I didn’t include it in the earlier post, because I hadn’t seen it anywhere, but the effective date for the changes to insured mortgages is April 19th, though some institutions will probably impose the new rules sooner. (And, no, this isn’t the further comment I referred to earlier.)
Mortgage insurance changes effective date
February 16, 2010New rules for government-backed mortgage insurance; first thoughts
February 16, 2010So, the speculation, as often, was partly right and partly wrong. The government announced its changes to insured mortgages this morning, and there were three:
- People taking out variable-rate mortgages will now have to qualify based on 5-year-fixed rates. (Although the stories I looked at weren’t specific on this, up to now qualification has been on the basis of posted rates, not taking discounts into account.)
- If you refinance your insured mortgage, the maximum loan-to-value goes to 90% (currently 95%).
- The minimum down payment for “speculative” investment properties is raised to 20% (again on insured mortgages).
I will be looking for more clarification on these points, particularly with respect to number 3. So far, I have found this quote from the Finance Minister: “We will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. This will discourage the kind of reckless real estate speculation that can drive prices to unsustainable levels which does not serve Canadian home buyers.”
And, in the world of spin, I love the heading on the Ministry of Finance page with the announcement: “Government of Canada Takes Action to Strengthen Housing Financing.” Not the headline I would have chosen, but they probably want people (voters) to forget the days when zer0-down, 40-year amortizations were insured.
Assessing today’s “Financial Facelift”
February 13, 2010I’ve commented previously on the “Financial Facelift” column in the Saturday Report on Business, in The Globe and Mail. I take a look at it each week, and when it touches upon mortgage matters, have been known to make a comment or two.
Today’s profile, “Big house dream out of reach for now,” profiles a couple in their 30s who are living rent free in a triplex (the rent on the two rented units covers the housing costs). They recently bought the triplex (worth $651,000), and have a $471,000 variable-rate mortgage at prime. The financial planner consulted for the article suggests locking the couple into a 5-year fixed mortgage, at 5.14%, since interest rates are likely to rise over the forecast period. (By the way, if the couple are inclined to follow that advice, please contact me; as you can see from my sister, rate, blog, the best 5-year fixed rate right now is 3.64%.)
Now, forgive me if I’m starting to sound like a broken record, but I don’t see why this couple should switch their mortgage. I have no doubt that interest rates will go up over the next few years, but locking in now just doesn’t make sense. The proposal suggested by the financial planner would cost $727 more per month; even if part of this extra expense is tax-deductible, why not stay with variable for now?
Best 5-year variable rate now 1.95%
February 12, 2010It will be interesting to see how many others lenders follow. (Some had lowered their rates to below prime, but this is prime – .30.)
Russ Skinner | Mortgage Agent
Agent Licence #: M08008443
CENTUM National Mortgage Loans Inc.
Brokerage Licence #: 10855
mail: 34 Eglinton Ave. W., #102, Toronto, ON M4R 2H6
office: 2050 Sheppard Ave. E., #210, Toronto, ON M2J 5B3 (**by appt only**) Cell 416-728-2298|Home off: 647-477-3826| E-Fax: 416-352-1659 Blackberry PIN: 21120937
russ_skinner@centum.ca
www.centum.ca/russ_skinner
Blog: http://gtamortgagecentre.wordpress.com
Ottawa, variable-rate borrowers already qualify based upon fixed mortgage rates
February 11, 2010For the third time since Saturday, there is an article in today’s Globe and Mail (p. A1 again) dealing with the possibility of Ottawa changing the rules on insured mortgages (required when a federally-regulated institution gives a mortgage with less than 20% down payment.) The series started Saturday, with an article stating that the Big Six banks were asking the Finance Department to increase the minimum down payment for insured mortgages, currently at 5% to 10%, and/or reduce the maximum amortization period, currently 35 years, to 30 years. (Last year, the government upped the minimum down payment from 0% and reduced the maximum amortization period from 40 years. Again, this only applies to insured mortgages, although many published articles miss this point.)
Monday, there was a follow-up article basically stating that the status quo would be maintained. Today’s article deals with an “idea gaining traction [which] is creating new rules that would govern how the banks evaluate mortgage borrowers.” To wit, ” a borrower seeking a three-year variable-rate mortgage must be evaluated as if they are applying for a five-year fixed rate mortgage.” According to the article, “some banks are already doing this behind the scenes, [but] there is no standardization.”
I’m not sure why the article states “some banks” are doing this; every institution I am aware of does a variation of this, although the qualifying is more often the 3-year posted fixed-rate (and it would make sense to use the same term, wouldn’t it?).
Not to mention that part of the reason there is no standardization is that different institutions have different posted rates. There is an internal website that gives me access to a subset of 17 different lenders we use (subset, since not all of the lenders we have access to are listed here, but the big ones are). As of 1 p.m., today, February 11th, the gap between highest and lowest posted 3-year fixed rates is 1.14 percentage points; for the 5-year posted fixed rates .60 percentage points. (I believe this is called competition, which the government is rumoured to favour.) As always, we must beware the Law of Unintended Consequences. And now, the numbers:
| Term & type | Best discount | Lowest posted | Highest posted |
| 3-year variable | 1.95 | n/a | n/a |
| 3-year fixed | 3.25 | 3.46 | 4.6 |
| 5-year variable | 2.00 | n/a | n/a |
| 5-year fixed | 3.64 | 3.99 | 5.49 |
Will lower real estate fees offset mortgage rule changes?
February 11, 2010That’s the gist of a “tweet” this morning from The Globe and Mail: ”Lower real estate fees could offset mortgage rule changes.” When you link to the story you see that it is reporting on a research note put out by two economists at Scotia Capital. I am going to try to find the original research note, but a couple of comments on what the Globe reports. (By the way, it’s the third story in the linked item.)
The authors are quoted as saying, “the potential is there for home buying conditions to actually become easier over the next one or two years via sharply lower average commission rates that are more in keeping with choices south of the border.” Since the U.S. market collapsed for reasons unrelated to commission levels, there is probably nothing to substantiate this claim, but it doesn’t pass the common-sense test. People have a general sense of what their home is worth, which will be moderated by the listing agent. In order for the scenario presented to be achieved, vendors would have to decide to lower their price (to give the purchasers credit for the lesser commissions envisaged), rather than keeping the price where it currently (or then) is, thereby ending up with more money in their pockets. In a buyers’ market, maybe this would come about, but most people don’t see a buyers’ market right now (and certainly not in the countdown to HST, when it will start to cost more to do real estate transactions).
The last paragraph of the story is somewhat confusing. In its entirety it reads, “The bottom line, Mr. Holt and Ms. Cordes wrote, is that the Bank of Canada can’t rely on Ottawa to cool ‘what we think is a house price bubble, even if the Canadian consensus is as unconvinced about its existence as the U.S. consensus once was.’” (Derek Holt and Karen Cordes are the authors in question.) One possible reading would be that since there was a house price bubble in the U.S., even thought the consensus view was unconvinced of its existence, there must be a house price bubble currently in Canada, because the Canadian consensus (especially among experts) is that there isn’t one. There are many words that come to mind to categorize that opinion, “well-reasoned” isn’t one of them.
I do think that house prices will go lower if the proposed changes go through, based on the principle of supply and demand. Increasing the minimum down payment and/or decreasing the maximum amortization period (for insured mortgages only, note) will diminish the number of first-time home buyers in the market. Fewer prospective purchasers will mean prices will either flatten or decline, for the condos and houses this part of the market tends to favour. The people trying to sell these houses, usually to move up, will have less equity to use, which will tend to flatten those house prices, and so on up the scale, although I would think it unlikely that “trophy houses” would suffer much if at all.
(A post will follow shortly giving my thoughts on the proposed mortgage changes themselves. I’ve started it a few times, but keep getting distracted.)
Russ Skinner | Mortgage Agent
Agent Licence #: M08008443:
CENTUM National Mortgage Loans Inc.
Brokerage Licence #: 10855
mail: 34 Eglinton Ave. W., #102, Toronto, ON M4R 2H6
office: 2050 Sheppard Ave. E., #210, Toronto, ON M2J 5B3 (**by appt only**)
Cell: 416-728-2298|Direct Line: 647-477-3826| Fax: 416-352-1659
Now available: 1-year variable rate mortgage
February 9, 2010I’ve just updated my blog devoted to best interest rates, but wanted to draw attention to one change: a 1-year variable rate mortgage is now available. There are only a couple of lenders offering it now, but depending upon popularity, it might well move to more lenders. If you’re interested, contact me.
Russ Skinner
Mortgage Agent #M08008443
CENTUM National Mortgage Loans Inc. (Brokerage #10855)
office: 2050 Sheppard Ave. E., #210, Toronto, ON M2J 5B3 (**call me first; I’m not in the office unless I’m meeting with someone**)
mail: 34 Eglinton Ave. W. #102, Toronto, ON M4R 2H6
cell: 416-728-2298 home office: 647-477-3826 fax: 416-352-1659
Ottawa won’t be changing mortgage rules again, and why it shouldn’t
February 8, 2010After Saturday’s front-page article in The Globe and Mail setting out how the big 6 banks asked Ottawa to tighten mortgage regulation, it was good to see this article this morning, “Ottawa says housing bubble not a concern.”
The problem with the “solutions” sought by the banks is that it would make it harder for first-time home buyers to get into the market. (Among the changes sought were doubling the minimum down-payment requirement to 10 per cent and shortening the maximum amortization period to 30 years, from the current 35 years. Both changes would only apply to insured mortgages.) While some people who already own homes think this would be good, in the terms of the original article, avoiding “any chance of U.S.-style collapse,” it ignores the fundamental ways in which the markets are distinct, and would seriously hurt existing home owners who would be selling homes to those now-ineligible first-time buyers.
Not to mention that there are a lot of lenders out there who aren’t insured, and who would still be able to offer mortgages to people with smaller down payments and amortized over more years (or even interest-only loans, which are usually not wise, but have their uses).
Another problem I had with the original article was the graphics accompanying it. (These I can’t find on the website; see if you can locate a copy of Saturday’s paper.) One sign of someone trying to “game” stats is when the base year is inconsistent (or missing). In the sidebar accompanying the article there are four points, each accompanied by a graph, and each of which is worthy of being looked at .
The first point, “Residential mortgage debt as a percentage of personal disposable income has been rising since the early 1980s,” uses 1960 as the first year for U.S. numbers, and 1970 for Canada. The two graphs move roughly in parallel, and except for a couple of years in the mid-1990s, the Canadian figures lag behind the U.S. ones, and the gap between the two (our Canadian figure always less than U.S. one, although I believe there are differences in how the numbers are calculated in the two countries) is almost as big as it’s ever been at the last entry.
The next point, “But thanks to lower mortgage rates, the debt service ratio — a measure of how well Canadians can afford their monthly interest payments — was trending downwards until a couple years ago,” contains 2 graphs, with no indication of the time-frame for either, but with the U.S. figure tending upwards (never below 10% and currently above 13%), and the Canadian figure starting (later) above 10% (although no higher than the lowest U.S. figure, which was from earlier), and trending generally downward, until it went up temporarily, and is now shown levelled-off.
The third graph is a puzzle. The text says, “And since the banks losses on mortgages in Canada are so small as to be insignificant, they have steadily continued to dole out more in mortgages each and every year.” The graph is headed “Canadian residential mortgage credit outstanding, $billions,” and starts at $0 in 1970. Now, since there were obviously Canadian mortgages issued by banks before 1970, my initial assumption was that this figure was actually for high-ratio mortgage loans, insured by either CMHC or a private mortgage insurance provider. (Prior to 1970, the only mortgages that qualified for insurance were issued under the National Housing Act.) But taking a fast look at the Statistics Canada website (StatsCan was identified as the source of the information), the information seems to be for total residential mortgages outstanding. I started to do more poking around, but didn’t want to pay the fee to look at some of the information. (I will continue to check this out, and will post an addendum with what I find.)
The final graph accompanies the text, “Meanwhile, the country enjoyed unusually strong growth in home prices this decade. After a brief drop in late 2008, house prices resumed their upward trajectory, catching bankers and economists off guard and separating Canada’s housing market greatly from the experience in the U.S.” As mentioned above, we aren’t the U.S., our mortgages are handled quite differently than in the U.S. (witness the retreat by most of the U.S.-based companies that came in a few years ago); the sooner the media learn this (I would have thought fundamental) lesson, the better. Oh, and the graph started in 1995 this time.
Today’s “Done Deals” in Toronto
February 5, 2010Five of the six homes features in the “Done Deals” feature in today’s Globe Real Estate sold above the asking price (and the sixth home sold for $7,000 less), but what stood out to me was that three of the six homes were listed by the same agent, and the other three were from a single broker (with one agent representing two of the properties).
It also wasn’t a very representative geographical representation, with three of the properties being in Leaside, and two at Jane and Bloor.
The profiles of the homes can be reached through this link; the “Done Deals” is on the right side of the page, towards the bottom.
Variable-rate mortgage terms (duration)
February 4, 2010It’s interesting that a lot of people talk about variable-rate mortgages as though they were all the same, particularly as to duration. In a recent random survey, the people who knew of them thought they were all for 5-year terms. There have been various terms for a number of years, but recently, a number of lenders have added their own 3-year product. And, as you would know if you have checked out the rates mentioned in my previous posting, there are different interest rates that go with the different terms.
Surprisingly, it isn’t as simple as the shorter the term, the lower the rate (although that trend is evident at any specific lender). Rather, the current best interest rate on a 3-year variable-rate mortgage is 1.95%; the best for 4-year is 2.10%; and for 5-year, 2.10%.
As per usual, if you have any questions, get in touch with me.
Russ Skinner
Mortgage Agent #M08008443
CENTUM National Mortgage Loans Inc. (Brokerage #10855)
office: 2050 Sheppard Ave. E., #210, Toronto, ON M2J 5B3 (**call me first; I’m not in the office unless I’m meeting with someone**)
mail: 34 Eglinton Ave. W. #102, Toronto, ON M4R 2H6
cell: 416-728-2298 home office: 647-477-3826 fax: 416-352-1659
