On April 19 the Canadian Government will implement three major rule changes to hopefully circumvent a housing-price bubble and keep homeowners from becoming overextended.

These new rules apply to government-backed, insured mortgages only.

1. 5-Year Fixed Qualification Rates

Borrowers will now need to qualify using a 5-year fixed rate regardless of what term they choose.  If you want a 1.95% variable rate, for example, you will need to show that you can afford payments at a higher fixed rate such as 3.89% for 5 years.

The government is claiming that  “This initiative will help Canadians prepare for higher interest rates in the future.”We couldn’t agree more. In fact we’ve been telling you to maximize your mortgage payments if you are paying down a low interest variable-rate mortgage. Unfortunately for some, It will now be harder to qualify for a variable-rate mortgage, but not much harder. Most lenders already use three or five-year mortgage rates to calculate a borrower’s debt servicing ratios.  For example, it is expected that for many lenders, the qualifying rate will rise from its current 3.25% (for a 3 year term) to around 4%. Thus not a very large difference but will hurt those that are tight on those ratios.

2. 90% Maximum Refinancing

No longer will borrowers be able to refinance their homes to 95% of it’s value. 90% will be the new refinance maximum.

The Fed claims that “This will help ensure home ownership is a more effective way to save.“  Thus, borrowers will be less able to pay off high-interest debt with lower-cost mortgage money.

On the upside, this rule has the positive effect of keeping equity in the home (which is quite helpful when home prices fall).  It also discourages homeowners from relying on home equity to bail themselves out like when they accumulate debt. We forsee problems forthose people who need to consolidate debt in an effort to pay more principal and less interest.  On the other hand, a 90% refinance limit is an effective tool in that it deters people from racking up debt and using their homes as if it were an ATM machine.

3.  80% Maximum Insured Financing On Rental

Those buying non-owner occupied rental properties will need to put down 20% to get an insured mortgage, as opposed to the 5% down previously required.  However, This rule does not apply to multi-unit owner-occupied homes with rental units such as duplexes, triplexes and basement suites (legal or not).

We believe this rule to be the one most often abused through fraudulent claims by an owner of an intent to occupy a dwelling; instead, the owner rents out the subject unit.

Undoubtedly there will be a rush of applications to beat the April 19th deadline. We expect a surge of calls and hopefully we’ll be able to meet the demand provided that lenders do not adopt the new rules early (prior to April 19th) as history has shown with the 40 year and zero down abolishment.

The good news is that the government says “Exceptions would be allowed after April 19th where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.”

We think the above rule changes are somewhat conservative in that the minimum purchase down payment requirement has not changed nor has the maximum amortization of 35 years (yet!). We’ll just have to wait and see what this does to our crazy Vancouver market. Our realtor referral sources are reporting constant multiple offer situation that are still driving prices above asking. Take a look at the most recent market report from our friends at Macdonald Realty.

Mike Averbach, AMP
Mortgage Planner

The Vancouver Sun quoted us again for their November 28th “Tips for Buyers and Sellers” column … published on househunting.ca.

And of course we’d love it if you too relied on us for good solid information about getting the best mortgage for you and your family!

If the screen shot below is too small, be sure to read the original, whole article in our Newsletter Archives.

If the screen shot above is too small, be sure to read the original, whole article in our Newsletter Archives.

When looking for a condominium, be aware that different buildings may have very different types ownership.

Freehold Units

Most condos are freehold strata units, where typically you have fee simple ownership of your unit.  The land as well as common areas are owned collectively by all the owners.  With most freehold condos, you pay monthly strata fees for upkeep.

Leasehold Units

Here you have a lease from a landlord for the right to use the unit for a specific number of years.  Many leaseholds are created for 99 years, and you may only purchase your unit for the part of the lease that remains.

Co-op Units

With this arrangement you purchase shares in a co-operative association which owns the land and building including individual units and common areas, and you have a leasehold interest in your unit.  You usually pay monthly dues to the co-op board to cover the building’s taxes and upkeep.

Condo buying Tip

Monthly condo fees can affect how much home you can afford.  By choosing a property where the monthly fees are just $200 lower, you can boost your purchasing power by $18,000.

Averbach Mortgages can advise you on all your financing options, whatever type of property you are planning to buy. Call Justin at 604.736.1855

Selecting the length of your mortgage amortization period – the number of years it will take you to become mortgage free – is an important decision that will affect how much interest you pay over the life of your mortgage.

While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 35 years.

Advantages of a Short Amortization:

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced.

A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value.

While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

We will help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, we will discuss opting for a shorter amortization period.

Advantages of a Long Amortization:

Choosing a longer amortization period also has its advantages. For instance, it can get you into your dream home sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford.

They then use this figure to determine the maximum mortgage amount they are willing to lend to you.

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer time frame. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your dream home sooner than you thought possible.

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage.

You CAN Change Your Amortization Period

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, I can ensure the mortgage you end up with will not penalize you for making these types of payments.

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is three, five, 10 years, etcetera). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage

As always, if you have questions about which mortgage amortization is best for you or how you can pay off your mortgage faster, please give us a call to discuss your options.

Call Justin Blacklock at 604.736.1855.

These are the different kinds of Insurance you can get to protect you in the case of  Loss of Life, Disability, Serious Illness and Unemployment. Your home may be the biggest purchase you make, and the equity you have in your home can be your major investment in your future. Consider getting some or all of the following types of insurance so that your mortgage payments are covered when necessary.

Mortgage Life Insurance

You want to protect your family should you die. One way to ensure they are able to stay in their home is to purchase a mortgage life insurance polity. With mortgage life insurance, if you die, the life insurance proceeds will be used to pay off the mortgage. Any remaining funds will then go with the rest of the estate to those named as your beneficiaries.

Mortgage Protection For Serious Illness and/or Disability

You can safeguard your family’s future and help ensure you don’t lose your home if you are seriously injured are disabled. Many policies offer full coverage after a brief waiting period. Typically, this type of insurance pays your mortgage for up to two years, giving you and your family the opportunity to plan long-term for your future.

One never knows when a devastating illness cancer, heart attack or other potentially life-threatening condition may strike. When you take out mortgage protection insurance against serious illness, a lump sum can often be provided up to 100% of the face value of the policy. These funds allow your family time to make plans long-term for their future.

Mortgage Protection for Unemployment

It may seem improbable to purchase a mortgage protection polity for unemployment. We don’t like to think about the possibility of losing a job, especially if we’re the primary provider for our family.

In today’s tenuous economic situation, unemployment can happen even in industries and with companies that have a long history of stability and job security. Purchase a policy for unemployment further protects your family from the possibility of losing your home when a job loss occurs.

Talk to a reputable insurance agent who has experience with the various kinds of mortgage insurance programs.

Here’s a market update from our friends at Macdonald Realty; Simon Clayton, Kristie Marsden, Jason Low, Sandra Ens, Jason Feinstadt and Jenny Stephanson.

Welcome to the Macdonald Realty Market Update

Each month, we provide you with valuable information to help you in your decisions related to real estate. It is my intention that armed with this knowledge, you will be able to make a more informed choice of whether to buy, sell, or hold.

As many of you may know, the US housing market has been in a severe recession for the past several years. And while the Canadian housing market has recently seen a strong correction over the past 6 months, we will likely not see the same year-over-year pain as our neighbours to the south.

There are 3 main reasons for this:

(1) Government Tax Policies
(2) Loan Qualification Policies
(3) Bank Lending Policies

Government Tax Policies

The US Government has long had a policy of encouraging home-ownership. Government-sponsored entities Fanny Mae and Freddy Mac have been getting most of the headlines recently for agreeing to purchase mortgage loans that encouraged unsound lending. However, the US Government’s tax policy of allowing homeowners to deduct mortgage interest payments may be more significant, as it has encouraged Americans to maximize their debt-loads in order to minimize their tax burdens.

Canada, of course, has no mortgage tax break for homeowners, with interest payment deductions only applying to investment properties.

Loan Qualification Policies

The secondary mortgage market in the US allowed the originators of mortgages to pass on the mortgage notes to investors throughout the world. Because of this, lenders became incentivized to originate as many mortgages as possible, with little-to-no regard for risk. These perverse incentives led to ‘liar loans’ – where individuals would simply lie to their mortgage broker about their income or employment knowing that there would be no incentive to conduct a background check – and ‘NINJA loans’ – where mortgage brokers offered mortgages to individuals with No Income, No Job or Assets.

In Canada, the originators of loans (typically the Big Banks) tend to hold on to them. Because of this, the correct incentives are in place to ensure that only individuals who can afford the mortgage receive them.

Bank Lending Policies

Another unintended consequence of the secondary mortgage market in the US has been the creation of extensive Adjustable-Rate Mortgage products with attractive ‘teaser’ rates. These products allowed mortgage-holders to pay an unrealistically low rate for a period of time before ‘resetting’ to a much higher, unaffordable, rate.

In addition to this, loans in the US tend to be ‘non-recourse’ meaning that the only collateral that a lender would have on a mortgage is the house itself. In Canada, mortgages tend to be ‘full-recourse’, with many banks demanding personal guarantees. This difference has resulted in people walking away from their homes in the US at a much higher rate than in Canada.

In the end, the result of all of these policy differences means that Canada is fairly well-insulated from the carnage that is occurring south of the border. Interestingly, our conservative, low-competition banking environment may have saved our housing market from an even more painful downturn.

If you would like to learn more, please feel free to contact us by

calling us or clicking on one of the links below:

Simon Clayton 604-764-0711

Kristie Marsden 778-836-4389

Jason Low 604-790-5276

Sandra Ens 604-263-1911

Jenny Stephanson  604-675-6214

Jason Feinstadt  604-263-1911

MacDonald Realty 604-263-1911