Messages from the Bank of Canada are often very vague … and the economic analysts pick through the statements and news releases trying to interpret what is really being said.
In an article today from the Canwest News Service “Carney starts countdown to rate hikes“ the analysts were hard at it once again.
The consensus seems to be that the Bank of Canada will be making rate increases sooner than originally stated, or expected.
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
.
Minister of Finance Jim Flaherty
This morning, Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP (Canadian Association of Accredited Mortgage Professionals) was actively engaged in the discussions around these changes which are as follows:
All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one’s home;
Non-owner occupied properties will require a minimum down payment of 20%. There were no changes to down payment requirements or length of amortizations for owner-occupied residences.
Averbach Mortgages will keep you informed on what this will mean to you. We are here to answer your questions … so please feel free to give us a call. You can reach Justin Blacklock or Mike Averbach at 604-736-1855.
In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.
As a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.
In Part One of this mini-series, we looked at Mortgage Fraud, in Part Two, we’ll examine what Title Fraud is.
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.
Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything this is a form of identity theft.
Here’s what happens with title fraud: A criminal using false identification to pose as you registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.
Following are ways you can protect yourself from title fraud:
* Always view the property you are purchasing in person
* Check listings in the community where the property is located compare features, size and location to establish if the asking price seems reasonable
* Make sure your representative is a licensed real estate agent
* Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
* Ask for a copy of the land title or go to a registry office and request a historical title search
* In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
* Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
* Ask to see receipts for recent renovations
* When you make a deposit, ensure your money is protected by being held in trust
* Consider the purchase of title insurance
It’s important to remember that if something doesn’t seem right, it usually isn’t always follow your instincts when it comes to red flags during the home buying and mortgage processes.
Always be sure to work with a accredited, professional mortgage broker. We are aware of the various fraud schemes and do our best to protect you by only working with reputable lenders. Be sure to call Justin Blacklock at 604.736.1855to discuss all your mortgage needs.
In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.
As a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.
In Part One of this mini-series, we’ll take a look at Mortgage Fraud, what it is and how to protect yourself. In Part Two, we’ll examine Title Fraud.
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.
Following are some red flags for mortgage fraud:
* Someone offers you money to use your name and credit information to obtain a mortgage
* You are encouraged to include false information on a mortgage application
* You are asked to leave signature lines or other important areas of your mortgage application blank
* The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
* The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution
Straw Buyer Scheme
Because of the recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the US.
Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.
Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.
The Fallout for Lenders
Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.
Canadian precedents have been set in which banks are held responsible for mortgage fraud.
The BC Court of Appeals recently ruled that the lender not the rightful property owner is the one out of luck in a fraudulent mortgage scheme and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.
Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme.
In Part Two of this series, we’ll continue with a look at Title Fraud.
Always be sure to work with a accredited, professional mortgage broker. We are aware of the various fraud schemes and do our best to protect you by only working with reputable lenders. Be sure to call Justin Blacklock at 604.736.1855to discuss all your mortgage needs.
Justin Blacklock, Averbach’s Mortgage Manager was interviewed by the Canadian press the other day. Yesterday the interview appeared on CTVglobemedia in an article titled: Canadians refinancing mortgages to pay off debts.
We’ve been getting a lot of calls from people interested in refinancing their mortgages. With the current low interest rates it can make financial sense to pay the 3 month penalty and remortgage.
However, it is important to note that there are other factors involved that may make it difficult for some people to re-qualify or where the numbers are too marginal to make refinancing worth the effort.
If YOU are interested in finding out whether refinancing is a good option for you, be sure to call Justin at 604-736-1855.
