Jim Flaherty and mortgage rates

[SebC]

Originally Posted by fotze

Do lenders ever actually use the CMHC insurance. Seems more like a tax than an insurance premium.

They would if house prices start dropping. With house prices going up, the bank can repossess the house to recover the value of the loan. If house prices go down, then it becomes possible for people to owe more on their mortgages than the house is worth, which is where CMHC insurance would kick in. (This is how I think it works, I'm not an expert but to me this makes sense.)

[Deegee]

Originally Posted by fotze

Do lenders ever actually use the CMHC insurance. Seems more like a tax than an insurance premium.

Yes. More then you would think.

It's important for the financial institution to follow CMHC's guidelines. If they don't and claims start coming in, I could see some be denied if a trend develops.

It is important to recognize that even though house prices may be going up, there are debits to the mortgage loan for legal costs to foreclose and the property as a foreclosure is often in need of work.

[Zulu29]

Originally Posted by Red

And if it weren't for the government stepping in in 09 we would see my prediction to fruition then. They delayed the inevitable then and they are pretty much out of lifelines.

Oh was that when the Cons said the banks weren't bailed out then a few years later lo and behold it was found that the Cons did in fact bail out the banks? Yeah I don't trust a word they have to say anymore.

[Red]

Originally Posted by Zulu29

Oh was that when the Cons said the banks weren't bailed out then a few years later lo and behold it was found that the Cons did in fact bail out the banks? Yeah I don't trust a word they have to say anymore.

That was one thing, but I am referring to when they lowered the interest rates and increased amortizations to 40 years to keep the game going.

[Sylvanfan]

Surprised no one bumped this thread on last weeks news that they are going to cap the amount of CMHC backed mortgages.

http://www.google.ca/#bav=on.2,or.r_...s&ved=0CDMQqAI

Half way thru the year 66 of the allotted 85 billion has been tapped into. Would have to think rates go up, and that even non CMHC backed mortgages will see rate increases too. Seems like it's now a matter of when not if we start seeing price corrections, especially in the really overheated markets like Vancouver and Toronto.

I must say that I do feel for younger people wanting to get into the housing market with todays prices. Even if my house lost 40% of it's value...I would be 10 grand under water on my Mortgage and really only out my original 16k down payment. Crappy for me, satisfying for Red, but survivable.

Someone buying the same house today is out 20k on their DP and 150 underwater on their mortgage with that type of correction. I know a lot of people with a similar or even slightly lesser household income than mine who live in houses that cost close to double what mine did. I would have to think they would be in tough to handle a price correction/rate increase double whammy.

[Red]

Originally Posted by Sylvanfan

Surprised no one bumped this thread on last weeks news that they are going to cap the amount of CMHC backed mortgages.

http://www.google.ca/#bav=on.2,or.r_...s&ved=0CDMQqAI

Half way thru the year 66 of the allotted 85 billion has been tapped into. Would have to think rates go up, and that even non CMHC backed mortgages will see rate increases too. Seems like it's now a matter of when not if we start seeing price corrections, especially in the really overheated markets like Vancouver and Toronto.

I must say that I do feel for younger people wanting to get into the housing market with todays prices. Even if my house lost 40% of it's value...I would be 10 grand under water on my Mortgage and really only out my original 16k down payment. Crappy for me, satisfying for Red, but survivable.

Someone buying the same house today is out 20k on their DP and 150 underwater on their mortgage with that type of correction. I know a lot of people with a similar or even slightly lesser household income than mine who live in houses that cost close to double what mine did. I would have to think they would be in tough to handle a price correction/rate increase double whammy.

???

[Brannigans Law]

The more I read about this stuff the more I think I'd be smart to take the 10 years @ 3.6%. I really think that by the time 2020 rolls around mortgage rates will be around 5%.

[Sylvanfan]

Originally Posted by Red

???

Comeon you've been scolding people who borrow money for years on this forum.
When this correction happens you won't be saying I told you so?

[Sylvanfan]

Originally Posted by Brannigans Law

The more I read about this stuff the more I think I'd be smart to take the 10 years @ 3.6%. I really think that by the time 2020 rolls around mortgage rates will be around 5%.

Tough call. Try and consider a lot of different scenarios best and worst case and make a choice you can live with if either scenario plays out.

[WilsonFourTwo]

Originally Posted by Brannigans Law

The more I read about this stuff the more I think I'd be smart to take the 10 years @ 3.6%. I really think that by the time 2020 rolls around mortgage rates will be around 5%.

I just bought a house last week and considered a 7 or 10 year term.

What really concerned me was how massive the penalties would be if I wanted/needed to break the mortgage. I opted to just go with a 5-year fixed and hope for the best.

I agree that 2020 will probably see rates of 5%, give or take 0.5%.

[WilsonFourTwo]

Originally Posted by Sylvanfan

Tough call. Try and consider a lot of different scenarios best and worst case and make a choice you can live with if either scenario plays out.

Agreed. I bought a house that was about 65% of my maximum affordability and did a "Worst Case Renewal" scenario of 7%.

Knowing that I'd still be alright is the only way I could justify buying the place....I'm generally not a financial risk taker, quite a coward in fact.

[Red]

Originally Posted by Sylvanfan

Comeon you've been scolding people who borrow money for years on this forum.
When this correction happens you won't be saying I told you so?

Why would I? I already did :-)

Anyways, I am not waiting for the correction for that reason. I just want to see normalcy again.

[Flames in 07]

Originally Posted by Matty81

You know what, I don't agree that he has any right to try to set prices to begin with, the government being involved in an industry in any way doesn't by extension give them the right to set prices (we pay healthcare costs for gunshot victims but politicians don't call sporting good chains when 12 gauge prices dip), but that's not the main point to me.

If the government wants to influence mortgage rates, they do it like any large organization should, professionally and systematically, and sit down with the banks as a group and make the message clear, not call the banks who are lowering rates one by one, personally.

And I have to say that it all just seems hypocritical to me when the particular political party making said calls has sold itself as pro small government, and rah rah free market, plus the Bank of Canada itself hasn't raised rates in a ridiculous length of time.

Also - re: said mortgage rate, cheers to the advisor extending offer for help.

Zero gov't worked great in the US in the 2000's didn't it ?

They need to make adjustments when macro signals force them to. Being small government doesn't necessarily mean that they do absolutely nothing.

[albertGQ]

Originally Posted by WilsonFourTwo

I just bought a house last week and considered a 7 or 10 year term.

What really concerned me was how massive the penalties would be if I wanted/needed to break the mortgage. I opted to just go with a 5-year fixed and hope for the best.

I agree that 2020 will probably see rates of 5%, give or take 0.5%.

The penalty for breaking a mortgage after five years is 3 months interest. Even on a 7 or 10 year term, the lender can't do IRD after 5 years of a term is up.