The Canadian Press
OTTAWA — Canada Mortgage and Housing Corp. is forecasting a moderate slowdown in new-home construction starts as well as sales of existing housing.
The Ottawa-based federal agency isn’t calling for a major decline, but its latest forecast suggests next year will be somewhat softer than estimates CMHC issued in June while 2012 may be somewhat stronger than previously expected.
CMHC has been saying for some time that it expects housing prices in most local markets will grow more slowly than they have been recently.
It says housing starts and home sales have been strong in 2012 — particularly when it comes to multiple-dwelling units such as condos and apartments — but will soften moderately in coming months into 2013.
“Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” Mathieu Laberge, CMCH’s deputy chief economist, said in an outlook released Tuesday.
CMHC provides various levels of mortgage insurance to protect lenders from defaults by home buyers. It also closely monitors residential construction activity and housing sales and provides outlooks used by various sectors of the economy.
In the latest forecast, CMHC estimates there will be between 196,800 and 217,000 units of housing started in 2012, with a point forecast of 207,200 units.
The point forecast is slightly higher than an estimate of 202,700 issued by CMHC in June, when the range was wider at between 182,300 to 220,600.
In 2013, CMHC now estimates housing starts will be in the range of 173,000 to 207,400 units, with a point forecast of 193,100 units — about seven per cent fewer than this year under the latest forecast.
The previous 2013 point forecast for 195,700 housing starts.
Based on data compiled by the Canadian Real Estate Association, CMHC said Tuesday that it expects about 466,600 units of existing housing to be sold this year and 469,600 units in 2013.
The average price for property sales through CREA members is forecast to be between $351,300 and $378,400 in 2012 and between $358,000 and $395,800 in 2013, CMHC said Tuesday.
CMHC’s point forecast for the average price is now $368,000 for 2012 and $377,300 for 2013, the agency said Tuesday Its June was the average price to be $372,700 for 2012 and $383,600 for 2013.
Tuesday, 14 August 2012
Monday, 13 August 2012
When one home isn’t enough
Garry Marr, Financial Post
Based on the tales of real estate professionals and financial planners, multiple home ownership is becoming more common as the wealthy spread out beyond just owning a cottage to having a U.S. address or even some European digs.
Statistics are hard to come by but if the latest numbers from the National Association of Realtors are any indication, foreign buyers are having an impact in the United States. Increasingly those buyers are Canadian.
The Washington-based group said international buyers purchased US$82.5-billion worth of property in the U.S. for the year ending March 31, 2012, compared to US$66-billion a year earlier. Canadians represent about a quarter of those buyers.
Considering it’s impossible to be in more than one place at the same time, unless you’re renting property you’ve got real estate sitting empty. Is that really a sound investment decision or just one of the luxuries that comes with being wealthy?
Author Talbot Stevens questions the wisdom of owning property that is going to sit mostly vacant and says, “No matter what income you are, if you are only using something 10% or 20% of the time,” it doesn’t make financial sense.
“If you are looking at diversifying into real estate, why not just buy some income property?” Mr. Stevens. “These are people that can stay at the Four Seasons anyway.”
As he puts it, what is the point of having a French home for two months, complete with all the costs?
“The same logistics apply to a cottage if you are only going to use it three or four weeks a year. It becomes very expensive. Even those who are mega-wealthy have to ask, ‘What is the most effective use of your money?’ ” Mr. Stevens says. “The bigger challenge might be people who do this and can’t even afford it.”
He says so much of this multiple ownership is for ego’s sake. “People just want to say ‘my house in the south of France.’ To be honest, I have more respect for people who are truly wealthy and don’t need to let anyone know.”
Toronto condominium developer Brad Lamb, one of those multiple home owners, says having another address is a convenience many are willing to pay for and it’s not an entirely new concept.
“What’s the difference between owning a condo in New York for $800,000 or a cottage on a lake, it depends on what your thing is,” he says. “You get wealthy investors who have a pied-à-terre. I own a condo in New York City and a condo in Miami. I go to New York probably 12 times a year and Miami six times or eight times a year. I bought them to have an address in the city but also bought at the bottom of the market when they were giving away real estate.”
Mr. Lamb says the idea of having a place to call home in another city is probably at least partially behind the Canadian housing boom as foreign investors pour into luxury condominiums.
He agrees it is a luxury to have a place to call his own when he comes to town. “I have ample room. You can cook your own food, have your own clothes,” Mr. Lamb says.
He says Toronto, at least partially, has become home to that investor/homeowner.
“There is that element to it,” says Mr. Lamb, estimating it equates to 10% to 15% of the condo market. “The building I live in, one of the sub-penthouses was sold to a wealthy South American family that uses it when they are in Toronto. The rest of the time their daughter [in school in Toronto] uses it.”
Multiple ownership usually starts with a cottage but the U.S. is fast becoming a popular place to hold a third property, says Prashant Patel, vice-president of high-net-worth planning services at RBC Wealth Management.
“That’s probably one of the main issues our team deals with quite a bit, all the tax and financial planning issues of owning U.S. real estate,” says Mr. Patel, adding even if you don’t have an income-producing property, you need to think about tax and legal implications.
He says some clients may have roots in other countries, having immigrated to Canada, so it’s not uncommon for them to own property in their native country.
“When we have clients saying, ‘I’m thinking about buying a cottage or a property in the U.S.,’ we say, ‘Let’s step back and make sure it does not impact your future retirement or lifestyle’, ” says Mr. Patel, adding most of the purchases south of the border are for personal use and lifestyle.
“We typically recommend them doing a financial plan to see what the impact would be if they buy that cottage or property and how it affects their cash flow, particularly if it’s not an income property and it’s a personal-use property.”
The good news for those buying is an industry has sprung up to support multiple home ownership, says Kimberley Marr, author of How To Buy U.S. Real Estate.
“The big one is Canada-U.S. but there is a growing trend of Boomers purchasing abroad, especially in Europe,” said Ms. Marr, pointing to the steep drop in the euro, as well the decline in property prices, as fuelling demand among Canadians for homes in places like Spain, Portugal and France.
She says a wealthy owner might have $5-million to $10-million in real estate, about 10% to 20% of their net worth.
She’s a member of International Real Estate Society, which is an alliance of real estate professionals around the globe.
“Say I have a property of a Canadian in Toronto, it’s higher-end. The buyer could be someone from Toronto but it could be someone from France, Germany, Hong Kong,” Ms. Marr says. “Through the network, they market [property]. Someone in Paris might market their property in Toronto.”
She says clients might be in some of their “homes” for one month a year while the rest of the time the unit is rented out for income. “In the higher end, you’re generally dealing with professionals renting it out on your behalf,” says Ms. Marr, adding the property manager gets a fee but it includes services like a concierge to take care of clients. “When you get to a place like Paris, there is someone there to greet you, walk you through the apartment, give you the keys. The renter has someone to contact, if they need to.”
It may sound a bit like a timeshare but the difference is these people are in full control of their property, leaving them with all the profit from price appreciation and potentially all of the losses.
“You have all the control but also all the responsibility and the liability,” Ms. Marr says.
Friday, 10 August 2012
Today's Fixed Rates Are Gifts
Rob McLister, CMT, Canadian Mortgage Trends (July 31, 2012)
Be careful of looking the gift horse in the mouth.
Much of that discounting was thanks to lower bond yields (which generally lead fixed rates). You can see the recent downtrend in yields in the chart below.
In all of the emotion of plunging rates, however, it’s easy to forget that they can reverse to higher just as fast as they drop.
On Friday, the 5-year government yield popped 12 basis points—the biggest one-day increase in almost a year. When that sort of thing happens near lows, after a long downtrend and a period of sideways trading, it often marks a noteworthy change in market sentiment.
As bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks, and sometimes much longer.
For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It's kind of like passing a gas station on empty to save a few more cents a litre. You may find another station, but if you’re wrong, it won’t be much fun pushing.
If yields bounce much higher (e.g., into the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches.
So if you need a 5-year fixed rate, it's as good a time as any to take the “gift” lenders are giving. This is certainly not to say that rates won’t go lower. (Global and domestic risks could keep yields depressed for a while.) But don't be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it's almost impossible to pick the bottom.
On Friday, the 5-year government yield popped 12 basis points—the biggest one-day increase in almost a year. When that sort of thing happens near lows, after a long downtrend and a period of sideways trading, it often marks a noteworthy change in market sentiment.
As bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks, and sometimes much longer.
For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It's kind of like passing a gas station on empty to save a few more cents a litre. You may find another station, but if you’re wrong, it won’t be much fun pushing.
If yields bounce much higher (e.g., into the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches.
So if you need a 5-year fixed rate, it's as good a time as any to take the “gift” lenders are giving. This is certainly not to say that rates won’t go lower. (Global and domestic risks could keep yields depressed for a while.) But don't be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it's almost impossible to pick the bottom.
Thursday, 9 August 2012
Practical Amortization Choices
Rob McLister, CMT, CanadianMortgageTrends.com
Shorter amortizations can cost you less interest and help you pay off your mortgage sooner.
If that’s a revelation to you, then here’s another story you’ll appreciate: Shorter mortgage is money in your pocket.
Since we’re pointing out the obvious, we should also note that making a bigger down payment and buying a cheaper house save interest as well.
This is the type of generic advice that some mortgage commentators like to give while applauding the recent amortization reductions. Few media types have acknowledged that extended amortizations are actually a valuable tool when used intelligently.
Shorter amortizations can cost you less interest and help you pay off your mortgage sooner.
If that’s a revelation to you, then here’s another story you’ll appreciate: Shorter mortgage is money in your pocket.
Since we’re pointing out the obvious, we should also note that making a bigger down payment and buying a cheaper house save interest as well.
This is the type of generic advice that some mortgage commentators like to give while applauding the recent amortization reductions. Few media types have acknowledged that extended amortizations are actually a valuable tool when used intelligently.
It seems that publicly advocating longer amortizations has become semi-taboo, almost like promoting legalized marijuana. But a borrower’s best interests are absolutely not always served by the shortest mortgage.
When choosing an amortization, folks must ask two questions right off the bat:
In truth, lower amortizations provide net savings only if you have no better alternatives for the money that would have gone towards paying down your principal.
To put it another way, eliminating your mortgage quicker can actually cost you money if:
When choosing an amortization, folks must ask two questions right off the bat:
- Can I comfortably afford my mortgage if rates rise 3%, and
- Is there a better use of my cash flow than making larger payments on my mortgage?
In truth, lower amortizations provide net savings only if you have no better alternatives for the money that would have gone towards paying down your principal.
To put it another way, eliminating your mortgage quicker can actually cost you money if:
a) the return on your excess disposable income is greater elsewhere, and/orCertain types of people need to pay extra attention to the opportunity costs of shorter amortizations. They include:
b) you have insufficient contingency funds.
- Investment property owners (who need to minimize payments to maximize cash flow)
- Self-employed borrowers (who need to reinvest in their business)
- Commission earners (who need to build contingency funds for lean months)
- Investors (who invest in higher-returning assets)
- Families (who need to pad their contingency funds, pay down higher interest debt, top up registered retirement accounts, or build education savings).
Wednesday, 8 August 2012
CAAMP Mortgage Forum: Please Stop, You’re Making us Blush!
Article written by Boris Bozic, Merix Financial
“What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences.”
I had a new blog all crafted and ready to be posted today but I had to set it aside. Why? Because I received some fantastic news on Monday morning that I had to share. CAAMP Mortgage Forum 2011 was the recipient of another award over the weekend. This is now the second award that the CAAMP Mortgage Forum 2011 has received. The most recent award was from the International Events Society. The ISES awarded CAAMP the “Best Meeting Conference over $250K”. What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences. The sense of pride and accomplishment has nothing to do with an inferiority complex. We can do anything as well as they do South of the boarder and given the state of our respective economies we’ve demonstrated that we can do a lot of things better north of the 49th parallel. What makes this a little sweeter for me is based solely on the fact that Canada’s Woman soccer team lost to the US woman’s team over the weekend at the London Olympics. The loss was a direct result of shameful officiating and the referee in charge of the match should never be allowed to officiate a match of such significance again. It was gut wrenching to watch our gal’s come out on the short end because of an officials ineptitude. Our Woman’s soccer team have dedicated years of training for this moment, and as far as I’m concerned, they’re true champions.
Okay, I’ll get off on one soap-box to jump on another. We won, hands down fair and square! I’m so proud of the staff at CAAMP. Putting a conference together like ours takes extraordinary effort. It’s easy to take for granted the work that is required to pull off an event of this magnitude. The truth is the CAAMP staff has spoiled us a little. It’s easy to assume that every conference is like ours and that every conference is as cost effective as ours. As someone who’s attended many conferences outside of Canada, I can honestly say that we’re very fortunate. From sheer size to quality and cost, we are the best. And now we have some hardware to prove it. Take a bow Michael Ellenzweig, Cara Shulman, Alison Cousland, the organizing committee and all the staff at CAAMP for making it happen. Most importantly, thank you to all the Mortgage Forum sponsors, and those who attended. Without your collective support the conference doesn’t happen.
Thanks to our sponsors, Mortgage Forum 2012 in Vancouver promises to be b
igger and better. Hopefully I’ll see you in Vancouver from November 25 -27, 2012.
Link to Mortgage Forum 2012 Conference site
“What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences.”
I had a new blog all crafted and ready to be posted today but I had to set it aside. Why? Because I received some fantastic news on Monday morning that I had to share. CAAMP Mortgage Forum 2011 was the recipient of another award over the weekend. This is now the second award that the CAAMP Mortgage Forum 2011 has received. The most recent award was from the International Events Society. The ISES awarded CAAMP the “Best Meeting Conference over $250K”. What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences. The sense of pride and accomplishment has nothing to do with an inferiority complex. We can do anything as well as they do South of the boarder and given the state of our respective economies we’ve demonstrated that we can do a lot of things better north of the 49th parallel. What makes this a little sweeter for me is based solely on the fact that Canada’s Woman soccer team lost to the US woman’s team over the weekend at the London Olympics. The loss was a direct result of shameful officiating and the referee in charge of the match should never be allowed to officiate a match of such significance again. It was gut wrenching to watch our gal’s come out on the short end because of an officials ineptitude. Our Woman’s soccer team have dedicated years of training for this moment, and as far as I’m concerned, they’re true champions.
Okay, I’ll get off on one soap-box to jump on another. We won, hands down fair and square! I’m so proud of the staff at CAAMP. Putting a conference together like ours takes extraordinary effort. It’s easy to take for granted the work that is required to pull off an event of this magnitude. The truth is the CAAMP staff has spoiled us a little. It’s easy to assume that every conference is like ours and that every conference is as cost effective as ours. As someone who’s attended many conferences outside of Canada, I can honestly say that we’re very fortunate. From sheer size to quality and cost, we are the best. And now we have some hardware to prove it. Take a bow Michael Ellenzweig, Cara Shulman, Alison Cousland, the organizing committee and all the staff at CAAMP for making it happen. Most importantly, thank you to all the Mortgage Forum sponsors, and those who attended. Without your collective support the conference doesn’t happen.
Thanks to our sponsors, Mortgage Forum 2012 in Vancouver promises to be b
igger and better. Hopefully I’ll see you in Vancouver from November 25 -27, 2012.
Link to Mortgage Forum 2012 Conference site
Canada Mortgage Rates Hit Record Low, Frustrating Efforts To Cool Housing Market
The Huffington Post Canada | By Daniel Tencer
Canada’s fiscal policymakers are working to cool off the country’s overheated real estate market, tightening lending restrictions and warning buyers about the dangers of excessive debt.
But maybe someone should tell the country’s independent mortgage lenders. They’re working overtime against the government’s policies, engaging in a mortgage rate war that on the one hand could make homeownership more affordable for many Canadians, but but on the other hand scuttles efforts to cool down the housing market before it overheats to the point of collapse.
According to mortgage blog RateSupermarket.ca, you can now get a five-year fixed mortgage for as little as 2.88 per cent interest -- an all-time low for a mortgage rate in Canada, so far as Huffington Post Canada can tell. The offer comes from Advent Mortgage Services, a Toronto-area company that offers mortgages in Ontario, the Northwest Territories and the Yukon.
This is the third week in a row that Canada has seen a new record-low interest rate. The record low was 2.89 per cent last week -- an offer from True North Mortgage -- and 2.94 per cent for a five-year fixed mortgage two weeks ago.
Just a few months ago, it was the large banks who were falling over each other to offer the lowest rates. The Bank of Montreal dropped its rate for a five-year fixed mortgage to 2.99 per cent in January, then an all-time low, spurring other banks to follow temporarily.
The mortgage battle heated up again in March, when all five of the country’s biggest banks temporarily dropped rates to somewhere around 2.99 per cent.
But this time around, the big banks are staying out of the fight, and attention is turning to the country’s small, independent mortgage brokers.
Flaherty, like many other policymakers, has expressed concerns about Canada’s real estate market, and recently tightened rules on mortgage lending. Mortgages insured by the CMHC are now limited to 25-year amortization periods, down from 30 years, and home equity loans can amount to no more than 80 per cent of the value of the house, down from 85 per cent.
It was the fourth tightening of mortgage rules in as many years, and a sign the government is aggressively working to cool off what it sees as an overheated market.
Or maybe the big banks are listening to the credit rating agencies that determine their borrowing costs. Standard & Poor’s issued a warning on seven Canadian financial institutions on Friday, including the big five banks, arguing that house prices are overpriced and Canadian consumers’ debt levels too high.
Whatever the reasons, the battle for mortgage customers appears to have shifted to the small, independent lenders, some of whom are seeing their business boom.
First National Financial Services, for example, completed $4.4 billion of new mortgages in the second quarter of 2012 -- a jump of 50 per cent, reports the Globe and Mail.
Despite the tighter mortgage rules, lenders are finding it easier to offer low rates because yields are falling in the bond markets, making it cheaper to finance loans, the Globe reported.
The explosion of a rate war among small lenders is certain to raise concerns among critics who fear that Canada’s real estate market is beginning to resemble the subprime mortgage mess in the U.S., where homeowners found themselves saddled with loans larger than the value of their homes when real estate prices dropped.
A report in the Globe and Mail several years ago pointed out that private lenders have played a major role in the development of Canada’s subprime mortgages (which account for a much smaller share of the overall mortgage market than subprime loans did in the U.S. before the housing crash.)
“More startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories,” the Globe reported. “The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.”
Canada’s fiscal policymakers are working to cool off the country’s overheated real estate market, tightening lending restrictions and warning buyers about the dangers of excessive debt.
But maybe someone should tell the country’s independent mortgage lenders. They’re working overtime against the government’s policies, engaging in a mortgage rate war that on the one hand could make homeownership more affordable for many Canadians, but but on the other hand scuttles efforts to cool down the housing market before it overheats to the point of collapse.
According to mortgage blog RateSupermarket.ca, you can now get a five-year fixed mortgage for as little as 2.88 per cent interest -- an all-time low for a mortgage rate in Canada, so far as Huffington Post Canada can tell. The offer comes from Advent Mortgage Services, a Toronto-area company that offers mortgages in Ontario, the Northwest Territories and the Yukon.
This is the third week in a row that Canada has seen a new record-low interest rate. The record low was 2.89 per cent last week -- an offer from True North Mortgage -- and 2.94 per cent for a five-year fixed mortgage two weeks ago.
Just a few months ago, it was the large banks who were falling over each other to offer the lowest rates. The Bank of Montreal dropped its rate for a five-year fixed mortgage to 2.99 per cent in January, then an all-time low, spurring other banks to follow temporarily.
The mortgage battle heated up again in March, when all five of the country’s biggest banks temporarily dropped rates to somewhere around 2.99 per cent.
But this time around, the big banks are staying out of the fight, and attention is turning to the country’s small, independent mortgage brokers.
“Interestingly, we still haven’t seen major banks publicly announce aggressive pricing,” Canadian Mortgage Trends editor Rob McLister wrote in an email, as quoted at Postmedia. “You still have the majors advertising five-year rates like 3.94 per cent or 3.99 per cent.”
Perhaps the big banks are listening to Finance Minister Jim Flaherty, who reportedly went directly to the banks and asked them to stop engaging in mortgage discounts.Flaherty, like many other policymakers, has expressed concerns about Canada’s real estate market, and recently tightened rules on mortgage lending. Mortgages insured by the CMHC are now limited to 25-year amortization periods, down from 30 years, and home equity loans can amount to no more than 80 per cent of the value of the house, down from 85 per cent.
It was the fourth tightening of mortgage rules in as many years, and a sign the government is aggressively working to cool off what it sees as an overheated market.
Or maybe the big banks are listening to the credit rating agencies that determine their borrowing costs. Standard & Poor’s issued a warning on seven Canadian financial institutions on Friday, including the big five banks, arguing that house prices are overpriced and Canadian consumers’ debt levels too high.
Whatever the reasons, the battle for mortgage customers appears to have shifted to the small, independent lenders, some of whom are seeing their business boom.
First National Financial Services, for example, completed $4.4 billion of new mortgages in the second quarter of 2012 -- a jump of 50 per cent, reports the Globe and Mail.
Despite the tighter mortgage rules, lenders are finding it easier to offer low rates because yields are falling in the bond markets, making it cheaper to finance loans, the Globe reported.
The explosion of a rate war among small lenders is certain to raise concerns among critics who fear that Canada’s real estate market is beginning to resemble the subprime mortgage mess in the U.S., where homeowners found themselves saddled with loans larger than the value of their homes when real estate prices dropped.
A report in the Globe and Mail several years ago pointed out that private lenders have played a major role in the development of Canada’s subprime mortgages (which account for a much smaller share of the overall mortgage market than subprime loans did in the U.S. before the housing crash.)
“More startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories,” the Globe reported. “The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.”
Monday, 6 August 2012
Don't fear the small mortgage lender
Even when a smaller lender has tantalizing rates and the best terms, homeowners sometimes tend to avoid it if they don’t know the name. An oft-cited reason for that is fear that the lender will go out of business. And that is certainly not unprecedented.
Mortgage lenders come in all sizes, ranging from RBC – the biggest in the country – to tiny wholesale lenders and credit unions.
If we’re talking about “prime” lenders – i.e., those catering to more creditworthy customers – the list of extinct lenders includes companies like Abode Mortgage, Citizens Bank, Dundee Bank, Maple Trust and ResMor Trust. Mind you, most of these lenders were purchased by others.
Just this week we buried another lender. FirstLine, once one of the biggest mortgage companies in the country, closed its doors Tuesday after 25 years in business.
People worry about lenders closing down for one main reason: they’re scared the lender will force them to repay their mortgage early. In reality, however, that rarely happens with prime lenders.
The bigger risk has been with subprime lenders. In fact, some subprime borrowers have even lost their homes in cases where they couldn’t refinance elsewhere after their lender shut down.
But if you’re a qualified borrower with provable income, do you really need to be worried if your lender goes out of business?
“Not at all,” says Boris Bozic, president and chief executive officer at Merix Financial.
“I always find it fascinating that people are concerned about smaller lenders,” he adds. “We’re not deposit takers. We’re giving money, not taking money. The risk is all ours.”
Many second- and third-tier lenders get their funding from large financial institutions and that funding is fairly stable, Mr. Bozic says.
“Even if a company were to run into financial difficulties, the vast majority of the time there are backup servicers in place.” This sort of contingency planning is almost always required by the parties funding a lender’s mortgages.
Mortgage lenders come in all sizes, ranging from RBC – the biggest in the country – to tiny wholesale lenders and credit unions.
When it comes to entrusting a company with your biggest debt, odds are, name recognition matters to you. Consciously or subconsciously, people gravitate to well-known lenders partly because there’s a feeling of safety in “big.”
If a lender were to close, Mr. Bozic says another financial institution would simply take over the mortgage.
When a lender sells your mortgage to another party, you just keep making the same payments like nothing happened – albeit to a different company, in some cases. The new lender is generally required to honour the terms of your old mortgage contract, Mr. Bozic says.
The one thing that will change is the renewal offer you receive at maturity. Generally, the new owner of your mortgage will be the one making your renewal offer. That could be good or bad depending on how competitive the new lender is. But smart consumers always shop their lender’s renewal offer anyway, so this isn’t a major issue.
Overall, the probability of a lender disappearing is low. On its own, it’s not enough reason to avoid a less prominent company.
That’s especially true when the lender has the best deal in the market–which is the case with many smaller lenders today. If you can find a 0.10 percentage point lower rate, you’ll save roughly $1,200 over 60 months on a standard $250,000 mortgage.
If you’re interested in getting the best rate possible, you need to be open to saving money with a smaller mortgage company. Just be sure to get independent advice so you can sidestep the ones with onerous contract restrictions. Examples of those include fully closed terms, costly penalty calculations, porting restrictions, refinance limitations, and so on. Some lenders have rather unpleasant fine print, but that’s true for micro and mega lenders alike.
There are certainly reasons to choose a major bank or large credit union for your mortgage, including branch accessibility, integrating your mortgage with your banking or credit line, and access to other financial products. But it’s rarely necessary to shun lesser-known lenders for fear they’ll close and leave you stranded.
ROBERT MCLISTER
Special to The Globe and Mail
Published
Friday, 3 August 2012
Why do interest rates continue to fall?
What can we make of the low interest rate environment we are now seeing? Fixed
rates are dropping and one lender has dropped its variable rate. Will more
lenders follow suit?
When the five-year fixed rate fell to under 3% earlier this year, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney cautioned consumers and warned lenders to be careful with debt loads. Clearly it didn't slow the robust housing market - purchases and refinances continued at a pace not seen since 2007.
Then Flaherty announced some changes to the mortgage rules to slow down the pace of rising debts. So what happened? We had a couple of weeks of quiet as the summer was also upon us.
It appears both lenders and investors are not comfortable with a lull. They have been taking advantage of lower bond yields, which accounts for lowered fixed rates. Even the seven and 10-year rates are looking very good. At the time of this writing a seven-year rate can be had for 3.69%. The spread between the posted rate on a five-year mortgage of 5.24% and a government of Canada five-year bond is almost 400 basis points - the highest it's been since the financial crisis in 2008.
Also, a few monoline lenders - lenders who specialize in mortgage lending only -- are now offering their variable rate under prime --something we have not seen consistently since last Fall. Clearly, these lenders have an appetite for funding right now. It will be interesting to see if this initiates a mini-price war in the variable rate market. But there is always the threat that the government will step in and introduce even tougher rules.
These rates continue to tempt consumers. This may be the best time to consolidate even if it's only to 80% of the value of your property. On the other hand, the challenge is the increasing debt loads that a low interest rate environment can create.
Craig Alexander, chief economist at Toronto-Dominion Bank suggested in a recent news article that consumers should not abuse this opportunity by taking on new debt but should take advantage of it.
The Canadian Real Estate Association had previously forecast housing sales in 2012 and 2013 that were roughly on par with the 10-year average for annual activity. The updated forecast now predicts activity slightly above the long term average. The national average price is also forecast to rise modestly in 2013, edging up two per cent to $378,200.
It's hard to heed the warnings from government when the economy, the job market and the housing market seem to be doing so well.
When the five-year fixed rate fell to under 3% earlier this year, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney cautioned consumers and warned lenders to be careful with debt loads. Clearly it didn't slow the robust housing market - purchases and refinances continued at a pace not seen since 2007.
Then Flaherty announced some changes to the mortgage rules to slow down the pace of rising debts. So what happened? We had a couple of weeks of quiet as the summer was also upon us.
It appears both lenders and investors are not comfortable with a lull. They have been taking advantage of lower bond yields, which accounts for lowered fixed rates. Even the seven and 10-year rates are looking very good. At the time of this writing a seven-year rate can be had for 3.69%. The spread between the posted rate on a five-year mortgage of 5.24% and a government of Canada five-year bond is almost 400 basis points - the highest it's been since the financial crisis in 2008.
Also, a few monoline lenders - lenders who specialize in mortgage lending only -- are now offering their variable rate under prime --something we have not seen consistently since last Fall. Clearly, these lenders have an appetite for funding right now. It will be interesting to see if this initiates a mini-price war in the variable rate market. But there is always the threat that the government will step in and introduce even tougher rules.
These rates continue to tempt consumers. This may be the best time to consolidate even if it's only to 80% of the value of your property. On the other hand, the challenge is the increasing debt loads that a low interest rate environment can create.
Craig Alexander, chief economist at Toronto-Dominion Bank suggested in a recent news article that consumers should not abuse this opportunity by taking on new debt but should take advantage of it.
The Canadian Real Estate Association had previously forecast housing sales in 2012 and 2013 that were roughly on par with the 10-year average for annual activity. The updated forecast now predicts activity slightly above the long term average. The national average price is also forecast to rise modestly in 2013, edging up two per cent to $378,200.
It's hard to heed the warnings from government when the economy, the job market and the housing market seem to be doing so well.
Thursday, 2 August 2012
Canada plans no new steps to cool housing market: finance minister
By Edwin Chan
SUNNYVALE, California (Reuters) - Canada does not expect to have to tighten mortgage rules further as the real estate market has softened in the wake of government measures to cool it down, Finance Minister Jim Flaherty said in an interview on Wednesday.
Home prices hit a third straight record high in June, extending a steady climb that had triggered fears of a property bubble. But a slowdown in the pace of price increases suggested to economists the red-hot housing market is cooling.
"We always monitor the housing market. There has been concern, particularly with the condo market in Toronto and Vancouver. We have taken steps, including recently in June, another step to tighten the market for residential mortgages," Flaherty said in an interview in Sunnyvale, California.
"There has been some softening in the past month or so, so right now there is no intention to intervene again," he said after a series of meeting with Silicon Valley tech corporations and venture capitalists.
The minister tightened conditions for borrowers and lenders on June 21 to put the brakes on home buying and deflate a possible housing bubble before it popped.
Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.
But Flaherty and Bank of Canada Governor Mark Carney have expressed concern about rising household debt and about persistent strength in the condominium market.
Ratings agency Standard & Poor's has warned that debt-ridden consumers and the cooling property market are leaving the country's banks vulnerable, revising its outlook to "negative" from "stable" for the country's biggest banks.
The debate comes as economic growth in Canada shifted into low gear in May on unexpected weakness in the manufacturing sector, casting doubt on the country's ability to distance itself from the disappointing performance plaguing the United States.
IT'S GROWTH, AFTER ALL
A weaker-than-expected 0.1 percent monthly gain in gross domestic product in May, after a 0.3 percent jump in April, puts the second quarter on track for annualized growth of less than 2 percent.
Flaherty waved off calls for further government stimulus, saying the present situation did not call for it. Economists have called for more government borrowing and infrastructure spending should the economic picture worsen, but Flaherty said he would not speculate on what might happen.
"We took certain steps back in 2009 to create economic stimulus. We're not in that situation today," he said.
"We are seeing modest growth, not as much as Americans and Canadians would like it to be, but it is growth. And that's better than many Western countries."
Flaherty is in Silicon Valley to hear views of investors and industry executives on how to foster domestic tech entrepreneurs. He toured a local startup "accelerator," or incubator, that specializes in incubating startups and helping forge ties with local players.
Away from technology, Ottawa is also actively seeking Chinese investment to help develop the oil-rich tar sands in northern Alberta. But now, some domestic critics are unhappy that a Chinese state-owned company might soon be allowed to buy out a key Canadian energy firm.
The finance minister would not be drawn on the government's running review of No. 3 Chinese oil company CNOOC Ltd's bid to buy Nexen for more than $15 billion, saying it was the purview of the industry ministry's, not his.
But Flaherty did say every mega-deal had to be reviewed on its individual merits, on whether it would be of net benefit to the country and if it passed the national security litmus test.
Prime Minister Stephen Harper said last week the country will study the $15.1 billion bid carefully and no one should make assumptions about whether the proposed takeover will be green-lighted., Flaherty said he shared that view.
"We have had some significant investments, Chinese investments, in Canadian resource companies. And we expect that there'll be continuing relationship that way with China," he said. "But when we get into reviewable transactions, that's a different situation."
"It's a question on each transaction, like the Nexen transaction, of assessing the net benefit test, and the national security test."
SUNNYVALE, California (Reuters) - Canada does not expect to have to tighten mortgage rules further as the real estate market has softened in the wake of government measures to cool it down, Finance Minister Jim Flaherty said in an interview on Wednesday.
Home prices hit a third straight record high in June, extending a steady climb that had triggered fears of a property bubble. But a slowdown in the pace of price increases suggested to economists the red-hot housing market is cooling.
"We always monitor the housing market. There has been concern, particularly with the condo market in Toronto and Vancouver. We have taken steps, including recently in June, another step to tighten the market for residential mortgages," Flaherty said in an interview in Sunnyvale, California.
"There has been some softening in the past month or so, so right now there is no intention to intervene again," he said after a series of meeting with Silicon Valley tech corporations and venture capitalists.
The minister tightened conditions for borrowers and lenders on June 21 to put the brakes on home buying and deflate a possible housing bubble before it popped.
Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.
But Flaherty and Bank of Canada Governor Mark Carney have expressed concern about rising household debt and about persistent strength in the condominium market.
Ratings agency Standard & Poor's has warned that debt-ridden consumers and the cooling property market are leaving the country's banks vulnerable, revising its outlook to "negative" from "stable" for the country's biggest banks.
The debate comes as economic growth in Canada shifted into low gear in May on unexpected weakness in the manufacturing sector, casting doubt on the country's ability to distance itself from the disappointing performance plaguing the United States.
IT'S GROWTH, AFTER ALL
A weaker-than-expected 0.1 percent monthly gain in gross domestic product in May, after a 0.3 percent jump in April, puts the second quarter on track for annualized growth of less than 2 percent.
Flaherty waved off calls for further government stimulus, saying the present situation did not call for it. Economists have called for more government borrowing and infrastructure spending should the economic picture worsen, but Flaherty said he would not speculate on what might happen.
"We took certain steps back in 2009 to create economic stimulus. We're not in that situation today," he said.
"We are seeing modest growth, not as much as Americans and Canadians would like it to be, but it is growth. And that's better than many Western countries."
Flaherty is in Silicon Valley to hear views of investors and industry executives on how to foster domestic tech entrepreneurs. He toured a local startup "accelerator," or incubator, that specializes in incubating startups and helping forge ties with local players.
Away from technology, Ottawa is also actively seeking Chinese investment to help develop the oil-rich tar sands in northern Alberta. But now, some domestic critics are unhappy that a Chinese state-owned company might soon be allowed to buy out a key Canadian energy firm.
The finance minister would not be drawn on the government's running review of No. 3 Chinese oil company CNOOC Ltd's bid to buy Nexen for more than $15 billion, saying it was the purview of the industry ministry's, not his.
But Flaherty did say every mega-deal had to be reviewed on its individual merits, on whether it would be of net benefit to the country and if it passed the national security litmus test.
Prime Minister Stephen Harper said last week the country will study the $15.1 billion bid carefully and no one should make assumptions about whether the proposed takeover will be green-lighted., Flaherty said he shared that view.
"We have had some significant investments, Chinese investments, in Canadian resource companies. And we expect that there'll be continuing relationship that way with China," he said. "But when we get into reviewable transactions, that's a different situation."
"It's a question on each transaction, like the Nexen transaction, of assessing the net benefit test, and the national security test."
Record setting low rates
With mortgage rates time and time again setting record lows, now's the time to take advantage in a positive way and pay off your mortgage faster. Yes, mortgage rates are low, lower than they've ever been at 2.89% for 5 years fixed, but that isn't necessarily a reason to pile all your debt into your house and extend amortization. Take advantage of these low rates in a positive way and use them to pay your mortgage down faster. If you refinance your mortgage to a lower rate, keep your payment the same, all your additional money each month will go straight towards principal and you'll be amazed how much extra you pay off on your mortgage.
With rates as low as they are it's more important now than it ever has been to prepare for an increase at the end of your term. If you lock in 5 years now at 2.89%, in 5 years, you have to refinance, what if rates are 5 or 6% then? That could hugely increase your payments, even with the decrease you'll see in your principal. So it's important now, to pay off as much principal as we can to make our future refinance amounts as low as possible.
With rates as low as they are it's more important now than it ever has been to prepare for an increase at the end of your term. If you lock in 5 years now at 2.89%, in 5 years, you have to refinance, what if rates are 5 or 6% then? That could hugely increase your payments, even with the decrease you'll see in your principal. So it's important now, to pay off as much principal as we can to make our future refinance amounts as low as possible.
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