Mortgage Information

Useful Information From Kamloops Mortgage Brokers

Can You Really Afford that Mortgage? Know Your Real Life Ratio, The Globe and Mail. This article appeared in the Globe and Mail, was written by Rob Carrick on March 5th, 2014.

Mortgage Rules in Canada Affordability Someone ought to explain the facts of life to the nation’s bankers.

They’re handing out mortgages to people without any apparent understanding that today’s home-buying couple is tomorrow’s family of three or four. A lot happens to one’s ability to afford mortgage payments when kids come along, but you’d never know it by the way lenders qualify borrowers.

Never take a lender’s word for it that you can afford a house. Instead, try a new tool I’ve created called the Real Life Ratio.

Download the Real Life Ratio interactive spreadsheet here.

It’s designed to show how well you’ll be able to handle the basic monthly costs of home ownership, plus real life expenses such as cars, daycare and long-term home maintenance. Prospective home buyers should try it, and so should existing homeowners who want to see how well they’re handling their finances.

The Real Life Ratio is an expansion of a simple affordability measure I introduced last year called the Total Debt Service and Savings Ratio, or TDSS. The idea of creating something more comprehensive came to me after a Globe and Mail series on daycare was published last fall. We heard from many people about how hard it was to manage the cost of a mortgage in today’s expensive housing market, on top of daycare and other costs.

Use the Real Life Ratio and you’ll know what you’re getting into before you buy a house. You may decide you need to save a bigger down payment, buy a smaller house, live in a cheaper location or not buy at all.

Here are a few important things to know about the ratio:

1. Household take-home pay is used here: Other ratios use gross income, which is less relevant for practical financial planning.

2. This is not a budget: Only fixed costs are included here; food, clothing and other costs aren’t discretionary, but you decide how much to spend.

3. Costs for home maintenance and improvement are included: You won’t face these costs every year, but on a long-term basis they might average about 1 per cent of your home’s value annually; maybe less for brand new homes and more for older ones.

4. There’s a slot to include condo fees: Be sure to add any monthly utility costs that are not included in your condo fees.

5. Your local real estate market plays a big role: A liveable Real Life Ratio may be harder to achieve in big cities with roaring real estate markets.

Guidelines on how to interpret the ratio are provided. For optimum results, make a list of your monthly spending on food, transportation, entertainment and everything else not included in the ratio. Then, see whether your lifestyle is affordable. If your Real Life Ratio is 80, could you get by on 20 per cent of your take-home pay?

Keep in mind that your ratio will change – for the worse if you have kids in daycare and have a couple of cars, and for the better once your kids are out of daycare and you move into your prime earning years.

To ensure the Real Life Ratio reflects real life, I consulted four financial planners. Thanks to Rona Birenbaum, Barbara Garbens, Kurt Rosentreter and Renée Verret for some useful suggestions based in part on spending patterns of their own clients.

Download the Real Life Ratio interactive spreadsheet here.

This article appeared on CBC.ca on February 28th, 2014 and was written by Pete Evans.  CMHC Hikes Mortgage Insurance Premiums: Housing Agency Increases Amount Homebuyers Must Pay to Insure Their Loans

CMHC Canadian Mortgage and Housing CorporationCanada’s national housing agency has increased the cost of insuring mortgages for homebuyers who make down payments of less than 20 per cent. Starting in May, the housing agency will charge an average of about 15 per cent more to insure mortgages, CMHC said in a release Friday. Prior to the announcement, the premiums ranged between 0.5 per cent and 2.75 per cent. Under the new rules, they will range from 0.6 per cent to 3.15 per cent.

MAP: House prices across Canada
Ottawa caps mortgages at 25 years

The changes are unlikely to have a major effect on the housing market, but in real-dollar terms, the move makes it incrementally more expensive to buy a home. A heavily leveraged buyer — someone with only five per cent down, and therefore borrowing 95 per cent of the home’s value — would be most affected by the hike.

Under the old system, that borrower would pay an insurance premium of $6,875 to get a $250,000 mortgage. Under the new system, the premium would jump by $1,000. On a typical 25-year mortgage at 3.5 per cent, that person would be paying about $5 more every month. “This is not designed to affect housing market activity,” CMHC vice-president Steven Mennill said.

Mandatory insurance

Homebuyers in Canada are legally required to purchase mortgage insurance if they don’t put down 20 per cent of the price of the home up front. The homeowner pays for the insurance, but the lender is the beneficiary — it covers their losses if the homeowner defaults.

The vast majority of that insurance is sold through CMHC, although some private companies also offer it. Those companies, including Genworth Financial and Canada Guarantee tend to match whatever taxpayer-backed CMHC is charging.

True to form, Genworth did exactly that later on Friday, raising its insurance premiums to match CMHC’s.

“We believe this new pricing is prudent and more reflective of increased regulatory capital requirements,” Genworth chair Brian Hurley said. “These pricing actions are supportive of the long-term safety and stability of the Canadian housing market.”

Genworth shares jumped up by almost five per cent on the TSX following the news, a day after they gained more than three per cent as rumours of what CMHC was planning leaked out. Higher premiums mean more revenue for the insurer, which investors like.

CMHC charges a percentage fee for its insurance policies in the very low single-digits. Those percentages haven’t been raised since the late 1990s, and were in fact lowered from 2003 until 2005.

“The higher premiums reflect CMHC’s higher capital targets” Mennill said in a release. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long-term stability of the financial system.”

The increase will only affect new policies, not mortgages already in existence.

CMHC said the new rules will apply to owner-occupied units and one-to-four-unit rental properties. It will also apply to self-employed owners. “This isn’t going to have a big impact on the mortgage market,” said Kelvin Mangaroo, the president of RateSupermarket.ca. “It’s more about getting their capital reserves in line.”

Considering how strong the housing market has been for the last decade, it’s not surprising that the CMHC has moved to adjust the premiums it charges to insure all that pricey housing stock, he said.

This article appeared in the Financial Post on January 22nd, 2014.

TORONTO — At least three more big Canadian banks have joined Royal Bank in quieting reducing some of their mortgage rates.

Bank of Montreal, Scotiabank and TD Canada Trust all lowered rates this week. Like RBC, none issued a news release announcing the changes. For example, Scotiabank lowered its five-year closed fixed term mortgage 10 basis points to 3.49% on its website Tuesday, down from 3.59% posted on the site Monday.

BMO, meanwhile, lowered a number of its rates between 10 and 20 basis points, including its posted five-year fixed rate to 3.69% from 3.89%, according to Ratehub.ca.

The changes, first reported by the Business in Canada website, follow a move on the weekend by RBC to quietly lower its rates on several fixed-rate mortgages by 10 basis points, bringing its five-year closed rate to 3.69%.

TD followed suit on Wednesday and now has a posted discounted rate of 3.69% for its five-year fixed mortgages, down from the rate of 3.79% that had been in effect since August. The bank has also made changes to several of its other closed rates.

RBC said in an email Monday that it was only matching lower rates offered by other financial institutions.

“Competitors have been pricing at lower rates for several weeks and this rate change now puts us in line,” the bank said.

Battling between banks lowered rates to 2.99% for a five-year fixed-rate mortgage last year, a percentage that drew the ire of Jim Flaherty, the finance minister. At that rate, the banks were barely above discounters.

Discounters still have an edge heading into the spring market, as banks have been reluctant to pass on all of the savings in the bond market.

One might say we are entering a busier period for home buying so we will see a more competitive marketplace [in 2014]

Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals, said 2013 turned out to be a major year for discounting with the average consumer saving 2.12 percentage on points on a five-year closed fixed-rate mortgage. The average rate for that term was 3.06% while average posted rate for the term was 5.21% in 2013.

“One might say we are entering a busier period for home buying so we will see a more competitive marketplace [in 2014],” Mr. Murphy said.

The other issue for some lenders is trying to make up for ground lost because of skinny margins in 2013, said Wade Stayzer, vice-president of retail and investment services of Meridian, the largest credit union in Ontario.

A shrinking market for housing sales could put its own pressure on the market. “Corporate targets don’t drop when financial forecasts drop. Everybody is out chasing the same mortgage,” said Mr. Stayzer.

This article appeared on the Globe and Mail‘s website on January 20th, 2014 and was written by Tara Perkins.

Royal Bank of Canada, the country’s largest mortgage lender, has quietly cut some of its mortgage rates this weekend. The move appears to be part of a broader dip in rates, although economists generally still expect an increase in 2014.

Five-year fixed mortgage rates rose industry-wide for much of 2013, from their low of 2.64 per cent in April to their high of 3.39 per cent in September, according to Alyssa Richard, the chief executive officer of RateHub.ca. They edged down a bit later in the fall but had generally been steady at around 3.25 per cent since then.

RBC is now cutting its two-, three-, four– and five-year fixed mortgage rates each by 10 basis points. In an emailed statement, the bank said that some mortgage lenders have recently been pricing at lower rates, prompting it to move.

Royal Bank is often a price leader when it comes to mortgages, and other big banks frequently follow suit after it changes its prices. Its five-year fixed mortgage rate is now 3.69 per cent.

Mortgage prices tend to follow changes in five-year government bond yields because of the impact that those yields have on banks’ funding costs. The yield on five-year government of Canada bonds has fallen from 1.95 per cent on December 31st to 1.71 per cent on January 16th, according to Bank of Canada data, although it fluctuated during that time.

Canadian bond yields tend to follow U.S. bond yields. Yields began rising last May after U.S. employment numbers came in much better than expected, raising hopes for the U.S. economy. Then they shot up further after U.S. Federal Reserve chairman Ben Bernanke suggested the central bank could start tapering its asset-buying program, a signal that he thought the economy’s health was improving.

While the U.S. central bank has begun tapering, December jobs numbers and some other recent data have been disappointing, and caused bond yields to fall.

Most economists still expect that both yields and mortgage rates will tick up gradually through 2014, as the U.S. economy improves and the central bank continues to back off of its asset-buying program, known as quantitative easing.

But as Ms. Richard points out, it is possible that the U.S. economy will prove to be weaker than expected, and that could result in further decreases in bond yields and mortgage rates.

Royal Bank of Canada, which normally issues a press release when it changes its mortgage rates, made this move quietly, simply posting the new rates on its site. The news was reported this weekend by the blog Canadian Mortgage Trends.

Bank of Montreal dropped its five-year rate to 2.99 per cent early last year, spurring a price battle that angered Finance Minister Jim Flaherty. Mr. Flaherty has taken numerous steps, such as tightening the mortgage insurance rules, to prevent consumers from taking on too much mortgage debt. Policy-makers have been trying to warn consumers that, at some point, rates will rise.

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