The harsher stress test mandated by the new federal real estate measures will do more harm than good to the market, specifically to the younger consumer base.

Montreal agent Thierry Lindor noted that fully 90 per cent of his clients at Remax l’Espace Griffintown who have withdrawn from the housing market are millennials.

Lindor warned that the revised rules, which now test a borrower’s ability to pay at the Bank of Canada’s 4.64 per cent posted rate, will make younger buyers more reluctant—especially considering that salary growth has remained relatively static over the past few years.

“We’re already a bit behind [the rest of Canada] in terms of home ownership,” Lindor told CBC News. “To put such a stress test on our market when we know that these are measures that were taken for Toronto and Vancouver — it’s like if your car has a flat and you decide to change your car.”

“They decided to pass this law for all of Canada and we’re feeling the impact on the sales as well.”

Lindor added that the regulatory revisions had the undesirable effect of some consumers hastily making decisions, which might prove problematic to the market in the near future.

“Some of my brokers had clients rushing to purchase,” the agent explained. “You don’t rush into a $500,000 investment.”

One of Lindor’s clients, Jasbeen Lallbahadoor, said that she had to back out of the $350,000 deal for a townhouse that she had been eyeing prior to the implementation of the new rules.

“I feel deceived by the government,” Lallbahadoor lamented. “You’re planning ahead and then all of a sudden the government comes and takes it away from you.”

To understand financing options for conventional borrowers – just ask me.  In October 2016 the Federal Government announced some significant changes to mortgage rules for high ratio borrowers.  Changes for high ratio mortgages took effect Oct 17th.  Changes for conventional borrowers took effect Nov 30th.  These changes will result in tighter guidelines to qualify for a mortgage, pressure on rates and may impact home prices in a market which has already been softening in recent months.

Let’s clarify the difference between a high ratio and conventional mortgage so we are all on the same page.

A high ratio mortgage occurs when a borrower has less than 20 percent down payment for their property purchase.  The mortgage must be insured through one of the main insurers and the client pays a one-time premium which is rolled into the mortgage.  A conventional mortgages occurs when a borrower has more than 20% down payment which means the mortgage does not require insurance coverage and no additional premium cost. In the case of rental properties or special mortgage programs an insurance premium can apply at a cost to the borrower.

Effective November 30th, all conventional borrowers are required to qualify at the benchmark rate (currently 4.64 percent) and a maximum of 25 year amortization for all mortgage terms if the lender is insuring the mortgage.  In recent years banks  and credit unions have opted to insure some of their conventional mortgages through CMHC, Genworth or Canada Guaranty.  Mortgage companies are required to insure their portfolio of mortgages through these insurers if they source their funds through investors rather than using their own money.  Since they are not a bank they do not have deposits to savings or chequing accounts.  With an insured mortgage the lender transfers their risk of lending to the insurer in the event of default by the borrower.  The mortgage is granted with insurance coverage and includes a mortgage premium.  The lender covers the cost of this insurance so many borrowers would not have any idea if their conventional mortgage was insured or not.

Because mortgage companies insure their mortgages the announcement of the new rules had an immediate impact on their business and what they can offer as competitive products to consumers.  Banks have the option to but don’t have to insure their conventional mortgages and can follow the previous rules for qualifying at contract rates and 30 year amortizations. However as expected, the banks have announced a premium to the interest rate for borrowers to access the 30 year amortizations.  So rates have increased for all mortgages over the past couple of weeks by 20 basis points, for 30 year amortizations an additional premium will be added and a further premium for rental properties.  Bottom line the cost to borrower has increased.

Over the past 20+ years the increase of mortgage companies has created competition for the banks.  There are some concerns these changes to mortgage rules will mean the exit of some mortgage companies from the market place and limit the competition for consumers on rates and products.  We have seen rate increases in the past few weeks which may be in part in response to the changes.  Although after the fiscal year end of October 31st rates typically rise so this may be a non-event.  As the deadline for the new rules for conventional mortgages passes some mortgage companies who fund with their own money have announced shifts to their products and rates to offer competitive options to consumers.  The good news is there is always the power of choice.

I will continue to work with the banks, credit unions and mortgage companies so nothing has changed in that regard – business as usual.

As an independent mortgage broker I can access all lending options including 30 and 35 year amortizations.  In addition there are solutions for rental property owners, financing options for self-employed people and alternative financing for those borrowers who do not fit within traditional offerings. Now more than ever it is important for consumers to consult  with your mortgage broker to review any important aspects of your financial picture, address any concerns and source best solutions.

For assistance with your high ratio mortgage or to understand financing options for conventional borrowers – just ask me.

Citing recently collected data, the Canada Mortgage and Housing Corporation announced on Wednesday (November 30) that foreigners represented only a miniscule segment of home owners in the country’s most active markets, and thus could not be considered as the main driver of the outsized price growth in the Canadian real estate sector.

The latest CMHC report noted that foreign nationals possess a mere 2.2 per cent of condo units in Vancouver and 2.3 per cent in Toronto.

“The evidence tells us that the origin of investor activity in Canadian real estate is primarily domestic,” CMHC president and CEO Evan Siddall said in a speech, as quoted by Metro Vancouver.

“When a white person buys a house, we don’t know. When a person of a different colour does, we do, and that’s not good economics.”

The numbers and comments backed up similar observations made by the B.C. government, which found that foreign money accounted for only 3.6 per cent and then 1.7 per cent of all sales in the province in September and October, respectively.

Despite speculations that the 15 per cent property transfer tax on foreign buyers caused the decline, however, Siddall emphasized that the market already demonstrated signs of slowdown prior to the implementation of the levy.

The CMHC head added that it was a potent blend of record-low interest rates, the rise of the investment housing trend, a growing population, and a healthier economy that is the ultimate driving factor in the price increases, and that the only reliable way to address the affordability issue is to improve supply via the removal of red tape to improve construction speed.

Latest statistics indicate that Canadians are currently carrying over $450 BILLION in consumer debt!

Mortgage Brokers are often called in to help refinance someone’s home in order to repay credit card debts. With current low mortgage rates, it certainly is advantageous to pay off high interest unsecured debts in order to lower monthly carrying costs.

Credit as a lifestyle.

If we could describe one of the biggest changes in our society in the last 40 years is our blasé attitude towards the use of credit. Baby boomers as a group have set the pace and trend on a number of development when they became consumers. One of the main one is the use of credit to finance a lifestyle some say would make our pre depression era generation squirm.

Modern society has brought consumerism to a whole new level. Big box stores, island getaways, niche products and services all contribute and fuel a never ending demand.

A lot of these trends are fuelled by easy credit and lenders as well as credit card issuers have stepped up to the plate by offering access to funds to anyone who wants and qualifies for it.

But with “great powers comes great responsibilities” to quote Spiderman’s Uncle Ben!

We teach our kids to read and write but not how to budget.

So it is no surprise that many consumers get caught in the credit card quagmire with often a one way ticket to bankruptcy.

So it is important as a consumer to stop and take a good look at your buying habits and how you use credit.

Ask yourself these questions:

Do you carry balances on numerous cards or just one or two?

Do you know the exact balance owing on your credit card/s without looking at your statement?

Do you only make the minimum payments or try to pay off balances as much as possible?

Do you worry if you will have enough money left over at the end of the month?

Those are some of the questions you should be asking yourself if you haven’t already. For this is the first step to financial control.

If you find yourself in a financial jam you can certainly apply measures to get out of it.

If it is to overwhelming make a point to consult a professional that deals with these situations and can offer credit counseling.

You can start by putting in place measures that won’t put you in financial trouble again. That is where scissors come in handy. Cut up merchant credit cards that charge high interest.

Snip your way to financial freedom and make a point to pay off your full balance at the end of the month. This way you won’t pay any interest.

Make a point to use only one credit card. This allows easier debt management.

Bottom line is this; don’t get caught in the financial roller coaster. You owe it to yourself and your family to set in place financial stability in your household. It is important that you teach your children proper budgeting techniques.

If you lack the knowledge, then this is a great opportunity to educate yourself and acquire a crucial life skill. Contact me at 514-949-5434.

Canada’s banking regulator warned lenders Monday not to become complacent about the way they underwrite mortgages, reminding them that low interest rates and rising property values aren’t guaranteed.

Jeremy Rudin of the Office of the Superintendent of Financial Institutions said prudent lending practices have never been more important because of the current economic environment.

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“When house prices have been rising for several years and interest rates have remained at all-time lows, complacency can set in,” the superintendent said in the text of a prepared speech for a meeting of mortgage professionals in Vancouver.

“Lenders might be led to believe that weak underwriting standards will be mitigated by ever-rising collateral values.”

Rudin’s speech touched on advice the regulator issued earlier this year on the industry’s practices, including verifying borrower income levels, managing higher-risk loans and ensuring adequate debt service ratios. He said the sound underwriting of mortgages relies on having reliable information about the borrower and the property that’s being purchased.

He mentioned the Bank of Canada’s concerns about increases in household borrowing and mortgage debt, in particular. Last summer, the central bank said the severity of the risks associated with a sharp correction in real estate prices in Vancouver and Toronto as well as from household financial stress have risen.

“A pronounced or prolonged economic downturn could well involve a meaningful housing price correction. This could translate into significant losses for lenders and insurers,” said Rudin.

The superintendent’s office supervises lenders that account for nearly 80 per cent of all Canadian mortgages.

He said too much emphasis should not be placed on collateral.

“Why? Because the value of the debt is fixed, but the value of the collateral is not,” Rudin said.

“House prices in most Canadian markets have never been higher, supported by mortgage rates that have never been lower. In these circumstances, prudent lenders put less reliance on collateral values, not more.”

Earlier this month, the TD Bank (TSX:TD) and Royal Bank of Canada (TSX:RY) increased their fixed mortgage rates, the latest sign that Canada’s big banks are hiking the costs of borrowing for homeowners.

As the dust is settling on the major changes to the mortgage qualifying rate and it is back to work as usual, some Canadians are starting to realize that there were some other significant changes that affect us all.

Starting this year you must now declare which property is your principal residence. There will be a form with your tax return that you must fill out. The purpose of this of course to make sure that the house flippers of the world pay their fair share of income tax on monies earned by buying and selling homes. This will also affect foreign owners, when they sell property in Canada, even though a family member may have lived in it they will now pay capital gains. They are closing some rather large loopholes in the system where many people have taken unfair advantage.

Another point that was probably missed by most is that if you have a home with a legal suite, when you sell the home you will have to pay capital gains on the portion that is rental. Many of these suites collect rent that is never reported to CRA and people avoid taxes by just pocketing the money. For many years now if you collected rent but didn’t report it on your taxes then you were not allowed to use it as income to apply for a mortgage.

This may also open up another legal/accounting question for parents that co-sign on their children’s mortgages. In Alberta at least when you co-sign you are usually on the mortgage and on title. Will it mean that when that home is sold will there be legal and tax ramifications when the home is sold.

Lots of unanswered questions on that subject that you will need to consult your accountant and your Dominion Lending Centres mortgage professional about before proceeding.

Recently introduced mortgage regulations should be assessed to see how they are working before any more are introduced, the CEO of mortgage insurer Canada Guaranty says.

Speaking to the Globe and Mail, Andrew Charles said that first-time buyers are already struggling to become homeowners and are not the reason for price gains in hot markets such as Toronto and Vancouver.

“Regulatory changes over the last few years have made the first-time home buyer a very modest player in the overall Canadian housing market,” he said.

Just last week, the CEO at CMHC Evan Siddall said that there could be a rise in minimum downpayments to further curb price appreciation and financial risk but Charles said such measures would impact the wrong buyers and hurt smaller markets.

He further warned that further changes could have dire consequences for Vancouver, which has already seen activity easing and could be tipped into a sharper correction.

It has been dubbed one of the most important insurance cases of its generation – and now a protracted battle regarding title insurance has come to an end in the Supreme Court of Canada.

The court has decided to uphold a ruling, dismissing an insurer’s appeal – and in the process has prompted many title insurers to review their policies.

According to a Toronto Star report, the case revolves around Paul and Stefanie Macdonald who bought a home in the city that they believed had been poorly renovated by its previous owner. When they attempted to undertake renovations of their own, they found that load-bearing walls had been taken out without building permits – making the second floor unsafe for use. This prompted the city of Toronto to issue a work order to support the unsafe floors with the Macdonalds paying out $75,000. They made a claim to Chicago Title on their insurance policy to cover these costs because the policy was said to provide coverage if the title was unmarketable. However, the claim was denied as the company stated that it was not covered under the policy.

This, in turn, prompted court action beginning in 2014, with the judge ruling that the municipal work order resulted from a hidden defect that was not covered under the policy. It stated that the work order did not affect “ownership of the land” as it was not registered on the property title – even though work orders are never registered against the title.

According to the Toronto Star report, work orders in the province affect a property even when ownership is transferred – and while in the past lawyers would carry out a search for work orders this is often deemed no longer necessary because it is assumed that title insurance will protect the owner.

It was last year that the decision was reversed with the insurer ordered to pay more than $50,000 in costs with the ruling suggesting the hidden defect made the title unmarketable. Now an appeal by the insurer has been dismissed and the ruling upheld.

The consequences of the ruling are far-reaching because it suggests any house with hidden defects could have an unmarketable title – prompting some insurers to quickly adjust their policies to ensur they exclude coverage for significant hidden defects.

Now the risk appears to lay with buyers and the insurers who will still offer coverage.

Last week we touched on TD’s 0.15% move with existing variable rate mortgage clients. There is nothing new to add as TD remains the only lender to make such a move with variable rate clients. Perhaps TD back downs down soon, perhaps other banks join them – time will tell.

The fresh news on rates is that most lenders, not all, hiked the venerable 5-year fixed rate for new applicants by as much as 0.25%.

WHAT DOES IT ALL MEAN?

A 0.25% hike equates to a ~$12.50 per month payment increase per $100,000 borrowed. Hardly a show stopper for many buyers.

These moves are not surprising considering the timing is just a few weeks after the bank’s fiscal year end, and reflective of similar moves in November’s past. The increase is usually followed by a decrease during the heat of the following Spring market.

Long term fixed rates are driven by the bond market, not the Bank of Canada – There is little chance of the BoC increasing Prime anytime soon (NOTE: the next Bank of Canada rate announcement is scheduled for December 7, 2016 – watch my website for more information from our Chief Economist, Dr. Sherry Cooper).

This is a mosquito bite, not a shark bite.

Did Prime go up?

No.

Did my Variable rate mortgage rate change?

No, not unless your variable rate mortgage is with TD.

So the Bank of Canada did not raise rates?

No, in fact they are more likely to lower rates than increase them.

But TD raised rates?

Yes, but only by 0.15% and only for variable rate mortgage holders.

If you are a TDCT client in a variable rate mortgage at TD then read on…

Update RE TD Variable Rate mortgage rate changes

On Nov 1st, 2016 TD announced their own private rate increase affecting just one exclusive group of TD clients. Specifically those in a TD variable rate mortgage.

While the rate adjustment may be minor, at only 0.15%, it is still a change, and nobody likes change.

Does this mean immediate action should be taken?

No.

Does this mean that going variable was a mistake?

No.

Is this change going to stick?

At this point (Nov 11, 2016) no other lenders have followed suit, and TD is effectively all alone on this move. As such TD may back down and reverse the increase.

For those of you with a discount of Prime -0.60% or better, you are still laughing. Such a discount leaves you with a net rate of 2.25% which can only be matched by a two year fixed rate product. And if you have such a discount the odds are you have been enjoying it for some time now as well. Racking up the savings!

For those whose net rate has risen above the 2.25%, keep in mind some of the key features of the TD variable rate product in particular that may make it worth the extra few dollars: You did not wind up in this product with this institution by accident.

The TD variable is a Fixed Payment product, which means your effective payments will remain the same. This is meaningful if the subject property is an investment property as well – no change to your monthly cash-flow.

The TD variable is nearly the only product that can be converted into a 3-year fixed from day one. (Currently ~ 2.29% – but this is just an example, not a suggestion for action) There are greater options with TD than with other lenders.

The pre-payment penalty to break this mortgage is only ~0.50% of the balance, about nine times less than the penalty to break out of their 5-year fixed product (which 60% of clients wind up doing). Keep this in mind before locking in, I am not locking my TD variable in anytime soon.

TD is the only lender that gives you 12 months to find a new home to move the mortgage over to and grants a full penalty refund…even if they give you a deeper discount on the new mortgage! That’s right, a full penalty refund up to a year later, and possibly and even deeper discount!

What is this increase costing me?

A 0.15% increase results in an interest-expense cost increase of $12.50 per $100,000 outstanding.

Got a $300,000.00 mortgage? Then your payment just went up by zero, but the interest component within your payment did go up by $37.50 per month.

Is the Bank of Canada going to raise Prime too?

Highly unlikely by all current estimates.  Said estimates being made by people far smarter than myself.

Will TD raise their own Prime rate further?

This also seems unlikely.

Will TD lower their Prime back to 2.70% to get in line with ALL of the other financial institutions?

Perhaps if TD gets enough pressure from clients they will – and this is where I suggest a call to your TD branch to express your displeasure with them being the only bank to do this to their clients. And only to their mortgage clients.

Do you have an unsecured credit line? Car loan, TD credit card? All good they left the interest rates the same on those. What’s that, you carry no high interest debt? Yep, TD is sparing the folks with consumer debt and only coming after those with mortgage debt. A touch ironic for sure.