28 Mar

The Most Important Question this Spring

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Posted by: Jordan Thomson

Short Version:

The most important question a home-seller must ask their Broker or their banker this Spring:

‘Do I QUALIFY to port my mortgage?’

You must re-qualify to port your mortgage to a new property, and you must re-qualify under stringent new rules.

How stringent?

Long Version:

Let’s say you have impeccable credit, a $100,000 income, and bought a house with a basement suite last year – you may have a mortgage of ~ $675,000…which you qualified for in 2017.

In 2018, you new maximum mortgage amount is closer to ~$530,000.

And if rates were to move up another 0.50% you’d be capped at ~$490,000.

If rates were to move up a full percentage point ~$455,000

Either way, even with no further upward movement, the family in this example, were they to enter into a binding sale agreement without confirming their qualifications would not be able to re-enter the market at the same price point.

Key Point – Do not ask if your mortgage is ‘portable’ (99% are). Ask if you currently qualify to move your mortgage to a new property. This will require an actual application and full review.

Key Point – The federal government has created a dynamic in which qualifying rates have shifted radically, and more precisely the ground has shifted under tens of thousands of middle class Canadians feet. You have been protected from yourself, and you don’t even know it.

Key Point – Since Jan. 1, 2018, you’re subject to the new stress test. Even though you have impeccable credit, have never missed a payment, and even got a 3% raise last year – too bad.

Conclusion

Don’t list your home for sale without having something in writing from your current lender confirming that you QUALIFY to move your existing mortgage to a new property. If you have any questions, contact your local Dominion Lending Centres mortgage professional.

And if you’ve personally been caught in this ‘portability trap’, by all means make your voice heard. Share your story with me directly and also here; www.tellyourmp.ca

Thanks to DLC’ Mortgage guru Dustan Woodhouse for this info!

24 Mar

EXPERT INSIGHTS March 23, 2018- Jason Ellis looks at rates, inflation, securitization news and more

Latest News

Posted by: Jordan Thomson

Expert insights
Jason Ellis, Senior Vice President and Managing Director, Capital Markets

Good Morning.

In the most important news of the week, Tuesday marked the Vernal Equinox, also known as the first day of spring if you live in the northern hemisphere. As the earth continues its lonely journey around the sun and the tilt of our axis brings longer, warmer days, I have one word of advice. Sunscreen. The long term benefits of sunscreen have been proved by scientists. I may be ahead of myself. On a UV Index of 1-10, the most recent observation in Toronto was a 1. In light of this, I’ll offer one other word of advice. Floss. (But trust me on the sunscreen).

Rates

It’s been a bit of a topsy-turvy week. 5 year GoC’s started at 1.98% Monday morning and climbed as high as 2.12% by Wednesday afternoon. By the end of day on Thursday, yields had retreated to 2.04% in the aftermath of the Wednesday afternoon Fed meeting. Finally, this morning’s strong inflation data led rates back up to 2.09%.

If you’re a critic, you’d probably point out that I did nothing more than list a bunch rates with little to no context or explanation. You’d be right.

Inflation

Data released by Statistics Canada this morning showed the annual pace of inflation accelerated to 2.2% compared to 1.7% the previous month. Core inflation excluding volatile elements like gasoline prices climbed to 2.1% compared to 1.9% last month.

As you would imagine, inflation is a central piece of the information that influences the Bank of Canada’s interest rate decisions and, with both readings above the bank’s 2.0% target, another hike could come even sooner than previously expected. Bond yields climbed 4-5 basis points on the news.

After leaving the target overnight rate unchanged at 1.25% back on March 7th, the implied probability of a 25 basis point hike at the April 18th meeting is about 40%. Trade concerns with the US may yet weigh on that decision.

The Fed

Speaking of central banks, the Federal Open Market Committee (aka the Fed or FOMC) met on Wednesday and raised its benchmark target rate by 25 basis points for the sixth time since it began raising rates from near zero levels in December 2015. The increase was widely expected and puts the new benchmark funds range at 1.50%-1.75%. Along with the increase was another upgrade in the Fed’s economic forecast and the suggestion that the future path of rate hikes could accelerate.

Securitization

MCAP announced its highly anticipated Residential Mortgage Backed Security (“RMBS”) this week. In case you’re unclear on the difference, an RMBS is composed of low ratio (<80% LTV) uninsured mortgages where NHA MBS are made up of Insured mortgages. The $247 million Pass-Through deal features a $233 million AAA tranche supported by 6% credit enhancement through subordinated notes. Indicated spread is in the GoC+100 range which is great value for the investor. The prime collateral (not to be confused with ‘alternative’ or ‘alt-a’ mortgages) was carefully curated, and those willing to do the work to understand the asset, should be well rewarded. While it might seem counterintuitive as a competitor, I’m definitely rooting for MCAP on this one. The development of an RMBS market in Canada would be a good thing. Final thoughts There seems to be an expectation that these innocuous posts end with amusing non-sequitur. To that end, since I rarely have an original thought worth sharing, I will borrow from another source to leave you with the following additional advice which you can consider a bonus after the tips about sunscreen and flossing above. Whenever you get that “glass half empty” feeling…just add vodka and stir.

24 Mar

History of Mortgage Changes

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Posted by: Jordan Thomson

The mortgage industry seems to be ever-changing. What was applicable one day seems to no longer apply to the next and at times, it can be confusing to navigate through what all of these changes mean–and how they impact you directly. As Mortgage Brokers, we firmly do believe that although the industry has gone through MANY changes over the years, each time our clients are able to overcome them by practicing the same sound advice–which we will reveal at the end! But first, a walk through of the mortgage changes over the past few years and how the industry has changed:

LOOKING BACK

Before 2008

During this time, lending and mortgages policies were much more lenient! There was 100% financing available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties, and qualifications for FIXED terms under 5 years and VARIABLE mortgages at discounted contract rate. There was also NO LIMIT for your GROSS DEBT SERVICING (GDS) if your credit was strong enough. Relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

July 2008

We saw the elimination of 100% financing, the decrease of amortizations from 40-35 years and the introduction of minimum required credit scores, which all took place during this time period. It was also the time in which the Total Debt Servicing (TDS) could only be maxed to 45%.

April 2010
This time period saw Variable Rate Mortgages having to be qualified at the 5-year Bank of Canada’s posted rate along with 1-4 year Fixed Term Mortgages qualified at the same. There was also the introduction of a minimum of 20% down vs. 5% on investment properties and an introduction of new guidelines on looking at rental income, property taxes and heat.

March 2011

The 35-year Amortization dropped to 30 years for conventional mortgages, refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012

30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down). Refinancing also dropped down this time to 80% from 85%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging and the disappearance of true equity lending. Perhaps the three biggest changes of this time were:

● Ban mortgage insurance on any million dollar homes
○ 20% min requirement for down payment
● Elimination of cash back mortgages
○ Federal guidelines Min; requirement of 5% down
● Introduction to FLEX DOWN mortgage products

February 2014

Increase in default insurance premiums.

Februrary 2016

Minimum down payment rules changed to:
● Up to $500,000 – 5%
● Up to $1 million – 5% for the first $500,000 and 10% up to $1 million
● $1 million and greater requires 20% down (no mortgage insurance available)

Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of $750,000 or less.

July 2016

Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

October 17, 2016: Stress testing

INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

November 30, 2016: Monoline Lenders

Portfolio Insured mortgages (monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

AND HERE WE ARE NOW…

January 2018: OSFI ANNOUNCES STRESS TESTING FOR ALL MORTGAGES + NO MORE BUNDLING AND MORE RESTRICTIONS

•If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%

•Lenders will be required to enhance their LTV (loan to value) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.

•Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

BOTTOM LINE: WHERE DO WE GO FROM HERE?

As you can see, the industry has always been one that has changed, shifted and altered based on the economy and what is currently going on in Canada. However, with the new changes that have come into effect this year, we recognize that many are concerned about the financial implications the 2018 changes may have.

The one piece of advice that we promised you at the start of this blog, and one that has helped all our clients get through these changes is this: work with a Dominion Lending Centres mortgage broker!

We cannot emphasis the importance of this enough. We have up to date, industry knowledge, access to all of the top lenders and we are free to use! We guarantee to not only get you the sharpest rate, but also the right product for your mortgage.