First-Time Home Buyers' (FTHB) Tax Credit

The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time homebuyers who must pay these costs, as well as save money for a down payment. To assist first-time homebuyers with the costs associated with the purchase of a home, the Government of Canada introduced a FTHB Tax Credit in 2009 — a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief starting in 2009.

How to lower your property taxes

Save thousands by cutting your property tax bill.

Einstein’s general theory of relativity. Lady Gaga’s popularity. Your home’s assessed value. Some things just seem utterly incomprehensible. But solving the property tax assessment mystery is worthwhile: appealing an incorrect valuation could save you thousands of dollars.
Here’s how to do it:

Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.

Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.

Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.

Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.

Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.

What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners who submitted evidence of over-assessment last year got their valuations reduced.

10 Reasons to use a mortgage broker

What are the benefits of using a mortgage broker?

1. Advice on your financial options.

Mortgage brokers can make recommendations and draw from available mortgage products that match your needs and help you decide what is right for you.

2. Save time with one-stop shopping.

It can sometimes take weeks to organize appointments with competing mortgage lenders — homebuyers would rather spend their time house-hunting.

Brokers work directly with lenders and can quickly narrow down a list of options that suit you best.

3. Brokers negotiate on your behalf.

Most people are uncertain about negotiating mortgages directly with their bank. Brokers negotiate mortgages every day on behalf of buyers and have a wealth market knowledge to secure competitive rates.

4. More choice means more competitive rates. We have access to a network of major lenders in Canada, so your options are extensive.

5. Ensure that you’re getting the best rates and terms. Even if you’ve already been pre-approved for a mortgage by your bank or another financial institution, you’re not obliged to stop shopping!

6. Get access to special deals and add-ons.

We do the math on which offers might be worth your attention.

7. Things move quickly.

Our job isn’t done until your closing date goes smoothly. We’ll help ensure your transaction takes place on time and to your satisfaction.

8. Get expert advice. When it comes to mortgages, rates and the housing market, we are not limited. We will explain the various mortgage terms, conditions and rates so you can decide confidently.

9. No cost to you. There is (in most cases) no charge for our services.

10. Ongoing support and consultation.

The ABCs of Mortgages in Four Parts

The Financial Consumer Agency of Canada updating mortgage publication

OTTAWA, ONTARIO--(Marketwire - Aug. 10, 2010) - The Financial Consumer Agency of Canada (FCAC) has completely updated The ABCs of Mortgages to take into account the different needs of Canadian consumers. While some are borrowing to buy their first home, others are renegotiating their mortgages. No matter what their needs are, FCAC reminds consumers that it is essential that they get informed before they plunge into the world of real estate. It could save them money … and headaches.

"The financial market is complex. That's why we strive to develop tools and resources that are easy to consult and use," says FCAC Commissioner Ursula Menke. "We cannot stress enough how important it is to shop around before signing a mortgage agreement. The ABCs of Mortgages contains a range of objective information that will help consumers make informed choices about their mortgages."

The revised version of The ABCs of Mortgages is divided into four parts: each one addresses a specific topic, making the publication more concise and easier to read. "Whether consumers are preparing to buy their first home, taking out a home equity loan, renegotiating their mortgage or searching for ways to pay off their mortgage faster, the new version of The ABCs of Mortgages will help them find the information they need more quickly," adds the Commissioner.

If you are planning on buying a home, here are a few key tips.

Pay off your mortgage faster

To save money, plan your mortgage payments so you can pay off your mortgage as quickly as possible. For example, you could increase your down payment, make larger payments or increase the frequency of your payments.

Give yourself a financial cushion for the unexpected

If your mortgage payments and the bills from the purchase of your home are keeping you up at night, your dream home could turn into a nightmare. Make sure that you have a financial cushion to cover unforeseen costs, such as an increase in interest rates or unexpected home maintenance and repair costs.

Shop around before choosing a mortgage

Your home will likely be the biggest purchase you'll ever make. Take time to shop around and negotiate to get the mortgage that best meets your needs. Remember, as a consumer, you have bargaining power.

To find FCAC's interactive tools and publications, visit www.moneytools.ca.

About FCAC

Using educational materials and interactive tools, FCAC provides consumers with objective information about financial products and services and informs them of their rights and responsibilities when dealing with banks and federally regulated trust, loan and insurance companies. Through its financial literacy program, FCAC also helps Canadians acquire the necessary knowledge and confidence to manage their personal finances. FCAC also makes sure that federally regulated financial institutions comply with legislation and agreements intended to protect consumers.

You can reach us through the FCAC Consumer Contact Centre by calling toll-free 1-866-461-3222 (TTY: 613-947-7771 or 1-866-914-6097) or by visiting our website: www.fcac.gc.ca.

Not so Fast

Is your mortgage coming up for renewal?

Don’t be too quick to sign that mortgage renewal letter. Over 70% of Canadian mortgage holders do just that, and what is the usual result? A higher rate and a mortgage product that might not be best suited to your interests.

Experience has shown that the “Big Banks” send their mortgage renewals out at a posted rate.

Lenders are counting on the fact that most home-owners are too busy to ask questions or to inquire about getting a better rate, but don’t let this happen to you. Posted rates are way too high of a rate to lock into, which can cost you thousands over the term of the mortgage.

You should recognize that you are now negotiating from a position of strength as your mortgage principal has dropped and in most cases your home value has increased.

Lenders see you as a lower risk borrower and consequently you should be getting the best rates available. That may not happen if you simply sign the renewal document provided by your existing lender.

Rather, let the lenders compete for your business to be sure you do in fact get the best mortgage possible.

A mortgage broker can do this for you. He or she can review your current situation and ensure you get the best rate and terms available. In most cases there is no fee.

Bank of Canada increases overnight rate target to 3/4 per cent

OTTAWA – The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

The global economic recovery is proceeding but is not yet self-sustaining. Greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth relative to the Bank's outlook in its April Monetary Policy Report (MPR). While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery over the projection horizon. In the United States, private demand is picking up but remains uneven.

Economic activity in Canada is unfolding largely as expected, led by government and consumer spending. Housing activity is declining markedly from high levels, consistent with the Bank's view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010. While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank anticipates that business investment and net exports will make a relatively larger contribution to growth.

Inflation in Canada has been broadly in line with the Bank's April projection. While the Bank now expects the economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April, the underlying dynamics for inflation are little changed. Both total CPI and core inflation are expected to remain near 2 per cent throughout the projection period. The Bank will look through the transitory effects on inflation of changes to provincial indirect taxes.

Reflecting all of these factors, the Bank has decided to raise the target for the overnight rate to 3/4 per cent. This decision leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.

Information note:
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 22 July 2010. The next scheduled date for announcing the overnight rate target is 8 September 2010.

Watch bond market for rate hike clues

Anyone caught off-guard by mortgage rate hikes by five of Canada’s banks during the last week of March probably wasn’t paying attention to the bond market – and, let’s face it, that means most people.

A common misperception is that mortgage rates follow the Bank of Canada’s overnight lending rate. While it’s certainly true that we’ve seen historical lows in both over the last few months, the central bank only affects variable mortgage rates. Fixed-rate mortgages are affected by government bond yields, which have been trending upward for the past six weeks.

The reason? Bond traders are expecting the Bank of Canada to either raise rates sooner than the planned date of July 20 or be more aggressive in raising them than previously anticipated. Typically, the bond market moves two to four months before the Bank of Canada does.

“The bond market is a live market that can change and fluctuate constantly, but they typically move in anticipation of events, not the events themselves,” says Peter Kinch, a Vancouver-based broker. “It’s almost like a speculative market.”

Another reason behind the increase, says Benjamin Tal, senior economist at CIBC World Markets, is that U.S. government bond yields are rising and that often impacts Canada’s bond yields. “Long-term rates in the U.S. are going up primarily because of the fact that people are becoming concerned about the ability of Obama to fund the debt,” says Mr. Tal. “Unfortunately, you and I are paying for Obama’s healthcare program in a way.”

That won’t make anyone looking for a mortgage feel better. Almost all the major banks boosted their five-year mortgage rates by 60 basis points to 5.85%. Mortgage rates generally rise at a one-to-one ratio with bond yields, says Tal, and the benchmark five-year government bond yield on March 29 was 2.9%, up about 50 points since Feb. 8 and a 17-month high.

Banks like the difference between the five-year bond yield and their best — not the posted — five-year mortgage rate to be between 90 and 110, says Mr. Kinch (although others suggest the spread is 125 to above 135. That spread is the profit between what banks can secure money at and what they can sell it at in the form of mortgages.

Mr. Kinch says it’s not necessary to understand the intricacies of how bond markets work to figure out where mortgage rates are heading, just pay attention to patterns in yield changes, which are readily available online. When the spread between bond and mortgage rates goes too high, banks bring their rates down, and when the spread dips, they increase them. Since 1980 there has been a 97% correlation between the two rates on a monthly basis.

“The spread was either getting too close to 90 or may have slipped below 90, and since they were anticipating a further increase in bond yields, they priced in a 60-basis point increase to give them a buffer and create a bigger spread,” says Mr. Kinch. “If they were wrong in their predictions, they will adjust them next week.”

Mr. Kinch believes a 25-point rise in the overnight lending rate, maybe as soon as April 20, is more likely than something dramatic. That would give Bank of Canada governor Mark Carney a chance to assess any fallout before raising the rate again. However, if it looks like he’ll stand pat, bond yields will likely come down, followed by mortgage rates.

Even though bond yields change almost every day, mortgage rates don’t because that would cause consumer confusion. “Banks will move when they feel the increase is not a one-off thing,” says Mr. Tal. “They don’t want to drive everyone crazy with changing mortgage rates.”

Banks are also more likely to respond quickly to rising bond yields than they are to dropping yields, according to a Bank of Canada study in 2009 called Price Movements in the Canadian Residential Mortgage Market. That’s partly because banks generally offer 60 to 120-day rate guarantees and early payment options, both of which cost the lender if rates rise.

There are exceptions, especially if banks sweeten the pot to buy customers with lower rates. For example, bond yields on March 9 went up, but mortgage rates at RBC and BMO actually fell.

Those days would seem to be over for now, but there could be 20- to 30-point dips in mortgage rates even as they generally rise, says Mr. Kinch. “You’d be foolish to expect rates to go back down again,” he says. “The rates we saw last week, I’d be surprised if we see those again maybe in our lifetime.”

Mr. Kinch was advising people to lock into low five-year rates earlier in March after noticing the steady rise in bond yields, but notes that rates are still near historic lows. Jittery first-time homebuyers looking for security should take a fixed five-year mortgage, but consumers comfortable with a variable mortgage can find rates at less than 2%. However, Mr. Kinch recommends boosting the monthly payment to a level that would be similar to a 5% fixed rate. That accelerates debt repayment and helps adjust for higher rates down the road.

Variable mortgages (almost) always win

Whether They're Taking On New Mortgages Or Renewing Ones They've Held For Years, Homeowners End Up Asking Themselves The Same Question: Should They Lock In Their Mortgage Or Should They Let It Float With A Variable Rate. Here, Toronto-Based Wealth Manager Scott Tomenson Makes The Case For Variable.

ARE VARIABLE MORTGAGES AS GOOD AS THEY LOOK?

Q: My fiance and I have just bought our first home and we are going in circles about what is the best mortgage for us before we close. We currently have a locked-infixed rate with a bank of 3.98%, which we prefer to the uncertainty of taking a variable mortgage. But would we be better off with a variable-rate mortgage, especially if we saved money during periods when rate are low and use that to make payments on principal? Will that offset costs when our payments are higher than our current fixed rate?

Getting Dizzy, Ontario

A: Historically, as far as interest rates are concerned, it is better to float your mortgage interest rate (i. e., choose a variable rate mortgage). This is a result of the "yield curve." The "normal" yield curve is positively sloped, with interest rates lower for short-term maturities (one to two years) and higher for longer-term maturities (five to 30 years). When the economy strengthens, the Bank of Canada will raise short-term interest rates (they only have control over short-term rates) and the base for variable-rate mortgages (usually the prime rate) is moved higher. This action signals a period of "tightening" of monetary policy to cool the economy and reduces inflationary pressures.

The vehicles that determine longer-term interest rates -- bonds -- tend to move according to inflationary expectations: If bond investors anticipate inflation (because of economic growth), they demand higher returns (interest rates) as protection from inflation. When the Bank of Canada is perceived as "fighting" inflation by raising shortterm interest rates, long-term rates have a tendency, in most cases, to remain stable or improve, because long-term bond investors are content that inflation will not grow.

In essence, while short-term interest rates may go up, they do so only until the Bank of Canada has slowed the economy enough to curb anticipated inflation. Then, as economic growth slows, the bank starts to lower them. The yield curve will flatten (with higher short-term interest rates) for a time, but when the economy slows, short-term rates will go back down and the yield curve returns to its "normal" positive slope.

Over this time, variable-rate mortgages will move up to being approximately equal to locked-in five-or 10-year rates, but that's followed by a period when they return to lower levels. More often than not, over this time, it is less costly to have held the variable rate debt. Exceptions to this situation would be times of hyper-inflation (like in the 1980s) when short-term interest rates went to extreme levels.

If you had a variable mortgage at prime minus over the past few years, as I did, it's been a great ride. I kept my payments level and the low interest rates allowed to me to pay off massive amounts of principal. True, the economy is strengthening and shortterm rates will go up a bit over the next couple of years, but I don't think it will be dramatic. The case for variable-rate mortgages remains strong.

Mortgage loophole helps first-timers

There is a small loophole in the new federal mortgage rules that could make it easier for the banks to lend out money to first-time buyers.

The federal government announced last month new requirements for anyone borrowing money for a house and needing mortgage insurance. If you have less than a 20% down payment and are borrowing from a financial institution covered by the Bank Act, you have to take out mortgage default insurance, which ensures the banks are covered for any losses resulting from payment defaults.

For principal residences, the new rules force consumers to qualify for a loan based on being able to make payments on a five-year fixed-rate mortgage, which has a much higher interest rate than variable mortgages, now as low 1.85%.

Clearly, Ottawa’s view was toward rising rates. And this week, two of the major banks raised their posted rate on five-year fixed mortgages to 5.85%.

But one lingering question is how the five-year rate would be calculated in terms of qualifying a customer. In other words, it would obviously be a lot tougher to qualify for a mortgage under the new rules when using the posted rate of 5.85%. But if using the actual rate consumers get -- these days as low as 3.75% -- that’s a lot less income you’ll need to buy your first home.

Officials in Ottawa have been mum on what numbers should be used.

But an internal document distributed by Canada Mortgage and Housing Corp. to mortgage brokers, obtained by the Financial Post, shows consumers will be able to use their actual rate to qualify for a mortgage if they go for a term five years or longer.

If buyers want a variable-rate mortgage, they will have to qualify based on “the benchmark rate,” which is essentially the posted rate.

So, if you want to go short, you had better be able to make payments based on an interest rate as high as 5.85%, which is where the benchmark rate will likely sit by next week.

“Probably 10% of the overall mortgage population is going to be affected by this rule in the sense they are no longer going to be able to qualify for a variable-rate mortgage or a one- to four-year term,” says Robert McLister, editor of Canadian Mortgage Trends. “The qualifying rate is going to affect the debt ratios of those people.”

The end result may see more people forced to lock in their rate, which is hardly fair given variable-rate mortgages have been a better deal than fixed-rate rate mortgages about 88% of the time over the past 50 years, before the recent credit crisis.

“This will help people become accustomed to making payments based on where mortgage payments are likely to be going,” said Peter Vukanovich, chief executive of Genworth Financial Canada, the mortgage insurer.

He doesn’t think the changes are a major deal, given that most of the major banks have been qualifying consumers based on their four- and five-year rates. His company was already only insuring products based on rates as high as 4%.

“It’s a good rule change when you are situation right now where we are increasing interest rates,” says Jim Smith, vice-president of Scotia Mortgage Authority. “Most lenders, ourselves included, have qualified based on at least the three-year posted rate.”

The discrepancy is, the three-year posted rate at most banks is actually higher than the five-year discounted rate.

And that means it is actually going to get easier to get a mortgage -- as long as you do what the government tells you to do and lock in your rate.

Mortgage-rate rise means borrowers' party is almost over

Increase creates a dilemma for prospective homebuyers

Without announcing last call, Canadian banks have taken the punch bowl away from the mortgage party that millions have enjoyed, and hangovers are looming.

Last summer, the Bank of Canada and Federal Reserve in the United States said their overnight lending interest rates would remain near zero until at least the middle of this year. The reaction by Canadians was to buy houses with rates at historic lows, and party on.

But as economies in North America began rebounding, central banks hinted rate increases could occur fairly soon, especially in Canada.

Bond rates rose in anticipation and that was the catalyst for banks to lift five-year mortgage interest rates, generally by 0.6 per cent -- the greatest single-day hike since 1994 -- to 5.85 per cent. That's an increase of $88 in monthly payments on a $250,000 mortgage for 25 years.

And they've only just begun. The C.D. Howe Institute think-tank suggests the Bank of Canada should raise its overnight rate by 1.75 per cent in the next year, likely lifting five-year mortgage rates to 7.0 per cent, while other economists envision a five-year rate as high as 8.25 per cent in two years.

That presents a dilemma for prospective homebuyers. Should they join an anticipated rush to purchase homes now and lock in at low rates, although housing prices could climb immediately with a blip in buyers during this period? Or should they wait for the frenzy to die down, expecting house prices to be lower in 12 months than they will be in three, even though mortgage rates will be higher a year down the line?

A major consideration should be whether you think you can handle lower mortgage rates now in this recovering economy better or worse than you would be able to handle higher payments a year from now when the economy, we hope, has improved and the employment situation has stabilized somewhat.

The Conference Board of Canada released a report saying one-fifth of Canadians already cannot afford both good-quality housing and either nutritious food or healthy recreational activity.

And the Bank of Canada reported that if mortgage and consumer credit interest rates went up one per cent, a record-high 9.6 per cent of households would be deemed financially vulnerable.

The question is whether we will pass the tipping point from people being unable to get into the housing market to the state where existing homeowners are unable to keep the roofs over their heads. You don't need long memories to recall how prolonged low interest rates after the 2001 terrorist attacks in the United States eventually led to massive foreclosures there when homeowners couldn't afford payments once rates rose.

Finance Prof. Moshe Milevsky with York University in Toronto says that instead of just considering financial savings in whether to have a short-term variable or long-term fixed mortgage, a person should also consider debating whether going with a short-term mortgage will leave a person unable to qualify for renewal, say if they lose their job, at variable and short-term rates.

Adrian Mastracci, with KCM Wealth Management in Vancouver, says: "If you can stand the inevitability of higher payments, a variable rate can still make sense.

"But those that have no wiggle room on increased payments should look at a five-year rate."

He also suggests paying down lines of credit aggressively before rates climb, investigating the penalty to refinance your mortgage at a lower rate if possible, considering a mortgage that is partly fixed and partly variable, and shopping around and negotiating for the best rates.

With rates so low, financial institutions had little wiggle room to offer valued clients lower-than-posted mortgage rates, but that expands as posted rates go up.

And that segues into one of the three mortgage changes the federal government brings into force later this month. In the past, borrowers had to make enough family income to pay the three-year fixed mortgage rate to qualify for a mortgage, and the new rules mean you will have to earn enough family income to handle the five-year fixed rate. TD Bank said a person wanting a mortgage on a $337,000 home would need to make another $9,200 in household income to qualify. It will be more than that with the higher five-year rates.

But one question has been whether the qualifying standard would be based on the posted five-year-fixed rate, or on an actual reduced rate a borrower might get. A document by the Canada Mortgage and Housing Corp. suggests the lower actual rate would be used.

Even so, it is suggested some people wanting to lock in long-term may no longer qualify for a variable-rate mortgage or a term of less than five years.

On the positive side of rising interest charges, a widening spread between borrowing and lending rates means bank shares should do well and they may be able to increase dividends.

And for investors who turned to safety amid the volatility of equity markets in recent years, rising rates should start to improve returns on vehicles like guaranteed investment certificates and money market funds and high-interest bank accounts.

For borrowers, the party's almost over, but for many lenders it's only just begun.

Flaherty tightens mortgage taps

Finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.

After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa's disposal aimed at removing some of the speculative froth in the housing market.
Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt.Finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt. (Fred Chartrand/Canadian Press)

"There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one," he said at a news conference in Ottawa. "If some lenders aren't willing to act themselves, we will act."

Broadly speaking, the plan unveiled has three components.

First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

"This will guard against higher rates in the future," Flaherty said.

Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.

"We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said.
Minimum down payment unchanged

There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home's value, or reduce the maximum amortization period from 35 years to 30 years.

Those measures were not part of Flaherty's announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.

The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, current policies at some large Canadian lenders are similar to the first peg of Flaherty's plan.

After Tuesday's announcement, the Bank of Montreal noted that it already requires its high-ratio borrowers to be able to qualify using the five-year rate. And all banks currently test all mortgage applicants on a three-year fixed-rate mortgage rule, Toronto-Dominion bank says.
People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday.People walk past new homes that are for sale in Oakville, Ont., in April. Finance Minister Jim Flaherty introduced new rules designed to rein in the real estate market Tuesday. (Nathan Denette/Canadian Press)

"While we do not believe that Canada faces a housing bubble, we fully support the minister's actions," Bank of Montreal said in a release. "Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent."

"This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage," Royal Bank chief economist Patricia Croft said in reaction to Flaherty's announcement.

Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.

"If you wanted to buy a house, wouldn't you now do it before April?" Croft asked. "It's even more evidence that house prices are going to cool down later this year."

For its part, the Canadian Association of Accredited Mortgage Professionals says it supports the amendments, calling them preventative measures against possible future risk.

Read more: http://www.cbc.ca/politics/story/2010/02/16/mortgage-flaherty.html#ixzz0fjTBVjlb


www.vancouvermortgagefinder.ca

CREA forecasts record home sales in 2010

The Canadian Real Estate Association now says 2010 will be a record year for home sales.

The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.

"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.

Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.

However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.

"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.

Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.

"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."

www.vancouvermortgagefinder.ca

Consumer debt loads are the new concern

The optimism that consumers felt heading into this year was short-lived, and has been overcome by nagging concerns over their debt loads.

The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rates to buy homes and other big-ticket items.

But the tables are set to turn. Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise.

It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.

And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.

New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.

The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.

And, as they evaluate their household finances, the majority of Canadians are worried.

Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.

“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada.

“We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”

Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month.

Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.

“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.

To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.

With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.

But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”

The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.

“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.”

In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.

In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.

Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca

World Housing Report Pegs Vancouver As Least Affordable

http://www.demographia.com/dhi.pdf

http://ca.news.yahoo.com/s/capress/100125/national/affordable_housing

Matthew Le Roy
RBC Mortgage Specialist
www.vancouvermortgagefinder.ca

Don’t bite off more mortgage than you can chew

How much money do you really need to buy a house?

Based on the average sale price of $320,333 last year, the federal government says you must come up with about $16,000 before you can consider getting a mortgage to buy the rest of that home.

Current rules require mortgage insurance for anyone borrowing more than 80% of the value of their home from financial institutions covered by the Bank Act. Under the rules, consumers must have at least 5% down and cannot amortize their payments over a period of more than 35 years.

Those stipulations came after Ottawa’s supposed crackdown on the housing sector which had allowed zero down mortgages and 40-year amortizations.

Now, with the housing market red-hot again, there is talk about increasing the down payment requirement and shortening the amortization length back to 25 years. Jim Flaherty, the Finance Minister, has said he is keeping a close eye on the sector, which has been boosted by interest rates that have new mortgages being offered as low as 2.25%.

It shouldn’t come as any surprise that the real estate community is fighting against changes that would make it harder to buy a home. This month, the Canadian Association of Accredited Mortgage Professionals (CAAMP) produced a study it says shows an overwhelming percentage of Canadians are shielded from potential interest rate hikes because they opted for fixed-rate products.

But that study also showed a huge portion of those consumers would be in big trouble if they had to come up with a larger down payment. Will Dunning, chief economist for CAAMP, said 65% had down payments that were worth 10% or less of the value of the home being bought.

“Absolutely,” says Mr. Dunning, about whether a change would take some consumers out of the market. “The change in the 40-year amortization just worsened the downturn in the market. In a fragile housing market you don’t want to impose too many restraints.”

Ben Myers, executive vice-president of Urbanation Inc., which tracks Toronto’s condominium market, has little doubt about what would happen if consumers were forced to come up with more cash up front.

“A large percentage of the market is investors and first-time buyers and they are very sensitive to the down payment they need and the amortization because it affects their monthly payment,” says Mr. Myers.

From an industry standpoint, the status quo is easy to defend. The delinquency rate — defined as loans more than 90 days behind — is only 0.45% of the market. That’s well below the 0.70% high reached in the last recession.

Derek Holt, an economist with Bank of Nova Scotia, wonders whether the industry is borrowing customers from tomorrow to fuel today’s market.

“We are overheating at the expense of bringing forward future buyers. The risk here is you wind up a year or two down the round with a demand vacuum,” says Mr. Holt. “Sure, if you tighten the rules you cool demand, but you distribute demand more evenly.”

Basically, people would save a little longer or perhaps buy a little less house.

Taking a more conservative approach to buying is not the worst thing that can happen, says Julie Jaggernath, director of education at the Vancouver-based Credit Counselling Society. More than one person has walked into her agency with credit problems caused by taking on too much house.

“They might buy a home with a smallish down payment but then they furnish it on their credit card,” said Ms. Jaggernath. “It is not unusual to see people spending 60% of their net income on housing costs.”

She suggests looking at your current housing and then doing the math on what your housing costs would be for what you want to buy. “Set the difference aside for six months and see if you can make that budget,” says Ms. Jaggernath.

Her group is anticipating a larger client base when interest rates rise because many consumers are now biting off more mortgage than they can chew.

“Some people want to travel to Mexico three times a year but they can’t. Some people should never buy a home,” says Ms. Jaggernath.

It’s too bad we can’t go on vacation with 5% down and pay for it over the next 35 years. There would be a lot of Canadians lying on a Mexican beach right now.

Dusty wallet Watch those credit card statements closely. DW paid his Visa on time last month with an online transaction. The due date was Jan. 2, but the bank didn’t put it through until Jan. 5. Guess what? The three-day delay by Visa resulted in almost $60 in interest charges — since reversed by the financial institution in question.

www.vancouvermortgagefinder.ca

Debt threats

Credit-loving Canadians are finding themselves increasingly in hock. It's not a crisis yet, but warning signs are plentiful

MONTREAL – Guylaine Houle looks at a big screen television differently than many.

She's a bankruptcy trustee.

She's seen too many of those televisions - bought on credit - go from being hours of joy to months of anguish.

The owner had to have the latest thing, complete with all the bells and whistles, and jumped at one of those deals where you buy now and pay later - maybe 14 months down the road. But they didn't save toward paying off the set when the bill came due. So 14 months later "it's no longer a magical TV, it's a payment."

Houle and David Solomon, another local bankruptcy trustee, said misuse of credit, buying things on time when you really don't have the money to pay for them, is a key culprit behind the increasing number of miserable people showing up at their doors.

Emily Reid, a personal financial counsellor, wishes they would do away with the word credit. "Credit is a positive word for something that is really a liability," she explained. You are not getting credit, she said, you are renting somebody else's money, and it's going to cost you.

It is true Canadians are going steadily deeper in debt. Statistics Canada's debt-to-income ratio, which measures the average debt-load as a percentage of disposable income, has risen steadily in recent years to 145.01 per cent in the third quarter of 2009. That figure includes all debts, including mortgages.

It is also true that most Canadians are in better shape than their neighbours in the U.S., where the rate is 151.7 per cent, and, for the most part, Canadians are managing their debts.

Still, just before Christmas, Mark Carney, governor of the Bank of Canada, issued an alert. Though healthy now, the risks to household finances are increasing, he said. "Aggregate debt level has risen sharply relative to income."

Doug Porter, deputy chief economist with BMO Capital Markets, agreed with Carney's alert.

"I don't think debt is a huge problem yet, but it's definitely on the cusp of becoming an issue, especially given the fact that interest rates are almost certainly going to go up, if not over the next year, then certainly the next two years."

Carney was cautioning "against overdoing it in the middle of what is obviously a very strong housing market," Porter said.

For a home buyer, rate increases mean hefty payment boosts. For example, if rates go to 4.5 per cent from 3.5 per cent, the National Bank says monthly payments on a $150,000 mortgage will rise $82, from $748 to $830, assuming a five-year term and a 25-year amortization.

The lion's share of the debt in Statistics Canada's debt-to-income ratio is in mortgages, Porter said, and over the past year mortgage and credit card debt have risen about seven per cent, while disposable income has risen 1.6 per cent.

With the rise in house prices and the prospect of higher interest rates increasing the cost of carrying those houses "I think we're stretching the envelope of affordability," Porter said. He suggests people planning to buy now consider avoiding the uncertainty of variable mortgage rates and look to a five-year term.

And they also shouldn't count on their house escalating in price in the near term.

He expects prices to moderate toward the middle of the year, particularly as an increase in new home building puts more properties on the market.

It would appear Canadians are being careful. A study released this month by the Canadian Association of Accredited Mortgage Professionals showed that the vast majority of the 40,000 mortgages it surveyed were fixed-rate mortgages with terms of three years or more.

While the majority are coping, there is evidence that the economic downturn has sent a minority over the edge in larger numbers.

Figures released Thursday show that for the 12 months ended Nov. 30, 2009, personal insolvencies rose 34.1 per cent in Canada compared with the same 12-month period in 2008. In Quebec, they rose 23.7 per cent.

In human terms, that means 112,535 people nationwide and 33,498 people in Quebec, found themselves in deep trouble.

An insolvency can be one of two things - a bankruptcy, where the person cannot pay their debts; or a proposal, where the person works out a deal to pay off their creditors, often not paying the full amount, or taking longer to do so, or a combination of the two.

Across Canada, bankruptcies were up by 32.4 per cent during that 12-month period, while proposals were up 40.2 per cent. In Quebec, bankruptcies were up 23.3 per cent and proposals rose 25.6 per cent.

There was a very significant jump in September, because the government made bankruptcy rules tougher on people, Solomon said, so folks rushed to get in before the changes came into effect. And it's not surprising to see the numbers climb during periods of rising unemployment, he added.

"A lot of young people are going bankrupt as a result of not finding work in their field after they graduated from school. Some have student loans and the banks are harassing them," he said.

"They have no income or little income and are using their credit cards to cover their cost of living, hoping to get a position some day that will enable them to pay."

They end up with half a dozen credit cards and run up to the limits.

Solomon said every person who walks through his door is a different story. Occasionally he encounters people who can not carry their home because they have lost their jobs. But mostly he sees people who are spending more money than they have.

Houle agreed that unemployment is often the trigger behind a bankruptcy; so is divorce. But the person might have been heading toward the brink for sometime, she said.

It's a societal thing, she said.

"People want to be rewarded now, and the credit society has allowed us to do that," she said, even though many can't afford those rewards.

Reid agreed. The under-40s have grown up in a world where everybody uses credit cards, she said, and people have come to think that because they are working, they buy what everybody else buys.

But they are acting like employees, not managers, she said. A manager has a plan. He knows how much money he has and what he can afford.

Houle said that if she had her way, the education system would introduce consumer courses at an early age.

A budget is so important, she said, but 75 per cent of the people who come before her have never done one. Those that did were following an example set by their parents. So getting in the habit will not only help you, but your offspring as well.

People also have to understand what terms like compound interest mean and how it can push your debt load higher, she said. Compound interest is the interest that is charged on interest. If you do not pay your bill in full one month, the next month you will be charged interest on the unpaid principal plus the accumulated interest.

Reid said understanding interest is key. Clients often tell her they have been making the minimum payment on their credit card bills, she said, but they don't realize that at that rate, paying off those debts will take years. After you subtract the interest, very little of that minimum payment went on the principal, she said.

Reid said the best advice she can give is: "If you find yourself in a hole, stop digging." Then spend only on what is absolutely necessary, and don't rent other people's money to do it.

- - -

Debt-to-income ratio in Canada

Canadians are going deeper into the red. Their debts exceed their disposable income.

3rd Quarter

2004 120.49 %

2005 125.35 %

2006 128.52 %

2007 133.73 %

2008 138.55 %

2009 * 145.01 %

* Last quarter for which 2009 figures are available

Source: Statistics Canada

smcgovern@thegazette.canwest.com

Slow start, strong finish for housing market in 2009

VANCOUVER – After beginning the year at near record low sales levels, buyers’ confidence in the Greater Vancouver housing market quickly returned, allowing for significant and sustained increases in the number of residential property sales for much of 2009.

The Real Estate Board of Greater Vancouver (REBGV) reports that total unit sales of detached, attached and apartment properties in 2009 reached 35,669, a 44.8 per cent increase from the 24,626 unit sales recorded in 2008, but a 6.3 per cent decline from the 38,050 residential sales in 2007.

The number of homes listed for sale on the Multiple Listing Service® (MLS®) in Greater Vancouver declined 15.5 per cent in 2009 to 52,869 compared to the 62,561 properties listed in 2008.

“Low interest rates, an economy emerging from recession and continuing to improve, and consumer confidence led to the resurgence experienced in the Greater Vancouver housing market in 2009,” Scott Russell, REBGV president said. “Home sales neared or passed monthly records in Greater Vancouver throughout the latter half of 2009. In fact, last month’s home sales rank as the third highest selling December in the 90-year history of our organization.”

Residential property sales in Greater Vancouver totalled 2,515 in December 2009, an increase of 172.2 per cent from the 924 sales recorded in December 2008, and an 18.4 per cent decline compared to November 2009 when 3,083 home sales occurred.

The residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 16.2 per cent to $562,463 between Decembers 2008 and 2009.

New listings for detached, attached and apartment properties in Greater Vancouver totalled 2,153 in December 2009. This represents a 38.9 per cent increase compared to the 1,550 new units listed in December 2008 and a 41.1 per cent decline compared to November 2009 when 3,653 properties were listed.

“The number of homes listed for sale on our MLS® has been in decline in Greater Vancouver for eight of the last nine months, which results in upward pressure on home prices and less selection for buyers to choose from,” Russell said.

Total active listings in Greater Vancouver currently sit at 8,939, a decrease of 41 per cent from December 2008, and a decrease of 19 per cent from November 2009.

Sales of detached properties in December 2009 increased 159.2 per cent to 902, compared to 348 sales in December 2008. The benchmark price for detached properties increased 18.3 per cent to $766,816 compared to December 2008.

Sales of apartment properties in December 2009 increased 176.7 per cent to 1,154, compared to 417 sales in December 2008. The benchmark price of an apartment property increased 14.8 per cent since December 2008 to $382,573.

Attached property sales in December 2009 increased 188.7 per cent to 459, compared with the 159 sales in December 2008. The benchmark price of an attached unit increased 12.9 per cent between Decembers 2008 and 2009 to $478,093.

Bank of Canada sees no housing bubble yet

OTTAWA -- The Bank of Canada Monday dismissed talk of a housing bubble in Canada as "premature," warning that calls for higher interest rates now in an effort to temper real-estate markets would be akin to "dousing" the economic recovery with cold water.

It delivered this message through a speech in Edmonton, and marked the first time the central bank tried to address directly myriad concerns that the country's real-estate market is appreciating too quickly, too soon.

"Recent house price increases do not appear to be out of line with the underlying supply-demand fundamentals," David Wolf, an advisor to the governor, Mark Carney, said in prepared remarks.

Data indicate existing-home prices have climbed 21% from a year ago while sales volume has surged 41%, prompting observers to indicate a housing bubble was underway due to record-low interest rates. New figures released Monday suggest housing starts rose 5.9% to a seasonally adjusted rate of 174,500 units in December, easily beating economists' average forecast of 160,000.

Mr. Wolf said housing bubbles, such as the one the United States experienced last decade, are usually fuelled by credit expansion, as borrowers and lenders "take false comfort from exaggerated house prices."

The current rally, during which existing-home sales have climbed more than 40% on a year-over-year basis as of November and prices have surged nearly 20%, is largely due to what Mr. Wolf described as "temporary factors," such as low interest rates and pent-up demand. Further, some buying has been "pulled forward," as people realize this is a once-in-a-lifetime opportunity to acquire property with historically cheap financing.

These factors cannot continue to drive home sales and prices, Mr. Wolf said.
"Thus, we see the housing market as requiring vigilance, but not alarm," said Mr. Wolf, who delivered the speech on behalf of deputy governor Timothy Lane.

He said the central bank is monitoring housing closely, and warned of the implications of using monetary policy to cool the market.

"If the bank were to raise interest rates to cool the housing market now - when inflation is expected to remain below target for the next year and a half - we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession. As a result, it would take longer for economic growth to return to potential and for inflation to get back to target," he said.

The Bank of Canada has pledged to keep its benchmark rate at a record low 0.25% until July in an effort to foster growth and bring inflation to the central bank's preferred 2% target (which is expected in the second half of 2011).

Instead, regulatory changes - from changes to banks' capital requirements to the terms and conditions for mandatory mortgage insurance - are the preferred route to deal with housing-market excess, should concerns mount. This largely repeats the view forwarded last week by Ben Bernanke, chairman of the U.S. Federal Reserve.

Jim Flaherty, the Minister of Finance, has indicated he is concerned about the record levels of household debt and could introduce regulatory changes to address it, such as more stringent requirements to get mortgage insurance, which is a key condition required before banks agree to extend financing for a home purchase. Analysts say such a change could be included in the next federal budget, to be tabled in early March.

Economists at Scotia Capital said in a note the speech suggested the central bank was becoming "uncomfortable" with the "lightning-rod bubble talk" in the marketplace.

Nonetheless, the central bank "flagged the temporary nature of many of the factors driving recent strengths," they said.

Michael Gregory, senior economist at BMO Capital Markets, said mortgage growth has been rapid - around 7% on a year-over-year and three-month basis - but remains in single-digit territory and below historical peaks. Still, "a few more months of rapid credit growth and the [central bank's] conclusion may be very different."

pvieira@nationalpost.com