1) Rental income in subject property (the property being mortgaged) will be treated much less favorably compared to how it currently is.

2) Rental income from non-subject properties will be treated just as favorably or more favorably than before.

3) “Stated Income” self-employed people will require 10% down to purchase a home, and can only draw 85% of the equity in their homes for refinancing.

I feel that these changes are fairly hard hitting, especially for borrowers in the Greater Vancouver Area, where house prices are so high and many people need any advantage they can get in qualifying to buy a home, or to refinance. Additionally, by making it easier at the same time for those who already own rental properties to qualify for more financing, it skews the property market in favor of the more affluent.

Additionally, self employed people will have a more difficult time purchasing a home unless they declare or are able to substantiate their income (usually via tax returns). I imagine this was done due to a higher default rate for those who purchased under this program. I am hoping that lenders will take the time to dig through financial statements of a company to substantiate income for qualifying purposes to mitigate the effects of these changes on self employed businesspeople.

I am personally not thrilled most of the times that decisions like this are made to make my job more difficult, and I had felt the original changes announced recently were a good balance that helps the market to stay stable. For most of the country, the changes shouldn’t effect them or their market too much, considering that a plummer making $60,000/year buying a house for $300,000 in Toronto is much easier than if he were living in Vancouver, where it is difficult to buy a 1 bedroom condo for that price.

Like the changes that were implemented in the fall of 2008, I believe that these changes could lead into a market adjustment leading into the summer. With the potential of mortgage rate increases to come due to a return to a stronger economy, I do not believe that they need to make these changes to protect home values.  Canada’s mortgage lending system is already one of the safest and best in the world, and I believe the changes are generally unnecessary to protect that.

http://www.vancouversun.com/business/fp/Pressure+grows+Bank+Canada+hike+rates/2628952/story.html?id=2628952

In sharp contrast to my variable mortgage outlook from one day ago, this new article talks about very strong growth in the Canadian economy the past quarter, and how there is pressure to raise rates as soon as next rate update in 5 weeks from now (the last update happened this morning and rates were unchanged).

These are strong indications of a rate hike being imminent which will affect variable rate mortgage borrowers. The extent to which they will raise rates is unknown (if in fact they do raise rates).  I do still believe that the upward limits of any rate increase will be largely handcuffed by the US Federal Reserve rates.

For borrowers who have variable rate mortgages at prime +1%, this might not be a bad time to consider a lock-in, with those borrowers receiving variable rates of 3.25% and five year fixed rates around 3.9%, it might be worth considering to lock into a mortgage at this time, or to refinance for a variable with a discount, where they are currently around prime -.25% to -.4% from many of my lenders.

http://ca.news.yahoo.com/s/capress/100226/business/us_economy

In summary, it is stating that the pace of growth for the US economy for the last quarter of 2009 was 5.9%, beating analyst estimates.  Why is a mortgage broker writing a commentary on the US economy?  I will tell you in a second.  However, I will also detail the somewhat misleading conclusion that the title of the article leads us to if we do not continue to read further.

According to the article, there was significant growth in the US in the last quarter of 2009.  However, most of the article explains how much of a financial mess they are still in, and how the growth was not due to recovery, but due to businesses manufacturing due to low stocks as opposed to strong consumer demand, and spending in the US by foreigners.

They state that the expected pace of growth for the economy in the US for the first quarter of 2010 is only going to be 3%, and that unemployment is still at 10% with still record numbers of foreclosures still happening.

So, what does this mean for someone in the Canadian mortgage market?  For one, it will mean that US Federal Reserve rates will remain low, as they will likely not consider raising interest rates until the economy is improving significantly.  I believe that the Bank of Canada’s prime rate (which variable rate mortgages are based on) is largely influenced by the US Federal Reserve, since raising the Canadian prime rate without the US doing the same will lead to an increase in the value of the Canadian dollar and cause harm to the export industry.  Since Canada is an export based economy, they will like to avoid this circumstance as much as possible.

As a result of all of the above, it is my belief that variable rates, and to an extent fixed rates, will remain quite low for much longer than next July.  Right now, I have a few lenders who have prime -.4 available for variable mortgage interest rates, and the variable mortgage rates are continuing to improve in relation to prime.  I believe that homeowners can currently save significant money by going with a variable or adjustable rate mortgage, and particularly now that there are lenders with shorter term adjustable rate mortgages available.  You can get into a great shorter term product, and then get an even better adjustable rate when you renew, or have a very small penalty to refinance at a better adjustable mortgage rate in the near future.

Being in Canada at this point in time is a great place to be for your finances.  Many other countries are going through very challenging times in their economies, but Canada has been stable and prudent in their fiscal policies.  In my opinion, it is helping to build a Canadian housing market based on strength that is sustainable.

http://ca.reuters.com/article/domesticNews/idCATRE5BK2FU20091221

I find this to be an interesting article.  This is similar to what the government did last year with regards to requiring 5% downpayment and eliminating 40 year amortizations.  At that time last year, although it made my job a little more difficult in terms of financing clients, I could understand why they did take those measures and I think things have worked out quite well in terms of stabilizing the Canadian real estate markets.

However, at this point I do not think that they need to tighten lending parameters any further.  I also do not feel that it will that it will help decrease debt, and will only make it more difficult for CMHC to live up to its mandate of helping Canadians own their own homes.

Further, I believe that unsecured lending with credit cards and high interest loans such as HSBC Finance, Citi Financial and Wells Fargo, not to mention the payroll advance companies are a far greater threat to the debt levels of Canadians.  If someone is paying 20-30% on a consistent basis for borrowing money, it is very difficult for them to ever pay that loan off in full.  However, mortgage payments are a cost of living expense, since people have to pay rent if they do not own and do not wish to be homeless.

I think it could well be said that if these changes are made, that the Canadian government would only be serving to create a greater divide between rich and poor.  Fewer Canadians could buy homes, fewer could start or continue to build equity or realize appreciation in value in their homes, and those few who are fortunate enough to have 1 or more rental properties would find it easier to strengthen and maintain their wealth.

I for one am hoping that we do not see this day, and that if the government wants to fight indebtedness, that they should start eyeing some of the tactics of unsecured lenders.  However, this is not a substitute to having a population that is responsible and lives within their means.  No government can regulate that.

http://www.montrealgazette.com/business/rates+look+safe+while/2122132/story.html

Low interest rates and a rising Canadian dollar are giving strong hope that the Bank of Canada prime rate will stay low for the forseeable future.

http://www.nationalpost.com/news/story.html?id=2133046

It is interesting to me that over much of the time I have been in this industry, there are always pushes by the banks and media towards fixed rate mortgages, as this article appears to be intended for. The article seems similar in that while they always admit that over the long term, variable rates come out well ahead of fixed rates, the next words out of their mouths are “but that was before, and this is now.”

Currently, most lenders are in the low to mid 4% range with rates on a 5 year fixed mortgage. Variables are currently mostly around prime (2.25%). The interest rate difference on the fixed rate mortgage is basically double the variable rate, gives you the flexibility to lock into a fixed rate, and would be a relatively small penalty to pay off if you wished to refinance at any point in time.

I have met a number of customers who went into the bank and listened to their advice to lock in when interest rates were higher and when rates went down were stuck with a gigantic IRD penalty. Although the current market would not dictate an IRD penalty on a fixed rate, it seems to be quite consistent in this encouragement to take the “safe route” when selecting an interest rate.

This is not to say I would advocate variables specifically, however, I do feel that the benefits of a variable rate are quite overlooked.

In the coming days, I will be fixing any bugs and adding more features to the website.  For now, happy surfing!

Before 1970 there were about 150 regional credit bureaus that divided up the country, today there are really just 3 major bureaus:

Equifax Canada Inc. www.equifax.ca
Transunion of Canada Inc. www.tuc.ca
Northern Credit Bureaus www.creditbureau.ca

Credit bureaus make money by selling your information to potential lenders and have been known to make mistakes as is inevitable when dealing with millions of consumers. It is important to know what your credit report says about you and to make sure that your credit report is actually accurate and reflects your history. Mistaken identity has been known to occur in instances where individuals have similar names or birthdays.

You can receive your credit report in the mail for free, or online for a small fee. It is a good idea to review your reports annually even if you’re not looking for financing, just to ensure everything is in check. If you do find discrepancies, make changes promptly but be warned it can sometimes take a month for the changes to be made and to show up on your reports.

The top factors that make your score lower:

1. There are too many consumer finance company accounts on your credit report. Having too much available credit can hurt your score. If you have several consumer accounts try to consolidate those balances and close the accounts.
2. Your account balances are too high. As a rule of thumb keep your credit card balances below 35% of the available limit. High balances ongoing will negatively affect your credit score.
3. There is not enough recent revolving account information on your credit report. Using your credit cards regularly is an important part of building healthy credit.
4. There have been multiple lending institutions pulling credit reports on you. This is part of the advantage of using a Mortgage Broker; we pull one credit report and then go to several lenders vs. having several lenders each pulling your credit bureau.

Tips to improve your credit rating:

1. Always pay your bills on time. (The payment of utility bills such as phone, cable and electricity are not recoded in your credit report, however some cell phone companies may report late payments.)
2. Pay Debts as quickly as possible.
3. Don’t go over the credit limit on your credit cards.
4. Don’t make too many credit applications (use a Mortgage broker!). Your score doesn’t change if you personally make credit inquiries.
5. Contact creditors if you’re having trouble making payments and work out solutions.
6. Read the statements you receive from your credit card company carefully. Keep yourself up-to-date with any changes or fee increases.

Get a copy of your credit report from all three credit-reporting agencies at least once a year and make sure they’re in order.

1. Debt Growth

Much has been made that Canadian debt growth relative to incomes over the last few years has been on par with the U.S. Some are then led to conclude that Canada must face similar stresses to its own housing and mortgage markets.

That said consider that prominent economists believe that recent Canadian debt growth reflects the unleashing of pent-up demand from the 1990s and also point to the fact that Canada’s recession in the early 1990s was more severe and the effects were longer lasting than the US recession and therefore a fair comparison can not easily be made.

2.Leverage

In Canada total debt as a percentage of total assets sat at 20% at the end of 2007. The US ratio is about 26%. By corollary Americans have used nearly 30% more debt than Canadians to purchase assets.

3.Canadian mortgage markets are fundamentally healthier than the U.S.

4.Canadian mortgages are funded, underwritten and enforced in a totally different manner than that of the U.S.

1. Canada’s funding model is completely different from the U.S. The majority of mortgages are held on a balance sheet in Canada with only 24% having been securitized.
2. Further, the majority of securitized totals have been done through CMHC – a crown corporation with explicit government backing – thus avoiding the problems in the U.S. through naturally tighter requirements.
3. Mortgage Backed Securities were not placed in off-balance-sheet structures that were over-leveraged like in the U.S. This is perhaps the most important point, what really caused the problems were over leveraging that occurred after the mortgages were originated.
4. Appraisal standards are generally higher in Canada where appraisers are more likely to low-ball estimates of property value.
5. Unlike many U.S. banks, Canadian banks continue to apply prudent underwriting standards. In other words, they continued to check incomes, verify job status, ask for sales contract’s etc. U.S. underwriting got much more… shall we say, creative.

I became a mortgage broker to help families take control of their finances, away from the banks and government. Mortgages are the loans with the lowest interest rates available. I help families to finance their beautiful new homes, decrease taxes, increase net worth, improve cash flow, and decrease debt costs.

I have discovered things that are essential for families to understand when living in a country like Canada. And since I would like to help your family, I will share them with you.

GOVERNMENTS REWARD DEBTORS

Structured correctly, governments will reward debtors for borrowing money by making debt tax-deductible. Governments do not provide a tax credit to people who put money beneath their mattresses. Additionally, they charge the same amount of tax on interest-bearing investments as they do on employment income. As a result, GIC’s and term deposits offered by banks are unprofitable after taxes and inflation. Here is an example:

$20000 term deposit earning 4.5% interest = $900
tax @ 40% = $360
inflation cost @ 2% inflation = $400
True return after taxes = $140
Rate of return after taxes and inflation = 0.7%

In the above example, 4.5% interest results in only a 0.7% return on investment!

Please note: If you are happy with this rate of return, I will be more than pleased to borrow your money and will even offer you a 5% rate of return!

INCREASE YOUR NET WORTH

There is no guarantee that real estate will appreciate in value. However, real estate values have performed well in the long term. The B.C. Assessment Authority assessed that B.C.’s real estate values have increased by 16% in 2007! Let’s look at an example of how this could benefit you:

Average rate of appreciation = 5%
Property Value = $300,000
Value of home after 1 year = $315,000
Value of home after 5 years = $382,884.47

In this example, you would have made $82,000 tax-free over 5 years. How would you feel to have this equity available to you?

USE YOUR MORTGAGE TO PAY OFF OTHER COSTLY DEBTS

Do you have much debt on credit cards, and are you finding it a burden financially? With a home, you can use the appreciation in value to consolidate debt into a much more affordable payment. Consider the following example:

Paying off expensive after-tax debt such as credit card debt can be a wise investment. This would only be possible with a home and mortgage.

REAL ESTATE IS HIGHLY LEVERAGED

Were you previously happy with the 4.5% return on a GIC from the bank? If you were, you are about to be shocked. If not, it still might surprise you.

Down payment (Investment) = $60000
Increase in value during year 1 = $15000
Return on investment = $15000/$60000 x 100 = 25%
Equivalent pre-tax rate of return = 41.6% (assuming 40% tax bracket)
Return on investment with no mortgage = 5%

In this example your after-tax rate of return was 25%! This is where a mortgage is its most powerful. If you owned the home without a mortgage, your rate of return would only be 5%. Leverage is a powerful tool to put to use for your family. To learn more about leverage, please read my material on (the power of leverage.)

CAN YOU AFFORD TO NOT HAVE A MORTGAGE?

Are you concerned that you don’t have time to worry about mortgages? Don’t, it’s easy! I am available to chat any time (if it is 3 am, I might be sleeping, but you are welcome to try!) I can meet you at your home at a time that is convenient to you. I will do all the work for you. Think of me as your personal mortgage servant.

My team of professionals and I will help you every step of the way, from choosing a home to signing the paperwork, and we will make the process easy for you and your family.

Are you concerned that you have no savings for a down payment? No problem. I have lenders who can provide you with 100% financing.

Do you have new or challenged credit? No problem. I have lenders who will finance your beautiful new home at competitive rates.

Are you new at your job, or new in the country? Are you self employed, a business owner, or in the service industry? No problem. I will make sure I do my best to get you into a beautiful home.

I am good at my job, and I believe that if you have been patient in reading to this point, you or someone you know could use my assistance. If you would like to have a place to call home, and you appreciate this information, please give me a call. My contact number is 604-318-1292. It would be my pleasure to assist you.