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New Mortgage Rules Coming Effective July 9, 2012

Some changes that will come into effect on July 9, 2012.   How will this affect homebuyers or home owners in terms of dollar amounts… Heres a quick snapshot below;

Payments based on a 25 year amortization vs a 30 year amortization would cost the borrower  a difference of $52.48 per month per 100K in mortgage.   In terms of borrowing power the homeowner that could buy a home for $300k would now only be able to afford a $266K home, a difference of approximately $34k based on the above changes from 30 year amortization to 25 year.  If your in the market for a mortgage or a refinance, I would consider firming those details up before July 9, 2012 to take advantage of our current options.

READ ON; After speaking in Halifax just hours after Finance Minister Jim Flaherty announced a series of changes that come into effect next month, Mr. Carney reiterated his concerns about the effects that his ultra-low interest rates have had on the behaviour of both borrowers and lenders, warning the economy cannot “depend indefinitely” on debt-fuelled spending, especially as incomes stagnate.

At the same time, Europe’s growing crisis is expected to keep the central bank on hold for a long time yet, leaving regulation as the only real avenue for reining in housing-related investment, which Mr. Carney said now makes up “an unusually elevated share” of the economy.

“In this context, Canadian authorities are co-operating closely to monitor the financial situation of the household sector, and are responding appropriately,” Mr. Carney, who was almost certainly involved in Mr. Flaherty’s decision, said in a speech to the Atlantic Institute for Market Studies.

“Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.”

Last week, Mr. Carney and his policy team warned that Europe’s worsening drama could slam Canada with a “major shock” if it is allowed to spread out of control and further infect healthier regions, particularly the still-fragile U.S. economy. They also warned that more Canadian households could find themselves under water with their debt payments if a big unemployment shock were to result, and sharpened their warnings about Toronto’s booming condo market.

Some investors are betting that the situation in Europe and the failure of the U.S. economy to gain more traction could force the central bank to cut interest rates from the current 1-per cent level sometime later this year. However, in his speech, Mr. Carney strongly hinted that he is not even considering a reduction in rates, echoing much of the language on the economy from his last interest-rate statement on June 5, indicating his domestic outlook hasn’t shifted much since then.

“Despite these ongoing global headwinds, the Canadian economy continues to grow with an underlying momentum consistent with the gradual absorption of the remaining small degree of economic slack,” said Mr. Carney, whose next decision is scheduled for mid-July. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

Still, Mr. Carney left himself the same wiggle room from recent statements, saying that the “timing and degree” of any rate hikes would depend on how things play out.

There’s good reason for him to be cagey, and not just outside of Canada’s borders. Despite the worries about consumers over-borrowing, recent economic data suggest the housing market is already slowing down, and a report from Statistics Canada today showed that in April, retail sales fell – both in terms of prices and volumes.

Some analysts have already warned that the mortgage moves could be too effective and spark a slowdown in a key area of strength before the economy is ready for it.

Earlier Thursday, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years, and will cut the maximum amount of equity homeowners can take out of their homes in a refinancing to 80 per cent from 85 per cent. Also, the availability of government-backed mortgages will be limited to homes with a purchase price of less than $1-million, and the maximum gross debt service ratio will be fixed at 39 per cent, and the maximum total debt service ratio at 44 per cent. All the changes will take effect on July 9.

Mr. Carney’s speech, meanwhile, was largely a re-hash of his views on what is needed to foster the more balanced and sustainable global economy on which export-heavy Canada’s fortunes largely depend, including an “open, resilient” financial system. The central banker, who is also chairman of the Group of 20-linked Financial Stability Board, again warned against delaying the implementation of reforms designed to make international finance safer for the global economy.

“The current intensification of the euro crisis has only sharpened our resolve,” he said, adding that a system that restores confidence will need to “rebalance” the relationship between government regulation and financial markets, and in which policy makers realize they must help do what’s good for the world rather than taking a simply national approach.

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TD, RBC End 2.99% Mortgage Deals Early

After a crazy month fielding calls about rates and competitive rates from the major banks, they have put a hault on them.  Although the product that were attached with them were limited and badly disclosed to consumers, there are still amazing rates to be had in the mortgage market.  The problem with banks is that they can choose to give one rate today and a different rate tomorrow.  All I can suggest be informed and do your homework and ask questions when shopping for a mortgage.  Its not always about rate its about having a mortgage plan that suits your needs and someone that can show you ways to save money on your mortgage long term!  If your interested in learning more about how to save money on your mortgage , no tricks no catch good ole information for you from me  http://bit.ly/AfD2RR    Here’s the article below;

After briefly offering record-low rates of less than 3% on some of its mortgages in response to its rivals, Canada’s two biggest banks have pulled back their offers prematurely.

Toronto-Dominion Bank, Canada’s second-largest bank, raised its special four-year closed fixed rate mortgage 40 basis points to 3.39%, effective Wednesday, while also introducing a special five-year closed fixed rate mortgage at 4.04%.

The bank also hiked its five-year closed mortgage 10 basis points to 5.24%.

TD had said it would offer the special rates until Feb. 29.

The moves put TD back in line with Royal Bank of Canada, which made the same rate decisions on Monday, coming into effect Wednesday.

RBC had also initially planned to keep its special rates available until Feb. 29

 

The only difference is RBC already had the special five-year closed fixed rate mortgage product, which it increased 10 basis points to 4.04%.

RBC had first cut its rate to 2.99% in January in response to a similar cut from BMO.

Matt Gierasimczuk, a spokesman with RBC, said the bank had to end its special prematurely because of rising funding costs.

“Our long-term funding costs have gone up considerably due to global economic concerns and, while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” he said in an interview with Bloomberg News on Monday.

With household debt-to-income ratios at at historic highs and still on the rise, the Bank of Canada has repeatedly voiced its concerns over the past year that Canadians are living beyond their means.

“We have expressed on numerous occasions our concerns about rising household indebtedness,” senior deputy governor Tiff Macklem said in a question-and-answer session following a speech in Toronto Tuesday. “The simple fact is that consumers are consuming more than they’re earning.”

With files from Reuters and Bloomberg News

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Mark Carney signals long pause in rate hikes

Bank of Canada Governor Mark Carney held his benchmark interest rate at 1 per cent Wednesday and suggested his year-long pause will last much longer as a bleaker outlook for the global economy quashes any urgency to make it harder to borrow and spend.

In explaining the decision to leave borrowing costs alone for an eighth meeting, as expected, the central bank said it believes Canada’se conomy is growing again after stalling in the second quarter, but painted a troubling picture for the United States and Europe, and said exports will be a “major source of weakness.”In light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished,” the central bank said.

“The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2-per-cent inflation target over the medium term.’’

Without doing so explicitly, the central bank also left the door open for an interest-rate cut should the external backdrop deteriorate further, in part by reiterating it is less worried about inflation than just weeks ago when policy makers hinted they might raise rates by the end of the year.

Still, the Canadian dollar made a small gain against the U.S. currency after Mr. Carney’s decision. And economists generally interpreted his language as suggesting he will stay on hold until mid-2012 or later, but reckoned he will eventually need to raise rates if the rebound survives the current turmoil.

“Once again, the tug-of-war between offshore and internal factors is holding the Canadian economy and Bank of Canada policy in limbo,’’ Michael Gregory, a senior economist at BMO Nesbitt Burns, said in a note to clients. “We still judge (as does Carney & Co.) that at least modest growth will resume in(the second half of 2011) and push the Bank’s policy bias back to the tightening side.’’

Policy makers did not include new projections for growth and inflation in their statement, tracking closely to comments Mr. Carney made on Aug. 19, when he appeared with Finance Minister Jim Flaherty before an emergency meeting of the House of Commons finance committee. The recovery has likely resumed, the bank said, after gross domestic product shrank at a 0.4-per-cent annual rate in the second quarter, and growth will be led by business investment and household spending.

However, policy makers said, “lower wealth and incomes will likely moderate the pace of investment and consumption growth,” even as the supply and cost of credit for both businesses and households “remain very stimulative.”

Financial conditions have tightened some and could continue to do so should the global situation worsen, the bank said. Plus, net exports – the difference between what Canadians buy from overseas and what they sell abroad – will be a big drag on the economy, both because of weaker demand around the world and because of “ongoing competitive challenges” like a currency that, while weaker in recent weeks, is still near parity.

Several of the “downside risks” the central bank has identified for the global rebound’s trajectory have come to fruition, policy makers said.

“The global economic outlook has deteriorated in recent weeks,” the bank said. “The European sovereign debt crisis has intensified, a broad range of data has signalled slower global growth, and financial market volatility has increased sharply.’’

The fiscal and financial strains linked to Europe’s crisis have caused upheaval in markets as investors shy away from risk, and “could prompt more severe dislocations” in global markets.

Resolving those strains, the bank said, “will require additional significant initiatives by European authorities,” – an obvious yet significant comment given that in July the central bank said its outlook for the economy at that point assumed that Europe would be able to contain the crisis.

South of the border, Canada’s main export market will see weaker growth than the central bank was anticipating, policy makers said, and household spending “will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions.”

Moreover, the stimulus spending that propped up the U.S. recovery from its worst downturn since the Great Depression will soon give way to restraint and cuts that will undoubtedly crimp U.S. growth.

And although growth in emerging markets like China and India is still “robust” and commodity prices will remain “relatively high,” as those rapidly-expanding economies lift the rest of the world, they too will be affected by sluggishness in the developed world, as consumers and businesses everywhere retrench.

The global recovery’s decline in momentum will keep Canadian inflation in check, the bank said, as energy and food prices ease, wage growth “stays modest” and Canadian companies improve their productivity in the face of the slowdown.

The central bank’s decision comes in a potentially pivotal week that features a bevy of central bank policy meetings, a major speech by U.S. Federal Reserve chairman Ben Bernanke and a nationally televised address by U.S. President Barack Obama before a joint session of Congress, where he is expected to unveil a $300-billion (U.S.) plan to kick-start hiring in the world’s biggest economy.

The week concludes with a gathering of finance ministers and central bankers from the Group of Seven nations in Marseille, France, on Friday and Saturday.

Mr. Carney’s next interest-rate decision is scheduled for Oct. 25, and he will release an updated forecast for the Canadian and global economies the following day.

 

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Do You Know?

There has been alot of  changes in the last year with regards to mortgage financing.  So I thought I would  take this opportunity to set the record straight about a few of these items;

How much of a downpayment do you require to purchase an owner occupied home?;

You can buy with as little as 5% down. (we actually have a program that allows you to buy with 0% down, but the rate is higher and qualifying criterias are a little more stringent – but its available)

Whether you are a first time buyer or a seasoned buyer in the market to buy another home that you plan to occupy,  5% is all you require.

How much of a downpayment do you require to by a rental/investment property?

This has changed, it used to be with as little as 10%, but now you require a 20% downpayment.

What is the maximum amortization buyers can take on their mortgage?

Currently anyone buying a home with 5% down, can access up to a 35 year amortization.

On March 18th, 2011, that will change to 30 years.

 

Simple and Sweet.

If you have any other questions that you need clarification on, call me or email me I would love to hear from you.

Lisa Alentejano

 

 

 

 

Posted in Bank of canada rates, BC Mortgages, BCMortgage, Canadian Economy, Canadian Housing Market - Lisa Alentejano, Canadian Mortgage News, Debt, Mortgage Affordability, new mortgage rules canada

Ottawa ponders further tightening of mortgage rules

The federal government is once again looking at tightening rules in the Canadian mortgage market, according to a source close to the situation.

Finance officials are set to meet in Ottawa on Monday with some of the country’s leading economists for pre-budget discussions and the subject of whether to tighten housing regulations may come up.

Much of the discussion about changing the mortgage rules seems to stem from comments made by the Bank of Canada governor who last week warned that consumer borrowing could not continue at its present clip.

“Canadian household balance sheets are becoming increasingly stretched,” said Mark Carney, who issued a warning to legislators about taking steps to contain the growth of personal debt. “Historically low policy rates, even if appropriate to achieve the inflation target, create their own risks.”

A spokesman for the Finance Minister said toughening existing rules on mortgage eligibility is not on the agenda on Monday when Jim Flaherty meets with economists. The spokesman added the government has already addressed the real estate sector in initiatives introduced earlier this year.

But Craig Alexander, chief economist with TD Bank Financial Group, said while he hasn’t heard specific talk about changes to mortgage rules he could see it happening if the market heated up again.

“There is growing concern about the growth of debt. It’s now 146% of personal disposable income and the bulk of that is secured debt — mortgage debt or home equity lines of credit,” said Mr. Alexander, adding the worry is that if long-term rates remain low or go even lower it could once again ignite the housing market.

He said the easiest way for the government to tighten rules would be to tweak the income test requirement. Instead of consumers qualifying for government-back mortgages based on the rate on their contracts — the case for terms five years or longer — they would be tested on the posted rate, which is considerably higher and requires more income.

In April, the government adjusted mortgage rules to force consumers to qualify based on posted rates but left in a loophole that allowed the discounted rate for terms longer than five years. It also increased the minimum down payment for investment properties to 20% from 5%.

Those moves came after the government imposed requirements in 2007 that forced consumers to have a minimum of 5% down on a home and lowered amortization periods to a maximum of 35 years from 40 years.

Mr. Alexander said if the government went further and imposed rules that further lower amortizations, or worse, increased the minimum down payment, it could seriously impact the housing market.

A real estate source indicated that as recently as eight weeks ago he had heard Ottawa was considering tightening mortgage rules but the recent slide in the market has it rethinking that. The latest statistics show average prices are now falling, while sales are down about 20% from a year ago.

Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, said housing activity is slowing, but all indications are the market will be okay and prices relatively stable under the present rules.

“I would be surprised [if there were further changes] because I think you want to keep the housing market rolling,” said Mr. Polzler.

The government has to balance the impact any changes in mortgage rules might have on the overall economy. According to July GDP data, the home resale market fell significantly for a third consecutive month, and led to an 8% decrease in the output of real estate agents and brokers. The output of real estate sector is now at about two-thirds of the level recorded at the beginning of 2010 when housing was hot, Statistics Canada data indicate.s

financial post

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Effective April 19, 2010 Qualifying Rate Guidelines Will Change

Effective April 19, 2010 Qualifying Interest Rate Guidelines Will Change

  • Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages: applications will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate**, or the actual customer rate (inclusive of any customer discretion).
  • Fixed Rate Mortgages of terms 5 years or greater: applications will be adjudicated based on the actual customer rate.
  • This change applies to both conventional and insured mortgages.

The three key changes associated with this announcement are:

  • Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
  • Investors, who want to buy a home that they don’t plan to live in, will have to make a minimum down payment of 20%.
  • Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%.

The good news is that buyers still can purchase a home with 5% down and can still go up to a 35 year amortization.  The reason for the changes is the Government of Canada is wanting to make sure that if interest rates go up, purchasers will still be able to afford their mortgage payments.  With regards to refinancing your home, the Government of Canada is trying to discourage people from borrowing against their home for a quick fix for their financial problems.  They are trying to have home owners use their home as a savings tool and not just an easy way to keep consolidating their debt.

Please call me if you have any further questions on the changes or if you would like to go through a free no obligation mortgage information session.  We can look at pre-qualifying you for a mortgage, rate hold guarantees, even refinancing or renewing an existing mortgage.  I look forward to hearing from you! 1-888-819-6536

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Flaherty moves to toughen mortgage rules….

Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.

After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa’s disposal aimed at removing some of the speculative froth in the housing market.

Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.
Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt. (Fred Chartrand/Canadian Press)

“There is no evidence of a housing bubble, but we’re taking prudent steps today to prevent one,” he said at a news conference in Ottawa. “If some lenders aren’t willing to act themselves, we will act.”

Broadly speaking, the plan unveiled has three components.

First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

“This will guard against higher rates in the future,” Flaherty said.

Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.

“We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation,” Flaherty said.

Minimum down payment unchanged

There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home’s value, or reduce the maximum amortization period from 35 years to 30 years.

Those measures were not part of Flaherty’s announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.

The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, a number of large Canadian lenders already practise the first peg of Flaherty’s plan. After Tuesday’s announcement, Bank of Montreal noted that it requires its high-ratio borrowers to be able to qualify using the five-year rate.

“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” the bank said in a release. “Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent.”

“This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage,” Royal Bank chief economist Patricia Croft said in reaction to Flaherty’s announcement.

Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.

“If you wanted to buy a house, wouldn’t you now do it before April?” Croft asked. “It’s even more evidence that house prices are going to cool down later this year.”