Canada Tightens Mortgage Rules

[flamesaresmokin]

Originally Posted by Winsor_Pilates

Your not the exception to the rule.
The vast majority of Canadians pay off their mortgages ahead of the amortization period.
You're likely the exception if you do it in 15 (awesome!), but most would still do it well ahead of 40.

I'd like to see some stats on that to confirm your thoughts of these people being in the vast majority. I've seen a lot of numbers indicating how grossly irresponsible canadians (more specifically, albertans) are with borrowing money, re financing and living paycheque to paycheque because of it.

There are many people i know that have no problem leasing 3 luxry cars, a boat and filling their homes with new electronics every year all on top of carrying a 500 grand mortgage over 30 plus years.

[Finner]

The big issue isn't new buyers into the market. Its people refinancing homes and putting HELOCs on them to buy crap.

If anything 35 years vs 30 years isn't a big deal. What they should really be doing is saying max 75% or 80% loan to value on refinancing.

Let the new buyers still get in the market, prevent already existing home owners from peeling thousands out of their homes because markets prices went up, not because they actually paid down their mortgage.

[macker]

http://watch.bnn.ca/#clip403252

BOC keeps prime @ 3%. Changes yesterday are the equivalent of a 0.5% rate increase and a 7-8% reduction in affordability of homes. Not sure what will happen in the short term but within the next year rates are going up, likley starting in May, and home prices will be pressured lower. Supply and demand...qualified buyers took a hit yesterday....

[Mike Oxlong]

Originally Posted by Finner

The big issue isn't new buyers into the market. Its people refinancing homes and putting HELOCs on them to buy crap.

If anything 35 years vs 30 years isn't a big deal. What they should really be doing is saying max 75% or 80% loan to value on refinancing.

Let the new buyers still get in the market, prevent already existing home owners from peeling thousands out of their homes because markets prices went up, not because they actually paid down their mortgage.

\

Exactly. The longer amortizations allow first time buyers to get in the market a little bit easier. It isn't a source of Canada's debt problems.

The real issue is people thinking they can take this new found equity in their house to go on vacations, buy cars, and big screen TV's. People realize they need to increase the equity in their homes, not piss it away the second they earn it.

[The Yen Man]

I originally qualified for a 25 year mortgage, but my broker suggested I go with a 35 year one and just up my payments as if I am paying a 25 year one. That way I get flexibility to lower payments should anything unforeseen happen and I needed to pay less each month. So I'm one of the people who have a 35 year mortgage. But I put 20% down, so I'm guessing I'm not in the high risk group people are worried about.

[Frequitude]

Originally Posted by Mike Oxlong

If your 35 year amortization is up for renewal this September and you were on a 5 year term that would mean you have 30 years left, which fits perfectly within the new framework.

If you were on a 2 or 3 year term and have 32 or 33 years left you will likely have to renew at a 30 year amortization which will likely increase your payment slightly.

Just as a side note for everyone. DO NOT EVER sign the renewal notice you get from your bank. Shop around (talking to a mortgage broker is the best idea) and find out what the best rates are. Banks are notorious for sending out renewal notices at a much higher rate than what you could negotiate down to. Unfortunately many people just sign them thinking their bank is giving them the best rate and they end up getting screwed. If you want to renew with your bank at least make sure you find out what the best rates are so you can negotiate with them.

Thanks Mike. I'll be sending you a PM soon enough. It was in fact a 35 year amortization with a 5 year term, so I'm glad to hear that I'll have some flexibility come September.

I'm really going to miss prime-0.8 though. That's been a beauty.

[albertGQ]

Originally Posted by Frequitude

Thanks Mike. I'll be sending you a PM soon enough. It was in fact a 35 year amortization with a 5 year term, so I'm glad to hear that I'll have some flexibility come September.

I'm really going to miss prime-0.8 though. That's been a beauty.

P-0.80% is still being offered by some FI's

[Clarkey]

www.ratebot.ca

[AMG_G]

I know a lot of people who commit financial suicide. Case in point My sister just imprisoned herself in a 700k home with 20% down amortized over 30 years. Get this, she is 38 making 50ish, her husband 49, is a car salesmen 100% commission maybe making 80k on average, they have 3 young children (10, 8 and 1) with no RESP and no retirement savings plans and to top it off they have two BMW payments. To people who don't know it seems like a well to do family but underneath they have nothing but debt. If house prices drop 10% they will half their equity they put in. I have never seen such financial irresponsibility in my life. They will pay dearly for their house lust.

I asked him about retirement one time and he said that he will do a reverse mortgage on his house when he retires. I said what if your house is not worth what you predict it to be worth in 15 years? He had no answer. That 700k home will cost him nearly a million bucks once all said and done. Think of the returns if he invested that money.

How can banks lend someone over a half million dollars for 30 years when he is nearing 50 and making what he's making? Banks are just as guilty as the BIL.

[VladtheImpaler]

Originally Posted by AMG_G

I know a lot of people who commit financial suicide. Case in point My sister just imprisoned herself in a 700k home with 20% down amortized over 30 years. Get this, she is 38 making 50ish, her husband 49, is a car salesmen 100% commission maybe making 80k on average, they have 3 young children (10, 8 and 1) with no RESP and no retirement savings plans and to top it off they have two BMW payments. To people who don't know it seems like a well to do family but underneath they have nothing but debt. If house prices drop 10% they will half their equity they put in. I have never seen such financial irresponsibility in my life. They will pay dearly for their house lust.

How can banks lend someone half a million dollars for 30 years when he is nearing 50? Banks are just as guilty as the BIL.

I was going to ask if you/her are Russian, but then I noticed it was BMW, not Mercedes.

[AMG_G]

Russians don't drive BMWs?

Originally Posted by VladtheImpaler

I was going to ask if you/her are Russian, but then I noticed it was BMW, not Mercedes.

[Winsor_Pilates]

Originally Posted by flamesaresmokin

I'd like to see some stats on that to confirm your thoughts of these people being in the vast majority.

It's come up in the "Calgary Real Estate Predictions" thread, and I've linked some articles stating roughly 2/3s of Canadians pay off their homes ahead of their amortization periods.
However, this amount is likely decreasing with current generation of home owners.

[Bring_Back_Shantz]

Originally Posted by WilsonFourTwo

Well, I think the timing kind of screws him (and wife).

That puts their maximum budget about $290,000. Given that 'Starter homes' are around $310,000+ range, it really cuts down on the number of quality options.

In time (perhaps 12-24 months??) prices at the bottom end will deflate, and make more homes available in that price range. They're screwed because that hasn't happened yet, so they'll have to (I'm assuming) put off starting their family for a while longer.

See, I don't think it screws him at all.
I think what it does is force him to bring his expecations on what he can afford a little closer to reality, and possibly in the long run put him in a better position overall.

The problem I have with a lot of people's thinking is that they figure out the most they can qualify for on a mortgage and then try to make it work, instead of figuring out what they can afford and buying a house that's worth that much. I'm not saying that's what the OP is doing, but it certainly has happened to a lot of people.

[VladtheImpaler]

Originally Posted by AMG_G

Russians don't drive BMWs?

Not showy enough.

[Claeren]

Originally Posted by Winsor_Pilates

I've linked some articles stating roughly 2/3s of Canadians pay off their homes ahead of their amortization periods.

However, this amount is likely decreasing with current generation of home owners.

I wonder if they are counting the amount of people who payout their starter mortgages when they buy their upgraded homes. Paying out a $300k condo mortgage to take on a $600k home mortgage is not really about getting ahead of the debt curve....



Claeren.

[Claeren]

Since some people were asking (what does this mean for home prices) and no one really answered directly:

These changes should result in home prices dropping. However they also mean that a buyer will have to pay more per month and save more (or at least something) as down payment.

This inverse link between monthly payments and home prices is because most people fixate on the total price (especially home owners), but buyers look at the price/month (which is technically a bad thing I would say). This means that as buyers could borrow more and more money for the same amount per month, they bought more expensive homes. So a lot of the price bubble we see today is not because homes are actually worth so much but simply because buyers can borrow so much for such a low payment. As this ability to borrow so much for so little per month ends (especially when mortgage rates increase) total home prices should drop, perhaps significantly so.


Most of the familiar faces here all know this, but I tried to simplify it for those not as familiar with financing, etc.



Claeren.

[chemgear]

LOL - now I'm not sure which thread to post in regarding real estate. Oh well, no biggie.

Hmmm, so I kinda figure there will be a substantial bump/increase in sales in the next 60 days versus the previous few years. Probably in the number of homes being put up for sale as well. (At least there better be - I'd be pretty confused if there wasn't. Or I guess the market could really be that soft.)

But I wonder if the sales can't keep up with the inventory being put up though - we've been at inventory/sales ratios of 5 ish for a while now. Spring could start with a ton of inventory and a "sudden" (though minor) drop in affordability/sales after these 60 days . . . or sales could be massive and gobble inventory back down to the CREB balanced range of "1.5 to 3.5"

Should be interesting to see it unfold either way.

[Winsor_Pilates]

Have the mortgage brokers in the crowd noticed any increase in people contacting them to try and get things moving before the change?

[Mike Oxlong]

Originally Posted by Winsor_Pilates

Have the mortgage brokers in the crowd noticed any increase in people contacting them to try and get things moving before the change?

Nothing too significant yet. I have recevied a few calls and emails from clients and potential clients asking for clarification on the new rules and how it is going to affect them.

I'll be working this weekend in a show home for a builder and I expect it to be really busy. I think these changes are really going to get the people that were on the fence moving quickly.

Unfortunately I have a feeling these changes are going to create a similar situation that we had last year where the first quarter of the year was really busy with activity as everyone tries to make their purchases before these changes go into effect. Which is going to mean a slower last half of the year again.

[AFireInside]

Originally Posted by Winsor_Pilates

Yeah, but by your logic all of the buyers currently looking at 350K houses will now be after his 320K house, as it's now in their price range.
The the buyers looking at 380K houses will be after the 350K and so on, and so on...

It's not like every potential buyers will be looking at 290K and the 320K house will have no interest.

Come on. Give me a break here. If the lowest starter homes drop, the rest of the houses drop. If all the buyers cannot get approved for as much, sure, they will look for what they can afford. However the higher level houses will lose potential buyers as well. So when they have difficulty selling because their potential buyers have less money, they lower their prices. This forces the houses below to also lower their prices and so on down the line.

If you were looking at an $800,000 house, then all of a sudden you are only approved for 740,000. The house at 800,000 all of a sudden has fewer buyers, and will likely have to lower their price to sell. Now those houses in the mid 700's are competing with a house thats a higher quality and worth more. I don't know about you but if there are two houses that are the same price I'm definitely taking the nicer one. Of course this is very simplistic but if house prices shift, they all tend to shift to some degree at least.

Regardless, starter homes will always sell for what those looking at starter homes can afford, and if thats 290,000k on average, the market will adjust. Being priced out of the market is a silly idea really. Sure some can get priced out of the market, but there still has to be sales for there to be a market. This means houses will sell for what people can afford. Not everyone can afford a house, but the prices will adjust so that sales exist.