Canadian Mortgage News & Canada's Mortgage Trends

CMHC's Groundbreaking Rental Program

If you're an income property investor (i.e. landlord) you might just fall in love with the new CMHC rental program.

In essence, it lets you buy an "unlimited" number of 1-2 unit rentals with $0 down...if you qualify.

The Financial Post says:

"None of CMHC's competitors are coming close to this new [100% financing] offer."

Canada's #2 and #3 insurers, Genworth Financial and AIG, each require investors to put down 10%.

With nothing down, you can build your rental empire all that much faster. However, because the risk is so high, so is the mortgage default insurance fee of 7.25% (for a 25-year amortization).

Of course, if you put down more than 0% this fee drops.  It might also be tax deductible.

CIBC economist Benjamin Tal expects more out-of-the-box mortgage solutions in coming months. "The genie is out of the bottle, this mortgage market is starting to move. Over the past 16 months we've seen more changes than the past 30 years."

As popular as it may be, there are very few lenders offering the new CMHC rental program.  Moreover, the approval standards are relatively high.   Feel free to contact us or your favorite mortgage planner for details.

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Sidebar:  Stephen Dupuis, CEO of the Building Industry and Land Development Association, says that CMHC's "logic escapes" him.  Dupuis is worried that programs like these will overheat Canada's already sizzling real estate market. 

It's a valid concern but the mortgage insurance market has never been more competitive.  If CMHC didn't offer this product, one of the other 2 (soon to be 4) insurers probably would have.

MCAP's FlexStar Mortgage Impresses

Mortgage innovation never stops.  MCAP's new FlexStar product is case in point.

FlexStar is a 5-year variable-rate mortgage that's totally readvanceable (you can re-borrow the money that you pay back).

FlexStar boasts several unique features:

• It offers a line of credit at a discount to prime (most lenders don't discount their credit lines).
• You get a debit card to use any way you like.  Purchases are simply added to your mortgage at a low interest rate.
• If you need to save money, you can make interest-only payments any time you like.
• You can pre-pay up to 50% of the original mortgage within 5 years--with no penalty!
• In some cases, you only need 5% down.  That makes it the highest loan-to-value readvanceable mortgage on the market.
• You can convert it to a fixed-rate mortgage any time.

This product is by far the most innovative we've seen in recent memory.  It plays right into one of the hottest trends in the industry--readvanceable mortgages.  People absolutely love the ability to re-borrow their equity without having to reapply or get a line of credit.

It also offers the lowest down payment (5%) of any interest-only mortgage in Canada.  You'll need to get mortgage insurance if you put down less than 20%, however.

For more information, contact us or your favorite mortgage planner.

Supreme Court to Review Mortgage Interest Deduction Case

Canadians who employ the Smith Manoeuvre, cash flow dam, and other mortgage interest deduction strategies will find this case of interest.

The Supreme Court of Canada is taking another look at Lipson v. The Queen  (link to appeal #2).

The Lipson case explores whether the following sequence of events is "abusive" and violates CRA's controversial general anti-avoidance rule (GAAR).:

1. Money is borrowed money to buy shares in spouse's company
2. The spouse uses that money to buy a house
3. That house is then mortgaged to repay the investment loan in step 1.
4. The homeowner writes off the mortgage interest.

The Lipson strategy differs from the Smith Manoeuvre in many key ways.  However, the top court's decision could still pass judgement on facets that the Smith Manoeuvre has in common with Lipson, so stay tuned. 

The case will be heard in 2008.

Globe Says Lock In

Rob Carrick from the Globe & Mail is ringing the alarm.  With mortgage rates at 6-year highs and shrinking variable-rate discounts, he says it's time to lock in now.

The need for urgency is debatable, however.  Bond yields have drifted down lately and that's usually a positive for fixed mortgage rates.  In addition, noted CIBC economist, Benjamin Tal, says, "Over the next six months, it's very reasonable to think that rates will be stable, with a bias downwards."  The Bank of Canada agrees.

CAAMP Deadline Tomorrow

If you're a mortgage planner and want to go to CAAMP's Dec. 2-4 annual conference, Friday October 26 is the last day of the early bird special.

Unlike years past, CAAMP is not offering the discounted Expo-only ticket.  So even if you only want to see the exhibit hall, you'll still be stuck paying full price.  Hopefully CAAMP is more understanding on this next year.

For information on registering, call Mary Lou Murray, Registration Manager, at 416-491-2897 ext. 228.  Or see this link.

Housing Trends in Canada

CMHC's new 2007 Canadian Housing Advisor is chock full of informative nuggets.  Among them...

• 86% of Canadian population growth from 2001 to 2006 occurred in metropolitan areas.
• Canada had roughly $694 billion in mortgages in 2006, up 10.7% from 2005.  Rising home prices contributed to the pop.
• The average mortgage amount approved rose 7.3% in 2006.
• The spread between 5-year fixed and variable mortgages declined from 1.59% to 0.96%.  As a result, people chose a variable mortgage far less in 2006 (only 22% chose variable versus 36% in 2005).
• In 2006, only 1 in 400 were over 3 months in arrears on their mortgage.  That's the lowest rate since 1990.
• 1/2 of those who renewed a mortgage in 2006 accepted their lender's initial offer without negotiating.

Here's one that was especially interesting.  30% of those surveyed felt that getting a mortgage was a "source of stress."  If this sounds like you, try a professional mortgage planner for your next mortgage.  It's typically free, all the legwork and paperwork is done for you and, best of all, you have a professional advocate to do your negotiating.

Toronto Land Transfer Tax Deadline

It's going to be a busy holiday vacation for Toronto real estate professionals. 

According to the city of Toronto:

Purchasers with a Purchase and Sale agreement on or before December 31, 2007 will receive a full rebate of the Toronto Land Transfer tax regardless of the closing date.

Purchasers with a Purchase and Sale agreement signed after December 31, 2007 with a closing before February 1, 2008 will not be required to pay the Toronto Land Transfer tax.

Purchasers with a Purchase and Sale agreement signed after December 31, 2007 with a closing on or after February 1, 2008 will be required to pay the full Toronto Land Transfer tax.

If you're a first time home buyer, you won't pay Toronto's land transfer tax on the first $400,000 of house value.  Above that, you'll pay 2%.

Mortgage Bytes

• What you need to know about Toronto's new land transfer tax.
• 84% of Canadian baby boomers surveyed are not scared of buying real estate, despite the subprime crisis, says Mortgage Intelligence.
• MyNext Mortgage has a somewhat unique business model.  They use all 3 major mortgage insurers to increase a client's probability of approval. Deals go to the insurer with the best terms at the time.
• National Bank is supposedly launching a new readvanceable mortgage in 2008 that automatically increases your line of credit as you pay down principle.
• Stock in Xceed Mortgage is up 58% from it's lows.  The subprime lender just bagged $300 million in new financing.  It should be "sufficient to meet Xceed's funding requirements until market liquidity is restored," says its CEO.
• CAAMP will push "responsible lending" in 2008.
• David Dodge suggests Canada's commercial paper restructuring won't meet the Dec. 14 deadline.
• Landlords beware.
• Home ownership percentages by age group (Source: StatsCan via the Vancouver Sun):
• 25-27-year-olds:  38%
• 31-33-year-olds:  63%
• 37-39-year-olds:  73%

Deducting Mortgage Interest on Rentals

Buying a rental property?  Here's a CRA webpage that explains how to handle tax deductible mortgage expenses.

Did you know, for example, that mortgage insurance, appraisal fees, and legal fees can only be deducted over a period of five years?  (i.e.  20% per year for the first five years of your term)

Toronto's Land Transfer Tax Passes

It's official.  It's passed.

Starting in 2008, when you sell a home in Toronto, you'll pay an additional 0.5% to 2% of it's value to the city of Toronto.

Hated by many, the measure squeaked by city council during this evening's vote.

Here's the kicker.  The new tax was supposed to be instead of property tax increases.  Now, the Globe & Mail is reporting that property tax hikes are expected next year regardless.

It's a sad commentary on Toronto's fiscal management, and Ontario's strategy to offload expenses on municipalities.

In any case, there's sure to be one interesting side effect.  December might be a good month for Toronto Realtors.  It's the last month that Torontonians will be able to buy before the new tax takes effect.  Toronto mortgage planners could see a similar increase in business.