Bank of Canada Cuts Rate by .5%

The Bank of Canada lowered its benchmark rate by half a point to revive an economy that's growing at its slowest pace in 16 years, and signaled more easing may be needed. Governor Mark Carney and his five deputies cut the rate on overnight loans between commercial banks to 3 percent, the lowest since December 2005, a move predicted by 28 of 32 economists in a Bloomberg News survey.

The projections for growth and inflation in the central bank's statement today indicate policy makers may ease again as soon as their next meeting on June 10, economists said. The bank cut its 2008 growth forecast to 1.4 percent, the lowest since 1992, from a January prediction of 1.8 percent, and said inflation will stay below their 2 percent target until 2010.

"The main concern for the Bank of Canada is that economic growth is going to be well below potential," said Craig Alexander, deputy chief economist at TD Bank Financial Group in Toronto. The bank today sent "quite a strong signal," he said, "and we expect another rate cut at the next meeting."

April 22, 2008 in Arranging Mortgage Financing | Permalink | Comments (2) | TrackBack

Bank rate cut again in March

The Bank of Canada cut its benchmark overnight lending rate by one-half of one percentage point to 3 1/2 per cent on March 4th, and signaled further cuts in the near future. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, now stands at 3.75 per cent.

The Bank warns: “there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected,” and, “deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy.”

“These developments suggest that important downside risks to Canada's economic outlook…are materializing and, in some respects, intensifying,” the Bank also cautioned.

The Bank repeated earlier statements that the domestic economy remains strong, while a high Canadian dollar and weakening U.S. economic growth is hurting exports.

“Our high dollar is keeping inflation in check, so the Bank of Canada is cutting its trend-setting bank rate to boost economic growth,” said CREA Chief Economist Gregory Klump. “Financial market turmoil will remain a downside risk to economic growth for some time, and the Bank all but said it will continue lowering interest rates.”

When the Bank decided to lower interest rates on March 4th, the advertised five-year conventional mortgage rate stood at 7.29 per cent. This is less than one per cent above where it stood at the beginning of last year. Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts from advertised rates. However, fallout from the U.S. sub-prime mortgage debacle has tightened credit conditions in financial markets, resulting in smaller discounts off advertised mortgage interest rates.

Declining interest rates and a rebound in economic growth are factored into the CREA MLS® 2008 market forecast, to be issued later this month. “Sales activity will stay strong and reach the second highest level on record this year. Prices are also forecast to continue rising. Additional cuts to mortgage interest rates are good news for housing affordability and Canadian housing demand,” Klump added.

March 4, 2008 in Arranging Mortgage Financing | Permalink | Comments (3) | TrackBack

Key interest rate set at 4 per cent

The Bank of Canada, confronted by cascading losses on financial markets, cuts its key interest rate by one-quarter of a percentage point to four per cent. The Canadian central bank's scheduled decision came less than an hour after the U.S. Federal Reserve Board handed down a surprising three-quarter-point cut in its benchmark policy rate.

The Fed said it's cutting the federal funds rate -- the interest that banks charge each other on overnight loans -- to 3.5 per cent, down by three-fourths of a percentage point, from 4.25 per cent.

The Fed action is the most dramatic signal it can send -- that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.

January 22, 2008 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Key interest rate lowered to 4.25%

The Bank of Canada cut its key interest rate by a quarter of a percentage point Tuesday, citing the increased risks to Canada's economy from the weakness south of the border. The cut lowered the bank's overnight lending rate to 4.25 per cent. It's the first cut in the central bank's key rate in more than 3 years.

The chartered banks quickly lowered their prime lending rates by a quarter of a percentage point to six per cent, effective Wednesday.

Tuesday's interest rate cut will mean cheaper borrowing costs for Canadians with variable rate mortgages, lines of credit and other loans with floating rates.

December 4, 2007 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

You've many mortgage options

With so many new mortgage features being introduced in the Canadian marketplace, the choices for the consumer are immense. Perhaps the most anxiety-ridden part of house hunting is figuring out how much you can afford. Your real estate Agent or a specialized Mortgage Consultant offers the expert, impartial mortgage advice you need, and can educate you on the range of mortgage types which are now available.

The formula used to be simple. For decades, the thinking was that your monthly mortgage payment, including taxes and insurance, should not exceed 28 percent of your gross pay, and that all your loans, mortgage included, should not exceed 36 percent. Lenders used that formula to qualify people for loans, and people relied on lenders to tell them what they could afford.

Today, lenders rarely use this cookie-cutter method. Some focus more on how much of a person’s monthly income goes toward paying off debt. Some do not use ratios at all. But whatever method lenders use, borrowers should play it safe and stick to the old formula, even if it means scaling back expectations.

You may need to start with a condominium or a small house, look at your purchase as the first investment, and then move up. Do not assume that because a lender is willing to loan you a certain amount of money, you should take all of it. Instead, assess your financial situation, make a budget and decide how much you can afford to sink into a mortgage each month.

Start by figuring out how much you now pay for housing. Do you have to pay the same amount on a home loan? Can you afford to pay more? If so, how much?

Below is some of the Mortgage options currently available in the Canadian Market:

Fixed Rate vs. Variable Rate Mortgages

With a fixed rate mortgage, the interest rate stays the same throughout the term of the loan, providing a measure of stability that some prefer. A variable rate mortgage can allow the borrower to take advantage of low rates as it typically has an interest rate that is calculated on an ongoing basis at the Bank of Canada prime lending rate minus a set percentage.

An Open or Closed Mortgage?

Open mortgages allow the borrower to pre-pay, renew or refinance at any time before maturity without penalties. A “closed” mortgage, on the other hand, usually allows for a set percentage of the principal to be prepaid without penalty. A “closed” mortgage may also be renegotiated or refinanced in most cases with the payment of a penalty which varies from lender to lender.

High-Ratio Mortgages

While a conventional mortgage is a loan for up to 80% of the purchase price of a property, a high-ratio mortgage allows you to borrow up to 95–100% of the purchase price. This type of mortgage must be insured.

The above-mentioned options are just a starting point – there are numerous other mortgage features to be explored, a specialized Mortgage Consultant will work with you to determine which mortgage best meets your individual needs and objectives.

November 29, 2007 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

How much can I afford?

Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.

It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.

The price you can afford to pay for a home will depend on six factors:

1. gross income

2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender

3. your outstanding debts

4. your credit history

5. the type of mortgage you select

6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

November 23, 2007 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Bank of Canada raises interest rate

The Bank of Canada raised its benchmark interest rate for the first time in more than a year and said a "modest" tightening may still be needed to slow inflation. Policy makers pushed the target rate for overnight loans up by a quarter point to 4.5 percent, the highest in six years and 75 basis points less than the American Federal Reserve's target.

Canadian bonds rallied and the country's dollar fell as traders speculated that Governor David Dodge's team won't rush to lift borrowing costs again. Dodge was urged by exporters and unions to delay an increase because of concerns the currency would rise to parity with the U.S. dollar and cost jobs.

Canada's benchmark two-year government bond rallied the most since February 27. The yield fell 8 basis points, or 0.08 percentage point, to 4.62 percent. The price on the 3 ¾ percent security maturing in June 2009 rose 14 cents to C$98.42. Central bankers are "still warning that rates may need to head higher," said Warren Lovely, an economist with CIBC World Markets in Toronto, even while today's statement is "not as hawkish as the bond market feared."

July 10, 2007 in Arranging Mortgage Financing | Permalink | Comments (2) | TrackBack

Real Estate Fraud Brochure released

Canada's four mortgage industry associations have announced the release of a joint Real Estate Fraud brochure. The brochure is designed to increase consumer awareness of real estate fraud issues and will be available on the associations' websites and from individual members.

The brochure describes common types of real estate fraud including fraud-for-shelter and fraud-for-profit through identity theft and document forgery. Consumers are provided with detailed information on the many steps they can take to prevent becoming a victim of mortgage fraud. The brochure also explains what consumers should do if they think they are victims of identity theft or real estate fraud.

In a joint statement, the Chairmen of the Alberta Mortgage Brokers Association, the Canadian Association of Accredited Mortgage Professionals, the Independent Mortgage Brokers Association of Ontario and the Mortgage Brokers Association of B.C. said:

"While real estate fraud is still quite rare, it can have a significant impact on those who are affected by it. This brochure gives consumers the comprehensive information they need to avoid becoming a victim. It also provides helpful tips on who to contact for assistance if consumers think they are victims of real estate fraud."

The document can be found on the following websites:

Alberta Mortgage Brokers Association - www.amba.ca

Canadian Association of Accredited Mortgage Professionals - www.caamp.org

Independent Mortgage Brokers Association of Ontario - www.imba.ca

Mortgage Brokers Association of British Columbia - www.mba.bc.ca

July 10, 2007 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Mortgage interest rates rising ...

Should you float or fix?

It's more expensive than ever to buy a home in Canada as record house prices coincide with mortgage rates at five-year highs. The average sale price in urban markets was $333,524 last month, a 10.2 per cent increase from a year ago and the highest ever recorded by the Canadian Real Estate Association.

Thursday's data came as the banks jacked up their posted mortgage rates for the fourth time in less than a month, with the popular five-year closed mortgage at 7.44 per cent, up 0.85 percentage point from mid-May. The increases are blamed on higher yields on the bond market, where banks raise the money they lend for mortgages.

However, record prices and rising mortgage rates have not deterred Canadians from buying, as the realtors' association also reported a record volume of sales last month at 42,039 units, an 11.6 per cent increase from a year earlier.

"Activity broke all previous records in the first quarter, and gained momentum in the second quarter," Klump said. "The increase in transactions for the year-to-date suggests activity is on track to set a new annual record this year."

Even with rising rates, the housing market is expected to remain strong, especially in the hot economies of Western Canada.

While long-term mortgage rates have been climbing, the prime lending rate which defines variable rate mortgages has been at six per cent for more than a year - but looks likely to start rising as early as July 10, when the Bank of Canada makes its next rate-setting decision.

That means anybody with a variable rate mortgage will face increased payments, renewing the question: should I lock in, and if so, when?

Homebuyers researching variable versus fixed rates should start with some introspection: How willing and able are you to assume some risk?

If you sign the dotted line on a longer-term mortgage, you'll have the predictability sought by many first-time home buyers.

If you choose a variable rate, you'll benefit from lower interest rates in the short term, but risk a spike if the Bank of Canada tightens sharply to restrain inflation.

"If you can afford to, and are okay with your rates changing . . . in the long run you're better off with a variable rate mortgage," said Gregory Klump, chief economist of the Canadian Real Estate Association, noting that the reason is simple - short-term rates are almost always lower than long-term rates.

"For those who need the certainty of what their mortgage is going to be, I would advise, if they're not already homeowners, get a pre-approved mortgage. That way, if rates go down the day your mortgage closes, you get the better of whatever the pre-approved rate is or the rate at that time, whichever is lower."

It's rare that homebuyers pay the full posted rate, which can typically be discounted by a percentage point or more on a five-year term.

Bob Dugan, the chief economist for the Canada Mortgage and Housing Corporation, says it depends on the buyer's financial ability to assume a hit if rates move higher.

"Each household has to look inward," Dugan said. "You don't want to go with a variable rate and then have a lot of sleepless nights, worrying about interest rates going up."

Dugan said more than half of mortgages currently held by Canadians have fixed rates.

Moshe Milevsky, a finance professor at York University and executive director of the Individual Finance and Insurance Decisions Centre, divides homebuyers into four groups in a paper entitled "Mortgage Financing: Should you still float?"

• The first-time home purchaser, particularly buyers with small downpayments, are the most likely customer for the long-term fixed rate mortgage. "These folks should not be taking any chances with a fluctuating interest rate," Milevsky wrote, noting if the value of the house falls they could be left with "negative equity."
• For the "risk-averse worry wart," Milevsky recommends splitting your mortgage in two halves, with one set at a variable rate and the other locked in.
• The "seasoned veteran," with more equity built up in the home and two incomes, is in a better position to take a risk with a variable rate mortgage, Milevsky says.
• The "financially savvy arbitrageur" can shop around for the best rate with this strategy: Get a pre-approved fixed rate mortgage, guaranteed for up to four months.

Then get a floating mortgage with the option to pre-pay the whole thing off without penalty. Follow the Bank of Canada and the bond market. If rates increase, move the mortgage to the bank which you gave the pre-approved rate. "Otherwise, do nothing and start the process over in a few months," Milevsky wrote. "Understandably, the bank manager might get a bit weary of your constant requests for pre-approval."

June 15, 2007 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Bank rate steady in April

The Bank of Canada held its benchmark overnight lending rate steady at 4.25 per cent on April 24th. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 4.5 per cent.

The Bank’s announcement repeated the message it has been giving since it put interests rates on hold in the middle of last year, and signaled that it views current interest rates as “just right”.

“The current level of the target for the overnight rate is judged, at this time, to be consistent with achieving the inflation target over the medium term,” the Bank of Canada said in its April 2007 statement.

In a departure from previous messages, the statement also revealed that the Bank has slightly downgraded its forecast for economic growth, and upgraded its concerns about inflation.

“The upside risk to the Bank's inflation projection is that the recent strength of inflation could be more persistent than projected,” stated the Bank of Canada. “The downside risk continues to come from the possibility of a more pronounced slowdown in the U.S. economy. The Bank continues to judge that the risks to its inflation projection are roughly balanced, although there is now a slight tilt to the upside.”

“The decision by the Bank of Canada to hold interest rates steady was widely expected,” said CREA Chief Economist Gregory Klump. “The Bank’s warning about the upside risk to inflation at the same time it lowered its economic growth forecast all but rules out an interest rate cut this year.”

“The slowdown in U.S. economic growth is now expected to be more prolonged than the Bank originally expected, which may result in slower Canadian exports and economic growth,” noted Klump. “Meanwhile, consumer spending in Canada will continue to power Canadian economic growth.“

When the Bank decided to keep interest rates steady on April 24th, the advertised conventional five-year conventional mortgage rate stood at 6.64 per cent – down 0.31 per cent from the peak reached last year. Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts of one per cent or more off advertised rates.

“An expected increase in new listings and further home price increases are forecast to prompt some homebuyers to shop longer before making a purchase decision, and gradually cool housing demand this year and next,” Klump added.

April 26, 2007 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Mortgage insurance rules changed

With 20% down, buying home has just gotten cheaper

If you can put down at least 20 per cent of the cost of a home, you won't have to buy mortgage insurance. You will get the same welcome from conventional lenders as those who have saved more. Previously, a bank could not provide a mortgage loan for more than 75 per cent of the price of home without having the customer purchase mortgage insurance to protect the institution from the risk of a loss.

But Finance Minister Jim Flaherty announced yesterday that the rules on mortgage insurance and a few other measures to benefit consumers have now been enacted.

Cidalia (Cid) Palacio, vice-president of the Bank of Montreal, estimated someone with $60,000 to put toward a $300,000 a home will save about $2,500 on the insurance premium. Additional savings would result from avoiding interest costs for a loan to pay the premium. Yesterday, Palacio's bank announced it is willing to offer mortgages under the new rules. The bank might still require some clients with low credit scores to buy the insurance, she said.

But most will enjoy the premium savings without having to pay a higher rate of interest than before.

Economist Frank Clayton had warned earlier that a buyer who couldn't afford such a large down payment would suffer if Ottawa eliminated all requirements for mortgage insurance, as in the United States.

Lenders would have tended to charge more to those who could least afford it, particularly in rural areas, Clayton warned in a report commissioned by mortgage insurer Genworth Financial Inc.

But he said yesterday the change as enacted will have a minor impact on lenders' risk of losses. Only a small portion of new buyers are able to raise as much as 20 per cent of the price of a home.

"The actual changes don't have a big impact (on the market) at all," he said.

Jim Rawson, regional business leader for Invis Inc., the country's largest independent brokerage network, said he would not expect mortgage insurers to raise their premiums to make up for lost revenue.

AIG United Guaranty recently started competing in Canada with Genworth and Canada Mortgage and Housing Corp., and a fourth company is about to enter the market. This should ensure stiff rate competition, Rawson said.

"I think it's a good thing" the government has relaxed the rules on mortgage insurance, he said. "There is really no need to pay a premium, because this is not a risky deal." Someone who puts down $80,000 on a $400,000 home is not going to walk away.

Rawson said home buyers who are close to having 20 per cent should consider carefully whether to hold off buying just to avoid the cost of mortgage insurance, however.

If home prices continue to rise, then delaying a purchase too long could cost much more than the insurance premium.

Palacio said many first-time buyers are now choosing to pay small deposits and to stretch out payments for as many as 40 years in order to reduce the spending each month.

A long-amortization mortgage, combined with mortgage insurance, can help get someone into a home far sooner.

But, if home prices to do not rise sufficiently, a buyer who takes too long to pay could fork out more than the home would be worth when the mortgage was gone.

April 22, 2007 in Arranging Mortgage Financing | Permalink | Comments (35) | TrackBack

New Canadian mortgage insurer

United Guaranty, the third company to provide mortgage insurance in Canada alongside CMHC and Genworth Financial, predicts 50-year mortgages will be available in the future. AIG United Guaranty's current product offering is insurance for no down payment mortgages, and a “more affordable” insurance product for borrowers whose credit scores have been affected by adverse conditions. The company is also offering products with 30, 35 and 40-year amortization periods, as well as identity theft insurance coverage.

Here is a press release announcing the new offering:

TORONTO - AIG United Guaranty Mortgage Insurance Company Canada, which provides mortgage default insurance designed to increase home ownership, has obtained approval as a private mortgage insurer under the National Housing Act Mortgage-Backed Securities program (NHA MBS).

AIG United Guaranty's(1) approval allows for single-family residential mortgages insured by AIG United Guaranty to be eligible under the NHA MBS program. "We are pleased to announce our approval into the NHA MBS program, which allows our lending partners to securitize AIG United Guaranty-insured mortgages and support effective capital and liquidity management practices," said Andy Charles, president and CEO. "This demonstrates to the investment community the strength and strong partnership that AIG United Guaranty offers the Canadian asset-backed securities market."

The mortgage insurance subsidiaries of AIG United Guaranty provide mortgage default insurance and other private-sector risk management products to financial institutions worldwide. Mortgage insurance coverage on low-down-payment loans protects a lender against losses due to homeowner default. Home ownership studies show that loans with limited down payments have an increased likelihood of default, particularly in periods of severe or prolonged economic distress.

See AIG United Guaranty's website for more information »

February 2, 2007 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Creatively structure your mortgage

The mortgage shopper has never had it so good -- nor so complicated. The overwhelming good news for the home shopper are interest rates themselves -- the posted rate for a closed five-year mortgage at Royal Bank in late January was 6.65 per cent. But a special offer available during the month made the same term available at 5.59 per cent.

At the same time, there are more and more vehicles for the mortgage shopper to use.

For example, in the past year amortizations have zoomed to 40-year terms while consumers can also apply for mortgages where only the interest is paid for a certain term.

And all this takes place against a background of tough competition between financial institutions who want your money -- and with mortgage brokers who will do the leg work for you and shop around for the best mortgage.

"In today's environment, it is far more competitive," observed Patricia Lovett Reid, vice-president at TD Waterhouse.

"There is far more out there and doing your homework before you go shopping for the house makes sense."

Even before you start thinking about mortgage terms and who will get your hard-earned bucks, you have some work to do -- it's critical that consumers get to know their own numbers first.

That's because you aren't going to get the best rate going if you are viewed as not having your finances in order. So, you want to sit down and add up all your assets and liabilities, including credit card debt, RRSPs, car loans and so on.

You also want to make sure your income taxes are up to date, because you may not get a mortgage if you don't.

You also want to be armed with proof of income, in the form of pay stubs or a letter from your employer -- and they must be recent.

Before you phone up the real estate agent, you will want to visit your financial institution -- or mortgage broker -- to find out just how much money you can spend on a house.

"There aren't many real estate agents that will work with people who are not pre-approved these days," said Reid. "Why bother?"

She noted that the general rule of thumb is to allocate about 32 per cent of your pre-tax income to housing costs.

Mortgage brokers have been growing in popularity in recent years as fewer Canadians feel loyalty to one institution to a point where they do all of their financial business at a single place.

A recent survey by the Canadian Institute of Mortgage Brokers and Lenders indicated that more than 31 per cent of Canadians sought the advice of a mortgage broker in 2006, up from 25 per cent in 2006.

"We're experts in understanding all these choices a consumer can have in getting a mortgage and then we will organize and arrange that mortgage for you," said Andrew Moor, president and CEO of Invis, Canada's largest mortgage brokerage firm.

"And we point out the product choices you have, we make sure you get a great interest rate. We'll do the leg work around understanding what paperwork is required. It's a complicated process and we try to make sure our customers are happy about how the process works."

When shopping for a mortgage, your biggest decision is whether you want a fixed rate or variable term.

And if you're a first-time buyer, you will likely opt for a fixed rate.

"First-time buyers are more fixed rate oriented because they are the most stretched around the mortgage payment and they can't afford to take the risk," said Moor.

January 22, 2007 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Mortgage brokers will need license

Anyone who deals in mortgages will need a license now that Bill 65, the Mortgage Brokers, Lenders and Administrators Act, passed final reading in the Ontario Legislature. Once the bill receives royal assent, mortgage brokers and agents will have to pass an exam in order to be licensed by the Financial Services Commission of Ontario. In addition, mortgage brokerages will be required to have a Principal Broker who will oversee conduct and act as chief compliance officer.

For more information visit http://www.fin.gov.on.ca/.

January 9, 2007 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Matching home to pocketbook

So, you’ve decided to take the big leap and purchase your first home. Most of us have a "dream home" tucked away at the back of our minds -- complete with six bedrooms, two fireplaces and a panoramic view. Before setting off to view properties you likely can’t afford, take a reality check.

Your "dream home" can easily become a nightmare when most of your money goes to pay the mortgage and there’s little left over for anything else. Overextending yourself financially is the quickest way to destroy the excitement of home ownership and add stress to your life.

Smart home-buying means knowing what you can afford and being practical about it. Most first-time buyers, in particular, lack the funds needed to buy a home without assistance from a bank or financial institution. Buying a home means combining savings with money borrowed through a special arrangement called a mortgage.

To keep mortgage payments within their means, most first-time buyers purchase what is commonly known as a “starter home.” A starter home is just that -- a way of getting started in long-term real estate investment.

To match the home you buy to your pocketbook you have to realistically assess your needs, determine what you can afford and, usually, lower your expectations. Begin by enlisting the services of a real estate representative. This individual will help you target your home ownership dreams and provide valuable information on mortgage options, interest rates and incentives, such as government programs, for first-time buyers.

In the meantime, here are some ways to determine how much you can afford.

Set a maximum price range. To determine your “affordability” price range, you must calculate two amounts: the amount of cash you can afford to put towards the purchase (down payment) and the maximum amount of loan (mortgage) you can comfortably carry. Typically, household expenses should not exceed 35 per cent of your gross income.

Put down as much as you can. The key to getting started for most first-time buyers is the initial down payment. This is the part of the purchase price you have to put down as cash. You may be able to buy a home for as little as five per cent down. But remember that the larger the down payment, the easier it will be to manage the other expenses (mortgage, utilities and property taxes).

An ideal down payment is 25 per cent of the purchase price. Keep some cash in reserve though for unexpected expenses related to a home purchase and typical expenses such as land transfer tax, legal fees and moving expenses.

Know how much to borrow. To establish your maximum mortgage limit, a financial institution will determine the monthly payment you can afford by calculating your debt-service ratio. List all your loans (car, personal loans, monthly credit card balances). The sum of these and your mortgage payment, including principal, interest and taxes, should not exceed about 40 per cent of your gross income. The mortgage payment and taxes should not exceed about 30 per cent of your gross income.

Understand interest rates. The size of the mortgage you can arrange, based on payments you can afford, depends on interest rates. The lower the rates, the larger the possible mortgage and the more affordable home-buying will be.

However, there are other variables to consider: How open is the mortgage? Is it portable? Would prepayment be allowed? Discuss your mortgage options with your REALTOR, banker or financial advisor. Decide what’s best for you, establish a limit and stick to it.

Look at other sources of funds. If you have been contributing regularly to a Registered Retirement Savings Plan (RRSP), you may have to look no further for your down payment. The federal government’s RRSP Home Buyers’ Plan allows eligible taxpayers to withdraw up to $20,000 per person ($40,000 per couple) tax free from their plan to buy a qualifying home. However, you have to pay back every year at least 1/15th of the amount taken out until it is all paid back, or there will be a tax penalty.

The Ontario Home Ownership Savings Plan (OHOSP) is a provincial program which provides tax credits on annual contributions to an Ontario resident earning less than $40,000 a year (or less than $80,000 per couple) who has never owned a home. While there is no limit to the amount you may deposit in an OHOSP, you can only receive tax credits on annual contributions of $2,000 ($4,000 per couple) or less. Depending on your annual income and the money you invest, you can earn up to $500 individually or $1,000 a couple in tax credits a year. The plan must be closed and a home purchased by the end of the seventh year.

The Canada Mortgage and Housing Corporation’s (CHMC) five per cent down mortgage program is available to both first-time buyers and those who have already owned a home. This benefits buyers who can afford the monthly payments, but would have trouble saving for a larger down payment. Under the program, CMHC may insure the mortgage on your home (against default in payments) for up to 95 per cent of the lending value. An insurance premium of about 3.75 per cent of the mortgage loan is charged. This amount can be added to the mortgage or paid on a monthly basis.

Other sources of funds you can tap into for a down payment include savings and investments and loans or gifts from your family or relatives. If you’re already a homeowner and moving up, you can use money that you get from the sale of your present home.

December 5, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Central Bank Rate Unchanged

The Canadian dollar was little changed today after the Bank of Canada kept its target rate unchanged for a fourth straight meeting, saying signs of slowing growth are coinciding with gains in employment and demand for commodities. The rate for overnight loans between banks remains at 4.25 percent, the highest since August 2001 and 1 percentage point less than the U.S. Federal Reserve's target.

December 5, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Judge chides bank in fraud

Ontario is experiencing a "serious mortgage-fraud plague," says a judge who released a blistering decision yesterday that chastised the Toronto-Dominion Bank for failing to detect a scam that left a North York couple without their home.

In a decision seen as precedent-setting, Superior Court Justice Randall Echlin ruled that Seyed Aboulgasm Rabi and his wife, Shohreh Shafiei, were the innocent victims of fraudsters who stole their identity, transferred the family condo behind their backs to an accomplice, then placed a $250,000 mortgage on the property, took the money and disappeared.

In bold, unequivocal language, Echlin nullified the mortgage, saying the couple "did nothing in any way to bring this nightmare upon themselves" and that the bank was not, as it had portrayed itself, an "innocent victim" of the crime.

Although the bank admitted that the Rabi-Shafieis were innocent victims of a "sophisticated fraud" — the couple did not learn about the fraudulent transactions until long after they had occurred — it argued that under a 2005 Ontario Court of Appeal decision, the fraudulent mortgage became legally valid and enforceable once it was registered on the province's land-title system.

But Echlin noted: "Ontario is currently experiencing a serious mortgage-fraud plague. This action involves one such fraud."

Toronto lawyer Morris Cooper, who represents the Rabi-Shafieis and several other victims of mortgage fraud in Ontario, described Echlin's ruling as "a remarkable precedent-setting decision."

"This is the first time we've had a court address in such depth what the judge describes as the `plague' of mortgage fraud in Ontario," he said. Cooper said the decision will "undoubtedly" be considered by the Ontario Court of Appeal when it reviews its controversial earlier ruling at a special hearing on Nov. 28.

Echlin ruled that the bank should not be able to rely on the strict letter of the law since it had not done enough to check out the mortgage — such as sending an appraiser to the couple's front door to ask a few questions before handing over the large amount of money."A person's home is their largest lifetime investment," he said. "A homeowner's rights ought to be at least equal to the rights of commercial lenders in the face of the increasing prevalence of identity thefts."

See full article in the Toronto Star:

November 1, 2006 in Arranging Mortgage Financing | Permalink | Comments (5) | TrackBack

Scotiabank increases rates

The Bank of Nova Scotia announced that its residential mortgage rates will be inceased, effective today.

The revised rates are:

    - one-year closed    6.45 per cent   (+ 0.05 per cent)
    - two-year closed    6.55 per cent   (+ 0.10 per cent)
    - three-year closed  6.65 per cent   (+ 0.15 per cent)
    - four-year closed   6.70 per cent   (+ 0.20 per cent)
    - five-year closed   6.80 per cent   (+ 0.20 per cent)
    - ten-year closed    7.90 per cent   (+ 0.20 per cent)

All other mortgage rates remain unchanged.

October 25, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

No plans to privatize CMHC

Globe and Mail report called "utterly false"

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he federal government is denying a report in The Globe and Mail that says it is planning to privatize Canada's federal housing agency. The article, which cites anonymous sources linked to the Finance Minister's office, claims the federal government is weighing the sell off of Canada Mortgage and Housing Corporation's mortgage insurance and securitization businesses.

"A sale is not imminent, and observers believe there is no chance it would take place until after a federal election," states The Globe and Mail article. "Nor is there a cut-and-dried case in favor of privatization. But it's clear that the days of CMHC being a significant source of cash for the federal government are numbered – with or without privatization."

"Reports about any privatization of CMHC are unfounded, baseless, and do not even merit discussion because they are not on the agenda," said the Hon. Diane Finley, Minister responsible for Canada Mortgage and Housing Corporation during Question Period in the House of Commons on October 16th. "We are not planning any privatization of CMHC. I repeat – we are not planning any privatization of CMHC."

Prime Minister Stephen Harper described the claim as "a rumor that is utterly false," while Finance Minister Jim Flaherty said the reports were news to him.

The Globe and Mail article notes CMHC reserves are expected to rise to $9.5 billion within four years. These funds have raised a big red flag, and CMHC is now facing pressure from many sources.

Private companies, for example, are ready to enter the lucrative mortgage insurance market currently dominated by CMHC. AIG United Guaranty became the third company to provide mortgage insurance in Canada in mid-October, and two more companies are expected to enter the market next year.

Social housing advocates want the excess reserves to fund more affordable housing units. For its part, the federal government has signaled it wants out of the housing business altogether, arguing that housing is a provincial responsibility.

October 22, 2006 in Arranging Mortgage Financing | Permalink | Comments (1) | TrackBack

Bank of Canada holds interest rate

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anada's central bank left its key overnight lending rate unchanged at 4.25 percent for the third time in a row at its penultimate policy decision of the year Tuesday and cut economic growth forecasts, citing a weaker short-term outlook for the U.S. which is expected to act as a drag on domestic exports. The Bank of Canada said weaker exports, lower-than-expected productivity growth and the prospects of fallout from a weakening U.S. economy contributed to the decision to hold the line.

It cut its economic growth forecast for this year to 2.8 percent from 3.2 percent, and projected growth next year of 2.5 percent instead of the 2.9 percent it predicted in July.

"Core inflation is expected to move slightly above 2 percent in coming months and return to 2 percent by the middle of 2007," it said. "Lower energy prices have led to a downward revision to the near-term projection for total CPI inflation."

The bank said momentum in consumer spending and housing prices are the bright sides of the economic picture. "The main downside risk is the U.S. economy that could slow more sharply than expected, leading to lower Canadian exports." Overall, the bank said, inflation risks "are roughly balanced."

Financial markets and analysts had expected the bank to hold the line on the cost of money. They are looking ahead, however, to Thursday's release of the bank's Monetary Policy Report, which will lay out a full analysis of economic trends and risks.

The next scheduled date for setting interest rates is Dec. 5.

October 17, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Home sweet home

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elf-employed? Just out of college? Stuck with an embarrassing bankruptcy in your past? Don't worry. Andy Charles wants to help you buy a house. And get this: he doesn't even care if you know who he works for.Charles is the president and CEO of AIG United Guaranty Mortgage Insurance Company Canada. It's a long name for a company most people will never remember. But just the prospect of the firm's entrance into the once sleepy mortgage-insurance industry has made it easier for thousands of Canadians to get their own home.

By law, all Canadian homebuyers who have less than a 25% down payment for their new house have to buy mortgage insurance. This mandatory insurance protects the lender in case the borrower defaults on mortgage payments. If the bank, credit union or other mortgage provider is forced to foreclose on the house and loses money on the resulting sale, mortgage insurance covers the difference. Mortgage insurance thus turns high-risk borrowers into no-risk borrowers.

With nearly half of all Canadian homebuyers requiring mortgage insurance, it's an important — and lucrative — line of business. Canada Mortgage and Housing Corp., a Crown corporation dating back to 1946, has long dominated the market and currently holds a 71% share. Private-sector insurer Genworth Financial Canada has, since its arrival in 1995, been the lone competitor to CMHC. The two firms have operated as a cosy duopoly for the past decade, charging identical rates and racking up enormous sums. Last year, for instance, CMHC made $1-billion profit selling mortgage insurance to Canadians.

Continued in Canadian Business magazine:

October 17, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Central Bank Rate Unchanged

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he Bank of Canada today announced that it is maintaining its target for the overnight rate at 4 1/4 per cent. The operating band for the overnight rate will therefore remain unchanged at 4 1/2 per cent.

The Bank of Canada sites continued strength in the global economy. In Canada, the economy continues to fall in line with the Banks expectations in terms of output and inflation. Going forward, the Bank continues to expect the Canadian economy to operate at about its production potential.

The Bank of Canada's next scheduled date for announcing the overnight rate target is 17 October 2006.

September 6, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Banks cut mortgage rates

Most of Canada's big banks are cutting long-term residential mortgage rates by up to a tenth of a point, thanks to the lower cost of borrowing in the bond market.

The rate on the Royal Bank of Canada's three-year closed term loan falls to 6.5 per cent, a five-year loan to 6.75 per cent and a seven-year loan to 7.25 per cent.

BMO cut its two-year rate a fifth of a point, to 6.40 per cent.

TD Canada Trust cut its three-year and six-year closed rates a tenth of a point to 6.55 per cent and 6.85 per cent. The National Bank of Canada cut its three-year to 10-year rates by 0.10 per cent.

September 6, 2006 in Arranging Mortgage Financing | Permalink | Comments (18) | TrackBack

Homeowners vulnerable to fraud

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ntario property owners may soon enjoy better protection against the growing spectre of real estate fraud as government and opposition MPs alike agree to make it a priority.

Ontario's Minister of Government Services Gerry Phillips and provincial Burlington Conservative MPP Cam Jackson both say the public needs better protection from fraud artists who secretly commandeer property titles from legitimate owners, drain the value from their homes by taking out new mortgages, and then disappear.

Phillips met recently with about 50 leaders in the field, including mortgage brokers, bankers and real estate lawyers to work on ways to tighten up the system.

"It is growing and it is an item of concern to us, so we're moving quite aggressively on it," Phillips said yesterday. "If we're going to tackle this thing, we've got to do it together."

Jackson, whose opposition portfolio includes seniors, says Queen's Park should order the mortgage industry to create and fund an insurance system that would protect homeowners from criminals who steal identities to obtain mortgages for properties they don't own.

Insurance against title fraud is available today, but it's expensive, Jackson said. The businesses that profit from mortgage lending should also be the ones to protect consumers who become victims of mortgage fraud, he said.

"In my view, that's the fairest way to do it."

Although there are no specific numbers available on real estate crime in Canada, it is generally agreed that it is rising.

A report by the Law Society of Upper Canada last year found that changing business conditions have helped to create a fertile climate for mortgage fraud.

An increasingly competitive mortgage market, with more brokers and more lenders, plus technology that makes it possible for huge transactions to take place without parties ever actually meeting, have made it easier for criminals, the report said.

Competition between lenders and a hot real estate market have created pressure for quick approvals, the report said, exposing the industry to further risk.

The report found that mortgage fraud in the United States is worth several billion dollars annually.

Jackson said the crime is still rare in Canada, but the consequences can be severe for victims who are left struggling to prove they are the legitimate owners of their own properties -- after they have lost control of their own titles.

Jackson said yesterday that seniors in particular are vulnerable to mortgage fraud because they are more likely to have clear title to their properties. That means there is more equity to steal from them.

Jackson said the government should make everyone in the process more accountable, including lenders, brokers and lawyers.

Phillips said his government is planning to tighten controls over the registration of real estate documents.

"We're all going to have to work harder on this," Phillips said. "The solution to this won't be an event. It's going to be an ongoing process. I have this feeling that as we plug one hole, we're going to have to stay ahead of the criminals before they find another hole."

"Identity theft is a big problem, and that paves the way for mortgage fraud," he said. "Mortgage lenders have to practise more due diligence in making sure that the people standing there in front of them are the people they purport themselves to be."

August 30, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Older homeowners most vulnerable

... to real estate fraud

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espite the increasing number of high profile real estate title fraud cases in Canada, older Canadian homeowners remain unaware of the only way to protect themselves against this crime. For the second consecutive year, First Canadian Title commissioned Environics Research to measure Canadian homeowners' knowledge and awareness of title insurance. The national survey asked approximately 1,500 Canadian homeowners whether they had protection in the form of title insurance for their home. Nearly half of homeowners over the age of 45 said they do not have title insurance or are unaware if they do.

The survey also found that 63 per cent of Canadian homeowners without title protection had absolutely no understanding of title insurance - a number that rose to 66 per cent for those over the age of 60.

Title insurance was introduced to Canadians by First Canadian Title in 1991. Since then, it has slowly become a standard offer to home buyers. Two years ago, First Canadian Title introduced title insurance to existing homeowners.

"Few people are aware of the possibility of fraud against their home - the single largest purchase they are ever likely to make," said Susan Leslie, First Canadian Title's VP of Claims and Underwriting. "But as many of them get older, they are more likely to have more equity and spend more time out of their home. This makes them easy prey for sophisticated fraudsters who have the means to perpetrate this kind of crime."

Survey highlights:

• Ownership of title insurance is highest among 30 to 44 year-olds and declines with age
• 60 per cent of respondents have title insurance, compared with 58 per cent in 2005
• Of those surveyed, 40 per cent confirmed they either had no coverage or did not know if they were covered by title insurance - this compares to 49 per cent in 2005
• The primary reason for not having title insurance is not knowing what it is - 63 per cent compared with 71 per cent in 2005
• Only 24 per cent of those who had purchased title insurance could confirm that they fully understood what it covered
• 63 per cent of Canadian homeowners without title protection had absolutely no understanding of title insurance - a number that rose to 66 per cent for those over 60

"It's surprising to me that after so much attention to this issue, so many Canadians remain unaware and unprotected," said Susan Lawrence, a Toronto victim of real estate fraud whose home was mortgaged for almost $300,000 by fraudsters who forged her signature and walked away with the money earlier this year. "Until I was defrauded, I was not aware that if I had title insurance, I would have been protected."

Lawrence is currently involved in a long legal battle to get her home back. An Ontario court recently restored her title, returning ownership to her. However, she is still fighting to have the fraudulent mortgage discharged.

"The onus is on homeowners to prove the crime and it can be very costly - financially and emotionally - to clear your name," said Leslie. "For a one-time premium, title insurance is an effective and inexpensive way to ensure title to your property is protected. It covers legal expenses related to restoring title and is available to existing home owners even if they have owned their property for some time."

First Canadian Title, estimates the average case of real estate fraud to be $300,000, compared to estimates of $1,200 by the RCMP for cases involving credit card fraud. In 2000, real estate title fraud claims accounted for only 6 per cent of total dollars paid in claims at First Canadian Title. By 2005, that number reached 33 per cent.

August 29, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

American Fed stands pat on rate

For the first time since Ben Bernanke took over as chairman on Feb. 1 from Alan Greenspan, the policy-setting Federal Open Market Committee did not agree to the action unanimously. Federal Reserve Bank of Richmond president Jeffrey Lacker dissented, favoring instead another quarter-point increase.

The statement said, as it did after the last meeting in June, "Some inflation risks remain. The extent and timing of any additional (increases) … to address these risks will depend on the evolution of the outlook for both inflation and economic growth."

The retention of that sentence in effect reflects a continued bias, but not a presumption, to raise rates in the future. In effect, the Fed gave itself some breathing room to assess the impact of the preceding 17 quarter-point rate increases before deciding whether to hike again. Mr. Bernanke has been suggesting since April that he was seeking more flexibility.

"A pause does not mean a stop," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. "And there’s certainly ample evidence the economy has been on a slowing trajectory over the last couple months. There’s enough evidence there for them to take six weeks off."

August 9, 2006 in Arranging Mortgage Financing | Permalink | Comments (4) | TrackBack

Plans to reduce LTV ratio

Mortgage insurance requirement would be raised to 80%

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he federal government has released a white paper that proposes raising the ratio for mandatory mortgage insurance to 80 per cent. Currently, the insurance is required for residential mortgages exceeding 75 per cent of the property value.

The recommendations were included in a Department of Finance white paper containing recommended changes to Canada’s financial services legislation. A consultation process leading to the current review of the financial institutions statutes was launched in 2005. Finance says the proposals are aimed at achieving three key objectives: enhancing the interests of consumers, increasing legislative and regulatory efficiency, and adapting the framework to new developments.

Mandatory insurance for high loan-to-value (LTV) ratio mortgages was introduced more than 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers. At that time, the threshold was 66.7 per cent. This was raised to the current level of 75 per cent in 1965.

The white paper says there have been a number of significant changes to the marketplace in the years since the last increase. These include improvements to the risk management practices of lenders, the implementation of regulatory risk-based capital requirement, and the fact that capital markets have changed and matured. The paper also notes that the supervisory framework for federally regulated financial institutions has been strengthened significantly.

“The restriction may therefore no longer serve the same prudential purpose,” states the white paper. “As a result, a statutory requirement for insurance set at 75 per cent LTV may mean that certain consumers are paying more for their mortgage than is justifiable on a prudential basis.”

”The Government has concluded that below 80 per cent LTV, insurance need not be required by statute and the decision could be left to the discretion of the lender,” the paper continues, noting this would be consistent with practice in other jurisdictions such as the U.S. and Australia, where most lenders do not require insurance unless the LTV ratio exceeds 80 per cent.

Finance Minister Jim Flaherty has indicated that the federal government will table legislation this fall to implement the recommendations – including the changes to Canada’s mortgage insurance requirements.

The federal government is also moving forward with a recommendation to allow new entrants into Canada’s mortgage insurance market. The House of Commons Finance Committee gave its support to a Budget measure that would open Canada’s mortgage insurance market to new entrants and double the federal government's exposure to the Canadian home mortgage market during a hearing held in late May. CMHC currently has about 70 per cent of the market while private insurer GE Financial covers the rest.

July 21, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Dodge criticizes CMHC incentives

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ank of Canada Governor David Dodge has met with officials of Canada Mortgage and Housing (CMHC) to criticize the recent offering of incentives for interest-only mortgages. Before the meeting the Bank of Canada Governor had said the incentives could be inflationary and may work against the Canada Mortgage and Housing Corporation's stated aim of making housing more accessible to Canadians.

"We'll have to see, but if we look elsewhere in the world where there has been a major move to interest-only mortgages or other innovations of that sort, that has had an influence on housing prices," Dodge told reporters at a news conference called to discuss the central bank's quarterly economic outlook.

"We would want to sit down with Canada Mortgage to look at their analysis of the influence expected to have here," he said.

In late June CMHC announced it would be offering insurance on interest-only mortgages, waiving application fees for some loans, and insuring mortgages with amortizations of up to 35 years. It was the latest move in a series of announcements making it easier for potential home buyers to enter the market. Traditionally, the agency required 10 per cent down, and gave people up to 25 years to pay it off.

"These innovative financial solutions will allow more Canadians to buy homes, and to do so sooner," CMHC president Karen Kinsley said at the time. "By reducing costs and increasing flexibility, CMHC continues to help Canadians realize their dreams of homeownership." Such mortgages are more affordable, at least initially, because they allow buyers to pay only the interest on the mortgage for a five-year or 10-year period. They are risky in that the monthly costs of carrying the mortgage jump once the interest-only period ends and the homeowner must begin paying down the principle as well.

Economists have warned that the move to interest-only loans and long amortization periods have heightened the risk of Canada's mortgages outstanding -- although not nearly as much as in the United States, where the higher interest rates are threatening to deal a severe blow to indebted homeowners.

While private sector lenders in Canada have been developing alternative mortgages for some time and their popularity has been growing as the housing boom loses steam, CMHC's entry into the interest-only market makes such incentives mainstream – even though such practices are often considered high risk.

In the United States, former U.S. Federal Reserve Board chairman Alan Greenspan warned repeatedly that such "exotic mortgages" could fuel a housing bubble by enticing people who can't afford to carry a mortgage into buying a house and taking on too much debt, all while driving up housing prices.

While Mr. Dodge did not mention the United States by name, he did point out that in other countries, incentives for interest-only loans have come at a time of low interest rates and low inflation, and feed into the demand for housing.

"That has put a lot of upward pressure on house prices, and absent a very rapid expansion of supply, then the increases of demand simply will fuel price rather than actually get more people into housing," Dodge said. He noted that so far, supply has kept up with demand, except for Calgary and Edmonton, where demand has far exceeded supply.

July 17, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Anti-money laundering efforts

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oronto will become the permanent home for a global agency leading the fight against money laundering and terrorist financing. The Egmont Group, formed 11 years ago to co-ordinate the battle against dirty money in 101 countries, including Canada, will move into new international headquarters in Toronto by the end of the year.

“It really puts Toronto and Canada at the central core of the battle against money laundering and terrorist-financing controls,” says Chris Walker, president of About Business Crime Solutions, a Toronto firm that helps companies comply with disclosure rules designed to fight money laundering. His company also provides expertise for the money laundering compliance initiatives of The Canadian Real Estate Association.

Walker says money laundering is a growing problem in Canada, and the federal government Ottawa has to tackle myriad new ways in which criminals cover the source of funds. Just how the government will do that will be detailed in revised money laundering laws expected this fall.

Walker predicts anti-money laundering authorities will have to expand monitoring. “You watch, two years from now they will start tracking art dealers. I believe that within the next five years we will see them added along with car dealers and truck dealers.”

Ottawa's anti-money laundering agency FINTRAC flagged more than $2 billion worth of dirty money transactions in its most recent report, including $180 million in suspected financing of terrorism and what authorities call threats to national security. Both figures had more than doubled from the previous year.

July 14, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Mortgage fraud victim tests law

Woman appeals Superior Court ruling on real estate theft
New land-transfer rules meant mortgage was still valid

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North York woman who lost the 100-year-old Victorian home she had been living in for 30 years to identity thieves says she is going to court for herself and other victims of mortgage fraud so the taxpayers don't have to pay the tab.

Susan Lawrence discovered earlier this year that she was on the hook for a $300,000 mortgage the thieves secretly put on her property after forging her signature in order to acquire it.

Last month, a judge ruled that the property transfer — of which she had no knowledge — was invalid because it had been carried out fraudulently.

But Superior Court Judge Edward Belobaba reluctantly ruled that even though the mortgage was also fraudulent, he could not declare it invalid. His hands were tied because of a decision of the Ontario Court of Appeal released last November.

That decision provided that as long as the transaction was properly registered in Ontario's Land Title system, the mortgage was valid in the eyes of the law — even if it later turned out to be tainted by fraud of which the owners, like Lawrence, were unaware.

Read the full article in the Toronto Star:

July 6, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

The 30/35-year mortgage:

blessing or curse?

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hatever happened to paying down the mortgage faster? This spring, Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial both announced that they would insure mortgages for longer than the traditional 25 years.

CMHC’s pilot program, which is scheduled to end on June 30, allows Canadians to take out insurance on 30-year mortgages, while Genworth, Canada's other big player in the multi-billion-dollar mortgage insurance game, introduced the 35-year plan. Both CMHC and Genworth state greater affordability as the objective behind these new products. By increasing the amortization period by 5 or 10 years, consumers can make their monthly mortgage payments smaller allowing them to get into the real estate market sooner or afford a more expensive house.

According to Genworth, buyers could reduce their monthly payments by as much as $300 per month on a $400,000 loan at six percent interest. The principal and interest payment would be $2,559 on a 25-year mortgage, $2,379 on a 30-year mortgage and $2,261 on a 35-year mortgage. In addition to regular insurance charges, consumers would be required to pay a surcharge for the longer terms –  0.25-per cent for CMHC and 0.2 per cent, for Genworth’s insurance on a 30-year and a 0.4-per-cent surcharge for its 35 year term.

CMHC’s four-month pilot began March 3 and runs until the end of this month. CMHC plans to assess the pilot results and then determine whether this will be a permanent program. “Should the pilot not continue,” says a CMHC press release, “any applications for mortgage loan insurance approved by CMHC with an extended amortization prior to the end of the pilot will remain eligible for the extended amortization. This will apply even if mortgage funding has not been finalized.”

Mortgaged for life
While extended amortization periods may help some first time buyers afford a home, not everyone agrees that this is a good thing.

David O’Gorman, president, Mortgageland Inc., says extending amortizations by an additional 5 or 10 years does not lower the monthly mortgage payment significantly and the amount of money from each payment that is used to reduce the principal owing is small. O’Gorman compared a $300,000 mortgage at today's five year rate of 5.10 per cent amortized over 25, 30 and 35 years. “There was a difference of about $72,000 in interest paid on the same mortgage amount and same rate between the 25 year and the 35 year, but only a difference of $238 a month on the mortgage payments. That is an additional $72,000 after tax income a family would have to earn and payback.” His biggest concern is that the people who least can afford this program are the very ones likely to use it.

So will the 35-year mortgage be good for REALTORS^®? O’Gorman feels it could be beneficial in the short term as it could help sell a few more houses. “However, in the long term I think it contributes to the instability of the whole real estate and mortgage market, and is no good for anyone. Government uses construction and housing development as a way to stimulate the economy when there is a downturn. “What will government use as a stimulus if everyone that has any money is using it to pay mortgage debt?”

To find out more about these 30 and 35-year mortgage insurance products visit the web sites of CMHC and Genworth Financial at http://www.cmhc.ca/ or http://www.genworth.ca/.

Make way for the 40-year mortgage
GE Money is banking on Canadians buying into extended mortgages. In April, the Canadian consumer lending arm of General Electric Co. began offering a mortgage amortized over 40 years.

President Rick Lunny said the mortgages are designed to help combat rising home prices and allow easier entrance to the booming housing market. Using the example of a $250,000 home, Lunny said the monthly payment on a traditional 25-year mortgage is $1,600. With a 40-year mortgage, that payment drops to $1,360.

GE Money offers mortgages through brokers in Ontario, Alberta and British Columbia.

June 3, 2006 in Arranging Mortgage Financing | Permalink | Comments (3)

Bank of Canada raises central rate

Interest rates may have peaked

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he Bank of Canada hiked its benchmark overnight lending rate by one-quarter of a percentage point to 4.25 per cent on May 24th. The trend-setting Bank rate, which is set one-quarter of a percentage point above the overnight lending rate, now stands at 4.5 per cent.

This is the seventh increase of 0.25 per cent since September 2005, when Canada's central bank began to raise the overnight lending rate for the first time in almost a year. Previous Bank of Canada press releases that accompanied overnight lending rate increases indicated that the economy was running full tilt and faced capacity constraints. In its latest press release, the Bank hinted it might keep interest rates steady when it next sets its overnight lending rate in July now that interest rates have reached the point where inflation will be kept under wraps.

“With today's increase, the target for the overnight rate is now at a level that is expected to keep the Canadian economy on the base-case path projected in the April Monetary Policy Report (MPR) and to return inflation to the two per cent target,” the Bank of Canada said in a statement.

“The latest interest rate hike and accompanying statement that further hikes may now be on hold were not completely unexpected,” said CREA Chief Economist Gregory Klump. “The Bank needs time to assess the delayed impact of recent interest rate increases on the economy.”

The core inflation rate is targeted by the Bank of Canada at between one and three per cent. In April 2006, the core rate of inflation stood at 1.6 per cent – below its midpoint, and its lowest level since the end of last year. While a spike in energy prices has pushed up overall inflation, it has so far failed to reignite inflation expectations or cause core inflation to accelerate because core inflation does not include volatile food and energy prices.

Analysts believe that short-term U.S. interest rates are close to their cyclical peak, with one more hike in July before further interest rate hikes there are put on hold. With Canada's Bank rate now expected to hold steady, the Canada-U.S. currency exchange rate is unlikely to rise beyond its current level. With the Canadian dollar now at its highest level in more than 25 years, the strong Canadian dollar will also help keep inflation under control.

“Bonds respond to expectations about inflation and economic growth, and mortgage rates track bond yields,” said Klump. “The economy is still expected to slow in response to higher gasoline prices and interest rates together with an anticipated weakening in consumer confidence and household expenditure. This suggests the five year conventional mortgage is also near its peak.”

When the bank rate was hiked on May 24 th , the conventional five-year conventional mortgage rate stood at 6.75 per cent. Stiff competition among mortgage lenders continues to help borrowers negotiate discounts off the advertised rates.

“Higher mortgage rates and further home price increases are expected to gradually cool resale housing activity in the second half of 2006 from the record levels we've seen in recent years, but not by much,” Klump added. Record level sales activity in the first quarter is expected to help lift MLS® residential transactions to a sixth annual record in 2006.

May 24, 2006 in Arranging Mortgage Financing | Permalink | Comments (0)

CMHC reports record profits

Tops $1 billion in 2005

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anada Mortgage and Housing Corporation's (CMHC) earnings surpassed the $1 billion mark for the first time in its 60-year history last year, according to the crown corporation's annual report. In 2004, CMHC made $950 million.

Ninety-five per cent of CMHC's profits come from the sales of mortgage insurance. Federal legislation requires any homebuyer with less than a 25 per cent down payment to purchase mortgage insurance in order to protect banks and other lenders from the risk that homebuyers will default on their payments.

The record profits have left critics calling for a further reduction in mortgage insurance rates, and amendments to federal legislation that would reduce the down payment requirements to 20 per cent of the purchase price.

Canada represents the world's second-largest mortgage insurance market, but it has been virtually untapped by the private sector because of the federal government's dominant role. CMHC has about two-thirds of the mortgage insurance market in Canada. The lone private sector competitor, Genworth Financial Canada, has the rest.

In its 2006 Federal Budget, the Conservative government said it would be encouraging more competition in the mortgage insurance business by providing a guarantee to backstop other mortgage insurers as it already does for CMHC and Genworth. There are reports that AIG United Guaranty Canada, a subsidiary of the New York-based AIG insurance empire, plans to start selling mortgage insurance to Canadians later this year.

According to its 2005 Annual Report, CMHC expects to have nearly $10 billion in cumulative profits sitting on its books as equity by 2010. Aside from mandated capital reserves, this would leave more than $5 billion in surplus cash for CMHC.

May 23, 2006 in Arranging Mortgage Financing | Permalink | Comments (1)

More mortgage insurance options

Federal budget reveals competition

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he federal budget tabled May 2^nd included the announcement that there will be more competition in Canada in the market for mortgage insurance. The two major suppliers now are Canada Mortgage and Housing (CMHC) and Genworth Canada.

The budget documents reveal that the federal government is confirming arrangements that would allow “new players” to enter the mortgage insurance market. “To do that, the government is increasing the amount of business that can be covered under the government's authority from $100 billion to $200 billion, in order to keep pace with increasing house prices and the growth in the mortgage market”.

The changes, the budget documents state, will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership.

The “new players “ mentioned in the budget documents are believed to be AIG United and PMI Insurance. Both companies are in the process of applying for permission to provide mortgage insurance products and services in Canada.

May 3, 2006 in Arranging Mortgage Financing | Permalink | Comments (1)

Ontario Budget Analysis

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he provincial government has announced the details of the 2006 Ontario Budget. The Ontario Real Estate Association has provided an analysis of the budget.

See full report:

April 1, 2006 in Arranging Mortgage Financing | Permalink | Comments (0)

The 35-year mortgage ...

-- built to last a lifetime

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he 35-year mortgage has arrived in Canada, giving overstretched first-time buyers the chance to plunge into the heated real estate market -- for the long term. But it might just mean that they end up making the last payment from their Canada Pension Plan cheques.

In Canada, the 25-year mortgage has been the standard maximum, but the rapid escalation of housing prices has now shattered that previously ironclad limit. Genworth Financial Canada said yesterday that it will start insuring 35-year and 30-year mortgages, trumping a move by larger rival Canada Mortgage and Housing Corp.

CMHC said three weeks ago that it would begin to insure 30-year terms. Both firms charge fees to insure low down-payment mortgages provided by financial institutions, but do not lend money directly.

Genworth said the mortgages are aimed at buyers who might find it tough to make payments needed to secure a home as real estate skyrockets. "It's tied to rising prices," said Peter Vukanovich, president and chief executive officer.

Despite the recent rise in interest rates, major urban centres are still seeing substantial increases, according to figures from the Canadian Real Estate Association. The average cost of resale housing jumped to $490,004 in Vancouver last month from $387,426 a year ago; Calgary's average price soared to $304,560 from $244, 290; Toronto's, $353,928 from $334,254.

Genworth is wooing first-time buyers. A basic profile: professionals, likely living in a major urban centre, and "younger in their careers," says Mr. Vukanovich, who notes that age is not a factor in mortgage decisions.

Toronto-Dominion Bank economist Sébastien Lavoie said the new type of mortgage is yet more proof that the current housing boom is losing steam, as the mortgage industry tries to pump up the rapidly depleting pool of first-time buyers. "There's no doubt the peak has passed," Mr. Lavoie said. Earlier efforts to lure first-time buyers -- including less restrictive policies on 5-per-cent down payments and lower insurance rates -- have been remarkably successful in propping up housing demand, he said.

For consumers willing to sign up for a 35-year mortgage, the extra decade of indebtedness means that monthly payments drop sharply. In a traditional 25-year mortgage with a 6-per-cent interest rate, a home buyer would pay $1,919 a month on a $300,000 mortgage. With a 35-year term, the monthly payment drops to $1,695 -- but the total amount paid over the life of the mortgage jumps by $136,387 to $712,213.

Mr. Vukanovich said consumers can trim that bill by making lump-sum payments, or boosting their regular payments over time.

But Fran Smith, executive director of the non-profit Credit Counselling Services of Alberta Ltd., said consumers should think carefully about why they are signing up for a 35-year mortgage before doing so. If a consumer is expecting household income to rise in coming years, such a loan makes sense, she said. Otherwise, it can strain a borrower's budget, particularly if interest rates jump, or if the borrower has other significant debts.

Genworth's announcement, which the company says was a year in the making, comes just three weeks after CMHC announced a pilot project for 30-year mortgages. In addition to regular insurance charges, CMHC levies a 0.25-per-cent surcharge for the longer term. Genworth has a lower surcharge, 0.2 per cent, for its insurance of a 30-year as well as the 35-year for a 0.4-per-cent surcharge.

Long-term commitment

For a $300,000 house at 6 per cent interest, a home owner who took out a 35-year mortgage would pay $136,387.80 more than a 25-year term.

SOURCE: GENWORTH FINANCIAL CANADA

Toronto Real Estate, Real Estate Blogging, Real Estate Blog

March 17, 2006 in Arranging Mortgage Financing | Permalink | Comments (0)

Central Bank raises interest rate

Key lending rate goes to 3.75 per cent

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he Bank of Canada has raised its key lending rate for the fifth time in a row and said “modest” rate hikes may be required in the future. The increase was not unexpected by analysts.

The central bank raised its target for the overnight rate to 3.75 per cent from 3.5 per cent, returning it to the same range the rate was in just after the September 11th 2001 terrorist attacks in New York.

The Bank of Canada statement also indicated that future increased may be required, while in previous announcements the statement had said would be required. The Bank of Canada statement issued March 7th said the dollar “has recently moved above the range that had been assumed in the [January] update,” and it said that modest rate hikes “may be required” in the months ahead as the economy operates at full capacity. In January, it said they “would be required.”

The Canadian dollar eased to 87.17 cents (U.S.) after the report left room for the Bank of Canada to hold off on future rate increases, if need be. Last week, it rose above the 88-cent mark to a 14-year high. In its January monetary policy report update, the bank had pegged the range at between 85 cents and 87 cents.

The sudden appreciation of the dollar could slow economic growth by making Canadian exporters' goods more expensive abroad and hurting their ability to compete with other countries.

“Overall, indications are that the Canadian economy is continuing to operate at its full production capacity,” the Bank of Canada statement said. “Some modest further increase in the policy interest rate may be required to keep aggregate supply and demand in balance and inflation on target over the medium term,” it added.

Economic growth in the fourth quarter, along with inflation, were in line with the central bank's expectations. The Bank statement says views on the outlook for growth and inflation, including the assessment of risks, haven't changed since January.

The Bank of Canada is scheduled to make its next rate decision on April 25th and will provide details on economic developments and risks in the next monetary policy report two days after that.

March 8, 2006 in Arranging Mortgage Financing | Permalink | Comments (2)

CMHC Insures 30 Year Mortgages

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anada Mortgage and Housing Corporation (CMHC), working with FirstLine Mortgages, will be offering homeowner mortgage loans amortized up to 30 years as part of a pilot project to improve access to home ownership and choice for Canadians. Generally, 25 years has been the maximum amortization period permitted for CMHC-insured mortgages.

"The availability of extended amortization periods will improve access to home ownership for Canadians by lowering monthly principal and interest costs," said Karen Kinsley, President of CMHC.

Details of pilot project