Canadian Mortgage News & Canada's Mortgage Trends

Rate Cut Speculation

A week or so ago most people thought the Bank of Canada would keep rates unchanged for a while.

Things can change fast.

Many now feel the Bank of Canada may soon need to cut rates to keep our economy growing.

Why?  Well, the BoC's David Dodge says risks to the world economy are more serious today than one month ago.  Dodge says he'll need to take this "into account" at upcoming interest rate meetings. 

In addition, our economy is increasingly being weighed down by a strong Canadian dollar.  1/3 of Canada's GDP is based on exports to the U.S., and it's got 16% more expensive for Americans to buy our products since Jan. 1, 2007.

J.P. Morgan economist Ted Carmichael says, “We now expect that the Bank of Canada will need to cut its policy rate by 25 basis points on each of its next four decision dates through April."  If he's right, rates could drop 1% by next spring.  A more consensus view is probably 1/4% to 1/2%.

Despite the worry, some still feel that consumer spending, demand for our raw materials, and a strong housing market might offset the global weakness threatening Canada's economy.  If so, rates will likely stay put.

Whatever the case, almost everyone can now agree that there is no longer any urgency to lock in mortgage rates.

____________________________________________________

Upcoming BoC Interest Rate Meetings:

• December 4, 2007
• January 22, 2007
• March 4, 2007

The Debt Monster

21% of Canadians have between $20,000 and $200,000 of non-mortgage debt. 

28% don't even know the interest rate of their most-used credit card.

If this sounds like you, and you have over 20% equity in your home, debt consolidation may be worth a look.  A line of credit at or near prime rate (currently 6.25%) can often do the trick.  In some cases, though, it makes more sense to refinance your whole mortgage.

If you're curious about your options, let a professional mortgage planner analyze your credit profile and see what's right for you.

Partial Source:  CTV.ca

U.S. Mortgages for Canadians

The American real estate meltdown is no news to most Canadians.  Neither is the soaring loonie.  The two have combined to make U.S. real estate temptingly attractive.

News stories of U.S. condos going for 50 cents on the dollar can get your juices flowing.  The question is, as a Canadian, can you get a mortgage?

The answer is yes.

Chase Brodsky, a Florida mortgage advisor at LynxBanc, says getting a mortgage is straightforward for most Canadians.  "Typically you'll need 25% down," says Brodsky. 

You need no proof of income and you don't need to prove where your down payment came from.  You don't even need a credit check.  According to Brodsky, all you basically need is a completed application, photo ID, a U.S. bank account, and proof of available funds.  Naturally, the property appraisal must be also consistent with your purchase price.

If the "numbers make sense," LynxBanc says Canadians can generally close on U.S. property financing in about 45 days.

For more information about getting a mortgage on a U.S. property, including closing costs and interest rates, simply email us.

_____________________________________________________

Side bar:  Before you scrounge up a down payment keep in mind that real estate prices in parts of the U.S. may get worse before they get better.  For example, as of yesterday, CME futures traders were predicting that Miami home prices will sink another 12% in the next 12 months.  This U.S. rate reset chart helps explain why.  As millions of teaser mortgage rates reset, a lot more inventory will likely hit the U.S. market as borrowers can't afford their new (higher) mortgage payments.  When will it end?

Mortgage Rates Come Down

Several lenders dropped their 5-year fixed mortgage rates this week by 0.05% to 0.10%.  That's thanks to falling bond yields, which are hovering near 7-month lows. 

It's a little surprising rates aren't lower, however.  Last time bond yields were this low, posted 5-year fixed rates were 0.75% lower than they are today. 

In addition to the typical slowness in which lenders lower rates, today's higher rates are also reflective of ongoing subprime concerns.  The credit market is still building an abnormal amount of risk premium into mortgage rates.

Mortgage Bytes

• 20% of Canadian mortgage consumers are unaware of mortgage brokers and the services they provide.  CMHC 2007 Housing Observer
• A new electronic market started today for commercial paper.  It's something that could potentially add liquidity for the paper, and theoretically lower interest rates on certain mortgages.  So far trading is slow, but that's not unusual for a new trading market.  Prior to its crash a few months back, commercial paper was widely used by certain non-bank lenders to finance mortgages.
• GMAC has completed its purchase of ResMor
• U.S. brokers are threatened by a new bill
• Million Dollar Journey has another great article on investing in 2nd mortgages.
• Xceed is recognizing a $17-$20 million loss on its future mortgage profits.

MGIC Canada Coming Soon

From 1995-2006 Canada had only two mortgage insurers.  By next year the 6th will be on their way, U.S.-based MGIC.

MGIC Canada will offer "a unique alternative to business as usual" in the Canadian mortgage default insurance market, according to the company.

MGIC applied with the federal government this summer and is expected to launch sometime in 2008. 

Mortgage default insurance is something that's required of most borrowers with less than 20% down.  That encompasses roughly 1/2 of all Canadian mortgagors.  This stat has helped make Canada the 2nd largest, and one of the most profitable, mortgage insurance markets in the world.

As a result, insurers have been clamoring lately to hang up a shingle and grab their piece of the pie.  The resulting benefits to borrowers are more choice in mortgages, lower insurance fees, and easier qualification standards (although some would term that a risk instead of a benefit).

___________________________________________________

Side Bar:  Reuters' article (linked to above) states that Canada "doesn't allow" teaser rates.  Teaser rates are short-term rate discounts designed to lure in borrowers.

In fact, Canada does allow teaser rates.  The difference, however, is that borrowers are qualified on the higher "reset" rate instead of the lower teaser rate. 

Qualifying homeowners on the lower teaser rate is what caused much of the U.S. subprime trouble.

HSBC Variable Rate Promotion

HSBC is running a special rate promotion until November 17, 2007.  For 5-year variable mortgages their rate is prime minus 1.00%. 

This is much better than you'll find almost anywhere else.  But, you'll need 20% down and decent credit.  To qualify you must apply at the branch.

CAAMP Mortgage Statistics

81% of Canadians are happy with their mortgage says the Canadian Association of Accredited Mortgage Professionals (CAAMP).

CAAMP's findings are based on their annual mortgage survey.  Here's more of what they found:

• 43% of Canadians consulted a mortgage broker when arranging a new mortgage.  Overall, 28% of homeowners with mortgages used brokers.
• The average broker discount from bank posted rates was 1.31%.
• Low rates are typically the most important element of satisfaction, but 58% of Canadians cited improved payment options and more flexible mortgage terms as additional key factors.
• Only 13% of those who renewed or refinanced changed lenders.  This implies that many homeowners are paying more interest than necessary by not shopping around.
• 37% of mortgage takers in the last year chose long-term amortizations (30, 35, or 40-years).
• 3/4's of Canadians know about America's subprime crisis but only 9% are "highly concerned" about it.
• 4.8 million Canadian home owners have mortgages.  Canada has 8.8 million owner-occupied homes.
• 72% of mortgage takers chose fixed rates.
• Mortgage credit is accelerating.  It grew 6.9% a year for the past 15 years, but 11.4% over the past two years.
• Ontario accounts for 41.6% of Canada's mortgage market.
• In the last 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage.  The average equity loan was $35,400.
• Canadian mortgage arrears were 0.50% in the 1990s and just 0.25% in the past two years.
  

Source:  CAAMP's Annual State of the Residential Mortgage Market in Canada report.

Merix HELOC Get's Better

Merix's HELOC is one of the more popular readvanceable mortgages.  Now Merix has improved it:

• Maximum loan-to-value has increased from 90 to 95%.
• It's now easier to qualify with 40-year Ams.
• The mortgage segment can be split into multiple portions, each with their own term, rate type, and amortization. 

For example, you could have a $100,000 mortgage with four portions to hedge rate risk and maximize interest savings when you can't afford a straight 25-year Am.:

• $20,000 5-year fixed with 25-year Am.
• $20,000 5-year variable with 30-year Am.
• $30,000 1-year fixed with 40-year Am.
• $30,000 3-year variable with 35-year Am.

Since every dollar of principle you pay down is added to your available line of credit, Merix's HELOC is well suited for:

• Self-employed borrowers that need a backup cash source
• Investors that need a readvanceable mortgage with a variable rate
• Anyone who wants the security of a line of credit for unexpected expenses, education costs, etc.

CMP Magazine Coverage

We'd like to thank Canadian Mortgage Professional (CMP) for their recent coverage of Canadian Mortgage Trends.

CMP is Canada's top independent magazine for mortgage professionals and it's an honour to be included in their publication.