There is a new story about another change that is being made by CMHC with the primary aim of cooling the mortgage market. What they are going to do is cap government guarantees of securitized mortgages. You may be wondering how this affects you. Allow me to explain.Many mortgage lenders, when they arrange a mortgage, securitize the mortgage and then sell the mortgage with mortgage default insurance, and the primary mortgage insurer at the moment is CMHC. Therefore, whether you are arranging a high-ratio mortgage, or you have more than 20% down, the mortgage gets insured and in cases where the borrower has 20% or more down, the lender pays the fees necessary to do so without the borrower knowing. This makes the loan basically zero risk and makes the loan marketable, and being no risk for an investor, they do not require as high of a return.
Now, with CMHC capping the government guarantees of these mortgages, it makes investing in them riskier for investors and could result in higher mortgage interest rates. The changes to this program became effective immediately, meaning you could quickly start to see changes in lending and in mortgage rates.
Somehow, I think something has to give here. I spoke with someone who has been in the industry a long time recently, and he stated its still much easier to get a mortgage now than 20 years ago, when you typically needed at least 10% down minimum, debt ratios were more restrictive, amortizations were a maximum of 25 years, etc. I believe his opinion on this. I also believe that in most of Canada, housing affordability isn’t as great of an issue as it is in the Greater Vancouver Area. I am originally from the Toronto area, and 20 years ago my parents bought a townhouse for $130,000, and today it might be worth $250,000. That same townhouse in this area would probably go for $600,000 in Vancouver.
I know it is not possible to have a second set of policies for Vancouver, and in a sense the additional shock that these changes have could almost be further intended for this area to have it come into line. Further, given historical rates prior to 2008 were 5-6%, having mortgage rates at 4% would still seem like a relative bargain.
I still feel that at the end of the day, that the government is making changes to take out the average middle to lower income home buyer, and I do not feel that is a good thing. These changes will not have as much of an effect on wealthy home buyers and will continue to further the divide between the wealthy and the poor. Their policies are macro-management and are not sensitive to the greater effects that they will have on society as a whole.
If your mortgage is coming up for renewal soon, give me a call and I will work to get you an approval at current rates before these effects really start to be felt. Oh yes…and there is more changes coming down the pipe in January that promises to further disrupt mortgage borrowing, but that will be for another day.