Canadian Mortgage News & Canada's Mortgage Trends

Co-Signer vs. Guarantor

If you can't qualify for a mortgage on your own, a co-signer or guarantor can often get the job done.

Bankrate.com has a good article outlining the differences between the two.

Basically, a co-signer is on the title and a guarantor isn't.  However, a guarantor must be more credit worthy because he/she "guarantees" the entire mortgage.

Each has their role.  Read more here.

Thanks to CMN for the link.

Smith Manoeuvre Mortgages

Million Dollar Journey was kind enough to host our story about Smith Manoeuvre mortgages ("Smith Maneuver mortgages" for the spelling challenged) today.  You can read it here.

If you're looking for this type of product, you'll also find MyVirtualMortgageBroker.com's comparison of Smith Manoeuvre mortgages of interest.

Gearing to Women Buyers

Mortgage Alliance is drawing a line between men and women by offering its new "Women's Mortgage."  The product is sold mainly by female mortgage agents that are supposedly "better at speaking to," and providing more relevant information to, women borrowers. 

It's an interesting tactic that foreshadows future marketing segmentation in our industry.  In fact, brokers we know are now even targeting specific professions, like truckers and nurses.

Keeping Track of Variable Rates

Mark Pavilons from the Caledon Citizen says, "I have yet to hear a mortgage specialist call and say 'Mr. Pavilons, the Bank of Canada is likely to increase the rate by a quarter point next week, so in your best interest, I think we should lock in your mortgage now.'"

If your mortgage agent doesn't do that, find a new one........or read Canadian Mortgage Trends.  

Credit Score Formula Changes

Fair Isaac makes $200 million a year selling credit score formulas.  Now it's trying to make those scores better.

In Canada we commonly refer to FICO (Fair Isaac Corporation) scores as "Beacon scores."  Beacon scores range from 300 to 900 with an average near 720.

Here's the thing.  People with bad credit often try to boost their scores by becoming an authorized user on a more credit-worthy person's credit card.  It's called "piggybacking."  In fact, Fair Isaac says up to 30% of consumers have at least one other person authorized on a credit account.  (Not all authorized users have bad credit).

Fair Isaac says piggybacking will soon be a no-no.  In other words, no longer will adding yourself to someone else's credit card improve your score.  Fair Isaac is making this change to its algorithms in September but it's still unclear when this change will take effect in Canada.  (Editors Note:  Once we find out we'll post it.)

Bubblicious

Here's an article about real estate bubbles from the Ottawa Business Journal.  Among other points:

• Many economists believe home price increases above inflation are unsustainable long term.
• The average house in Vancouver costs over 70% of the average household's income. In Ottawa, it's 35%.
• Yale economics professor Robert Shiller says Vancouver has the the most "bubbly" real estate market in all of North America.
• TD says, "it is, by definition, impossible to identify a bubble before it bursts, since rational investors would refuse to hold any asset whose price was certain to fall."

Buy With Breathing Room

In a world where people pay $605,000 over asking price it's not that hard to overextend yourself.  George Boelcke says the least heard four words in retail are "I can't afford it."  It seems that way in real estate as well lately.

Boelcke says financial freedom can only occur "when we add up the total we have to pay back (and not just the price), and refuse to stretch payments past the point of reasonable."

In the mortgage world this means finding a house that you can afford with a 25-year amortization instead of 35-40 years.

***************

Increasing amortization from 25 to 40 years reduces the payment on an average Canadian ($335,000) home by $323 a month.  Yet it costs $223,200 more in interest over 25-years.

Tax Property or Property Transfers?

RE/MAX Condo Plus makes a good point about Toronto's maligned land transfer tax proposal.  Toronto's property taxes are the lowest in the GTA.  In fact, they're below the value of services Toronto residents receive. 

City hall could have just increased property taxes to the GTA average.  Instead, the Mayor has chosen to hammer people with a lump-sum tax when they move. 

The logic was to protect homeowners, particularly seniors, from increased annual tax liabilities.  In fact, it all comes out in the wash either way, but the latter strategy makes for worse headlines.

Could $100 Oil Spike Mortgage Rates?

Inflation is at a 2.5% pace, a 4-year high.  Stats Can says mortgage costs are the main culprit.

Now the Bank of Canada may have another inflation worry:  oil.  CIBC World Markets predicts oil will hit $100 a barrel by 2009. 

It may sound alarmist but, if CIBC is right, it could take more than one or two more rate hikes to control inflation.

How Much Interest Will You Pay?

Only 20% of Canadians know how much interest costs on a 25-year mortgage, according to a TransUnion poll.

Those surveyed were asked what percentage of the original loan amount they'd pay in interest over 25 years.  They were given various ranges to choose from.  The correct range was 151-200% of the original loan amount.

It didn't matter whether the respondent was a man or woman, or whether they owned a home.  In all cases, only about 1 in 5 answered correctly.

Canadians with a university education did slightly better in the survey. Overall, however, 45% underestimated the total cost of interest over 25 years.

Once people know how much interest costs, they typically ask how they can minimize it.  Here are a few examples along with some sample interest savings (based on a $250,000 mortgage, amortized over 25 years at 5.79% interest):

1. Make weekly payments (savings:  $40,181)
2. Reduce amortization from 25 to 20 years (savings:  $50,264)
3. Put down an extra 5% (savings:  $22,053)

Do all three and you'll save a whopping $91,379 over 25 years!

Of course, doing even one is often easier said than done.