Summary of CMHC Underwriting Criteria Changes
1. Enforcing Gross/Total Debt Servicing (GDS/TDS) ratios of 35%/42%.
CMHC previously approved loans with ratios up to 39%/44% for borrowers with high credit scores and more reliable income.
CMHC-insured loans with a GDS above 35% represent an average of 18% of transactional new insurance written.
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2. Establishing a minimum credit score of 680 for at least one borrower.
The previous CMHC standard was a minimum 600 credit score.
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3. Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
In 2019, non-traditional sources of down payment applications were less than 2% of all CMHC’s homeowner transactional approved loans with a loan to value above 90%.
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At this time, it is not determined whether Canada Guaranty and Genworth will follow suit with these guideline changes….
COVID-19 Update
In these uncertain times…
Stay Calm…
April 22, 2020
Worldwide – 2,594,794 positive cases; 179,778 deaths; 698,066 recovered.
Canada – 38,923 positive case; 1,871 deaths, 13,594 recovered.
Ontario – 12,245 positive cases; 659 deaths; 6,221 recovered.
Kingston – 59 positive cases; 0 deaths; 54 recovered.
Government has announced a program for postsecondary students today and upcoming announcements for seniors.
Students who made < $5000.00 will be able to apply for assistance as of May 1, 2020. $1,250.00 per month. Also additional student jobs for the summer (extra 76,000 Canada summer jobs). Also opportunities for getting paid for volunteer work.
This morning, we have an update on the Canada Emergency Wage Subsidy (“CEWS”).
The application window will open on Monday, April 27 at 6:00 am. You can apply using your CRA My Business Account or, alternatively, you can apply using a separate online application form that will be available. You will need to obtain an online Web access code if you use the application form. The CEWS will be processed at the payroll program (RP) account level, so you will have to file a separate application for each RP account. There is no need to rush, however. Applications will not be processed on a first-come, first-served basis. Instead, all applications received from April 27 to May 3 will be batch-processed at the same time on May 4.
The CRA has built in certain automated verification controls to guard against fraud and abuse. Businesses that have had their application approved during the May 4 automatic verification process can expect to receive payment via direct deposit on May 6 or May 7. The CRA estimates that some 10% of businesses that apply for the CEWS will not make it through the automated verification process but will require manual verification. If you require manual verification, then your direct deposit will be delayed.
Before applying, you should have already calculated the estimated subsidy. The federal government has created an online calculator to help businesses determine what the CEWS will cover and to simplify the application process. CRA officials said yesterday that businesses that go through the process of using the calculator will be able to print out the resulting information and use the printout to help expedite the online application process. The calculator is on the CRA’s CEWS information page, at the section entitled “Calculate Your Subsidy Amount”.
The CRA’s CEWS information page also provides additional information for applicants about which employers are eligible and how they should count eligible employees.
The CRA has re-assigned 3,000 auditors to handle manual verification and 2,000 call centre employees to handle CEWS inquiries from businesses.
CRA officials reiterated that the objective of the CEWS program is to have businesses recall workers they may have already laid off and avoid additional lay offs. At the same time, the CRA is warning employees who get hired back that they will be asked to re-pay any CERB funds they have received if the period for which they receive a CERB support overlaps with the period for which they are receiving a CEWS-subsidized paycheque from their employer.
Remember that any wage subsidies paid to a business will be treated as business revenue for tax purposes
April 17, 2020
Canada 30,659 positive cases; 1,251 deaths; 10,091 recovered.
Ontario 9,525 positive cases; 478 deaths; 4,556 recovered.
Kingston *** No new cases in 2 days!**** 55 positive cases; 50 recovered.
April 15, 2020
Canada 28,188 positive cases; 1006 deaths; 8,603 recovered.
Ontario 8,447 positive cases; 385 deaths; 3,902 recovered.
Kingston 55 positive cases; 0 deaths; 50 recovered.
New flexibility surrounding CERB applicants.
April 7, 2020
Canada 17,813 positive cases; 374 deaths; 3,931 recovered.
Ontario 4,726 positive cases; 153 deaths; 1,802 recovered.
Kingston 54 positive cases; 0 deaths
500,000 new N95 masks permitted via US border.
April 6, 2020
Canada 16,457 positive cases; 320 deaths; 2,845 recovered.
Ontario 4,038 positive cases; 119 deaths; 1,449 resolved.
Kingston 53 positive cases; (5 additional over the weekend).
Big news is that shipment from 3M was stopped at the US border on Trump’s orders – optimistic that we will get 500,000 of the 3,000,000 ordered N95 masks from 3M.
U.S. cases confirmed over 336,000 with deaths over 10,000.
Italy, Spain & France all reported declines in their daily death tolls, roughly three weeks after the date of their respective lockdowns.
April 3, 2020
Global – 1,013,157 positive cases.
Canada – 11,747 positive cases; 152 deaths; 1,936 recovered.
Ontario – 3,255 positive cases; 81 deaths.
Kingston – 47 positive cases.
Local hospitals have freed up 400-500 beds should the need arise.
Trump has requested that N95 masks made by 3M in the U.S. no longer be shipped to Canada nor Latin America.
Any mortgages where Paradigm Quest administers the servicing (i.e. Merix, Lendwise,etc) have a new email address to make the request for deferred mortgage payments:
CAP@paradigmquest.com – Please see note from lender:
We require the customer name, mortgage number, property address, and how they have been financially impacted by COVID-19 (for example, illness, income disruption, self-isolation). Our normal response times are within 24 hours, however during this time, email and voicemail response is 3-5 days in most circumstances.
April 1, 2020
Kingston – As of Tuesday March 31, 2020 43 positive cases.
KFL&A confirms COVID-19 outbreak at local long term facility however will not reveal which facility.
Ontario – positive cases now 2392; resolved 689; deceased 37.
CERB (Canada Emergency Response Benefit) is largest economic program offered in Canadian history.
Trudeau not willing to commit to a time frame for pandemic stating that it will depend entirely on how Canadians behave at this time.
As of April 6, 2020, individuals will be able to go to Canada Revenue Agency online to apply for CERB.
Deferred payment information:
First National Financial LP advises clients to go to their account on client portal if they are registered, in order to make the request, or else to click on the following link:
First National Deferred Payment Request
March 31, 2020
Kingston – no new positive cases.
Ontario – positive cases now 1966;resolved 534; deceased 33.
March 30, 2020
Kingston – positive cases doubled over the weekend and now at 35.
Ontario – positive cases now 1706; resolved 431; deceased 23.
Prime Minister Justin Trudeau said Monday the 75-per-cent wage subsidy announced late last week will be available to large and small companies as well as charities and non-profit organizations to keep employees on the payroll and weather the COVID-19 pandemic.
The government announced Friday that it was boosting the wage subsidies to business from 10 per cent to 75 per cent with details of the Canada Emergency Wage Subsidy to come on Monday.
“If your businesses revenues have decreased by at least 30 per cent because of COVID-19, you will be eligible for this subsidy. The number of employees you have will not determine whether you get this support,” Mr. Trudeau told his daily news conference. “It will apply to non-profit organizations and charities as well as companies both big and small.”
March 27, 2020
In view of the fact that updates are coming in daily, we think it is best to include up to date information according to timelines…
News as of March 26, 2020
Kingston & Area declares State of Emergency
Kingston – 2 new COVID-19 cases; Total 16 cases
Spread of disease happening via community contact and no longer exclusively via travel abroad.
Ontario – 170 new COVI-19 cases; Total 835 cases
New Assessment Center in Napanee
Emergency Alert sent out to all travellers returning home : “You are required by law to self-isolate for 14 days”
B2B Bank: offers deferred payments for initial period of up to three months – if you have online banking B2B encourages you to email them via: https://onlinebanking.b2bbank.com/RetailB2B/servletcontroller?lang=en
First National Financial LP: currently approving three-month deferrals on insured and conventional residential mortgages upon request. Borrowers must confirm in writing or verbally that they have had a disruption to income or employment as a result of COVID-19.
PLEASE NOTE THAT THE CONTACT LIST FOR LENDERS PRESENTED HEREIN WAS UPDATED MARCH 26, 2020.
https://www.youtube.com/watch?v=ObWrdYQ_6xY
In these uncertain times….
Ok, so the answer is not to panic.
But what should we do?
Status of COVID-19…
11 cases in Kingston
572 cases in Ontario:
8 resolved, 8 dead
2751 cases in Canada:
112 resolved, 27 dead
Status of COVID-19 in Kingston
Memorial Center is now a COVID-19 Assessment Centre
Returning from travels?
You must self-isolate for 14 days
How to self monitor….
Government assistance announcement March 25, 2020
$2,000 a month for four months to individuals who lost their work as a result of the COVID-19 pandemic.
Application launch forthcoming
Families to be able to obtain funds within 10 days of application
Self Isolation:
So if you are self-isolating, how do you pay for your mortgage?
What are lenders / insurers doing about this situation?
Lenders & insurers have declared assistance to all Canadians
Up to 6 months of deferred mortgage payments could be available
Deferred mortgage payments are discretionary.
Lenders maintain the legal right to timely repayment of their mortgages and mortgage payment deferral
Programs are offered at their sole discretion and each lender has different policies on how they handle these requests
No lender is going to forgive your mortgage payment.
A deferred payment program allows you to roll a defined number of mortgage payments into your mortgage, however you are still expected to ultimately pay all of the money you owe, with interest. (referred to as “capitalization”)
What lenders are we talking about?
Note: These programs are generally restricted to “Institutional” lenders only.
Banks and mono-line lenders
Private mortgages do not typically qualify (although we are making the requests and some are being considered).
True financial hardship must be demonstrated.
These programs are for customers who are genuinely struggling to make their next mortgage payment. They may have lost their job(s) and/or a portion of their income, and they do not have the cash reserves necessary to draw on.
*** If you are not in this group, you are not likely to be eligible.***
Must be prepared to submit a detailed breakdown of your personal assets, current income and expenses.
Deferring mortgage payments will not hurt your credit score.
A lender-approved deferment is not a missed payment–and it will not appear on your credit bureau report as such.
Lenders are also typically offering to waive any fees associated with these types of programs during the COVID-19 crisis.
Deferred Payment Programs are typically capped at six months.
Deferring the first payment will be easier than deferring the second one, and so on. Right now, six months is about the longest deferment you should expect to receive, but no lenders will do this all at once. Most of them will require that you reach out with a request for each individual payment that you are going to miss.
A mortgage deferred payment program is for your mortgage payment only.
Property tax installments and insurance premiums are entirely separate from these programs and must continue to be paid.
If municipalities and insurance companies offer similar programs (which most municipalities are currently doing), they should be contacted separately.
Other options may also be available to assist you:
i)lenders also have the ability to refinance your mortgage to pay out other debt(s) subject to qualification (via Welch & Co Team),
ii)restore your original amortization (which lowers your payment amount),
iii)hold a payment (during a temporary suspension of income),
iv)offer you a reduced payment for a specific time.
Rental property investors may also be eligible.
Property investors with tenants who have stopped making their rent payments will also be considered, however they will be assessed by the same rigorous criteria to determine true financial hardship
Note: Some provincial governments have introduced tenant relief programs. Rental-property owners can also encourage their tenants who have been adversely impacted by COVID-19 to apply for these programs if available.
To contact your lender regarding deferred mortgage payments please use the following phone numbers please:
Appraisals & Appraisers
A new update from the Appraisal Institute of Canada has come out on March 25, 2020
Appraisers have been deemed to be an essential service
New measures in place in order to ensure that appraisers are not put at risk
Appraisals & Appraisers
Clients will be asked to assist appraisers by providing the following in order to avoid entry into properties:
- interior photos of your property to the appraiser to be included in the report in place of photos that they would normally take themselves during an in-person interior inspection of your property.
A video tour of your property carried out by video-calling, FaceTime, WhatsApp, etc. – if you are willing and have the technology to do so.
any building specifications that you may have
Refinances – closings
As of March 25, 2020 we have several lenders that are requiring that all refinances be closed via FCT or FNF rather than a solicitor (and likely more to come)
MCAP
RMG
Communication is the key.
If you are going to miss your mortgage payment, contact your lender first! Be honest with them about your circumstances and have a plan for how you are going to get back on track.
If you are about to miss a payment and cannot get through on the phone lines, send your lender an email. Lenders may waive NSF fees if you miss a payment but can demonstrate to them that you attempted to notify them in advance.
Certain lenders have designated online portals to make your skip-a-payment requests:
MCAP: https://www.mymcap.ca/ login to
and submit a Skip-A-Payment request from the self-serve options menu.
RFA/ Street Capital: https://www.rfa.ca/covid19
Please be PATIENT with your lender!
Things are evolving every day and none of us have lived through similar circumstances before
Lenders are still conducting business as usual, although turn around times are currently much slower than under normal circumstances
Say you get a mortgage with a five year term and a rate under 3% (as they are currently). What will happen in five years when you renew your mortgage? What will the rate be then?
Economists estimate that the interest rate will rise in five years up to as much as 5.5%. This means from one month to the next, at renewal time, you’ll experience what is called payment shock. This can be difficult on you and your family.
We at the Welch & Co. Team recommend adjusting your payments every year to match the current interest rate (keep in mind we offer free annual reviews!). The increased payments go directly towards your principal (thus actually paying down the mortgage) and will help you avoid payment shock.
This is also why the government, in 2018, introduced a stress test where you now have to actually qualify as if your rate was 5.19% (the Bank of Canada posted rate). This measure was taken in order to avoid potential future defaults on mortgages.
For example:
You get a mortgage loan of $250,000.00 at a fixed rate of 2.89% over five years (25 year amortization). This represents a monthly payment of $1,169.05 (excluding taxes). In five years, if economists are correct in their predictions, the same mortgage will cost you $1,525.98 a month. This represents a payment shock of $356.93!
However, after visiting the Welch & Co. Team for your free annual review, you’ve decided to increase your payment to match the payment associated with the 5-year fixed rate. In addition to preventing payment shock, you also benefit from a lower amortization and will save thousands of dollars in interest. Say you increased this same payment by only $40.95, your new amortization would be 23 years and 10 months and you would save $4,938.41 in interest!
Call us today to find out how you can utilize this strategy and see for yourself how you can avoid payment shock, reduce your amortization and save money, all at once!
Why do pre-approvals have such a bad rep? Realtors will often ask their clients if they are pre-approved, in order to ensure that they are not wasting their time showing the client properties for which the clients cannot qualify or cannot afford. But what, in fact, is a client getting, when they are pre-approved?
We at the Welch & Co Team, believe that pre-approvals are not worth the paper they are written on….
Here are some of the many reasons why we feel this way:
1) most pre-approvals are automated, which means that no underwriter is viewing the application: few and far between are the applications that are “vanilla” anymore, meaning employment as full time permanent salaried positions, with high end credit scores. All applications should be reviewed and underwritten in order for any pre-approval to be value.
2) if the application is for a purchase with < 20% down payment, the deal needs to be underwritten by both the lender and the insurer: even underwritten pre-approvals are not sent to the insurer for review.
3) pre-approvals do not taken into consideration the property, and a key part of the underwriting process includes the review of the property
4) most banks do not review documentation prior to issuing a pre-approval, which often leads to incorrect amounts in terms of capacity for the client (i.e. client says they make $50k per annum but are paid hourly – this means that a 2 year average has to be factored in and the 2 year average is in actuality $44k – hence their capacity to purchase would decrease substantially).
5) approximately 95% of pre-approvals do not reflect the lowest or best interest rate in the market place – rates can go up or down. Furthermore, not all lenders offer pre-approvals, and as such the client’s application may not even end up with the same lender with whom they were pre-approved!
6) not all of a client’s needs or goals are factored in when a pre-approval is issued.
What do we recommend INSTEAD of a pre-approval? At the Welch & Co Team, you will get full underwriting up front, of your application and documentation. If there are any issues that might affect your financing, you will know about them as well as the reason that they might be an issue. Each and every file gets our individual attention and is underwritten in order to ensure that there are no surprises! This is is also why we need all of your paperwork BEFORE we send in your application! Call us at 613-546-2989 to book your appointment today. We are ….More than a dotted line….
Article written by Robert McLister, published December 5th, retrieved from The Globe and Mail.
Many people started out Wednesday morning expecting three or more rate hikes in the next 18 months.
Now, they’re wondering if we’ll see more than one.
That’s how much rate expectations have changed since the Bank of Canada’s latest rate statement.
If you’re shopping for a mortgage and believe what the bond market is telling us, it implies your odds of success with a fixed rate may have just changed.
WATCH THE BOC’S ACTIONS, NOT ITS LIPS
The Bank of Canada still maintains that its key bank rate is headed toward its estimated “neutral range,” which means 75 to 175 basis points higher than today’s 1.75 per cent (75 basis points equals three-quarters of a percentage point).
But the bond market, which bakes in virtually all available information, is losing faith in the bank’s words. The market is focused on the facts: economic growth stalled this quarter, Canadians’ savings rate is near all-time lows, the economically critical oil sector is near crisis mode, trade war threats persist, the all-important housing sector is slowing, consumer spending is dropping, business investment is falling, the stock market is diving, and now even the U.S. Federal Reserve is chirping dovish.
That’s why Canada’s five-year bond yield, which guides five-year fixed mortgage rates, has fallen out of bed – dropping all the way down to its one-year midpoint.
All of this is inconsistent with a “rising rates” narrative.
WHERE TO NOW
First off, variable rates are going nowhere fast. Now, the market is not expecting the next rate hike until spring. There is almost more risk of lenders reducing variable-rate discounts due to credit, risk or margin concerns than due to Bank of Canada rate hikes. (If any of that happened, it would directly impact new variable-rate borrowers, not existing ones.)
As for five-year fixed rates, banks are doing what banks do: maintaining elevated profit margins for as long as they can. In a typical market, with bond yields down 40 basis points (bps) in less than a month, five-year fixed rates would’ve dropped by now, but they haven’t.
Previous rate hikes and tighter mortgage rules have shrunk the prime mortgage market. Intense competition for this smaller pie has led to skimpier mortgage revenue all year. Now the banks want their profit margins back.
If you want to get technical, consider mortgage “spreads,” the difference between banks’ going rates and the government’s five-year bond yield. Many big lenders have been settling for just 130-140 bps for most of this year. Normally they like to make 150-plus bps.
On top of this, if we really are nearing the end of the economic cycle, as the yield curve suggests, banks will want to price in a little extra margin for market risk and credit risk. And, let’s not forget, banks are facing stricter capital rules and higher deposit rates, which also affect their funding costs.
As we approach the winter doldrums, the slowest time of year for mortgages, banks figure that slashing rates now would barely move the needle on their mortgage market share, so why give up margin for no reason?
WHERE THE DEALS ARE
After today, more people are going to like their chances with floating rates (variable- and adjustable-rate mortgages). The best variable mortgage rates for well-qualified borrowers are currently:
2.80 per cent or less, if the mortgage is default insured
3.04 per cent if you’re refinancing
A rate near or under 3 per cent gives you at least a three-rate-hike head start over conventional five-year fixed rates. In the weeks to come, expect fewer borrowers to bet on the “over” (four-plus hikes), so variable-rate popularity will rise.
By the way, last quarter saw the highest percentage of insured borrowers going variable since Canada Mortgage and Housing Corp. started regularly publishing such stats. So, it has already started. People are becoming more educated every day about the risk/reward of variables and their other benefits, such as penalties that are drastically lower than those on big bank five-year fixed mortgages.
In short, floating-rate mortgages (which you can get with a fixed payment for peace of mind) are once again the value du jour for financially stable, risk-tolerant borrowers, despite Bank of Canada rate-speak.
The Bank of Canada has increased the overnight rate by a quarter point, as of yesterday’s meeting.
What does this mean to you if you have a variable rate mortgage?
It means that the Bank of Canada Prime rate, which most lenders adopt as their Prime rate, has increased from 3.45% to 3.70%. With 5 year terms offering anywhere from Prime -.75 % (currently 2.95%) to Prime minus 1.00% (currently 2.70%) this still represents a far wiser option than the fixed rate mortgages for a 5 year term. This video is fantastic in explaining the risks/ benefits of taking a variable rate versus a fixed rate mortgage.
If you have a variable rate mortgage, or are considering one: YOU SHOULD WATCH THIS!
Image retrieved from Yahoo Canada.
One of our 40 lenders has rebranded due to their desire to resonate more with the Canadian public:
With no change on the Bank of Canada prime rate, and very attractive spreads on variable rate offers (on high ratio purchases as low as Prime minus 1.05% – 3.45%-1.05% = 2.40%), it may be time to consider your first variable rate mortgage if you have not done so in the past!
Key information to consid
er:
- Bank of Canada (BOC) meets 8 x per year…
- Of those 8 meetings, the BOC normally will make changes to the overnight rate, which affects the prime rate, maximum 4 times…
- When the BOC makes increases on the prime rate, it normally is less than .25% at a time….
- The Welch & Co Team uses lenders that offer a FREE CONVERSION option at anytime throughout the term, which permits you to lock in the rate….
- The Welch & Co Team uses lenders that charge ONLY a 3 month interest penalty if you choose to break the term early…
- Historical data has proven statistically that variable rate mortgages always outperform fixed rate mortgages!
- Mitigate the risk and pay off your mortgage far faster by setting your payment as if you have a 5 year fixed rate!
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Let’s pretend you are purchasing a home for $315,000.00 with a down payment of approximately 10%.
This would leave you with a total loan amount of $290,000.00
Mortgage term 5 year fixed rate 5 year variable rate
Mortgage rate 3.44% Prime – 1.05% = 2.40%
Monthly payment $ 1,438.72 $ 1,284.70
** Increase your payment by $ 154.02 to make it the same as the fixed rate. **
________________________________________________
Interest Paid in 5 years $ 46,259.37 $ 31,472.20
With this strategy you are saving $ 14,787.17 in interest over your five year term and reducing your amortization dramatically!
Call us today to further discuss a variable rate mortgage option!
613-546-2989.
https://www.bankofcanada.ca/2018/05/fad-press-release-2018-05-30/
Lenders normally have until Monday, following announcements made by the Bank of Canada on a Wednesday, in order to implement the changes. The announcement for an increased Bank of Canada Qualifying rate was made yesterday – an increase from 5.14% to 5.34%.
This applies to all borrowers that have less than a 20% down payment for their home purchase…
Call us at 613-546-2989 should you have any questions at all!!!!
https://www.thestar.com/business/2018/05/09/bank-of-canada-raises-mortgage-qualifying-rate-following-increase-in-big-six-banks-fixed-rates.html
If you currently have a variable rate mortgage:
Variable rate mortgages are normally sold in 3 or 5 year terms – the standard for 5 year terms over the last 5 years have been offered at Prime minus a certain percentage.
Example of what the rate increase represents for you:
For instance, if you have a mortgage at a rate of prime minus .50%.
Your rate yesterday would have been 3.20% – .50% = 2.70%.
Your rate today would be 3.45% – .50% = 2.95%.
Does this mean that it is time to convert to a fixed rate?!?
Historically speaking, variable rate mortgages have always outperformed fixed rate mortgages, so from this perspective, the answer is: “No”.
Furthermore, converting to a fixed rate would entail a mortgage rate of approximately 3.49-3.59%, this means that the answer is still : “No”. Your variable rate mortgage remains much lower than a fixed rate, and theoretically could handle another two quarter percent rate hikes before reaching that rate.
The Ultimate Deciding Factor:
If you cannot sleep at night because you are worrying about the possibility of the prime rate increasing again
and thereby affecting your mortgage rate / payment:
you should convert to a fixed rate!
N.B. One error in this article to be noted: TD Bank has set its prime rate at 3.60% rather than 3.45%.
Unfortunately, none of us has crystal ball in order to determine what the future holds… or in this case, whether or not the Bank of Canada will raise it’s overnight rate (which in turn will increase the Bank of Canada prime rate).
There has been much media rumbling about the possibility, on July 12, 2017, of the Bank of Canada increasing their overnight target rate.
The last two changes that the Bank of Canada made were both reductions in the overnight rate, so it has been a very long time since any increases have been made to the prime rate. (the exception being that TDCT Bank increased their prime rate to 2.85% from 2.70% last quarter of 2016).
Let’s remember the ABC’s or the basics when it comes to variable rates:
i) The Bank of Canada meets eight times per annum, usually only four of these meetings will reflect changes to the overnight lending rate
ii) When the Bank of Canada does indeed increase it’s overnight lending rate, it is usually to a maximum of .25%
iii) Historically speaking, the variable rate has ALWAYS outperformed the fixed rates
iv) The lenders that we use for our variable clients all have the right to conversion to a fixed rate at no cost to the client
v) The last two changes to the overnight target rate have been decreases and have therefore meant a decrease in the Bank Prime rate and thus additional savings for our variable rate clients.
Furthermore, all five year fixed rates have increased of late – going anywhere between 2.64%-2.99%.
Our variable rate clients have benefited from rates of anywhere between prime minus .70 (currently 2.00%) to prime minus .35% (currently 2.35%) which are both far better than what is currently being offered on the fixed rate front.
Rather than locking/ converting into a fixed rate, have you considered the possibility of maintaining your current variable rate, but increasing your payment?
One of our suggestions, during our free annual reviews offered to clients, and no matter what kind of rate you have (fixed or variable), is to increase your payments in order to reflect whatever the current 5 year fixed rate is being offered by lenders.
Let’s take the example of a $300,000.00 mortgage with a 25 year amortization and a prime minus .65% (currently 2.05% rate). Your monthly payments would be at a minimum $1,277.60. In order to match a 2.99% rate, your payment would need to be $ 1,418.20 ($140.60 extra).
By applying our strategy, you would save over $10,251.91 in interest and would shave off 3 years on your amortization!
This, rather than locking in to a fixed rate, would be our recommendation with the current rumblings of the Bank of Canada increasing it’s rates!
General Information – Factors that Affect: Variable Mortgage Rates
The Bank of Canada is responsible for changes to variable mortgage rates because they determine the target overnight lending rate.
Variable Mortgage Rate: fluctuate monthly and is based on the mortgage lender’s prime rate.
Variable Rates and the Overnight Rate
The overnight rate changes the cost of lending/borrowing short-term funds and therefore influences the Prime Rate. Since variable mortgage rates are linked to prime rates, when prime rates go up, so will your variable mortgage rate and monthly payments.
Overnight Rate: the interest rate which large banks borrow and lend one-day funds amongst themselves. It is also known as the key interest rate, or the key policy rate.
Prime +/-
Variable mortgage rates are advertised as Prime plus or minus X%, for example Prime –0.60%, which means that the interest rate you pay is directly related to the Prime Rate, and will fluctuate whenever this changes. Link to Prime Rates page for all of the banks.
Example
Let’s say the current overnight rate is 0.5% and the major banks prime rate is 2.50%, and at that time the variable mortgage rate is – 0.50% (thus 2.00%).
If the Bank of Canada increases the overnight rate from 0.5% to 0.75% (an increase of 0.25%), the banks will likely follow suit and increase their prime rate by the same 0.25% to 2.75%. Your variable mortgage rate will thus also change due to this increase in the prime rate, making your new variable mortgage rate 2.75% – 0.50% = 2.25%.
How Much Does a Change in Prime Effect my Mortgage?
To put this in perspective, let’s use the above rate change example on a $250,000 mortgage amortized over 25 years. An increase of 0.5% would result in your monthly payments increasing by $30.40/month. Although this is not a massive increase, you can imagine the effects if rates increase by 2 or 3%.
By Steve Randall, June 9 2017
The Bank of Canada has reported its Financial System Review and warned that household debt and the housing market have both increased in vulnerability over the last 6 months.
Governor Stephen Poloz said that “the financial system remains resilient, and macroeconomic conditions continue to improve.”
Household debt increases have been driven by mortgage lending especially in Toronto and Vancouver. While the bank says that credit quality has improved in the insured mortgage market, it also says the uninsured mortgage market is increasing with some mortgages showing “risky characteristics.”
For the housing market, Governor Poloz said that macroprudential and housing policy measures are expected to mitigate the risk from rising house prices.
The two main risks highlighted in the review include an externally-generated recession, which would include a sharp decline in home prices along with rising unemployment impeding homeowners’ ability to service their mortgage debt.
If this were to occur, the BoC report says it would have a severe impact, but it says there is “probably a low risk” of this scenario occurring.
The other major risk is house price corrections in Toronto, Vancouver, and their surrounding areas. While this risk has a higher probability, it would have a less severe impact on the economy, the BoC says.
Article originally posted by Mortgage Broker News.
HomEquity Bank’s release of its updated figures pointed at record-breaking performance over the first five months of 2017, mainly powered by the increasing number of seniors taking on reverse mortgages.
The lone provider of the CHIP Reverse Mortgage product saw a new high of $60M in its reverse mortgage originations last month, representing a year-to-date increase of 35 per cent compared with the same period a year ago.
“Canadian seniors are releasing the equity they’ve built in their homes, transforming it from passive to active,” HomEquity Bank president and CEO Steven Ranson said.
“We’ve seen a shift in mindset: there’s a broader understanding that home equity – which is often the largest single asset for Canadians – can be easily unlocked,” Ranson noted, adding that this was a natural consequence of seniors (who are now living longer and more active lives) being able to take advantage of the steady appreciation of Canadian residential real estate.
“Historically, the average age of our clients is 72,” the bank exec explained. “Working together with financial planners and mortgage brokers, we’re finding that people incorporate equity release into their financial outlook at an earlier age.”
More and more Canadians aged over 55 are also contributing to the housing or educational dreams of their children (and even grandchildren) as the “bank of mum and dad,” Ranson added.
14 Jun 2017
The major revelations from employees of the TD Bank Group underscored the pressing need for a financial consumer code in Canada, according to a consumer interest organization.
The Public Interest Advocacy Centre noted that the controversial sales practices, as revealed to CBC News earlier this week, “present a bit of a grey area” that might not fall under the jurisdiction of current financial regulators.
In the CBC News exposé, hundreds of current and former TD Bank employees admitted to breaking the law when attempting to meet unrealistic sales targets, all at the expense of their clients. The whistleblowers told of a maximum-pressure environment that they described as “insane,” “poisoned,” and “stress inducing,” with “zero focus on ethics.”
Among the alleged unsavory practices included the signing up of clients for certain financial products and services without their consent.
“We think that the proposed financial consumer code will provide a clear set of rules of the road, rules of engagement, between the banks and consumers,” PIAC research analyst Jonathan Bishop said, adding that such a code will have to be enforced by an independent organization.
“Banks will have the opportunity to present evidence to an arbitrator about what they’ve done, and their tactics, as well as consumers have the opportunity to present their concerns and their views,” Bishop explained.
In the wake of the disclosures, the Financial Consumer Agency of Canada announced on Wednesday (March 15) that it will be launching a review of the major banks’ business practices next month.
FCAC commissioner Lucie Tedesco issued a statement reminding lenders of their obligations to secure prior consent before increasing lines of credit and providing customers with new products.
“Financial institutions’ compliance with these rules is non-discretionary and the message must be disseminated from the boards of directors on down to customer-facing staff,” Tedesco said. “Through the industry review we are announcing today, we will examine financial institutions’ business practices in relation to express consent and disclosure, including the identification of any factors that may be contributing to non-compliance.”
Article originally posted by Mortgage Broker News
If you are planning to buy a home this year and have less than 20% down payment, you may want to do so prior to March 17th. The Mortgage Insurance suppliers have announced their rates are going up because of recent government changes introduced Jan 1st that effectively increase the cost of offering the insurance product.
So take advantage of what typically is a slower real estate market in the winter months and save yourself some money.
What does this mean for you?
Various changes have been made once again by the Minister of Finance regarding the Canadian mortgage industry…this article highlights these upcoming changes….
CBC’s Marketplace is out with a new undercover report on collateral charge mortgages.
The consumer affairs program found some bank reps who were not disclosing the pitfalls of collateral charges. That’s despite banks pledging to present collateral mortgages in language that’s “clear, simple and not misleading.”
CBC’s hidden camera catches one bank rep explaining collateral charges so poorly, he really has no business selling mortgages at all.
Marketplace then tapes another rep who misleadingly suggests that it’s easy to switch lenders with a collateral charge. That rep goes on to admonish the customer for “shopping around on rates.”
CBC says the mortgage specialists it targeted didn’t have any documentation to offer on collateral charge mortgages, despite the mystery shopper’s request and despite the “voluntary commitment” of banks to provide such information.
The segment picked on TD, but really the producers could have chosen any lender that sells collateral charges. There are so many lender reps who don’t understand collateral mortgages. Heck, for that matter many mortgage brokers can’t succinctly explain them.
Personal finance blogger Rubina Ahmed-Haq tells CBC that mortgage conversations with lenders who sell collateral charge mortgages “should start with the word collateral.”
“Tell me what I’m not familiar with [as a customer],” she says.
In reality, mortgage contracts have other elements that are more impactful on one’s overall borrowing costs. Examples include penalty calculations, refinance flexibility and the interest rate. But the collateral charge debate is worthwhile nonetheless since it benefits many to steer clear of this mortgage type.
At the same time, collateral charges shouldn’t be portrayed as a supreme evil of the mortgage universe when in fact they offer advantages to some. Their foremost benefit is readvanceability (i.e., the ability to borrow more money, or re-borrow paid-off principal) with no legal fees. Hence, as with so many other mortgage contract terms, this is an issue that boils down to education and disclosure.
Banks are improving their disclosures on the drawbacks of collateral charge mortgages.
Effective January 31, 2015, the Department of Finance says banks will start warning individual consumers about the implications of collateral charge mortgages “before entering into the mortgage loan agreement.”
The DoF says “consumers require sufficient information in order to more clearly understand the costs and consequences of a collateral charge mortgage relative to a conventional mortgage.”
One of those consequences, it says, is that “some consumers may find it difficult to switch between different lenders” when they have a collateral charge. That’s because lenders don’t typically accept collateral charges from other lenders on “switches.” Most require such mortgages to be refinanced, requiring legal fees of $500 to $900+.
Collateral charges have been hit with a slew of negative press in recent years, culminating in this exposé by CBC’s Marketplace. In reality, however, they’re quite routine with readvanceable mortgages — a popular form of mortgage that includes a line of credit.
For mortgages without a line of credit, collateral charges are far less useful. Lenders tout them as cheap ways to refinance but they fail to mention that what you save in legal fees can easily be consumed by potentially less-than-favourable rates on any new mortgage money you borrow. Remember, lenders rarely offer best rates when they know you can’t leave without paying a penalty. And, of course, you have to re-qualify for any new money borrowed.
As of September 1, major banks have all added collateral disclosures to their website. Here’s RBC’s for example (note its warnings, with our comments in italics):
- With a traditional mortgage, “Your new lender may cover some or all of your costs to switch.”
(In practice, most lenders cover your legal and appraisal fees on regular mortgage transfers.) - “Some lenders may not accept your request to transfer your existing collateral mortgage to them…If you wish to transfer or switch your existing collateral mortgage to a different lender, you will most likely have to pay fees to discharge your existing mortgage and register a new mortgage with the new lender.”
(“Most likely” as in over 90% of the time.) - “…When you discharge your collateral mortgage, your current lender can require you to repay any additional funds that have been secured by the collateral mortgage, such as car loans.”
These new disclosures aren’t easy to find. We spent 20 minutes scouring one bank’s website for its online disclosure, followed by 15 minutes on hold and 25 minutes floating from telephone rep to telephone rep, asking where on the bank’s website the disclosure could be found. Three reps (including a credit representative and a second-level banking support agent) had absolutely no idea what the disclosure was. One flat-out said it wasn’t on the site at all, until we showed him that it was.
Those anecdotes aside, these disclosures are a positive and much-needed initiative. And we have the Department of Finance to thank for them. But banks need to make them more prominent and show examples of the real costs of a collateral charge.
The Office of the Superintendent of Financial Institutions (OSFI) issued a letter this morning to all federally regulated financial institutions (FRFI). The letter expresses concern about the rising levels of household debt in Canada and serves to remind FRFIs of their obligations under Guidelines B-20 and B-21 to assess and underwrite mortgage loans and mortgage insurance in a prudent manner.
The letter states:
As we are coming into tax season, we know that folks are always looking for ways to pay less income tax.
We thought it might be helpful to share the following link that could permit you to obtain a $5,000 rebate from the CRA…it’s like Christmas all over again!
If you purchased a home in 2015, you may be eligible for a $5,000 tax credit if you were a first-time buyer or a person with a disability.
by Justin da Rosa | 23 Nov 2015
Mortgagebrokernews.ca
Lenders have had to adapt to changing guidelines, which have caused tighter underwriting resulting in delays – much to the mounting frustration of clients as well as their brokers.
“ … I attended a lenders meeting a while ago and expressed concerns about policies versus the customer (sentiment),” Lorne Rackel, general manager with Jayman Financial, wrote in the comments section of MortgageBrokerNews.ca. “The process is all about documenting a file and the customer pays the price of inconvenience and then becomes frustrated with us as brokers.
“They think some of our requests for documents borders on lunacy.”
Of course, document demands are neither the fault of the broker nor the lender. As industry players point out, they’re merely the result of stringent underwriting guidelines that seem to apply specifically to the broker industry.
“What I find interesting … is that no one has tabled the fact that the big five play with a completely different set of rules,” Blair Goodman, financing specialist with Dominion Lending Centres in British Columbia, wrote on MortgageBrokerNews.ca. “Why aren’t our designated associations and representatives lobbying the government to demand the entire industry play by the same set of rules?”
The comments come on the heels of a number of brokers expressing frustrations about income verification requirements that have delays – and in some cases spoiled – deals.
Brokers have struggled with gifted funds, as well as seemingly insignificant bank account balances that resulted in delays while trying to verify.
Genworth Canada Mortgage Insurance Company
Rental Income Calculations!
1. Owner-Occupied 2-Unit Properties:
• Greater than 80% LTV
• Genworth will now accept 100% of the rental income across Canada subject to:
• Each applicant having minimum credit score of 680
• Income must have been sustained for at least two years and the two year average of the income is to be used for qualification.
• If the above credit and income requirements cannot be met, 50% of rental income is to be used for qualification.
• Taxes and heat are to remain excluded from the debt service ratio calculation (no change to existing policy)
2. Owner-Occupied 3-4 Unit Properties (greater than 80% LTV) & Non-Owner Occupied Rental Properties:
• Lenders may use their existing policy to calculate net rental income. At a minimum, operating expenses must include mortgage interest, maintenance and vacancy
• Net rental income surplus may be added to the gross annual income
• Net rental income shortfall should be deducted from the applicant’s gross annual income.
3. Income Confirmation (All LTV’s)
• For properties with existing rental units, lease agreements are to be obtained to confirm rental income.
• For properties with new rental units, income is to be confirmed via fair market rent from an appraisal.
N.B. As in all mortgage insurance changes, lenders’ policies may not adhere to mortgage insurance guidelines…
TD Economics
Data Release: The Bank downgrades its outlook for economic growth in Canada, but leaves interest rates unchanged
* The Bank of Canada left its key policy rate unchanged at 0.50% today. The Bank judges the current level of the overnight rate to be appropriate, but maintained a cautious tone in its outlook, acknowledging global risks and citing that the persistently low level of commodity prices has led to a modest downgrade to the bank’s growth forecast.
* Overall, the Bank’s statement acknowledges the disappointment in global growth this year, but points out that in 2016 and 2017 the positive effects of cheaper energy and accommodative financial conditions should become increasingly evident. It characterizes Canada’s economy as having rebounded, supported by the stimulative effects of past interest rate cuts and the past depreciation of the loonie. It also expects the U.S. economy to continue to grow at a solid pace
* The Bank updated its forecasts in the accompanying Monetary Policy Report (MPR). Economic growth in Canada is expected to be better in Q3 than the Bank had estimated back in July. However, the Bank downgraded its real GDP growth forecasts to 2.0% in 2016 (previously 2.3%) and 2.5% in 2017(previously 2.6%). At the same time, as a result of the continued weakness expected in business investment, the Bank downgraded its estimate of the potential growth rate of Canada’s economy. Therefore, the timing on when the Bank expects the economy to return to full capacity is only marginally later than was previously expected, at mid-2017.
* For what it’s worth, the Bank’s forecast for core inflation was upgraded slightly over the forecast horizon, but it remains close to the Bank’s 2% target. The Bank characterizes inflation as having evolved largely in line with the outlook in the July MPR. The Bank of Canada has recently de-emphasized its traditional core inflation measure, since it is being temporarily boosted by a weaker Canadian dollar. Thus, core inflation is currently out of step with where the Bank views “underlying inflation”, or where inflation is running once temporary factors are stripped away. The bank estimates underlying inflation to be between 1.5-1.7%, consistent with recent speeches.
Key Implications
* The Bank’s decision to leave rates unchanged was widely expected. It maintained a cautious tone, acknowledging that the Canadian economy rebounded smartly from the contraction in the first half of the year, but that it continues to adjust to lower prices for oil and other commodities. The current level of monetary policy stimulus is necessary to facilitate this ongoing adjustment.
* The downgrade to the Bank’s growth outlook further out in the horizon is in line with more modest global growth and continued weakness in energy prices. This would typically mean the economy returning to full capacity at a later date, but the Bank also downgraded its estimate of Canada’s pace of potential growth. As a result, there is little effect on the outlook for inflation.
* At the same time, with the Bank now focused on a measure of underlying inflation rather than core, the performance of the economy relative to growth expectations is particularly important. The new forecasts in the MPR set the bar that Canada’s economy must attain to see the eventual removal of monetary stimulus. If growth falls short of the mark, it could elicit further rate cuts.
* Overall, with the outlook for inflation little changed and the growth much the same as our latest outlook<http://www.td.com/
Leslie Preston, Economist
Genworth Canada Announces New Mortgage Insurance Premium Rates
April 6, 2015
TORONTO, April 6, 2015 /CNW/ – Effective June 1, 2015, Genworth Canada will increase its mortgage insurance premium rates for homebuyers with less than a 10 per cent down payment by approximately 15 per cent.
“This new pricing is reflective of higher capital requirements and supports the long-term health of Canada’s housing finance system,” said Stuart Levings , President and CEO of Genworth Canada. “Genworth Canada remains committed to helping Canadians achieve homeownership responsibly and we believe these changes will not have a material impact on affordability.”
To illustrate, a typical first-time homebuyer taking out a 95 per cent loan-to-value mortgage of $300 000 will see an increase of approximately $6 in their monthly mortgage payment (based on a 2.79 per cent interest rate and 25-year amortization period).
The new premium rates for standard owner-occupied purchase applications submitted on or after June 1, 2015 are as follows:
Loan-to-Value Ratio | Standard Premium | Standard Premium (Effective June 1st, 2015) |
Up to and including 65% | 0.60% | 0.60% |
Up to and including 75% | 0.75% | 0.75% |
Up to and including 80% | 1.25% | 1.25% |
Up to and including 85% | 1.80% | 1.80% |
Up to and including 90% | 2.40% | 2.40% |
Up to and including 95% | 3.15% | 3.60% |
90.01% to 95% Non- Traditional Down Payment | 3.35% | 3.85% |
What and whom does this affect??? First time homebuyers with less than 10% as your down payment! This is applicable to Genworth Financial and CMHC – so get your applications in asap to avoid the increase in mortgage insurance premium!