More and more young people cannot afford or qualify to buy a home today, and it's not because of real estate prices. Thanks to new policies by the Federal Government, mortgage costs are way higher than they need to be. First the Government set a qualifying rate of 4.8% for mortgages. Did you know that you can get a 5 year fixed rate mortgage for under 3%? Think about it, we don't have qualifying rates for credit cards or car loans, maybe we should. Next the Government introduced new rules for insuring mortgages that eliminated many lenders for borrowers. Only the banks were able to do these types of mortgages. The end result has been that banks have increased both their market share and the interest spreads on mortgage rates this year. With less competition, consumers get to pay way more. So interfering with the market is never a good ...
Why Millennials Can't Afford to Buy Real Estate
September 7, 2017
Implications of Canada's New Mortgage Rules
October 17, 2016
On October 3rd, a firestorm hit the real estate market when the minister of finance announced two changes to mortgage rules. Last week we discussed what those mortgage rule changes where. This week we want to take a look at what the implications will be of the new mortgage rules, especially those of people having to qualify for the posted rate as opposed to the actual rate for their mortgage. Will Prices Fall? First off, with buyers having less money to purchase, will prices fall? The answer is no. In real estate, if the Sellers don't get their price, that is what the last property sold for, they just take the property off the market. They do not reduce their price. What About First Time Buyers? First time Buyers will have two choices going forward, buy smaller, not low rise but condos, or continue to rent. For those trying ...
New Mortgage Rules
October 7, 2016
On October 3rd, a firestorm hit the real estate market when the minister of finance announced two changes to mortgage rules. Closing the Loophole The first rule was to remove the principal residence exemption for non residents. But think about it, how can a non-resident have a principal residence in Canada, Impossible! But now we're closing that tax loophole and that will have little impact on the real estate market. 'Stress Test' on Insured Mortgages The Second change is more serious. Now, both high ratio and conventional mortgages insured under CMHC and two other companies must be qualified under the posted rate, and not the actual rate. Remember, for people who took out 5 year mortgages, they used to be able to qualify at the actual rate. The bad news is that the posted rate is about 2% higher than the five year rate. People then will be forced ...
State of the Union When it Comes to New Mortgage Changes
October 5, 2016
The Federal Government continues to tinker with mortgage rules that it can control in an attempt to slow down real estate markets, particularly in Vancouver and Toronto. The first change, to remove the Principal Residence Exemption, for non-residents described as closing a tax loop hole is a nothing. Revenue Canada has never defined a Principal Residence and so non-residents claimed it. Think, how can a non-residenct have a principal residence in Canada? Impossible! But that is what you get from bureaucracy. Almost all non-residents buying property in Canada never considered this a factor in buying. Neither should you when advising clients. The second change, making BOTH high ratio and conventional (under 80% loan to value) borrowers qualify under the Posted Rate instead of the fixed five year rate of their mortgage will reduce the amount of money that people can borrow. The Posted Rate is the average posted rate ...
2016 Outlook on Canadian Mortgage Rates
November 24, 2015
The U.S. Federal Reserve Bank has indicated that they will be raising their lending rate in December. A number of experts are telling the public that this is the start of a climb back to significantly higher interest rates. But hold on there, currently the federal rate is 1/4 percent and it will rise by 1/4 percent to ½ percent in total. That’s the same rate as the bank of Canada rate right now, 1/2%. Currently, both fixed and variable mortgage rates are under 3%. Do we expect a slight bounce in rates in the near term of ¼ percent? Probably. Our best guess is that rates will remain where they are in 2016. While everyone seems concerned about whether buyers and homeowners can stand the stress of an interest rate increase, instead we should worry about Governments being able to pay interest on billions of dollars’ worth of debt ...
DISPELLING THE FEAR ABOUT RISING MORTGAGE RATES
June 8, 2012
The experts, led by the Bank of Canada, have been telling the public that when interest rates rise by 2or 3%, we will all be losing our real estate properties. But before we jump off that bridge we need to look at what the interest rate market is telling us about future rates. Borrowers have a choice between fixed and variable rate mortgages. Fixed rate mortgages are based on the bond market – the cost of funds. A great way to predict future interest rates is through the yield curve. The yield curve shows interest rates of the same risk class with different terms. Let’s look at today’s market: you can get a two year mortgage for 2.85%, a five year for 3.09% and a ten year for 3.79%. In the simplest terms, lenders are comfortable at lending at either five or ten years. Everything being equal, lenders believe five ...