Could the new mortgage rules be costing you $15,000?

In November of 2016 the government introduced changes to the rules for what mortgages would qualify for the government backed mortgage insurance programs. The new criteria for mortgages to be insured will includes the following requirements:

• A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
• A maximum amortization length of 25 years;
• A property value below $1,000,000;
• For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the established amortization schedule; A minimum credit score of 600;
• A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
• If the property is a single unit, it will be owner-occupied.

If your mortgage does not meet these guidelines the lender can no longer insure the mortgage. This will have the biggest impact on anyone who is looking to refinance their mortgage to access the equity in their home.

Why is this important?

Lenders in Canada don’t lend their own money! They go into the marketplace to raise capital which they can then lend out to borrowers. If the cost of getting their capital goes up, these costs are passed on to the borrower as higher interest rates.

The cheapest source of mortgage funds come from government sponsored programs that allowed lenders to insure the mortgages that they set up. The lenders package up these mortgages and sell them to investors. This process is known as securitization. Because these mortgages were insured by the government the investors were willing to take a lower rate of return in exchange for knowing that their investment was guaranteed. This source of funds is used by both the banks, credit unions and non-bank lenders. And because the cost of getting the funds is the same for all lenders it created a lot of competition to offer the best rates in order to attract new mortgages to their companies.

With the changes the non-bank lenders had to look to alternative sources of getting the funds for mortgages that cannot be insured. Because these mortgages can’t be insured the non-bank lenders have higher costs of getting their funds. As a result the non-bank lenders had to increase interest rates on these mortgages to cover the additional costs. And even though the banks and credit unions could fund these mortgages from their deposits they have also increased rates on these types of mortgages.

With the rule changes lenders now look at mortgages as following into three different categories and set the interest rate they will charge the borrower based on which category that mortgage falls into. These categories are:

Insured – These are for purchases or switches of existing mortgages where the client will be paying the mortgage insurance fees. The maximum amortization for these mortgages is twenty-five years, borrower must qualify using the benchmark interest rate of 4.64% and the maximum purchase price is $1 million. These mortgages will offer the best interest rates.

Insurable – These mortgages meet the guidelines to be insured but the borrower has more than 20% to put down. In the past lenders were willing to cover the cost of bulk insuring these mortgages. With the new rules the lenders are looking to pass the cost of the mortgage insurance on to the borrower. In most cases the lenders are doing this by offering higher interest rates depending on the loan amount in relation to the purchase of the property. This is known as the loan to value. If the loan to value is less than 65% it is possible to get the same rates as an insured mortgage. As the loan to value increases the cost of the mortgage insurance increases so lenders will charge a higher interest rate to compensate for the additional cost of the insurance. When the loan to value exceeds 75% it is likely that you will be paying a similar interest rate to the mortgages that fall into the uninsurable category.

Uninsurable – This applies to any purchase where the property value is over $1 million and any refinance where the borrower is looking to access the equity in their home. These mortgages will attract the highest interest rate as it costs lenders more to obtain the money they need to make these loans.

Currently an insured five year fixed term is available at 2.59% while an uninsurable five year fixed term will be closer to 2.79%. So if your new mortgage falls into the uninsured category and you have a $350,000 mortgage it will cost you an additional $14,702 in interest over the life of your mortgage. Not $15,000 but pretty darn close. Source: Lawrie Thom

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

Panic buying? When will the housing market slow down?

Houses selling over asking price is becoming the norm, these days. Kinda crazy. Sometimes a house is just listed under market value to attract a frenzy of buyers. An old tactic that has worked well in larger urban markets. Today, that tactic is being used in smaller communities, too.

What’s unclear is if this selling tactic is contributing to houses selling for more than they’re worth. And what is a home worth, anyway? I always thought a house was worth what someone was willing to pay in the open market. That’s still true in most cases, today.

When I see reports of houses selling for $100k, $200k and $300k over asking, it makes me wonder. How long will this market last? Will it crash? And if so, when? It’s hard to make forecasts and I can’t see into the future, but let’s examine this a little.

WHEN WILL THE HOUSING MARKET CRASH?

I spoke with some experienced realtors and senior management of reputable financial institutions. They tell me the end doesn’t appear to be in sight. The lack of houses for sale is driving the market. The lack of new homes being built in major urban centres, like Toronto (and GTA), Hamilton, Vancouver, is fueling this increase. And with immigration of between 100,000 to 150,000 new residents in the GTA expected each year, this will also drive up demand. People want to own their homes.

In 2016, house prices were reported to increase by 22% in Greater Toronto and 15% in Greater Vancouver. Consumers are reading this and thinking they will never get in if they wait, so they buy…some of them will “panic buy”. I’m not one to promote ‘panic buying’. A real estate purchase should be made for the long term. Plan on owning for 7 years. This is how long it will take to amortization the acquisition and disposal costs of real estate. It’s simple math. And mortgage rates are still near all-time lows. Making it more affordable.

ANOTHER REASON HOUSE PRICES WILL CONTINUE TO RISE

Perhaps there is something else going on.. Are builders shying away from building due to the fact house prices have gone up so much? Are they worried they won’t be able to sell and make a profit at these levels? And if this trend of low supply and higher demand continues, when will it end?

I don’t have the answers, but one thing I will say is that you shouldn’t treat real estate like a penny stock gamble or a day at the horse races. Don’t speculate. This is a large amount of money to gamble with. I love real estate as a long term investment. It’s a proven winner over the long term. Be sure you can hang in there if there is a correction. In any down market, the pessimists will always come out of the woodwork to say, “I told you so”. If you can stick it out for those 7 years, chances are, you will be happy you did. History supports this.

FOR THOSE THAT BOUGHT IN THE LAST 10 YEARS

Speaking of pessimists…. what happened to all those negative forecasters that were telling us not to buy a house, 3, 4, 5 6, 7, 8 and 9 years ago? Haven’t seen them for a while. If you listened to the housing bears, how much would you have lost? House prices have doubled and some causes, tripled over the last 10 years.. Where are those housing bears today?

For this reason, please don’t rely solely on flash reports from the loudest mouth in the media. Get some expert advice to find out if buying a house is right for you. Speak with an experienced Mortgage Broker and Realtor. Yes, a good realtor or mortgage broker won’t push you into something you aren’t ready for. Speak with a trusted advisor. Get guidance from someone you trust or ask them who they would recommend. - Steve Garnganis

- Posted by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca

3 Easy Ways to Finance Your Home Renovation

Renovating your home is within financial reach; increase the value of your home with an updated bathroom or kitchen, new hardwood floors, or energy efficient solutions. Talk to Steven Porter today to see how you can finance your next renovation project! Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, real estate broker with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

Buy now and pack up your mortgage with you.

One of the biggest hurdles for most move-up home buyers is having to pay huge mortgage discharge fees and penalties for breaking an existing home mortgage early and taking out a new one. So what happens to most home buyers, is they delay purchasing that dream home, sometimes for years, until the end of the term of their mortgage.

The good news is you don’t have to wait. It is possible to transfer your mortgage from one home to another. This practice is known as a mortgage “Port”. Porting your mortgage is when a homeowner transfers their mortgage from one property to another. An example of this option would be when you have sold your current home and purchased a new home. 

Porting can be a valuable tool if the interest rate on your current mortgage is no longer offered on the market.  Conversely, if the current mortgage rates are lower than the rate that you have, you may not want to port your mortgage. However, you will also need to consider if there are  penalties for breaking your mortgage early if you choose not to port it.
 
On a cautionary note, some lender mortgages allow Ports and some do not.  So if you plan on using this feature and moving during the term of the mortgage, then is important to know if this is a feature of your current mortgage. 

Even if you are not planning on moving in the short term mortgage "Portability" can still be an important feature.  Circumstances change: from careers to kids to the relationship with the co-owner, we never know what the future may hold.  More often than not, many buyers who port their mortgage did not plan on porting it when they first got their mortgage, but the feature ends up saving them thousands in penalty costs.  The next time you get a mortgage make sure to ask your mortgage broker if the mortgage he is recommending is portable. A good mortgage broker should tell you which mortgage products allow porting, and which do not. 

So what happens if you need a bigger mortgage on your new home? When a mortgage is ported, it is very common that you will require a larger loan than exists on your current residence.  This is not an issue.  Your Broker can offer what is referred to as a “blend and extend” or “blend to term” depending what works best for you. This is essentially a weighted average between the existing mortgage amount and interest rate and the additional funds you require at the current mortgage rate.

Example:
Existing Mortgage:  $100,000
Interest rate: 2.5%
Require: $150,000 (so $100,000 will be ported and $50,000 will be ‘new money’)
Current Interest rate: 3.0%
Therefore, the new mortgage will result as a $150,000 mortgage with a blended rate of at 2.9%.

In conclusion, portability is a feature offered on many mortgage loans and allows you to move your current mortgage from your existing home, which has sold, to a new property you have purchased.
 
The pros of mortgage portability are:

1. If your current mortgage rates are better than mortgage rates currently offered, you can keep your better rate.
2. Breaking a mortgage early can result in penalties. It is sometimes better to “Port” your existing mortgage to your new home instead.
3. It is also possible to increase the amount of your mortgage when you port it.

Mortgage portability is not for everyone. Some lenders do not allow mortgage portability or in some cases porting your mortgage would not be financially beneficial. Each lender has their own conditions for mortgage portability. To see if porting is right for you, contact Steven Porter, Mortgage Agent with Mortgage Architects. There is no obligation, so call today.

Steven Porter, Mortgage Agent – Mortgage Architects | 905-875-2582 | steven.porter@mtgarc.ca | www.1800Mortgages.ca

Effective March 17, 2017…Higher CMHC premiums

CMHC is increasing their premiums on mortgage default Insurance for the 3rd time in 4 years. Here’s what it will look like.

Loan-to-Value Ratio Standard Premium (Current Standard Premium (Effective March 17, 2017)
Up to and including 65% 0.60% 0.60%
Up to and including 75% 0.75% 1.70%
Up to and including 80% 1.25% 2.40%
Up to and including 85% 1.80% 2.80%
Up to and including 90% 2.40% 3.10%
Up to and including 95% 3.60% 4.00%
90.01% to 95% – Non-Traditional Down Payment 3.85% 4.50%


Wondering why they need to increase the premiums? It’s not about trying to discourage homebuyers. It’s to “preserve the returns on capital”, according to Steven Mennill, SVP CMHC. Yup, the Crown corporation wants to focus on profit. (show me the money). At least they’re being honest about it. The overall amount of mortgages insured by CMHC has dropped in the past 4 years. Down from $576billion to around $512billion. So, it’s about maintaining profits while their book of business is shrinking.

Having said that, CMHC has lowered, increased and lowered their insurance premiums before. We can expect them to change and adjust again.

In case you are wondering why the overall volume is going down when house prices are going up, it’s because the Fed govt has changed the mortgage rules so that it becomes more difficult to qualify for a mortgage. Therefore, the amount of mortgages CMHC can insure is going down.

Now for some good news..

The overall cost to your mortgage is minimal. Oh yeah, one more thing…without CMHC, we would all be digging deeper into our pockets to come up with 20% or 25% down, like the old days. And while some may think that is how it should be, those days are long gone. First time homebuyers don’t have $100k, or $200k sitting around to buy a home. They need help.. And what’s wrong with helping our youth that are ambitious enough to want to own a home?

CMHC is a necessary evil.

By Steve Garganis

- Posted by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca