Homeowners are going on ‘spending binges’ – study

  Here's a great article by my associate Michael Mata .

Homeowners in Canada’s hottest housing markets are taking advantage of rising property values to go on spending binges, according to National Bank of Canada, the nation’s sixth largest bank.
“The sharp appreciation in home prices in Ontario and British Columbia, fueled by extremely accommodative monetary policy, have undoubtedly encouraged some homeowners to tap into their home equity in order to support a spending binge,” said Stéfane Marion, chief economist and strategist at National Bank of Canada.
In Canada, there are currently about three million active home equity lines of credit (HELOCs), according to National Bank, citing data from the Financial Consumer Agency of Canada.
On average, the outstanding balance on Canadian HELOCs is $70,000, and these types of loans account for about 45% of consumer credit.
Rather worryingly, there has been an increase in this type of consumer debt. “We estimate that HELOCs at Canadian chartered banks have surged by close to $20 billion in the past year, accounting for close to 60 per cent of the growth in total consumer credit,” Marion said.
Households taking advantage of HELOCs are fueling a broader borrowing frenzy, said National Bank. During the last quarter, consumer credit grew at its fastest rate since 2010.
While National Bank doesn’t examine what Canadians are spending their HELOCs on, earlier this year, one Toronto-based mortgage agent told BuzzBuzzNews that homeowners are increasingly using their HELOCs to help their children finance their own home purchases.
Overall, the racking up of consumer debt is extremely risky, National Bank warned. While it supports near-term GDP growth, increased debt, including HELOC debt, poses risks to the financial system’s stability and undermines the financial well-being of individuals.
“So, the resurgence in consumer credit may ring some alarm bells at the Bank of Canada which, as you may recall, continues to see household indebtedness and housing market imbalances as ‘the most important vulnerabilities for the Canadian financial system,’” Marion said.  

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Mortgage brokers are super heroes

Mortgage brokers have a reputation as superheroes. Although we cannot leap tall buildings in a single bound we can do extraordinary things.
Is the down payment money coming from outside of Canada? I had a client who had a joint account with her father in Japan. She showed me bank statements with the money in the account and leaving Japan. I had another bank statement showing the funds coming into her Canadian account. Finally I showed the foreign exchange rate for that day from Yen to CAD. The bank accepted this as a suitable paper trail.
An unusual down payment source? I had a client who sold his vintage Cadillac for his his down payment. A copy of the registration, the bill of sale and a bank statement showing the funds going into his account was deemed fine by the bank.
Is your down payment coming from multiple sources? I recently had two brothers purchasing a home together. They both had their money in RRSP’s and TFSAs. It took some explaining but we were able to show all the down payment and closing costs coming from four different sources.
Several years ago I had a client defaulting on two mortgages. Foreclosure was just days away.
I was able to consolidate the two mortgages, pay them out and get a reasonable payment schedule for one year. After the year , I moved him to a regular lender and arranged for a line of credit so that he could pay for some home renovations with a low interest rate secured against his home.
I had a couple who wanted to buy a home. The husband had had a business failure and it had affected his credit. I could only use the wife’s credit and her income for this purchase. She was a foster mother with six children. Her income was good but not high enough. I was able to get the lender to gross up her income by 25%, as her income was tax free. This was enough for them to buy a large home for the couple and their foster children.
Small towns can also pose unique problems. I had a client who wanted to refinance his home. I checked his credit report and found a credit card that he did not have. He told me that there were five people with his name in this small town. He also revealed that he had an account at Home Hardware that was not reporting on the credit bureau. The manager was a friend and thought that the loan would hurt his credit so they made an informal arrangement to pay it off.
Did I mention that he had three jobs? He worked as a tire installer, and invoiced the company from his firm. I was able to get a lender to accept this client his varied income and got the mortgage . Come to think of it , perhaps mortgage brokers are superheroes. If you have a difficult situation the best person to speak to is a Dominion Lending Centres mortgage professional, if it can be done legally, a broker can do it.  for further information visit my Facebook page or my website 

Market Commentary

Earlier today, First National Financial, one of Canada's largest mortgage companies issued a market summary. This is what their economists predict will be happening for the rest of 2012. It's a guess, but it's an educated guess. Here's what they had to say. "The latest interest rate announcement and policy statement from the Bank of Canada make it pretty clear there’s unlikely to be any increase this year. While the economy appeared to be making all the right moves early in the first quarter, in the end, the results didn’t meet expectations. The resurgence of the Greek problem, the growing troubles in Spain (the euro zone finance ministers agreed to lend Spain up to $125-billion (U.S.) to shore up its struggling banks),slowing in the rest of Europe, China and the U.S., and weaker than expect growth at home have the central bank backing away from hints about a hike. Nonetheless the Bank remains concerned about the risk of a housing bubble and a high level of household debt." With rates this low, is it time for you to renew your mortgage early or consider getting a preapproval? Contact me to discuss your options. If you would like to get a weekly email with current mortgage rates click here and fill out your email address under Subscribe to News and Rates. David Cooke - your Calgary mortgage broker

No Bank of Canada rate change

The Bank of Canada announced that it is maintaining its target for the overnight rate at 1 per cent. As a result, the prime rate will remain at 3.00%, much to the benefit of variable rate mortgage holders.



In a press release, the Bank of Canada gave the following reasons as to why they took another pass on a rate hike this time around:



"The outlook for the global economy has deteriorated (since October)."
"...very favourable financing conditions are expected to buttress consumer spending and housing activity."
"...the ratio of household debt to income is projected to rise further."
"The economy is only anticipated to return to full capacity by the third quarter of 2013, one quarter earlier than was expected in October."
"With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada."



The next Bank of Canada rate meeting is March 8, 2012. It is expected to continue with no rate change at this meeting too.
What does this mean for you , the average consumer? If you have a variable rate mortgage or a line of credit, your interest rate will remain the same at least until March 8th. If you have a fixed rate mortgage, this announcement does not affect you at all.
By the way, if you have an unsecured line of credit you are probably paying about 6% now. If you own a home, you can get a line of credit secured against your home and pay about 3.50%. This can be a considerable saving. Contact me for more information on how you can save money.

More Canadians planning on buying their first home

Genworth Financial Canada, a private mortgage insurance company which competes with CMHC announced today there that there has been a significant increase in the number of people planning to purchase their first home, moving from six per cent in 2010 to 11 per cent in 2011. The results are from an Environics poll "of those Canadians who are considering a first home purchase in the next two years, the most likely group to take the plunge include people under 35 (14 per cent), those with children (12 per cent) and those with incomes between $75,000 and $99,000 (11 per cent)." the poll states. This is good news for home owners. If more people get into the market,particularly first time home buyers, this will allow home sellers to get rid of their present property and move up to a larger home. What was even more interesting was Canadians opinion of financial literacy, understanding financial matters. 95% felt that schools should be teaching financial education. Something that surprised me was that 92% of peple felt that individuals should have a financial education before they can receive a credit card. What a great idea? If people had a better understanding of credit and how finances work we would probably have few bankruptcies and people getting in over their heads with debt. I would welcome this idea. If you have any questions about financing a home contact me . I would be happy to help you .

Clearing up misconceptions about the March 18th rule changes

Today I was speaking with an underwriter from a Calgary mortgage company. She said that she was swamped with mortgage applications all with a March 18th possession date. I guess their mortgage brokers did not take note of what is happening on March 18th. The rules clearly state that if you want a 35 year amortization for your mortgage or if you want to refinance and take out up to 90% of the value of your home, the deal must be in place by March 18th. This means that the paperwork must be in the lenders hands by March 18th. A possession date of April 30th would be acceptable. Frankly in our Canadian climate I would not want to be moving in March. You may be moving your sofa in snow or sleet. Ice on the sidewalk is a definite possibility.
If you have your eye on a property get an offer in now. Don't worry about having to take possession by the 18th. You still have time. If you have any questions contact me at 403-836-1201or visit my website at Mortgage Alliance

Survey- Canadians worried about rising interest rates

A new survey says that 20% of Canadians with variable rate mortgages are worried that if interest rates rise they are not sure that they will be able to afford the monthly payments. BMO has suggested that you try the stress test to see. Pick a higher interest rate, figure out the monthly payments and see if it works with your budget. Why are they suggesting this? No one knows how to figure out monthly payments so you will go into a branch and they have an opporuntity to get you as a customer.
What you may not know is that you have already been stress tested at the time you took out your mortgage. Up until this time last year, all variable rate mortgage applicants were tested at the 3 year fixed posted rate. This rate is at least double the variable rate and often 2 1/2 times as great. Last year, Jim Flaherty changed that to the 5 year fixed posted rate. The present 5 year fixed rate is 5.44%. In order for you to get your present mortgage you had to qualify at this higher rate. Therefore you have been stress tested.
I should add though, that if you live in Vancouver or Victoria, the idea of having your monthly mortgage payment double is a scary thought and I have to wonder if you were councelled by your bank or broker as to the negative aspects of variable rate mortgages.
As a general rule, a person advising you on a mortgage should present the positive and the negative aspects of the product so that you can make an iformed choice. Unfortunately, many bankers and mortgage brokers offer you one choice which they have made. This is one reason that CAAMP, the Canadian Association of Acreditted Mortgage Professionals has introduced the AMP designation. Anyone with the AMP accreditation will work for you and not let their personal preferences get in the way. By the way, did you know that Joe or Jane at the bank has not taken a mortgage course and does not belong to your provincial mortgage association? They are bank employees and do not need to take any training or special courses. Scary isn't it?
The author is an accreditted mortgage professional with Mortgage Alliance in Calgary Alberta. Visit his webpage at http://mortgagealliance.ca/davidcooke

Choosing a mortgage broker over a bank

Why should you use a mortgage broker instead of a bank. It brings it all down to 3 points

1. best rates – banks only offer you their best rates not their competitors. We have access to banks, mortgage companies, trust companies and private lenders. When a bank decides to increase its market share by offering extraordinarily low interest rates are exceptional terms a mortgage broker can offer you that. While banks can offer you their 5 or 6 different mortgages or HELOCS, I have access to 40 lenders and roughly 150 different mortgages and HELOCS>

2. customized products. – we carry products that banks can’t offer due to banking regulations ie: private lenders with interest only products, stated income products,one year open mortgages,New to Canada or even one for people who do not have employment.

3. customer service- as we rely so heavily on referrals we go above and beyond in our service, meeting clients at night, weekends, accompanying them to their branch to get their RRSP’s cashed. When a client comes to me with credit issues, I will work with that person to improve their credit and when they are credit worthy, I'll get them into their own home. When was the last time a bank offered to help you re-build your credit? Never!

If you want a savings account, a RRSP go to a bank. If you want a mortgage, go see a mortgage broker. You'll do much better with a broker.

CMHC Outlook for Q1 of 2011

CMHC issued their housing outlook for 2011 for the first quarter. They expect housing prices to stabilize and then rise slightly this year. This is good news for anyone who has a property they bought at the peak of the housing boom as prices return to what they were at the time of their purchases.
Anyone who wants to renovate will now have more equity in their homes to pull out in a line of credit to finance these projects. Lines of credit are a great way to finance projects or purchases using low interest loans.
Here is an overview of what CMHC had to say about Alberta's economy

Overview
The recovery of oil prices is providing a welcome boost to the Alberta economy. Provincial crown petroleum and natural gas rights were auctioned at record values in 2010, which will lead to higher drilling and energy exploration in 2011. Investment in oil sands projects will also continue to grow, accelerating economic growth in Alberta. The natural gas industry will continue to be impacted by a low price environment and its contribution to the economy will be muted until prices move higher.
In 2011, employment growth in Alberta will recover and exceed the peak level of employment reached prior to the economic downturn. Improved labour market conditions will move the unemployment rate lower and draw more people to Alberta.
The turnaround of interprovincial migration flows in 2010 should continue over the forecast period, as Alberta’s labour market attracts more migrants in 2011 and 2012. International migration will remain elevated over the forecast period. Total net migration to Alberta is projected at 31,450 in 2011, then rise to 34,100 in 2012. Overall, migration patterns are expected to support housing demand in Alberta.

New mortgage rule changs for 2011

Jim Flaherty , the finance minister, made 3 changes to the mortgage rules today.
1- mortgage amortizations were shortened from 35 years to 30 years
2- home refinancing was lowered from 90% to 85%
3- Home equity lines of credit()HELOCS) will not be insured by the government
How will this affect home owners and potential home owners? With 5 years shaved off their mortgages, monthly payments will rise. Consumers will get less house for their money as the monthly payments will put homes previously within their budget in the unaffordable category. How will this affect home owners and potential home owners? With 5 years shaved off their mortgages, monthly payments will rise. Consumers will get less house for their money as the monthly payments will put homes previously within their budget in the unaffordable category.
Of more importance is the 2nd rule change. If you want to refinance and take money out for your TFSA, RRSP, investments or for renos, you will be restricted to leaving 15% equity behind in your home. What most people will do is move to higher interest rate loans such as unsecured lines of credit, consumer loans and credit cards. I believe that this will encourage inflation and result in higher interest rates.
Finally, insuring HELOCS isn't an issue. Most HELOCS have 80% LTV limits so they were not insured anyways.
Today's new rules will be applied March 18th. If you are looking for a mortgage with a 35 year amortization to keep the payments down or if you want to refinance your home, you have until March 17th to take advantage of our present rules.
Call me at 403-836-1201 if you have any questions.