Canada Tightens Mortgage Rules

[Deegee]

Originally Posted by fotze

But now the bank can totally fistfata the person.

Your new renewal rate is 12%. Oh you don't like that rate? Its not competitive? Try phoning our competitors, here are the phone numbers numbers. Oh right you can't. The rate is now 12.5%.

CMHC insurance is curremtly transferable. I would assume you can still shope rates, but a phone call could verify that with CMHC if for example your 35 year mortgage was renewing after 3 years.

Originally Posted by Mike F

Be careful how you go about checking your prepayment penalty. A lot of mortgages I see state that if you request a payout statement you cannot then take advantage of any prepayment options. Prevents people from prepaying a bunch right before refinancing and avoiding a big chunk of the penalty.

This is true. Deserves more than a thanks.

Just to note, when Canada went from 40 years to 35 years as a maximum amortization, CMHC still allowed refinancing up to 40 years as a default management tool. I haven't had a chance to look at the toolkit in full after the news release, but I would imagine that is still in place.

CMHC will also allow a homeowner to refinance to deal with some important repairs even if there isn't enough equity in the property to cover the costs for homeowners with in a tough financial spot. An example of this would be a mold issue.

[chemgear]

http://www.theglobeandmail.com/repor...rticle1872727/


I know there was some confusion in the other thread how reducing the amortization period could possibly reduce prices:


“You can make the case that existing home owners will see their prices go down,” he said. “You can go back to basic economics – it is the marginal buyer that really drives the market. If the buyer isn’t there, the price has to drop until you get down to the next buyer.”

The impact on home prices is expected to show up quickly. BMO Nesbitt Burns deputy chief economist Douglas Porter said resale prices could drop as much as 7 per cent within the next 12 months because of the change to amortization lengths, as buyers who would have opted to spread the cost out over 35 years are forced instead to take out borrow less in order to keep their payments affordable.

[MJM]

So my sister-in-law purchased a house a couple of years ago with a zero-down, 35 year amortization period. Obviously she got hit with a higher interest rate for the zero-down, but was told by the bank and her broker that the higher rater would only be for the initial 5 year period.

Obviously she is alright with the new rules given by the time her term is up, there is only 30 years amortization left, but she's a little concerned that she may get screwed with the the renewal rate since she's unsure if she will be stuck with the same lender.

My take is she will not be with stuck with the same lender as her CMHC insurance is transfereable, but i'm a little scared for her rate. I'm worried they told her a bunch of crap and she's going to be punished with a higher interest rate over the entire amortization period, and not just the initial 5 year terms such as she was told.

Anyone know anything about this?

[albertGQ]

^^^

She can shop around once her term is up

[Bring_Back_Shantz]

Originally Posted by MJM

So my sister-in-law purchased a house a couple of years ago with a zero-down, 35 year amortization period. Obviously she got hit with a higher interest rate for the zero-down, but was told by the bank and her broker that the higher rater would only be for the initial 5 year period.

Obviously she is alright with the new rules given by the time her term is up, there is only 30 years amortization left, but she's a little concerned that she may get screwed with the the renewal rate since she's unsure if she will be stuck with the same lender.

My take is she will not be with stuck with the same lender as her CMHC insurance is transfereable, but i'm a little scared for her rate. I'm worried they told her a bunch of crap and she's going to be punished with a higher interest rate over the entire amortization period, and not just the initial 5 year terms such as she was told.

Anyone know anything about this?

This is exactly the kind of thing I was talking about earlier. There is a big difference between GETTING screwed and BEING screwed becasue you made a bad decision, and didn't plan for what may happen beyond the initial term of your mortgage. Believing someone when they say stuff like "you can get better rates in 5 years", or "you can just refinance it in 5 years" is exactly the kind of thing that caused the majority of the problems in the US housing market, and if it gets you in trouble, or you don't get the breaks you thgouth you would, that's your fault for believing the guy trying to sell you something, and not thinking critically about how things may change in 5 years. Because let's face it, there's never a guarantee that things won't change drastically in 5 years.

That's the biggest problem with how people buy houses. Like I said, too many people make decisions on buying a house based on what they can qualify for, instead of what they can afford.

[DownhillGoat]

Originally Posted by Bring_Back_Shantz

That's the biggest problem with how people buy houses. Like I said, too many people make decisions on buying a house based on what they can qualify for, instead of what they can afford.

I put a lot of that blame on the banks. We got into the housing market in the midst of the turmoil in the US and our mortgage lender was really pressuring us to take on a larger mortgage. They were astounded when I opted for a place 100k less than what I was qualified for.

[Winsor_Pilates]

Question for the mortgage brokers in the room
If a buyer has a pre-approval in place before March 18th, can they still get a 35 yr amortization on something they purchase after that?
Or do they need to have final approval in place before March 18th?

[chemgear]

Originally Posted by Mike Oxlong

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.

Considering the 2010 year overall was the worst for sales in 10-15 years, I'd suggest that the slower last half of the year wasn't just due to reducing mortgages from 40 to 35 years or the fear mongering over the HST.

But you're probably right in that it should push up sales in the next two months for sure. The sales numbers better way higher than last year or I'd imagine 2011 overall would be similiar to (or could be worse than) 2010.

[squiggs96]

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.

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.

I disagree this is the most fiscally irresponsible thing you have ever seen. I bought my townhome in December 2008 for $520,000. My plan is to live in it for at least five years and likely more. The short term fluctuations in price don't affect my mindset at all because I plan on staying in my house. When I decide to sell if my property has gone up in value, likely all the other properties have as well. I will get more for my house, but will have to pay more as well.

For the family that bought the $700k house, just because it drops 10% in perceived value, doesn't mean they've lost money. They only lose if they sell. I say perceived value, because unless they actually put their house on the market and receive an offer, the value hasn't really changed. If their house doubled in perceived value tomorrow, they haven't earned anything yet, because they haven't sold.

Housing cycles go up and down, so if the family is paying off their mortgage as per the schedule, they'll have a balance of about $360k after 15 years. The odds that the house will be worth half the amount they paid for it in 15 years is unlikely. Once again, mortgages are good debt, especially if they are tied to your primary residence and you are holding it long term. It is part of a balanced retirement package, including savings, RSPs, monetary assets, insurance, etc. If they have credit card debt and are constantly dipping into their home equity, than yes that would not be responsible. By them putting down $140,000, they have obviously shown that they are able to save or make good housing decisions.

[Bring_Back_Shantz]

Originally Posted by kunkstyle

I put a lot of that blame on the banks. We got into the housing market in the midst of the turmoil in the US and our mortgage lender was really pressuring us to take on a larger mortgage. They were astounded when I opted for a place 100k less than what I was qualified for.

That's not the bank's fault at all, that's the consumers fault.
Of course the bank wants people to buy the most expensive thing they can, so does everyone else who is selling things.
People have to take responsibiltiy for their own actions, and realize that just because they CAN buy a house for X ammount, doesn't mean they SHOULD.

[AMG_G]

I still disagree. They have no other form of assets...100% of everything they have is in that house. He's nearing 50 with 3 young kids and stagnant incomes not many will say they made a wise move. The only reason they have 140k is from selling their home they bought in 2003 (bought for 290k sold for 450k). They barely made a dent in the original mortgage in 7 years. If you think a guy 15 years till retirement and only has 140k equity all dumped into a McMansion then you're wiser than I am.

Originally Posted by squiggs96

I disagree this is the most fiscally irresponsible thing you have ever seen. I bought my townhome in December 2008 for $520,000. My plan is to live in it for at least five years and likely more. The short term fluctuations in price don't affect my mindset at all because I plan on staying in my house. When I decide to sell if my property has gone up in value, likely all the other properties have as well. I will get more for my house, but will have to pay more as well.

For the family that bought the $700k house, just because it drops 10% in perceived value, doesn't mean they've lost money. They only lose if they sell. I say perceived value, because unless they actually put their house on the market and receive an offer, the value hasn't really changed. If their house doubled in perceived value tomorrow, they haven't earned anything yet, because they haven't sold.

Housing cycles go up and down, so if the family is paying off their mortgage as per the schedule, they'll have a balance of about $360k after 15 years. The odds that the house will be worth half the amount they paid for it in 15 years is unlikely. Once again, mortgages are good debt, especially if they are tied to your primary residence and you are holding it long term. It is part of a balanced retirement package, including savings, RSPs, monetary assets, insurance, etc. If they have credit card debt and are constantly dipping into their home equity, than yes that would not be responsible. By them putting down $140,000, they have obviously shown that they are able to save or make good housing decisions.

[Finner]

Originally Posted by Winsor_Pilates

Question for the mortgage brokers in the room
If a buyer has a pre-approval in place before March 18th, can they still get a 35 yr amortization on something they purchase after that?
Or do they need to have final approval in place before March 18th?

I'm not a mortgage broker, primarily focused on investments, but from what i know the mortgage must be closed (ie.possession date) by March 18th.

[Slava]

Finner, do you do mortgage investments, or real estate investments of some kind?

[squiggs96]

Originally Posted by AMG_G

I still disagree. They have no other form of assets...100% of everything they have is in that house. He's nearing 50 with 3 young kids and stagnant incomes not many will say they made a wise move. The only reason they have 140k is from selling their home they bought in 2003 (bought for 290k sold for 450k). They barely made a dent in the original mortgage in 7 years. If you think a guy 15 years till retirement and only has 140k equity all dumped into a McMansion then you're wiser than I am.

I'm not saying he has thought his life and retirement through well. I'm saying the house is still not the worst thing he could do. If in 15 years, the house has not increased, he'd have $340k in equity. I'm guessingm based on the ages of the kids, he'd need to have the house for at least 20 years. At that point you can sell it, downsize to a condo by paying cash and live off the pension. It's obviously not the best solution, but he isn't going bankrupt. I'm going to guess the house is going up in value in the next 15-20 years, so there will be additional equity to take out then.

I'm going to guess their monthly payment is around $2,600 or so. I'm not seeing how the house is causing him to spiral out of control. They still need a place to live and still would have to pay either mortgage or rent. They could downsize, but that doesn't seem prudent with a growing family.

From the brief synopsis, and of course there is much more to the story I don't know, it doesn't appear the house purchase was the bad idea. It was all the decisions made before hand. If they downsize the house now and put the difference between their mortgage payment and the new rent/mortgage payment into savings, mutual funds, etc. they are taking the risk that their investments will increase more than the value in their house will increase. Being that the house's value increases without income tax consequences, they are already behind.

[Mike Oxlong]

Originally Posted by Winsor_Pilates

Question for the mortgage brokers in the room
If a buyer has a pre-approval in place before March 18th, can they still get a 35 yr amortization on something they purchase after that?
Or do they need to have final approval in place before March 18th?

I'm just waiting to get an answer back from CMHC but if I recall from last year, as long as the deal is live (not a pre approval) and submitted before March 18th then you will still be able to get the 35 year amortization.

Any deals submitted after March 18th will be subject to a 30 year am.

I will post the definite answer once I get a response from CMHC.

[amorak]

Originally Posted by Mike Oxlong

I'm just waiting to get an answer back from CMHC but if I recall from last year, as long as the deal is live (not a pre approval) and submitted before March 18th then you will still be able to get the 35 year amortization.

Any deals submitted after March 18th will be subject to a 30 year am.

I will post the definite answer once I get a response from CMHC.

Mike - Had a collegue ask me - can you port the 35 year to another insitution, or are you stuck with them? it seems like there are mixed messages out there.

I realize you cant' refinance, but if you were 2 years into a 35 year mortgage upon renewal, that would mean you'd need to stay another 3 after that with the same bank before you were at 30 years (assuming you couldn't afford the increased payment going to 30 year amort prematurely). That would mean you were at the banks mercy for 3 years until you got down to 30 years amort left and could shop around?

[Mike Oxlong]

Originally Posted by amorak

Mike - Had a collegue ask me - can you port the 35 year to another insitution, or are you stuck with them? it seems like there are mixed messages out there.

I realize you cant' refinance, but if you were 2 years into a 35 year mortgage upon renewal, that would mean you'd need to stay another 3 after that with the same bank before you were at 30 years (assuming you couldn't afford the increased payment going to 30 year amort prematurely). That would mean you were at the banks mercy for 3 years until you got down to 30 years amort left and could shop around?

That would be the case. If you were on a 35 year amortization with a 2 year term, you would effectively have a 33 year amortization left upon renewal.

If you wanted to go with a new lender you would have to renew at 30 years, there by increasing your payments, or renew with your current lender at 33 years.
(This is what I have heard so far, I am waiting for clarification on a couple things and will update if I hear differently)

You would be at their mercy somewhat but really if they try charging you an insane rate the difference between a 33 year amortization and a 30 year amortization is not that significant. Say they tried charging you an extra 1% compared to the other lender, you could move to the 30 year amortization and your payments would be lower than an extra 1% on a 33 year amortization.

[AMG_G]

What if one of them gets sick and can't work? Miss a couple of payments the next thing they know they'll be in foreclosure. Yes they can sell but real estate is illiquid so there is no guarantee they will get their equity back.

It is just a lot of risk to ME (obviously other people might have a higher tolerance for risk) but for 400 sf more, some granite and stainless steel appliances is it worth it? They say their previous 2000 sf home across the street wasn't big enough for the 5 of them. We grew up with Grandma, parents and 5 siblings in a 1100 sf bungalow and turned out fine. If you think about it they paid $250k + interest for 400 sf and granite.

Originally Posted by squiggs96

I'm not saying he has thought his life and retirement through well. I'm saying the house is still not the worst thing he could do. If in 15 years, the house has not increased, he'd have $340k in equity. I'm guessingm based on the ages of the kids, he'd need to have the house for at least 20 years. At that point you can sell it, downsize to a condo by paying cash and live off the pension. It's obviously not the best solution, but he isn't going bankrupt. I'm going to guess the house is going up in value in the next 15-20 years, so there will be additional equity to take out then.

I'm going to guess their monthly payment is around $2,600 or so. I'm not seeing how the house is causing him to spiral out of control. They still need a place to live and still would have to pay either mortgage or rent. They could downsize, but that doesn't seem prudent with a growing family.

From the brief synopsis, and of course there is much more to the story I don't know, it doesn't appear the house purchase was the bad idea. It was all the decisions made before hand. If they downsize the house now and put the difference between their mortgage payment and the new rent/mortgage payment into savings, mutual funds, etc. they are taking the risk that their investments will increase more than the value in their house will increase. Being that the house's value increases without income tax consequences, they are already behind.

[northcrunk]

Jim Flaherty is one of the worst finance ministers we've ever had in Canada.

[AMG_G]

Originally Posted by northcrunk

Jim Flaherty is one of the worst finance ministers we've ever had in Canada.

I think he is making the best out of the situation. Just like Obama, he inherited a pile of what can he really do to make things better in 4 years?