Mortgage Information

Useful Information From Kamloops Mortgage Brokers

This article appeared in the Financial Post on October 20th, 2014 and was written by Garry Marr. CMHC Continuing With Plans for Banks to Take on More Mortgage Risk

The head of Canada Mortgage and Housing Corp. said the Crown corporation is continuing with plans to have banks take on more risk when it comes to the housing market.

“In the insured market all of the risk is on CMHC’s balanced sheet or 90% on the government’s balanced sheet through private sector competitors. The government wants to reduce its exposure to the housing market,”  Evan Siddall, president of Canada Mortgage and Housing Corp. told the Canadian Club in Toronto in what was billed as a “conversation” with Terry Campbell, president of the Canadian Bankers Association.

Mr. Siddall said the government has asked CMHC to look at options and advise it on what to do next.

Consumers with less than a 20% downpayment must get mortgage default insurance if they are borrowing from a bank regulated by the Bank Act. The government backs loans insured by CMHC 100% and for up to 90% for private entities like Canada Guaranty.

Mr. Siddall has said there is some value to banks having some “skin in the game” which some have suggested could mean banks pay a deductible of up to 10% in the event a consumer defaults.

“It’s kind of classic perspective,” said the CMHC head. “It’s this idea of moral hazard that if you took risk away from the people who confronted it in the marketplace, it could lead to bad behaviour. The stupid example is if you insure someone who is driving a car, they won’t be a responsible car driver.”

Mr. Siddall said the banks are responsible but the idea of deductible is “good idea” and something along those lines is good economic policy.

Sources have told The Financial Post that CMHC has already been in discussions with the CBA and Office of the Superintendent of Financial Institutions about the idea which is years away from being implemented.

Mr. Campbell told the audience a lot of conversation with the industry will be needed before anything happens.

“In Canada, as you know and everybody in this audience knows, we did not have a housing crash like some other jurisdictions,” said Mr. Campbell, chalking that up to good risk management on behalf of banks when it comes it lending. “I think banks do have an awful lot of skin in the game if you look at the growth in their uninsured portfolio.”

This article appeared on CBC News on May 28th, 2014

Scotiabank offers 5-year fixed mortgage at 2.97%, CBC News. Scotiabank has lowered its five-year mortgage rate to 2.97 per cent, beginning a new sally in the war to win business.

The rate, effective until June 7, is the lowest among the big banks for a fixed five-year rate.

Two weeks ago Investors Group unveiled a three-year variable rate of 1.99 per cent. Variable rates often are lower than fixed rates, as the consumer takes the chance that interest rates will rise and cause higher payments.

In 2012, a number of Canadian banks offered five-year mortgage rates below three per cent — something that earned them a stern rebuke at the time from then Finance Minister Jim Flaherty. The banks quickly dropped the offer.

Flaherty tightened the country’s mortgage insurance rules in July 2012, in a bid to curb the rapid growth of consumer debt and soaring house prices. Although the measures briefly cut down on the number of people applying for mortgages, Canada’s housing market remains hot.

However, current Finance Minister Joe Oliver issued a statement today saying he will continue to monitor the market.

“It’s a small drop and its not my intention to be involved. We continue to monitor it,” he said in the lobby of the House of Commons.

Oliver pointed to government actions from 2008 to 2012 to reduce consumer indebtedness and the government’s exposure to the housing market through CMHC.

In March, Bank of Montreal again offered a fixed five-year rate of 2.99 per cent, but Scotiabank’s 2.97 per cent is a shade lower.

There is fierce competition among the banks for mortgage business, considered a secure form of consumer loan.

This summer, Royal Bank will offer real estate agents $1,000 for referring five first-time homebuyers.

First-time buyers are particularly desirable because they need a large sum of money and are likely to become bank clients for life.

John Andrew, a real estate expert with Queen’s University, said it was likely that other banks would follow Scotiabank’s lead to keep in pace in a competitive market — especially given a lag in sales in the all-important spring market which was delayed by bad winter weather.

“There’s no question that the mortgage lenders are very concerned about this slow spring and are obviously trying to catalyze the market and it’s obviously even more competitive right now than it normally would be,” Andrew said.

“We’re looking at mortgage rates very, very, close to this level being predominant right into the fall, and then I think we’re going to see bond yields begin to creep up again and we’ll start to see some rates rising.”

This article appeared on CBC News and was posted May 13, 2014 by Pete Evans. Investors Group unveils 3-year mortgage at 1.99%, CBC News.

Canada’s mortgage market was shaken up with a mortgage rate below two per cent on Tuesday as Investors Group unveiled a three-year variable rate mortgage at 1.99 per cent.

The Winnipeg-based financial services firm posted the rate on its website Tuesday, offering a 36-month term at a variable rate 101 basis points below IG’s current prime rate of three per cent.

“It’s probably something we may see more of,” Toronto mortgage broker Marcus Tzaferis said. “They offer it up so they can cross-sell their investment products.”

The offer comes with strings attached — namely that you can’t break the mortgage for any fee during the three-year term, unless you sell your home. But the offer does come with the ability to double up monthly payments, or pay a 15 per cent lump sum once a year.

In real dollar terms, it could knock a lot of money off a mortgage payment, at least over the short term. A standard 25-year $500,000 mortgage at a five-year rate of 2.99 per cent works out to $2,364 a month. That mortgage under IG’s new terms would be $2,115 a month — savings of $249 monthly, at least for the first three years, and as long as the variable rate doesn’t increase.

Tzaferis speculates the company is willing to take a loss on the home loan temporarily in the hopes of making money elsewhere down the line.

“They get the opportunity to wrap you up and cross-sell their mutual funds and you’ll probably renew and pay an extra half a per cent for a five-year then,” he said.

Investors Group’s five-year posted rate is currently at 3.4 per cent, slightly higher than what the market-leading big banks are offering.

Tzaferis says he recalls seeing five-year variable rate mortgages below two per cent several years ago, but it’s believed this is the first such posted product since the recession that began in late 2008. Kelvin Mangaroo, president of mortgage comparison website, says it’s the lowest rates he has seen in his company’s six-year history.

“I think they were trying to break the psychological barrier of two per cent to generate some interest … ahead of the peak spring buying season,” Mangaroo said.

“Rates will go up over time, but it looks like it won’t be any time soon,” he said.

In 2012, a number of Canadian banks offered five-year mortgage rates below three per cent — something that earned them a stern rebuke at the time from then-finance minister Jim Flaherty. The banks quickly dropped the offer.

In March, Bank of Montreal again offered a five-year rate of 2.99 per cent, a deal that Flaherty’s successor Joe Oliver was much more silent about.

Oliver released a statement Tuesday following news of the rate, noting the government has moved repeatedly in recent years to tighten lending rules and keep a lid on consumer debt and the housing market, but offering no hint it has any pressing intervention plans.

“I will continue to monitor the market closely,” the statement read.

This article appeared on on April 26th, 2014.  CMHC to limit mortgage insurance product offerings Effective May 30, CMHC will stop offering mortgage insurance on second homes

CMHC Canadian Mortgage and Housing CorporationCanada Mortgage and Housing Corporation will no longer offer mortgage insurance on second homes, the crown corporation said on Friday.

It will also discontinue selling mortgage insurance to self-employed people without third-party income validation. The new limitations mean borrowers will also no longer be able to act as co-borrowers on other applications.

These changes, which will take effect on May 30, are part of the ongoing review of the mortgage loan insurance business. CMHC said self-employed Canadians can still qualify for insured financing with a validation of their income using traditional methods.

As well, the two products will still be available to those who submit requests prior to May 30, regardless of the closing date of the home purchase.

CMHC said these two products account for less than three per cent of its insured business volumes in units. “Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market,” CMHC said in its release.

The changes come as Canadian home buyers face an increase in mortgage insurance premiums.

In February, CMHC announced it would hike premiums for default insurance by an average of 15 per cent effective May 1. The increase would hit buyers who have a downpayment of less than 20 per cent.

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 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 “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

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 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.

This article appeared on on August 6th, 2013.

CMHC Canadian Mortgage and Housing CorporationCanada Mortgage and Housing Corp. is putting a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee.

A spokesperson with CMHC confirmed media reports Monday that the national housing agency will, effective immediately, limit banks and other mortgage lenders to $350 million worth of new mortgage-backed securities per month. The decision comes in the wake of “unexpected demand” for the guarantees, a spokeswoman for CMHC said in an emailed statement.

Under the National Housing Act Mortgage-Backed Securities (NHA MBS) program, banks have been able to securitize large portions of the mortgages they carry on their books. Because those securities are backed by CMHC, not the banks themselves, they’re able to go out and lend that freed-up money to new homebuyers at lower prices, which adds fuel to Canada’s housing fire.

Earlier this year, Ottawa announced it would limit the amount of those mortgage-backed securities that it would guarantee to $85 billion this year. That’s a rise from from $76 billion in 2012.

But by the end of July, barely over halfway through the year, the banks had already tapped the program for as much as $66 billion, hence the need for the cap to stay under the annual limit.

CMHC said Monday no one lender will get guarantees for more than $350 million worth of securities per month, from now on.

The move takes some of the air out of the housing market by forcing banks and other lenders to be responsible for the risk of mortgage defaults, instead of being able to pass that risk on to government and taxpayers via the CMHC.

It’s the latest move from a government that’s getting increasingly vigilant about its attempts to cool down the housing market. After loosening rules to allow for no-money-down mortgages of more than 40 years a half-decade ago, the federal government has taken multiple steps to ratchet those rules tighter again, limiting new mortgages to no longer than 25 years, and requiring a minimum down payment of five per cent of the value of the home.

Those moves were targeted directly at the homebuying public. But moves such as the one revealed Monday target the banks themselves, by effectively limiting the amount of money they have at their disposal to lend out in mortgages.

In the spring, Finance Minister Jim Flaherty went as far as publicly criticizing a number of lenders for encouraging reckless spending by offering mortgages with historically low interest rates.

The last time CMHC disclosed its data, the housing agency had $562.6 billion worth of mortgages on its books, getting close to its legally mandated limit of $600 billion.

Kamloops Mortgage Broker Real EstateWhen your mortgage comes up for renewal, your lender will send you a letter suggesting you renew at their current offer. If you do, you’ll be renewing your mortgage with your eyes closed! This is your moment of opportunity to negotiate the best possible deal, either with your current lender or with a new one. Do you know if the same lender remains your best choice? If you don’t, you aren’t alone.

At the end of 2011, Manulife Bank of Canada released the results of their latest consumer debt survey.  They found that two-thirds of homeowners (65 per cent) did not compare products from several different lenders to make sure they were getting the best deal the last time their mortgage came up for renewal. Twenty per cent stayed with their current lender and did not negotiate, while 45 per cent stayed and negotiated but did not shop the market.  Interestingly, the youngest age group surveyed (30-39) were the most likely to shop around (41 per cent) but also the most likely to stay with their current lender and not negotiate (24 per cent). This age group is in the most hectic period of balancing work and children, which often causes things to be left to the last minute and it’s easier to follow the path of least resistance.

You could save a considerable amount of money if you renew at a lower rate.  A half percent difference on a $225,000 mortgage with a 20 year amortization can mean over $5,200 in interest savings over five years.  Wouldn’t it be better to put that amount towards reducing your mortgage principal?

You also need to consider that your mortgage needs may have changed.  This may be a good time to roll your high-interest credit cards and other debt into your mortgage to get one lower payment, boost your cash flow and save on interest costs. Or you may want to take some equity out for renovations, a second property or for investing.

Keep in mind that there are some administrative details and costs when switching your mortgage to another lender, but don’t let this discourage you from finding out more. It doesn’t cost you anything to investigate your options or get a second opinion. When you switch your mortgage to a new lender, you will go through an approval process similar to when you took out the original mortgage. You can either assign your existing mortgage or you can apply for a new one should you want to borrow a larger amount to consolidate your high interest debt or complete some renovations.

Your lender may charge a discharge fee, and you may need to pay legal and appraisal fees if you are getting a completely new mortgage instead of switching your existing one. At that point, you should assess if the money you will save by switching to a better interest rate offsets those costs. The cost for you mortgage life insurance may also change. You won’t have to pay for your mortgage broker’s service (oac) because the lender selected pays compensation for the services and mortgage solution provided to you.

If a renewal is in your financial future, bring us your renewal notice four months prior to your renewal date. There are some great options out there; we’ll help you look around.

Brenda Colman, AMP, Mortgage Consultant, Invis Kamloops
P. 250-318-8118  E. ac.sivni@namlocadnerb W.

This article appeared in the Globe and Mail on November 11th, 2012 and was written by Robert McLister.

Just a few decades back, many thought it unthinkable to still be paying a mortgage during retirement. But a growing minority are now doing just that.

Whereas our parents paid off their mortgage in roughly 12 years on average, about one in four homeowners are now carrying a mortgage into retirement. In fact, retirees are accumulating debt at three times the average pace.

Aversion to debt has clearly waned. Almost one-quarter of baby boomers say paying off their mortgage by retirement is “not very important” or “not at all important.” And more than half of Canadians expect to carry a mortgage into their golden years.

“My philosophy is to not carry any debt into retirement,” says retirement expert Gordon Pape. “But people today have a very casual attitude about it.”

So, just how big of a problem are mortgages in retirement? After all, places like Switzerland – which rivals Canada for the world’s strongest banking system – have 100-year “generational” mortgages. (What a way to get back at your kids!) And in a number of other prosperous European countries, interest-only mortgages – with theoretically infinite amortizations – are commonplace.

The threat posed by having a mortgage in retirement depends, not surprisingly, on the borrower’s income, savings, debt and other living expenses.

Statistically speaking, if you’re a typical married couple over 65, the latest government figures show that you take home about $46,000 combined each year. The median retiree’s mortgage is about $87,000. That implies a $411 monthly payment on a standard five-year fixed rate mortgage. That’s about 11 per cent of the typical retiree’s after-tax income, something that is easily tolerable.

On average, mortgages in retirement aren’t sending people to the poor house. Where it could get dicey, Mr. Pape says, is when interest rates rise. For a sizable minority without financial breathing room, “There is potential for real trouble down the road.”

For many single or lower income seniors, carrying a mortgage can be like walking in a minefield. All it takes is one misstep or personal crisis to explode your budget and fall behind on debt payments.

A couple relying 100 per cent on Old Age Security, for example, will earn a maximum of $26,800 annually in Ontario. In this case, that “typical” $411 mortgage payment would account for 18 per cent of their income. While unlikely anytime soon, a three percentage point interest rate hike would bump that to 25 per cent. Then you have to add in the property taxes, maintenance and all the other home ownership costs.

It’s bad enough assuming they just have the average-sized retiree mortgage. If they’re closer to the average Canadian mortgage of $170,000 and their income is in the lower third of the population, then well over half of their income would be consumed by home ownership costs. That is simply unmanageable and unfortunately there is no data on how many people are in this boat.

Apart from the cost, it’s often tougher to get approved for a decent mortgage in retirement. If your earning power has waned and you’re carrying even an average debt load, your ability to tap home equity for cash could be limited. Qualification challenges could even reduce your options to switch lenders or port your mortgage to a different house.

Even the “mortgage of last resort,” a reverse mortgage, could be off the table if you’re not old enough and/or you have an existing mortgage that’s more than 25-40 per cent of your home value.

So that brings us to the next question: what solutions do seniors have?

One is to work longer. Our neighbourhood butcher is still employed at 89 and that may not be so unusual going forward. Many Canadians expect to work past 65. They’re working 3.5 years longer than a decade ago and only 30 per cent anticipate being fully retired at age 66.

“If you have to work a few years past your retirement target date, do it and get rid of debt,” says Mr. Pape.

Another option for mortgage-holders is to get a fixed rate with a five-year term or longer. That protects those on fixed incomes from payment hikes. If you’re facing an underfunded retirement and you have a mortgage, “I would lock in a low rate while you still can,” he recommends.

You could also extend your amortization to 30 years. That maximizes cash flow in retirement and lets you make extra payments when you’re able. Couple this strategy with a home equity line of credit (HELOC) and you’ll get an emergency source of cash for unforeseen events like medical expenses or income loss. A “readvanceable” HELOC also lets you re-borrow any extra pre-payments if absolutely necessary, which lessens the cash flow risk of making them.

Despite these tips, the goal isn’t to manage a mortgage in retirement. It’s to avoid a retirement mortgage altogether. And to do that, you’ll need to start young.

The chilling truth is that there are just over 9.3 million Canadians age 55 and over and 43 per cent of them say they haven’t saved enough for retirement. But by 55, time is running out. A Statistics Canada study in 2009 found that people in their 70s spend only five per cent less than they did in their 40s. It takes years of saving to replace that kind of income and dispose of a mortgage.

By now, you’ve probably sensed that being pro-active is key. But many people haven’t been. As many as one in three say they plan to live off the equity in their homes. That’s a gamble in any real estate market. But if you’re retiring in the next decade and relying on uncertain home price appreciation, it’s especially risky. You need diversified savings and you need that mortgage out of the way.

This informative article appeared on on September 30th, 2012 and was written by Rob McLister, CMT.

Big banks love mortgage consumers who don’t carefully comparison shop. They also enjoy capitalizing on their “home bank” advantage with existing customers. The article that follows examines recently-released research on these topics. It’s a revealing look at how big lenders benefit significantly from things like mortgage “search costs” and customer “switching costs.”

“Search costs” refer to the time, skill, money and effort required to find a better mortgage deal. “Switching costs” represent the expense of moving to a new lender.

The findings below come from a brilliant Bank of Canada research paper by Jason Allen, Robert Clark and Jean-François Houde. It’s chock full of insights into why mortgage consumers pay higher rates than they have to, and why being loyal to a lender can cost you.

The key findings of this research are summarized below. If you don’t have time to read them all, focus on the underlinedparts. CMT comments appear in italicized text and after the “Observations” labels. All quotes are taken directly from the study.

Consumers aren’t created equal:
Research shows that there are major differences in people’s:

  • “Degree of loyalty to their main financial institution.”
  • Ability to “understand the subtleties of financial contracts”
  • Ability and willingness to “negotiate and search for multiple quotes”

Canadians generally don’t consider all available mortgage alternatives.

Hunting for a better mortgage:

  • Many borrowers simply do not work as hard to “search” for a better mortgage. That’s largely because of the effort they “must put forth when gathering multiple quotes.”
  • Inadequate mortgage research induces “profits for lenders” and “permit(s) them to price discriminate between consumers.” (It also raises your chances of getting stuck with bad mortgage terms.)
  • The average markup is estimated to be 4.1% for non-searchers and 1.9% for searchers, but the distribution is much more skewed for searchers with close to 25% of [comparison shoppers] facing zero markup (above the marginal cost).”
  • In the past, “approximately 25% of borrowers [paid] the posted rate.” (This was based on data from more than a decade ago. The numbers are not as high now, especially for well-qualified borrowers. That said, there is no data to confirm how many people actually pay the posted rate today.)
  • “…Consumers dealing with [large] institutions pay more on average for their mortgage.”
  • Not surprisingly, the decision to switch lenders is “correlated with” the borrower’s willingness and ability to search for a better deal.
  • “The fraction of ‘switchers’ is significantly larger” for:
  • New homebuyers (i.e., former renters or [those] living with their parents), and for
  • Broker customers (Lenders love to get their hands on first-time buyers, and it’s a big reason many are happy to pay brokers to deliver those customers.)
  • “Consumers financing larger loans…are more likely to search (and pay lower rates).” In turn, they have a higher “switching probability.”
  • “Richer households have a higher value of time, and therefore higher search costs on average.” (…and many of them needlessly overpay.) In short, they have less tendency to switch lenders.
  • “…About 30% of consumers only consider dominant lenders.” (Usually a big mistake.) “For these consumers, the average number of lenders drops to three, which can significantly increase the profit margin of banks.”

“Home Bank” advantage:

  • Everything else equal, a customer’s home bank usually gets their mortgage business. This is akin to a home field advantage in sports. (“Home bank” can also refer to a client’s “home lender.”)
  • Even when all is not equal, the home bank often wins. That’s partly because consumers are “motivated by more than just price.”
  • The study’s authors estimate that consumers are willing to pay “between $759 and $1,617 upfront ($13.80-$29.40 per month) to avoid having to switch banks.” (Many will pay more because they can’t quantify the value of lender differences. Case in point are mortgage penalties, which most people can’t measure until it’s too late—when they have no choice but to break their mortgage and pay whatever they’re quoted.)
  • Put another way, “lenders directly competing with [a client’s] home-bank will on average have to discount the [mortgage] by a margin equal to the switching cost in order to attract” a new customer.
  • The study finds that “loyal consumers pay on average nearly 9 basis points above the rate paid by switchers.” (It’s no coincidence that many borrowers choose to stay with their existing lender when a competitor’s rate is better by less than 10 basis points.)
  • Not surprisingly, “the market for ‘non-loyal’ consumers is very competitive”

Factors that support customer loyalty to their home bank include:

  • Proximity to a local branch
  • Better access to lending terms
  • Association with a strong recognizable brand
  • Consolidation of accounts (for convenience)
  • Lower chequing account fees, higher savings rates and other perks (Bank and credit union reps commonly use these perks to counter customer objections to higher mortgage rates. To some extent, free banking, banking comparison sites and modern-day electronic funds transfers are reducing the allure of these home lender “freebies.”)
  • The cost and effort of switching bank accounts to a new lender (It isn’t necessary to have your mortgage and bank accounts at the same lender, but some people believe it’s important.)

Observation: The data used in this study is 11-13 years old. There is no way to know how much the home lender advantage has changed in that time. Various factors have altered this advantage over the last decade, including:

  • Rate comparison sites — which make it easier to know when your lender isn’t being competitive
  • More broker competition — Brokers reduce consumers’ search costs by assisting them with comparison shopping and offering comprehensive advice not biased to one lender. (Although, it should be noted that in most cases 90% of a broker’s volume is routed to three lenders, so there can be bias there as well.) “Unlike in the United States, brokers in Canada have fiduciary duties…The average discount that a mortgage broker can obtain for a borrower is about 20 basis points, or approximately $16 per month on a $140,000 loan.” (It’s likely lower now as this data is old.)
  • Electronic banking — Many consumers want a mortgage that’s integrated with their banking. That plays right into the hands of deposit-taking lenders. Today, however, one can link different institutions’ mortgage accounts and bank accounts and electronically move funds between them with ease.
  • “In 2004, 80% of new borrowers…contacted their main financial institution when shopping for their mortgage.”
  • The research shows that, depending on the year, “nearly 60% of new home-buyers remained loyal to their main institution.” (CMHC’s Mortgage Consumer Survey finds that 88% of renewers remain loyal to their existing lender.)
  • “…Only 35% of consumers dealing with brokers remain loyal to their home institution
  • 73% of households choose a lender with which they already have a prior financial relationship. The study authors estimate that “72% of consumers have a positive home (bank) bias.”
  • “67% of Canadian households have their mortgage at the same financial institution as their main checking account.” (Having your bank account gives a bank an enormous advantage. Some have even been known to scan customer chequing accounts to see if they’re making a mortgage payment to another lender. The bank then contacts them ”out of the blue” to solicit their mortgage business.)
  • Banks are more likely to transact with customers who are not motivated to search as hard. (These customers are low-hanging fruit for the banks.)

Home bank tactics:

  • Bank_Status“Lenders…are open to haggling with consumers based on their outside options.” (We all know that, right?)
  • “This practice allows the home bank to price discriminate by offering up to two quotes to the same consumer: (i) an initial quote, and (ii) a competitive quote if the first one is rejected.” (Savvy well-qualified consumers routinely reject their lender’s first quote.)
  • Lenders know that “low risk and wealthy consumers represent lower lending costs.” For that reason, lenders offer “lower rates on average” to these borrowers.
  • The loan sizes and credit scores of consumers are particularly strong predictors of the rates they pay.”
  • Lenders know financially constrained consumers have fewer options. These people “pay on average a premium equal to 14 basis points.”

Stats of note:

  • At the time of this study, the “Big 8” (Bank of Montreal, Bank of Nova Scotia, National Bank, Canadian Imperial Bank of Commerce, Royal Bank, TD Canada Trust, Desjardins and ATB Financial collectively “controlled 90% of assets in the banking industry.”
  • “Interest and fees generated from mortgages represent approximately 21% of total revenue for the largest banks.”
  • “80% of new homebuyers require mortgage insurance.”
  • This is the distribution of mortgages between a client’s main and secondary financial institutions:

Account                 Main FI    2nd FI   All other FIs
Mortgage (all)            67.4%     10.9%      21.7%
Mortgage(no broker)  70.3%     10.8%      18.9%
Mortgage (broker)      37.3%     30.6%      32.1%
Source: Canadian Finance Monitor survey conducted by Ipsos-Reid, between 1999 and 2007.

  • “On average, borrowers pre-pay an additional 1% of their mortgage every year.”
  • “Richer households are more likely to pre-pay their mortgage, which reduces the expected revenue for lenders.”
  • “The (mortgage) transaction rate is on average 1.2 percentage points above the 5-year bond rate” but varies widely.”
  • “The standard-deviation of retail (mortgage) margins is equal to 66 basis points.”
  • At the time of the study, “80% of consumers transacted with a bank that has a branch within 2 kilometres of their new house” (In the electronic banking age, lender location has taken on less importance. Tens of thousands of customers now choose lenders located nowhere near their home—often in a totally different province.)
  • Here’s an interesting finding from the U.S.: “Hall and Woodward (2010) calculate that a U.S. homebuyer could save an average of $900 on origination fees by requesting quotes from two brokers rather than one.”

Miscellaneous Findings:

  • It is “unlikely that the posted rate is used to attract new customers,” say the authors.
  • But why are posted rates still in existence? Well, the report states: “Banks have an incentive to post an artificially high interest rate that is not binding. Indeed, the pre-payment penalty is…evaluated at the posted rate valid at the signature date, rather than the (actual) transaction interest rate. Banks therefore have an incentive to raise the posted rate, in order to reduce their pre-payment risk.” (Many discount lenders—particularly broker-only lenders—don’t play these penalty games. They base your penalty on the actual rate you pay, which is much more fair than the big banks’ method of using posted rates.)
  • “…Lenders can incur transaction costs in the event of default, therefore lowering the expected revenue from risky borrowers.” When a borrower defaults, lenders also face “lost revenue from complimentary products like other loans and saving accounts.” Hence, contrary to charges by many housing critics, mortgage insurance does not eliminate a lender’s risk. (For more on this see: Skin in the Game)

Implications of this data
Those of us who see borrowers overpaying on a regular basis know how important it is to compare mortgage options. But it’s interesting to hear the repercussions of not doing so, as articulated by a reputable academic source.

These findings should stick in regulators’ minds, especially as they contemplate policies that:

  • discourage price discrimination
  • support greater access to funding (via securitization) to promote lender competition.

Allen, Clark and Houde note that “policies designed to increase information about the market, (mortgage) contracts, or the availability of different lenders would be beneficial to consumers.” A good example of this is the Department of Finance’s penalty disclosure initiative—for which it deserves big applause.

Similarly, the authors conclude: “policies that encourage consumers to consider lenders other than their main financial institutions would reduce overall market power.”

About the Data: It’s important to note that this study’s data was comprised only of high-ratio insured mortgages arranged in branches between 1999 and 2001; It did not include brokered mortgages, very big or very small mortgages, applicants with extremely high or extremely low incomes, or conventional (uninsured) mortgages.

If you’re interested in more research about mortgage pricing, see: Getting the Best Mortgage Rate.

This article appeared on on July 7th, 2012.

The clock is ticking on Canada’s mortgage rules.

Come Monday, insured 30-year amortizations will be a thing of the past, and the shift means many buyers are scrambling to find a home and seal a deal this weekend, before time runs out.

As part of an attempt to cool the housing market and reduce household debt, the maximum amortization on government-backed mortgages will be 25 years.

“It will mean some people will not be able to buy into the market, some people will buy less into the market,” Finance Minister Jim Flaherty said in announcing the new rules last month.

Bruce and Denise Perrett, of Port Coquitlam, B.C., got married last year and wanted to buy a house, but they weren’t in a rush.

That all changed when the couple heard Ottawa was tightening mortgage rules.

For the Perretts, locking into a 30-year term as opposed to 25 years meant an extra $300 a month that could go to strata fees or property taxes.

They sprang into action and called their mortgage broker.

“She was right on it, she got us the approval and the next day we were rolling,” said Denise Perrett. “Then we found out we had to have an accepted offer by [July 9] and then we panicked and called our realtor.”

The new rules limit buyers’ purchasing power, said mortgage advisor Milka Lukacevic.
Deadline stress

For every $100,000 it’s about a $60 difference, and in an expensive market like the Lower Mainland, every penny counts.

But Lukacevic says the rush to take advantage before the rules change can carry a lot of stress.

“You can’t necessarily — because the rules changed in a matter of weeks — go out and find something just to try and get it on a 30- year.”

The Perretts spent 48 hours looking at homes and put an offer that was accepted last week on a property in Maple Ridge that has everything they want.

The best part is that they qualify for a 30-year mortgage.

“We probably wouldn’t have been able to afford to mortgage a house, or at least not the house we wanted, if we hadn’t jumped on it,” Bruce Perrett said.

This article appeared in the Financial Post on July 3rd, 2012.

TORONTO — The Bank of Montreal predicted Tuesday that the Bank of Canada will keep interests rates lower for longer than it expected.

Economists at the bank now believe the central bank will not raise its key rate until July 2013, six months later than their earlier prediction of January 2013.

Senior economist Michael Gregory said the change stems from the easing policy of the U.S. Federal Reserve, a downgraded Canadian economic outlook and tightened mortgage rules.

The changes, which include a cut to the maximum amortization period for government insured mortgages cut to 25 years from 30, should stem some fears around growing household debt that would otherwise push the Bank of Canada to increase rates sooner.

“The tightening of the government’s mortgage insurance rules does serve to act like higher interest rates specifically for that sector,” Gregory said. “So that takes some of the urgency away from the Bank of Canada to adjust rates any time soon.”

The Bank of Canada has kept its key interest rate at one per cent since September 2010.

The rate affects the prime lending rates at Canada’s major banks and in turn influences all kinds of interest rates including those charged to variable rate mortgages and lines of credit.

Gregory said he expects that the Bank of Canada will change its projections for economic growth when it releases its new monetary policy report on July 18.

“I suspect it will show softer growth in Canada, partly because of global factors and in part because of what’s going on in the U.S,” said Gregory.

This article appeared in the Financial Post on June 21st, 2012.

OTTAWA — Without the tool of interest rates to temper the housing craze and with the threat of Europe still overhanging the sector, Ottawa had to use other means to slow things down and, at same time, lessen consumers’ exposure to the market.

For that, it chose once again to tighten the screws on mortgage lending, a move that surprised many, but one that Canada’s finance minister characterizes as the government’s role in providing a “prophylactic function” — helping average Canadians save themselves from themselves.

Jim Flaherty, who had insisted it was up to commercial banks to take the lead on mortgage lending, on Thursday took that action himself ­— reducing the amortization period for government-backed mortgages and limiting home equity loans, among other measures.

“The government doesn’t necessarily need to be, at the end of the day, in the mortgage-insurance business,” Mr. Flaherty told reporters. “But we are in the business, so we have to ensure that the exposure to the taxpayers of Canada is reasonable.”

Mr. Flaherty said he wanted to “avoid the kind of issues that have happened in other countries in recent years. And I’m satisfied we are and our market is OK.

“But I think there’s a prophylactic function for government on this with respect to insured mortgages and it’s our job to try to be ahead of things and act — and act in a measured way, listening to the market. And I have been listening to the market and, quite frankly, I don’t like what I hear, particularly in the condo market.”

Thursday’s announcement marked the third time in four years that Ottawa has gone this route to head off over-zealous borrowing by homeowners, many of whom might not be able to carry their debt load.

The new rules, which take effect July 9, will see the maximum amortization period for government-insured mortgages fall to 25 years from 30 years. The limit for borrowing against the value of a home drops to 80% from 85%, while the maximum gross-debt ratio is fixed at 39% and the total debt-service ratio will be 44%.

The biggest surprise, however, was a new rule to limit government-backed mortgages to homes purchased for less than $1-million.

“At long last, the Canadian government is coming to the realization that the ball was in its camp all along,” said Louis Gagnon, a finance professor Queen’s University.

Mr. Flaherty has been “reluctant over the past several weeks to further tighten these rules, arguing it was up to the banks to stop people at the gate,” he said.

“In fact, what we’re dealing with is a systemic issue. It’s really in the government’s hands,” Mr. Gagnon said. “It’s always going to be important for the government to be pro-active on this front.”

Mr. Gagnon added: “These new rules are long over due. We know the pace of growth of consumer loans is not growing, it has actually come down a bit, but not on the mortgage side.”

The Bank of Canada has reluctantly been waiting on the sidelines — even as household debt ballooned — waiting to see how the European fiscal crisis plays out, and what impact that will have on the Canadian economy and that of its struggling neighbour to the south.

The central bank’s trendsetting lending rate, its lever for guiding monetary policy, has been stuck at a near-record low of 1% since September 2010.

The initial intention was to get consumers and businesses spending again as Canada edged out of recession. That indeed worked — too well, as it turns out.

Debt-to-income ratio of Canadian households has reached a record high of 152%, once again raising alarm bells that consumers were getting in way over their heads.

Just last week, the Bank of Canada warned consumers to brace for a possible shock wave from a worst-case scenario — a European banking collapse followed a housing crash and a jump in unemployment.

For his part, Bank of Canada governor Mark Carney also welcomed the tighter mortgage-lending rules, calling them “prudent and timely measures” in a speech in Halifax on Thursday.

Mr. Carney said the measures “support the long-term stability” of the housing market and “mitigate the risk of financial excesses.”

And while Canada’s “favourable economic performance” has relied on strong household spending, growth cannot “depend indefinitely on debt-fuelled household expenditures, particularly in an environment of modest income growth.”

Speaking later to reporters, Mr. Carney once again stressed the “No. 1 domestic risk to the Canadian economy is the potential for household finances to evolve in an unsustainable fashion.”

“These measures reduce the No. 1 domestic risk.”

This article came from the Globe and Mail on March 19th, 2012 and was written by Tara Perkins and Grant Robertson.

Canada’s banking regulator is looking at instituting new rules to ensure that banks know enough about borrowers before giving them a mortgage.

The draft rules, which the Office of the Superintendent of Financial Institutions has put out for comment, are designed to ensure that banks are collecting detailed information about a borrower’s identity, background, and willingness and ability to pay their debts on time before they approve a mortgage. In addition, the proposed rules deal with due diligence the banks should conduct on the value of the property that the mortgage would be for.

For example, OSFI says lenders should be doing an assessment of a prospective borrower’s assets (mutual funds, savings etc), anticipated living expenses and property ownership expenses such as maintenance costs. Banks should also assess whether the borrower will likely be able to keep up his or her income until the mortgage is paid off.

Notably, the regulator has issued a warning to banks about home equity lines of credit, or HELOCs, noting that while they can provide consumers with an alternative source of funds, “these products can also significantly add to consumer debt loads.”

Both Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been issuing warnings about the rise in Canadian consumer debt levels, and the potential problems that high debt levels could create both for individual borrowers and the greater economy once interest rates rise.

“While some borrowers may elect to repay their outstanding HELOC balances over a shorter period of time relative to the average amortization of a typical traditional mortgage, the revolving nature of HELOCs can also lead to greater persistence of outstanding balances, and greater risk of loss to lenders,” OSFI said. “As well, it can be easier for borrowers to conceal potential financial distress by drawing on their lines of credit to make timely mortgage payments and, consequently, present a challenge for lenders to adequately assess credit risk exposure.”

OSFI is also asking banks to step up the amount of public disclosure they provide when it comes to their mortgage portfolios. This includes details on the lengths of their mortgages, the proportion that are insured, average loan-to-value ratios, and a discussion about the potential impact on their portfolio of an economic downturn.

The OSFI report comes as the banking sector is locked in a heated price war over fixed-rate mortgages, with 5-year rates as low as 2.99 per cent and 10-year rates dropping to 3.99 per cent.

Lenders have been scrambling to gain market share in advance of the spring mortgage season, when home buyers tend to start looking for deals.

“It’s an interesting market, I will tell you,” Marcia Moffat, head of home equity financing at Royal bank of Canada, said in an interview Monday.

“What you tend to see is customers are quite savvy in terms of rate, and certainly the fixed rates are a very good deal for consumers, so we are seeing more consumers choosing fixed rates over variable these days, relative to, say, a year ago.”

A variety of banks have introduced cut-rate mortgage offerings, but Ms. Moffat said there are other important items to look at in a mortgage deal than just the rate. Early payment penalties and flexibility on payments are also key factors.

“We’re in somewhat uncertain times these days, this decade is characterized by that. So my main message would be that options and flexibility are important in times like that.”

The banks are still digesting the OSFI draft report, but Ms. Moffat said she supports efforts to bolster lending standards.

“We have quite a disciplined credit adjudication approach,” Ms. Moffat said of the bank’s standards.

Franco Caputo BMO Mortgage Specialist Kamloops

This information was provided by Franco Caputo, a mortgage specialist from Bank of Montreal. I have included the mortgage information below followed by an article from CTV News.

TORONTO, March 7, 2012 – BMO Bank of Montreal announced today that it is decreasing the rate on the 5-year fixed low-rate mortgage effective March 8, 2012 and introducing a new 10-year fixed low-rate mortgage effective March 11, 2012.

Effective March 8, 2012:

Fixed rates:                                    To:       Change:
5-year low-rate fixed closed         2.99%      -0.50

Effective March 11, 2012:

Fixed rates:                                    To:        Change:
10-year low-rate fixed closed         3.99%      NEW

These limited time offers are available until March 28, 2012. The interest rate for a fixed rate mortgage is calculated half-yearly not in advance. Rates are subject to change without notice. Offers may be withdrawn or extended without notice. Mortgage funds must be advanced within 90 days of the application.

Franco Caputo, BBA, Mortgage Specialist, Bank of Montreal
tel: 250-682-1223  email: moc.ombnull@otupac.ocnarf

Article included below relating to the rate drop. This article came from CTV News and was written on March 8th, 2012.

BMO Lowers 5-year Mortgage Rate, Sets Stage for Rate War

BMO Bank of Montreal announced Thursday it’s lowering two key mortgage rates, setting off what could be yet another mortgage war with other lenders.

Canada’s fourth-largest bank lowered its five-year, fixed mortgage rate to 2.99 per cent Thursday. That represents a drop of a half a percentage point.

It’s also introducing a new 10-year mortgage that comes with an introductory fixed rate of 3.99 per cent. That mortgage will be available starting Sunday. Both the five-year and 10-year offers apply to 25-year amortizations.

The new rates will be available only until March 28. BMO is urging home buyers to get pre-approved financing now to take advantage of the special rates.

With BMO throwing down the lower-rate gauntlet, it is expected that other lenders will soon roll out similar offers. When BMO last offered 2.99 per cent rate back in January, TD Bank and Royal Bank quickly followed up with their own similar deals.

The new rates come a day after two housing reports were released that said that prices in Canada’s housing market are shifting in favour of home buyers.

Scotiabank senior economist and real estate specialist Adrienne Warren said the market is cooling but still remains in better shape than many international markets.

Warren did warn that if job growth slows significantly, or household debt spikes, the housing market could suffer.

In a separate report, the RBC Housing Trends and Affordability Report found that home prices eased off and income increased at the end of 2011 — two forces that combined to give a break to the Canadian housing market.

On Thursday, Statistics Canada said the national average price of new houses rose 0.1 per cent in January from the previous month. It said higher prices in Calgary and Vancouver were the main contributors to the increase, offsetting decreases in Victoria and St. John’s, N.L.

Benjamin Tal, deputy chief economist with CIBC World Markets, told CTV’s National Affairs Wednesday that the Canadian housing market is “overshooting,” but won’t be crashing anytime soon because the Bank of Canada is unlikely to increase interest rates and risk hurting the economy.

On Thursday, the Bank of Canada announced that it’s holding held its overnight rate steady, at one per cent.

This article appeared on Wire Service Canada, Canada Free Press Release Service on February 15th, 2012.

Some expected the move, while others are against it. It seems Canadian banks are tightening lending standards in a move to avoid a U.S.-style housing correction, but a local builder, Bright Coast Homes Ltd., is confident Vancouver’s robust housing market isn’t expected to face a severe price correction. Press Release – Feb 15, 2012 – “I think the tightening of some of the lending standards is favourable in our current housing market,” said Ken Gee, project director of Bright Coast Homes Ltd. of Vancouver. “Home buyers can be confident that banks are screening new borrowers for their ability to carry the mortgage.”

Canada’s banks are in talks with the federal government about ways to curb mortgage lending in response to a “genuine concern” about the country’s housing boom and rising consumer debt levels, said TD Bank chief executive officer Edmund Clark.

“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” said Clark. The banks have responded by restricting some lending and raising prices on higher-risk borrowers. “I truly believe home buyers and investors should be taking advantage of the historically low interest rates right now,” Mr. Gee commented.

TD Bank joined Royal Bank of Canada this week in ending a promotional 2.99 per cent four-year mortgage rate, three weeks before it was set to expire.

Although the Vancouver housing market may be out of equilibrium, a significant correction is not expected, said Tsur Somerville, director at the University of B.C. Centre for Urban Economics and Real Estate at the Sauder School of Business.

“I think there’s some concern that prices don’t get so far out of whack that there’s a substantial correction,” Somerville said. “All you have to do is look around and you’ll see that if [a substantial correction] does happen, that would be a real big problem. So let’s not let the housing market be driven by a wave of cheap and easy-to-access money.”

The Bank of Canada is trying to reduce the exposure to mortgage debt and put the brakes on the housing market without using “really, really big hammers,” like raising interest rates, Somerville said.

“The government has already taken steps to control mortgage lending through its regulations and I think there’s a wariness about tightening those too much, so they’re encouraging the banks to look at their mortgage book more closely.”

In a recent Reuter’s article, it was reported there is an expectation that mortgage rates will stay low is taking the sizzle out of Vancouver prices.

At the same time, Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available. But with immigrants still streaming in from China and elsewhere, and the city frequently rated one of the most livable on the planet, most experts see prices fizzling rather than imploding with a bang. Vancouver price rises peaked at a stunning 19.8 per cent in 2006, dipped in 2009, and came roaring back with double-digit growth in both 2010 and 2011.

A house bought for $500,000 in 2001 would have fetched about $1.2 million a decade later, based on average price changes.


This article appeared on Reuters and was written by Cameron French on February 9, 2012.

Canada’s big banks, which entered a mini-price war on mortgages last month, are now raising their rates ahead of schedule, due to higher costs that make the cheap mortgages more expensive to fund.

Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO), which had offered a record-low rate of 2.99 percent on a four-year mortgage, said on Wednesday they were cancelling the offer, well ahead of the original expiry date of February 29th.

TD’s lowest rate on a four-year mortgage is now 3.39 percent, it said.

Bank of Nova Scotia (BNS.TO) followed suit on Thursday, while a Canadian Imperial Bank of Commerce (CM.TO) spokesman said the bank would likely adjust rates on Friday.

The moves underscore how nervous the banks have become about narrow margins in their consumer lending portfolios. Bond yields have begun to inch higher from historically low levels in December. Banks typically issue bonds to fund their mortgage lending.

“Our long term funding costs have gone up considerably due to global economic concerns, and while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” said RBC spokesman Matt Gierasimczuk.

Analysts say the banks will struggle to increase earnings this year due to low rates, which narrow the margins on loans.

While they can partially compensate for that by raising lending volumes, the Bank of Canada and the federal Finance Department have been warning Canadians to lower their already-high debt levels.

Bank of Montreal (BMO.TO) kicked off the price war when it announced a two-week offer of a record-low 2.99 percent 5-year mortgage in mid-January.

The move to cut rates drew criticism as it came just days after bank CEOs had warned of the possibility of a housing bubble in certain regions across the country.


This article appeared on on January 13th, 2012 and was written by Pete Evans.

A strong international demand for bonds from Canada’s biggest banks is trickling through the system and pushing mortgage rates to record lows at the consumer level.

The Bank of Montreal moved its five-year fixed mortgage rate to 2.99 per cent late Thursday — the lowest posted rate from a major bank in Canadian history.

BMO announced the rate cut late on Thursday and TD followed suit by lowering their four-year fixed rate to 2.99 per cent on Friday afternoon.

BMO’s offer, which ends Jan. 25, states that lump sum payments are limited to 10 per cent of the principal each year. The mortgage is also based on a 25-year amortization period. TD’s offer is open until Feb. 29, 2012. It’s also for a four-year term, much less common than the standard five-year.

Other banks are expected to follow suit. On Wednesday, Toronto-Dominion Bank reduced its posted six-year rate 132 basis points to 3.79 per cent and lowered the posted seven-year fixed rate 91 basis points to 3.99 per cent.
Access to capital

Borrowers can often negotiate a better rate from a bank based on their credit history, but the posted rate at a bank is seen as the benchmark for its mortgage offerings. The five-year rate is by far the most common term for a first-time homebuyer.

Lower mortgage rates are the results of a broader trend in which international bond investors are gobbling up Canadian offerings at record levels because they’re generally perceived as being safer than bonds from other countries.

“It’s not surprising given that mortgage rate declines have actually been lagging behind falling bond yields,” Queens University real estate expert John Andrew said. “[It's] driven by global economic uncertainty.”

Earlier this month, BMO was able to sell $1.5 billion worth of five-year bonds at a rate of 2.544 per cent. Contrast that with the government of Italy, for example, which sold an offering of bonds with a 4.83 per cent yield on Friday.

Essentially, the bond market considers BMO a better bet than Italy. A lower yield is a sign investors have more confidence in that lender’s ability to live up to the terms of the loan.

“Right now Canada is a function of what’s happening in the global environment,” Mark Kerzner of The Mortgage Group said. “And mortgage consumers are able to benefit from the noise in the rest of the world.”

As Europe’s debt crisis unfolds, investors are fleeing for safety. Canada is seen as a beacon in the financial world, so bond offerings from Canada’s biggest lenders are in strong demand. Cheaper borrowing for the banks has in turn allowed them to seek new customers by cutting their consumer rates.

“There’s a risk premium,” said Nick Mitskopoulos, president of mortgage broker Verico Mortgage For Less in Toronto. “The three-to-five year money is cheaper [but] their short term costs have gone up.”

“Their cost of capital is going up for the short term, but not for the long term.”

Mitskopoulos said other lenders will be hard-pressed to match BMO’s rate, although most will likely lower their rates a bit to compete. At that level, he suggests, BMO might be at a break-even level and is hoping to make gains from new customers through lines of credit.

Fixed-rate mortgages are closely tied to what’s happening in the bond market, as that’s how the banks finance their lending. Variable rate mortgages are more closely linked to the Bank of Canada’s rate.


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