Will new mortgage rules trigger winter buying?
By Steve Ladurantaye
Globe and Mail Update
Buyers may buy during winter rather than wait until spring
The Canadian Real Estate Association is concerned that changes to mortgage rules will force Canadians to buy homes through the traditionally slow winter market rather than waiting until the spring.
The federal government said that in 60 days, Canadians will no longer be able to obtain mortgages that have an amortization period of longer than 30 years. This will raise mortgage payments on a typical resale home by some $1,400 a year compared to the 35 year amortization rate available today.
With interest rates expected to move higher by the summer, CREA vice-president of government relations Randall McCauley said many would-be buyers could be tempted to jump into the market early to secure lower payments.
"Frankly, we're concerned that the announcement came today when tomorrow there will be all sorts of speculation about interest rates even if they don't change," he said, referring to a Bank of Canada meeting Tuesday, when Governor Mark Carney is expected to hold his benchmark rate stead. "Even if rates don't change, people will speculate about when they will change. That could bring people into the market early, since [the amortization change] is not coming into effect for 60 days."
Finance Minister Jim Flaherty announced Monday that new federal rules will reduce the maximum amortization period to 30 years from 35 years for government-backed insured mortgages when a buyer has a down payment of less than 20 per cent. He also said he would lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes and said it would withdraw government insurance backing on lines of credit secured by homes.
The last time the government made changes - last year it made it more difficult for Canadians to qualify for mortgages by forcing them to qualify for a 5-year fixed rate rather than the lower variable rate - buyers went a buying binge that drove prices to an all-time high by May (the changes came into effect in April).
Sales then slumped across the country in July, and picked up slowly to end the year on a relatively steady note that had some economists suggesting the market had corrected itself without any need of government intervention.
"At the risk of dipping deep into cliché, the Canadian housing market appears to have achieved a perfect soft landing after its flying start in the recovery," BMO Nesbitt Burns deputy chief economist Douglas Porter said on Friday. "
"The market is relatively well balanced and prices are still meandering ahead. We expect no fireworks in 2011, with rates poised to slowly grind higher later in the year, job growth decent but not spectacular, and buyers potentially constrained by concerns over record household debt levels."
Calling the changes "prudent," the Canadian Real Estate Association cautioned that the effect of changes to the amortization period aren't easily gauged and will have to be monitored closely.
"We understand where the government is coming from and you'd have to have your head in the sand not to have noticed this has been a topic of conversation," Mr. McCauley said. "We think by and large the changes are wise and prudent. But we are a little concerned - the amortization change is not a precise instrument - you can't make a change an know it will have a certain effect."
The average Canadian resale home sold for $344,551 in December. Assuming a five-year mortgage at 4 per cent interest, and the minimum 5 per cent down payment of $17,227, a 35-year mortgage would have monthly payments of $1,441. Shorten the amortization period to 30 years, and the monthly payment increases to $1,555.
The Canadian Association of Mortgage Professionals spoke to the government frequently over the last three months, and was pleased that the changes didn't include any modification to the minimum down payment required to buy a home. And while president Jim Murphy said that he generally approves of the changes to amortization lengths, he hopes the government shows the same willingness to change if the market cools further.
"We understand why he did what he did," Mr. Murphy said. "But we hope when the time comes, he'll revisit that decision. Real estate is very important to the economy, and it's crucial that we find a balance because you don't want to overreact to temporary market conditions."
He said a better choice would have been to keep 35 year amortizations, but force all applicants to qualify with the assumption of a 25 year amortization.
CAAMP, which represents the mortgage brokerage industry, released a study late last year that showed mortgage debt in Canada surpassed $1-trillion for the first time in 2010. About 22 per cent of all new mortgages had amortization rates longer than 25 years, up from 18 per cent the year before.
There was a jump in the number of Canadians using their mortgages to free up cash, with 18 per cent taking out equity as the cited a need for "debt consolidation or repayment." The average amount borrowed against home equity was $46,000. Given that there are 5.65 million mortgage holders in Canada, CAAMP estimated the borrowing at $41-billion, about the same as last year.
"It is estimated that 30 per cent of the takeout was for debt reconsolidation and repayment," the report states. "Therefore, while the amount of outstanding mortgage debt would have increased by this amount, totals for other types of debt would be correspondingly reduced. About $15-billion was taken out for renovations, $6-billion for education and other spending, $7.5-billion for investments and $4-billion for other purposes."
Regulatory Changes for Mortgage Products – Update to Qualifying Rate
On February 16, 2010, the Government of Canada announced a series of regulatory changes to support the long-term stability of Canada’s housing market. The Government has now provided the following details in relation to these changes.
Effective April 19, 2010, Qualifying Interest Rates guidelines will change as follows:
Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages: Applications will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate**, or the actual customer rate (inclusive of any customer discretion).
Fixed Rate Mortgages of terms 5 years or greater: Applications will be adjudicated based on the actual customer rate.
This change applies to both conventional and insured mortgages.
ADDITIONAL INFORMATION:
**The Bank of Canada Benchmark Rate is defined as the Chartered Bank – Conventional Mortgage 5-year Mortgage rate, published by the Bank of Canada each Monday, and can be found at http://www.bankofcanada.ca/en/rates/interest-look.html
The three key changes associated with this announcement are:
Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
Investors, who want to buy a home that they don't plan to live in, will have to make a minimum down payment of 20%.
Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%.
Home Buyer's Plan for First time Home Buyers?
Did you know that the Home Buyer's Plan (HBP) is a program for first time home buyers allowing them to withdraw up to $25,000 from their registered retirement savings plan (RRSP) to buy or build a qualifying home. Withdrawals that meet all applicalbe HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. If you buy the qualifying home together with your spouse or common-law parter, or other individuals, each of you can withdraw up to $25,000. There are certain conditions that apply, so to be sure, you can call the Canada Customs and Revenue Agency direct at 1-800-959-8281 or visit their website at www.ccra.gc.ca.
How to Make a Homebuyer's Plan Withdrawal
Your withdrawal can only be made AFTER you provide proof of an accepted offer. You must submit a completed FORM T1036 Home Buyer's Plan request to withdraw funds from an RRSP to your RRSP issuer who will finish the process.
Remember to inform your real estate agent that you plan to use your RRSP to form part of your downpayment, especially if you are planning to use the RRSP money that you just deposited as you may not be able to access the money at the time you need it. Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year. Timing is important in your offer to purchase, so be sure to talk to your real estate agent about this especially if you are purchasing in the beginning of the calendar year.
For more information, you can visit the Canada Customs and Revenue site at www.ccra.gc.ca or call toll-free at 1-800-959-8281. To view FORM T1036, go to www.cra-arc.gc.ca/E/pbg/tf/t1036/t1036-09e.pdf
Paying Back a Homebuyers' Plan Withdrawal
The money you withdraw from your RRSP under the Home Buyers Program is considered a LOAN. The money MUST BE REPAID at a prescribed rate into your RRSP within 15 years, but you do not have to begin repayments intno your RRSP for about three years. It is a good idea to begin paying back this money as soon as you can,s o you may wish to consider opening a Continuous Savings Plan. It is a simple and convenient way to manage your savings on an ongoing basis. For more information, visit the Canada Customs and Revenue Agency site at www.ccra.gc.ca or call toll-free at 1-800-959-8281.
When choosing a Real Estate Professional, review their history!
I would like to offer you some objective information about me. In the awards section below, I am providing you with the awards and credentials that I have achieved. In addition, I have included some references from past clients. Nothing speaks more loudly than a raving fan! Call me today at (604) 764-6873 or e-mail me at geraldinesantiago@shaw.ca. I would love to add you to my list of satisfied and happy clients!
Envoy Certified designation
Mr. Gordon M. Gerrie, Vice President of Network Development, Envoy Relocation Services is pleased to announce that Realtor, Geraldine Santiago, has recently been awarded the Envoy Certified designation. The Envoy Certified designation is awarded to Relocation Service Providers who have successfully completed a rigorous criteria which includes both course study, years of experience in serving relocation customers, high customer satisfaction ratings, a commitment to ongoing education and they must subscribe to the Envoy quality focused attitude. The elite designation is earnerd by fewer than 1% of all real estate agents in Canada. Envoy Relocation Services Inc. is Canada's leading relocation expert. Since 1975 Envoy has been developing mobility solutions for organizations whose employees or members must relocate. The company has been at the forefront of leading relocation policy design and implementation, pioneering many of the best practices in use throughout the industry today. In addition to providing relocation services directly to relocating families, Envoy provides management consulting services to both public and private sector employers, unions, affinity groups and associations. Management and consulting services include relocation policy design, relocation program implementation and training, as well as project management for group moves and the coordination of commercial office moves. According to Geraldine, "I've always wanted to be recognized by an organization like Envoy and to be associated with the best-of-the-best in Canada. Envoy has raised the standard of excellence for Relocation Realtors. I'm especially proud to have achieved the Envoy Certified designation. It's a real milestone in my career."
Testimonials From Other Realtors
I first met Geraldine in the Spring of 2000 while we were doing our Re/Max orientation in Kelowna. It was then that I became aware of her quest to focus on first-time buyers in the City of Vancouver.
The primary reason that I chose Geraldine to work with my clients' daughter and son-in-law is her dedication to work with younger, first time buyers. Taking the time to meet in a peaceful environment, a comfortable working relationship is developed by Geraldine and her clients. A level of confidence is established when clients ask about the various aspects of the offer, how the offer is presented. Geraldine explains her position and duties as their representative.
Geraldine takes the time to thoroughly cover all the details. I will certainly refer Geraldine to any of my clients family members, friends and associates that reside in the Vancouver area.
Bill Jonnson, RE/MAX
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Dear Geraldine,
I do want to thank you again for all the assistance that you gave to my brother Dan and Linda on the purchase of their new home. Since they were first time buyers I wanted someone who would be patient with all the questions and concerns that go along with a first purchase. You came highly recommended based primarily on the first time buyer book that you have published. I know that Dan and Linda were very pleased with your services (and also found your book very helpful)not only because they told me, but I have heard from my other siblings that Dan has been highly complimentary of you. I would not hesitate to refer any of my friends and family living in the Vancouver area to you again.
Sincerely,
Colleen Gerrie
President/Broker
Member Realty Inc.
Oakville, Ontario
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Testimonials from Clients
Thank you Geraldine, for assisting us every step of the way to buying our first home. We appreciate that you kept us up-to-date on every situation on what to expect on our journey with you. It did not go unnoticed how you responded to our inquiries immediately by phone, email and in person. Your seminar, your book, and the links on your website were very valuable tools in helping make informative decisions. We cannot imagine the amount of work you must have done "behind the scenes" in order to help us find and secure our home nearly effortless on our part. It is evident by your enthusiasm and profesionalism that you truly enjoy and take pride in your work. Thanks again!
Brent and Christina
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Working with Geraldine was fun! Our sushi meetings were the best. She was very knowledgable and helpful in all areas. It was a pleasure to work with her.
Bina Berger - Musician
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Dear Geraldine,
Thanks so much for your help in sorting through all madness of this crazy market.
You have been patient, positive and never pushy. You were, at the same time, dilligent about keeping me up to date on my prospects.
I found your book particularly useful because I really like to do my research before investing in anything. Reading it enabled me to keep the suprises to a minimum. I will definately be forwarding your name to any first home buyer that I meet.
Sincerely,
AL
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Dear Geraldine,
Thank you very much for helping us find our (almost) dream home. Thank you for all your hard work, dedication and effort and for all your help. Take care and God Bless!
J.& G. L.
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Geraldine - I've been meaning to send you a couple 'before' and 'after' photos of our place because the transformation was really quite cool. And we really were able to make our home to our taste because we got such a great deal, in the neighbourhood we wanted to live. It's fanatstic! wecan pick up groceries a five minute walk away (loads of organic options) and it only takes 15 minutes by bus and 20 minutes by bike to commute to work! We did find yourbook useful,it provided a comprehensive list of details we knew needed to be covered. As for your service, we found you easy to work with and it was nice because we never felt rushed or pushed - we knew you were interested in seeing us get the right place within our budget.
Nice to hear from you, (will send pics soon!)
Rita and Nick Istvanffy
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Is your Realtor the right choice for you?
Are you going to agent's opens and first showings?
Is your mind-set ready to place an offer on the first home that you see?
Are you being given the information necessary to price a property fairly?
Are you being coached by your Realtor, explaining current market conditions highly aggressive bids, multiple offers?
Does your agent have the skills and experience necessary to win over other offers?
If you need to think twice about the above answers, and if you are thinking of finding a Realtor who can help you, choose Geraldine Santiago.
mais mois, tu me laisse bien en boire.