This week there are two headlines grabbing the attention of mortgage brokers, bankers and borrowers in Canada. Both have far reaching implications in the mortgage industry and it may not be a fluke that both are making headlines in Canada at the same time. On the one side we have the government of Canada expressing concerns about debt levels and the ease for borrowers to attain credit. The other news maker this week is an announcement by mortgage insurer CMHC, a Canadian crown corporation, that they are reaching their insurance limit of $600 Billion as set by the Canadian government. The resulting effect of this news is that insured mortgages in Canada could be harder to qualify for.

As a consumer it may be very confusing to understand what the concerns and implications are. In this post I’ll address Ottawa’s concern for tightened mortgage rules.

As Canadians we are proud of hockey, our multiculturalism, Celine Dion and our remarkable resilience in the face of global economic decline. Okay, maybe we aren’t so proud of Celine but it’s true, if you have an opportunity to travel abroad and talk business with anyone from outside of Canada there is a tremendous amount of reverence from all corners of the globe for our economic policy and strength. And that is due in large part to our prudent banking system. So if we have such a prudent banking system what is all this fuss about tightened mortgage rules and tightened credit?

Ottawa is becoming more and more uncomfortable with debt levels. Record-low mortgage rates being offered by Canadian banks and the ease with which some institutions are advancing lines of credit seems to be keeping finance minister Jim Flaherty up at night (by the way, the fact the Government is concerned about low rates is a clear indication of where they believe rates are going to be for the short to medium term).

So are Canadians really in that much more debt? The following graph sourced from a presentation by CIBC chief economist, Avery Shenfeld, show some interesting and revealing information about Canadians and their debt. The graph shows that since 2007 borrowers who are considered heavy debtors (see * definition) have piled 101.4% more debt over the last 5 years. Translation: if you owed $10,000 in 2007 you now owe $20,140.  While borrowers who are considered light to medium debtors have actually lowered their dependence on credit. Perhaps the more troubling statistic is that of those people who are heavy debtors 44% are 45+. These are the wrong kind of debtors, if the majority were in their 20s and 30s this wouldn’t be so bad as they are leveraging to start out their lives but its never good to have an aging population in debt.

And yet despite the increased number of Canadians who shouldn’t be in debt, I’m not convinced tightened rules is a good idea. It’s one thing for politicians to sit in Ottawa and make statements about credit but the reality on the street is that it has never been harder to qualify for a mortgage. I’m working with mortgage lenders and insurers every day and I can assure you that nothing and I mean nothing gets by them. The number of mortgages that went into default in Canada last year were only 0.38%.  Borrowers are required to dot every “i” and cross every “t” and credit is not easily given out like these reports would have you believe. In my experience credit needs to be earned these days.

The conspiracy theorist inside of me (or at least the political one) sees this as a political play to justify the tightening of CMHC rules or some other major change in the mortgage industry effecting borrowers and lenders alike. In the face of what might be an already slowing Canadian real estate market I’m worried about what these changes will mean. Stay tuned for my follow up commentary on CMHC reaching its limit and the implications to the mortgage borrower.

Do you have something add? I’d love to hear about your experience qualifying for a mortgage? Do you think it’s as easy as Ottawa would have us believe?

Christopher Molder – Toronto Mortgage Broker. Have a question about your mortgage or want to qualify, call me at 416.461.0204.

I love questions and I answer them all.

The following is a selection of key statistics published by the Canadian Association of Accredited Mortgage Professionals. The numbers reflect the slight increases we have seen to fixed rate mortgages and the spreads on variable rate mortgages.

Kevin refuses to buy a home. Why?

If you watch the Lang & O’Leary exchange frequently, you will know that Mr. Kevin O’Leary in all of his financial wisdom refuses to own a home and prefers to rent. This may be surprising to some, as generally it is considered that purchasing a home is a good investment. This past week the staff at MoneySense Magazine posted an article What You (Really) Made On Your Home which examines the profit earned by selling real estate after all expenses are covered.

In their example, they calculate the real profit – after expenses- if you bought a typical home in the Greater Toronto Area 10 years ago, and sold it this year. They assume that it was purchased with a 10 per cent down payment and a five per cent fixed-rate mortgage. The home would have cost $248,601 to buy in 2001 and today it would sell for a hefty $456,147.

So does that mean you made $200,000? Not even close.

2011 sale price: $456,147

Subtract:
• $168,434 for the amount still owing on the mortgage;
• $4,000 for legal fees to buy and sell;
• $22,807 in realtor fees for the sale;
• $159,265 for 10 years of mortgage payments ($1,327 per month for 10 years);
• $42,000 for 10 years of property taxes;
• $19,000 for 10 years of home maintenance;
• $2,211 for the land transfer tax when the home was bought;
• $24,860 for the original down payment; and
• $358 in provincial sales tax on the mortgage insurance.

Actual profit: $13,212

Surprising isn’t it? Now be careful when interpreting this number….This calculation isn’t meant as an analysis of rent vs. purchasing. This is purely an analysis of profit vs. expense. For all the money spent over 10 years your net profit works out to only $13,212. Of course when you sell you would receive a cheque much larger than $13,212 because you are receiving your built up equity in the home but this number shows that the return on all the money spent is laughable from a pure investment point of view.  Luckily our human need for shelter and other “irrational” needs supersedes profit as our sole motivation for owning a home.

Which brings me back around to Kevin O’Leary. He will gladly tell anybody who listens that he is motivated by money and profit (watch any episode of Dragon’s Den) but if you think its just fluff for polemic T.V consider that it even supersedes that very capricious yet basic human desire to own a home to call your own. Then again I am sure Mr. O’Leary can eek out a return greater than the one in the example above with his money.

Last week Deloitte, a major international accounting and consulting firm, released a very flattering report regarding Canadian mortgage brokers and their importance to Canadian borrowers. The Wallstreet Journal article highlights why mortgage brokers are important to the mortgage market place. I couldn’t agree more or be prouder.

Do you know what FCAC stands for? No it is not an acronym for an obscure European Football Club but rather an independent Canadian agency dedicated to informing and protecting consumers of financial services – such as mortgages.  It seems that recently they have been given some funds for advertising and PR because in the last week I have heard of them on CBC news and even on the TTC. I applaud the availability of unbiased information & publications. I hope that the banks don’t get the agency in their back pocket.

As a follow up to my post from last week where I included several links and opinions regarding rent vs. owning I found another good article from the Toronto Star “Why You Should Buy Your Home.” There is an age old debate among financial gurus regarding whether buying a home is really a good investment or not? It is my opinion as of late that while home ownership is of high priority it isn’t necessarily “the best” place to invest your money for the long term. However the study in this article suggests otherwise. If you have the time you can see how hotly contested this debate is by skimming through the comments.

That’s it for the Mortage Radar this week. The Mortgage Radar includes news and blog articles that have come across my desk in the past 7 days that I think are of interest or provide entertainment value. Feel free to comment on the links below or call me regarding any mortgage financing needs you may have. 416.461.0204ext2

The Mortgage Radar includes news and blog articles that have come across my desk in the past 7 days that I think are of interest or provide entertainment value.

The TD bank announced a major change to the way they register their mortgages, changing them from a “standard charge” to a “collateral loan”. The end result is that borrowers will be handcuffed to TD. Ultimately this is a strategy to prevent borrowers from leaving TD at maturity. They are selling it to borrowers by allowing them to register up to 125% of the current market value of their home.  Ironically the very next day TD released a report that Excessive Personal Debt is a Concern. Yeah ok.

For many people buying a rental/investment property is of high priority but one should always be wary of the challenges and costs that come with owning a rental property. Read about the Landlord Blues and if you are into the numbers check out the latest on buy/rent ratios from The Globe & Mail and lastly a great article about Why You Might  Rent Your home from The Star.

3 or 4 years ago lenders and insurers developed mortgage products to accommodate self employed individuals making it easier for business owners and commissioned sales people to secure financing.  Today many of those programs have disappeared and Securing a Mortgage is More Complex For Self Employed.
The Conference Board of Canada estimates that immigration will peak at 350,000 immigrants a year by 2030, accounting for more than 80% of population growth. Financial institutions are no slouches and recognize that this represents a large chunk of business learn how they are now targeting newcomers for growth.

For a time my father and I were heavily involved with promoting the Smith Manoeuvre or Tax Deductible Mortgage as a strategy to make your mortgage payments tax deductible and ultimately pay down your mortgage years quicker saving the borrower money in interest. While the strategy does work my father and I observed that most borrowers Lack The Fortitude it takes to make mortgage interest tax deductible.

An old man and a young boy were traveling through a village with their donkey. The boy rode on the donkey and the old man walked. As they went along they passed some people who remarked it was a shame that the old man was walking and the boy was riding.

The man and boy thought maybe the critics were right, so they changed positions.

Later, they passed some people that remarked, “What a shame, he makes that little boy walk.” They then decided they both would walk.

Soon they passed some more people who thought they were silly to walk when they had a decent donkey to ride. So, they both rode the donkey.

Now they passed some people that shamed them by saying, “How awful to put such a load on a poor donkey.”

The boy and the old man said they were probably right, so they decided to carry the donkey. As they crossed the bridge, they lost their grip on the animal and he fell into the river and drowned.

With a tear in his eye, watching his donkey being carried away by the current, the old man turned to the boy and said “Young boy, fools are the ones that listen to the world!”

While you might think that this story is about my father (the old man) and I, it’s not! In the story everyone had an opinion about how the donkey should be used, likewise, everyone has an opinion about mortgage financing and how best to go about it. Think of the conversation at the water cooler or the next neighborhood barbecue.

Over the years I have observed that most people think of mortgage financing as being very static. in reality, mortgage financing should be viewed as dynamic and fluid. The advice and guidance being offered should be the result of understanding current economic conditions, market timing and most importantly, personal circumstances.

For guidance about your mortgage give us a call. Christopher & Arnold Molder 416.461.0204ext2

Click here to view the embedded video.

If we were to take a general macro view of  fixed mortgage rates in Canada one can say that when the markets (i.e. TSX, DOW etc) are strong there is upwards pressure on fixed rate mortgages and the opposite is also true so that when the markets are weak there is downwards pressure on fixed rate mortgages. Over the past couple of weeks we have seen a steady decline in investment markets and investor confidence which has resulted in the lowering of fixed rate mortgages. For the 3rd time this year lenders are offering fixed 5 year mortgages for less than 4%. Very interesting when you consider the headlines from just a few months ago warning of an immanent long term increase of mortgage interest rates and all the caveats from the banks to lock in rates.

My name is Christopher Molder and I am a Toronto mortgage broker dedicated to the financial sufficiency and independence of my clients. Call or write me to get started on your path to financial freedom from the banks.

2.70% – 1 Year Fixed

2.90% – 3 Year Fixed

3.89% – 5 Year Fixed (quick close Sept 30th)

2.87% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.70   3 Year Variable

P-.65   5 Year Variable

Prime Rate is currently 2.75%.

Bank of Canada Qualifying rate has dropped to 5.59%.

NOTE: Rates are subject to change without warning at the lender’s discretion.

Mortgages are very dynamic transactions. There are areas of the mortgage approval that don’t warrant any kind of special consideration but if for whatever reason the lender’s guidelines cannot be satisfied one can compromise the successful funding of a mortgage. Proof of down payment is one of those areas.

Generally speaking proof of down payment is an afterthought for most borrowers as most of the attention is given to proof of income and other conditions. From a borrower’s point of view the down payment money is available and they don’t give it a second thought. However there are some very specific rules that the lender is required to adhere to in conjunction with the Anti Money Laundering & Terrorism Act regarding proof of down payment.

Since using laundered cash for a large down payment is probably the easiest way to launder money the Government relies on the lender as a gate keeper of sorts. For down payment money coming from your own sources you are required to show 3 months bank or investment statements showing that the money has always been there or the gradual accumulation of funds. Any large deposits must be documented. If you keep the money in a shoebox under your bed it is not going to meet the lender’s criteria and will not be accepted.

Gifted down payment is acceptable to the lender however a gift can only be made by a directly related family member including, mother, father, brother, sister or grandparents. The lender will not accept gifted down payment from spouses, friends, aunts, uncles, cousins etc…

Seems straight forward but if you aren’t aware of these rules before making an offer to buy and you commit yourself to buying and run into a problem with proof of down payment it can be very stressful and compromise your mortgage.

Chris Molder – Son of A Broker… dedicated to your financial sufficiency and prosperity 416.461.0204

World Cup fever is on in Toronto and mortgage interest rates are remaining low and stable. While a variable rate mortgage may not fit everyone’s needs it remains a good option in today’s market. Give me a call to discuss whether it is right for you?

Chris Molder – Son Of A Broker 416.461.0204

2.80% – 1 Year Fixed

3.75% – 3 Year Fixed

4.25% – 5 Year Fixed

3.13% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.65   3 Year Variable

P-.60   5 Year Variable

Prime Rate is currently 2.50%.

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.

I didn’t manage to get this post up yesterday it was way too nice of a day! As explained in past videos, fixed rate mortgages are dependent on bond yields. Over the past 2 weeks the yields have suffered as a result of the economic turmoil in Europe caused by the Greek crisis. Even positive economic data like increased inflation and record breaking retail sales in Canada weren’t enough to bolster interest rates. This of course is good news if you are buying or remortgaging. A recent article in the Toronto Star “Rate Hike Not Guaranteed“  by Emily Mathieu argues that the Bank of Canada may not have the ability to increase the prime rate on June 1st. If you are stumped on how to position your mortgage in these unique times get in touch with me.

Chris Molder – Son Of A Broker

2.85% – 1 Year Fixed

3.85% – 3 Year Fixed

4.35% – 5 Year Fixed

3.10% – Merix 50/50 Mortgage (Fixed/Variable hybrid)

P-.50   3 Year Variable

P-.50   5 Year Variable

NOTE: Rates are subject to change without warning at the lender’s discretion.

Click here to view the embedded video.