day-to-day standard of living
- Does not require income to qualify or good credit
- Make a special trip or purchase
- You don’t have to make any regular payments on the loan.
- This income does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be receiving.
- You maintain ownership of your home
- You can decide how you want to receive the money.
- You can choose to receive:- a lump-sum payment
- - a loan to set up planned advances that provide you with a regular income, or
- - a combination of these options.
- Reverse mortgages do not have to be repaid until you sell your home or you or your surviving partner pass away.
- The freedom to eliminate monthly payments can be a benefit for stretched budgets.
- You can repay the loan at any time.
- If the investment market takes a downturn, a reverse mortgage could fill the gap until your investments stabilize or reach maturity.
- The amount you owe can never exceed the value of your property.
- You and your beneficiaries will not be responsible for any shortfall if interest rates increase and housing values drop.
- Depending on the provider, funds can be received as a lump sum, regular payments or a combination of lump sum and regular payments.
- Interest paid on the reverse mortgage is tax deductible if the proceeds were used to earn investment income (interest or dividends).
The most important advantage of CHIP is that you are not required to make any payments on your home for the funds you have borrowed until your home sells or you have reached your max borrowing amount which is usually determined by the percentage of the loan to the value of your home. Usually the older you are then you can borrow more. Since the home can continue to grow in equity, then it can shift. You can borrow up to 55% of the value of your home without making one payment. Essentially the interest grows and accumulates on the money you borrow and does CHIP away at your equity. If you sell or it becomes your non primary residence then the loan is to be paid in full.
Disadvantages:
- If you do borrow from your home to invest then it is considered a leveraged investment and could add additional risk even if the interest in tax deductible – be cautious of what the investment is.
- Mortgage rates are generally a few points higher than market mortgage rates in Canada making them most expensive than traditional mortgages or secured lines of credit and early payment of all or a portion of the amount borrowed could subject you to prepayment penalties. The penalties can be much higher than traditional mortgages or LOC;s.
- Borrowing against your home will impact the amount available to pass on to your beneficiaries as the equity descreases.
- Start-up fees can be a bit higher. Start-up fees depend on options selected but typically include an application fee, home appraisal fee, and costs for independent legal advice. Fees can easily reach $2000 to $2500 which is deducted from the principle received.
- The amount you can borrow through a reverse mortgage is different for all as it is based on many factors such as geographic location, the type of housing you own, your age and gender, and the amount of your current debt. A reverse mortgage may not be an option depending on these circumstances.
Some of the questions we would like to know is how much money do you require.
How much is your monthly intake now and in the future? What can you count on?
What kind of lifestyle to you want to lead?
What does your estate planning look like?
What will happen if you are not able to stay in this home and or require assisted living?
What other Options are available ?
Sometimes it does make better sense to take advantage of the lower rates and access a traditional mortgage or a secured Line of Credit which allows you to take out the equity at a lower rate and or make interest only payments. It will all depend on your income, your cash flow, and planning.
The other option could be downsizing and putting your equity into your pocket.
We work with some of the best financial planners that can also work with us as your advisors to determine the best fit .
Bank Of Canada Announcement October 19
Good morning
Bank Of Canada Announcement October 19: So with the leaves falling comes the beautiful colours’ of fall and some great news as well…
As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.
At 10:00 am EST, Wednesday October 19, 2016, the Bank of Canada again maintained their overnight rate which in essence means no change to your interest rate. I feel like I have been repeating myself over and over again as they haven’t increased the rate since July 2007 – nine years ago! You continue to benefit from low rates which for sure puts a smile on your face.
In the last few weeks there has been a lot of changes in the mortgage legislation and qualifying guidelines all in the hope of stabilizing the real estate market as well as ensuring home owners and those with significant debt can handle future interest rate increases. An announcement today further confirmed that even refinancing your home in the future to pull equity might result in limited options and tighter qualifying. With all of this comes a lot of confusion and most importantly, how will all these changes potentially impact you and your plans for borrowing funds in the future – whether it is refinancing to maximize the low interest rates and equity in your home, purchasing rental properties or moving up into a bigger home? Call me now for a pro bono consultation to review your current financial situation and let’s start planning now. Some of these legislation changes don’t come into effect until November 30th, 2016 so let’s make sure we get you prepared now and ensure the changes won’t impede your future borrowing plans.
To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:
“The global economy is expected to regain momentum in the second half of this year and through 2017 and 2018. After a weak first half, the US economy in particular is strengthening: solid consumption is being underpinned by strong employment growth and robust consumer confidence. However, because of elevated uncertainty, US business investment is on a lower track than expected.
Looking through the choppiness of recent data, the profile for growth in Canada is now lower than projected. This is due in large part to slower near-term housing resale activity and a lower trajectory for exports. The federal government’s new measures to promote stability in Canada’s housing market are likely to restrain residential investment while dampening household vulnerabilities. Recent export data are improving but are not strong enough to make up for ground lost during the first half of 2016, despite the effects of the Canadian dollar’s past depreciation. Growth in exports over 2017 and 2018 are projected to be slower than previously forecast, due to lower estimates of global demand, a composition of US growth that appears less favourable to Canadian exports, and ongoing competitiveness challenges for Canadian firms.
After incorporating these weaker elements, Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016, supported by accommodative monetary and financial conditions and federal fiscal measures.”
Given the downward revision to economic growth, the Bank considers the risks around its updated inflation outlook to be roughly balanced, albeit in a context of heightened uncertainty. It is still anticipated that rates won’t start increasing until well into 2017 depending on how the recent changes will impact the economy. Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.
Fixed rates haven’t really changed at all since the last announcement, and are around 2.39% to 2.59% for a five-year fixed term.
Recap: Bank Of Canada Announcement October 19
Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. I’ll be in touch again for the next announcement on December 7, 2016.
I wonder if I can ask a favour, going with my theme of “Let the sun set and the leaves fall along with Canadian consumer debt with our help” if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them. In either of these cases, would you mind passing my contact information on to them – this is very much appreciated.
Kelly Wilson Top 1% Mortgage Experts in Canada
4 Major Mortgage Rule Changes
The current rules
Buyers with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages.
In situations in which the buyer has 20 per cent or more for a down payment, the lender or borrower could obtain “low-ratio” insurance that covers 100 per cent of the loan in the event of a default.
Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. The federal government backs the insurance offered by the two private-sector firms, subject to a 10-per-cent deductible.
Related: Ottawa’s housing reforms target foreign buyers, mortgage debt
Opinion: Stress tests won’t fix Canada’s heated housing market(Subscribers only)
Related: Ottawa’s push to tackle real estate tax dodgers sees mixed response
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The change
Expanding a mortgage rate stress test to all insured mortgages.
What it is
As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent.
Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.
Who it affects
This measure affects home buyers who have at least 20 per cent for a down payment but are seeking a mortgage that may stretch them too thin if interest rates were to rise. It also affects lenders seeking to buy government-backed insurance for low-ratio mortgages.
Why
The government is responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise.
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The change
As of Nov. 30, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages.
What it is
The new rules restrict insurance for these types of mortgages based on new criteria, including that the amortization period must be 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property will be owner-occupied.
Who it affects
This measure appears to be aimed at lowering the government’s exposure to residential mortgages for properties worth $1-million or more, a category of the market that has increased sharply in recent years in Vancouver and Toronto.
Why
Vancouver and Toronto are the two real estate markets that are of most concern for policy makers at all levels of government. These measures appear to be targeted at those markets.
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The change
New reporting rules for the primary residence capital gains exemption.
What it is
Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.
Who it affects
Everyone who sells their primary residence will have a new obligation to report the sale to the CRA, however the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.
Why
While officials say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.
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The change
The government is launching consultations on lender risk sharing.
What it is
Currently, the federal government is on the hook to cover the cost of 100 per cent of an insured mortgage in the event of a default. The federal government says this is “unique” internationally and that it will be releasing a public consultation paper shortly on a proposal to have lenders, such as banks, take on some of that risk. The Department of Finance Canada acknowledges this would be “a significant structural change to Canada’s housing finance system.”
Who it affects
Mortgage lenders, such as banks, would have to take on added risk. This could potentially lead to higher mortgage rates for home buyers.
Why
The federal government wants to limit its financial obligations in the event of widespread mortgage defaults. It also wants to encourage prudent lending practices.
Source: http://www.theglobeandmail.com/real-estate/four-major-changes-to-canadas-housing-rules/article32223470/