With that being said, Flaherty’s eighth (and potentially final) budget announcement could have been worse, especially for the mortgage industry. Thursday’s budget included a tightening of controls on mortgage lending once again, as well as another promise to further limit lender access to bulk mortgage insurance. While this will inconvenience some lenders, it’s actually good news for taxpayers. The announcement is just the latest in a long line of moves from the Finance Department that touch on concerns over the housing market. As Canadian’s continue to sink themselves deeper into household debt, Flaherty once again verbalized his mounting anxiety over interest rates. 

“Our concern, my concern for a number of years, is with very low interest rates that people can afford their mortgages when interest rates go up,” Flaherty told reporters while purchasing is budget-day shoes, a long-running Canadian tradition, at a Roots factory in Toronto on Wednesday.

The Housing Market Under a Microscope

Flaherty has made a career out of meddling in the in the mortgage market, influencing a number of policy changes in the past decade. And while home sales have slowed significantly and prices are beginning to drop in some of the critical markets since Ottawa’s intervention last summer, Flaherty still feels that more needs to be done to protect consumers from themselves.

As the economy slowly begins to right itself and interest rates eventually begin to rise, economists like Flaherty are worried that current mortgage holders won’t be able to meet their increased mortgage payments. And since Ottawa backstops mortgage insurance, the Canadian taxpayer would be on the hook to cover this exposure.

The Bad Side of Bulk Mortgage Insurance

Mortgage insurance, which is backed up by the Canadian Mortgage and Housing Corporation, is intended to help consumers with low down payments enter the housing market more easily. Unfortunately, over time, it’s also become a tool for banks to manage their risk. Banks’ appetite for bulk mortgage insurance (also referred to as portfolio insurance) has continue to grow over the years. In fact, it’s one of the main factors behind the government-owned CMHC’s growing balance sheet.

You see, whenever a new homeowner purchases a house without the mandatory 20 percent down, the mortgage needs to be insured to protect the lender. However, banks also offer this extended coverage to insure large swaths, or portfolios, of mortgages that don’t necessarily need the protection.

The budget states that, “With the financial crisis well behind us, the government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector.”

New Rules

Fallout from the budget will include new rules that will gradually limit the sale of insurance on low loan-to-value mortgages (i.e. mortgages where the consumer ponies up a higher down payment) to those that are being used in Ottawa’s securitization program through the CMHC. This will prevent banks from insuring their portfolio mortgage products in order to reduce their capital requirements.

Flaherty’s changes will also enable Ottawa to stop the use of any taxpayer-backed insured mortgages (even the high ratio ones)as collateral in securities that are not sponsored by the Canadian Mortgage and Housing Corporation. This will protect Ottawa’s potential exposure.

Flaherty and the Department of Finance noted that they intend to further consult with the finance industry before implementing this rules later in the year. In the meantime, financial institutions will continue to have access to a broad array of financing options.

As always, we’ll follow this story as it unfolds right here on the Mortgage Talk Canada Blog.

Unfortunately, recent rule changes have changed the playing field for many potential real estate investors. While buyers used to be able to purchase an investment property with very little down and still receive a great rate, current hiccups in the market and changes to legislation are making it more difficult for investors to get in the game.

Today, investors looking to secure financing for any non-owner-occupied rental property are now required to put down one-fifth of the purchase price in order to secure a reasonable rate. While the days of cheap high-risk rental mortgages are long gone, that’s not to say that the market isn’t ripe for investment. If owning a rental property has always been an investment option, don’t give up hope. Instead, work with an experienced mortgage broker who can guide you through the ins and outs of investment financing.

Four Things to Remember When Investing in a Rental Property

If you’re serious about a rental property investment, remember the following three details:

#1 – Don’t Settle for Just Any Lender

Finding a lender on your own can be risky, especially when you’re looking for an investment property mortgage. This is because of the way lenders qualify rental property mortgage products. Rental property mortgage rates are often dependent on how much rental income the lender will recognize. This is calculated using a total debt ratio – a formula that is often unique to each lender. A mortgage broker who has experience with rental property financing will work with you to find a borrower-friendly lender, specifically ones that are open to negotiating underwriting exceptions.

#2 – Rates Aren’t the Only Thing Worth Researching

Many first time real estate investors make the mistake of jumping on the lowest rate right off the bat. While this may seem like a good idea at the time, it might not be the best long-term investment decision. This is because rental property mortgages with the lowest interest rates often come with the most restrictions. While flexible mortgages will cost you more, they’ll likely offer you one or more of the following options:

• Flexible rental income rules
• A line of credit with your rental mortgage
• Second mortgage options
• Lengthy amortization periods to maximize cash flow
• Flexible minimum net worth requirements

#3 – Take Things One Step at a Time

Many lenders frown upon investors owning and/or financing multiple rental properties. While it’s not explicitly prohibited, lenders don’t like to take on clients with risky portfolios. As such, if you’re planning to invest in multiple properties, take the time to find a broker that have experience working with clients who have 10 or more rentals. He or she will know which lenders are willing to work with you.

#4 – Plenty of Paperwork

When you sit down with your mortgage broker, remember to bring along some paperwork. Nowadays, lenders will often require rental property investors to have a signed lease or other proof of rental income prior to finalizing a deal. If possible, remember to bring along two years’ worth of tax returns as well. Your returns will show your net gain or loss on a property, which often makes it easier for a lender and your broker to qualify your application.

Invest in your future – invest in real estate. Contact a FamilyLending.ca mortgage broker today to learn more about the rules and regulations of investment property mortgages.

Educate yourself in order to avoid less-than-ethical mortgage brokers. Remember, mortgage brokers are usually paid by the lender for referring customers and processing applications. This compensation varies based on the lender and the mortgage type. As such, it’s difficult for many brokers to resist the temptation of a higher commission for recommending a certain product.  The following are five important conflicts to discuss with your broker the next time you’re shopping for a new rate. 

#1 – Why are you recommending a certain mortgage term?

Many lenders will compensate brokers on a term-based scale. Generally, the longer the term of your mortgage, the more money the broker will get. This is why mortgage regulators in Ontario, Saskatchewan, and Nova Scotia require mortgage brokers to confirm suitability when recommending a mortgage product to a customer. This requirement, which doesn’t apply to mortgage sales representatives at major banks, protects consumers from unethical recommendations. If you live in a province that doesn’t have suitability legislation in place, be sure to ask your broker to provide you with a risk/reward analysis of different mortgage terms. This will help you to pick the product that’s right for you.

#2 – Is this really the lowest rate for that term and that lender?

This may seem like a redundant questions, however it’s anything but. This is because of something known as “scaled pricing” in the brokerage world. This is when a lender offers two rates for the same mortgage: one rate is competitive and offers the broker a fair compensation; the other is a higher, less-competitive rate which pays the broker extra. Unethical brokers will sell the above-market rate without batting an eye.

In order to protect yourself from this shady business, simply ask your mortgage broker whether or not the rate they’re quoting you is the lowest rate for that term on the lender’s broker rate sheet. If you have doubts, ask another broker for a second opinion.

#3 – What’s your mortgage volume?

Many mortgage brokers participate in status programs. These arrangements reward brokers who sell a high volume of mortgages for a specific lender. On one hand, this is good for customers; lenders often offer high volume brokers better rates. However, some mortgage brokers will recommend a particular lender solely to maintain perks with the lender, even when another outlet may be offering a better product.

There’s real power in volume, so don’t be afraid to ask your brokerage about their closing record. Brokerages that have a record of closing a high number of mortgages will likely have access to a larger book of lenders, providing you with more options.

#4 – Why are you pushing rates?

If rates are the first thing that your broker talks about when you walk in the door, it’s probably best that you turn around and walk out the door. Rates are just a part of the mortgage puzzle. Fees, penalties, prepayment restrictions, portability, and closed terms should also factor into your mortgage decision. The only way a broker will know what product is best for you is if he or she takes the time to understand your financial situation. In some cases, a higher rate with fewer restrictions might make sense in the long run.

#5 – What happens if I don’t understand your disclosures?

Mortgage brokers are required to disclose conflicts, like the ones above, in government mandated disclosure documents. Unfortunately, disclosure documents are often vague and confusing for customers who aren’t well-versed in mortgage intricacies. Before you work with a broker, ask to review these disclosures. If you don’t understand something, don’t be afraid to ask for further clarification. If the broker can’t provide you with a firm answer, find another representative.

The mortgage brokers are FamilyLending.ca are dedicated to providing you with honest service. Locate a broker in your community today to further discuss your financing options.

In fact, most banks set their own mortgage recommendations and compensation agreements themselves.

Consumer protection differs greatly between brokers and bankers. Since bank employees are the ones recommending the mortgage product, or an alternative lender, and these banks aren’t required to abide by the same broker regulations, there’s nothing stopping them from doing what they please.

Which begs the question, just whose interests are these bankers looking out for?

A Look at Ontario Regulations

Certified mortgage brokers are required to provide you with the highest level of service. Whether you’re looking to refinance your current mortgage or are on the hunt for your first home, a mortgage broker is obligated to look out for your best interests. Failure to do so could result in the broker losing their license or being assessed a fine. As such, brokers in Ontario aren’t permitted to:

• Suggest an unsuitable lender or mortgage to a client.
  Regulations state that brokers must “take reasonable steps” to ensure that any mortgage presented to a borrower is suitable. As such, the borrower must be qualified, and the recommendation must attempt to minimize the client’s current and future borrowing costs. Banks, on the other hand, don’t have any specific protocols in place to ensure suitability, apart from confirming the client is qualified.
• Sell a higher mortgage rate in order to get paid more.
  Brokers are legally required to disclose this conflict of interest. Federal disclosure rules don’t hold banks to the same standard.

Canadian provinces draft specific broker conduct rules that they are then required to proactively monitor. If individual brokers are caught breaking the rules, they are publicly sanctioned.

Bank mortgage reps, on the other hand, aren’t collared by an independent government watchdog. As such, there are no disclosure rules, audits or monitors in place for individuals. Banks themselves are responsible for developing the policies and procedures that their employees must follow.

If you’re like most Canadians, you likely assume that the Office of the Superintendent of Financial Instituions (OSFI) is responsible for policing bank activity. This is not true – the OSFI can’t actually intervene in the day-to-day operations of the institutions it regulates.

That job falls on the shoulder of the Financial Consumer Agency of Canada (FCAC). This organization is tasked with ensuring bankers comply with federal regulations. And, for the most part, they do a good job of it. When it comes to monitoring high-profile problems, like mortgage penalty disclosures, the FCAC is great. With that being said, the FCAC falls short in the following areas:

• Educational standards – there are no specific requirements of license stipulations for bank mortgage reps.
• Auditing – the FCAC doesn’t pro-actively monitor or audit individual bank reo conduct.
• Public warnings – the FCA doesn’t public a list of bank reps that have wronged customers.

The moral of the story? Banks often refer clients that they can’t service to lenders of brokerages that the bank has a monetary interest in. As such, they’re not necessarily looking out for your best interests.

Work with a mortgage professional who genuinely cares about your best interests. Contact FamilyLending.ca today for more information on current mortgage rates and products.

Is this the best way to take your first step onto the real estate ladder? Not necessarily. However, if you’re well-qualified, (aside from the down payment), and have enough potential resources to withstand a loss of income along with the ever present threat of falling real estate prices, you might be better off borrowing to buy instead of throwing your money away on rent. 

What Can You Do When You’re Cash-Poor?

Saving a sizeable down payment isn’t easy. According to recent statistics, the average Canadian home costs roughly $356,000. What’s more, according to the Canadian Association of Accredited Mortgage Professionals, more than one-fifth of all renters in Canada have less than $5,000 put away for a down payment on a home. And yet, there’s no shortage of first time home buyers on the market.

So, how are cash-strapped house hunters managing?

For many, the answer is to seek out alternative down payment sources.

Alternative Option #1 – Borrowing Your Down Payment

It’s important to note that Ottawa prohibits house hunters from borrowing the minimum 5 percent down payment from a mortgage lender if that lender is a bank or federal trust company.

With that being said, first time homebuyers can still leverage other credit sources. Popular options include lines of credit, personal loans, and even credit cards. (A word of warning, slapping your down payment on your VISA is not a good idea). Borrowing your down payment might seem like an easy solution, but it’s also an extremely expensive one.  It’s not uncommon for the interest rate on your borrowed down payment sum to be much higher than the rate you’re paying on your mortgage as a whole.

Alternative Option #2 – The Cash-back Option

While federally regulated institutions are prohibited from offering cash-back options, non-regulated lenders, like credit unions, can still offer these options without fear of penalty. Of course, the interest rates on these products are extremely high. The homebuyer will also be required to come up with money for closing costs in order to cover things like the land transfer tax, legal and inspection fees.

Note: there’s debate as to whether or not credit unions will be able to continue offering cash-back mortgages for much longer. New provincial and mortgage insurer regulations are expected to eliminate this option entirely.

Alternative Option #3 – RRSP Home Buyers Plan

The government’s Home Buyers Plan is a quick and easy way for first time homebuyers to free up cash for a down payment on a home. As part of the plan, new homebuyers can draw up to $25,000 from their RRSPs in order to beef up their down payment. But, before you drain your account, consider the following: emptying your retirement savings in your 20s and 30s means you’ll risk losing years of tax-deferred investment gains. What’s more, if you forget to make an instalment payment on time, it will be taxed as income on that year’s income tax return.

Alternative Option #4 – A Gifted Down Payment

Generous relatives can certainly come in handy when it comes time to buy a house. Having your parents or grandparents “gift” you a down payment is perfectly legal, provided you can get everyone to sign the proper paperwork. It’s also important to note that a “gift” is not a personal loan. With a gift, there is no expectation to pay your relative back. If you’re borrowing the money from a relative, it’s considered an additional liability and the bank will see that as an increase to your debt obligation.

Don’t assume that an alternative form of funding is the best way to secure you down payment. Speak with an accredited mortgage broker before you make your final financing decision.

As such, the message was clear from Bank of Canada Governor Mark Carney last Wednesday – interest rates aren’t going anywhere anytime soon.

Last Wednesday’s report was the first time that policymakers combined their regularly scheduled rate decision release with the Bank’s Monetary Policy Report, one of the nation’s most important quarterly statements concerning the state of domestic and global economic factors.

Business As Usual

As expected, the Bank of Canada announced that they will continue to keep borrowing costs low, maintaing its trendsetting overnight rate at a 1 percent low. This rate has remained unchanged since September 2012 making it the longest dormant stretch since the 19050s.

Even so, analysts were surprised by the tone of the statement.”Dovish” was the word that a handful of analysts used to describe the announcement, which revised the Bank’s projected interest rate and pushed a possible increase to 2014. The announcement cited excess capacity and soft inflation as the contributing factors to this decision:

Total CPI inflation is expected to remain around 1 per cent in the near term before rising gradually, along with core inflation, to the 2 per cent target in the second half of 2014 as the economy returns to full capacity and inflation expectations remain well-anchored.

The Bank also adjusted their economic forecast based on this new information, updating their Monetary Policy Report estimates as follows:

Following an estimated 1.9 percent in 2012, the economy is expected to grow by 2.0 percent in 2013 and 2.7 percent in 2014. The Bank now expects the economy to reach fully capacity in the second half of 2014, later than anticipated in the October Monetary Policy Report.

The Bank expects growth to pick up through 2013, citing a rebound in investments and exports as foreign demand strengthens. Consumption is also expected to grow moderately, while residential investments will decline from their recent historically high levels.

Reading Between the Lines of the Monetary Policy Report

According to January’s revised economic outlook, near-historic lending rates from the nation’s financial institutions have slowed the growth of household credit from 5.5 percent last year to slightly more than 3 percent in the first quarter of 2013. According to the report, this is the lowest rate of growth since 1999 and reflects a slowdown in the growth of both residential mortgage and consumer credit. This latest release puts the nation’s ratio of household debt to income at 165 percent.

Canadian mortgage holders and financial experts can review the Bank’s statement online here. The full Monetary Policy Report can also be downloaded from the Bank of Canada’s website.

The next scheduled date for announcing the Bank’s overnight rate is March 6th. The next Monetary Policy Report will be released on April 17th. It’s also worth noting that Carney will be stepping down as the Bank’s Governor on June 1 in order to take the top position with the Bank of England.

Stay tuned to the Mortgage Talk Blog for more information on interest and mortgage rate changes.

CMAs can also be useful for home buyers and homeowners. Buyers can use a comparative market analysis to ensure that they aren’t overpaying for a property, while homeowners often consult a CMA as part of mortgage refinancing application. A CMA will show whether or not the value of your home is high enough to qualify you for a better mortgage rate. A comparative market analysis can also be useful if you’re in need of a second mortgage. For more information on the benefits have performing a comparative market analysis as part of your refinancing application please contact a mortgage broker directly.

Data Doesn’t Lie

Most comparative market analysis reports contains information on the following:

Active Listings

This section of the CMA offers a detailed outline of the listings currently on the market in your neighbourhood. These homes are in direct competition to your listing; as such, it’s important that you take their price breakdowns into account. If you price your home above the list price of pending sale properties, chances are good you’ll have difficulties selling quickly.

Pending Listings

The pending listings portion of your CMA will contain information about homes that are no longer on the market, but are still under contract. These homes have received an offer and are currently in the process of closing. Since these properties are still technically open, you won’t be able to access the exact sale price. With that being said, pending sales are indicative of the direction that your local real estate market is moving in. As such, it’s worth noting the list price of these properties when putting together you own listing.

Sold Listings

This is the most important part of your CMA. This portion will normally contain a listing of the homes that have closed in your neighbourhood over the past three to six months. This will include their list price and their final sale price.

Expired, Off-market, Withdrawn, and Otherwise Cancelled Listings

If you’re worried that you’re overpricing your property, be sure to take a long hard look a this portion of your CMA. This section of the report will provide a good indicator of the highest median sales price of homes in your median.

Look for Comparable Properties

Comparative market analysis are most useful when you can pinpoint properties that are similar in size, shape, and condition to your own. You can then use these listings to influence your pricing strategy.

When reviewing listings for comparable properties, look for the following factors:

• Similar square footage
• Similar age and construction type
• Similar amenities and upgrades
• Location

While not unexpected (a housing slowdown has been anticipated since the government tightened mortgage rules back in June) experts are worried that the changes to the regulatory system may have a bigger impact than originally expected. 

While the first half of the year was characterized by modest sales and price gains, the second half of 2012 has headed in the exact opposite direction. More stringent mortgage rules and tighter underwriting requirements have purposely slowed down the market’s growth.

How Things Look From Coast to Coast

The Bank of Montreal recently released their local housing market scorecard, providing a clearer view of how mortgage rules are impacting various regions. Here’s a quick overview of what’s happening (source: BMO EconoFacts):

“Vancouver: Seller be-aware… There’s little doubt that Vancouver faces some of Canada’s least favourable market conditions, with the sales-to-new listings ratio averaging less than 39% in the latest 3 months, near the lowest since the financial crisis. Sales have plunged 27% y/y in the latest 3 months, while the MLS Home Price Index was below year-ago levels in October. Prices have slipped almost 3% in the last 6 months. Despite softer prices, they remain about 10x estimated family income, by far the loftiest valuations in Canada.

Calgary: Back in the saddle… Strong population and income growth are supporting demand, with sales up almost 20% y/y in the latest 3 months. This has helped draw down the excess supply built up during the prior boom—the market is now close to full-scale sellers’ territory. As a result, prices measured by the MLS HPI were up a solid 6.7% y/y in October, though affordability is still favourable relative to Toronto and Vancouver, with prices little more than 4x median income.

Toronto: Condos cooling…  Activity has softened significantly since mortgage rules were tightened in early July, leaving sales down 16% y/y in the past 3 months. While the market is still technically balanced by our definition, it is now leaning distinctly in favour of buyers. That said, MLS index prices were still up a solid 5%y/y in October, but a stark divide remains between scarce detached homes (+6.5% y/y) and more amply-supplied condos (+1.1% y/y, but down 1.2% since June). Note that some cities in Southwestern Ontario are seeing sellers’ markets amid a dearth of supply (even as sales sag).

Atlantic Canada: Mixed… New Brunswick faces stiff economic headwinds, and the Saint John market remains decidedly in buyers’ territory. Meantime, the Halifax market, while softening somewhat in recent months, remains relatively healthy amid optimism over the Federal shipbuilding contract.”

While the landing has been soft thus far, economists are more concerned with how the market will rebound come next spring. Mortgage brokers and specialists worry that the low interest rate environment might not be enough to pull homeowners back onto the market. If good mortgage rates are able to entice more sales, it’s still safe to say that the probability of big price gains are relatively low.

As of the end of October a total of 402,322 homes had been sold via the Canadian MLS system. That’s an increase of 0.8 percent from the same period last year and a 0.4 percent decrease over the 10-year average for the period.

The number of new listing was also down last month following a jump in September. What’s more, monthly declines were reported in close to two-thirds of the nation’s real estate markets, including Toronto and Vancouver.

There’s no doubt that now’s the time to take advantage of these historically low rates. Which begs the question – are homeowners doing enough to capitalize on these record-breaking deals?

According to recent data from the Canadian Association of Mortgage Professionals, about 60 percent of mortgage holders make only the minimum mortgage payment required. On the other hand, the number of Canadian’s missing or defaulting on loan payments have dropped to pre-recession levels, even though the amount of money owed has steadily risen. According to Equifax Canada’s latest Quarterly Credit Trends Report, only 1.22 percent of debts were left unpaid after 90 days or more during the third quarter. That’s a sizeable drop, down from 1.37 percent in the previous quarter.

This data suggests that Canadians are becoming more financially responsible – but is it enough? As the threat of increased interest rates continues to loom, now’s the time to take advantage of the many perks associated with accelerated mortgage payments and shortened amortization periods.

The Trick to Saving on Your Mortgage

Just how important is amortization in regards to your mortgage savings? David Stafford, managing director of real estate secured lending at Scotiabank was quoted in a recent Globe and Mail article stating the following:

“Canadians have a legacy of focusing on rates as the primary means to save on the cost of borrowing. That’s where all of the time and effort is being invested. But the actual cost of a mortgage is based on how much you borrow, at what rate, and for how long. And with rates well below recent historical averages, the best way to save money on a mortgage is to use today’s low rates to shorten the amortization.”

While it’s unlikely that mortgage rates will skyrocket to 2007 levels anytime soon, it never hurts to prepare for increases. When rates do start to climb back up, the impact could be catastrophic for those mortgage holders who have been living payment to payment. As such, if you’re a prospective mortgage holder, now’s the time to ask yourself whether you’d be able to carry the costs of owning your home if rates were to return to 2007 levels.

If your answer is no, it’s time to reassess your housing needs. Mortgage holders with a lot of high-interest debt and low emergency savings need to focus their attention on reducing these costs. Otherwise, it’s time to increase your mortgage payments and start whittling down your loan.

Don’t Shrug Off Debt

Homeowners shouldn’t discount the opportunity to accelerate their mortgage payments now. Getting ahead while interest rates are low just makes sense. And yet, very few Canadians are making the most of this investment opportunity. Whereas the generation beforeo urs paid off their mortgage in roughly 12 years,, about on in four homeowners are now projected to carry their mortgage into retirement. What’s more, retirees are accumulating debt at three times the average price.

This casual attitude towards debt may not be a problem now, however storm clouds are looming.

For more information on accelerating your mortgage payments contact the experts at FamilyLending.ca. Our mortgage brokers can help you secure a low interest rate now, as well as provide you with a plan to reduce your interest costs down the road.

O’Leary also released a cryptic YouTube video the same day announcing the new venture. The video is setting the mortgage industry on fire as industry experts try to predict what O’Leary plans to do. Currently it’s still unclear what O’Leary Mortgages will offer – will it be a brokerage or a lender? Will it be based in the U.S. or Canada?

If O’Leary were to enter the market place as a lender it could be a huge boost for the market. His name alone could attract significant financial backing in the lender arena.

O’Leary is scheduled to speak at the CAAMP hosted 2012 Vancouver Mortgage Forum at the end of the month.

Coincidence? Unlikely.

Stay tuned to the Mortgage Talk Canada Blog for more information on this development as it unfolds.