Mortgage Rates & Mortgage Broker News in Canada

2010 Canadian Mortgage Awards

CMP Magazine’s Canadian Mortgage Awards have evolved into a much-anticipated annual event. 

This year, CMP received over 700 nominations—a new record.

There were 160 finalists in all, and CMP will reveal them all in the coming weeks.

Finalists from the first category, FirstLine’s Best Internet Presence award, were announced Friday. 

CMP bestows the award on the broker who’s best harnessed the Internet to provide consumers with “practical, effective and easily accessible facilities to help streamline the mortgage process.”

The finalists are:

• Alberta Mortgage Brokers Association
• Canadian Mortgage Trends 
• Dominion Lending Centres
• First Foundation
• GoMax Solutions
• Invis on the Peninsula
• Mark Goode and Associates
• MCAP Mortgage Corp.
• Mortgage Wise Financial
• Ratesupermarket.ca
• TDMP.com
• The Mortgage Group (Averbach Mortgages)
• Verico Jessi Johnson Mortgage Team

The winner will be announced April 23 at the Toronto awards ceremony.

Good luck and congratulations to all the well-deserving nominees.

Meet the Judges

Lender Underwriting Before April 19

So far, we haven’t seen any lenders officially announce tighter lending guidelines prior to the government’s April 19 mortgage rule changes.  That said, don’t be surprised if some lenders do—once the new qualifying rate is announced.

As we approach April 19, there’s a chance lenders and insurers may start scrutinizing applications for high-ratio refinances, high-ratio rentals, and purchases with only 5% down.

If you have a borderline credit score, a borrowed down payment, or high credit utilization, expect lenders and insurers to look extra closely at your ability to repay and net worth.

Mortgage Job of the Week

This week's featured mortgage career... 

Company:  Xceed Mortgage Corporation
Position:  Business Development Manager – Edmonton, Alberta
Location:  Edmonton, Alberta

Click on the position title above for more information. 

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Advertise your mortgage job opening now!  Click here to post. 

Or browse CMT's Mortgage Jobs Database.

Jobs And Arrears Go Hand In Hand

Historically speaking, no single factor has influenced the rate of mortgage arrears (overdue payments) more than employment—not even rising interest rates.

This chart illustrates the relationship between Canadian employment and mortgage arrears quite nicely.  It comes from Will Dunning Economic Research.

Over the long haul, as employment goes up, arrears go down--and vice versa.  With strong employment, people can make their payments easier and more people qualify for mortgages.  It’s therefore no surprise that mortgage industry executives keep a close eye on the employment rate at all times.

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See Also:  Rising Rates And Mortgage Arrears

Canadian vs U.S. Closing Fees

If you ever thought it was expensive to close a mortgage, have a peek at what our American neighbours pay.

This is a recent printout from a major U.S. lender. (Click to enlarge)

On a prime mortgage, Canadians are generally spared loan discount fees (aka., “points,” or rate buy-down fees), “underwriting fees,” and “processing fees” to name a few.

Canadian lenders tend to absorb some of these fees, and in other cases, much of the fee difference can be attributed to different U.S. closing requirements.

In total, the average closing cost for a mortgage origination in Canada is roughly $1,000 USD, versus an average of $3,700 USD in the States. (Source: AllBusiness).

Yet another reason it’s great to be Canadian…

Arrears Data In Perspective

The average Canadian’s debt-to-income ratio is now 145%—an all-time high (largely due to greater mortgage costs).

Home prices are now five times the average persons’ after-tax income (the long-term average has been 3x).

The above are taken from this Vanier Institute report.

The report also said mortgage arrears are up 50% year-over-year.  Some of the media has picked up on this, suggesting that defaults are soaring.

Not exactly.

The arrears statistics Vanier quotes have been out for a while. October arrears (upon which Vanier’s findings are based) were announced a few months ago, so this isn’t the breaking news some have made it out to be.

More importantly, while a 50% arrears increase may sound large (it’s actually 44% based on the latest data), the absolute number of arrears is still ultra-low by international standards.

Less than 5 out of 1,000 Canadian mortgagors is in arrears (i.e., late on payments by 90 days or more). 

Compared to a year ago, 5,699 more borrowers were in arrears (based on the October 2009 data used in the report).

On the other hand, there were 91,986 more mortgages in that same one-year time period.

In all, Canadian Bankers Association (CBA) data includes almost four million mortgages in total.

So again, on an absolute basis, arrears have not been abnormally high, and Canada does not have an arrears problem.

As for a consumer debt problem, well, that’s another matter.

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Sidebar:  The CBA is the most quoted source of arrears data in Canada, and the source used in Vanier’s report. This data is from the biggest lenders only and includes most, but not all, Canadian arrears.

The New Rules of Rental Financing, With Peter Kinch

Rental property financing will change dramatically on April 19.

Here are the new rental mortgage rules, as decreed by the federal government.

For a take on these changes we spoke with mortgage planner, speaker, and author, Peter Kinch. Peter was the top Canadian broker in 2008 by volume, according to Canadian Mortgage Professional Magazine, and is a major participant in the rental financing market.

See --> Peter Kinch Interview…

Update From the Finance Department

Just in from an official at the Finance Department:

“The Government will provide additional details shortly” on which rate will be used to qualify mortgages starting April 19.

That, of course, refers to which interest rate lenders will need to use to calculate people’s debt ratios.  (See “Small Oversight”)

“Small” Oversight

The Finance Department’s new qualification rate policy is generating no shortage of confusion.

We talked to some high level folks at the insurers and not even they know what interest rate will be used to qualify borrowers come April 19.

It could be the 5-year posted rate or the 5-year discount rate.  One source told us it might even be an offset from prime (like prime + 2%).

If it’s the 5-year discount rate (about 3.89% today) then you’d need to make at least $52,400 to qualify for a $250,000 mortgage.*

If it’s the 5-year posted rate (5.39% today) then you’d need income of $58,600 to qualify for that same mortgage…$6,200 more than if the discounted 5-year rate was used!

  *  Assumes a 35 year amortization, $500 a month in non-housing debt, 1% for property tax, $125 a month for heat, and a 680+ credit score.

With a rule change this big, wouldn’t (shouldn’t) the government have realized that lenders use different 5-year fixed rates? 

The RBCs, BMOs, and TDs of the world have posted rates. But, the INGs, Street Capitals, and First Nationals of the world, don’t.

We hate to say it, but these rules seem to have been rushed out with insufficient industry consultation--especially with respect to the game-changing new rental policies (which we’ll talk more about shortly).

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Sidebar:  We’ll update new Finance Department developments as we hear about them in CMT’s Twitter mortgage news feed.

Devilish Details From Yesterday’s Announcement

Yesterday’s mortgage rule changes sparked as many questions as answers.  Here’s what we know (to the best of our knowledge) at this point. The quotes come from an insurer memo we received…

Qualifying Rate: 

• Regardless of the mortgage term you choose, the interest rate used to qualify you will be “the greater of the contract rate and the Approved Lender’s five-year fixed rate.”
• There is big confusion about which 5-year fixed rate will be used:  discounted or posted.  A source at CMHC tells us this is the #1 question they’ve been getting. 
• It’s a key point because posted 5-year rates are as much as 1.6% higher than 5-year discounted rates.  If posted rates are used, it means borrowers will qualify for lower mortgage amounts.
• The Finance Department is apparently aware of this ambiguity and is expected to announce clarification on this point in the next few days.
• It’s interesting to note that CMHC used to require that lenders use the 5-year posted rate to qualify people on variable-rate mortgages. Perhaps they’ll go back to this?  We’ll see.

Second Homes:

• CMHC will no longer insure 2nd homes with more than one unit.
• The borrower or his/her relative must live in the property “at some point during the year” and on a “rent-free” basis.  Lenders must confirm that this will be the borrower’s intention.

Rental Debt Servicing Changes:

• This is a biggy if you want to buy rental properties.  CMHC is changing how rental income is used in a borrower’s debt service calculations (TDS formula).
• Previously, CMHC allowed 80% of the gross rental income from all rental properties to be deducted from the total household debt service cost when calculating the TDS ratio.
• Effective April 19, “50% of the gross rental income from the subject property may be included into the borrower’s gross annual income for the purposes of calculating the borrower’s TDS ratio.”
• Rental income for all other rental properties will be treated the same as regular non-salaried income.  Borrowers will need to prove rental income. That will be done “using the average income for the previous two-year period from line 150 of the borrower’s two most recent CRA NOAs.”  Borrowers will be able to “gross up” the non-salaried portion of that line 150 income by 15%.
• In practice, lenders may instead simply choose to rely on line 126 (“Rental Income”) on the borrower’s tax return.
• For non-subject rentals, lenders may be allowed to make exceptions where the borrower does not have a two-year track record of a property and can prove rental income by some other means. (This is unconfirmed.)
• The new TDS formula:

   PITH (subject property) + Other Debt Costs 
      Gross Annual Income + 50% rental income

*  PITH = Mortgage payments, taxes, heat, and 50% of condo fees.

Borrowed Down Payments:

• We hear that borrowers might no longer be able to borrow their down payments on an insured rental mortgage.  We’re awaiting confirmation of this.

Porting Existing 95% Rental Mortgages:

• If you switch an existing rental mortgage to a new lender, and the loan-to-value is over 80%, you will not be affected by the new 80% maximum LTV requirement. (As long as the loan amount, LTV, and amortization do not change.)

5+ Unit Rental Properties:

• 5+ unit rental mortgages will not be affected by these changes when insured under CMHC’s Multi-Unit program.

The above changes will apply to all mortgages with signed commitments dated after April 18.  The rules are still subject to final review by the Department of Finance.

If these rental rules go through, they’ll have drastic effects on rental financing. We’ll do another piece on the repercussions of this shortly…

New Mortgage Rules: The Good, The Bad, The Ugly

On April 19 our government will lay down three major rule changes to “prevent” a housing-price bubble and keep homeowners from getting “overextended.”

Here is the official announcement from today:  Finance Department release

These new rules apply to government-backed insured mortgages only.

The Good:  5-Year Fixed Qualification Rates

• The New Rule:  Borrowers will need to qualify using a 5-year fixed rate regardless of what term they choose.  If you want a 1.95% variable rate, for example, you will need to show that you can afford payments at a higher fixed rate, like 4.09%.
• The Government’s Reasoning:  “This initiative will help Canadians prepare for higher interest rates in the future.”
• The Effect: It will now be harder to qualify for a variable-rate mortgage, but not much harder. Most lenders already use three- or five-year mortgage rates to calculate a borrower’s debt service ratios.  For many discount lenders, this means the qualifying rate will go from something like 3.25% to 3.89%—not a huge difference.
• The Verdict: A sound and necessary change--although many lenders already use similar guidelines.

The Bad:  90% Maximum Refinancing

• The New Rule:  No longer will you be able to refinance your home to 95% of it’s value. 90% will be the new refinance maximum.
• The Government’s Reasoning:  “This will help ensure home ownership is a more effective way to save.”
• The Effect:  Borrowers will be less able to pay off high-interest debt with lower-cost mortgage money.  On the upside, this rule has the positive effect of keeping equity in the home (which is quite helpful when home prices fall). It also discourages homeowners from relying on home equity to bail themselves out when they accumulate debt.
• The Verdict:  Bad…for people who need to restructure debt in an effort to pay more principal and less interest.  On the other hand, a 90% refinance limit is beneficial in that it deters people from racking up debt and using their homes as a proverbial ATM machine.

The Ugly:  80% Maximum Insured Financing On Rentals

• The New Rule:  People buying non-owner occupied rental properties will need to put down 20% to get an insured mortgage, versus 5% previously.
• The Government’s Reasoning: To reduce speculation.
• The Effect:  The number of investors creating rental housing will drop notably. Investors will need to borrow down payment funds elsewhere (assuming it’s allowed) or use higher-cost non-insured lenders (like TDFS) to get 90% financing. Note: This rule does not apply to multi-unit owner-occupied homes with rental units (like duplexes and triplexes).
• The Verdict:  Ugly.  How the government can go from 100% rental financing (17 months ago) to 80% today is confounding. The intent is understandable, but the government could have increased net worth requirements, increased Beacon minimums, tightened debt servicing guidelines, or limited the number of insured rental mortgages a person can qualify for. Instead, the solution was near-draconian, and it will have an effect on the rental stock in Canada. Will it cause a material rise in rents?  That’s a tough call, but it will definitely reduce the supply of rental units and limit Canadians’ investment options.

What to Expect:

• Undoubtedly there will be a rush of applications to beat the April 19 deadline. 
• The government says “Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.”
• The 80% rental rule will crush the income property financing business for some lenders and brokers.
• If history is a guide, certain lenders will implement these guidelines early (i.e.  before April 19).

Interestingly, Minister Flaherty took a small jab at lenders in his release today, saying these rule changes are designed to “help prevent some lenders” from “facilitating” irresponsible lending. 

"If some lenders aren't willing to act themselves, we will act,” said Flaherty.  That’s bold talk given that Canadian lenders have exceptionally low default rates, and already conform their mortgages to all existing government guidelines.

Ottawa to Impose New Mortgage Guidelines

Various media are reporting that the Finance Department will announce new mortgage qualification rules tomorrow (Tuesday, February 16).

Among the possible rumoured changes:

• An “income test” to ensure people can make their variable-rate mortgage payments if rates rise (Canadian Press)
• Higher down payments for “certain borrowers” (Globe)
• Changes to investment property lending guidelines (CBC)
• Restrictions on home refinancing (CBC)

Across-the-board down payment increases and a reduction in maximum amortization (from 35 to 30 years) are not part of tomorrow’s changes, according to CBC.

None of the above have been confirmed as of yet.

The government last made wide-ranging mortgage rule modifications in October 2008. (See: Goodbye to 100%/40-year Mortgages)

We’ll have full coverage of any announcements tomorrow. Flaherty has a press conference set for 8:00am ET.

More… 

• Ottawa ready to tighten mortgage rules
• Flaherty to toughen mortgage rules
• Flaherty Said to Tighten Canadian Mortgage Rules

Foreclosure Times By Province

When borrowers default, Canadian lenders usually use one of two methods to recover mortgage debt:

• Judicial sale

• Traditional foreclosure via the courts
• Used in BC, Alberta, Saskatchewan, Manitoba, Nova Scotia, and Quebec

• Power of sale

• Liquidation with minimal court involvement
• Used mainly in Ontario, Newfoundland, New Brunswick, and PEI

Below are estimates from DBRS of the time it takes to foreclose on a typical property in each province (in months).

Province	Foreclosure Period
AB	4
BC	8
MB	1
NB	2
NL	6
NS	3
NT	10
NU	10
PE	2
ON	4
QC	9
SK	4
YT	4

Keep in mind, there are several variables, as well as additional collection times, that often apply.  DBRS estimates that these factors could add up to 10 months to the total liquidation time.

Here’s more about the (Ontario) liquidation process from Blakes…

Don’t Ask For Discretion At The Bank!!

Sorry. We had to say that. 

It seems we have upset a few mortgage specialists from a certain bank that shall remain unnamed.

Apparently people are reading our articles about branch discretion (i.e., selective discounting) and then marching into bank branches asking for discounts off the “special offer” rates. Imagine that.

A few mortgage specialists tell us this has put them in bit of a “pickle.”

One email we received states: 

“By quoting our "best client" rate on your website, it is an indication that all clients can get that rate "just for asking."  We have very little negotiation room left and, if we give it to ALL clients, we have nothing left to offer those clients who truly are deserving of a better rate.”

Makes you wonder, eh? 

Are you deserving?  :)

Counterpoint to CAAMP’s Findings

CAAMP’s recent findings (that 86% of 2009 home buyers chose fixed rates) is being questioned by Scotia Capital economist, Derek Holt.

This is from a recent Macleans article:

• “I have difficulty with the CAAMP report,” says Holt. “I think their study grossly underestimates mortgage rate sensitivities.”
• He thinks “as many as” 50% of new mortgages are subject to rate risk because of them having variable or 1-year terms.  (We haven’t seen any other published stats corroborating this sort of number.)
• Holt says: “It doesn’t even really matter if they went variable rate or fixed rate, because pretty much all of the mortgage market in Canada resets in the next five years.”

The Latest Talk On Policy Changes

From the rumour-mill:

• Sources say the Finance Department is considering mortgage qualification rule changes, which could potentially be announced with its March 4 budget. (We’ve found no confirmation on this.)
• The government is evaluating standardized qualifying rates to ensure variable-rate mortgagors can afford payments when rates rise. (Globe story)
• Finance Minister, Jim Flaherty is reportedly not fond of broad-based rules to increase minimum down payments and decrease maximum amortization.  Some say he may introduce more targeted rule changes instead.

ING’s Aceto Warns Against Blanket Mortgage Rule Changes

The government should hold off on wide-ranging down payment and amortization changes, says Peter Aceto, ING Direct’s CEO.

While conceding that some of Canada’s real estate markets may be “irrational,” he said this to the Globe & Mail:

• “I worry about government-based tightening of the mortgage rules creating…too fast of a cooling, which is not really good for anyone.”
• “The banks in this country don't have to lend to the limit of the law – they can make smart rules on their own and not have Minister Flaherty make the decision for them.”

Scotia Capital, in a separate Globe interview, said Canada will “face even greater risk of a price bubble popping” if “abrupt rule changes” are imposed as home prices correct naturally.

The Globe’s been giving this topic a lot of play lately. Here’s yet a another editorial asserting that a mortgage rule crackdown is unneeded.

RBC On Its HELOC Rate

It’s sometimes hard to understand why HELOC rates are still high, while variable mortgage rates keep falling.

We asked RBC this question because, just yesterday, it raised its HELOC rate by 1/4%. Prior to that, it led the industry since October at prime + 0.50%.

Spokesperson, Gillian Mcardle, said:

“We base mortgage product pricing decisions on a number of factors -- these include not only funding (cost) and risk factors, but also strategic, business decisions to differentiate ourselves in the marketplace.”

McArdle says that RBC “characterizes (its HELOC rate change) as having ended a special rate offer and moving back to our everyday low pricing.”

She also confirmed that RBC’s new HELOC rate of prime + 0.75% applies only to new lines of credit within an RBC Homeline Plan.  RBC’s existing lines are not affected.

In general, HELOCs come with a bit more risk and higher funding costs than a regular variable-rate mortgage, so they’re rarely as aggressively priced.

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Sidebar:  It’s not that common for big banks to make prominent announcements about HELOC rate increases. RBC’s decision to issue a release on this rate change was, therefore, somewhat interesting.

Mailbag: Long-term Closes

Question:  I heard that the longest rate hold I can get is 120 days. What should I do if my house isn’t closing for 153 days? – Shirley McCullough

Answer:  A couple of lenders now offer 180-day rate holds.  National Bank is one of them, through its broker channel.  Its rate is pretty reasonable for long-term rate assurance. (For a 5-year fixed, it’s in the 4.09% range depending on the mortgage planner you use).

The nice part is this:  If National Bank is offering a lower “90-day rate,” three months from your closing date, you can switch to that better rate. On the other hand, if rates go up, you’re protected.

National’s 6-month rate holds are a handy solution for folks closing in over 120 days.  Talk to your mortgage planner for more details.

RBC Goes Below Prime

RBC will become the first Big 5 bank in more than a year to advertise a variable-rate mortgage under prime rate. 

The company just announced it’s cutting its “special offer” variable rate to prime – 0.10%.  The remaining big banks will probably follow suit soon.

RBC’s new rate is mostly a game of catch-up. More deeply-discounted variables have been available from other lenders and brokers for several weeks now. 

Even more interesting, RBC said it’s raising its Homeline HELOC rate (for new customers) back up to prime + 0.75%!  RBC led the market back in October when it cut its secured HELOC rate down to prime + 1/2%.