New CAD Mortgage Rules June 2012

This morning, the Federal Finance Minister announced further changes to Canada's mortgage insurance rules.  Four measures were announced:

1. Amortizations reduced to 25 years

2. Refinancing limited to 80%

3. Properties purchased at over $1 million no longer eligible for mortgage insurance 4. GDS and TDS set at 39% and 44%

CAAMP believes that Canadians understand the importance of paying down their mortgages.  These changes, together with new OSFI underwriting guidelines - also to be announced today - may precipitate the housing market downturn the government so desperately wants to avoid.  The changes take effect July 9, 2012.

Additional information from the Department of Finance :

FREQUENTLY ASKED QUESTIONS

  2012 Announcement on Measures to Support the Long-Term Stability of Canada’s Housing Market

Concerns about borrowers

Q. I already have an insured mortgage. How will these changes affect me?

A. Mortgage insurance is good for the life of the mortgage. Borrowers renewing their insured mortgages will not be affected by these changes. For example, if a borrower had a 30-year amortization and there are 27 years remaining on the mortgage, the mortgage can be renewed with a 27-year amortization, as long as no new funds are being added to the mortgage.

Q. What is required to qualify for an exception to the new parameters?

A. The new measures will apply as of July 9, 2012. Exceptions will be made to satisfy a binding purchase and sale, financing or refinancing agreement where a mortgage insurance application has been made before July 9, 2012. While the changes come into force on July 9, 2012, any mortgage insurance applications received after June 21, 2012 and before July 9, 2012 that do not conform to the measures announced today must be funded by December 31, 2012.

Q. Will a purchase and sale agreement dated prior to July 9, 2012 be considered binding if there are outstanding conditions that have not been fulfilled prior to July 9, 2012?

A. Yes, if the date on the purchase and sale agreement is earlier than July 9, 2012, and a mortgage insurance application has been made prior to that date, the new parameters will not apply, even if the conditions of the agreement have not been waived.

Q. Will the new refinancing rules allow a borrower with a mortgage above 80 per cent loan-to-value (LTV) to refinance by extending the amortization period?

A. No. Effective July 9, 2012, borrowers will not be permitted to refinance a mortgage above an 80 per cent LTV, unless the borrower has a binding refinance agreement dated prior to July 9, 2012, and a mortgage insurance agreement has been made prior to that date.

Q. I have a written mortgage pre-approval from a lender, dated before July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year amortization if I don’t sign an agreement of purchase and sale until July 9, 2012 or later?

A. No, a mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization. You may have a 30-year amortization only if your agreement of purchase and sale is dated before July 9, 2012 and you have made a mortgage insurance application before July 9, 2012. You may wish to discuss with your lender to revise your mortgage pre-approval using the new parameters announced today.

Q. Will the new parameters apply to assignment (“switch” or transfer) of a previously insured loan from one approved lender to another?

A. No. As long as the loan amount and amortization period are not increased, the new parameters will not apply to a switch/transfer/assignment of the mortgage to a different lender.

Q. If I sell my current home and buy another, will the new parameters apply if I transfer the outstanding balance of my insured mortgage to the new home?

A. As long as the outstanding balance of the insured loan, the LTV ratio and the remainder of the amortization period are not increased, the new parameters will not apply when the mortgage insurance is transferred from one home to another.

Q. What if I need to increase the amount of my insured loan when I sell my current home and buy another?

A. In this situation, the new parameters will apply for any insured loan.

Q. If I bought a condo that is not expected to be built for another two years, will the new parameters apply?

A. If you bought a condo and have made a mortgage insurance application on or before June 21, then the new parameters would not apply.

If you buy a condo and make a mortgage insurance application after June 21, the new parameters will apply if the mortgage loan is not funded by December 31, 2012.

General

Q. Why is the Government making these changes at this time?

A. These measures will support the long-term stability of the Canadian housing and mortgage markets and promote savings through home ownership. They are intended to be timely, targeted and measured. The measures will reinforce the importance of borrowing responsibly and using home ownership as a savings vehicle. The Government actively monitors developments in the housing market and is committed to taking action when necessary.

Q. What will be the impacts of the adjustments to the rules for government-backed mortgage insurance on the Canadian economy?

A. The adjustments to the rules for government-backed mortgage insurance will provide significant benefits to the Canadian economy by supporting the stability of the housing market and promoting savings through home ownership. The short-term impact on the housing market is expected to be manageable, given that the majority of Canadian families are already taking a prudent approach in managing household debts. In the long term, these measures are expected to have a positive impact on the economy through higher savings and a lower number of financially vulnerable households.

Q. When do these measures take effect?

A. The new measures will take effect on July 9, 2012.

Q. Are further measures expected?

A. The Government actively monitors developments in the housing market, consumer debt and the economy, and is committed to taking action when necessary to support the long-term stability of the housing market and protect the investment of Canadian families.

Q. Do these measures apply to multi-unit buildings?

A. These standards apply to mortgages on residential property with four units or less.

Q. Why is the Government lowering the limit on refinancing again?

A. The new measure announced today will reduce the maximum amount on refinancing to 80 per cent from 85 per cent of the value of the home. Limiting the amount of refinancing will promote saving through home ownership and limit the shifting of consumer debt into mortgages guaranteed by taxpayers.

Q. Why is the Government lowering the maximum amortization period again?

A. The new measure announced today will reduce the maximum amortization period to 25 years from 30 years. Limiting the maximum amortization period will reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner.

For example, reducing the amortization period from 30 years to 25 years on a mortgage would result in a moderate increase in the monthly payment. However, over the life of the mortgage, this modest increase would result in a significant reduction in the total interest payments. For a $350,000 mortgage at 4 per cent interest rate, the interest savings could be over $45,000.

Q. Why is the Government limiting the maximum gross debt service (GDS) and total debt service (TDS) ratios?

A. The GDS ratio is the share of the borrower’s gross household income that is needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. The TDS ratio is the share of the borrower’s gross income that is needed to pay for home-related expenses and all other debt obligations, such as credit cards and car loans.

The new measure announced today will set the maximum GDS ratio at 39 per cent and reduce the maximum TDS ratio to 44 per cent. These debt service ratios measure the share of a household’s income that is required to cover payments associated with servicing debt. Both measures are already used by lenders and mortgage insurers to assess a borrower’s ability to pay. Setting a GDS limit and reducing the TDS limit will help prevent Canadian households from getting overextended and reduce the number of households vulnerable to economic shocks or an increase in interest rates.

Q. Why is the Government introducing a maximum allowable price for insured mortgages?

A. The new measure announced today will establish that government-backed mortgage insurance is only available for a new high loan-to-value mortgage if the home purchase price is less than $1 million. Because homes priced at or above $1 million would not be eligible for government-backed high ratio insurance, borrowers for these homes would require a down payment of at least 20 per cent.

Introducing a maximum allowable price will ensure that government-backed mortgage insurance operates the way it was originally intended: to help working families and first-time homebuyers. This measure is expected to have a negligible impact on working families and first-time homebuyers as the vast majority of these borrowers purchase properties priced below the threshold.

Financing Options for your Home Renovation

There are many different reasons to renovate a home: to save energy (and save on utility bills), to make room for a growing family, to improve safety or increase the resale value of your home, or simply to bring a fresh new look to your home. There are also a number of different ways to finance your renovation. Read on to obtain information for a number of financing options, along with practical advice to consider before starting your renovation project.

Before You Begin

Whether you intend to finance your renovation yourself or borrow money, you should talk to a financial advisor and to your lender before you make firm plans. They can help you understand your options, and advise you on how much you can borrow and even pre-approve you for a loan. This information will help you plan realistically.

Explore Your Options

Your own resources: For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.
Credit card: Likewise, you can use your credit card to pay for materials for smaller renovations. But be careful not to carry the balance for too long; credit card interest rates can exceed 18%.
Personal loan: With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. You also have the option of a fixed or variable interest rate for the term of the loan. The interest rate on a personal loan is typically less than that of a credit card. Unlike a line of credit, once you pay off your loan you will have to reapply to borrow any new funds needed.
Personal line of credit: This is another popular choice for financing renovations. It is ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses. A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month. And, as you pay off your balance, you can access remaining funds, up to the line of credit’s limit, without reapplying.
Secured lines of credit and home equity loans: These options offer all the advantages of regular lines of credit or loans, but are secured by your home’s equity. They can be very economical, since they offer preferred interest rates, however initial set-up costs including legal and appraisal fees usually apply. Lines of credit and home equity loans are usually limited to 80% of your home’s value.
Mortgage refinancing: When funding major renovations, refinancing your mortgage lets you spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing can allow you to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply. If you need to tap into more of the equity in your home, loans of up to 85% of your home’s value can also be provided when insured by CMHC Mortgage Loan Insurance.
Financing improvements upon-purchase: If you’re planning major improvements for a home you’re about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage. CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment of 5%.

Other Considerations and Options

Planning for the Unforeseen

It’s a good idea to set aside a percentage of your renovation funds to cover items not included in your renovation contract, for things you discover you’d like to add once work is under way, like extra or upgraded features, furniture, appliances and window coverings or for contingency. A separate fund lets you make decisions easily, without having to renegotiate your financial arrangements or reapply for new funds.

Grants and Rebates for Energy-Saving Renovations

Across Canada, renovation grants and rebates are available from the federal and provincial governments and local utilities, especially for energy-saving renovations. If you qualify, they may help pay for some of your project’s costs.

• CMHC Mortgage Loan Insurance for Energy-Efficient Homes: 10% CMHC mortgage loan insurance premium refund and extended amortization periods without surcharge.
• ecoENERGY Retrofit — Homes: grants of up to $5,000 to offset the cost of making energy-efficiency improvements.
• Provincial and Municipal Entities Offering Grants and Incentives
• Rebates and Incentives for Selected ENERGY STAR^® Qualified Products in Canada

This content is provided for informative purposes only. It does not constitute or substitute financial or other advice. CMHC assumes no liability in connection with the information provided.

Ways to Save on your Mortgage!

With today's economy everyone is looking for ways to save on their Mortgage.  Here are 6 tips to help you save on yours!!!

1. Increase your payment frequency

Make a payment every two weeks instead of every month, and although you'll only be making one extra monthly payment every year, you'll cut your interest cost over the life of your mortgage. Arrange to make your payments at the same time you get paid.

2. Shorten your amortization period

You can choose the amortization up to 35 years that suits you best. Choose the shortest amortization period that you can manage and you'll save on interest.

3. Increase your regular payment

You can increase your payments up to 20% each year without penalty. You'll reduce your mortgage principal faster, which means you'll pay less interest.

4. Choose a mortgage with a prepayment option

Make an extra payment of up to 20% of the original principal each year. You'll pay less interest and be free of your mortgage sooner.

5. Invest your tax refunds and cash windfalls

If you're lucky enough to get a cash windfall or a tax refund, put it towards a lump-sum mortgage payment.

6. Keep your payments high

You may be tempted to make lower monthly payments if interest rates are down when you renew your mortgage. But remember, the less you pay and the longer the amortization, the more interest you'll end up paying over all.
Make payments as high as you can comfortably afford and pay off your mortgage as soon as you can and you'll save on your mortgage.

Mark Carney Repeats that the Bank of Canada May have to Raise Rates

OTTAWA — Bank of Canada Governor Mark Carney has said again that the bank may have to raise interest rates to keep inflation in check as Canada’s economic recovery advances.
“Given the smaller output gap, given the slightly firmer underlying inflation, the possibility of withdrawal of some degree of the considerable monetary stimulus that is currently in place may become necessary, consistent with achieving the (Bank of Canada’s) 2% inflation target,” Carney said in an interview on Friday with Market News. The interview was published on Monday.
“As the expansion progresses, the possibility of some withdrawal becomes more likely, but number one, that’s always going to be guided by achieving the inflation target, and number two, this is happening in an environment of considerable global economic risk, and so it depends importantly on the evolution not just of domestic but global economic developments. So we will certainly weigh any such decision carefully.”

He said it was not necessary to be more explicit about the timing of a possible move but said that Canada was “well into an expansion”.

“The bank’s most recent estimate of the output gap is about half a percent. That puts us in very unusual company,” Carney said. “The economy in our view is growing above trend and will do so over the balance of this year. So the Canadian economy is – relative to the major advanced economies – performing well by any measure.”

The governor said he was well aware of the global risks, and added: “There are also risks domestically, and they’re two-sided.”

He said Canadian inflation expectations were “extremely well anchored”.

The bank left its key overnight interest rate unchanged at a very low 1% on Tuesday but signalled it may have to raise rates at some point.

© Thomson Reuters 2012

What Can a Mortgage Broker Do For You?

A lot of people who have typically gone to their bank for their mortgage are missing out on the benefits of using a mortgage broker. They don’t know that there’s a whole world of potential out there available to them. This article will help provide some valuable insight into what mortgage brokers are all about.

What can a Mortgage Broker do For You?

• Your Mortgage Broker takes the time to understand your mortgage needs
• Your Mortgage Broker will objectively shop for the best mortgage to suit you
• Your Mortgage Broker will make the process of obtaining a mortgage “easy”

What Kind of Mortgage Financing can your Mortgage Broker Help You With?

• Your home
• A second home
• A revenue property
• A mortgage renewal
• Home renovations
• Debt consolidation
• Any other specialized mortgage requirements you may have (construction, land purchase, commercial)

What is the cost to you?

NOTHING. That’s right, it costs you nothing at all. Mortgage Brokers are paid by the banks, not their clients.

It’s all About Customer Service:

• Mortgage Brokers take time to understand your overall financing needs (goals, challenges and dreams)
• You aren’t “just” a number
• Mortgage Broker’s negotiate with the big banks on your behalf. They are the “voice” of their customers
• Mortgage Broker’s don’t just get you a mortgage, they find you an overall financing solution!

The Bottom Line…

• The bottom line is that your bank does not have access to all the lenders and products on the market.
• Banks typically have a limited number of pre-packaged mortgages available to them.
• A Mortgage Broker has access to 40 lenders on your behalf giving you freedom to focus on what’s most important to you

I am available to answer any questions at any time during the mortgage process. Give me a call today!

Erica Wells
Mortgage Consultant
Verico Complete Mortgage Services
T: 604.290.4181
elwells@telus.net
www.superiormortgages.ca

Top 5 Steps to Reduce Debt

You don’t have to hang with your debt 24/7.  There are solutions to effectively kick it to the curb so you can move forward financially, psychologically and emotionally.  Check out our top 5 list of debt reduction strategies – get mean and lean!

5. Call your creditor and request a lower interest rate.  Payments are more effective when the snowball of high interest rates has been slowed down to crawl with a significantly lower rate.

4. Skip Starbucks. Buy your own Tassimo and make your latte from home and to go.  Over a 20 year period you can save $33,000. To make this savings count, throw every dime you would have spent on speciality coffee on one specific creditor.

3. Success breeds more success. Target the creditor with the smallest balance (not necessarily highest interest rate) and throw everything at it including the kitchen sink.  Don't forget to make your minimum payments to your other creditors.  Once you have successfully brought one creditor to a  zero balance, using this strategy, close it down.  You will feel so successful that you will have the momentum to move onto the next creditor.  Remember, out witting debt is a psychological game of cat and mouse. Don’t be the mouse! Meow.

2.  Go to a cash based system.  You can’t pay off a debt if you keep adding to it. Stop using your credit cards. Stick them in a freezer and forget about them.  And, don’t forget that pesky debit card.  Shut it down. Before you know it, you can nickel-and-dime yourself out of your pay cheque by using your debit card indiscriminately.  Stick to cold hard cash. Loonies, toonies, and pennies count too!

1. Don’t give up! Consistency and persistence pays off. Be disciplined and stick to your plan.  Before you know it, you will have reduced you debt significantly.

And, if you have tried the above strategies and investigated other options with little success, book an appointment for a free and in-person consult. We specialise in personal debt restructuring with the goal of reducing debt by up to 70%.  Debt restructuring could be the most strategic move available to get on the road to financial and psychological liberation. 

For more info contact Cait Wilms  T: 604.600.1189 E: caitw@4pillars.ca  Website: www.richmonddebt.ca

Appointment available in Richmond and South Surrey offices.

A Shift in First Time Homebuyer Demographic

The demographics of the typical first-time homebuyer are changing these days.

More and more women today can afford to purchase a property on their own to

build up valuable equity and are no longer waiting to find a life partner before

they pursue the financial and lifestyle benefits of home ownership.

One in four buyers these days is a single female, and new home marketing is

actually starting to reflect that. Women may be ready to jump into the

commitment of home ownership but not all are willing to give up their valuable

free time to do outdoor chores. Thus, single women tend to look for homes

that require little or no maintenance with an option to plant container gardens.

Sound familiar ladies?

The easiest and most popular way to hold on to a maintenance free lifestyle is

to purchase a condominium. Its problem-free upkeep and unencumbered

lifestyle is an obvious benefit to people who don’t want to be tied up every

weekend with chores – there are no lawns to water and mow, and no leaves to

rake. No yard means there’s no fence or deck to repair, and no driveway to

shovel in the winter. Choose a condo and you’ll never have to worry about this

stuff. Condominium members are charged a flat monthly fee to cover

maintenance of the common areas as well as provide prompt service by

reliable tradespersons if there are maintenance problems in your individual

unit. Heating, air conditioning, plumbing and electrical problems are handled

by maintenance staff or service agreements set up by the condo association,

so good help is available at a moment’s notice.

Security is also an important consideration for single women living alone, and

the condo lifestyle can offer such measures as restricted access, a concierge on

duty screening visitors, closed circuit TV monitors, patrolling security guards

and panic buttons in garages to add peace of mind.

Some single women still prefer a more traditional home as their first property.

The appeal of having an outdoor space of your own to entertain, putter about

in a garden and relax can be inviting. A single family home usually offers more

privacy and is also better suited to larger pets. (If you have a pet and decide

to purchase a condo, make sure to check if your pet will be warmly received by

the condo board first – they uphold the rules that the condo owners have set in

place.)

In the end, the style of home you choose (e.g. condo or single family home)

will depend on your lifestyle and your needs. Identifying your needs and

requirements from the very start will help make the process of searching for

your first home easier.

(Article by Sandra Rinomato - hgtv.ca)