Canadian Mortgage News & Canada's Mortgage Trends

Muslim "Unfriendly" Mortgages?

Some Muslims are calling "Sharia-compliant" mortgages "fraud."  Critics say they are nothing more than mortgages with front-loaded interest.  Interest is prohibited in Islam.

Sharia-compliant mortgages are also up to 1-3% more expensive than conventional mortgages in Canada, according to the Financial Post. In the United States, they cost only 0.4%-1% more.

That said, there is apparently high demand for such products.  Bank of Nova Scotia and TD are both considering offering them and UM Financial, a Muslim lender from Toronto, reportedly has a 5000 person waiting list.

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Side Note:  Here is an example of a "Sharia" mortgage calculator:  Musharakah Calculator.

Interest Rates Running Up

Despite the Bank of Canada holding interest rates steady, many leading economists expect an increase in the next 2-6 months. 

Some forecast a 1/4% hike in July.  That's because Canada's economy grew at an estimated 3.5% pace in the first quarter, much higher than the Bank of Canada's 2.5% expectation.  Inflation is now at a 4-year high.

As a result, mortgage rates jumped today for the 2nd time in two weeks.  Here are the rates as of the close of business today:

• 5-year posted fixed rates at most big banks:  ~7.14%
• 5-year fixed rates at MyVMB:  5.2%
• 5-year variable rates at MyVMB:  4.99%

Note, however, that lenders are increasing rates as this is being written.  The 5-year at 5.2% will likely jump tomorrow.

Variable or Fixed?

Are variable rate mortgages still a good bet?  Mark Olkowski from Invis suggests so, but calls them an "educated gamble" at this point.  Source:  Financial Post

Rental Market Deterioration

About 31% of Canadian households rent.  Of those renters, 40% fall within the bottom 1/5 of income earners, up from 33% twenty years ago.  (Source:  Edmonton Journal)

This trend is concerning because it provides less incentive for developers to build more rentals or improve existing rentals.  In addition, as rental supply declines, prices go up.  Renters are therefore left with lower quality housing at higher prices. 

If you're thinking of renting, strong considering buying instead.  Even if you don't have a down payment or have blemished credit there may be a mortgage for you.  Contact us or another reputable mortgage planner to find out if you qualify.

Plan Early for Mortgage Renewals

Most lenders now offer 120-day rate holds so it makes sense to start shopping for your mortgage renewal ahead of time.  If you "lock in" 3-4 months beforehand, and rates go up, your protected.  Researching the best renewal can also take time.  Many new mortgage options will have popped up since your last mortgage.

While you can attempt to do your own homework and haggle with your lender for a lower rate, you're almost always better served to use a professional mortgage planner.  A mortgage planner has access to "wholesale" interest rates and can usually secure the best possible deal.  Contrary to popular belief, there are no "switching" fees.  Thus, using a planner costs you virtually nothing but can save you thousands.

For more renewal tips check out this article by Bankrate.ca.

Mortgage Bytes

• Canadians are feeling more secure online says TD Canada Trust.  In their March survey report, TD said only 14% of non-online banking users are worried about security.  That's down 53% from last year.
• America's National Association of Mortgage Brokers has condemned U.S. bankers for blaming the subprime crisis on mortgage brokers.
• MortgageBrokers.com reported record 1st quarter earnings and is "tracking to fund" close to $3 billion in mortgages in 2007.  MB has 201 Canadian mortgage agents at last count.

Watch Your "Am"

Toronto Sun's Linda Leatherdale emphasizes the interest costs of long-term amortizations.  She says a $190,000 mortgage at 6% costs you $306,800 in interest when amortized over 40 years.  At 25 years, the interest is just $175,000.  In return for making your lender rich you'll "save" $180 a month on a 40-year amortized payment versus a 25-year.

Realtor Checklist

Competition among real estate agents is fierce.  Make sure your agent is earning their money by asking the questions in this checklist from the Toronto Real Estate Blog.

Common Sense Mortgage Planning

With today's long-term amortizations, interest-only loans, and other unconventional mortgages, it's getting easier and easier to buy more house than you should.

This CBC article reiterates an important rule of thumb:  "no more than 32 per cent of your gross income should go toward paying principle, interest and taxes on a home."  It also suggests banking three to six months of mortgage payments in case of hardship. 

How much mortgage is too much?  BMO's Cid Palacio says that if you gross $70,000 a year, $1,866 a month is the most you should spend on a mortgage.  That equates to a house of about $250,000 to $300,000.

Mortgage Bytes

• CREA predicts a record 500,995 Canadian home sales in 2007, with a "slight" decline in 2008.  Canada's most expensive cities are still Vancouver ($564,373), Calgary ($420,807), and then Toronto ($379,025).  CBC Story
• The typical cost of a 2nd property in Canada (like a vacation or rental home) is $224,400 according to Statistics Canada.  The average debt on these properties is $137,900.
• According to a Manulife study, 45% of people with mortgages also have a line of credit.
• Filogix, Canada's leading mortgage technology firm, has acquired TMTG, an Internet-based marketing and training provider for mortgage brokers.  TMTG has 1200+ members and operates under a subscription model of $49.95 per month.