Category: Mortgage Information

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.

This article appeared on CBC.ca on August 6th, 2013.

Canada 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.

When 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. www.BrendaColman.ca

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.