Tom Shore Mortgage Consultant

Tom Shore

Mortgage Consultant

109-3550 Saanich Rd, Victoria, British Columbia









October Rule Changes


October Mortgage Rules and their Impact Recently I read a report, provided by a competitor, that gave some data about the impact of the recent mortgage rule changes. Some of the impacts are: The search for Variable rate mortgages is down from 42% to 30%; There is a growing trend to save for a 20% down payment; There has been a slight swelling in rates. The media has told us of the new requirement to Stress Test all high ratio mortgage applications. I have not heard in the media that conventional (mortgages with 20+% down payments) are affected by this latest round of rule changes. To date none of the rule changes affected the conventional mortgage market. The Federal Governments Technical Backgrounder tells us an additional story. If a lender wants to sell their conventional mortgage on the mortgage back securities market then those mortgages must also be insured. To do so the lenders pay for Portfolio insurance, sometimes called Bulk Insurance. The Backgrounder states that as of November 30, 2016 those lenders must confirm their mortgages meet the following requirements: Stress Test using the Bank of Canada conventional five year posted rate; A maximum amortization of 25 years; A property value below $1,000,000; Variable-rate loans that allow fluctuation in the amortization period, loan payments that are recalculated at least every five years to confirm to the established amortization schedule; Have a minimum credit score of 600; If the property is a single unit, it will be owner-occupied. The backgrounder also states that there will be forthcoming consultation of Lender Risk Sharing. Today our insured mortgages are 100% guaranteed by our Government. The Government now intends to implement a Risk Sharing policy with the lenders. This significant change in policy will require lenders to reserve more funds for default and therefore they will be looking closely at their default rates and there default management policies. The new rules for conventional mortgages and the prospect of Lender Risk Sharing both will result in a higher cost to the lenders. We all know who pays for increased cost to any business, the consumer. It appears to me that the lenders already are starting to ameliorate this expense as seen by the latest small rise in bank lending rates. In the mortgage industry the saying goes bond yields up, fixed mortgage rates down. If you want to keep an eye on what the fixed rate market may do check out the Bank of Canadas web site to see the history of the yields on Canada Savings Bonds. The URL is: http://www.bankofcanada.ca/rates/interest-rates/lookup-bondyields/

4 Credit Score Myths Busted


Your credit score is a three-digit number ranging from 300-900 that tells future lenders how risky it is to lend you money based on your history of making debt payments. There are many misconceptions about what it takes to keep your score high. Henrietta Ross, the CEO of the Canadian Association of Credit (CACCS) to help us sort fact from fiction: Myth 1: You must use major credit cards to build a good score. Truth: If you're unable to obtain a major credit card, there are other ways to build your credit history. Making regular payments on installment loans such as a car lease can positively affect your score, as do department-store cards and secure credit cards, which require a cash deposit in the amount of the credit limit. Myth 2: You can't make up for mistakes such as late payments. Truth: It takes time, but your credit will become positive as you build consistency with timely payments, Ross says. How much time it will take depends on a number of factors, including how long the 'late payment' has been on your record and how long you've had the debt. Myth 3: Paying cash boosts your score. Truth: You need to use credit in order to demonstrate your ability to make payments. Using credit at least once every 30 days and making payments on time will keep you in good standing, says Ross. Myth 4: I will not qualify for a mortgage if I've had a poor credit score. Truth: Lenders look at your entire financial picture, including your assets, available cash flow, and debt-to-income ratio. They'll also review your housing expense-to-income ratio, which is a comparison of your expected monthly mortgage payment with your gross monthly income. For more information about how your credit score will affect your mortgage, please contact Tom! Source: News Canada

Canadian Household Debt and What it Means To Us


The latest reading by Statistics Canada puts Canadians' household debt-to-income level at a whopping 164.7%. That means on aggregate debts (short and long term) Canadians owe nearly $1.65 for every after-tax dollar they earn. Canadians may feel uneasy at the attention this number is receiving, but keep in mind that the majority of household debt comes from mortgages which are long term debts paid over the amortization period, not monthly. So, for example, a family with a $300,000 mortgage and after-tax income of $100,000 has a debt-to-income level of 300%. That's perfectly acceptable result in today's market because the entirety of the mortgage isn't owed all at once. Right now Canadians pay a little less than 8% of their after-tax income in interest charges. That's actually down from nearly 9% back in 2000. A major concern is that when interest rates rise will we be able to afford our debt payment that goes along with the increased rate. We can do two things to ensure our financial safety. First look at our household budget. How much you can afford in ongoing monthly payments? Those payments need to include items such as funds going to investment accounts, utilities, mortgages, loans, credit cards, lines of credit, monthly allocation for property and income tax, various insurances and of course, food, clothing and incidentals. Before making a large purchase decide how much is the maximum payment you are willing to carry. In all cases assume the interest rate is at least 3% higher than advertised. You will now have a solid base to work from when looking at your lifestyle, especially after rates go back up. The second part of the formula is to ensure all monies to be spent within the month that are not within the debt structure that has been budgeted for, if charged to a card or line of credit, are paid in full each and every month. None the less, the best debt is the one that has been paid-off. And the inevitable rise in interest rates that lies ahead makes the current, sustained period of low rates an excellent time to eliminate as much debt as possible.

Pedestrian Safety


Watching Canada's Worst Driver then reading the following suggestions made me think of my own driving and walking habits. We are now well into the dark days and evenings of winter. Our roads are more dangerous for pedestrians and drivers. Traffic is heavier because more people choose to drive rather than bike or walk now that our weather is colder and wetter. The poorer visibility makes it more difficult for drivers to see pedestrians, especially during morning and afternoon rush hours. The BCAA Road Safety Foundation offers suggestions to help drivers and pedestrians stay safe this fall. For Drivers Slow down. The faster you travel the longer it will take to stop. Give yourself more time to react to a situation by driving 10 km slower and allow more time to reach your destination. Reduce speed in rain. Heavy rains after a prolonged dry spell tend to bring oil to the surface of the road and create large pools making roads slick and making vehicles susceptible to hydroplaning. Stop. Come to a full stop at designated intersections then proceed slowly. Be careful of slippery road surfaces. Fallen leaves retain large amounts of water and can create a slippery surface that can be just as treacherous as patches of ice. Drive slowly through them and avoid hard or panic braking. Turn your headlights on. Most daytime-running light systems don’t automatically illuminate the taillights. Make sure your windows are clear. Wipe away snow or frost, defrost interior and change windshield wiper blades before their effectiveness is reduced. Watch for children. Reduce your speed in residential areas and around schools and parks. Children often dart out from between parked cars or into intersections. Avoid talking on your cell phone. It is against the law and it seriously impairs your reaction time. Do not drive while impaired. Fatigue is a form of impairment so get plenty of sleep and if you’ve consumed alcohol or drugs, find alternate transportation such as a designated driver, taxi or transit. For Pedestrians Wear light coloured clothing. Light or reflective clothing will make you more visible in dark conditions. Carrying a flashlight will also make you more visible and helps you see your way in the dark. Use intersections. Always cross at a designated intersection. Looking both ways and make eye contact with drivers so they know you are there before you cross. Never step out from between parked cars. Plan the walking portion of your commute along well-lit streets. If there is no sidewalk. Always walk facing traffic and as far off the road as possible. Avoid talking on your cell phone particularly when crossing the street.

Real Estate Market Slowing or Good Signs For Canadians


Earlier this month First National Financial had the following Real Estate comments The doom and gloom that has been hanging over the Canadian housing market is brightening a little. Make no mistake, the market is slowing and prices are softening – which is exactly what the federal government wants – but the dark and foreboding headlines have received a little sunshine. Canada Mortgage and Housing Corporation’s latest quarterly report forecasts increasing housing starts, increasing resales and increasing prices over the next year. Certainly the pace of those increases is slowing, but it’s a long way from a bursting bubble. Further, a couple of well known Canadian economists say there’s no need to fear a U.S.-style meltdown. Among their key points: - While the debt-to-income ratio is at a record high (163%) the rate of increase is slowing; Canadians aren’t loading up on debt the way Americans did before the crash. As well, debt relative to assets is below peak levels in Canada. Canadian mortgages are higher quality; borrowers have better credit scores and they have more equity in their homes. Canadian home buyers are insulating themselves against inevitable interest rate hikes by taking out fixed rate mortgages, the opposite of what happened in the U.S.



Recentlythe Minister of Finance, Jim Flaherty said Canada has done enough toslow its housing market and prevent a crash like thatseen in the United States or Spain. Speaking on CBC Radio, Flahertysaid he had no plans to take further action to take froth outof the housing market, after a series of moves to tighten conditionsfor mortgage lending. The most recent change was in July.We've done enough, I do not intend to do any more,Flaherty said, adding that he was pleased at signs of a slowdown in keysectors of the market, like the condo market in the big cities ofToronto and Vancouver. Excerptsfrom the Bank of Canada Rate announcement of October 23rd TheBank of Canada announced that it is maintaining its target for theovernight rate at 1 per cent. Theglobal economy has unfolded broadly as the Bank projected in its JulyMonetary Policy Report (MPR). InCanada, while global headwinds continue to restrain economicactivity, domestic factors are supporting a moderate expansion. Followingthe recent period of below potential growth, the economy is expectedto pick up and return to full capacity by the end of2013. TotalCPI inflation has fallen noticeably below the 2 per cent target, asexpected, and is projected to return to target by the end of 2013,somewhat later than previously anticipated. Overtime, some modest withdrawal of monetary policy stimulus will likelybe required, consistent with achieving the 2 per cent inflationtarget. The timing and degree of any such withdrawal will be weighedcarefully against global and domestic developments,including the evolution of imbalances in the household sector. Highlightsof the October Bank of Canada Monetary Policy Report • Globaleconomic activity has slowed, as expected in July. • InCanada, following the recent period of below-potential growth, theeconomy is expected to pick up and return to full capacityby the end of 2013, slightly later than in July. • TheBank projects that the economy will grow by 2.2 per cent in 2012, 2.3per cent in 2013 and 2.4per cent in 2014. • Coreinflation is expected to increase gradually over coming quarters,reaching 2 per cent by the middle of 2013. Total CPIinflation is projected to return to target by the end of 2013,somewhat later than previously anticipated. Iask once more, Are we nearing the end of historically low interestrates? InJuly and again in October the Monetary Policy Report stated the Bankof Canada expects the economy to return to full capacity bymid 2013. The bank also restated the same message when they last settheir overnight lending rate. Ahistorically normal 5 year term interest rate is between 5.4% and5.5%. At 5.45% simple interest $300,000 costs $16,350 per year.At today's rate of 3.09% the same $300,000 costs $9,270 per year.3.89% the cost is $11,670 per year. Thetime is arriving quickly to either refinance your mortgage at today'slow rates and/or to reset your payments so that you will notsuffer Rate Shock when your mortgage payments jump up. Cheersunitl next time.



The Finance Minister recently decidedthat Canada Mortgage and Housing Corporation (CMHC) is a financialinstitution and would come under the auspices of The Office of theSuperintendent of Financial Institutions Canada (OSFI). OSFI thendrafted a proposal for a new bill - B20. B20 - ResidentialUnderwriting Practices and Procedures for Sound Business andFinancial Practices. This draft bill could drasticallychange how we all look at our mortgages. The bill has many good andsound ideas as to how all Federally Regulated Financial Institutions(FRFIs) will be required to handle their mortgage products. Unfortunately it has some very upsetting items as well. The draft bill requires all FRFIs,which includes banks, trust companies, credit unions, mortgageinsurers to name but a few, to have a lending rules calledResidential Mortgage Underwriting Policy (RMUP). One item is if alender grants a mortgage outside of this policy then it must bereported up the line to their senior staff and to the OSFI. Doesn'tsound bad, if fact it sounds like a very good idea. Now let us lookat some other parts of the proposed policy: -loan documentation must be obtainedwhen granting a mortgage, when refinancing a mortgage AND whenrenewing a mortgage. -Debt service ratios shall take intoconsideration current and anticipatedliving expenses. The consideration of future income should take intoaccount the adequacy of the borrower's likely income and repaymentcapacity into retirement. -Home Equity Lines of Credit (HELOC) - A clearly defined period(eg., 5 years) after which the outstanding balance of the HELOCconverts to a fixed term with a reasonable amortization period or aset percentage of the outstanding balance due each month that equatesto a reasonable amortization period. -PropertyAssessment - The lender will now need to verify the value of thesecurity (read your home) at origination, refinancing andrenewal. Loan to Value ratios should be re-established at each renewal. -Incentive and rebate payment (ie., cash back) should not beconsidered part of the down payment. In short the government wants the lenders to take full applications,client data, property data and credit data every time they grant amortgage for a purchase and when you want to refinance your mortgage,which is reasonable. They will now require the same when yourmortgage matures and is due for renewal. Today when your mortgage isrenewed and assuming all your payments have been made as agreed thelender will provide a renewal form with their current rates andterms. If you agree, you can simply sign the renewal form and yourmortgage is renewed for a new term. If the new rules come into playyou will need to confirm to the lender that you still qualify to ownyour home by furnishing income verification, property valuationverification, and of course credit information. Is the house andland worth more today or less than when the mortgage was granted? Did you lose your job or change employment, do you make less, or moreat renewal then when you bought your home? Will you have enoughmoney to pay the mortgage after you retire? If your answers showlower income now, lower income upon retirement, and/or lower housevalue you may well find the lender saying I cannot renew yourmortgage. Where do you go then? Sure call your mortgage broker, weare governed by the same rules, we may be able to find you a newlender, but at what cost? If a lender cannot be found what then,sell the house, if you can. Hope there is enough equity to cover themortgage, then you get to rent. Now is that not a happy thought. Do you have a secured line of credit (HELOC)? Would you like it ifthe lender is required to make it into a fixed rate mortgage withprincipal and interest payments or that your payment must go up sothat an amount must be paid to principal each month to coincide witha reasonable amortization? I do however agree that the use of a cash back to be the sole downpayment is not a good thing. The one thing the lender's do now is ifyou want a cash back mortgage you will pay a higher rate tocompensate for the cash back. As I write I am reminded of a few years ago when rates went to 20+%. At that time many a client simply took their keys to the bank. Willwe see this again? Banks might need to install key slots, just dropof your keys is we think you can no longer afford your home. I addwhat will happen to house values if a number of homes come on themarket to avoid forced default? If you wish to read more on this subject send me an email I will senda copy of the draft guideline for B20 and the response from theCanadian Association of Accredited Mortgage Professionals (CAAMP).CAAMP is the national organization for lenders and brokers, of whichI and all the mortgage brokers at Mortgage Depot are members. As you may be able to tell, this bill as written concerns me verymuch. It is my hope that Canadians will see this bill as being ableto have very severe repercussion on us all. I am going to speakthose who can speak about this for me. How about you?

Canadian Bank or War of the Worlds


Recently we have been seeing all sorts of news and predictions about the economy. In the mortgage industry we are seeing change after change with the Federal Government changing rules and the implementation of those rules. We are also seeing a shift in how the major banks are dealing with these economic, market and rule changes. If you listen closely the banks are taking dead aim at each other. Boris Bozik, the Chairman of the Canadian Association of Accredited Mortgage Professionals in his blog on March 20th wrote: Historically speaking the banks have always adhered to their own version of “Marquess of Queensberry” rules. They battle for profitability and market share supremacy within a pragmatic framework. The oligopoly has a good thing going and it’s their best interest to play nice. That’s always been the case, until now. I heard an ad on the radio today that made me take notice. The largest bank in Canada is advertising that consumers should be careful of another banks offering. They didn’t mention the other bank by name but they did refer to a 2.99%, five year mortgage. Gee, I wonder who that might be. The consumer is being warned to read the fine print, and not to make a decision in haste when we, Canada’s largest bank, can offer the same rate with all the privileges, minus 12 months of term. What we have to offer is better than what the guy across street is offering. There’s no vagueness or ambiguity in the messaging. Could this form of advertising change the way banks operate and compete in the market place? If it was to happen it would take some getting used to but in some ways it be refreshing, and I suspect a tad entertaining. But alas, I believe this is a one off situation. I think this is a case where the big boy sent a message to one his competitors. The message? Play nice and let’s all get ours. If you don’t, we’ll respond in kind. This rate war the banks are waging has also caused the rest of mortgage lenders to compete in the same arena. The monolenders such as MCAP Mortgage, First National Financial, Street Capital to name but a few have also come to the plate with various options, terms and rates that are most attractive. Coming up to bat is a local credit union, Coast Capital Savings. Coast now has their award winning Your The Boss Mortgage at a five year term rate of 2.98%, the best rate and terms that I am aware of in the industry. How long will this War of the Worlds go on, only time will tell. I, like Boris, think this is a one off situation that will not last for long. Cheers until next time.

Rail Traffic An Idicator of our Economy


Recently in my Newletter I referred to a Bloomberg.com/News article that shows how rail freight data can be use as an economic indicator. The article follows. Rail Traffic Surge Shows Canada Economy May Beat Growth Forecasts: Freight By Theophilos Argitis and Ilan Kolet - Jan 11, 2012 A boom in traffic at Canadian National Railways Co. (CNR) and Canadian Pacific Railway Ltd. (CP), the country’s two largest rail companies, may mean Canada’s recovery will be buoyant even after economists and the Bank of Canada pared their outlook for growth this year. Canadian freight volumes accelerated in the fourth quarter to their fastest pace in 2011 on a year-over-year basis, while commodity carloads were up 6.8 percent in December from November on a seasonally adjusted basis, according to data from the Association of American Railroads. Data from Statistics Canada showing stronger volumes in the August-October period also suggest future economic growth. Rising rail shipments add to evidence that sales at Canadian producers such as chemicals maker Canexus Corp. (CUS) haven’t faltered in the face of the European debt crisis and a weak U.S. recovery. Bank of Canada Governor Mark Carney said last month risks to the global economy may lead to a “prolonged period of deficient demand.” Changes in rail carloads have predicted 63 percent of changes in monthly GDP three months into the future since 2000, according to Bloomberg calculations. “One of the great challenges right now is there is an incredible skew among economic indicators,” said Eric Lascelles, chief economist at RBC Global Asset Management Inc. in Toronto, which oversees about C$250 billion ($246 billion), adding that he uses rail freight as part of a set of indicators to gauge Canada’s economic outlook. “Now is the sort of time when you want to look at unusual indicators because the traditional ones just aren’t giving a clear picture.” Cutting Forecasts Economists and policy makers have been reducing their forecasts for the Canadian economy on concerns that the country’s expansion will slow if the European crisis hampers confidence, slowing emerging economies curb demand for the country’s commodities, and debt-laden consumers spend less. Canada’s SP/TSX benchmark stock index (STINDU) lagged behind the U.S.’s SP 500 in 2011 for the first year since 2003 as producers of raw materials and energy dropped. Canada’s expansion in 2012, projected at 2 percent, will trail U.S. growth for the first time in seven years, according to 21 economists surveyed by Bloomberg News. In May, economists had forecast 2012 Canadian growth of 2.8 percent. Canada’s quarterly expansion is expected to average an annualized 1.9 percent over the 12 months ending September 2012, almost half the third quarter pace, according to the Bloomberg survey. That will lead Carney to keep the central bank’s policy interest rate at 1 percent through 2012, the survey found. Mixed Data Carloads of commodities such as chemicals for Canadian railways, including their U.S.operations, rose 5.3 percent in the fourth-quarter from a year earlier, the fastest pace in 2011, according to Association of American Railroads data. Intermodal carloads, which can move by rail, road and sea and which often move retail goods, increased at a 4.5 percent pace, also a 2011 quarterly high. The rail data point to a more bullish outlook than some other economic data suggest. The value of building permits has declined in four of the past five months and home resales have slowed, suggesting a cooling housing market. The economy has generated only 7,400 jobs over the last six months, and the jobless rate has risen in each of the past three months, to 7.5 percent in December. Still, manufacturing business conditions in Canada improved in December, according to purchasing managers indexes released this month by Royal Bank of Canada and the University of Western Ontario. A Bank of Canada survey of executives released Jan. 9 showed companies anticipate hiring more and increasing investment, even as they predict slower sales growth for the first time in almost three years. ‘Good Proxy’ Growth will “be higher than people are expecting,” said Denis Senecal, head of fixed income in Montreal at State Street Global Advisors, which manages about C$30 billion in Canadian assets. Freight volumes are a “good proxy” for the economy, he added. Myles Zyblock, chief institutional strategist at Royal Bank in Toronto, raised his six- to nine-month view of Canadian equities to “above-benchmark” from “market-weight” in a Jan. 4 report to clients. Ed Sollbach of Desjardins Securities Inc. forecast in a report on the same day the Standard Poor’s/TSX Composite Index would climb to 14,200, which would be a 19 percent increase from its Dec. 30 close. Faster growth may benefit materials and industrial companies most closely tied to economic expansion, such as Calgary-based Canexus. Its stock has jumped 29 percent over the past three months. Industrial Stocks Canada’s SP/TSX Industrials Index (STINDU) has advanced 13 percent over the past three months, compared with a 5.9 percent gain for the SP/TSX Composite Index. (SPTSX) Aecon Group Inc. (ARE), a Toronto engineering business, led gainers with a 52 percent return. Canadian Pacific stock has increased 32 percent in three months, while shares of Canadian National are up 9.5 percent. Growth may also fuel demand for Canadian corporate debt, said State Street’s Senecal. The extra yield demanded by investors to own debt of Canadian industrial companies instead of federal government bonds has fallen to 181 basis points on Jan. 10 from 202 basis points at the beginning of the fourth quarter, according to Bank of America Merrill Lynch data. The so-called spread on a broad index of Canadian investment-grade companies narrowed to 179 basis points from 183 basis points in that interval. Higher Traffic Railway carloads measured in metric tons rose at an average year-over-year rate of 11.2 percent in the three months ending October, according to Statistics Canada, up from 4.8 percent average growth in the previous seven months and similar to the pace in 2010 when the economy was recovering from recession. Canadian railroads moved 609,000 units in December, a record for the month and 3.3 percent above December 2007 levels, the last peak for the industry, according to Bloomberg Industries. “Freight volumes for the Canadian rails ended the year on a strong note,” said Lee Klaskow, a Skillman, New Jersey-based analyst with Bloomberg Industries. “Strength was mostly across the board.” The average weekly freight volume at Montreal-based Canadian National over the past month was up 9 percent from the period a year earlier, according to Bloomberg Industries data that includes the company’s U.S. operations. In December, CN motor vehicle shipments rose 17 percent, mineral volumes were up 3.6 percent and intermodal traffic climbed 15.8 percent, the data show. The four-week moving average at Canadian Pacific showed a 10.1 percent volume increase from a year earlier, led by gains in automobile shipments, coal and minerals. Auto shipments at Calgary-based CP were up 48 percent in December and the railway recorded a 27 percent jump in mineral volumes, according to Bloomberg Industries. “Overall, if those sort of numbers were to hold up on the carloadings, that could provide some indication” of robust goods-production growth, said Mark Chandler, head of fixed income strategy at Royal Bank of Canada’s capital markets unit in Toronto. To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net. ®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED. p { margin-bottom: 0.21cm; }

The New Tom's Mortgage Watch


As you know the Bank of Canada has been telling us that Canadians have way too much consumer debt. Have you thought about paying your mortgage down faster by using the prepayment allowances that are within your mortgage. If you stay within your Lender's rules you can pay down your mortgage and not be penalized. Example: If your mortgage started at $400,000 at 3.5% amortized over 35 years you would pay almost $292,000 interest. If you simply made a bi-weekly accelerated payment your interest would reduce by more than $47,000.00 and your amortization would have gone down to just over 30 years. I know I could use an extra $47,000. How about you? Join a growing number of Canadians who are trying very hard to pay off the most expensive debt they have.


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