Great New Mortgage Products for Calgary Home Buyers

Great New Mortgage Products

 

     2020 has been a challenging year for us all. Housing sales were going well pre-pandemic with modest price increases in many areas of the country. March arrived and the start of the spring housing market with people feeling optimistic until the country shut down March 15^th.

      Housing prognosticators predicted that housing would drop and take a couple of years to recover. While sales did drop by over 50% in April, no one expected house sales or prices to increase so quickly. In July CREA (Canadian Real Estate Association) announced that housing sales had increased by 26% up by 14% over last year. Prices in some areas increased by up to 10%.

      "What a difference three months makes, from some of the lowest housing numbers ever back in April to the multiple monthly records logged in July," CREA's chief economist Shaun Cathcart said of the numbers.

   While we were in the doldrums of April and May, mortgage lenders were hard at work trying to find ways to make it easier for borrowers and to encourage them to get back into the housing market when the lockdown was over.

      As a result, several new mortgage products were introduced.

 

CASH BACK -  Cash back mortgages have been around for many years . The idea is that after you have put down your savings as a down payment , many people are cash poor and can’t afford to buy window coverings, build fences or do things to improved their properties. They have to wait for their cash flow to build up again. Cash back offers a percentage of 1%- 3% back at the time of signing which can be used for closing costs, or any of the items mentioned above,  A new twist on this was that you could get a $2000 cash back without having to pay a higher interest rate. It should be noted that if you sell your home before the 5 year term is up, you will have to pay back a portion of the cash back. For instance, if you sell the home after 3 years, you would have to pay back 2/5’s of the cash back for the 2 remaining years of the term.

 PRINCIPAL ONLY TERM – Another interesting mortgage product that was introduced was the Interest Only Mortgage. For the first 3 months , the lender will allow you to pay the principle on the mortgage. As new mortgages are mostly interest payments this would save the average buyer of a $300,000 home, about $700 a month or $2100 for the 3 months. Once again, there’s a couple of thousand to pay down debts, or pay for window coverings

   Finally, one lender spotted the problem with Purchase Plus Improvement mortgages. People find the perfect house but there isn’t a garage or perhaps the basement hasn’t been developed. They want to do this so they get a Purchase Plus Improvements mortgage which pays for the house with one cheque and then a second cheque is issued when the improvements have been made. The only problem is that most purchasers put all their money down on the down payment and don’t have anything for a deposit on the building project. Large companies understand the PPI program but small contractors can’t afford to carry the costs for a 4 week project. Now we have Purchase Plus Improvements WITH a Cash Back. Now you can plan to get the garage or basement done right away because you have the funds for the deposit.

This is great news for home buyers to get the home of their dreams. If you have any questions contact me at 403-836-1201

Thinking Outside of the Box - Blanket Mortgages

Thinking outside of the box – blanket mortgages

When someone calls me up out of the blue for a mortgage , I often ask them, “Why did you call me?”

 Often the reply is that a family member suggested it. I then ask, “Do you know what I do?”

 Once again , I will get a reply that they aren’t sure.  I will then explain to them that while banks do mortgages, they don’t specialize in them. They also do deposits, GIC’s, RRSP’s , insurance ,car loans etc.

 I only do mortgages, day after day. As I result I have more experience in unusual situations and we are getting more of them all the time. Sometimes you need to think outside of the box.

   Here’s an example,  Sally and Ted want to buy a home but they don’t have a down payment.  A recent HSBC Bank study found that 37% of young Canadians count on the Bank of Mom and Dad for their down payment.

Unfortunately in many cases, Mom and Dad would like to help them out but they don’t have the cash.

They own their home or have a low mortgage balance but their savings are tied up .  This is where thinking outside of the box comes in handy.  A blanket mortgage is a mortgage that covers the subject property and another property that has sufficient equity in it to carry both properties.

 

    If the parents are willing, a mortgage can put  placed on the parents ‘ home and the new home. If the property value for the 2 homes is more than 80% of the mortgage amount the new home can be purchased without the young couple having to save a down payment and pay expensive CMHC fees.

     What risks or down sides are there to this idea.?  If Mom and Dad want to sell their home and move to Arizona the children will have to get a new mortgage to cover their home .There may be penalties for breaking the mortgage which will have to be paid.  There’s also the risk that the children may fall behind on their mortgage due to layoffs  or maternity leaves and that could jeopardize the parent’s home.

 Is a blanket mortgage a good idea for everyone? No. Discuss your issues with your mortgage broker and they may find this to be the best solution for you or they may suggest something else .Email me  You can contact me here . 

Are the New Mortgage Changes Good or Bad for Canadians?

On October 3^rd ,Finance Minister Bill Morneau announced changes to the rules for mortgages insured by CMHC.  Everyone expected that these changes would address the problems with runaway prices and predatory practices in the Vancouver housing market. What came as a big surprise to many was the other changes announced for October 17^th.

  The biggest and most profound change was the use of the Bank of Canada benchmark rate to qualify for a 5 year fixed rate mortgage. The 1- 4 year fixed rate and the variable rate mortgage are already qualified at this rate. 5 year fixed and great terms were exempt.

     My first thought was why would anyone do this? This will devastate out housing market.  First time home buyers would not be able to qualify. I looked at a preapproval I had for a client who is presently looking for his first home. In August, I was able to qualify him for $330,000 . This would allow him to buy a small starter home.  When I tried to re-qualify him using the benchmark rate at 4.64% I found the most he could afford would be a $270,000 purchase. This would put starter homes out of range and leave him with a townhome or an apartment. Both of these options tend to be condos so I put the $300 average condo fee into the equation and now all he could afford was a $245,000 condo apartment.  This is frustrating considering we are using a fictional rate and not the rate we could lock him into for 5 years.

    I thought about this and then I realized that while I know interest rates will go up . When I purchased my first home in 1986 my mortgage interest rate was 9.98%. I was so happy to be paying less than double digits..  I’ve been in this business for over 11 years and I remember in 2010 the best rate I could get clients was 5.79%.  While I don’t expect rates to jump into the double digits, 2010 was only 6 years ago and rates could go up to 5.79% within the next 5 years.

I realized that I wasn’t asking myself an important question. Will my client be able to continue making payments in 5 years if mortgage interest rates go up to historical normal levels?  I was betting on my clients income going up quite a bit in the next 5 years.  As the focus of my business is helping people I started to think that I may be putting people in a bad situation. Perhaps this higher qualification rate is the prudent thing to do.

      Another item that did not make headlines was the fact that CMHC would no longer insure mortgages over $1 Million dollars.  While there had been a scaling back on insurance over $1 Million, now this is completely gone. As a result, lenders who back end insure such as monoline mortgage companies will now not be able to offer mortgages to these clients. The only place to get a mortgage will be the big banks.  I know that from previous experience that when banks do not have to compete they use their bank posted rates. We have seen this with mortgages for mobile homes.  I expect the same thing will happen with Million dollar plus mortgages in the future.

     As you can see, the changes are a mixed bag, there’s some prudence but also the possibility of higher interest rates in the future.  The jury is still out as to whether these are good changes or bad. 

Contact me or visit my website for more information on mortgages in Canada.