17 Jul

Residential Mortgage Commentary- week of July 17, 2017

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Posted by: Jordan Thomson

Residential Mortgage Commentary – week of July 17, 2017

It has finally happened.  After seven years of hints, hopes, cajoling, warnings – even threats – the Bank of Canada has raised its overnight interest rate.

The trendsetting rate climbed a quarter-point and now sits at 0.75%.

Many market watchers believe this is the beginning of a long-term trend and the central bank will continue with slow, incremental increases as long as the economy continues to show healthy growth.

The next date for a rate setting is September 6thbut most observers do not expect any change until the October setting.  Right now the odds are in favour of another increase, likely another 25 basis-points.  While that amounts to a doubling of the BoC rate in just four months, it still falls short of a full 1.0% increase that the big bank economists see as the threshold for a change in consumer borrowing habits, including mortgages.

It is far more likely that impending changes in mortgage rules being considered by the federal banking regulator, the Office of the Supervisor of Financial Institutions, will have a much sharper impact on mortgages in the near term.  OSFI wants to tighten up requirements for uninsured mortgages, with a more onerous stress test for buyers, among other measures.

The regulator is proposing a qualifying rate of the contract rate plus 2.0%.  Nearly half of all mortgages in Canada are now uninsured and financial institutions governed by OSFI hold about a third of that total.  By one estimate that could see the growth of mortgage originations trimmed by 1.0%, to about 4.5%.

 

Post from First National Financial LP.

10 Jul

Rate Increases and Your ARM vs VRM

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Posted by: Jordan Thomson

RATE INCREASES AND YOUR ARM VS VRM

Some of you are going to ask what is a ARM and VRM? These two acronyms are mortgage speak for adjustable rate mortgage and variable rate mortgage. These two mortgage products are both based on the prime rate of interest, in most cases this is 2.70% at the bank. TD chose to be higher by .15% at 2.85%, so it isn’t controlled by the Bank of Canada. It is an individual financial institution policy.

With the Bank of Canada hinting strongly at moving up the interest rate, most likely by .25%, we will see an increase in the prime rate most likely to 2.95%. If you have an adjustable rate mortgage then you will see your monthly payment increase to match this new rate. So an Adjustable Rate Mortgage moves up with prime and you continue to gain ground by making your payments.

Variable rate mortgage is different. The VRM works like this, your monthly payment will stay the same but you will now be paying less to principal and more to interest. Not a good scenario if you are trying to pay down your mortgage and gain some equity. In this changing market, we suggest that you review the scenario with your lender and make sure that you are keeping up with gaining on your mortgage. The other scenario can also be that if you don’t adjust your payment that you could end up paying only interest and not be paying down the principal at all. And remember, a Dominion Lending Centres mortgage specialist can help answer any questions you have.

 

Thanks to DLC’s Len Lane for this article!

10 Jul

A Brief History of Mortgage Tightening

General

Posted by: Jordan Thomson

You may have noticed that it’s definitely harder to get mortgage financing these days and you are right! Over the past 9 or so years, many changes have been brought in by the government and regulators in an effort to “protect” borrowers, mortgage insurers, slow the housing market etc. The affect has been tougher guidelines for lenders and consumers alike making it a much more complicated and onerous process to obtain financing.

  • January 1, 2017: OSFI imposed onerous capital requirements on default insurers, thus disadvantaging many bank competitors (and consumers) by jacking up rates substantially on low-ratio insured mortgages.
  • November 30, 2016: New stress test regulations were extended to include insured mortgages with 20% equity or more. It also banned certain mortgage types from being insured, including refinances, extended amortizations and single-unit rentals.
  • October 17, 2016: The federal government introduced a stress test to be used in approving all high-ratio insured mortgages with terms of five years or more. It required such borrowers to prove they can handle payments at the Bank of Canada’s posted 5-year rate (currently 4.64%).
  • February, 2016: The Department of Finance announced it was increasing the minimum down payment from 5% to 10% on the portion of a home’s price that’s above $500,000.
  • November, 2014: OSFI releases its B-21 guidelines, which set out insurer restrictions on everything from debt-ratio calculations and self-employment evaluation to borrowed down payments and cash-back mortgages.
  • July 9, 2012: The government reduced the maximum amortization period to 25 years for high-ratio insured mortgages, limited the gross debt service and total debt service ratios permitted to 39% and 44%, respectively, banned mortgage insurance on properties over $1 million and implemented a maximum 80% LTV for refinances.
  • March 18, 2011: Regulators introduced a 30-year maximum amortization on insured mortgages over 80% LTV, an 85% loan-to-value limit on insured refinances and eliminated government insurance on secured lines of credit (e.g., HELOCs).
  • April 19, 2010: The government introduced stress testing for insured mortgages using the Bank of Canada’s 5-year posted rate. Other key changes included a 90% LTV max. on refinances (down from 95%), and an 80% LTV maximum for rental financing.
  • October 15, 2008: The first mortgage rule changes announced by the government eliminated 40-year amortizations (dropping them to 35), raised the minimum insured credit score, added a new maximum total debt service ratio of 45% and additional loan documentation standards.