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Mortgage Bytes

General News & Trends

  • Mortgage-Refinancing Refinances are driving the market. One major lender sent out an email last week saying that 90% of their new applications recently have been for refinances. 
  • Falling home prices are playing havoc with people who want to refinance with little equity. If you bought a home a year ago and put down only 5-10%, odds are you have no room to refinance today.  You may even be underwater (owe more than your house is worth)—especially when default insurance premiums are factored in.
  • With falling home values and credit delinquencies on the rise, lenders are being extra vigilant on refi’s. Marginal borrowers with maxed out credit cards and just enough home equity to cover them, are often being declined.  According to a recent report by Deloitte, "There is a high correlation between the percentage of the credit line being used and the likelihood of default." People who expect to carry big credit card balances after refinancing are therefore a red flag for lenders.
  • What happens when you’ve bought a pre-sale home and prices drop before you close? Some buyers in this position are finding they can’t get financing and are facing lawsuits from their builder.  Here’s a story about it from Macleans.
  • Here are the top 6 reasons CMHC declines borrowers according to one lender:
      1. Borrower is considered weak
      2. Home value cannot be supported
      3. Stated income is too high
      4. Application was declined at another lender already
      5. Property doesn’t conform to guidelines
      6. Borrower needs a strong(er) co-signer

Mortgage Tips & Advice

  • Mortgage-Interest-Rates “If I were getting a mortgage in today's market, I'd definitely take a variable and take advantage of the historically low Prime while Canada works its way through this recession…We likely won't see the benefits from [the U.S. stimulus package] until at least a year or so according to experts and based on that assumption; I would say anyone floating in a variable should be safe until at least the end of 2009 – and with the market pressing for another ½ point drop in March, that's a good place to sit for a while.” – Mortgage Centre’s Peter Kinch
  • If you have a home but want to move, should you sell first or buy first?  Sell first, says Realtor Amit Paul. Among other reasons, you don’t want to end up with two mortgages he says. (Metronews)
  • Should you put a mortgage in an RRSP?  Here’s an opinion from Million Dollar Journey. More…
  • Did you know? Ontario and Quebec are the only provinces to charge provincial sales tax on mortgage default insurance. Sales tax must generally be paid out of pocket at closing. GST is not applicable to insurance premiums.
  • Need a $5000-$10,000 down payment for “free”?  If you are 18+, a renter, and make under $75,800, the Ontario government may have a grant with your name on it.  Act fast, though. The program ends March 31, 2009. More from…

Canada’s Economy

  • The-Economy Canada’s real estate market is getting hit on multiple fronts, including a major wealth loss effect from the stock market.  Consider this:  “As of Thursday, the S&P 500 had fallen 56% in 513 calendar days from the peak. On Jan. 29, 1931 – the same number of calendar days following the 1929 crash – the S&P 500 was down 49%.” (chart)
  • Can we expect inflation in 2010? Scotia Capital’s Derek Holt doubts it.  He says, "We are dealing with a massive monetary contraction, the likes of which we haven't seen since the 1930s.  Even if this were a normal cycle it would take 30 months to four years before you would see an uptake in inflation coming out of recession…”  (
  • Here’s a stat that lenders won’t like:  Canadian consumer debt was up about 10% in 2008. (Globe)
  • With a 130% debt-to-disposable income ratio (including mortgages), Canadians now have a lower savings rate and a higher debt ratio than Americans. But it’s “higher quality” debt says CIBC’s Benjamin Tal.
  • Canada’s current account has fallen into a deficit for the first time in 10 years. (CIBC)
  • Canadian credit card balances have soared 40% since 2004!  (Macleans)
  • Yes, this stuff is all pretty depressing.  Then again, sometimes it rains the hardest right before the sun comes out.

Mortgage Factoids

  • The average Canadian homeowner has 70% equity in their home.
  • Interesting reverse mortgage data from the Vernon Morning Star:
    • Canada’s reverse mortgage market is estimated at $9 billion.
    • 85% of homes owned by seniors are mortgage-free. That’s 1.45 million homes.
    • Roughly 75% of “all reverse mortgages are paid out within the first 15 years of the loan.”

Real Estate Market

  • Home-price-predictions 2009 home price predictions:
    • Canadian home prices will drop 10% in 2009 thinks Scotiabank economist Adrienne Warren.
    • Royal LePage is more optimistic and says 3%.
    • The Canadian Real Estate Association expects an 8% decline.
    • TD economist Pascal Gauthier is looking for a 11% drop.
  • 27% of Canadians plan to buy a new home in the next 24 months.  83% say home ownership is a good investment–down from the all-time high of 90% in 2006.  65% feel we’re in a buyers market.  (RBC Survey)
  • Toronto new home sales were down 69% YOY in January!  (FP)
  • Speaking of Vancouver, it’s the 4th least affordable city in the world according to this surve. Cape Breton Island in Nova Scotia is Canada’s most affordable locale. Vancouver Sun Story…
  • “Our (real estate) market suffers from a 'Perception Gap'! Today's potential buyers think that sellers have to sell at any price and that they can just 'low ball' the offer,” says Re/Max Condos Plus. Sellers, meanwhile, think they can get the same price they could a year ago. More buyers and sellers need to meet in the middle.  Only then will we witness the absorption needed for price declines to end.

Rate Trends

  • Fixed-or-variable-mortgage-rates Variable rate mortgages may save you money over the next two years, but it’ll be a wash over five years when compared to fixed rates.  That’s according to CIBC economist Benjamin Tal as quoted by the Winnipeg Sun.  Tal says, “If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap…Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising he says.  Tal sees higher rates in 2011.  (His estimates have moved out a year it seems.  They used to be 2010)
  • The three big all-in-one mortgages (National Bank All-in-One, Canadian Tire One & Only, and Manulife One) are once again all at the same rate:  prime + 1%.  Canadian Tire and Manulife have both raised rates 1/4% in the last week or two.
  • “Over the past 6 months, a bubble of government bonds developed as investors sought refuge in the face of massive deleveraging…These high bond prices (and) low yields are not expected to be around for long, and will probably end badly, as have all other bubbles. Policy makers have set rates at historic lows to encouraging more borrowing to bailout an economy that has been scuppered by too much debt. A by-product of low rates is that it will eventually force savers further out the risk spectrum in search of a decent rate of return.”  In other words, bond yields may rise in the not-to-distant future, says Assante financial advisor, John Lunam.