Canadian Mortgage News & Canada's Mortgage Trends

Investing RRSP Money in Mortgages

Here's a good summary by the Financial Post about the restrictions of putting someone's mortgage in your RRSP.  Story Link

Canadian Home Values Jump 11%

About 500,000 Canadian homes changed hands in 2006. The average selling price was $276,974--up 11% from 2005.  This figure was propped up by Alberta, where average home appreciation last year was 31%.  National Post Story

Latest Mortgage Broker Statistics

CMHC says 27% of Canadians use mortgage brokers, according to their latest mortgage consumer survey.

This number differs, however, from a recent CIMBL survey--which pegs the number at 31%.

More amazing was the finding that only 43% of mortgage seekers "shopped for several proposals."  The fact that this was not closer to 100% means that tens of thousands of people overpaid for their mortgage in 2006.  (There is little excuse not to utilize a mortgage broker to pit multiple lenders against each other for your benefit.)

CMHC also found that...

• 71% of people refinanced before their mortgage term was up.
• The number of people using mortgage brokers to shop for mortgage renewals jumped from 8% to 13% this past year.

The National Post had a few words about CMHC's survey as well.  They noted that 81% of people renewed their mortgage with their existing lender.  This was largely due to "convenience" (read laziness).

Moreover, many people seem to fear an onerous re-application process.  That is a misconception since the renewal application process is actually a breeze if you let a mortgage broker do the legwork.

One of the major inroads for mortgage brokers in 2006 was with "refi's."  According to the National post, 65% of people stayed with their current lender when refinancing in 2006.  This fell sharply from 83% the prior year, as brokers steered more and more clients into lower cost alternatives.

Mortgage News Bytes

• Here's another story depicting the differences between the sub-prime mortgage market in Canada and the U.S.  (From the National Post)
• The Toronto Star's Ellen Roseman says to pay down your mortgage instead of investing in an RRSP if more than 1/2 of your mortgage payment goes to interest.

RRSPs & Your Mortgage

• Should you invest in your RRSP or pay down your mortgage?  Here are two opinions:  Globe & Mail Story / Road 2 Riches Story
• 40% of Canadians have withdrawn from their RRSP 3 times or more according to a recent ScotiaBank study. 37% do it to build or get a mortgage for a new home.

The Sub-Prime State of Affairs

Millions of over-extended Americans can’t pay their mortgages, and it’s shaking out the mortgage industry. ResMAE Mortgage Corp., who threw in the towel this week, is just the latest of several high-risk U.S. home lenders to file for chapter 11 recently.

HSBC, one of the biggest sub-prime lenders of all, warned this week that mortgage defaults in its U.S. division will be 20% worse than expected. Not surprisingly, shares of U.S. sub-prime lenders have been getting hammered.

How bad is it south of the border? Over 10% of sub-prime U.S. mortgages are more than 90 days late. The Center for Responsible Lending Nearly says one in five of sub-prime loans will be foreclosed, putting 2.2 million Americans on the street.

Fortunately the picture in Canada is a lot brighter. Whereas 24% of mortgages in the U.S. are deemed “high-risk,” only 5% of Canada’s fit that bill. CIBC, however, expects Canada’s sub-prime ratio to double in 3 years.

Notwithstanding all of the above, it’s worthy to note that sub-prime loans do serve a purpose. In the past year alone, sub-prime mortgages have allowed 85,000 lower income (or credit-challenged) Canadians to purchase their homes instead of being forced into renting.

Toronto On Fire

Sales of existing homes in Toronto have been hot.  January sales broke a record with 5,173 homes sold, up 13% from January 2006.  Prices rose 9% to an average of $353,724. 

Seems like there's still room to rise in Canada's biggest city, where home prices are dwarfed by its sister on the Pacific, Vancouver.  (Story by The Star)

All About Amortization

The Financial Consumer Agency of Canada just posted a new explanation of mortgage amortization, complete with payment and interest comparisons for 10 through 40 year "ams."

Mortgage Brokers and BMO Part Ways

Word on the street is that Bank of Montreal is closing it's mortgage broker division.  It's a curious move since mortgages are a $2 billion business for BMO.  BMO seems to believe it can cut rates and do better selling mortgages in house.  We'll see. 

One thing's for sure, business is booming for Canadian mortgage brokers as people are finally realizing their value. BMO will now be totally shut out of this growth.

Side note:  This news won't be meaningful to 99% of our mortgage clients.  BMO was rarely competitive with rates or terms versus other lenders we have access to.