Mortgage Rates & Mortgage Broker News in Canada

Average Mortgage Grows 36% In 48 Months

Over the last four years the average Canadian mortgage has increased in size by 36%, according to data from Ipsos Reid’s Canadian Financial Monitor.

There’s also been a slight shift towards variable rates.

	2006	2010
% of Households with a mortgage	34%	34%
Avg. Mortgage Balance	$105,000	$143,000
% with fixed rates	71%	68%
% with variable rates	29%	32%

Going forward, people will be watching to see if rising rates and/or falling home prices reverse the trend. If so, average mortgage balances could drop for a while.

Conversely, there is always a possibility that down payments will shrink and/or people will take out more equity from their homes. Either of these things would counterbalance the above and support mortgage balances to some extent. 

It’s difficult to speculate, though, since historical data on average balances, down payment size and equity take-outs is hard to come by.

Fresh Mortgage Statistics From Genworth

Genworth Financial Canada released a new mortgage-related survey on Tuesday.

Among other things, the study found that:

• 23% of mortgage holders have made a lump-sum pre-payment or accelerated their mortgage payments in the last 12 months. 
  
  The first thing we thought of when reading this was that it’s a wonder more people don’t take low-frills mortgages (those with 5-10% annual pre-payment privileges). Most people have the best intentions of making pre-payments, but relatively few actually do. As a result, many needlessly overpay for large pre-payment privileges in the form of higher mortgage rates.
   
• 22% of recent and intended home buyers say they got pre-approved in the last year.
  
  This figure seems ultra low. Pre-approvals/Rate Holds are a no-risk option. They protect people against rising rates and, in some cases, establish qualification in advance of a home purchase. Interestingly, there have been other studies showing as many as 91% of first-time home buyers get pre-approved (See: More Buyers Get Pre-Approved).
   
• 49% of homeowners made down payments of 20% or more on their most recent home purchase.
  
  This seems about right. Earlier this year, CMHC found that 42% of prospective home buyers planned for at least a 20% down payment. (See: New Facts On Home Buyers)
   
• 59% of Canadians claim to pay their credit cards in full each month.

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This data was collected between March 4-10, 2010 from 2,001 respondents by Environics Research Group on behalf of Genworth Financial Canada. CMT comments in italics. Here’s more…

More Buyers Get Pre-Approved

91% of first-time home buyers are getting pre-approved, according to TD Canada Trust’s 2010 Home Buyers Report.

That’s a big improvement from the 62% pre-approval rate reported in a similar 2007 BMO study.

Today’s home buyers seem to be more educated on the benefits of pre-approvals. They’re also more concerned that rising rates will put them at risk without a rate hold.

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Sidebar: Here are a few other notable points from TD’s report:

• 70% of first-time home buyers put, or plan to put, less than 20% down. 
• “Six-in-ten are worried about being able to afford their home if interest rates rise.”
• Almost three-quarters of home buyers surveyed “have or plan to have a fixed-rate mortgage.”

Mortgage Market Primer (TD)

If you have any interest in the nitty gritty of Canada’s mortgage industry, TD Securities’ Eric Lascelles has put out this fantastic market overview: Canadian Mortgage Market Primer

Here are some of the more notable points…

• 70% of Canadian lenders are deposit-taking institutions (Page 1)
• 5-year GICs and the Interest Rate Act are two reasons Canadian mortgage terms are usually five years or less (Page 5)
• There is a difference between Adjustable Rate Mortgages (ARMs) and Variable Rate Mortgages (VRMs). Both have variable rates but the former has variable payments while the latter has “fixed” payments. (Page 5)
• For any term over five years, the pre-payment penalty cannot be greater than three months interest once five years have elapsed. (Page 7)
• “Given a mortgage delinquency rate of 0.44% and the assumption of a (pessimistic) recovery rate of 80%, this means that expected mortgage portfolio losses for Canadian lenders are less than 10 basis points per year for uninsured mortgages.” (Page 8)
• About 50% of Canadian mortgages are insured. (Page 8)
• “Even with an insured mortgage, the lending institution manages the mortgage, directly handling payment collection, foreclosure, and sale of the home, where applicable.” (Page 10)
• 29% of Canadian mortgages are securitized versus 60% in the U.S. (Page 10)

• $175 billion of the $275 billion in Canadian securitized mortgages (64%) are sold into the Canada Mortgage Bond (CMB) program. (Page 10)
• Canadian borrowers can usually prepay 10-25% of their mortgage each year without penalty, but the average prepayment is less than 1%. (Page 11)
• It is estimated that the Insured Mortgage Purchase Program (IMPP), which allowed the government to buy back mortgages during the credit crisis in 2008-2010, netted the government extra profit of roughly $187.5 million. (Page 11)
• Lenders (or their agents) must continue servicing a mortgage after it’s sold into the CMB program—including assuming all pre-payment and uncovered default-related costs. Mortgage Insurance does not make lenders completely whole in the event of default. (Page 13)
• The CMB program intentionally operates on a break-even basis (Page 14)
• Mortgage defaults “would have to increase by three- to four-fold to compromise the profitability” of CMHC’s default insurance program. CMHC should have ~$8.8 billion in insurance retained earnings as a buffer for its insurance business in 2010. (Page 15)
• Like any insurance business, CMHC’s is not completely without risk. (See Page 16)
• The CMB program adds very little additional risk for CMHC. The underlying mortgages are already insured. (Page 15)
• 71% of mortgagors with CMHC insurance have “equity in their homes of more than 20%.” (Page 16)
• “Over 40% of CMHC's total business in 2008 was in areas, or for housing options, that are less well served or not served at all by the private sector mortgage insurers.” (Page 17)

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Source: TD Securities

New Facts On Home Buyers

Here’s some fresh data from CMHC’s newly-released Renovation and Home Purchase Report:

• 6% of Canadian households bought a home in 2009
• 43% were first-time buyers (up from 36% in 2008)
• 35% of buyers were age 18-34
• 66% bought a home that was more expensive than their previous residence; 22% bought a less expensive home
• 59% bought a larger home; 24% downsized
• 74% bought an existing home; 22% bought new construction
• 55% purchased a single-detached home; 18% bought an apartment condo
• 5% of households intend to buy in 2010; 53% of those are renters
• 42% of those intending to purchase, plan to make a down payment of 20% or more.

The report surveyed 5-10 metropolitan areas across the country. Here’s a link to the full report with all the details.

Hybrid Mortgages Catching On

Investors like to avoid putting all their eggs in one basket. But this philosophy has been slow to catch on in the mortgage market.

94% of people still choose either fixed or variable rates, says CAAMP. Very few choose a combination of both.

That may be changing, if yesterday’s RBC/Ipsos Reid poll is right.

According to RBC, 40% of prospective homebuyers (people who plan to buy in the next two years) intend to take out a hybrid mortgage. That compares to 32% in last year’s survey.

These stats are a little hard to grasp given CAAMP’s recent mortgage survey. It suggests only 6% of Canadians have actually chosen a hybrid mortgage in the last year. However, Ipsos Reid’s Sean Simpson, says: “I would account for the difference by saying that one is an outlook while the other is retrospective.”

Simpson notes that, “Looking forward to the next two years, there is much more uncertainty in the direction of interest rates.” He says that Hybrids are, therefore, becoming more attractive since they let people capitalize on low rates while retaining an element of security.

Based on what an RBC spokesperson told us, hybrids may be catching on fast. In terms of the number of new buyers choosing hybrids, RBC says: "We have been trending similar to the survey results over the last quarter."

Marcia Moffat, head of Home Equity Financing at RBC, adds: "As consumers begin to learn about the benefits of mortgage diversification, we're seeing more homebuyers gain a better comfort level with adding floating rate mortgage options."

From our own anecdotal observations, that appears to be the case. We’re not seeing anywhere close to 32-40% of borrowers choose hybrids, but there’s been a noticeable increase in hybrid mortgage inquiries compared to last year.

The academic research supports hybrids as well. Dr. Moshe Milevsky--Canada’s most quoted mortgage researcher—says: “Nobody can truly predict how rates will move over a five-year period. It’s just that simple.”

He, therefore, believes hybrids are a good form of mortgage risk management. “People should strongly consider mortgages that are part fixed and part floating,” he told us last year. Interest rate diversification benefits borrowers just like it benefits investors who buy portfolios of stocks.

Of course, if history is a guide, well-qualified borrowers may save more money by simply choosing an ultra-low variable rate, or a 1-year fixed. But not all borrowers are in the same boat. Homeowners with only moderately strong personal “balance sheets,” can’t afford to dismiss the concept of risk management. 

Many moderately-strong borrowers will, in fact, assume the risk of putting 100% of their mortgage in a variable rate. These folks will probably never realize the value of rate diversification/risk management unless the “worst case” materializes…and then it’s usually too late.

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Sidebar:  Here’s a partial list of lenders who currently offer hybrid mortgages:

• ATB Financial
• Canadiana Financial
• HSBC
• Laurentian Bank
• Merix Financial
• National Bank
• RBC
• Scotiabank
• Various credit unions

If we forgot any major ones, let us know and we’ll add them to the list.

This list does not include all lenders that offer readvanceable mortgages.  Readvanceable mortgages often include a fixed portion and line of credit (LOC) portion. That technically makes them a form of hybrid mortgage as well, assuming that part of the mortgage is put in the LOC.

The Latest Reality Check on Debt

Canadians' debt-to-financial assets ratio now exceeds that of all other OECD countries for which data is available.

That’s according to this new Certified General Accountants (CGA) study.

CGA’s report states that…

• 20% of Canadians feel they have too much debt--versus 17% in 2007
• 1/4 of respondents wouldn’t be able to handle an unforeseen $5,000 expense (The study didn’t note how many of these people had mortgages.)
• A 2% mortgage rate increase would require a 9% to 11% reduction in discretionary spending among middle to middle-high income families.
• 43% of Canadians are “concerned about their financial condition at retirement.” (The reverse mortgage industry will benefit from stats like this, as fewer seniors have sufficient savings apart from their home equity.)

This report comes on the heels of yesterday’s CAAMP survey, which estimated that 475,000 Canadians would be financially challenged if their mortgage rate increased to 5.25%. That’s on top of 375,000 others who are already finding it hard to keep up with mortgage payments.

There are 5.55 million Canadians with mortgages.

A Look Inside The Mortgage Market

Canada’s national mortgage industry association, CAAMP, has released its 6^th bi-annual survey of the Canadian mortgage market.

As usual, it contains oodles of interesting mortgage factoids.

Here’s a summary of the key numbers:  CAAMP 2010 Spring Mortgage Survey

12% Worried About Missing A Mortgage Payment: TNS Survey

Here are a few nuggets from the most recent quarterly TNS survey:

• 10% of Canadians are making extra payments to pay down their mortgage faster. (Such a small number!)
• 5% have recently switched from a fixed to a variable rate mortgage
• 12% are worried about missing a mortgage payment
• 4% have actually missed a payment

The survey questions were posed to Canadian mortgage holders between March 18 and March 25, 2010. 1,032 people were interviewed for the survey. More info…

2010 CMHC Mortgage Consumer Survey

The Internet is a vital tool for mortgage shoppers, but many in our industry don’t realize what a powerful force it’s become.

According to CMHC, almost 9 out of 10 first-time homebuyers use the Internet to research mortgages.

That’s a resounding statistic and it shows how valuable a top 10 Google position is for web-centric mortgage marketers.

This is one of several data insights found in the new 2010 CMHC Mortgage Consumer Survey.

Below are other key findings from the report…

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Lender Loyalty

• 88% of renewers stayed with their current lender when renewing.  (Many of them simply signed their renewal letter without shopping around—the cardinal sin of mortgages.)
• 70% of refinancers stayed with their current lender when refinancing.
• 58% of repeat buyers stayed with the same lender when obtaining their new mortgage.
• 46% of first-time buyers got their mortgage with a financial institution they already did business with.

Mortgage Broker Market Share

• 45% of first-time buyers used a mortgage broker.
• 33% of repeat buyers used a mortgage broker.
• 23% of refinancers used a mortgage broker.
• 13% of renewers used a mortgage broker.

Miscellaneous

• 77% agree that now is a good time to purchase a home.
• 70% of recent homebuyers spent at least six months planning their home purchase.
• 81% of homebuyers are comfortable with their current level of mortgage debt.
• 71% of first-time buyers used their own resources for their down payment.
• 27% of recent homebuyers have made a lump-sum pre-payment or increased their regular payment since taking out their mortgage.
• 4 out of 5 mortgage holders have 25-year amortization or less.

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Survey details:  The above data comes from a CMHC survey performed from February 11th to 28th, 2010. The survey was conducted online with 2,503 recent mortgage consumers. CMHC has published the survey since 1999.

Canada Prepared For Rising Rates: CAAMP

Claims that Canadians are taking out risky variable-rate mortgages and borrowing more than they can afford “are not based on actual data” and “are misinformed.” That’s according to CAAMP, who issued this study of 40,000 mortgages from 2009:  Revisiting The Canadian Mortgage Market…

Despite rising home prices, first-time mortgagors took out “far less” than they could afford last year, says CAAMP.

"The vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions," stated Jim Murphy, president and CEO of CAAMP.

CAAMP ran simulations to estimate what would happen if the Bank of Canada hiked rates 3% over two years (and fixed rates rose 1.25%).

It found that income gains should offset much or all of the increases in mortgage payments that most Canadian’s would experience.

"The bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments," said CAAMP chief economist Will Dunning. “All in all, the degree of risk from rising mortgage rates appears to be small and manageable,” he writes.

A key finding in the report was that 86% of Canadian home buyers took out fixed rates in 2009.  Here’s a breakdown of the terms they selected:

• 5% chose 1- to 2-year terms
• 20% chose 3-year terms
• 5% chose 4-year terms
• 70% chose 5- to 10-year terms

Other notable findings from the study:

• 5%:  Number of Canadian households who purchase a home each year.
• 50-60%:  Number of those who are first-time homebuyers.
• 0.03%:  Percentage of first-time home buyers (compared to all home owners) that are “pushing the envelope” by getting mortgages they may not be able to afford.
  
  CAAMP estimates these “at-risk” borrowers amount to 4,000 households out of 13,250,000 in Canada.
  
• 10%:  Annual growth rate of mortgage debt in the last five years.

”This growth rate was far in excess of growth of incomes and therefore mortgage debt has become a growing burden for Canadian households,” CAAMP said.

CAAMP attributed this growth to rising home prices and increased home ownership. 70% of households now own homes, versus 63.6% in 1996.

• 5.425 million:  Number of Canadian mortgage holders.
• 22.3%:  Average GDS ratio of a home buyer in 2009
  
  32% is the traditional GDS maximum. This stat is a pleasant surprise. According to CAAMP’s findings, most Canadians appear to be underbuying, not overbuying--as some critics charge.
  
• 32.8%:  Average TDS ratio of a home buyer in 2009
  
  Similar to GDS above, this is well below the standard. 40-42% is the typical TDS maximum.
  
• 0.44%:  Current percentage of mortgage holders in arrears.
  
  CAAMP says arrears averaged 0.50% in the 1990s. Mortgage arrears are highly correlated with Canada’s employment rate. Reduced hours/pay and separations/divorce are secondary factors. CAAMP says it “appear(s) most likely that the arrears rate is close to peaking.”

Dunning closed the report by writing: “Virtually every Canadian who is in a position to buy a home and qualify for a mortgage is well-educated and capable of assessing what is in their best interests, of looking forward, and of anticipating threats to their financial well-being.”

Let’s keep it that way by advising homeowners to remain conservative.

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Sidebar:  More details on the study above:

• Data was collected from a CAAMP survey of its corporate members
• Sample size was 40,000 mortgages totalling $10 billion
• This represents about one-sixth of total mortgage activity for home purchases in Canada.
• The mortgages were all funded in 2009
• The data included purchases only. No renewals or refinances.
• The vast majority of mortgages in the dataset are high-ratio and insured.

CAAMP’s Annual Mortgage Market Report - 2009

If there’s one mortgage report worth reading each year, it’s this one. CAAMP’s Annual State of the Residential Mortgage Market in Canada survey is perennially packed with timely statistics and trends.

Here are some of the more notable ones…

The mortgage market:

• 5,400,000:  The number of homeowners with mortgages.
• $186 billion:  Total estimated new mortgage volume this year (down 14% from 2008).

Mortgage activity:

• 27%:  Percentage of mortgage holders that got a new mortgage, switched their mortgage, or refinanced in the past 12 months.
• 47%:  Ratio of people who got mortgages this year with an amortization over 25 years. (Last year the number was 50%.)
• 34%:  Share of new mortgages arranged by brokers (vs. 35% last year).
• 88%:  Number of people that stayed with their current lender when renewing or refinancing.  (Only 12% left! Many of these people lost money by choosing to sign their lender’s renewal letter. Remember, renewals are negotiable. Ask your lender for their best deal and then call a mortgage planner to compare.)
• 9%:  Percentage of Canadians “dissatisfied” with their present mortgage. (For the many who choose to blindly stay with their lender, ignorance is bliss.)

Homeowner equity:

• 48%:  The average loan-to-value of Canadian mortgages.
• $130,300:  The average mortgage balance in Canada.
• 80%:  The ratio of mortgage holders with over 20% equity. (This is a somewhat reassuring statistic for people who fear a bursting real estate bubble.)
• 1%:  Approximate percentage of Canadians mortgage holders whose home is worth less than their mortgage

Typical mortgage terms selected by Canadians:

• 62%:  Chose 4- or 5-year terms (56% chose 5-year terms)
• 11%:  Chose terms over 5 years
• 27%:  Chose terms less than 4 years

Type of rate:

• 68%:  Chose a fixed rate
• 27%:  Chose a variable rate
• 6%:  Chose a hybrid mortgage (part fixed / part variable)

Rate shopping:

• 1.91:  The number of quotes people get (on average) when shopping for a new mortgage
• 4.74%:  The average 5-year fixed mortgage rate over the past 12 months
• 1.23%:  The average 5-year fixed discount that banks offered over the past 12 months

Miscellaneous:

• 30%:  Ratio of mortgages funded by mortgage-backed securities (MBS). (This is a huge leap from 17% two years ago.)

CMHC’s 2009 Housing Observer

CMHC released its 2009 Canadian Housing Observer yesterday.

Most of its findings are dated back to year-end 2008, but it contains some interesting tidbits nonetheless.

One key takeaway is the massive importance of Canada’s real estate industry. It’s a point that can’t be overemphasized--with housing-related spending accounting for 1/5 of our economy.

The mortgage business is no small potatoes either.  As of December 31, 2008, there were $903 billion worth of mortgages outstanding in Canada.

If you’re a trendspotter, you’ll find it interesting that chartered banks approved 74% of outstanding residential mortgages in 2008.  That’s down from 2007, when the number was 79%. (Five percentage points of market share is a sizeable change for one year.)

It will be interesting to see if banks regain some share in 2009. Banks had an enormous advantage over non-banks in terms of funding costs this year. That’s due to banks being flooded with low-cost customer deposits (as investors pulled out of other assets). As a result, 2009 saw banks become more aggressive than ever.

RECA Study Sheds Light On Consumer Views

The Real Estate Council of Alberta (RECA) released a study this month about how consumers perceive mortgage brokers. 

Among other things, it noted that:

• “Consumer understanding of compensation and relationships in the mortgage brokerage industry varies considerably.”
• With brokers, respondents felt “they were receiving elevated customer service and obtaining better mortgage rates and terms than they would obtain independently.”
• “It was not so much the rate as the overall terms and conditions of the mortgage that is of key importance.”
• “Consumers have little concern for how a broker gets paid as long as it is not by them. Most consumers are aware that the lender pays commission.” 

With respect to that last point, regulators deserve credit for bringing compensation into the open through disclosure forms and other rules.  As with any advice-business, potential conflicts do exist in a minority of cases and consumers need to know about them.

In sum, RECA’s research was a very positive reflection on our industry.  Mortgage practitioners can take pride in the value they add and the degree to which professional mortgage planning has evolved.

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About RECA: Established in 1996, RECA regulates mortgage brokers and real estate professionals throughout the province of Alberta. Its mandate is to protect consumers, enforce Alberta’s Real Estate Act, and promote professionalism and integrity in the industry.

Boring But Effective

That’s how a recent IMF paper characterized Canada’s mortgage market.

Among other things, it compared Canadian and American mortgages and listed several key differences.  Here are the big ones:

• US mortgages typically don’t have pre-payment penalties.  Canadian mortgages usually do (except for “opens,” which are more expensive).
• Canadian mortgages are portable. Portability is rare in the US.
• US mortgages often have higher origination costs (thanks to “points” and fees) than Canadian mortgages.  According to the study, Americans pay $3000-$5000 on a typical purchase, while Canadians pay about $1800.
• Rate holds are usually free in Canada. American lenders commonly charge for them.
• Mortgage insurance in Canada covers the entire loan amount. In the US, it usually only covers losses above a LTV ceiling (above 80% for example).
• In Canada borrowers must pay the entire insurance premium up front. In the US, borrowers pay it monthly and can cancel it when LTV falls below the required threshold (e.g.,  80%).
• In foreclosure, Canadian lenders have recourse in a borrower’s non-home assets. In the US, that’s usually out of the question due to legalities or costs.
• Most US mortgages require payments to be made at the beginning of every month. In Canada, we have weekly, bi-weekly, semi-monthly, and monthly payment options.

Some other notable statistics and conclusions:

• Deposit-taking institutions held 62% of Canadian mortgage debt at the start of 2009.
• Just 29% of Canadian mortgages are securitized, versus 60% in the US.
• 45% of Canadian chartered bank mortgages are insured.
• Home ownership in the US and Canada are both about 68%, despite US homeowners receiving a mortgage interest tax deduction.
• Canada has fewer options than the US when it comes to mortgage terms over 5 years. The author says that’s due to a five-year maturity cap on government-guaranteed deposit insurance, and the Interest Act’s prepayment penalty limit.

CMHC’s 2009 Mortgage Consumer Survey

CMHC recently surveyed 2,507 new mortgage consumers.  Here’s what they found:

• 70%:  Feel now is a good time to buy a home in Canada
• 1/3:  Expect to move in the next five years
• 73%:  Used their own resources (savings, equity, or RRSP) for their down payment.
• 1/3:  Have previously requested their credit score from a credit bureau.  (Wow.  2/3 have not?)
• 87%:  Believe that 40% is the maximum ratio of monthly gross income that one should spend on debts and housing (It’s interesting that so many people know this. This 40% figure is, of course, a general lender guideline for maximum TDS.)

What matters to homeowners:

• “Getting the best rate”:  This was the number one thing that made customers satisfied with their lender or broker.
• “Service”:  The top reason driving customer satisfaction with brokers.
• “A good relationship”:  The top reason behind customer satisfaction with lenders.

Other interesting market share stats:

• 90%:  The number of people up for renewal who stayed with their existing lender.  That compares to 83% in 2007.  (This is absolutely stunning. Either lender retention departments are getting much better or people are getting more complacent.  In this competitive market, you’ve got to shop around—or, better yet, get a professional to do it for you.)
• 25%:  The number of mortgages originated by mortgage brokers. CMHC said it was 27% in 2007 (See CMHC’s 2007 Mortgage Survey).  (The banks seem to be making a comeback for the time being. They’re most definitely getting more competitive. In addition, we’re seeing a lot of smaller lenders harness the power of the net to drive new business.)
• 44%:  The number of first-time buyers who got their mortgage through a broker.  (This is up sharply from 35% in 2007.)

Click to enlarge. 

Source:  The chart and all data are courtesy of CMHC.  For a summary of CMHC’s complete findings, click here.

Pre-payments Less Critical Now: Prospera

“The ability to make lump sum [mortgage] payments is much less critical to the consumer – especially in today’s economy.” 

That’s the conclusion of Prospera, a prominent BC credit union.

Prospera commissioned a survey of 603 BC adults in April.  The poll was conducted on Prospera’s behalf by Ipsos Reid. 

Among other things, it found:

• 60% of respondents under 45 years old said they’d be willing to forgo some mortgage payment flexibility in exchange for a lower interest rate.
• 59% were unaware that mortgage rates are typically higher when large lump-sum pre-payment privileges are offered.
• Mortgage payments comprise about 25% of the average Canadian family’s monthly expenses.

These figures seem believable enough.  From the inquiries we get, most borrowers seem less and less concerned about big pre-payment privileges, despite their potential value. 

On the other hand, people do seem to want at least some level of pre-payment ability (5-10% for example).  Very few tell us they don’t care about pre-payments “at all.” 

(Then there are those who absolutely must have a 15-20% lump sum pre-payment option.)

Not coincidentally, in conjunction with releasing these survey results, Prospera launched a brand new no-frills mortgage.  It’s geared to people who “know they will not take advantage of pre-payment privileges and would rather have a lower interest rate.”  Prospera calls it the myStyle Mortgage and it’s currently priced at 3.59% for a 5-year fixed. 

The myStyle Mortgage is just the latest in a series of no-frills launches over the past year.  It’s been said before and we’ll repeat it.  No-frills mortgages are a growing trend and lenders who don’t offer them will give up a lot of revenue over time.

Crisis Is Over: CIBC’s Avery Shenfeld

“America’s banking crisis is over,” says CIBC economist, Avery Shenfeld.

He says the market now believes “the fear of failure has been shaken out of the system.”

Avery made the remarks in a research report released Friday.  He expects the US banking crisis will soon “fade out as a concern for anyone other than the affected banks’ shareholders.”

As we reported in Saturday’s TED spread post, some lending indicators do seem to be getting back to “normal,” albeit slowly.  That said, it could be a while before things like variable-rate premiums and lending criteria loosen up to their pre-2008 levels.  Some industry watchers feel the latter (lender guidelines) could remain tighter than normal for a few years or more.

CAAMP Spring 2009 Mortgage Survey

CAAMP recently released its annual spring survey of the mortgage market.  The report is always chock full of notable mortgage stats.  Below are some of the highlights…

Mortgage Originations

• 46%:  The percentage of borrowers securing new mortgages who used a broker (43% used a major bank.)
• 61%:  The ratio of mortgagors who renewed their existing mortgage at a major bank (It’s too easy to sign a renewal letter. Don’t be tempted!)

Housing & Mortgage Market

• $138,000:  The average Canadian mortgage
• 55%:  The percentage of Canadians who think it’s a good time to buy a home right now
• 5%:  The approximate number of Canadians who actually expect to buy a home soon
• 9.1 million:  The number of homes that are owned in Canada
• 5.35 million:  The number of homeowners with mortgages (i.e., 5.35 million people on title to a home who have a mortgage in their household)
• $739 billion:  The total of all outstanding mortgages on these homes
• $150 billion:  The estimated volume of new mortgage approvals in 2009 (including new mortgages, transfers of existing mortgages between lenders, and refinances)

 

Home Equity

• 2%:  The percentage of Canadians with negative home equity according to CAAMP (Admittedly smaller than we expected.)
• 72.3%:  The average home equity in Canada (67% greater than in the U.S.)
• 48.7%:  The average loan-to-value in Canada
• 15%:  The percentage of Canadians cashing out equity in their homes over the past 12 months (57% of these people used part or all of the funds for debt repayment/consolidation; 45% used part or all for renovations or home repair)

Mortgage Characteristics

• 36%:  The percentage of borrowers who opted for variable-rate mortgages in the last 12 months (With rates near a bottom, the trend towards variables may reverse--if it hasn’t already.)
• 68%:  The percentage of Canadians with fixed-rate mortgages
• 1.68%:  The average discount borrowers received off of posted 5-year fixed rates (This seems to reflect a time when spreads were wider. With posted rates at 5.25%, there is no way the average Canadian is getting 3.57% on a 5-year fixed today.)
• 4.83%:  The average Canadian’s mortgage interest rate (down from 5.41% in CAAMP’s fall 2008 survey)

Amortization

• 17%:  The proportion of current mortgages with an amortization over 25 years
• 46%:  The percentage of mortgages initiated in the last two years with an amortization over 25 years

Market Health

• 18%:  The number of households with family members who lost a job in the last six months
• 3%:  The percentage of mortgagors indicating they could not afford a $50 increase in their payments
• 0.36%:  The ratio of mortgages in arrears for over 90 days (still steady and modest)

CAAMP President, Jim Murphy, believes Canadians have what it takes to withstand economic challenges:  “With only a very small number at risk of not being able to pay or refinance their mortgages, our overall market is very strong.”

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About This Survey

According to CAAMP, data used in this report was obtained from various sources, including an online survey of 2,000 Canadians. One-half of the sample (1,000 Canadians) were home owners with mortgages and the remainder were renters, home owners without mortgages, or others who live with their families and are not responsible for mortgage payments or rents. The survey was conducted by Maritz (a national public opinion and market research firm) for CAAMP, during March 2009.

About CAAMP

Established in 1994, the Canadian Association of Accredited Mortgage Professionals (CAAMP) is Canada’s national mortgage industry association. CAAMP has over 12,000 members, consisting of mortgage lenders, brokers, insurers and other industry participants.

Mortgaging near the Edge

People aren’t locking in mortgage rates far enough in advance.

That’s the conclusion of a new study by ING. 

ING’s research was performed by Angus Reid and they found the following:

• 40% of Canadian mortgagors surveyed said they secured their mortgage rate just 30 days or less before closing.
• 27% waited until 31-60 days before closing.
• Those who instead locked-in 120 days in advance saved 0.18%--or $1,800 over five years--on average. (Assuming a $200,000 mortgage and 25-year amortization)
• 27% of mortgage holders let their mortgage auto-renew without researching a better rate.  Disgraceful!  In Quebec the number was 36%.

ING VP of Lending, Marting Beaudry, says, “Securing a rate guarantee, even before you start looking for a new home or your existing mortgage comes up for renewal, is a quick and simple way to save your money on mortgage interest payments over the long term.”

That is absolutely true and ING has one of the best rate-holds in the business.  However, borrowers are far smarter than some give them credit for.  They’ll likely find an even better way. 

People know that 30-day “quick-close” specials are where they’ll get the best rates. It is not a stretch to foresee borrowers making increasing use of rate-holds as a free option, and then moving their application to whomever has the best “quick-close special” for their needs once they’re within 30-days of closing.

It’s a practice that may tick off a lot of lenders because there are real costs involved in underwriting applications and hedging rate holds.  Cancellations are expensive.  If adopted en masse, this could also throw many mortgage planners’ “funding ratios” right out the window.