Is your mortgage insurable? It could save you thousands if it is.

The new mortgage rules have created three categories of mortgages: insured, insurable and uninsurable. Currently five year fixed mortgage rates typically range from 3.69% for an insured mortgage to 3.99% for an uninsurable mortgage.  Based on current interest rates and a typical mortgage amount $300,000 that would be a savings of more than $20,000 over the life of your mortgage.

Before the new rules came in to place mortgages fell into two categories, high ratio or conventional. High ratios were when borrowers had less that a 20% down payment or 20% equity if they were looking to renew or refinance. And all mortgages could be insured by the government. This insurance protected the lenders in case the borrower defaulted on their mortgage. For high ratio mortgages the borrower covered the cost while lenders covered the cost for conventional mortgages. At that time interest rates on high ratio and conventional mortgages were the same so most people tried to get to the 20% down payment on order to avoid paying the mortgage default insurance.

Even though you may have originally taken out a conventional mortgage you may still be able to fit in the insurable category and it is this category that can provide the biggest savings as you may get the lowest interest without having to pay for the mortgage default insurance.

Here are the basic guidelines for each of the categories which might give you an idea of where you fit in. But it never hurts to review your specific situation with a mortgage broker. Most mortgage brokers are happy to provide a complimentary mortgage review to lay out the best options for you.

Insured Mortgages:

  • For the purchase of a property that will be owner occupied. This includes second or vacation home.
  • Purchase price of less than $1 million
  • Down payment of less than 20%
  • Maximum amortization of 25 year
  • The borrower pays the cost of the mortgage default insurance

Insured mortgages have the lowest interest rates.

Insurable Mortgages:

  • For the purchase or transfer of an existing mortgage. No changes can be made to the existing mortgage.
  • The property must be owner occupied
  • Purchase price less than $1 million
  • Down payment or equity of 20% or more
  • Maximum amortization of 25 years
  • The lender pays the cost of the mortgage default insurance

Insurable interest rates have a sliding scale based on the loan to value from as low as the rates offered for insured mortgages to as high as the rates for uninsured mortgages. The loan to value is the ratio of the mortgage amount compared to the purchase price or estimated value of the property. The lower the loan to value the lower the interest rate as the lender cost for the mortgage default insurance drops as the loan to value drops.

In the case of the transfer of a mortgage from one lender to another the value used to determine if a property meets the guidelines is based on the value of the property before the new rules came into place in November of 2016. However the loan to value is calculated based on the current value of the property. This is important for borrowers in the Vancouver and Toronto markets as they may still get a mortgage at best rates due to the increase in market values.

Uninsurable mortgages:

  • For purchases, transfers and any refinance of an existing mortgage. A refinance is when you make any changes to increase the amount of the mortgage or the amortization
  • Property can be owner occupied or a rental
  • Purchase price or property value is $1 million or more
  • Down payment of 20% or more
  • Amortization can exceed 25 years

Interest rates are highest for uninsurable mortgages

If you would like a no cost, no obligation mortgage review give me a call at 604-961-2400.


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Will interest rates go up next week?

At this point it looks very likely that the Bank of Canada will increase interest rates at their next meeting on October 24th. It is expected that this increase will be 1/4%.

If they do increase rates on the 24th this will be the third increase for this year.

So what should you do if you are in a variable rate mortgage? The first thing is don’t panic. Fixed rates mortgages moved a little higher over the past month in anticipation of the Bank of Canada move. Typically fixed rate mortgages to not move higher when the Bank of Canada increase their rates.

If you have any concerns about interest rates continuing to go up maybe now is a good time to have a mortgage review. We can look at your current situation, where you see yourself in the next couple of years and then see if it makes any sense to change your mortgage at this time.

We can complete the review in a quick phone meeting. All you need to do is have a copy of your most recent mortgage statement so that we can go over the details of where you currently are.

If you would like to review your current mortgage please call me at 604-961-2400.

If you have friends, family or co-workers that have any mortgage questions please feel free to pass this on to them.


Will interest rates go up in 2018?

In 2017 the government brought in several changes to the mortgage lending rules designed to help cool the housing markets. The jury is still out on what impact these rule changes will have.

The last of those rule changes was extending the mortgage stress tests to mortgages where the borrower had a down payment of more than 20%. This means that any new mortgage applications made after December 31, 2017, that are issued by federally regulated lenders will be qualified based on the stress test. Essentially the stress test requires lenders to ensure that borrowers can afford to make their mortgage payments if interest rates were to go up. Depending on the amount of your down payment the interest rate for qualifying purposes will fall between 4.99% and 5.34% in most cases. Using the higher interest rates for qualifying purposes reduces a borrowers buying power by around 20%.

The new stress test rules do not apply to provincially regulated Credit Unions and initially this may be an option for some borrowers. However the credit unions do not have the financial resources to take on all the conventional mortgages so I would expect that they will be using this opportunity to try an bring in some new members who will be willing to move additional business to the credit union. And while they can’t make it a condition for approving the mortgage they may only offer their best rates for borrowers willing to take out some additional products like chequeing accounts, visa cards.

Interest Rates:

With the economy showing signs of improvement the Bank of Canada increased the Bank rate by ¼% in July and again by the same amount in August of 2017. These increase meant that anyone with a variable rate mortgage or a line of credit saw the rates paid on these products increase by ½% over the course of the year.

As is often the case the bond markets moved ahead of the Bank increase which resulted in pricing on fixed term mortgages increasing by about the same ½%. The increase were higher for the shorter terms and less for the longer terms. The one thing to note in this is that the difference between the Bank Rate and the bond rates has shrunk which would tend to indicate that although rates may increase there is nothing to indicate a big jump in rates.

So what happens in 2018?

The Canadian economy is still showing signs of improvement and December job report was very positive. In addition bond rates moved up in December by about ¼% so we may see the Bank of Canada increase rates as early as this month.

It is widely expected that the US Federal Reserve will increase rates three times in 2018 and as is the case in Canada these increases typically are made in ¼% increments. The consensus amongst analysts is that Canada may be forced to increase rates as well but maybe not by as much as in the US. In deciding between a fixed and variable rate mortgage it would a good idea to take into account a ½% increase in the Bank of Canada rate for this year.

Fixed term rates may also see some increases this year but I would expect that if rates go up it will be somewhere in the ½% range as well.

One thing that may help hold back interest rates is that analysts are predicting that sales of real estate may drop this year and it could have some lenders willing to make a little bit less on each mortgage in order to gain some market share.

Picking the right mortgage depends on your personal situation and how your mortgage fits into your overall financial goals. And with all the changes to the mortgage rules it is more and more difficult for borrowers to understand what they should expect when it comes to getting a mortgage. If you have any questions about your mortgage please give me a call at 604-961-2400.


What impact will the new mortgages have?

The New Mortgage Lending Guidelines

Since 2008 OFSI, the regulator of Canadian Banks has made many changes to the rules that lenders must follow when providing mortgage financing.

The last round of changes to the lending guidelines was released on October 17, 2017. These rule changes are scheduled to come in place on January 1, 2018. And although the lenders have until then to put the new rules in place OFSI also expressed a desire that the lenders move on making these changes ahead of the January 1 date. It would not be a surprise to see lenders start to bring in these changes in early December.

These rule changes apply to all residential mortgages that are provided by federally regulated lenders. At this point, provincially regulated like credit unions are not subject to these rules but OFSI has been in discussions with the provincial regulators hoping that they will bring in similar rules.

The two changes that will have the biggest impact relate to the application of a stress to ensure borrowers will be able to handle their mortgage payments if interest rates go up and the requirement for lenders to enhance their loan to value measurements.

The Stress Test

Currently on conventional mortgages if a borrower took a five year fixed term mortgage the lenders could use the contract rate to determine if a borrower would be able to make their mortgage payments. The current five year fixed term mortgages are in the 3.39% range. Going forward the lenders will have to use the greater of the Government of Canada’s benchmark rate, currently 4.89% or the contract rate plus 2%. If the borrower wants a five year fixed term mortgage the qualifying interest rate would be 5.39%.

For borrowers that were looking to purchase a home at their maximum possible purchase price these changes will reduce their buying power by about 20%.

This will not impact all buyers as based on my experience over the last two to three years most buyers were not purchasing homes up to their maximum abilities. Many buyers had already looked at the amount they could potentially borrow and had decided to borrow a lower amount to keep their monthly budget in line.

Enhanced Loan to Value

Currently the banks could lend up to 80% of the value of a home. That said many lenders have already brought in sliding scales that reduces that 80% amount by allowing 80% on the first $1 million and a lesser percentage on values over that amount. OFSI has not set a specific target but they will be monitoring the banks mortgage portfolio’s to ensure that they are below the 80% maximum.


Going Forward

Based on recent history these rule changes will have the greatest impact for people at the margins and may force some of them to look at some of the alternative lending options. These options will mean higher interest rates but for some this will not be an issue.

For many buyers I do not think it will have a big impact on their ability to move forward with their planned purchase or it may mean that they look at a different location or type of property.

Please call me at 604-961-2400 if you have any questions about the new mortgage rules.


Could the new mortgage rules be costing you $15,000?

Could the new mortgage rules be costing you $15,000?

In November of 2016 the government introduced changes to the rules for what mortgages would qualify for the government backed mortgage insurance programs. The new criteria for mortgages to be insured will includes the following requirements:

A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
A maximum amortization length of 25 years;
A property value below $1,000,000;
For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the established amortization schedule;
A minimum credit score of 600;
A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
If the property is a single unit, it will be owner-occupied.
If your mortgage does not meet these guidelines the lender can no longer insure the mortgage. This will have the biggest impact on anyone who is looking to refinance their mortgage to access the equity in their home.

Why is this important?

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TFSA, RRSP, or get rid of your mortgage?

One of my goals as a mortgage planner is to help you integrate your mortgage into your overall financial plan. And with RRSP season moving into full swing, now is a good time to think about some of your long-term plans and how best to put yourself in a position to have a great retirement.

There is no one size fits all answer when it comes to a financial plan, and as with most things, we have a choice of going the DIY route or finding a financial planner that can help you with your plan. I am not a financial planner, but I would like to pass on to you some of the information I have come across in my personal search while building my own financial plan.

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