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Posts tagged ‘CMHC’

24% Buys A Lot Of Gas

Photo Credit: Mutley *--* on Flickr

One of the things that attracts people to Sooke is the price of housing. My clients are always amazed at what they can afford in Sooke compared to Victoria, or even just 20 minutes down the road in Langford. But have you ever wondered just how much cheaper homes are out here? Read more

New Canadian Mortgage Qualification Rules Announced Today

Flaherty Puts The Squeeze On Mortgages

Following a couple months of speculation, Finance Minister Jim Flaherty brought in some new regulations designed to tighten up lending practices and cool off the housing market in Canada. The government didn’t go so far as to reduce maximum amortization from 35 to 30 years, or increase minimum down payment requirements higher than 5%, but did take the following three actions:

  • Borrowers must now qualify for a five-year fixed rate, even if they are applying for a variable rate mortgage. Variable rate mortgages are based on the prime rate, which is at a rock-bottom 2.25% currently, and is expected to rise over the next 12-18 months. By qualifying buyers at the higher 5-year fixed rate, it is hoped that a cushion will be created such that borrowers can still afford the payments when the prime rate increases, as it will inevitably do.
  • Home owners who want to take out some equity from their homes when they refinance their mortgage will no longer be able to take out up to 95% of the lending value of their homes, only up to 90%. This is designed to prevent home owners from using their homes as an ATM and getting in over their heads if their property value declines. Probably not a bad idea, but it will prevent some home owners from paying off high-interest debt with low-interest mortgage funds. Overall, I’m happy about this one.
  • Purchasers of non-owner-occupied real estate, ie, investment properties, will now need 20% down instead of 5%. The government says this is to prevent speculation by investors. I’m of two minds on this move. It will certainly put a squeeze on buyers of investment properties, which may in turn lead to fewer rental properties available and hence a corresponding rise in rents.

The reader needs to bear in mind that the above rules are for CMHC-insured mortgages only. Private insurers like Genworth and AIG Guaranty may be more flexible. Mortgage insurance is mandated on all mortgage loans in excess of 80% loan to value ratio, which offers the lender protection should the borrower default. This way, lenders are able to offer borrowers lower rates because they do not have to compensate for the additional risk of a high-ratio mortgage.

Also, most lenders qualify a buyer on a 3- or 4-year fixed rate already when applying for a variable rate mortgage, so this won’t be a huge change for most institutions.

The new rules are set to come into force April 19th. I would expect a surge in activities in the market as buyers and investors try to get in under the deadline, even though most residential, owner-occupier borrowers won’t be too affected by the changes. All they will hear is “harder to get a mortgage” and they’ll rush out to get pre-qualified and then go shopping.

Tim Ayres – Sooke Real Estate Professional

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CMHC Says No More 40-Year Mortgages In Canada

Tightening of restrictions also eliminates zero-down-payment mortgages.CMHC

Yesterday, the Canada Mortgage and Housing Corporation (CMHC) announced that it was pulling the plug on 40-year amortization periods for mortgages, stating that it will no longer provide its government-backed insurance for these products. Consumers will also have to come up with minimum 5 per cent down payment when making a purchase, too.

My take? Other than the 5% down payment requirement, this doesn’t really change much. You can still get a 35-year amortization on your new mortgage. The change in monthly payment between 35 and 40 years is negligible. On a $300,000 mortgage at 5.5%, this amounts to a $64/mo difference.

Also, the CMHC isn’t the only source for mortgage default insurance. The two major private insurers, Genworth and AIG haven’t yet stated what they will do in response to this announcement. It’s interesting that the CMHC was the first to introduce the 40-year amortization and zero-down; the private entitites following suit, and now they’ve reversed their earlier decision.

Overall, I think this is a step in the right direction, though. Canada’s lending practices have always been a little on the conservative side, and this is a step back to that ideology.

If you are a buyer who needs a 40-year zero-down mortgage, you can still take advantage of your pre-approval or get pre-approved before October 15, 2008, when the new rules take effect – you should probably start looking for your home now. If you currently have a 40-year mortgage, not to worry, as this only applies to new mortgages after October 15.

Tim Ayres – Sooke Real Estate Professional

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Canadian Homeowners Quick To Pay Off Their Mortgages

According to the CMHC in a recent survey, Canadians reported that they were eager to pay off their mortgages as quicklyCMHC - Canada Mortgage and Housing Corporation as possible.

Not exactly breaking news – who in their right mind would want to be indebted to a bank longer than absolutely necessary?

Why am I blogging about it then? Despite the duh-factor headline, when one looks further into the survey, some of the numbers are actually quite surprising.

  • 78% of homeowners expressed an interest in paying off their mortgage as fast as possible.
  • 33% had made a lump-sum payment for this purpose
  • A whopping 84% of homeowners who make weekly or biweekly payments on the mortgage are doing so at an increased rate in order to pay off the mortgage quicker. [as little as 10% extra per month can shave years off your mortgage and save you tens of thousands in interest].
  • Half of those surveyed said they would use extra money to pay down the mortgage whenever possible

Other items in the survey included confidence levels about housing debt: 85% of respondents felt comfortable that they could handle their mortgage debt load.

Also, Canadians were overall happy with the mortgage process and the service they received; 85% reported being satisfied. The number of people using the services of a mortgage broker rose from 27% in last year’s survey to 33% this year. I am surprised it is this low, actually. Mortgage brokers provide better rates with better service in most cases, ‘shopping’ your file to as many as 50 different lenders who compete for your loan.

The full CMHC survey can be found here.

Tim Ayres 

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