Canadian Mortgage News & Canada's Mortgage Trends

The B of C's Effect on Variable Rates

Speculation is that the Bank of Canada is planning at least two rate hikes this year of 1/4% each.

Here's a table that shows approximately how much payments would increase on a typical variable rate mortgage with a 1/4 point rate hike.  It's based on the current average variable rate of 5.15%, amortized over 25 years.

Mortgage Amount	Payment Increase
$100,000	$590.17 to 604.58 = $14.41
$200,000	$1180.35 to 1209.17= $28.82
$300,000	$1770.52 to 1813.75= $43.23
$400,000	$2360.69 to 2418.33= $57.64
$500,000	$2950.87 to 3022.92= $72.05
$600,000	$3541.04 to 3627.5= $86.46

Some lenders offer a "hold your payment" feature to keep your variable rate mortgage payment from increasing if rates rise.  However, the portion of your payments going to interest will jump--decreasing the amount you pay towards principle.

ResMor's Newest Mortgages

• ResMor Trust Company announced two new mortgages yesterday:
• CreditAssist:  A mortgage with 95% financing for those with credit scores as low as 575, or 85% financing with a score over 539.
• Self Employed Simplified:  A mortgage with up to 95% financing for commissioned employees or the self-employed.  Just state your income.  Minimal documentation is required.  Note: Income stated must be "reasonable to the industry."  Minimum credit score:  600 for 75% financing / 700 for 95% financing.

You can amortize either for up to 40 years! 

Contact us or any other professional mortgage planner for more info.

Rocketing Rates

Mortgage brokers are once again scrambling to submit deals before midnight.  Fixed mortgage rates will jump tomorrow for the 4th time in 4 weeks.

Effective Thursday, the posted 5-year fixed rate at Canada's major banks will hit 7.44%.  That's a pop of 0.85% since Mid-may.

What's behind all this?  Ask the bond market.  Rates there have soared in the past month.  The catalyst is the Bank of Canada--which appears poised to hike its key lending rate next month for the first time in over a year.

With all these rate hikes it makes sense to plan early.  The Globe's Rob Carrick advises mortgage hunters to "get a rate guarantee immediately." 

Remember, a rate guarantee is not necessarily an obligation.  If rates go back do you can usually adjust your rate lower (at least once).

If you're up for renewal, whatever you do, don't wait for your lender to send their form renewal letter.  Call a professional mortgage planner to shop the best current deals way ahead of time.

GMAC Buys ResMor

GMAC Residential Funding of Canada has acquired ResMor Trust Company, a Canadian residential lender that markets exclusively through mortgage brokers.

ResMor presently serves 24,000 borrowers, totaling roughly $4 billion in mortgages.

The deal is subject to regulatory approval and expected to close around September.

A GMAC spokesman said, "The acquisition provides us with the opportunity to grow and diversify our Canadian business operations by expanding our footprint in the Canadian real estate finance market, and providing our investor clients with access to a broader array of mortgage-backed securities."

The two companies are expected to operate separately and ResMor's key management will stay on after the merger.

More on First National's New Mortgage

Wednesday's story about First National's new self-insured mortgage drew a lot of interest.  It seems $1000 savings really perks people up.

The Toronto Star highlighted another advantage as well.  Borrowers can also save $550 in provincial sales tax (on the reduced insurance premium) per $250,000 mortgage.

These benefits will surely not go unnoticed by First National's competitors.  In fact, this type of mortgage has the potential to someday change the entire structure of mortgage insurance in Canada.

Here's the thing.  The mortgage arms of banks, credit unions, and insurance companies cannot self-insure due to OSFI regulations.  This gives dedicated mortgage companies, like GMAC Residential and First National, a distinct competitive advantage.  

Researcher Jim Day comments:  "If permitted to do so, the banks could [also] self insure their high ratio mortgages--for less than [what] CMHC and Genworth charge for mortgage insurance.

This begs some key questions.  Will larger banks and credit unions push for new regulations to let them self-insure?  Will CMHC, Genworth, and other insurers suffer as more lenders self-insure?  Should the federal government divest of CMHC while they can still get a good price?

This could shape up into a very interesting battle, one where the consumer is the ultimate winner!

 

Miscellaneous facts on First National's customer base:

• 1 in 1000 homeowners default on a First National mortgage.
• 2.7 in 1000 default on the typical bank mortgage.

Mortgage Bytes

• U.S. existing home sales will slide 4.6% this year, to 6.2 million, says the National Association of Realtors.  More importantly, median home prices could drop for the first time since the 1960s.  Thunder Bay Chronicle Journal Story
• Toronto Real Estate Blog has a good article on demand outpacing supply in the cottage real estate market. Among other notable points, a typical Canadian waterfront, land access property increased 13 per cent in the past year.
• TaxTips.ca offers a handy calculator to help you decide whether to pay down your mortgage or invest in your RRSP.
• Alternative mortgage lender Abode Mortgage is PMI Canada's first mortgage insurance customer.  Abode says PMI's insurance and securitization services will help expand Abode's product offerings.  Press Release

Rates Moving Up...Again

Mortgage rates made new 5-year highs yesterday, rising for the 3rd time in three weeks. The big banks' posted rates are now as high as 7.29%, up 0.70% since May 17.  CBC story

Rob Carrick from the Globe & Mail proclaims, "The golden age of variable-rate mortgages is over."  He cites economists that forecast a 6.5% to 7% prime rate within one year.  That implies variable rates will rise to about 5.65% to 6.15%.

CIBC economist Benjamin Tal, who a few months ago felt mortgage rates would remain low, now says, "Locking in now would not be a mistake.  In fact, it could be a good thing."  Globe & Mail Story

Many "experts" believe the Bank of Canada will raise rates 1/4% on July 10 to combat what the BofC calls "excess demand" in our economy.

Canadian Population Growth and Trends

Canadian birth rates are in the dumps.  Immigration could be Canada's sole source of population growth by 2030, according to a Scotiabank report quoted in the Globe & Mail.

Other notes from the Globe story:

• According to the article, immigrants generally rent when they come to Canada. 

(Editor:  If you're new to Canada don't let this deter you from buying.  Several new mortgage options have become available for immigrants in the last few years.)

• Immigrants typically buy homes after they have lived in Canada for at least 10 years 

(Editor:  If this is the case it is clearly based on past data.)

• Tens of thousands of immigrants are set to become first-time homeowners in the next few years
• The segment of Canadians aged 65 and older will skyrocket 65% in the next 10 years
• Senior citizens tend to prefer new construction and low-maintenance options, such as condominiums.

The Latest Self-Insured Mortgage

First National now offers a self-insured mortgage that shaves off 0.40% from mortgage default insurance premiums.  On a $250,000 mortgage with 5% down homeowners save about $1000 (not factoring in the interest rate). 

The product is designed specifically for high loan-to-value mortgages.  Most lenders require that high-ratio borrowers get insurance from 3rd-parties like CMHC or Genworth.  A high ratio mortgage is one with less than 20% down.

First National products are available only through mortgage brokers.

Mortgage Bytes

• Canada's core inflation rate has exceeded the Bank of Canada's 2% target every month this year.  Many expect that interest rates will head up soon as a result.  See this FP Story.
• Stated income ("no doc") mortgages are catching a lot of heat in the U.S.  It may soon get significantly harder for Americans to get mortgages without proving income.
• Here's a good overview by Million Dollar Journey on the RRSP Home Buyers Plan
• Thanks to Canadian Capitalist for its post about CMT's Mortgage Renewals story.