With new regulations, insured mortgages have a maximum 25 year amortization. Banks often choose to insure low ratio mortgages, and cover the cost themselves. Having insured mortgages allows banks to off load the risk and securitize these mortgages.
Rules issued by the Department of Finance last year that tightened mortgage standards appear to be having their intended effect, slightly suppressing demand by first-time buyers, especially in British Columbia. While approximately 20 percent of people across Canada who were looking to secure first-time home loans delayed such a move due to the new rules, that number was higher in B.C., where one-third of respondents said they would wait (compared to a low of 11 percent in Ontario), according to a study commissioned by BMO.
Prices remain high
Despite the decline in demand among first-time buyers, overall housing prices have remained high, continuing to set records in most places across the country. With mortgage rates still below 3 percent, demand has remained steady and inventory relatively low, since few people are allowing talk of a possible housing bubble to scare them into selling. Continue reading
The Canadian Mortgage and Housing Corporation (CMHC) recently issued new guidelines for the use of debt ratios and confirmation of income documents in their mortgage calculators. Set to take effect on December 31, 2013, many lenders are already adhering to the stipulations, while others, like Genworth Canada, are in the process of reviewing them, and may not completely implement the guidelines by the end of the year.
What the new debt ratio rules mean for borrowers
Last year, the Department of Finance issued its fourth round of rules tightening mortgage insurance practices. Those rules, intended to shield the Canadian economy from the brunt of the worldwide debt crisis, set restrictions on mortgage applications for new borrowers with less than 20 percent equity. The long-term repercussions of last year's moves, along with this newest set of rules from the CMHC, should serve to further cement mortgage standards and close existing loopholes. Continue reading
While many industry observers feel that the mortgage restrictions put in place by Finance Minister Jim Flaherty could lead to a crash in the Canadian real estate market, Flaherty feels that current figures are a positive sign, according to Financial Post.
"I'm comfortable about where we are," he told Julian Beltrame of the Canadian Press. "I'm pleased in particular that the condo market in big cities has fallen back. I'm also pleased with some other moderation in new house construction and in demand for mortgages. I think these are healthy developments because I think we were beginning to see some indications of the beginning of a bubble."
Flaherty went on to tell Beltrame that he has no further plans to intervene in the Canadian mortgage market because he doesn't need to, indicating that the previous restrictions put in place have done a satisfactory job.
It's easy to see why this news could lead mortgage professionals to breathe a sigh of relief. The last mortgage restrictions to be put in place, which included shortening the maximum amortization length on government-backed home loans from 30 years to 25 years, seemed to have a large impact on homebuyers when they went into effect during July 2012.
This also comes on the heels of rumors that The Office of the Superintendent of Financial Institutions Canada (OSFI) was considering limiting the amortization rate on uninsured mortgages to 25 years. Continue reading
Mortgage restrictions are turning first-time homebuyers into renters, and the increase in rental demand is resulting in higher costs, according to an article from Canadian Mortgage Trends.
Writing for the news source, Rob McLister cites a release from Urbanation, a real estate information firm focused on the Toronto condominium market, as proof of rising rents. Not only does the report from Urbanation show that rental activity is steadily growing, it shows that rents have increased by more than 10 percent over the last two years, adding an additional $170 per month or 23 cents per square foot on average.
"Demand for renting condos has heated up with less first-time buyers," said Shaun Hildebrand, senior vice president at Urbanation. "Rental transactions have exceeded resale volumes in the condo market since mid-2012, when the latest round of mortgage rule changes came into effect."
The number of units listed for rent on the multiple listing service system grew by 19 percent during the first quarter of 2013 on a year-over-year basis. Meanwhile, of the 4,859 units listed, 13 percent were rented out during the first quarter, compared to 2 percent that were resold. Continue reading
It seems that not every member of the Conservative cabinet is a huge fan of Finance Minister Jim Flaherty's penchant for getting involved in the mortgage market.
According to a report from The Globe and Mail, Small Business Minister Maxime Bernier recently expressed his opinion regarding Flaherty's meddling in the world of mortgage rates. The verdict? Leave the market alone.
"Me, personally, I would not dictate to businesses what prices to decide," Bernier said. "It's the market. It's supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too."
Of course, Flaherty has critics outside his party as well.
"We either have a competitive mortgage market or we do not," said Bob Rae, interim Liberal leader. "And it's clear to me that Mr. Flaherty would prefer to have a cartel where… he and his officials are setting the interest rates for every mortgage in this country."
The criticism being leveled at Flaherty is in regards to his asking both Manulife Financial to withdraw their discount on five-year mortgages, as well as complaining about the Bank of Montreal lowering it's five-year mortgage rates. Continue reading
Reports out of Ottawa could spell big changes for mortgage borrowers concerning amortization rates, according to The Globe and Mail.
Apparently The Office of the Superintendent of Financial Institutions Canada (OSFI) is weighing the pros and cons of uninsured mortgages of more than 25 years. Brock Kruger, OSFI spokesman, has attributed this attention to the high levels of debt carried by many Canadian households, among other matters.
"We are working to determine the desirability of some changes given current conditions in housing markets and recent trends in household indebtedness," Kruger told The Globe and Mail.
Considering the fact that Finance Minister Jim Flaherty tightened mortgage rules four times in as many years, the most recent being in July 2012, it's not far-fetched to think this attention from OSFI could result in further restrictions on home loans Continue reading
If it seems like Canada's housing market bounces back and forth from doom and gloom to optimism and sunshine faster than a mortgage application can be submitted, it's likely because it makes for better headlines than the truth: The market is cooling, but it's heading for a soft landing, not a crash. Mortgage rates remain near all-time lows, making it more affordable than ever for consumers to take the plunge into homeownership. Meanwhile, property prices continue to remain high.
New home prices rise in March
According to data from Statistics Canada, new home prices increased 0.1 percent overall during March on a month-over-month basis. Most of this positive activity is being attributed to Calgary, where Canada's oil industry is giving workers the means for homeownership. The new housing price index shows that prices in Calgary rose 0.3 percent from February to March. Meanwhile, the Toronto-Oshawa region saw an increase of 0.1 percent following a flat rate in February. Regina, Saskatoon and Windsor are also reported to have experienced large price hikes during the same time period. In fact, while prices rose in nine cities, only three saw a decline, including Vancouver, where new home prices fell 0.2 percent from the previous month. Meanwhile, prices stayed unchanged in nine cities during this time period. Continue reading
With mortgage rates continuing to stay near ultra-low levels, it's no surprise that many Canadians are clamoring to invest in a home purchase or refinance their current home loan. However, the process can be slightly more difficult for one of Canada's growing demographics: The self-employed.
The latest statistics from Industry Canada show that the country has 2.67 million self-employed individuals, which represent nearly 15.4 percent of all the employed workers in the country's economy. In fact, the number of self-employed Canadians has risen steadily over the last 10 years, especially amongst women.
"Over the past decade, the number of self-employed workers increased by 17 percent, while the growth rate of the overall labour force was 15 percent," reads an excerpt from Industry Canada's official website. "Slightly more than one-third of self-employed workers were female – the share of female self-employment rose steadily from 1976 to 1998, from 26 percent to 36 percent, and has remained at around 35 percent since 1999." Continue reading
New data from the Bank of Montreal is shedding light on homebuyer habits, particularly those concerning first-time homebuyers.
Figures from the BMO First-Time Home Buyer's Report, which surveyed 2,000 Canadians 18 years old or older between February 25 and March 5, shows that first-time homebuyers are twice as likely to choose fixed-rate mortgage over variable rate mortgages. In fact, many first-time homebuyers who believe mortgage rates will decrease over the next five years still plan on opting for fixed-rate mortgages.
"Buying a home is one of the most important financial decisions one can make," said Laura Parsons, mortgage expert at the BMO. "It's crucial that those planning to enter the market are well prepared – not only to manage their costs, but also to pay off their mortgage as soon as possible. Determining what your mortgage payments and overall costs of homeownership will look like, and then living in that financial reality for a year before entering the market, can be an effective strategy." Continue reading