Impact of Mortgages changes
Impact of Mortgages changes.
Before I explain how all the changes had impacted consumers I believe it is important to clarify and explain those changes.
Previously, mortgages were divided into two major categories
1) High ratio mortgages- down payment was lower than 20%, borrower will be charged for mortgage insurance in case of default. This provided banks the option to offer good rates to borrowers with low down payments.
2) Low ratio mortgages- down payment was grater than 20%.
Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. This creates the federal government responsible to cover the cost of 100 per cent of an insured mortgage in the event of a default.
Oct- Nov, 2016
In consequence, Mortgages are now being differentiated as Insured and Non- Insured.
Insured: (by Federal Mortgage Insurance)
High ratio owner occupied Only.
Borrowers need to qualify at benchmark of 4.64%
Maximum Amortization of 25 years
Purchases under $ 1 Million dollars
Non-Insured: (by Federal Mortgage Insurance)
Income properties purchases and refinances with less than 20% down payment.
Low ratio mortgages
Borrowers qualify under contract rate not stress test
Amortization can exceed 25 years
Interest rate increase of 0.25 %, it will impact services associated with mortgages, such as lines of credits and bank services associated with prime rates.
All these changes were established by the Liberal Government to freeze housing prices in Toronto and Vancouver area mostly, avoid consumers going into mortgages that cannot be afforded, and subsidized the low prices on petroleum.
It has been almost 10 months that these changes had been applied and it did not help to stop prices to sky rocket or consumers to not be in debt. On the other hand, now interest rate increased which it was most likely to happen and it complicates even more the financial situation of most home owners.
I read many articles this past week, but I was surprised by one in which it was trying to give consumers the idea that a small interest increase it wasnt such a big impact on mortgages on a monthly basis. It is very unreal to believe that interest rates are not going to go up even more. This will complicate the financial situation of average Canadians to access a mortgage in the future or keep the current one. It is going to become harder to pay off debts because interest rates and living expenses are getting more expensive.
Investors cannot offer affordable rentals because the cost for a mortgage for them have changed. Many lenders do not offer investment products due to the additional cost of having to buy private insurance in consequence of the changes implemented by the Government. This as well increases the cost of living for Canadians and makes it even harder to save for a purchase of a home.
All these changes intend to solve an issue but they create new ones even more complex to resolve.
A fitting example is the increase on minimum wage as is planned for 2019 of $ 15.00; this will bring a lot of consequences, prices are going to go up in general items because businesses are going to have to recap those amounts, small businesses are not going to be able to have employees because of the cost increase, therefore less demand for workers.
All these changes intend to patch or give quick solution to most concerns on society.
Realistically, it has been a wrong move from the government. It affected first time buyers, middle class families, private banks (some of them are out of business because they cannot compete with prices, therefore less options for borrowers); most of these individuals do not contribute to have prices for over 1 million dollars.
As a mortgage professional, I mostly see the debate of buyers that do want to have an affordable mortgage but in their areas are not possible. I try to advice to move further from the city, but they encounter the lack of employment opportunities on those border cities.
The real problem is that big cities such as Toronto and Vancouver are collapsing, employers need to start moving away from the big cities to be able to make surrounding cities prosper as well. There are a lot of commuters and consequently creates traffic problems, big monthly expenses on gas, car maintenance and so on. Because all the changes rents are more expensive and consumers are not able to save money for a down payment.
I believe some changes are good but they cannot be applied to all Canada, they need to be enforced for buyers on the big cities. We need opportunities for first time buyers, buying a home is slowly becoming a luxury and we all have the right to own our home.
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Mortgage Wellness Group
Brokerage licence# 11970
P: (705) 302 9823
C: (416) 886 0866
Easy ways to keep more money in your pocket
It goes without saying that most of us would appreciate a little more money in our pockets. Believe it or not, its actually an achievable goal. In fact, a few simple tips can help you uncover meaningful savings each and every month. Need some ideas? Heres a little inspiration to get you started:
1. Pack food from home for lunches and snacks. Skip sandwich bags and opt for reusable containers, cutlery and drink bottle.
2. Switch light bulbs to CFLs. On average, it costs $250 a year in energy costs to light your home with incandescents. Save $150 by going with CFLs. Theyre more expensive initially, but will last 10 times longer.
3. Review and negotiate your service plansphone, internet, cable and television content.
4. Invest in topping up your insulation. Attic insulation can settle and compact over time, diminishing its original R-value and increasing heating/cooling costs. Topping it up with a quality batt insulation, like Roxul Comfortbatt, will immediately help improve the comfort of your home and reduce your monthly energy bills.
5. Pay off credit card debt and swap cards for lower interest rate options.
6. Install low-flow water fixtures to cut down on excess water consumption.
7. Lower your thermostat by two degrees in cold weather and increase it by two degrees in warmer weather.
8. Launder your clothes in cold water and at off-peak times.
9. Avoid impulse shopping. Stick to your list and avoid window shopping, which tends to draw buyers in.
10. Save money on entertainment by looking for free activities. For options in your area, try a simple internet search. You might be pleasantly surprised at the wide variety of activities and entertainment available for no or low cost.
Collectively employing the tips above could potentially add up to thousands in annual savings, proving that sometimes change can be a good thing.
Bank of Canada increases overnight rate target to 1 per cent
The Bank of Canada is raising its target for the overnight rate to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
Recent economic data have been stronger than expected, supporting the Banks view that growth in Canada is becoming more broadly-based and self-sustaining. Consumer spending remains robust, underpinned by continued solid employment and income growth. There has also been more widespread strength in business investment and in exports. Meanwhile, the housing sector appears to be cooling in some markets in response to recent changes in tax and housing finance policies. The Bank continues to expect a moderation in the pace of economic growth in the second half of 2017, for the reasons described in the July Monetary Policy Report (MPR), but the level of GDP is now higher than the Bank had expected.
The global economic expansion is becoming more synchronous, as anticipated in July, with stronger-than-expected indicators of growth, including higher industrial commodity prices. However, significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies. In this context, the Canadian dollar has appreciated, also reflecting the relative strength of Canadas economy.
While inflation remains below the 2 per cent target, it has evolved largely as expected in July. There has been a slight increase in both total CPI and the Banks core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack. Nonetheless, there remains some excess capacity in Canadas labour market, and wage and price pressures are still more subdued than historical relationships would suggest, as observed in some other advanced economies.