Canadian Mortgage News & Canada's Mortgage Trends

Mortgage Bytes

• There is no downside to locking in early if you need a mortgage, says ING's Fred Kreutlein.  "...if you lock in with us and the rates go down, we'll give you the lower rate. If it goes up, you get the rate you locked in at." Of course, this applies to most other lenders as well. Toronto Sun
• 39% of Canadians would consider buying a condo for their next home according to an Ipsos-Reid pool.  That's 4% higher than the same poll last year.  Source: Real Estate Info
• With rising real estate and mortgage fraud, title insurance is a good investment at about $250.  Vancouver Sun article via Lestwarog.com
• Ontario's Land Titles Act now finally puts the onus on lenders to ensure they don't give mortgage money to crooks.  Toronto Sun story

Mortgage Education

If you're new to mortgages check out this great educational site by the Financial Consumer Agency of Canada.  Among other things, it shows you:

• The effect of different amortizations
• The effect of different payment frequencies
• An overview of credit score factors
• Tips on paying your mortgage off faster
• How to calculate penalties

If you want to test your knowledge you can even take a 10 question quiz.

Toronto Home Ownership Costs

65% of Torontonians say Toronto's proposed land transfer tax is unacceptable according to a Decima poll cited by Inside Toronto.

If Toronto's new land transfer tax passes, the costs of home ownership in the city will get even uglier.

Home buyers in Toronto can look forward to paying:

• Land Transfer Tax
• Cost:  Up to 4% total
• Includes Ontario's current tax and Toronto's proposed tax
• A first-time home buyers refund may apply
• Mortgage Default Insurance
• Cost:  Up to 3.7%
• Applies when your down payment is less than 20%
• Depends on amortization and down payment
• GST
• Cost:  6%
• Applies to newly constructed homes
• A GST New Housing Rebate may apply
• Lender Fees
• Cost:  Varies.  Roughly similar to mortgage default insurance
• For high risk or self-insured mortgages
• Typically replaces mortgage default insurance
• Realtor Fees
• Cost:  Roughly 4-5%
• Plus GST
• Appraisal Fees
• Cost:  Roughly $200-$250
• Sometimes paid by the lender
• Title Insurance
• Cost:  Roughly $250-$275
• Home Inspection
• Cost:  Roughly $250-$500
• Survey Costs
• Cost:  Roughly $500-$650
• Often provided by the vendor
• Legal Fees
• Cost:  Roughly $600-$1000
• Plus disbursements
• Utility Service Charges
• Cost:  Roughly $150-$250
• For the connection of electricity, gas, cable/satellite and telephone service
• Moving Costs
• Cost:  Varies

Don't forget your down payment either--assuming you have one. 

Adding salt to the wound is that many of these costs cannot be rolled into a mortgage.  That means we may very well see cash-back mortgages become quite popular in a year or two.

Toronto's 2% Home Tax Draws Ire

Toronto seems intent on passing a land transfer tax of up to 2% by mid-July, much to the fury of its residents.  That would give Toronto the highest rate in Canada, and 2nd highest in North America. 

The tax equates to $4244 on the typical $380,000 Toronto home.

The tax will start in January if passed.  If so, expect a lot of Toronto home closings in the last week of December. 

The Real Property Association of Canada issued a press release with eight reasons why the tax is ill advised. Bob Finnigan, from the Building Industry and Land Development Association, implied that the measure is a simple "cash grab."  Toronto Star Story

Mortgage Bytes

• Mortgage rates declined this week for the first time in three months, but it may be short-lived.  CTV Story
• Laurentian Bank launched two new mortgages: a 7% cash back mortgage and an adjustable rate product tied to their 6-month mortgage rate.
• The U.S. Federal Reserve may impose new restrictions on "liar loans" (a.k.a.  "no doc" mortgages) that allow people to get mortgages without proving income.  Canadian Business Story

Record Prices Not Stalling Sales

Home values in Canada are at a record and mortgage rates are at a 5-year high, but that's not slowing sales.  42,039 homes were sold in May according to the Canadian Real Estate Association.  That too is a record.  Hamilton Spectator

Mortgage Bytes

• People are buying more condos as housing affordability gets tight.  1 in 2 home sales in Vancouver and Victoria is a condo. In Edmonton, Calgary and the GTA, it's about 1 in 3.  CMP
• Do you need a down payment for your first home?  Canada's Home Buyers Program lets you and your spouse each withdraw $20,000 from your RRSP to make the purchase--tax and interest free.  Halifax Daily News
• "At this point, we see a rate hike in July as a near certainty," says TD Securities economist Jacqui Douglas.  That comes despite news that Canada's May inflation rate was 2.2%--a bit tamer than expected. 
• Over the past 10 years the Bank of Canada has never stopped raising rates after just one increase.  Vancouver Sun

Mortgage Interest Deduction Needed

2 out of 3 Canadians will have trouble financing their retirement according to a Canadian Institute of Actuaries (CIA) report.  People are simply not saving enough.

As a result, the CIA recommends making interest on principle home mortgages tax deductible.  The government could then encourage people to invest those tax savings for their retirement.  Doing so would likely boost savings rates as well as equity in Canadian homes.

According to the CIA this makes sense because, "for a significant portion of Canadians, the adequacy of their retirement income will be dependent on the value of their home’s equity."

Read the full report here.

 

Side Note:  The Canadian Capitalist questions two of the reports assumptions.  Here's his view.

Affordability in Question

RBC says it takes about 27.5% of the average Canadian's income to afford a condo, and 44% to afford a typical 2-story home.  A typical bungalow in Vancouver costs 68%! 

Is this a housing danger sign?  Maybe not.  Incomes grew faster than Vancouver house prices in the first three months of this year.

Then again, maybe it is a warning.  RBC's calculation methods are rather optimistic.  For one thing, their numbers exclude property taxes and utilities. In addition, RBC's figures are based on a 25% down payment.  Fewer and fewer people in high-priced markets can afford 25% down these days.

Source:  Canada.com and Vancouver Sun (2nd Story)

Mortgage Bytes

• How important is Canada's resale real estate industry?  In the last three years it created 158,000 new jobs.  Moreover, each home resale generates an average of $32,200 in related spending (on furniture, appliances, renovations, moving, etc.).
• The Credit Counseling Society advises new home buyers to put aside enough money for six months of property taxes, utilities, and insurance.  If you can't do that they suggest you can't afford a new home.
• B.C. is home to Canada's priciest recreational properties.  The typical B.C. waterfront, land-access, cottage or cabin averages $1 million a pop. In Newfoundland, which has the cheapest recreational real estate, the average is $86,500.  Nationwide, waterfront vacation properties soared 12% last year to an mean of $427,589.  Globe & Mail Story
• If you can't easily carry two mortgages Gordon Pape says "never buy a new house before the old one is sold"