You Don't Need to Cry

Several years ago I had a lady call me and ask me to get her out of her mortgage.  She had a fixed rate mortgage with a home equity line of credit (HELOC) that grew as she paid down her mortgage. I asked her how that was going as many people find they can pay down their mortgages so much faster and they are very satisfied. Her response was not at all happy. She was close to tears.  As her mortgage balance went down and her HELOC increased she would go out and spend more money, on vacations, furniture etc. The result was that after 5 years she had owed just as much now as she did back then. On top of that the person who put her in the mortgage never explained that there was a monthly fee similar to a bank account fee. It wasn’t much but it peeved her that she had not been informed.

  My first question was “ Did the bank rep ask you if you were a spender or a saver?

”no,” she said I’m more of a spender than a saver.”  Now I understood her problem . She was meant to have a regular fixed rate mortgage.  My next question was “ are you paid every two weeks or monthly?  I then showed her an amortization table with monthly payments and bi-weekly side by side and showed her that she could shave 3 ½  years off her 30 year amortization by switching to bi-weekly payments.  What a relief she felt when I was able to put her in a regular mortgage.

    The morale of the story – mortgage brokers ask lots of questions in order to avoid problems in the future. Answer their questions true fully  and you will be happy with the results. 

for more information contact David Cooke - http://davidcooke.ca 

 

Changes to Canada's mortgage rules - November 1, 2012

    Today we received a reminder from our lenders about the changes to mortgage rules in Canada as of today. The major change that will affect people today is that if you want a line of credit , the maximum that you will be able to access is up to 65% of the value of your home. This is down from 80% yesterday. As Canadians grapple with high debts on credit cards and loans, this will remove one way for them to consolidate their debts. I suspect there will be more unsecured loans and more people driven into bankruptcy.
        The other big change is with conventional uninsured mortgages. As of today you will have to qualify at the bank's 5 year  benchmark rate intead of the lower rate for 1-4 year mortgages. This may make it difficult for investors and some home buyers.
 We will have to wait to see what the repercussions are from this latest change to the mortgage rules.
 If you want more information or to discuss these changes you can contact me here.
 I have included the whole notification below for you to read over yourself.
 

As I suspect you are aware, OSFI - the regulator of all Canadian Financial Institutions, has imposed underwriting guidelines for Residential Mortgages on all regulated lenders and CMHC.  These underwriting guidelines are known as B20 and have been created at the insistence of the Financial Stability Board, the financial oversight organization of all G20 nations.  The creation of these guidelines is a direct result of the financial crisis caused by poor American mortgage lending practices.

My purpose in writing this is to give you, our valued brokers, an overview of the components of B20 in general terms.  I will explain to you what it means to your lender partners - at least to Optimum Mortgage and secondly, what it means to you. 

Components of B20
The Guideline sets out what OSFI considers to be prudent residential mortgage underwriting standards.  A residential mortgage is considered to be a loan or any other product, like a HELOC, that is secured by a residential property - up to a four-unit dwelling. 

The Guideline sets 5 principles for sound residential mortgage underwriting:

1.       All lenders must have a policy outlining risk appetite, governance and over site mechanisms to ensure lenders follow their own policies;

2.       Lenders must confirm the borrower’s identity, background and demonstrated willingness to service debt obligations on a timely basis;

3.       Lenders must assess the borrower’s capacity to service their debt obligations on a timely basis;

4.       Lenders must be satisfied that the value of the property being financed has been confirmed by an independent third party; and,

5.       Lenders must stress test their book of business with unlikely, but plausible scenarios to determine the impact to their business.  Lenders are expected to impose a higher level of due-diligence on higher risk deals, conduct ongoing risk-assessments on the insurers they use and generally pay close attention to the risk attached to their residential mortgage portfolio.

Don’t put off getting your line of credit set up

In June 2012, the Minister of Finance announced that mortgage amortizations would be shortened once again. This time the maximum amortization would be down to 25 years from 30 years.  This would not affect existing mortgage but only affect those making new purchases. However, in the same week the OSFI , the Office of the Superintendent of Financial Institutions Canada, a division of the government of Canada also announced changes that could affect Canadians even more.

    The OSFI announced that effective October 31^st , the maximum amount that you could finance your home using a Home Equity Line of Credit (HELOC) would drop from 80% of the house value to 65%.

 How will this affect your average Canadian? If you were thinking about opening a line of credit to give you funds for finishing the basement, re-doing the roof , paying for a wedding or even buying a car, you will be limited in how much cash you can pull out of your home’s equity as of October 31^st.  If you have ever made a large purchase you know that paying cash gets you a better price. HELOC’s give you the option to pay cash and then pay the amount down over time when you have extra cash, while having an interest rate at or near bank prime rate. This is one of the cheapest forms of credit and it will be limited  soon.

   My advice is to establish a line of credit now even if you are not planning on using it right away. The reason being, that all lines of credit up to 80% will be grandfathered and you will have the freedom down the road of having re-advance able credit using 15% more of your house equity.

    Here’s another fact you should be aware of, Eco-rebates from CMHC and Genworth. When you purchased your home you paid a premium to CMHC or Genworth to insure your home. This may have been over $10,000 . Did you know that if you make your home more energy efficient you can get 10% of your premiums returned to you?  Did you know that there’s no DEADLINE on how long after your home purchase you can claim this rebate? $1000 could pay almost half of the cost of new furnace, or for a new window. You can find out more about this program by visiting CMHC’s website here http://www.cmhc.ca/en/co/moloin/moloin_008.cfm If your home was insured with Genworth, they have a similar program http://www.genworth.ca/homeownership/pdfs/Product_Overview_EEHP.pdf

    Why do you have to act now if there’s an October 31^st deadline? Experience has taught me that when these restrictions are announced the banks tend to react quickly and they won’t wait until October to implement the changes. I would think that by Labour Day we will see all the banks using the new guidelines. Now is the time to act. Call or email me at http://davidcooke.ca and we can discuss whether this is a good option for you.