Canadian Mortgage News & Canada's Mortgage Trends

Is the Best Mortgage Rate Important?

Mortgage clients constantly tell me "I need the best mortgage rate.  What rate do you offer?" 

While the client is always right, and we always provide the best rate and terms, we do convey the need to look at the "extras" when selecting the best mortgage.  Extras include:

• Low prepayment penalties
• Generous pre-payment privileges
• Cash back
• Cash back clawbacks
• Free home warranties
• Professional mortgage planning
• Low lender fees (if applicable)
• Portability
• Missed payment flexibility

Clients are attracted by even a 0.1% savings in mortgage rates.  But when you do the math, the relative importance of the "extras" become clear.  0.1% savings on the typical 5-year $250,000 mortgage equates to:

• A difference in monthly payment of only $14
• A savings of just $346 over five years on your mortgage balance

Just one of the extras above could offset this 10 times over.  Think about that next time you're mortgage shopping.

Seasons Greetings

It's time to forget about money and mortgages for a while.

Please have a warm, safe, and fun holiday season with all your loved ones.

All the best,

Melanie McLister
Canadian Mortgage Trends

Cash Out Your Home Equity

Home equity loans are getting more accessible.  Genworth Financial Canada has a new Cash-Out Refinance program that lets homeowners borrow up to 95% of their home’s value.  You can use the money for renovations, investments, debt consolidation, etc.

Factoid:  Over 45% of home equity loan proceeds are used for renovations.

Gross Debt Service!

The rule of thumb is that housing shouldn’t take up more than 32% of your household’s pre-tax income.  In Vancouver, however, the rules don't always apply.

RBC just issued a report that suggests housing in Vancouver takes up to 70% of the typical household’s pre-tax income (for an average detached bungalow).  By comparison, it’s 43% in Toronto and 40% in Calgary. 

This underscores why CHMC and mortgage lenders have been pushing so hard to make mortgages  accessible to average Canadians.

Sub-prime Mortgage Crisis

From the "could it happen in Canada" file...  One in five Americans with sub-prime mortgages issued during 2005-2006 will default on their loans--according to a Center for Responsible Lending (CRL) study.  Most of these problem loans have low "teaser" rates.  The moral is, if you can't fully afford the payments after the teaser rate expires, don't even think about getting that mortgage.

Rental Market Getting Tight

Rent's going up.  CHMC's annual rental market survey shows nationwide vacancy at only 2.6%, with rents rising three times faster than inflation.  Here's some more stats*:

• Highest average rent:  Toronto, Ontario ($1067)
• Lowest average rent:  Saguenay, Quebec ($485)
• Highest vacancy rate:  Windsor, Ontario (10.4%)
• Lowest vacancy rate:  Calgary, Alberta (0.5%)
• Biggest rent increase:  Calgary, Alberta (19.5%)

  *  Study looks at two-bedroom (new and existing) units

Over 10 million Canadians rent their homes, so demand will continue to boost prices.  Given that, and today's low interest rates, many renters may be smart to consider buying instead.

Beacon Score Basics

The MyVirtualMortgageAgent site now has an informative overview of Beacon scores, what affects them, and what you need to do to keep yours high.

Mortgage Rates Edge Down

Canada's big banks lowered the typical 5-year posted bank rate by 0.05% on Monday.  It currently stands at 6.45%.  (Of course, mortgage brokers will offer you a lot better than 6.45%)

The CMHC now predicts 5-year mortgage rates will drop to 6.4% by the 2nd quarter of 2007, and then rise again in the 4th quarter (Source: Globe and Mail). 

This essentially suggests that rates will remain unchanged for a while.  We'd be surprised if rates remained this static, but guessing the direction of interest rates is like flipping a coin.

By the way, if you've ever wondered how well professional economists can predict mortgage rates, here's a good article.  Studies have repeatedly shown that your average red headed woodpecker forecasts interest rates better than the typical economist.

Reverse Mortgage Critics Push New Agenda

Saskatchewan’s Law Reform Commission is pushing for new disclosure rules and a 7-day cooling off period for reverse mortgage customers.  It’s spokesman says many old people don’t grasp the disadvantages of reverse mortgages and need these protections.  (CBC Story)

U.S. Mortgage Debacle

1/3 of American's have mortgages coming due within two years.  When they do, watch out!  Industry analysts expect delinquencies to soar as over-leveraged homeowners can't meet their new (higher) interest payments.

This week was a taste of what's to come:

• 1 in 40 Americans is now over 90 days delinquent on their mortgage
• OwnIt.com, a large $8 billion dollar sub-prime mortgage lender closed its doors
• HSBC, the world's 3rd largest bank, admitted its earnings would take a material hit because of mortgage defaults
• H&R Block's Option One mortgage division announced a $39 million loss because of bad loans and falling prices in the mortgage resale market
• The cost of credit-default swaps (which are basically insurance for banks against mortgage defaults) has soared 25% to a five year high.

Keep an eye peeled for more of the same in 2007 as U.S. mortgage excesses shake themselves out.

(Sources:  National Post, Bloomberg, LA Times)