New Mortgage Rules

As expected we heard yesterday (June 2012) from the Department of Finance on some  further clamping down on the Canadian mortgage market.
I have attached an article below with the details but here are the hi  lites.
-For mortgages when the borrower is putting down less then 20% as their  down payment the maximum amortization reduces from 30 years to 25 years.   Imagine a 100k mortgage at 3.5% amortized over 30 years.  Payments would be  $450/month.  Take the same and amortize over 25 years and payments go to  $500/month.
-Refinance.  Maximum loan to value reduced further to 80% from  85%.
In addition, the government will:
  • Limit the maximum gross debt service (GDS) and total debt service (TDS) to   39% and 44% respectively (Currently, GDS does not apply to qualified borrowers   with credit scores of 680+), and
  • Ban mortgage insurance on properties over $1 million.
These rules are a “judgment call” says Flaherty. They’re meant to “lower  risk” for taxpayers and curb excessive household debt, which is Canada’s biggest  economic risk.  The above initiatives are in addition to pending OSFI  mortgage restrictions (OSFI’s final guidelines are expected later today.)

 

 Thanks to Mark Mighton of HomeFree Mortgages for the information.
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Buyers Guide to Purchasing a Home

The attached document provides a description of the home buying process and answers many of the more frequently asked questions.

Home Buyers Guide

 

 

 

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Mortgage for New Arrivals

Many new arrivals to Canada prefer to rent for the first year or so to be sure that they have selected the right neighbourhood for their family. But there are some, who just know right from the start that they have made the right choice and want to purchase their own home immediately.  This can be a problem as the mortgage lenders are looking for evidence that the buyer is  in a financially sound position with a decent credit rating. This information is not readily available for new immigrants. However, there are products out there which do allow people new to Canada to purchase with as little as 5-10% down. Details of one such product, as provided by Mandy Szucs of Real Mortgage Associates, are given below:
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Fixed Rate or Variable Rate……has the choice become easier?

The age old question facing consumers, do I take a fixed rate or variable rate……and a similar dilemma facing mortgage brokers as their clients ask them for advice on which option to take. We all know it depends on the client’s appetite for risk, affordability, cash flow stability, etc. however statistics have shown that taking a short term or variable rate has predominantly, but not always, been cheaper than take a longer fixed rate mortgage.

We maybe in or coming to an interest rate environment when taking a fixed rate or a hybrid mortgage (50/50) may actually be cheaper than staying in a variable rate. Why you ask…..let’s look at the facts as to why this maybe a good time to take a fixed rate or hybrid mortgage.

1. 5 year fixed rates are at the lowest levels in history, we have never been this low…..3.39% and 3.49% 5 year fixed rates are available through many lenders.

2. The gap between a prime – .50% (2.50%) and 5 year fixed rate (3.49%) is 0.99% and (in some cases even lower ),  this is down significantly from 3 to 4 months ago when the gap between a 5 year ARM and 5 year fixed rate was as high as 2.00%

3. We have just seen major Bank’s increase ARM rates by 20 bps as liquidity costs and funding costs are starting to take their toll and forcing the increase in ARM rates, thus making the ARM to Fixed rate spread or gap even narrower and will this trend continue

4. You can’t predict when to time a conversion from ARM to Fixed rate, especially in a volatile market. Fixed rates have a tendency to move ahead of variable rates….when variable rates begin to rise the fixed rate has already gone up and if you convert you maybe converting at a much higher fixed rate than today’s rates.

5. Watch for what I refer to as the “Fixed Rate Bubble”. We have seen a large amount of mortgages over the last two years take a variable rate versus fixed rate, including renewal clients. I estimate that as much as $350 billion in mortgages outstanding are in variable rate today. Probably the highest levels we have seen in the Canadian mortgage market. If we see a large increase or numerous simultaneous increases in prime rate over a short period of time AND we experience a mass conversion from variable rate to fixed rate, what will happen to fixed rates? If demand for fixed rate outstrips supply of fixed rate funding, then fixed rates will have nowhere to go but up. We have seen mass conversions in the past, however, the potential magnitude in volume that exists today has never been experienced before and we could be entering into new territory.

No position is complete without looking at the counter arguments’, in other words why a client should consider a variable rate versus fixed rate mortgage. Once again let’s look at the facts.

1. Bank of Canada has indicated it is not looking at raising the overnight anytime soon or at least will hold off until such time as it sees the economy improving

2. There is no indication that inflation is increasing, therefore supports point 1 above.

3. U.S. has no plans to increase rates for the next two years making it more difficult for Canada to raise rates unless the Canadian economy is growing in spite of the U.S. being sluggish

4. Canada is becoming a safe haven for investors’ thus larger demand for Canadian bonds. This demand is keeping bond yields down thus lower fixed rates on mortgages.

Both positions have merit and no one has a crystal ball and if we did we wouldn’t be working we would be sunning ourselves on an island paradise we just purchased with the massive amount of money we made playing the markets…….well back to reality.

 

If we continue to see the gap between fixed rate and ARM rates shrink then the risks of taking a variable rate versus fixed rate increases substantially. The risk being that ARM rates could increase higher than 1 % over the next 18 months to 24 months, therefore over the course of a 5 year term the fixed rate may be less costly than the ARM rate. Once the gap between ARM and fixed gets to 1% or less, I believe the smart money would go to fixed rate versus ARM. If the gap between ARM rate and fixed rate is between 1% and 1.50% then a 50/50 mortgage maybe the best bet. If the gap between ARM and fixed rate is in the 1.50% to 2.00% range then ARM rate maybe the way to go. Based on the present volatile market conditions it is hard to predict or say what will happen.

Information provided by Mandy Szucs, TeamSzucs@RMABroker.ca

 

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Rentals

Many people new to an area choose to rent first while they decide whether the location is right for them or while they save up for the downpayment on their house. Finding a suitable rental can be nearly as trying as finding your dream home, particularly if you have high standards of cleanliness as properties that have been used as rentals for a long period of time do tend to show more signs of wear and tear than a property that has been a much loved home. Here are a few tips for would be renters.

Lets start with something close to our hearts; our furry friends. Most landlords, understandably, request  no pets. Interestingly under the Residential Tenancies Act (RTA) a landlord cannot evict a tenant on the basis that they have a pet after they have taken up residence. So if your landlord does not want pets, but you move in and subsequently acquire one – he cannot evict you because of the pet.  The tricky thing here though is that you are only covered by the RTA after you are a tenant, while you are looking for a property you are not yet a tenant and the landlord can reject your application if he chooses.  The approach I have taken in this situation is to be upfront with the landlord, explain about the pet and, in every case the landlord has been prepared to make an exception to his rule. It does help if the pet is relatively small and you can convincingly say that it is well behaved. The tenant is responsible for any damage done by the pet and usually for getting the carpets cleaned at the end of their rental period.

A couple of further points to note, if your rental is in a condo apartment building with a no pets policy then that overides the provision of the RTA and the no pets rule stands. Also if the landlord either still lives in the property or is planning on returning when you move out and he has an allergy to animals then he is exempt from the no pet ruling in the RTA. Also if the animal is dangerous or disrupts other people’s enjoyment of their property then the landlord can take action which may result in you being asked to leave.

Now for the financial stuff. Landlords will typically ask for an employment letter, references and a credit check as part of the rental application. As good rentals can get snapped up pretty quickly it is a good idea to have these ready when you go out viewing so, when you find the right place you can act immediately. It is typical to put down the first and last months rent as a deposit which is due upon acceptance of the agreement to lease so make sure you have that money available at the time you offer.

You often see landlords asking for post dated cheques to cover the remainder of the rental term, under the Residential Tenancies Act, they are not permitted to insist on this so if you don’t want to provide them you don’t have to. Having said this, providing post dated cheques is a simple and efficient way of ensuring that your rent is paid on time and so you may choose to accept this payment method.

And finally – Just as in buying a property, there is a great case for using a realtor to help you find your rental. The landlord will be paying a fee to the agent he uses to list and advertise his property, that fee is shared if another realtor finds the tenant, so it will not cost you, the tenant, anything and you will get expert advice and negotiating skills to help you find and secure just the right place.

Full details of the Residential Tenancies Act can be found here

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Current Mortgage Rates

People often ask me about current mortage rates and there is never a definite answer. Different lenders offer varying deals and your eligibility for the best ones of these is dependent on your credit health and how much of the value of the property you need to finance through the mortgage.

The rates posted here are provided by one of the mortgage brokers I deal with, and are current on the day of posting, I will update them regularly but please remember that these are always subject to change.

Examples of current rates, as of December 4th 2014 are:

Prime = 3.00%

1 year fixed: 2.89%

2 year fixed: 2.59%

3 year fixed: 2.74%

5 year fixed (closed Special): 2.74%

Data provided by Thomas and Mandy Szucs

TeamSzucs@RMABroker.ca

 

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New Mortgage Rules

The Canadian government announced new Mortgage rules today (January 17th 2011). The new rules are intended to prevent the Canadian housing market from suffering the same problems that has led to the recent financial crises in many other countries. The new rules:

  • reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 percent. This will make it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.
  • lower the maximum amount people can borrow in refinancing their mortgages to 85 percent from 90 percent of the value of their homes, which will help Canadians save through ownership.
  • withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit.

The first two changes in amortization and refinance borrowing limits will go into effect on March 18th 2011, the change in insurance on home equity lines of credit will go into effect on April 18th 2011.

More details of the changes plus a rundown of the changes made in 2010 can be found here

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New Immigrants – FAQ

Are you new to Canada?  Thinking about making the move? Or in the process but feeling completely overwhelmed?  I know how you are feeling, we were where you are now back in 2004.  Most new immigrants have three main concerns, housing, work and schooling (if they have children). But what do you do first? Do you move to an area where the houses are affordable but the work limited, or where there is lots of work but housing so expensive that your budget gets you a shoebox. Add in the issues with trying to pick a good school, childcare availability etc. and it is easy to see why the whole situation can become overwhelming.

This is where  you need help, someone to guide you through the options, help you break down all you need to do into manageable chunks. Here are a few of the most frequently asked questions and the response.

How does the schooling system work?

The school system in Ontario is divided into a number of different options:

  • Public School Board
  • Catholic School Board
  • French Language
  • Private Schools

The public school system which is non denominational is the ‘default’ system. When you move here as a landed immigrant or with the relevant work permits, unless you specify an alternative school system, your child will be eligible for a place at the public school which services the area where you live. The public school system offers education in both english and french immersion schools. In French Immersion schools half of each day is conducted entirely in french the other half in english. If it is important to you that your children are bilingual in french and english then this could be an option for you, the downside is that if you, as the parent, don’t speak french helping your young child with a project which is expected to be completed in french could be a challenge! One step beyond French Immersion are the French Language schools where the entire education is conducted in French. Links to the Halton District School Board and the Halton District Catholic School Board can be found on the ‘Oakville Schools’ page of this website.

How do I pick a good school?

Some countries schooling systems are very driven by ranking of the schools, the UK system is a good example, and parents can select which school they would like their children to attend and then the competition starts to get a place.  The system in Ontario is not so driven by a school’s ranking and the school your child will attend within the public school system is dictated by your address. However an organisation called the Fraser Institute does provide a ‘Report Card’ for schools and this can be used to compare schools within the same neighbourthood.

Do house prices vary depending on area?

The answer to this is yes, most definitely, some towns are a lot more expensive than others and within those towns certain neighbourhoods sell at a premium over others. Often it is easy to see why there is such a differential in prices but sometimes it is not so obvious. House prices can be driven by good secondary schools but not so much by elementary schools.

What daycare options are available?

There are many daycare options available, from daycare facilities on site at your place of employment to home daycare providers. This site provides an easily searchable link to available home daycare providers throughout Ontario, and this link provides more detailed information on child care providers, licenses and checklists to ensure you are placing your child in the best possible environment. Many schools offer before and after school programs.

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Buyer’s Protection Plan

How do I sell my home in this uncertain market?             

When markets shift into a situation that favours buyers, where many listings are competing for fewer and fewer buyers, sellers become anxious about receiving a fair price for their home.

How do you know what is a fair price?

This is the largest problem created for a seller in a buyers market.

Hiring a professional, committed and experienced Realtor® is the first step as trying to sell your home in this uncertain environment requires expertise.

The Buyer Protection Plan answers the two biggest concerns in a buyers market:

  • Home Price Protection
  • Interest Rate Protection

Offering buyers protection with the sale of your home allows you to have a competitive advantage over other listings in your area. Ensuring your home is differentiated will encourage buyers and may give them the confidence to buy your home over others in your area.

Contact me for details of this exciting new program, or read more here

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HST and Real Estate

Over the past 12 months there has been much discussion on the effects of HST on the real estate market and it certainly seems as though anxiety over its impact heavily affected the market in the early months of 2010 as buyers rushed to purchase before the introduction of the HST, and the subsequent slow down in the market from July to November. Many clients ask me how the HST will affect them when they come to purchase a house and the answer, quite simply, is if you are buying a resale house then very little. The HST is applicable to professional fees, e.g. realtor fees and any new household items you may need to buy for your new home, but does not apply to the purchase price of a resale house.

It is a different story for new build or substantially renovated properties*. These properties are subject to HST, although rebates are available to help out. There is the New Housing Rebate which is applicable to properties with a purchase price less than $450,000 and is applied against the federal portion of the HST. There is a further Provincial New Housing Rebate which applies against the Provincial portion of the HST up to a maximum payout of $24,000. Unlike the New Housing Rebate, the Provincial New Housing Rebate is offered regardless of the purchase price of the property.

Individuals who intend to use the house as a primary residence are eligible for these rebates, full details on eligibility and how to claim the rebates can be found on the Canada Revenue Agency Website

*A substantially renovated property is defined as a property where 90% or more of the interior has been removed and replaced, essentially a total gutting of the house.

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