In the next couple of months the latest changes to the insured mortgage rules are going to come into affect with the drop of the max amortization from 35 years to 30 years and the max loan to value on a refinancing action through an insured mortgage reduced from 90% to 85%.
This has been pretty front and center news over the last couple of weeks, but in the end how will it directly impact you and the market as a whole.
Industry experts are calling for heightened activity in the mortgage market prior to the rules going into affect as new and old mortgage holder race to get qualified based on the existing rules.
Whether that’s really going to happen or not is yet to seen, but I expect there is going to be a certain amount of increased activity for this time of the year.
In the end these are likely going to be permanent changes and will impact the way people are going to be managing their debt load and cash flow for many years to come. Even slight changes to the insured mortgage rules can have a significant impact on those individuals or families on a fixed income where cash flow is tight and difficult to free up for larger debt servicing requirements.
For right now, there is a window of opportunity to explore how the new rules will impact things you may be considering in the near term.
If you’re considering a mortgage refinancing and/or debt consolidation action, now is the time to crunch the numbers and see what options make the most sense. In many cases the 5% being lost on mortgage refinancing amounts will not allow enough additional funds to be made available and totally change the debt holders plan of attack to manage debts on a go forward basis.
Any shortfalls in financing caused by the rule changes will likely fall into short term, unsecured debt which will carry higher interest rates and are much harder to repay over time.
For those looking at purchasing a property, the change in amortization rules will have an impact on your cash flow if you were planning on getting a 35 year amortization under an insured mortgage. Once again, for some individuals, this particular rule change may stop them from purchasing a new home or their target home if they don’t get busy and get the transaction done before the rule changes.
Key point here is to take a bit of time right now and see how, if at all, these changes may impact you. If you need some help understanding the rule changes and/or want to work through some different scenarios to see how the numbers work out, give me a call and we’ll go through your situation together.
In order to continue to reduce the risk for a real estate bubble in Canada and a sub prime mortgage market collapse, Finance Minister Jim Flahtery and Natural Resources Minister Christian Paradis announced today that the federal government will be taking further measures to adjust the government backed insured mortgage program.
More specially, there were three changes announced to the insured mortgage program that will take affect during the months of March and April of 2011.
The first change focused on mortgage amortization whereby the current maximum mortgage amortization period for any new government backed insured mortgage will be reduced from the current maximum time period of 35 years down to 30 years. This will increase monthly mortgage payments for some in the short term, but significantly reducing the amount of interest they will be paying over the entire life of the mortgage, assuming the mortgage is paid to the end of the amortization period as schedule.
The second change announced was a lowering of the maximum amount that be refinanced under an insured mortgage from 90% to 85%. This will impact the amount of money individuals can draw out of the equity in their homes for such things as debt consolidation, estate planning, and so on.
The third and final change forth coming is an elimination of government insurance protection on lines of credit secured by homes. The reasoning provided was to reduce the risks associated with rising consumer debt that are more likely to increase under an insured line of credit where the use of borrowed funds are typically unrelated to the purchase of a home and should not be borne by the taxpayer through a government insurance coverage.
The first two changes related to amortization period reduction and the maximum refinancing amount reduction will go into affect on March 18, 2011.
Government insurance on secured lines of credit will be eliminated as of April 18, 2011.
These changes come on the heels of the changes that took affect on April 19, 2010 where 1) debt servicing assessments were adjusted for mortgage requests above 80% of the value of the property and mortgage terms less than 5 years; 2) mortgage refinancing amounts were dropped from 95% of property value to 90%, and 3) rental properties have a minimum 20% down payment at time of purchase to qualify for mortgage insurance.
If you’d like to get more information on the changes and discuss how they may impact you, please give me a call at you’re earliest convenience and we can go over your situation and mortgage financing needs in more detail.
With all the changes going on in the housing and residential mortgage market these days, I can tell you that my phone has been ringing off the hook as everyone is scrambling around trying to find the best rates and to get help navigating through the housing and mortgage decisions.
Housing prices in most parts of the country are on the rise as are interest rates. Insured mortgages are going to be harder to qualify for some, and home buyers are also going to have to deal with HST in the coming months.
The process of buying and selling a home as well as the related mortgage financing requirements will be the biggest financial decisions most people will have to make in their life time, so its important to fully understand how things work and how to get the best deal for your particular circumstances.
And from the mortgage side of things, that is where mortgage brokers can add a lot of value, especially in times like these.
When things are less robust, things like rate shopping may not provide much value or uncover any seemingly hidden opportunities to take advantage of. But these days, rate shopping is almost a necessity as lender programs are constantly changing and without the ability to quickly scan the market, its not going to be too hard to end up with a higher interest rate.
Then we can talk about the mortgage insurance programs and how the new guidelines will impact your ability to qualify for a mortgage both for home purchase and refinancing purposes.
All this activity and complexity is exactly what a mortgage broker is supposed to help you understand and manage through. This a period of time when your mortgage broker can provide great value without it costing you anything in most cases, especially for standard residential mortgages where the mortgage lender pays the broker.
Of course I’m biased, but I truly believe that its going to be way harder to figure things out on your own that with the assistance of a mortgage broker you are comfortable with and feel confident in.
If you have any questions regarding rates, mortgage insurance, HST, or anything else related to mortgage financing for residential or commercial properties, give me a call so I can quickly assess your requirement and provide relevant options for your consideration.
In March of 2010, Canada Mortgage and Housing Insurance announced some changes to their mortgage insurance program that were designed to reduce the potential of a housing market bubble developing in Canada through our own version of the sub prime market which falls under the category of insured mortgages.
The changes to take effect on April 19, 2010, in a nut shell, are 1) changes in debt servicing assessments for mortgage requests above 80% of the value of the property and mortgage terms less than 5 years; 2) a reduction in mortgage refinancing amounts from 95% of property value to 90%, and 3) a requirement that all CMHC insured rental properties have a 20% down payment at time of purchase.
The big question that existed after the initial announcement was how would the repayment assessment work going forward.
Today, we got some further clarification.
Basically, for a new mortgage application where the mortgage amount is over 80% of the property value, the repayment assessment must now be based on the Chartered Bank Conventional 5 year mortgage rate published every monday by the Bank of Canada.
And because this published 5 year rate is typically higher than what the actual 5 year rates being issued are at any given time, the bar for qualifying for variable rate mortgages, or mortgage terms under 5 years has now been raised.
Bottom line, its now going to be much harder to qualify for a high ratio home mortgage and even harder to take advantage of variable interest rates, which are still more than 2% below the best 5 year term options.
For those of you who already have a variable rate mortgage for a predefined term, there’s nothing indicating that these recent changes will impact you’re ability to continue on with a variable rate once the present term expires even if you wouldn’t otherwise qualify for a new mortgage under the changes to the CMHC mortgage insurance program listed above.
Keep checking back for more mortgage insurance information as I will be posting any further changes or explanations that get disclosed.
And if you have any questions related to getting a new mortgage or refinancing your existing mortgage, please give me a call so I can quickly assess your options and provide the most relevant options for your consideration.
With all the recent changes in mortgage financing programs offered by different lenders, there still is a way to get 100% financing at decent interest rates.
The solution is going to require qualifying for the mortgage insurance offered through the Canada Mortgage and Housing Insurance Corporation (CMHC).
For one or two residential property units, a 5% down payment is required to qualify for mortgage insurance. For three to four unit buildings, the down payment goes up to 10%.
The key to 100% financing is where to get the down payment.
CMHC actually offers three alternatives for coming up with a down payment that doesn’t come out of your own cash resources.
The first option is to receive a one time gift from an immediate family member that is not required to be repaid.
The second option is to finance the mortgage down payment through a lender cash back payment whereby the overall financing commitment is greater than what is required to purchase the property and the excess is used to fund the down payment (not very many lenders will consider this approach however).
The third option, which many people don’t realize, is the use of borrowed funds for the down payment. This can come from any other source, but the repayment requirements of the down payment debt will need to be included in the repayment qualification for the residential mortgage application.
Also remember that to qualify for an insured mortgage, your credit is going to need to be good and your income high enough to cover the repayment requirements.
There aren’t any B lender or sub debt options right now in Canada that provide a 100% financing option at the present time, so the only way to get it done is through an insured mortgage program.
To better understand how any of the above scenarios may work for your situation, I suggest that you give me a call and we’ll work through the various options together and figure out what the best course of action would be for your needs.
Minister of Finance, Jim Flaherty, announced three policy or rule changes to the mortgage insurance program.
The first, and perhaps most significant of the changes is that a borrower’s repayment qualification will be based on the 5 year fixed mortgage rate instead of the three year rate most lenders now use. Because longer term rates are higher over time, the lending decisions will now be factoring a higher level of conservatism into the repayment assessment.
What remains unclear on this point is the actual 5 year rate that will apply as some mortgage lenders have posted rates while others do not.
The second change impacts mortgage refinancing where additional funds are being drawn against the remaining equity of a residential property. Up until now, you could get an insured mortgage up to 95% of the property value on a refinancing. The new rules will drop this down to 90%.
The last change announced is the amount of leverage available under the program for non owner occupied properties acquired for the purposes of speculation. This would primarily impact the rental market where investors can also take advantage of the government backed mortgage insurance.
But with the change, investors are now going to have to put 20% down on any purchase, maxing the amount available through a CMHC insurable mortgage to 80% of the purchase price.
Many expected the changes to be even more significant as there have been concerns that the current policies were helping to promote a housing bubble here in Canada.
If you’re looking at a higher ratio mortgage that will require mortgage insurance and would like to know how these changes may impact your particular situation, I suggest that you give me a call I will make sure that you get all your questions answered.
Depending on who you’re talking to, the answer is typically nothing.
By definition, an insured mortgage provides protection to a mortgage lender to extend mortgage financing to individuals carrying a level of risk that would not allow them to secure a mortgage without insurance.
Based on the above, an insured mortgage is also a sub prime mortgage.
So, yes we do have an active sub prime market in Canada administered by the Canada Mortgage and Housing Corporation (CMHC). Insured mortgages allow many Canadians to own a home much faster, which stimulates both the building and real estate markets.
And despite what you may have been hearing about the sub prime market collapse south of the border, the Canadian insured mortgage market continues to operate in Canada and is expected to do so into the foreseeable.
Because of the shear size of the market, it needs to be watched closely to make sure the portfolio stays healthy and program adjustments take place if the overall risk level becomes unhealthy for the country as a whole.
And while insured mortgage programs have their supporters and detractors related to their overall impact and risk to the overall economy, they do exist and provide tremendous value to the individual consumer who would not be able to own a home without an insured loan.
Because they are sub prime in nature, there is a higher rate of default, and that default risk is basically carried by the Canadian taxpayer to a large extent. This is the trade off that goes with greater access to credit. Many would argue that the CMHC programs have been a resounding success, and, properly managed, should continue to provide the same opportunities for home ownership to all Canadians.
The key to keeping what many would consider a highly valuable tool viable for future generations is strong economic policy and whatever program adjustments may be required from time to time to avoid the slippery slope our neighbors to the south got on and are still trying to recover from.
If you’re interested in learning more about insured mortgages, I suggest you give me a call and I’ll do my best to get all your questions answered.
If you can’t show the 12 month payment histories mentioned above, then you will need to provide 6 months of bank statements from your main account or a letter of reference from a recognized financial institution.
For individuals that fit these criteria, insured mortgages can be secured for up to 95% of the property value as long as the down payment comes from the borrowers own sources. For loan to values less than 95%, the amount put down greater than 5% can come from a relocation subsidy or be a gift from an immediate family member.
The debt service requirements that apply are the same as those applied to conventional mortgages. All foreign held debts will be added to the total debt service calculation while all foreign rents earned will be excluded from the calculations.
Amortization periods can be as high as 35 years in length with fixed and variable rate mortgage terms available.
Please be reminded that the above requirements are for informational purposes only and do not exactly represent any particular lender program.
If you would like assistance with locating and securing an insured mortgage, I recommend that you give me a call so that we can go through your situation together and determine the best course of action.
The high ratio mortgage is a mortgage product that applies to mortgage applicants looking to finance more than 75% of the value of their home. These high ratio products can range from 75% to 95% of the actual purchase price or the fair market appraisal value determined for your home, whichever of the two is
In order to secure a high ratio or high leverage mortgage, the borrower must qualify and pay for home mortgage insurance.
In Canada, there are three providers of home mortgage insurance. The first and most commonly known insurer is the Canada
Mortgage and Housing Corporation or CMHC. This is a crown corporation of the Canadian Federal Government. The second source for mortgage insurance in Canada comes from private insurer, Genworth.
The reason for the need for insurance is due to the higher risk of potential loss to the lender. At higher loan to property value ratios, the probability of lender losses are higher and must be covered off by insurance before a lender will provide a mortgage.
Once in place, the insurance covers off any potential loss than may be incurred by a lender in the event of a foreclosure action brought on by a borrower in default.
The insurance is paid for by the borrower as well and effectively becomes a cost of borrowing in addition to the stated interest rate on the mortgage.
Once again, for mortgage amounts less than or equal to 80% of the property value, no insurance is required. At the time of writing, the preimums associated with different mortgage ratios were as follows.
For mortgages between 80% and 85%, the required insurance premium is one percent of the mortgage value.
For mortgages between 85% and 90%, the required insurance premium is is one and three quarters of a percent of the mortgage value.
For mortgages between 90% and 95%, the required insurance premium is two percent of the mortgage value.
The Canada mortgage insurance program is an excellent solution for helping a larger percentage of Canadians own a home.
At the same time, the insurance companies will use qualified appraisers who may provide a more conservative estimates of value. So even if the insurance covers up to 95% of the real estate value, if the appraised value comes back substantially less than you expected, you still may not be able to secure a large enough mortgage to meet your requirements.
If you are in need of a high ratio mortgage, I recommend that you give me a call so that I can quickly outline your options and help you chose a mortgage product that’s right for you.