The Canadian Mortgage Market - Banks in Canada Change Mortgage and Lending Rules and take out 40 year amortization & 0% down - Pre-Sale Condo Problems

Ottawa Backs Mortgage Market

The federal government in Canada has bought up $25 billion in residential mortgages to give Canada’s chartered banks more cash for loans, but the effort shouldn’t be considered a bailout similar to the U.S. government lifeline for Wall Street banks, the federal government and industry watchers say. “It’s a huge stretch to look at it as a bailout – it’s a helping hand,” said Brad Smith, a banking analyst at Blackmont Capital, a brokerage. Prime Minister Stephen Harper said the mortgage transfer is sensible and risk free for taxpayers since the government is buying mortgages it already insures through the Canada Mortgage and Housing Corp. “This is not a bailout of banks; this is a market transaction that will cost the government nothing,” Harper said.

First Time Home Buyers: New Mortgage and Lending Rules Spark Debate

Consumer still at risk with mortgage changes says Experts according to Brian T of the MetroNews Paper in Vancouver. The change to mortgage lending practices isn’t the crackdown it’s meant to look like experts say, and it doesn’t make Canadians any safer from large debt. In July, Ottawa announced a decision to tighten lending rules governing mortgage-lending practices to protect Canadian homebuyers. Under these rules, the amortization period for financial guarantees from the government for insured mortgages – meaning Ottawa pays off a mortgage insurer should a worst-case sceniario happen and a home buyer is unable to pay the premium – has been reduced from 40 years, to 35 years and under. Homebuyers in Canada also need a minimum down payment of 5 per cent, effectively eliminating zero down mortgages. Home buyers in Canada also now require a minimum credit score in order to get a home mortgage. The changes to the lending rules of mortgage lending in Canada have sparked nationwide debate as to whether it helps or limits options. John, president of debt elimination service Debt Freedom Canada, says this is a case of optics. He argues Ottawa is putting on the air of shielding homebuyers in Canada from 40 year amortization periods, but the difference between them and 35 year periods is marginal at best (see chart at the end of this article). “Nothing has happened to protect the consumer from debt. You might have more money in pocket with a 40 year period, but 100 per cent owing going in is 100 per cent owing coming out the back end,” he said. “The financial institutions are still making a buck, and the government gets to look like the good guy.” On Tuesday, Prime Minister Stephen Harper said in order to stimulate the economy, first time homebuyers in Canada would receive a tax credit of up to $750 should a Conservative government be elected into office. But a real estate expert estimated that its impact would be modest: Doug Porter, deputy chief economist at the Bank of Montreal, told the Canadian Press that such an incentive would be unlikely to draw in new Canadian homebuyers. A possible reason for the existing changes, speculates Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (among the groups Ottawa consulted before making the new rules), is that more Canadian homebuyers, particularly young ones, are choosing no money down mortgages with longer term amortization periods. Amounts owing are growing as well: Murphy says Canada’s home owners collectively carry $900 billion in mortgage credit. That number grows by 10 per cent per year. “Thirty seven per cent of Canadians who have taken out a mortgage in the last year have chosen amortization periods of 30, 35 and 40 years,” Murphy said, citing a report his group published in 2007. (This year’s report is due in late October) “It will be much higher when we ask them that question this year.” What has been underreported in the media, Murphy says, is the disadvantage to changes present to immigrants looking to buy a home. “How does a new Canadian, with some income but zero credit score, get a mortgage that requires a minimum credit score of 620 to be guaranteed?” he asks. In terms of hurting the buoyancy of the Canadian housing market, Murphy thinks the new rules will have minimal effect. While in a housing slowdown, he says it still remains strong. In terms of protecting consumers and home buyers from crippling debt and a house rich cash poor sutation, Podlewski says the changes have even less effect. “You need a plan your entire future. Your house is only a part of it,” he added. “Do you want to serve coffee at 65 because you haven’t properly planned an you owe too much money? I get my Tim Hortons in the morning and it’s either a snow-top or a no-top behind the counter. It can happen to you.”

Comparing a 35 Year Amortization Period to a 40 Year Amortization Period Mortgage Payments
Here’s a hypothetical look at what you’d pay on a mortgage with both a 35 year and 40 year amortization period. Numbers have been determined using Filogix Expert, an industry standard point of sale system.

Mortgage 1 with 35 Year Amortization Period
Amount = $200,000
Interest Rate = 5.45 per cent
Amortization Period = 35 years
Term = 60 months
Disclosure Rate = 5.45 per cent
Payment Frequency = Monthly
Compounded = Semi-Annually
Monthly Payment = $1,059.55
Total Payments = $63,573
Total Interest = $52,489.77
Total Principal = $11,082.23
Balance Remaining at Maturity = $188,916.77

Mortgage 2 with 40 Year Amortization
Amount = $200,000
Interest Rate = 5.45 per cent
Amortization Period = 40 years
Term = 60 months
Disclosure Rate = 5.45 per cent
Payment Frequency = Monthly
Compounded = Semi-Annually
Monthly Payment = $1,016.50
Total Payments = $60,990
Total Interest = $52,863.77
Total Principal = $8,126.33
Balance Remaining at Maturity = $191,873.67

Source is from Debt Free Canada

Canadian Banks Shedding 40-Year Mortgage Loans

According to REW of Greater Vancouver, major banks in Canada have changed mortgage offerings to bring its lending rules in line with regulatory changes set to take affect in October. TD bank said, effectively immediately, the maximum amortization period for new mortgages will be 35 years and will require a five per cent down payment. TD bank said it would continue to process those mortgages with a longer amortization period or a lower down payment that have already been approved. TD joins Bank of Montreal in changing its Canadian bank lending rules ahead of the change in regulations. Other Canadian banks are following the lead. Starting October 15th, 2008, Canadians will no longer be able to purchase a home with a government backed mortgage with a 40 year amortization and no down payment. Instead, Canadian mortgages will be limited to 35 years and the government will only insure 95 per cent of the value of the home, meaning home buyers will need to come up with at least a five per cent down payment. As well, borrowers must demonstrate that debt servicing costs are no more than 45 per cent of gross income and have a good credit rating. Government backed insurance is currently available on mortgages where the loan to value ratio is up to 100 per cent – in other words, the home buyer has borrowed all the money to buy a home and then gets insurance coverage on the whole amount.

Door Closing Soon on Zero Downpayments for Canadian Mortgages

Home buyers, especially first time homebuyers, should take note that generous mortgage incentives in Canada bank will be ending this fall. On October 15, 2008, the federal Finance Department will cease guaranteeing 40 year amortization mortages and zero down payment mortgage loans in Canada. Some real estate markets observers expect to see a spike in home sales over the next two months as home buyers try to beat the deadline. Home buying in Canada real estate activity could rise leading up to the October 15 cut off, according to other mortgage professionals. The Canadia government made the changes to its mortgage guarantees to strengthen the real estate market in Canada, and to help guard against a US style housing bubble. Mortgage insurance was introduced in 1954 through the Canada Mortgage and Housing Corporation (CMHC) to help Canadians who hadn’t saved up enough money to quality for traditional mortgage loans from the banks. Currently, home buyers with less than 20 per cent down payment pay a premium for the insurance, which protects the bank lender in case of default. Three competitors of CMHC have now entered the Canadian mortgage insurance market, Genworth financial Canada, AIG United Guaranty Canada and the PMI Group Inc Canada. It is unclear whether the private insurers will continue to offer 40 year Canadian mortgage loans. While popular, 40 year mortgage loans are more expensive int eh long run than a conventional mortgage. However, because monthly mortgage costs are lower they do allow some home buyers to get into the real estate market for the first time.

Know the Real Estate Rules When Buying a New Home

Hire the pros, read fine print and negotiate says HouseLeague Ryan D. for the Metro Newspaper. Does buying a previously owned home appeal to you about as much as purchasing a used pair of shoes? Then buying “presale” (direct from the property developer) may be the solution. While it may seem like a simple task, the rules of buying “presale real estate” differ greatly from your standard “resale” purchase. When buying something new you are essentially engaging in a game of real estate monopoly (without the fun coloured money) – your moves are dictated to you and you must follow the present rules or purchasing a Vancouver presale property. Developers’ contracts are written in their favour, a complete turn about on the standard purchase method. They set the price, the completion dates and most of the other terms of the contract. In this topsy-turvy scenarios, here are some tips to keep you out of trouble and ahead of the Vancouver presales property game. Firstly bring your own realtor. Every real estate developer will pay your realtor’s commission for you. It is always a good idea to have someone on your side. They can navigate through the presales property contract with you tot make sure all your needs are being met. Secondly, in a buyer’s market like we have now, you can sometimes even negotiate a reduction on the purchase price. It’s true. The real estate presales developer’s pricing is usually set in stone, but when they are sitting on an abundance of inventory that needs to be moved, you have that much sought after leverage. Thirdly, GST is paid on all new construction, including presales Vancouver property, but a portion of it is rebated back to you if your new home is your primary residence. Many presales real estate Vancouver developers will pay the rebated portion for you if you sign a waiver allowing the rebate to go to them. That is a new wardrobe (and maybe a different boardgame)! Finally, during the seven-day recision period in all “presale” contracts, where you can back out of the deal if need be, consult a lawyer. Who really understands all that legal jargon better? Just because it may not sound like any language you may have heard, does not mean you are not bound by that fine print in a Vancouver presale property contract. Make sure you understand it all. So, while the game may be stacked in Vancouver presales real estate developer’s favour, these few tips will ensure that when it comes time to make your move, you ar ready and able to see it through. And who knows, when all is said and done, you may even end up with some green back in your pocket. Ryan is a realtor for Sotheby’s International Realty Canada and hosts Novus TV’s Real Estate Minute program.

Beware of Nasty Surprises When Buying a New Home

Rotten joists, missing carpets and dead soldiers buried in the backyard – buying a home can come with all kinds of nasty surprises according to Brian T. for the Metro Newspaper. The beautiful home that you’ve just purchased can house a litany of hidden horrors that you will be left to fix after you move in. A B.C. based realtor advises that there’s no way around it. You must expect – and inspect- the unexpected when you finally sign on the dotted line. “It’s a situation where the home buyer really has to be thinking caveat emptor,” says Tom, A Vancouver Island based real estate agent and co-author of True Real Estate Stories, a compendium of odd and sometimes gruesome anecdotes from the world of home buying. “An inspection should be the first thing on most people’s minds. Problems will inevitably come up and an inspection will show you what those problems will cost to fix.” A home inspector won’t catch everything wrong, Everitt notes, as they can only visually investigate the house. He knows first hand: While Everitt and his wife were resodding their backyard, they discovered the gravestone of Sgt. Joseph Morley, a World War 1 veteran. Another key is to get as specific a contract as possible. Some legal agreements concerning what will remain in the house on move-in day are detailed down to the light switches, Everitt says. Some of his clients have walked into their new home under the impression certain amenities would be there, only to find the seller took those items with them, he adds. “the more thorough the contract, the safer you are. We had home buyers moving intoa townhouse where the previous owners removed the carpet,” he said. “The owners said. “well, we took it with us because we heard they were going to install hardwood flooring,” but the contract stipulated that he carpet would be there. The buyers were furious. Besides that, carpets are specifically measured to be details of a house. What kind of person would want to take it?” If you do discover something untoward about your home purchase, you can launch a lawsuit; having a specific legal document strengthens your claim. Everitt says you must consider the costs of such a lawsuit, however, “Pick your battles,” he says. “Do you really want to take someone to court over missing light switches?” More importantly for those buying a new home is that the contract is clear on who covers the warranty, which can often be the builder themselves. These people are the ones to approach should your home become more interesting than you intended. “If the house is built as just a one-off, you better be darn sure you know what you’re buying,” adds Everitt. “You don’t want to get stuck with a lemon.”