Today’s Globe and Mail website features an article on the debate between using extra funds to pay down your mortgage vs. saving for retirement via RRSP’s in particular. It argues that the low rates of mortgages make it advantageous to invest instead of paying down debt. (more…)

Here is a good article on the CBC website that talks about breaking your mortgage to refinance with a better interest rate.

I would generally agree with the points made in the article, except that the last point regarding splitting up the mortgage into multiple components I would not necessarily agree with. One reason for this is that the mortgages are typically collateral charges and makes it more difficult to switch the mortgage at the end of a term.

It can be a good time to refinance your mortgage if your penalty is small. If you would like to discuss further your circumstances to determine if it would make sense for you, call me and I can better advise you on your individual needs.

 

 

There is a new article in the Globe and Mail regarding the newest mortgage regulation changes being implemented by OSFI. From the article:

One of the most notable changes is that the regulator is now spelling out criteria banks must meet to verify the income of borrowers, especially those who are self-employed.

OSFI has waded into the country’s mortgage market in recent years as part of a global effort to prevent another crisis like the one that occurred in the U.S. with subprime lending. Global bodies like the Financial Stability Board, which gets its mandate from the G20, recommended that all countries review their mortgage rules.

The good news is that there is no substantial changes to policies that would restrict borrowers in a way that they weren’t before. The significant difference from before appears to be that mortgage insurers will need to start vetting income confirmation documentation for insured mortgages, where previously they counted on the lender’s word exclusively.

I do not anticipate this change having a significant impact on the market., but may serve to even the playing field between lenders who do follow regulations and those who may not.

I find the title slightly misleading, but the article on CTV News talks about a steady new housing market in 2015 and a slightly decreased one in 2016.

Some of those expected causes include: a slowdown in the pace of construction, the shrinking poll of young, first-time buyers due to slower population growth, rising housing prices in some markets and the anticipated interest-rate increase in late 2015.

The agency predicts housing starts to come in at 189,000 units for 2014, followed by 189,500 in 2015, before moving downward to 187,100 in 2016.

The difference in the new housing construction rate forecast appears to me to be minimal almost to the point of a rounding error. I do not believe it will have a significant impact on housing supply and demand, housing prices or mortgage policies. I guess writers need to write about something (looks in the mirror…).

There is a recent article in the Globe and Mail that discusses the ability of the Australian government to track their housing market statistics better than Canada’s government. From the article:

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I came across an article on the Mortgage Broker News website today briefly covering the US housing market conditions.

“Sales of new single-family homes in the US surged by 18.0 per cent to 504,000 annualized units in August 2014 to mark the highest level since May 2008,” a report from RBC Economics, published Wednesday, states. “The robust monthly gain, which handily surpassed expectations for a 4.4 per cent rise to 430,000, built on a 1.9 per cent increase in July (to 427,000) that was initially reported as a 2.4 per cent drop (to 412,000).”

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In my article yesterday, I had alluded to a story on the news about up to 25% of downtown Vancouver condo units being vacant. On the Georgia Straight website, there is an article also about this, and about a mayoral candidate that is campaigning to have vacant condos subject to a higher property tax.

The idea behind taxing absentee owners is to make Vancouver’s real-estate market a less attractive place to park offshore money. The revenue the city would take in from such a tax would go towards creating affordable housing, says Wong.

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There is an article on the Financial Post website today which quotes the CEO of CMHC saying that CMHC are evaluating restructuring the mortgage insurance risk exposure which could include the sharing of risk with mortgage lending institutions. (more…)

I came across an interesting article in the Huffington Post today about people borrowing up to the limits of their qualification to buy a home. From the article:

A homeowner who files bankruptcy typically has a mortgage equal to 95 per cent of the value of their house. For consumer proposal filers the number is 91 per cent, so 90 per cent appears to be the magic number. Hold a mortgage above that threshold and you are at significant risk of filing for insolvency.

This is an interesting statistic. Most of the people who file bankruptcy or consumer proposals are on average at about 95% of the value of their homes. I think this is understandable as those with more than 20% equity can pull it out via a refinance, which the government has now disallowed for any higher loan-to-value. I do think that it does only tell half of the story though.

High ratio mortgages profitable for insurers

The news has this year reported about how mortgage insurer Genworth has reported increased profits in Q2 of this year. As such, while the loan to value of properties owned by bankrupts is high, the question I think of is what percentage of people who apply for 90%+ mortgages end up declaring bankruptcy? I don’t know the answer to this, but if Genworth’s profitability is an indication, the percentage must be quite low. If it wasn’t, there wouldn’t be much of a business case for offering 95% loan to value mortgages, or they would increase the rate premiums. These companies are experts at assessing risk.

To those looking at buying a home with 5% down payment, I would agree with the sentiment to not use the highest pre-approval as the guideline for what you can afford. However, in a market like Vancouver, the cost of housing is such that it may not be possible to get something within your needs with a budget you are comfortable with. Luckily, mortgage rates remain at historic lows. However, I think it could also be said that the economy hasn’t been excellent for the time interest rates will be low, and so when interest rates go up eventually, it will be a result of an economy that is thriving, and that could offset the increase in rates on a macroeconomic level.

While I agree with the sentiment the article, for home buyers to buy something they are comfortable with affording, based on my points above, I would also say that many people buy with 5% down and do not go bankrupt, and the ones who do possibly have other factors in their lives that led them to that point. Poor financial management, high interest unsecured credit, life events, etc. could all be additional or primary factors in the bankruptcies.