TransUnion Predicting Increase in Debt Delinquency Rates

credit reporting agency in Canada

 

credit reporting agency in Canada

TransUnion anticipates surge in personal debt delinquencies in parts of western Canada where employment is largely oil related. Alberta and Saskatchewan are forecasted to be hardest hit.

Alberta and Saskatchewan may soon be facing a distinct increase in the amount of consumers getting behind on their debt obligations later in the year, according to credit reporting agency TransUnion.

In a study released Wednesday, by TransUnion, there is a forecasted rise in amount of personal loan delinquencies. This is expected to grow by double-digits in Saskatchewan, and as much as 60% in the province of Alberta. These two provinces are the ones most reliant on oil prices. In Alberta, more than one quarter of the province’s GDP is linked to oil pricing, which as we all know is down 50% in the past year. In Saskatchewan, more than one sixth of GDP is tied to oil.

Low priced oil has affected these provinces in several different ways. “First, oil price drops cause lower oil sector investment,” says TransUnion . That will lead to increasing joblessness which leaves less spendable income going towards other areas of the overall economy.”Consumers then have lower ability to service debt, finally resulting in higher delinquency rates.”

According to the TransUnion study, the amount of individuals who choose to pay off just twice their minimum credit card payment has increased by 10% in the oil town of Fort McMurray, since last summer.

“Based on an historical analysis of the last oil crash and recent payment behavior trends, we expect materially higher delinquency rates in Alberta and Saskatchewan in the second half of 2015,” according to TransUnion’s research director Jason Wang. “If lenders do not take proactive measures to address the impact of the decline in oil prices, we could potentially see double-digit delinquency rate increases in Saskatchewan, and as much as a 60% increase in some areas of Alberta.”

The credit reporting agency arrived at these figures after taking a look at what happened to delinquencies the last time the price of oil declined by this much, in 2008. At that time, the increase in delinquencies developed two quarters following the price of oil fell, and increased by 60% for the following four quarters. “These are particularly noteworthy observations because it shows that Albertans suffered financially for a period much greater than the actual oil slide and recovery,” said Jason Wang.

Frequently the first sign of a future debt problem is a decrease in how much people pay off their credit cards every month. “The fraction of the balance that is paid, and changes in that fraction, are quite effective indicators of future non-repayment risk,” according to TransUnion. In their case study of oil town, Fort McMurray, the percentage of people who pay off no more than twice the minimum payment every month has increased by 10% since last summer.

“Many consumers in Alberta may be facing challenges meeting their monthly payment obligations,” said Jason Wang.

At the moment, there is hardly any evidence that there is any change to nationwide delinquency rates. This could be due to the fact that Alberta only accounts for 12% of Canada’s debt, compared to Ontario’s 39%.

“What is particularly important to understand is that balances are much greater today than they were in the 2008 and 2009 period, therefore any delinquent accounts will place a greater burden on the economy.”

For an alternative to credit card debt consolidation find out more about Grouplend personal loans.

Full Rental Income Now Allowed to Qualify For a Mortgage

Mortgages insured by CMHC

Canada Mortgage and Housing Corp. (CMHC) is intending to make it much easier for homeowners renting apartments out in their primary homes to qualify for a mortgage. The CMHC, which controls a large percentage of the mortgage default insurance market in Canada, unveiled improvements to its guidelines Monday, and effective Sept. 28th., which are designed create more affordable housing.

“Many municipalities across the country now formally recognize secondary rental suites as a source of affordable housing,” CMHC published in its report created for industry associates. “Rents in secondary rental suites are often lower than those for apartments in purpose-built rental buildings.”

The Crown corporation has said Vancouver has 26,600 rental units in primary residences which is around 20% of the rental apartments currently in the city. The updates from CMHC would permit property owners to include the revenues from their supplementary apartment when being qualified for a mortgage. This is seen as something that could bring more individuals into the real estate market. The changes would primarily apply to multi-unit owner-occupied properties include basement rental units. Secondary apartment units should be self-contained and have a separate kitchen, bedroom, and bathroom.

One important issue will be whether the apartment units are legal or not. CMHC only recognizes units that are legal or conform to local municipal standards. The Crown corporation says that it will be up to lenders to use sound judgment when it comes to borrowers proving that the units are indeed legal. Since most basement apartments are not legal, it is difficult to say what impact these changes will have.

According to the latest guidelines, CMHC will take into account 100% of the rental income from a two-unit owner-occupied property that is being financed. The municipal tax and heat for the property, including the apartment, must be used when establishing the debt service ratios. Currently only 50% of the rental income is used for qualifying.

Banks All Cut Prime Rates

mortgage rate cuts

mortgage rate cuts

After yesterday’s move by the Bank of Canada to cut the overnight lending interest rate to 0.5 per cent various key mortgage providers have also lowered their rates. As anticipated they have not discounted their mortgage rates by the full 0.25% again, but some have discounted them more than last time.
The Toronto Dominion Bank was first to respond, just 12 minutes after the Bank of Canada’s announcement. It would appear they were ready for the rate drop and discounted their prime rate by 0.10%, like last time, to 2.75%. Other financial institutions, who clearly watched TD’s move, elected for a cut of 15 basis points (0.15 per cent). TD cut their prime rate again to match the other banks.
Scotiabank, RBC, CIBC, and BMO have all announced the rate cut to 2.70 per cent effective today. TD’s second rate cut will be behind the others for one day as the initial decrease takes effect today. The second cut comes in tomorrow (Friday 17th).

It is surprising that the banks have cut their rates by .015% this time, when they only cut them by .010% the last time the BoC made a .025% reduction. The banks have always claimed that mortgage rates depended more on the bond market, than the BoC’s overnight lending rate. Perhaps last time they decided to profit from the cut in rates.

Interest Rates Drop Again

mortgage interest rates

mortgage interest rates

The Bank of Canada’s Governor, Stephen Poloz, publicly accepted the fact that he has been overly optimistic regarding the condition of the Canadian economy. He has now tried to help the economy once again by reducing the central bank’s over night interest rate from 0.75 to 0.50 per cent.

The Canadian dollar has reacted by dropping to 77.43 cents U.S., a level not seen since March 2009. This is when Canada was in the middle of a recession. The economy is now recognized as having contracted slightly in the first half of the this year by the bank, mentioned in a statement accompanying the latest announcement.

The Bank of Canada overnight lending rate is the central bank’s main tool for influencing Canadian interest rates. This important decision comes in the wake of lower oil prices. A number of major banks have concluded the Canadian economy has been in a recession for the first half of this year. The negative growth in Canada’s economy the first half of 2015 fits the typical meaning of a recession. The bank governor consistently refused to make any reference to a recession, claiming that any discussion as to whether we are in a recession or not is unhelpful.

Stephen Poloz, who shocked the financial community in January by delivering in an unanticipated rate decline, had been expecting the overall economy to rebound rapidly from the oil price shock that hurt our economy earlier this year. Now he is saying that he had been overly optimistic, and the bank’s estimation of economic growth in 2015 has been reduced considerably from April. This new position demonstrates even further cutbacks in financial investment in the energy market, combined with weakened exports of non-energy goods.

“Canada’s overall economy is expected to expand by about 1%,” Poloz said, and our economy is not expected to be back to normal until the first half of 2017. The Bank of Canada’s governor also cited international circumstances for Canada’s economic issues, referring mainly to conditions in the United States and China. Poloz stated he anticipates the U.S. economic climate to recover again in the second half of this year, but does not see any immediate change in China.

As with the last quarter point drop was saw, a few months ago,, mortgage interest rates are not going to drop buy the same amount. Mortgage rates are actually dictated more by the bond market than the Bank of Canada’s overnight lending rate, and will likely only drop 0.10%. Some consumer who have a variable rate mortgage will see some savings for now.

Making Sure You’re Not Buying a Grow-op!

financing an ex- grow-op

financing an ex- grow-op

Protecting yourself from purchasing a home that has been used for producing illegal drugs is becoming more and more of an issue these days. This kind of home can easily be concealed and no neighborhood is exempt from this kind of activity.

Photo is one tweeted by Dutch Police showing melted snow from lights used to grow marijuana – any more than five plants is illegal in their country.

On the exterior these homes generally appear completely average and normal, but they can be concealing some potentially hazardous conditions. A regular home inspection, even done by a professional, may not turn up any evidence of any past illegal activity. A home inspector cannot start taking things apart looking for issues and generally reports on what is visible.

Just one indicator of a marijuana growing operation is the presence of mould as these growing operations (grow-ops) need heated and moist conditions for plants to grow. This is precisely the very same conditions that produces the development of mould. Of course this will negatively impact the air quality in the home, causing various health related problems. Removing the mould will usually be costly and escalate dependent upon the extent of the problem. Hiring an air quality testing professional could be well worth it if there is any suspicion of mould.

Yet another indication of a grow-op can be issues with the home’s wiring. A drug growing location demands lots of electrical power, generally meaning the home’s wiring will have been modified to manage the requirements. in rare cases the hydro meter is bypassed to conceal the excessive electricity being consumed. Even if th wiring has been removed, an experienced electrician can often tell that changes have been made. Irregular wiring can also be a sign of DIY renovation work which can be just as scary.

The length of time the house was used for drug manufacturing will also have a bearing on any possible long term damage that may have been caused. Knowing who lived in the home previously is always a good place to start. If it was a family who lived there for many years, chances are they did not grow drugs in the basement. However, if the house has been a rental, then anything is possible. Doing a quick internet search on the address can also bring up any police activity involving the property.

If a property is known and disclosed as being a former grow-op, obtaining financing and insurance can be difficult and costly. The excellent deal you are getting on the place may not be worth it.

Electronic signatures legal in real estate deals as of July 1, 2015

Real Estate Deal Signatures

Real Estate Deal Signatures

Ontario is now making the process of buying or selling a home much easier by making it possible for real estate documentation to be signed in electronic format.

When Ontario’s Electronic Commerce Act was first introduced in 2000, it permitted specific legal documents to be signed with electronic signatures. Documents that created or transfered interest in land, and required registration to be effective against third parties, were excluded from the Act and still necessitated handwritten signatures.

This will change on Canada Day as an amendment to the Electronic Commerce Act comes into force. Effective on July 1, 2015, modifications to the Electronic Commerce Act will make electronic signatures legally the same as to signatures on paper documents for real estate transactions. Under existing legislation, when real estate is sold, many copies of documents such as offers and agreements of sale, need to be signed by hand.

Permitting these financial transactions to be signed in electronic format will also make it more convenient to send legal documents electronically and save time for anyone buying or selling property, particularly when the two parties are separated by distance.

Offering more convenient solutions for consumers is a portion of the government’s economic plan to build Ontario’s economy stronger. This four-part plan includes investing in people’s talents and skills, making the most extensive financial investment in public infrastructure in Ontario’s history, developing a dynamic and innovative environment where business flourishes, and creating a secure retirement savings plan.

It is difficult to say whether these new changes will actually be adopted by the realtors and others involved in the sale and purchase of real estate. Many lenders may not accept electronic signatures if they become linked to fraudulent activities.

Mortgage Interest Rates Hikes Looming

mortgage rates set to increase

mortgage rates set to increase

Residential home purchases are on the rise in the US and are set to be the best in eight years – since 2007. Buyers are surging back into the housing market, and the vast majority are first time purchasers. This influx of home buyers is driving prices up and up, due to strong employment and very low mortgage interest rates.

The busy housing market is a sign that the U.S. economy is firmly on the road to recovery and definite improvement. Buyers are more positive about their own financial futures and appear ready to close sales quickly. Many fear being possibly priced out of the market by potential mortgage rate hikes and steadily increasing home prices.

According to Nela Richardson (Chief Economist at Redfin), “demand is off the charts in 2015, and that is really boosting sales. Last year, buyers were dipping their toes in their water. Now, they’re diving in.”

The National Association of Realtors stated on Monday that sales of existing homes climbed 5.1% last month to a seasonally adjusted annual rate of 5.35 million. May was the third straight month of the sales increasing, and has surpassed 5 million homes.

Listings have not been able to keep up with the increase in demand, leading to the higher than normal price increases. Average home selling prices have risen 7.9 per cent in the last 12 months to $228,700, (US) coming in just below the July 2006 peak before the crash.

Roughly 32% of the homes purchased last month were by first timer buyers. This is up from 27% just one year ago. The increase is significant but is still behind the traditional average of first time buyers making uo 40% of the residential buyers. The larger percentage of non-first-time buyers could be due to the large amount of displaced homeowners re-entering the market after being forced to rent.

The increase in home sales can easily be linked to employment numbers. 3.1 million additional workers have been hired in the past year, and the unemployment rate has dropped to 5.5% from 6.3%. This has led more Americans to start feeling financially comfortable immediately following the most severe housing related downturn in eighty years.

According to Richardson,“that’s the big psychological shift between this year and last year.”

Mortgage rates are reasonably modest, however, may be set to rise as the Federal Reserve considers an interest rate increase – the first time in nearly a ten years. Thirty year fixed rates were up to 4% last week, according to mortgage provider Freddie Mac – that is an increase from a year long low of 3.59%.

“This has plenty of buyers appearing willing to complete their purchase before rates and prices increase any further,” according to Jonathan Smoke, chief economist at Realtor.com. A recent Coldwell Banker survey discovered that 28% of homes are selling within as little as two weeks, in comparison to 19% before the recession. Numerous economists warn that the sales increases in recent months may be only temporary if prices increasees continue and price buyers out of the market.

Whatever happens south of the border will most likely have an effect on Canadian interest rates also. The extremely low mortgage interest rates we are enjoying in Canada currently are about as low as they can go. Combined with a declining Canadian dollar, a move by the Federal Reserve may be all it takes to bump our rates also. Nobody is disputing the fact that interest rates are going up – it is just a matter of when.

Reverse Mortgages – Good or Bad Idea?

chip reverse mortgage

A lot more Canadians are using the economic value of their own property to make up for financial shortfalls, as they head towards retirement life. Many over the age of 55 find themselves house rich and cash poor. Numerous senior Canadians are on their way into retirement with either too much personal debt, or not enough savings, or in many cases both of those.

As they leave behind the labor force their earnings decrease but their financial obligations continue. So many are facing this scenario and managing it becomes stressful. Many property owners in this situation ask themselves if a reverse mortgage is the answer, since it would allow them to take funds out of their home, and continue to live there. Reverse mortgages can relieve financial challenges and allow seniors to live a little, do some renovating, or maybe give their children financial help.

Reverse mortgages are a good idea, but they should only be taken into consideration after all alternate options have been explored. Reverse mortgages do carry a higher rate of interest than a conventional mortgage although not much different from second mortgages or lines of credit. They do erode the equity in your principal investment, which in turn might need to be sold later. If you are prepared to overlook this, you are probably under financial pressure or perhaps you are not living the life you want after years of working hard.

HomEquity Bank offers reverse mortgages in Canada, the greater part of which are in larger more expensive cities like Toronto and Vancouver. The bank provides them through the Canadian Home Income Plan (CHIP).

Here is how reverse mortgages work:

To qualify you need to be over 55 and own a home, you can get up to 55 per cent of its value depending on your age. The money is tax-free and you do not have to pay anything back until you want to sell your house or you die. Then the principal and accrued interest is due in full, within six months or at closing of the sale of the home.

The rate is somewhat higher than a conventional mortgage mortgage with an “A” lender. HomEquity is offering a 5-year fixed reverse mortgage at 4.99 per cent compared to rates under 3% for a first mortgage to clients with excellent credit. After the five-year term is up, the rate is renegotiated and will depend on market conditions at that time.

The real cost is very easy to forget about as you are not making any payments unless you want to. HomEquity Bank, says their typical consumers are in their early 70s and borrow on average $110,000, and usually sell their home within six to eight years.

Ziomecki says the process involves a home appraisal and those with mortgages would not be turned down, though they would be able to borrow less. Applicants must have a lawyer to ensure they understand what’s involved. HomEquity encourages the entire family to get involved to avoid acrimony later.

HomEquity sees four types of customer:

Debtors (35%): They have poor money management habits and may be maxed out on department store and bank-issued credit cards. They have large credit lines and in some cases huge mortgages. It adds up to a reduced credit rating, and they often cannot obtain additional financing from their bank.

Spenders (30%): They desire a much better lifestyle without having the repayments. It could perhaps be a holiday home or a significant home refurbishment. They may not want to have a credit line given that they would have to make a payment each and every month.

Cash poor (17.5%): This group cannot make ends meet. Their pension income and savings are moderate. Many are single women or widows who did not work outside the home. They need the extra cash to stay afloat.

Unanticipated needs (17.5%): This could be big bills or a desire to deliver an early inheritance to their children. If the latter, giving the money makes them feel good.

HomeEquity had a banner year in 2014. Its reverse mortgage business increased 23 per cent and was worth $309 million. As more Boomers head into retirement, the company says it expects the growth to continue.

Bank of Canada Overnight Rate Stays at 3/4 per cent

mortgage interest rates

mortgage interest rates

The Bank of Canada is keeping its overnight lending rate at three quarters of a point for the time being. The Consumer Price Index (CPI) has stayed around one percent, largely driven down by energy prices. Since the CPI is used calculate inflation, this has kept inflation at around two percent so far this year.

Economists with the Bank are predicting global growth to be in the 3.5% range for the next few years, however, Canada and the U.S. had a very weak start in the first quarter of 2015. Both countries are expected to rebound from this in the second quarter of the year.

Low overnight lending rates are being partially passed onto consumers by way of lower interest charges on mortgages, which is hoped to drive the spring housing market. Most lenders have not passed this discount completely onto consumers as they do not expect the lower interest rates to be long term. Mortgage interest rates have only really dropped about .15%, not the .25% the Bank lowered its prime by. The large banks have been the slowest to drop their rates compared to lenders whose primary business is mortgage financing.

The Bank is not expecting the Canadian economy for reach and maintain full capacity until towards the end of 2016, so the lower interest rates we are enjoying could be in place for a while longer.

 

Low Mortgage Rates Continue as CMHC Predicts Moderation in Housing Market Activity for Canada in 2015 and 2016

Mortgages insured by CMHC

Mortgages insured by CMHC

Canada’s federal housing division, CMHC, has revised their predictions for new residential housing starts for 2015. CMHC anticipates that the rate of new home development to steadily decelerate in the foreseeable future.

Even though the Canada Mortgage and Housing Corp said on February 6th., it anticipates employment and disposable income to continue to support the country’s robust housing market, it noted the downside risks have increased since its October forecast due to the fact of the decline in oil prices. They stated that low oil prices will detrimentally impact certain economic regions like Alberta, Saskatchewan, and Newfoundland and Labrador. This will only be partially balanced out by the favorable impact of reduced exchange and mortgage interest rates.

Housing starts are expected to range between 154,000 and 201,000 units this year, with a point forecast, or most likely outcome, of 187,400 units, the CMHC stated. This is somewhat reduced from the projection it offered in October, stating a range of 172,800 to 204,000 units, and a point forecast of 189,500. According to its base case scenario, new housing starts will drop by 1% in comparison to 2014. In 2016, the CMHC anticipates a range of 148,000 units to 203,000 units, with a point forecast of 185,100, which is not much of a change.

Canada averted most of the global economic turmoil and has experienced and accelerated housing market helped by continuing lower interest rates on mortgages. Many economists are still expect the Canadian housing market to see a softer landing, even though the sudden slide in the price of crude oil has brought up some anxiety about Canada’s financial future moving forward, since oil is a leading export.

Lastly the CMHC is forecasting average home prices to improve by 1.5 percent in comparison to last year.

See full press Release below or read it on CMHC’s site by clicking HERE:

OTTAWA, ONTARIO–(Marketwired – Feb. 6, 2015) – According to CMHC’s first quarter 2015 Housing Market Outlook, Canada Edition, housing starts in 2015 will remain similar to levels observed in 2014 and broadly in line with economic and demographic trends. By 2016, slight moderation is expected.

“Our market outlook calls for gradual moderation in the pace of new home construction over the next couple of years as employment, disposable income and high net migration continue to support the market,” said Bob Dugan, Chief Economist for CMHC.

“However, downside risks have increased since the previous forecast due mainly to recent declines in oil prices. Lower oil prices will negatively affect oil-producing economies like Alberta, Saskatchewan, and Newfoundland and Labrador, which will only be partly offset by the positive effects of lower exchange rates and interest rates across all provinces. We have widened the forecast ranges for housing starts, MLS® sales and average MLS® prices to reflect these risks.”

Under CMHC’s base case scenario, housing starts are expected to decline by 1.0 per cent in 2015 relative to 2014; Multiple Listing Service®(MLS®2) sales are expected to remain unchanged, and the MLS® average price is expected to increase modestly by 1.5 per cent.

On an annual basis, housing starts are expected to range between 154,000 and 201,000 units in 2015, with a point forecast of 187,400 units. For 2016, housing starts are forecast to range from 148,000 units to 203,000 units, with a point forecast of 185,100 units.

MLS® sales are expected to range between 425,000 and 504,000 units in 2015, with a point forecast of 479,900 units. In 2016, resales are forecast to range from 410,000 units to 505,000 units, with a point forecast of 474,400 units.

The average MLS® price is forecast to be between $384,000 and $428,000 in 2015, with a point forecast of $414,200. For 2016, the average MLS® price is forecast to be between $388,000 and $438,000, with a point forecast of $420,900.

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers and the housing industry.

Follow CMHC on Twitter @CMHC_ca.

1 The forecasts included in the Housing Market Outlook reflect information available as at January 21, 2015. Where applicable, forecast ranges are also presented in order to reflect financial and economic risks to the outlook.

2The Multiple Listing Service® (MLS®) is a registered trademark owned by the Canadian Real Estate Association.

CONTACT INFORMATION

Bank of Canada Lowers Overnight Prime

mortgage interest rates

Interest rates drop

The Bank of Canada’s surprise decision to lower the overnight lending rate by 25 basis points, is furthering household concerns that the economy is in for possible downturn.

The share of Canadians who predict the national economy will weaken over the next six months rose to 41.5% last week, the highest since the 2009 recession and up from 36.1% a week earlier, according to Nanos Research. It was the first full week of polling since the central bank made its surprise cut on Jan. 21.

There is a mixed opinion as the whether the rate drop actually did any good at all in bolstering the Canadian economy. On the one hand it has validated the fears of some who think this years housing market will take a downturn. Canadians have typically been much more cautious than our neighbors to the south when it comes to borrowing. Just because interest rates are lower doesn’t mean people will take advantage of them.

While lower interest rates are seen as good for the economy, the actual 25 basis point (0.25%) decrease has not been passed onto the consumer. Most lending institutions were slow to react and even when they did, their rates have only dropped 10 – 15 basis points.

Only time will tell if Canadians get lured into a false sense of security by low interest rates and cheap gas – both of which could rise dramatically at any time.

CHIP Reverse Mortgage Facts and Misconceptions

Facts and common misconceptions about Home Equity Mortgages

– As soon as you are approved for a reverse mortgage in Canada, you are accepted for life.

– Anyone can easily meet the requirements for a home equity loan no matter what your credit rating is or your income level.

– Most individuals will still have equity remaining in their residence when they decide to sell it and in generally HomEquity Bank customers average around 50% equity kept in their property.

– Nobody is allowed to sign final documentation for a reverse equity mortgage without having first received Independent Legal Advice from their lawyer. This requires all Canadian seniors must receive independent counsel before a reverse mortgage can be prepared.

– The CHIP mortgage program is not complicated, and many people have characterized setting up these home loans as one of the least complicated financial transaction they have ever arranged.

– Reverse home loan rates are not as expensive as many people think, and can be as low as Prime plus 1.25% they can be less expensive than a line of credit or second mortgage.

– The money is always tax free because it is a loan and not actually income as defined by the Canada Customs and Revenue Agency.

– In the event that one spouse passes away, there will be no changes to the terms and conditions of the equity financing arrangement. The equity does not have to be repaid and you do not have to move or re qualify.

– Using the equity in your home can provide an opportunity to diversify your retirement portfolio. There are investment opportunities which pay higher returns than the interest on a CHIP mortgage. This difference can create an income over and above the reverse mortgage payments received.

– If part or all of the CHIP funding is used for investment, there is an option to repay the interest each year and preserve your equity.

– The interest cost associated with a CHIP reverse equity mortgage are also offset somewhat by rising home values.

The rules in Canada are different when it comes to this type of financing, please do not look to U.S. sources for information. For Canadian relevant information visit: www.barriemortgagebroker.ca/reverse-mortgages/

Michael Curry
VERICO The Mortgage Wellness Group Ltd.
Call (705) 717-5598
email mcurry@mortgagewellness.ca

home equity mortgage

For more information on The Canadian Home Income Plan you can visit the Canadian Government’s website: www.cmhc-schl.gc.ca

Home Trust Now Offering 90% Mortgage Bundle

Home Trust 90 percent mortgage

Home Trust has now added a high ratio bundle mortgage which allows borrowers to finance up to 90 percent of their home.

Bundle mortgages are basically an uninsured first mortgage with a typical 80 percent loan-to-value (LTV) with an additional second mortgage for the balance of the funds up to 90 percent.

The intended niche for their bundle is the consumer who cannot qualify for an insured mortgage for 90 percent LTV through normal channels such as CMHC. That will probably include self employed business owners with harder-to-document income. Another benefit to this new bundle is the minimum credit score required of 620 which is not overly high.

Instead having to pay Canada Mortgage and Housing Corporation (CMHC) insurance premiums of 2.4 percent, Home Trust is charging a lender fee of 2.5 percent that can added to the second mortgage therefore not becoming an addition closing cost expense.

Mortgage Rates Dropping Again

mortgage rates

Bank of Montreal announces lowering their five year fixed mortgage rates.

The leading news reports from the mortgage industry last week came from one of the major Canadian banks. The Bank of Montreal announced it was reducing their five-year fixed mortgage rates to below the controversial 3% rate – 2.99% five year fixed. BMO will lower the five-year rate from 3.49% to 2.99%.

mortgage rates

The 50 basis point cut would be the lowest among the big banks although non-bank lenders are offering even slightly lower ratesalready. Press reporters inquired if this mortgage rate decrease was associated with Jim Flaherty no longer being the federal finance minister and Mark Carney the Governor of the Bank of Canada. Bank of Montreal Chairman Bill Downe stated that he got into contact with the new finance minister before the bank made the rate change. Federal finance minister Joe Oliver refused to interfere in the bank’s decision, saying simply that “the government is gradually reducing its involvement in the mortgage market”. Mr. Oliver seems inclined to let market forces determine mortgage pricing at this time probably due to average or below housing starts.

As the five year government of Canada bond yield presently sits at 1.71% (close of trading March 28th), mortgage rate below 3% would result in a markup of 1.28%. Other financial institutions will have to determine if this is enough profit as they get ready to remain competitive during the higher seasonal volumes of the spring.

The real estate and mortgage industry have identified two important the specifics of BMO’s rate drop. First off, the 2.99% rate offered by BMO is for a mortgage that is not open for prepayment other than a sale of the property, includes relatively punitive penalty calculations and provides very restricted alternatives for lump sum payments and regular mortgage payment increases. Secondly, the Bank Of Montreal is not the only lender with mortgage rates below 3%. These lower rates are readily available in the market through non-bank lenders and the mortgage brokers, and have been for some time. What the bank has evidently executed is yet another very successful marketing ploy creating the perception that it must be the marketplace leader in mortgage rate pricing.

Bank of Montreal started last year’s mortgage rate wars with its 2.99% offer. Others  started matching with similar rate deals including Manulife Financial Corp. that took its five-year product down to 2.89%.

CMHC Rate Hike

Mortgages insured by CMHC

 

CMHC has announced, in a recent press release, that they are going to be increasing the rates they charge for default insurance on high ratio mortgages. A high ratio mortgage is basically one with a down payment of less that twenty percent.

This rate hike will likely only affect new home and single income buyers who are already making a stretch to buy a home. The rate increase is also higher for those with the smallest 5% downpayment making the threshold for qualifying just a little bit higher.

Loan-to-Value RatioStandard Premium (Current)Standard Premium (Effective May 1st, 2014)
Up to and including 65%0.50%0.60%
Up to and including 75%0.65%0.75%
Up to and including 80%1.00%1.25%
Up to and including 85%1.75%1.80%
Up to and including 90%2.00%2.40%
Up to and including 95%2.75%3.15%
90.01% to 95% – Non-Traditional Down Payment2.90%3.35%

CMHC reviews its premiums on an annual basis and this is the result of their most recent review.

95% Loan-to-Value
Loan Amount$150,000$250,000$350,000$450,000
Current Premium$4,125$6,875$9,625$12,375
New Premium$4,725$7,875$11,025$14,175
Additional Premium$600$1,000$1,400$1,800
Increase to Monthly Mortgage Payment$3.00$4.98$6.99$8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

85% Loan-to-Value
Loan Amount$150,000$250,000$350,000$450,000
Current Premium$2,625$4,375$6,125$7,875
New Premium$2,700$4,500$6,300$8,100
Additional Premium$75$125$175$225
Increase to Monthly Mortgage Payment$0.37$0.62$0.87$1.12

Based on a 5 year term @ 3.49% and a 25 year amortization

The new premiums can be paid up front in one lump sum as before or added to the mortgage. In Ontario the premiums are subject to provincial sales tax which cannot be added to the mortgage and must be paid up front.

See the full CMHC press release here.