Mortgage Bytes

  • posted-rates Despite Tuesday’s Bank of Canada rate cuts, the Globe says “banks are trying to hold lending rates as high as possible to preserve profit margins.”  CBC says 1% discounts off posted bank rates are now “more difficult to get.”  Well, if your bank doesn’t comply, go to the competition.  Certain non-bank lenders have cut rates nicely in the last few days.
  • 1/3 of the money BMO lends out comes from the credit markets, and costs of funds there have soared since the summer. The rest of BMO’s loot comes from deposits.
  • 2007 was a nice year for First National.  They originated 49% more mortgages than 2006.  They also got approved as an issuer of NHA-mortgage backed securities and as a seller in the Canada Mortgage Bond programs.  This should reduce their funding costs in 2008.  First National is the top single-family lender for mortgage brokers.
  • The Canadian Federation of Independent Business’ December survey shows access to business credit worsened for 13% of respondents and improved for 7%.
  • Only 7% of Canadians claim they’re “very likely” to buy a home in the next two years.  That’s the lowest proportion since RBC’s poll started 15 years ago. 
  • 52% say their next home will be bigger.  19% say it’ll be smaller.  So ask we must.  How come no one’s rolled out 50-year amortizations so people can afford all these big homes?  40-year ams. are so 2007!  RBC poll

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Regarding 50-year amortizations, we jest of course. Long-ams have already propped up our real estate market, some would say, a bit too much. There’s even speculation that lenders will cut back on long-term amortizations over time for risk reasons.  However, with 40-year ams. being so popular, and considering their practical uses, we’re skeptical of that happening.

  1. Wow, what I found incredibly interesting about the poll is that 85% of people claim that a home is a good or very good investment. This stat also amazed me that the greater the age AND the greater the education this value INCREASED and didn’t decrease.
    People, real estate historically has just beat inflation. Stop being delusional! A home is a place to stay and a forced saving account, nothing more.

  2. These long term amortizations are probably going to hurt our economy in the long run. These mortgages should really only be taken by people who foresee an increase in income over the course of the term which would equate to paying down the house in 25 years or less. If too many people start buying homes with 40 year amortizations then those same people will not be able to stimulate our economy as much for those 15 extra years that they are still paying a mortgage. Does anyone know of other countries using similar mortgages and their impact on the economy?

  3. 100 year mortgages are common in parts of Europe and Japan. They are basically interest only mortgages in the beginning. You don’t save that much.
    Jeff

  4. are you friggin kindding me? what other investment vehicle that is accessible to the general population lets you borrow 80%+ of your capital investment at prime or less…

  5. Dude, you have a point. That makes it far more risky than normal investment strategies.
    Lets say you have 50 grand to put in to investments. Sure you can buy a bank stock yielding a 4% dividend and make 2000 a year in tax advantaged income.
    On the other side you could leverage it to buy a 250,000 dollar home and pay 4000 a year in property tax. Your home value will go up 3% per year or so, depending on inflation, and in 10 years you’ll have paid 40K in property tax, your home will be worth about 340K and you’ll still owe 150K on it. Sell that with a 6% commission and you’re final value is 340-20-150-40 = 130K. Since inflation runs also at 3% that 130K .
    Your dividend guy, reinvesting his dividends has about 67K, not counting any appreciation on his stock value, that’s just the dividend paying 3% per year (4% – Taxes) for 10 years. If you sold the stock for twice what you paid for it in 10 years then you would have 100K plus the 17K of extra dividend stocks that turn in to about 25K (or possibly 30) to end up at about 130K.
    That’s if you did no maintenance, no decorating, etc.
    It’s a wash wither way, but what happens if the values go down by 20%?
    In dividend guy, he has stock still yielding 4% of 50000 dividends worth 40000 . . . so he’s still making 2K a year, but doesn’t want to sell for the loss.
    In the home purchase you now still owe 150K, paid 40K in property tax, and now have a house worth 200K. If you sell it paying a 6% commission you get 200K -12K – 150K – 40K = -2K.
    You still had a great place to live for ten years . . . IE . . . It’s a risky savings account and nothing more. You can twist it any which way you want like I just did, but over huge periods of time real estate follows inflation and stocks do better. Investment properties that generate cash flow are an investment, your HOME IS NOT!

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