CMHC was just in my office updating me on the new rule changes brought down by the Ministry of Finance for March 18, 2011.
The main thing to know is that if you have written a purchase contract prior to this date, you are still eligible for the 35 year amortization.
On a refinance, if you have a committed application with the lender, and is set to close past the March 18th date, then you're ok. So you're still allowed to refinance to 90% if needed.
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To clarify the new most important changes.
The maximum amortization for high ratio, and most like conventional (still hasn't been confirmed however, the head at CIBC told me the other day it's most likely for both) will go from 35 years to 30 years.
The maximum equity you can take out on your property for a refinance is a mere 85%. If your home is worth $400k. The most you can take is $340k
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Why I don't like these changes.
90% of my clients that have been put into a 35 year amortization do NOT need it. We use it as a strategy. Do one of two things: Keep the payments higher to whatever AM you'd like and in case something was to ever happen, you can always reduce your payments to increase your monthly cash flow.
Or you can take the extra, whatever amount, and start building your investment portfolio. At the end of the year, you should reduce your tax amount and/or receive a tax credit back which you can either reinvest or put on your mortgage as a lump sum to reduce your over amortization.
For the refinance- I don't like it as, a lot of clients that I have refinanced to 90% or 95% now or in the past, do not do it for debt reduction, they do it as they can take advantage of a lower rate and ONLY roll in their penalty to their existing balance. This doesn't allow those people to do this now which in turn is telling the client they have to pay higher and more interest. Doesn't seem fair to me.
Wednesday, January 26, 2011
Tuesday, January 11, 2011
Variable rates to stay low through 2011
Variable mortgage rates:
The Bank of Canada will hold off on increasing interest rates during the first half of 2011. This means variable mortgage rates will also remain at low levels during this time and then gradually increase from there. As the Canadian economy continues to recover, the sluggish progress in the US and the frailty of the EU, tasks the Central Bank with maintaining a tricky balancing act.
"Governor Carney and his people will be trying to thread the needle on interest rates trying to balance the rising loonie against low interest rates that encourage further consumer indebtedness", says Dr Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University.
Fixed mortgage rates:
The decreased demand for mortgages and relatively stable bond yields, leads us to believe that fixed mortgage rates will remain unchanged for the month of January. However, this outlook is susceptible to change with additional defaults in Europe or poor results on upcoming US economic indicators.
Also, ultra low interest rates for the past few years have fueled a borrowing frenzy creating concern about mounting debt levels for Canadian consumers. It wouldn't be a surprise if the government made a policy change to address the debt problem by adjusting the mortgage rules, likely spurring a change in fixed rates as well.
The Bank of Canada will hold off on increasing interest rates during the first half of 2011. This means variable mortgage rates will also remain at low levels during this time and then gradually increase from there. As the Canadian economy continues to recover, the sluggish progress in the US and the frailty of the EU, tasks the Central Bank with maintaining a tricky balancing act.
"Governor Carney and his people will be trying to thread the needle on interest rates trying to balance the rising loonie against low interest rates that encourage further consumer indebtedness", says Dr Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University.
Fixed mortgage rates:
The decreased demand for mortgages and relatively stable bond yields, leads us to believe that fixed mortgage rates will remain unchanged for the month of January. However, this outlook is susceptible to change with additional defaults in Europe or poor results on upcoming US economic indicators.
Also, ultra low interest rates for the past few years have fueled a borrowing frenzy creating concern about mounting debt levels for Canadian consumers. It wouldn't be a surprise if the government made a policy change to address the debt problem by adjusting the mortgage rules, likely spurring a change in fixed rates as well.
Tuesday, December 7, 2010
No change to prime
As we thought the Bank of Canada did not do anything to the overnight lending rate.
Here's the full article from CTV.ca
Bank of Canada Governor Mark Carney kept the central bank's trendsetting interest rate unchanged in an announcement Tuesday morning.
The rate remains steady at 1 per cent and will stay there until next year at the earliest.
Carney raised the benchmark rate three times over the summer, but since then the economy has slowed and he has put the increases on hold.
The bank said Canada's economic outlook is not as bright as it was when it issued its last forecast in October. As a result, any interest rate increases would be carefully considered.
In one piece of positive news, the bank said household spending has been stronger than anticipated. But overall, there is room for improvement.
"Governor Mark Carney said there remains significant slack in the Canadian economy -- things are not banging on all cylinders as it were," said BNN's Michael Kane.
"The takeaway from all of this is the recovery is underway, the recovery is taking place, but at a moderate pace."
According to the most recent economic data, Canada's economic growth skidded to 1 per cent in the third quarter of this year. In the second quarter economic growth was double that rate.
On the employment front, November saw a slight rise in part-time work, but a drop in good full-time jobs.
Those numbers came as fewer Canadians were looking for work, meaning the actual numbers might be even higher than the 7.6 per cent on the books.
Manufacturing is also struggling due to the high Canadian loonie, which makes exports less affordable for foreign markets -- one of the factors the central bank said is slowing the economy.
Ahead of the announcement most analysts warned Carney would risk doing major damage if he were to raise the interest rate and it was more likely he would lower expectations for future growth instead.
Here's the full article from CTV.ca
Bank of Canada Governor Mark Carney kept the central bank's trendsetting interest rate unchanged in an announcement Tuesday morning.
The rate remains steady at 1 per cent and will stay there until next year at the earliest.
Carney raised the benchmark rate three times over the summer, but since then the economy has slowed and he has put the increases on hold.
The bank said Canada's economic outlook is not as bright as it was when it issued its last forecast in October. As a result, any interest rate increases would be carefully considered.
In one piece of positive news, the bank said household spending has been stronger than anticipated. But overall, there is room for improvement.
"Governor Mark Carney said there remains significant slack in the Canadian economy -- things are not banging on all cylinders as it were," said BNN's Michael Kane.
"The takeaway from all of this is the recovery is underway, the recovery is taking place, but at a moderate pace."
According to the most recent economic data, Canada's economic growth skidded to 1 per cent in the third quarter of this year. In the second quarter economic growth was double that rate.
On the employment front, November saw a slight rise in part-time work, but a drop in good full-time jobs.
Those numbers came as fewer Canadians were looking for work, meaning the actual numbers might be even higher than the 7.6 per cent on the books.
Manufacturing is also struggling due to the high Canadian loonie, which makes exports less affordable for foreign markets -- one of the factors the central bank said is slowing the economy.
Ahead of the announcement most analysts warned Carney would risk doing major damage if he were to raise the interest rate and it was more likely he would lower expectations for future growth instead.
Wednesday, November 10, 2010
Homeowners unfazed by long amortizations
Here's an article I read this morning http://bit.ly/9XevR0 that I can agree with as well as disagree.
The level of people taking amortizations longer than 25 years is a growing trend, however, a lot of my clients that I coach into the right mortgage will take a 35 year amortization.
They don't take it to make sure they have the lowest payment and buy more home (well some do). They take it as a strategy for any future possibility of needing any extra cash flow per month. Maybe a loss of a job, death in the family, whatever.
What I say is take the 35 year AM, however, keep your payments at the higher level which is based on a 25 year or less. If an unfortunate event happened and you need that extra few hundred dollars cash flow per month, simply call and have your payments brought down to that lowest level. (most clients are able to do this online)
It's a simple solution to needing cash flow at some point down the road that doesn't have you panicking as much. If you register your mortgage in a 25 year originally, then the only way to go out to 35 is to re-register which you may not qualify for as maybe you lost your job.
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On another note, if your mortgage is insured with CMHC, Genworth or CG, there is also the home owner assistance programs that may help. This is for those that need help in dire times. The insurer and lender would rather see you work out a deal to keep your home than see you go into foreclosure. Another reason why our foreclosure rates are so low. We care!
The level of people taking amortizations longer than 25 years is a growing trend, however, a lot of my clients that I coach into the right mortgage will take a 35 year amortization.
They don't take it to make sure they have the lowest payment and buy more home (well some do). They take it as a strategy for any future possibility of needing any extra cash flow per month. Maybe a loss of a job, death in the family, whatever.
What I say is take the 35 year AM, however, keep your payments at the higher level which is based on a 25 year or less. If an unfortunate event happened and you need that extra few hundred dollars cash flow per month, simply call and have your payments brought down to that lowest level. (most clients are able to do this online)
It's a simple solution to needing cash flow at some point down the road that doesn't have you panicking as much. If you register your mortgage in a 25 year originally, then the only way to go out to 35 is to re-register which you may not qualify for as maybe you lost your job.
-----
On another note, if your mortgage is insured with CMHC, Genworth or CG, there is also the home owner assistance programs that may help. This is for those that need help in dire times. The insurer and lender would rather see you work out a deal to keep your home than see you go into foreclosure. Another reason why our foreclosure rates are so low. We care!
Friday, October 22, 2010
Collateral mortgages. Yes or No
In the news recently there's been a lot of talk of how TD is now registering ALL their mortgages as collateral mortgages. Some say this is a good thing, I truly believe it's not.
This isn't to say TD is the only one that does this. Most credit unions do and any time you bundle your mortgage with line of credits, visa's etc the same registration takes place.
This can be at 100% of the homes value a little less or in TD's case 125% of the homes value. However, in order to access the funds you have to re qualify. Dumb.
Here's just one example of why in my opinion this is a bad thing. Besides the obvious fact that the banks are giving people access to too much debt.
I have a great couple that just celebrated two daughters weddings. They used their credit cards and line of credit to pay for this. They unfortunately missed a couple payments and now their credit bureau doesn't look so good. So of course to go back to their credit union to advance some of those funds they have available they'll need to requalify. Well they can't.
The proposed solution is to do a one year second mortgage to clear things up and in a year redo their mortgage and roll everything into one.
Makes sense right?
Well in two words, they can't.
Now they're stuck with too much debt and will struggle and struggle to keep their payments up. Of course they should have consulted us first, however, when you're in the moment and you have two girls on you for wedding money, your mind isn't always there!
I just hope they can sustain the debt for another year or two so we can look at a solution at this time.
---------------
Please MAKE SURE that you're mortgage is not registered as a collateral mortgage. The banks wont tell you they're doing it as it ties you into them and their one or two products. The only way out is to do a refinance.
This isn't to say TD is the only one that does this. Most credit unions do and any time you bundle your mortgage with line of credits, visa's etc the same registration takes place.
This can be at 100% of the homes value a little less or in TD's case 125% of the homes value. However, in order to access the funds you have to re qualify. Dumb.
Here's just one example of why in my opinion this is a bad thing. Besides the obvious fact that the banks are giving people access to too much debt.
I have a great couple that just celebrated two daughters weddings. They used their credit cards and line of credit to pay for this. They unfortunately missed a couple payments and now their credit bureau doesn't look so good. So of course to go back to their credit union to advance some of those funds they have available they'll need to requalify. Well they can't.
The proposed solution is to do a one year second mortgage to clear things up and in a year redo their mortgage and roll everything into one.
Makes sense right?
Well in two words, they can't.
Now they're stuck with too much debt and will struggle and struggle to keep their payments up. Of course they should have consulted us first, however, when you're in the moment and you have two girls on you for wedding money, your mind isn't always there!
I just hope they can sustain the debt for another year or two so we can look at a solution at this time.
---------------
Please MAKE SURE that you're mortgage is not registered as a collateral mortgage. The banks wont tell you they're doing it as it ties you into them and their one or two products. The only way out is to do a refinance.
Tuesday, October 5, 2010
Know the penalties:
Knowing the rules of any game, usually gives
you advantage. The same goes for the mortgage
game. No one knows the rules better
than a full time mortgage professional that
deals in the “mortgage game” every day.
With record low rates a lot of borrowers are
choosing to refinance their mortgage to take
advantage of the savings. It’s important to do
the research up front to determine a number of
things:
• What exactly are the savings? Both monthly
and over the balance of my term.
• How much will my penalty be?
• How long will it take to recoup my penalty?
• Is there a way to lower my penalty?
While all points are important, the last one is
key. A true mortgage professional will easily
work through the first 3 points and do a full cost
benefit analysis to refinancing, and determine
your actual penalty and savings down to the
penny. The penalty does play a major role in
this scenario, and here’s where the twist comes
in.
With interest rates being so low right now, most
borrowers in fixed term mortgages will have to
pay an Interest Rate Differential penalty to get
out of their mortgage. These can be significant
as the amount of your penalty is determined by
the “spread” or “difference” between your old
interest rate and what rates are today for similar
terms (i.e. the amount of time you have left
on your mortgage.)
Armed with that knowledge,
there is an opportunity to hedge
yourself and lower your penalty.
If you’re not in a hurry to refinance,
and you believe interest rates have bottomed
out and will increase in the short term,
you can do the following:
• Book today’s rate for 120 days.
• Hope interest rates increase.
• Pay your mortgage off and refinance after
rates have increased.
Your mortgage professional will have to stay on
top of things to make sure your lawyer or notary
orders the discharge/payout statement from
your lender just before funding at the highest
possible interest rate day. That way your penalty
is minimized.
What this scenario accomplishes is the following:
You get your new mortgage at the bottom
of the barrel lowest rate, but your penalty is
determined on a smaller spread. You’ve got the
best of both worlds, lowest rate, and smallest
possibly penalty within the 120 day period.
I’ve performed this strategy many times in increasing
rate environments and the savings can
be substantial. The last client we did this for
saved $4,800 on their penalty by waiting 3
months to fund their refinance. Of course they
paid the higher rate on their old mortgage during
the 3 months, but the penalty savings were
worth more than the interest difference during
that period.
you advantage. The same goes for the mortgage
game. No one knows the rules better
than a full time mortgage professional that
deals in the “mortgage game” every day.
With record low rates a lot of borrowers are
choosing to refinance their mortgage to take
advantage of the savings. It’s important to do
the research up front to determine a number of
things:
• What exactly are the savings? Both monthly
and over the balance of my term.
• How much will my penalty be?
• How long will it take to recoup my penalty?
• Is there a way to lower my penalty?
While all points are important, the last one is
key. A true mortgage professional will easily
work through the first 3 points and do a full cost
benefit analysis to refinancing, and determine
your actual penalty and savings down to the
penny. The penalty does play a major role in
this scenario, and here’s where the twist comes
in.
With interest rates being so low right now, most
borrowers in fixed term mortgages will have to
pay an Interest Rate Differential penalty to get
out of their mortgage. These can be significant
as the amount of your penalty is determined by
the “spread” or “difference” between your old
interest rate and what rates are today for similar
terms (i.e. the amount of time you have left
on your mortgage.)
Armed with that knowledge,
there is an opportunity to hedge
yourself and lower your penalty.
If you’re not in a hurry to refinance,
and you believe interest rates have bottomed
out and will increase in the short term,
you can do the following:
• Book today’s rate for 120 days.
• Hope interest rates increase.
• Pay your mortgage off and refinance after
rates have increased.
Your mortgage professional will have to stay on
top of things to make sure your lawyer or notary
orders the discharge/payout statement from
your lender just before funding at the highest
possible interest rate day. That way your penalty
is minimized.
What this scenario accomplishes is the following:
You get your new mortgage at the bottom
of the barrel lowest rate, but your penalty is
determined on a smaller spread. You’ve got the
best of both worlds, lowest rate, and smallest
possibly penalty within the 120 day period.
I’ve performed this strategy many times in increasing
rate environments and the savings can
be substantial. The last client we did this for
saved $4,800 on their penalty by waiting 3
months to fund their refinance. Of course they
paid the higher rate on their old mortgage during
the 3 months, but the penalty savings were
worth more than the interest difference during
that period.
Monday, October 4, 2010
Mortgage Tightening In Works:
Looks like the Federal Government may be tightening the rules on buying a new home.
This comes as our debt in Canada is now averaging 146% of personal disposable income.
In the US, when we hit the big crisis, roughly the same percentage was registered, which is very high. The Fed's want to look at making sure that this doesn't happen here in Canada.
We don't think that this would happen right away, however, may happen sooner than later. This isn't a good thing as we're already in a very slow market.
The article I read is here http://bit.ly/9HyqB2
This comes as our debt in Canada is now averaging 146% of personal disposable income.
In the US, when we hit the big crisis, roughly the same percentage was registered, which is very high. The Fed's want to look at making sure that this doesn't happen here in Canada.
We don't think that this would happen right away, however, may happen sooner than later. This isn't a good thing as we're already in a very slow market.
The article I read is here http://bit.ly/9HyqB2
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