30 Oct

Why Variable Rate Mortgages are safe again!


Posted by: Linda Colpitts

Why no rate hike means variable mortgages are safe again


Garry Marr | 23/10/13 | Last Updated: 23/10/13 6:41 PM ET
More from Garry Marr | @DustyWallet

With the Bank of Canada signaling Wednesday it won't be raising rates — its neutral stance could even mean lower rates — consumers can safely slide back into variable mortgages tied to prime which tracks the central bank rate.

Matthew Sherwood for National PostWith the Bank of Canada signaling Wednesday it won’t be raising rates — its neutral stance could even mean lower rates — consumers can safely slide back into variable mortgages tied to prime which tracks the central bank rate.

A signal from the Bank of Canada that it is not raising its key lending rate any time soon, coupled with the likelihood of falling mortgage rates, could be enough to keep the latest housing rally going.

Bank of Canada drops rate guidance, lowers growth forecast

There’s been a sea change at the Bank of Canada. For the first time in more than a year, policymakers have dropped any reference to rates eventually rising

Continue reading.

There have been signs the housing market is in recovery mode with year-over-year sales rising in many markets, albeit generally below 10-year averages. Analysts have called it a short-term blip caused by consumers rushing to buy to  take advantage of pre-approved mortgages signed 120 days ago when long-term rates were lower.

But with the Bank of Canada signaling Wednesday it won’t be raising rates — its neutral stance could even mean lower rates — consumers can safely slide back into variable mortgages tied to prime which tracks the central bank rate.

The short-term rate option and the possibility long-term rates will follow has people worried the market may be recovering too fast for the taste of Ottawa, leaving Finance Minister Jim Flaherty with no choice but to tighten lending rules again.

“It’s possible interest rates will go down,” said CIBC deputy chief economist Benjamin Tal, adding there’s a huge amount of mortgage debt already in the pipeline that was created when people took advantage of rates they were pre-approved for in the summer. “I’ve seen what is in the pipeline in mortgage activity and you won’t believe the numbers when it is official.”

With no panic to buy, the question is whether people will be encouraged to continue to take on more debt or slow down their spending if the economy slows?

“If we don’t get the softness we are expecting [in housing], quite frankly I think they are already talking about more restrictions,” said Mr. Tal, adding that would be the only option to slow the housing market if Ottawa is reluctant to raise rates.


Kelvin Mangaroo, president of RateSupermarket.ca, says long-term mortgage rates have so far not followed recent reductions in bonds yields, making the variable rate look all the more attractive.

He says the lowest variable rate mortgages on a five-year term is now 2.4% which compares with 3.34% for a five-year fixed closed mortgage. The major banks are still offering 3.89% for a five-year fixed rate closed mortgage.

“The rule of thumb is people start looking at variable when there is a one percentage point spread between five-year variable and five-year fixed,” said Mr. Mangaroo. “We might have more people looking variable with the latest Bank of Canada news.”

Most of the banks and Ottawa have taken great pains to get people to lock in the mortgage rate so they won’t be vulnerable to a spike in interest rates. Changes to mortgage rules even allow you to borrow more, as long as you lock in for five years or longer.


York University Prof. Moshe Milevsky said historically there is usually a much larger gap between long-tern rates and short-term rates which were almost the same earlier this year. He’s not sure people will flock to variable immediately.

“It’s not as much demand side with the consumer deciding. The banks can push aggressively on variable. Sometimes it’s about how the mortgage broker is compensated. There are two sides to the transaction. The consumer is educated when they make the decision,” he says.

While Mr. Milevsky is hesitant to make any prediction on the housing market because so many people have been so wrong for so long, he does have a suggestion for anybody worried about what type of mortgage to take out today.

“I continue to marvel at why people go all fixed or all variable,” says the professor, adding while banks don’t promote the option, you can  ask that half your mortgage be long-term and half be short-term. “If I was consulting the banks, and I’m not, their advertisement campaign should be “hedge your mortgage debt, do both’.”

Phil Soper, chief executive of Royal LePage Real Estate Services, thinks it’s reasonable to believe people will move back to variable but probably not enough to cause concern about the housing market.

“Look across the country and many regions are not Toronto,” said Mr. Soper, who cautions government policy should not be based solely on the hot real estate market in Canada’s largest city.

23 Oct

No Reference to interest rates rising!


Posted by: Linda Colpitts

OTTAWA — There has been a sea change at the Bank of Canada.

No longer are policymakers setting a specific monetary course. For the first time in more than a year, they have dropped any reference to interest rates eventually rising.


At the same time, they are also taking a less-rosy outlook for the economic climate, in Canada and globally.

What hasn’t changed, however, is the central bank’s biggest policy lever — its benchmark lending rate, which has remained at a near-record-low of 1% since September 2010 and which has been locked in by lower-than-anticipated inflation and lagging growth.

On Wednesday, those policymakers — now under the leadership of Stephen Poloz, who replaced Mark Carney in June — again kept that rate as is. They also downgraded growth estimates for Canada, despite some positive economic signs coming out of Europe and Asia, tempered by ongoing uncertainty over budget crises in the United States.

Canada’s economy is forecast to grow by 1.6% this year, down from the bank’s July outlook of 1.8%. For 2014, the estimate has fallen to 2.5% from 2.8% ahead of 3% in 2014, unchanged from July.


Global growth, however, is expected to remain stable at 2.8% this year, but advance at a weaker pace in 2014 — 3.4% compared to the earlier estimate of 3.5% — and also slower in 2015 — 3.6% rather than 3.7%.

“The global economy is expected to expand modestly in 2013, although its near-term dynamic has changed and the composition of growth is now slightly less favourable for Canada,” the bank said in its quarterly Monetary Policy Report, released Wednesday along with its rate statement.

In Canada, uncertain global and domestic economic conditions are delaying the pickup in exports and business investment

“In Canada, uncertain global and domestic economic conditions are delaying the pickup in exports and business investment, leaving the level of economic activity lower than the bank had been expecting.”

As a result, the bank dropped any reference to future rate movements for the first time since April 2012. That forward guidance referred to ongoing slack in economic output, muted inflation and imbalances in household borrowing — all of which would need to be corrected before rates could begin to rise ‘over time.”


But still, the elephant in the room is Canada’s export market, which has so far been slower to move into other markets as the bank had envisioned. With the U.S. still our biggest trading partner, the continuing political turmoil over America’s spending and debt levels have dampened enthusiasm over increased shipments of goods to that country.

The Bank of Canada has lowered this year’s forecast for the U.S. to 1.5% from 1.7%, and cut next year’s outlook to 2.5%, from 3.1, while raising the projection for 2015 to 3.3% from the 3.2% mark in July’s MPR — on the hopes that fiscal concerns will have dissipated by then.

The weaker global picture has been somewhat tempered by stronger performances in Europe, Japan and China.

“The bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining,” the bank said.

Importantly, policymakers now see Canada’s economic output gap — the difference between potential capacity and actual production levels — closing at the end of 2015, pushed back from the previous timeline of mid-2015.

22 Oct



Posted by: Linda Colpitts

Former CMHC competitor petitions for mortgage insurance fees to drop


Garry Marr | 18/10/13 | Last Updated: 21/10/13 8:51 AM ET

A former senior executive at one of Canada Mortgage and Housing Corp.’s competitors says it’s time for mortgage default insurance premiums to drop because the Crown corporation doesn’t have the same percentage of risky clients due to tighter loan regulations.

Brian Bell, who used to be vice-president of private insurer Canada Guaranty and now runs his own real estate brokerage, is calling for a 15% reduction in fees that can easily top $13,000 on a $500,000 home — a move he says will provide much needed relief to the beleaguered first-time home buyer.

“The risk has been lowered, the mortgage insurance industry has been so profitable and they haven’t done a review in…I can’t remember the last time they reviewed their rates,” said Mr. Bell, who is now president of iPro Realty Ltd. and runs a website called townhouses.ca. He used to work for CMHC where he learned about the mortgage default insurance industry.

By law, any consumer with a downpayment of less than 20% and borrowing from a financial institution regulated by the Bank Act must get mortgage default insurance. CMHC controls about three quarters of the market with Genworth Financial and Canada Guaranty splitting the rest.

All insured mortgages are backed by the federal government, in the case of CMHC for 100% of the value of the loan and 90% for private players. Ultimately the government could be on the hook for close to $1-trillion, a price tag that makes some think there should not be a shrinking of fees.

“They have room to do it,” said Mr. Bell, about lowering fees. “Insurance is all about risk and losses. If you’ve changed your risk and underwriting criteria and made it tighter, you’ll have lower loan losses.”

He points out the Crown corporation has averaged $1.1-billion annually in net income over the last five years and estimates a 15% reduction in fees would have amounted to $194-million in 2013.

“I work with first-time home buyers every day and that’s the group that has been hurt,” said Mr. Bell. “I’m putting my name and reputation on the line after being in the industry for so long. I’m not going to be getting any friendly emails [mortgage insurers].”

Not everybody is convinced it’s time to lower fees.

“To the extent that it assists first-time buyers it is a good thing,” said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals. But he wouldn’t endorse the petition.

Rob McLister, editor of Canadian Mortgage Trends, said he doesn’t think a petition to lower fees will gain much traction in the marketplace.

“The risk has gone down but the fact is I don’t think [fees] are egregiously priced. I’d rather see them higher than lower and CMHC have a buffer in case things go bad,” said Mr. McLister. “If you don’t like the fees, put 20% down.”

Financial Post




18 Oct

Recognizing red flags for new homes


Posted by: Linda Colpitts

Recognizing red flags for new homes

Tuesday, October 15, 2013 6:56:25 EDT PM

Tarion president and chief executive officer Howard Bogach is touring the province to promote the corporation’s work and warn of illegal building practices. The Ontario government created Tarion Warranty Corp. in 1976 to regulate the building of new homes. It licences builders of new homes and condominiums and guarantees warranties.

Registered builders must have the technical competence and enough financing to allow them to absorb any losses that could arise during a home’s construction.

Bogach said buyers should “make the phone call” to learn if the builder’s registered. Its website at www.tarion.com also has a directory of registered builders.

Customers should ask questions and not be swayed solely by the good looks of model homes, he said.

In the last five years, Tarion investigated 47 cases involving 86 homes in the Belleville area, said Bogach. It has also opened nine new cases this year. Local conviction rates weren’t available Tuesday.

“On average, 18 per cent of the claims we pay out are related to illegal building — about $1 million a year,” Bogach said.

The Ontario Home Builders’ Association and Tarion are working on “raising the bar” for registration by requiring builders to take more courses, association president Eric Den Ouden said.

Builders ought to know the new demands of the business, from science to laws to marketing, he said. Such courses would ensure they do.

It’s more regulation — something against which local builders have fought — but Den Ouden, a Belleville-based builder, said there are good reason for it: quality control for the industry and protection for buyers.

“We’re getting beaten by $5,000 on a house and a lot of times they’re losing $15,000 in product,” Den Ouden said.

Bogach said no new registration criteria would be ready before late 2014.

Red flags
Tarion Warranty Corp. is a private, non-profit corporation responsible for regulating the home-building industry in Ontario.
Under Ontario law, a builder who isn’t registered with Tarion Warranty Corp. can’t sign a sale or  construction agreement with a buyer.

  • * A warranty on a new home costs $385 to $1,500 – a cost the builder may pass on to the customer.
  • * Tarion registered 40,000 warranty forms last year and paid about $5 million to resolve the year’s 493 claims.
  • * There were 1,300 charges and 957 convictions across Ontario between 2008 and 2012. At least one violator received a jail sentence.

Tarion warns buyers to be wary if a builder says:

  • * “You don’t need a Tarion warranty because I offer my own.”
  • * “I could enroll the home in the warranty program, but it would cost you around $10,000.” (Home enrolment fees range from $385 to $1,500.)
  • * “I built the home for myself but decided to sell it instead.”
  • * “We can just put your name on the building permit.”

Source: Tarion Warranty Corp.

10 Oct



Posted by: Linda Colpitts



More Mortgage Legislation Changes Impacting Home Buyers


Rising Rates and Stricter Qualifying Guidelines May Make it Harder for you to Qualify for a Mortgage and Lower your Purchasing Power Even Further (to be in effect by December 31, 2013)


Rising Rates and More Emphasis on Debt May Impact Borrowers and their Mortgage Options 


When purchasing a home, the key areas that impact whether you qualify for a mortgage at all and for how much, are based on your income, credit and debts including your new mortgage payments and available down payment. 


In July 2012 there were some significant mortgage legislation changes that impacted qualifying for a mortgage including using a higher interest rate to qualify depending on the term you select, more income verification and down payment for the self-employed as well as lowering the amortization to 25 years.  All these changes impacted mostly those that have less than 20% down payment and therefore require default insurance (CMHC, Genworth or Canada Guaranty).


Unfortunately, there is more to come that has already taken effect with some lenders now, and others by December 31st, 2013.  All these changes are intended to curb consumer debt accumulation over and above income levels and to reinforce the importance of ensuring that borrowers do not over extend themselves financially with more debt than they can handle.


Overall, these changes are a good thing to ensure consumers don’t overspend and become “house rich and cash poor”; meaning being a home owner but living pay cheque to pay cheque with so much debt (including credit cards, loans, lines of credit etc.) that there is no extra cash for savings to build a financial cushion should there be an income loss in the future.


The downside is that these changes are impacting the ability for many to qualify to purchase a home, especially impacting first time home buyers who are struggling to find an affordable property that they qualify for close to where they live and work.


So what are the new changes coming into effect by December 31st, 2013 and how will they affect your borrowing and purchasing power?  The changes fall into three categories which are focused on your debt to income ratios and this will determine how much of a mortgage you qualify for;


1.    Debt; The payment that must be considered when calculating how much you qualify for is now a minimum of 3% of the outstanding balance on all unsecured lines of credit and credit cards that you have.  Even if you have a lower minimum monthly payment required by the creditor, this will no longer be used. 

For secured lines of credit that are registered against real estate, a minimum monthly payment that is to be factored into your qualifying is now the outstanding balance calculated over a 25 year amortization using either the benchmark rate (5.34% as of Sept 12th, 2013) , or the actual interest you are paying.  Even though your secured line of credit might only have a minimum payment of interest only, you now have to qualify using a much higher payment.  Some lenders are taking this one step further and using the “credit limit” instead of the outstanding balance.

How to overcome this challenge; if you pay your entire balance off each month, and can provide confirmation of this, then you will not be impacted by this change. You may need to work on your personal household budget to create a plan to pay down your existing debt to a point where you qualify for the mortgage you require.  If you need help, I can recommend a financial planner for you to work with.


  1. Guarantors; if you can’t qualify for a mortgage on your own, often a guarantor can be added to your application.  The guarantor is not on title but is on the mortgage and typically doesn’t live in the property with you.  The new changes mean that you can no longer use the income of the guarantor to help qualify for the mortgage unless they will be living in the property with you.  You will now be required to prove you can afford the property without using your guarantors’ income as well.


How to overcome this challenge:  Ensure that you purchase a home and obtain a mortgage that you can actually afford to pay back on your own without any financial contribution from a guarantor.   You may have to adjust your wish list a bit, or purchase a more affordable home to get you onto the property ladder.


  1. Heating Costs; using about $75 to $100 per month to calculate the cost of heat in your qualifying has been the norm til now.  Changes now require that a higher amount than this be used as determined by the lender and will be based on the the purchase price, size of the property and location. 


How to overcome this challenge:  The reality is you are most likely going to be paying more than $100 per month on heat and utilities anyway so ensuring you can afford these bills is a good thing before you buy the home.  When you find a property you want to buy, ask the existing home owners for copies of the utility bills over the last twelve months so you can see what it will actually cost to heat your home thru the entire year.  Of course, your usage might change from the existing home owners but at least you will have an idea.  Again, ensuring you can actually afford to pay the utility bills before you purchase the home is good.


These changes, along with recent rising interest rates, are impacting the amount borrowers qualify for which in turn determines the purchase price of a home. 


So what happens next?  Firstly, don’t panic as these changes may not impact your particular situation at all.  If you are considering either moving and purchasing a bigger home or purchasing your first home, call me for a free consultation to see exactly how these changes may impact your qualifying for a mortgage.  There are many strategies we can discuss together to make your dreams of home ownership an affordable reality.


Be prepared for these changes so you we can create a clear plan and path to home ownership for you. If you are not in the market  but have family, friends or business associates who are thinking of purchasing, please pass this information along to them.


Feel free to call or email if you have any questions. 




Linda Colpitts

Mortgage Agent