Mortgage Changes were announced recently that will come into play March 18th, 2011. These are summarized here:
http://www.moneyville.ca/article/923422--roseman-what-mortgage-changes-mean-for-you
There were no changes to minimum down payment or condo debt servicing as was previously rumored.
Wednesday, February 2, 2011
Friday, January 14, 2011
Potential Change in Mortgage Rules to Affect Condo Buyers
The government is currently discussing whether or not to change mortgage qualifications which would directly affect condo buyers. In short, as mortgage brokers we currently input 50% of the condo fees of a building when a condo is purchased. Therefore, only 50% of the condo fees need to be debt serviced into appropriate ratios established and accepted by banks & lenders, most commonly 32% GDS and 40% TDS. The proposed change would mean 100% of condo fees would need to be entered and the client would need to be able to debt service this higher amount. The government's thought process behind this is that the purchaser will be paying 100% of those fees anyhow so it should be built in to ensure they can afford the condo. Those against the move caution that people who purchase a home do not have to have repair estimates built into their debt servicing for financing.
There are also discussions on raising the minimum down payment from 5% to possibly 6 or 7%. Reports indicate that it would be unlikely to go as high as a minimum of 10%. There is also mention in the article about reducing amortization from the current maximum of 35 years to 30 years, however, they say that the effect here would be minimal so it may not be worthwhile to change.
Read below for the full story!
New Rules Would Hit Condo Buyers
The federal government's efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post has learned.
Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.
"I know for a fact they are talking about it," said one source close to finance officials who asked not be identified, about the proposal which is part of series of a new rules that the government is described as "seriously considering."
It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.
The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.
About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. "Going from 35 years to 30 does almost nothing," said the source, adding that's why the government is looking at the changes to condominium qualifications.
Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.
The proposals only affect those Canadians who require mortgage default insurance. Anyone borrowing from a financial institution covered by the Bank Act must get insurance if they have less than a 20% down payment.
"I'm concerned and disturbed if they are making changes, particularly to condos," said Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association. "They have already imposed stricter rules and that was plenty."
In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20% down payment which mostly affected the condo industry.
Mr. Dupuis said he can live with the amortization period being shrunk but any attempt to increase the minimum down payment will only hurt the market. "There seems to be a fatal obsession with real estate and engineering the real estate market which may be an unhealthy obsession."
But Ottawa has coming under increasing pressure from the financial industry to tighten mortgage rules. Ed Clark, chief executive of Toronto-Dominion Bank, has called on the federal government to take steps to curb consumer access to bank loans. The government is said to have looked into imposing new rules on lines of credit but that would be tougher to implement because it would require a change to the Bank Act, said a source.
The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet. Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32% of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.
Vince Gaetano, a vice-president with Monster Mortgage, said he too has heard the discussion of condominium fees being included in debt calculations and figures it makes sense.
"Yeah, condos provide extracurricular activities like swimming pools, gyms tennis courts and all that stuff. But the reality is you are paying the fee so why make it 50% it should be 100%," says Mr. Gaetano. "This is going to put some pressure on people. The rules have not changed in ages and this is way before the proliferation of condos."
Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. "When you buy a house you don't put any future maintenance costs [in your debt calculation]," says Mr. Lamb.
"All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don't understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won't affect them. This just attacks the lowly first-time buyer."
Garry Marr, Financial Post · Thursday, Jan. 13, 2011
There are also discussions on raising the minimum down payment from 5% to possibly 6 or 7%. Reports indicate that it would be unlikely to go as high as a minimum of 10%. There is also mention in the article about reducing amortization from the current maximum of 35 years to 30 years, however, they say that the effect here would be minimal so it may not be worthwhile to change.
Read below for the full story!
New Rules Would Hit Condo Buyers
The federal government's efforts to get tough on borrowing are now focused on the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment, the National Post has learned.
Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.
"I know for a fact they are talking about it," said one source close to finance officials who asked not be identified, about the proposal which is part of series of a new rules that the government is described as "seriously considering."
It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.
The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.
About three years ago, amidst a battle for customers between federal Crown agency Canada and Mortgage and Housing Corp and private mortgage default insurers, amortizations lengths rose almost overnight from 25 years to 40 years before Ottawa cracked down. "Going from 35 years to 30 does almost nothing," said the source, adding that's why the government is looking at the changes to condominium qualifications.
Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.
The proposals only affect those Canadians who require mortgage default insurance. Anyone borrowing from a financial institution covered by the Bank Act must get insurance if they have less than a 20% down payment.
"I'm concerned and disturbed if they are making changes, particularly to condos," said Stephen Dupuis, chief executive of the Toronto-based Building Industry and Land Development Association. "They have already imposed stricter rules and that was plenty."
In April, 2010 new mortgage rules went into affect that forced consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors, as opposed to people who use a home as principle residence, to have a 20% down payment which mostly affected the condo industry.
Mr. Dupuis said he can live with the amortization period being shrunk but any attempt to increase the minimum down payment will only hurt the market. "There seems to be a fatal obsession with real estate and engineering the real estate market which may be an unhealthy obsession."
But Ottawa has coming under increasing pressure from the financial industry to tighten mortgage rules. Ed Clark, chief executive of Toronto-Dominion Bank, has called on the federal government to take steps to curb consumer access to bank loans. The government is said to have looked into imposing new rules on lines of credit but that would be tougher to implement because it would require a change to the Bank Act, said a source.
The condominium proposal would have an immediate impact because the average condominium fee on an existing home is 55¢ a square foot in Toronto, according to research firm Urbanation Inc. which says the average condominium apartment in Toronto is 900 square feet. Currently only half that approximate $500 in monthly condo fees counts toward monthly expenses for qualifying purposes. To qualify for a mortgage only 32% of gross income can go towards housing, which also includes mortgage payments including principle and interest, taxes and utilities.
Vince Gaetano, a vice-president with Monster Mortgage, said he too has heard the discussion of condominium fees being included in debt calculations and figures it makes sense.
"Yeah, condos provide extracurricular activities like swimming pools, gyms tennis courts and all that stuff. But the reality is you are paying the fee so why make it 50% it should be 100%," says Mr. Gaetano. "This is going to put some pressure on people. The rules have not changed in ages and this is way before the proliferation of condos."
Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. "When you buy a house you don't put any future maintenance costs [in your debt calculation]," says Mr. Lamb.
"All it is is a knee jerk reaction by idiot bankers pressuring idiot politicians that don't understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is investors. This won't affect them. This just attacks the lowly first-time buyer."
Garry Marr, Financial Post · Thursday, Jan. 13, 2011
Tuesday, December 7, 2010
No Change to Prime Rate
Prime Rate Remains at 3% - Article Below!
Bank of Canada maintains overnight rate target at 1 per cent OTTAWA - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets. The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports. Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged. Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. Information note:The next scheduled date for announcing the overnight rate target is 18 January 2011. Copyright 2010 TMG The Mortgage Group Canada Inc. All rights reserved.
Bank of Canada maintains overnight rate target at 1 per cent OTTAWA - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent. The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets. The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports. Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged. Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered. Information note:The next scheduled date for announcing the overnight rate target is 18 January 2011. Copyright 2010 TMG The Mortgage Group Canada Inc. All rights reserved.
Tuesday, November 16, 2010
Thursday, July 22, 2010
Wednesday, June 2, 2010
Prime Rate up 0.25% to 2.50%
Bank of Canada increases overnight rate target to 1/2 per cent and re-establishes normal functioning of the overnight market
OTTAWA - The Bank of Canada today announced that it is raising its target for the overnight
rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly
raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal
operating band of 50 basis points for the overnight rate.
The global economic recovery is proceeding but is increasingly uneven across countries, with
strong momentum in emerging market economies, some consolidation of the recovery in the
United States, Japan and other industrialized economies, and the possibility of renewed weakness
in Europe. The required rebalancing of global growth has not yet materialized.
In most advanced economies, the recovery remains heavily dependent on monetary and fiscal
stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the
variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result
in higher borrowing costs and more rapid tightening of fiscal policy in some countries - an
important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the
spillover into Canada from events in Europe has been limited to a modest fall in commodity
prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent
in the first quarter, led by housing and consumer spending. Employment growth has resumed.
Going forward, household spending is expected to decelerate to a pace more consistent with
income growth. The anticipated pickup in business investment will be important for a more
balanced recovery.
CPI inflation has been in line with the Bank's April projections. The outlook for inflation reflects
the combined influences of strong domestic demand, slowing wage growth, and overall excess
supply.
In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and
to re-establish the normal functioning of the overnight market. This decision still leaves considerable
monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the
significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.
Given the considerable uncertainty surrounding the outlook, any further reduction of monetary
stimulus would have to be weighed carefully against domestic and global economic
developments.
Information note:
The next scheduled date for announcing the overnight rate target is 20 July 2010. A full update
of the Bank's outlook for the economy and inflation, including risks to the projection, will be
published in the MPR on 22 July 2010.
OTTAWA - The Bank of Canada today announced that it is raising its target for the overnight
rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly
raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal
operating band of 50 basis points for the overnight rate.
The global economic recovery is proceeding but is increasingly uneven across countries, with
strong momentum in emerging market economies, some consolidation of the recovery in the
United States, Japan and other industrialized economies, and the possibility of renewed weakness
in Europe. The required rebalancing of global growth has not yet materialized.
In most advanced economies, the recovery remains heavily dependent on monetary and fiscal
stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the
variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result
in higher borrowing costs and more rapid tightening of fiscal policy in some countries - an
important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the
spillover into Canada from events in Europe has been limited to a modest fall in commodity
prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent
in the first quarter, led by housing and consumer spending. Employment growth has resumed.
Going forward, household spending is expected to decelerate to a pace more consistent with
income growth. The anticipated pickup in business investment will be important for a more
balanced recovery.
CPI inflation has been in line with the Bank's April projections. The outlook for inflation reflects
the combined influences of strong domestic demand, slowing wage growth, and overall excess
supply.
In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and
to re-establish the normal functioning of the overnight market. This decision still leaves considerable
monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the
significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.
Given the considerable uncertainty surrounding the outlook, any further reduction of monetary
stimulus would have to be weighed carefully against domestic and global economic
developments.
Information note:
The next scheduled date for announcing the overnight rate target is 20 July 2010. A full update
of the Bank's outlook for the economy and inflation, including risks to the projection, will be
published in the MPR on 22 July 2010.
Wednesday, May 12, 2010
Should I lock in?
Leah's Bottom Line: If you are debating whether to lock in or not, ask yourself: What was the prime rate at when I chose this product a few years ago? Let's assume it was 2007 and you chose a prime minus 0.6% variable rate mortgage. At that point in time, prime rate was 4.75% (meaning your rate was 4.15%) and you clearly qualified with respect to your financial situation at that point in time.
While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.
Leah
ARTICLE from Canadian Mortgage Trends:
With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.
While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.
Leah
ARTICLE from Canadian Mortgage Trends:
With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.
About 12 percent of mortgage holders with fixed-rate mortgages "locked in," or switched from variable rate mortgages, in the past year, , according to a report this month by Will Dunning, chief economist at the CAAMP , and another 10 percent had already switched from variable more than a year ago.
The rate for conventional five-year mortgages was at 6.25 per cent at the end of April, nearing the 5.25 per cent rate at the end of May last year - the lowest since 1973 when the Bank of Canada data began.
"As interest rates rise, expect home buyers to increasingly opt for fixed-rate loans, in turn leaving banks with more fixed-rate assets to hedge in the swap market" said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto.
Housing starts rose to a seasonally adjusted annual pace of 201,700 units last month.
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