Mortgages: Year In Review And Look Ahead

And what a year it has been! From product changes, rising rates to new entrants and Government influence, we’ve seen it all in 2010.

The year started off rather slow in the news world. The market was slowing, interest rates held at 2.25% and those who were smart (or lucky) to have kept with variable would have enjoyed further discounts to these rates, some as low as 1.30% (or even better in the rare case). Then, big Government stepped in. Jim Flaherty, our Finance Minister, wanted to prevent a US-style housing collapse and instituted new mortgage financing rules effective April 19th 2010, including:

1. Tougher financing conditions for self-employed people; in some cases having to prove income 100% (quite difficult if you’re self-employed)
2. Shortening amortization to 35-years from 40-years maximum.
3. ALL mortgages except 5-year fixed must qualify at the 5-year posted (a tough sell when the variable is at 1.35%, but posted was at 5.19%)
4. Elimination of zero-down mortgage financing entirely (although 5% cash-back mortgage products are still in existance)

Many expected this to have a gruelling effect on the market, however CAAMP estimates we will hit the $1T (yes, Trillion) mark by year end 2010 in mortgage financing. It is obvious, then, that this didn’t have the effect that many in the industry predicted of doom and gloom, rather, buyers may have been forced to buy for a little less, take on less debt, and manage their money better. All of which is positive for the market, short- and long-term.

Another theme that was prevalent during the last year was low rates. 5 year fixed rates hit an astonishing 3.29% at one lender for a short period of time, about 2% below historical standards. Rate wars came between primary lenders (big 5…


Investment Properties - a market comparison.

While on vacation in the Turks and Caicos Islands, the family had a discussion about buying investment properties. Interestingly enough, we compared a 2 bedroom, 2 bathroom 1200 sq ft condominium on the water, to a downtown unit of the same price (in Toronto), using the and websites - and our results were eerily similar! Half a million will get you a condo like this in either place, be it a tropical island paradise, or Canada’s largest city. From an investment perspective, the islands of Turks and Caicos are very Canadian-friendly in that three of the “Big 5” have set up shop there - CIBC, Scotiabank and Royal Bank. As a result, obtaining financing for an investment property down there is easier than in other parts of the world.

Other comparisons:

Their mortgage rates are much higher, at US Prime + 1.5%, or about 4.75% today for an open, and 5 to 7% on a fixed. Like Toronto, they have land transfer tax as well, but it is more than double what we pay - 5% “Stamp Duty” on a purchase of $500,000 - that’s $25,000 in taxes alone. Rental potential is slightly different in that these units are typically rented for 30% of the year, but at a per-week rate of $2500 to $3500. Maintenance fees are approximately the same, the one unit we were at was $711 for maintenance, but another advantage is they have no property taxes down in the Turks and Caicos Islands.


Let’s re-visit the cash back mortgage.

I had a client come to me the other day who had very little savings but an excellent credit rating and salary. He had been going through a difficult time paying for a medical treatment for his parents, which is where his savings were going. No matter, he was ready to buy.

He qualified to borrow $285,000 which represented a $300,000 purchase with 5% down. The beauty of the current down payment offer from Laurentian Bank and National Bank is that the client does not need the full 5% down up front, since the bank “fronts” the down payment directly to the lawyer. Therefore my client only needed to bring the closing costs which were covered by his $5000 deposit on offer.

(To quantify using the above example:

$300,000 purchase with 5% down is a mortgage of $285,000 plus 2.75% CMHC, or $292, 837.50

Client gets 5% cash-back from the mortgage amount, therefore must cover difference and closing costs. 5% of $285, 000 is $14, 250, so the difference in down payment is only $750.00)

Now - here is where it gets interesting. My client initially balked at the “high” rate of 5.19%. He said there was no way he was paying that when rates are at 3.69% for a same term, with 5% down. What he didn’t take into account was that 1) he had no money for down payment and 2) the line of credit repayment would have been more than if he took a cash-back mortgage.


5% down at 3.69, payments are $1451/month PLUS a 5-year loan at a bank, Prime + 2%, is $279/month. TOTAL: $1730

5% cash-back at 5.19%, total: $1688

So as you see, my client was surprised (and happy) that he was able to buy a property, bring forward a very small…

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