On February 16th, Federal Finance Minister Jim Flaherty announced changes to mortgage insurance rules that will come into force on April 19, 2010. These changes are as follows:
1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
3. Non-owner occupied properties (up to 4-units) will require a minimum down payment of 20%.
There were no changes to down payment requirements or length of amortizations for owner-occupied residences.
Most of the Finance Department’s changes were minor, with one noted exception – that being the rule changes for Canadians wishing to purchase investment, or rental, properties. Mr. Flaherty said he was not targeting real estate investors but rather the “speculators”. Regardless, the new rules will have a negative impact on all investors, especially Canadians that have large real estate portfolios trying to get a conventional mortgage with a lender who uses the Canadian Mortgage & Housing Corporation (CMHC) guidelines. The main reason is not because Canadians will need to have a 20% down payment, but because CMHC will use a 50% add-back instead of an 80% offset. [This refers to different methods of using rental income when calculating debt service ratios.]
Real Estate investors only represent about 4% of the overall mortgage market and those who use high ratio CMHC mortgages for investment properties represent less than half of that. Therefore it will not have a significant impact the broader market. But it will certainly have the appearance of doing so, which was probably the real objective of the government.
It is hard to believe that Canadians could purchase non-owner occupied investment properties with $0 down payment as recently as 18 months ago. Therefore, it is a little baffling for the Federal government to make such a major shift to requiring a 20% down payment. Instead, the government could have tightened up on other conditions such as increasing net worth requirements, increasing credit score minimums, tightening debt servicing guidelines, or limiting the number of insured rental mortgages any one person can qualify for.
Investing in Real Estate, if done wisely, has nearly always been an excellent way for Canadians to improve their Net Worth and Cash Flow. Requiring a 20% down payment will take that opportunity away for many first time investors. The good news is that these new rules will likely be short lived and will be reversed as our economy improves.
James Shinners
President
Mortgage Managers
Thursday, February 25, 2010
Thursday, February 18, 2010
The Goverment Mandated Mortgage Changes
Tuesday morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. These changes are as follows:
All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
Non-owner occupied properties will require a minimum down payment of 20%.
There were no changes to down payment requirements or length of amortizations for owner-occupied residences.
If you have any questions, please e-mail me or give me a call at 820-3303 or 1-877-996-6677.
All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
Non-owner occupied properties will require a minimum down payment of 20%.
There were no changes to down payment requirements or length of amortizations for owner-occupied residences.
If you have any questions, please e-mail me or give me a call at 820-3303 or 1-877-996-6677.
Thursday, February 11, 2010
Government Threatens to Make Home Buying More Difficult
Our "conservative" federal government is considering raising the down payment requirement from 5% to 10%.
For many buyers, coming up with $10,000 on a $200,000 purchase is difficult enough, imagine trying to raise $20,000 cash? This may not be a problem for clients in other parts of the country where the incomes are higher, but I can tell you that it is a fairly rare occasion for home buyers here in Nova Scotia to have more than 5% available for a down payment.
If this happens, it will create an opportunity for Finance Companies, that are not backed by the Canadian Mortgage & Housing Corporation (CMHC), to offer a 5% down program at higher interest rates. Therefore, at the end of the day, I can't say our government's decision actually helps Canadians. But since when does the government put their constituents first?
For many buyers, coming up with $10,000 on a $200,000 purchase is difficult enough, imagine trying to raise $20,000 cash? This may not be a problem for clients in other parts of the country where the incomes are higher, but I can tell you that it is a fairly rare occasion for home buyers here in Nova Scotia to have more than 5% available for a down payment.
If this happens, it will create an opportunity for Finance Companies, that are not backed by the Canadian Mortgage & Housing Corporation (CMHC), to offer a 5% down program at higher interest rates. Therefore, at the end of the day, I can't say our government's decision actually helps Canadians. But since when does the government put their constituents first?
Tuesday, February 9, 2010
Little Mortgages Need Respect Too!
We had a client call today after getting frustrated with her bank. She wants to buy a small home near Wentworth for $55,000. She has 25% down and only needs a mortgage of $41,250.
Her bank kept stalling and not returning her phone calls. After three frustrating weeks and the purchase supposed to close tomorrow, she called us. We met her about an hour later, took a credit application, reviewed her credit report, calculated her debt ratio and by the end of our 45 minuite meeting we were able to tell her we could put the mortgage togther easily. We will have to delay the closing for 5-10 days, but at least our client can rest assured she will be able to buy her county retreat.
Her bank kept stalling and not returning her phone calls. After three frustrating weeks and the purchase supposed to close tomorrow, she called us. We met her about an hour later, took a credit application, reviewed her credit report, calculated her debt ratio and by the end of our 45 minuite meeting we were able to tell her we could put the mortgage togther easily. We will have to delay the closing for 5-10 days, but at least our client can rest assured she will be able to buy her county retreat.
Tuesday, February 2, 2010
The Difference between a Broker and your Bank.
I really couldn't have scripted a recent discussion I had with a gentleman any better. I was getting into my van which was parked in the parking lot at the mall. My van has lettering on the window that says "Save thousands of dollars by having your mortgage professionally managed, at no cost to you!"
The gentleman came up to me and asked "Is that really true? How does that work?" I explained that we can help him find the best mortgage to meet his needs at teh lowest possible rate. Then we monitor that mortgage for interest saving opportunities during teh term of teh mortgage.
He then said he wished he had met me a few weeks earlier. He explained that he had gone to his bank to ask about refinaning the mortgage he had with them at today's lower interest rates. The loan officer said to him "You should have come in to see us a few weeks ago when the interest rates were lower". He then asked the loan officer "Why didn't you call me?" and she said that the bank doesn't do that. He then asked who she worked for, her clients or the bank. She said she worked for the bank. He said "exactly!"
I thought that clearly demonstrated the difference between using a broker and just going to your bank
The gentleman came up to me and asked "Is that really true? How does that work?" I explained that we can help him find the best mortgage to meet his needs at teh lowest possible rate. Then we monitor that mortgage for interest saving opportunities during teh term of teh mortgage.
He then said he wished he had met me a few weeks earlier. He explained that he had gone to his bank to ask about refinaning the mortgage he had with them at today's lower interest rates. The loan officer said to him "You should have come in to see us a few weeks ago when the interest rates were lower". He then asked the loan officer "Why didn't you call me?" and she said that the bank doesn't do that. He then asked who she worked for, her clients or the bank. She said she worked for the bank. He said "exactly!"
I thought that clearly demonstrated the difference between using a broker and just going to your bank
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