Lower Amortization!

....annnnnnd the other shoe has dropped. Seemingly out of nowwhere new mortgage rules are changing, with an announcement coming tomorrow morning. 25-year will be the maximum amortization for insured mortgages from now on (or, from a soon-to-be-announced deadline). On $100,000 at 3.19% that’s an increase of $53 per month in your payment. Not chump change but it’s still something. What I like about this new rule is it will force to pay down your mortgage sooner by increasing how much goes to principal. At 30 years amortization, 38% of your payment goes to principal from day 1. At 25-year it goes up to 45%. That in itself represents a huge savings (when you compare to the good ol’ days of 5%+ where 20% went to principal). Eventually you will be paying rent with high amortizations, so this is a good move. What I worry about though is qualifying for properties, especially in the GTA. Our prices have gotten completely out of hand in some pockets of the city. On an average income of $65K with 5% down, the qualifying amount goes down by $50,000 under this new rule. That is more than just “something”. That can mean the difference between buying or not, which if the first-time buyer goes, so do the dominos.

We’ve all been reading the papers lately, right? And they’ve been comparing Canada to: The UK, China, the US, Australia, etc etc etc. If we as a whole want to prevent that from happening, then we as a whole must realize that this can only be a good thing for “us” long-term. It’ll cause an artificial spike in the number of buyers, then we’ll see a cooling off, but I don’t believe this will have that much a detrimental effect on the market. Remember we went from…


Hot Topic: Interest Rates

Headlines in both of Canada’s daily newspapers (Globe and Mail and National Post) screamed financial panic, or the potential of financial panic. I would like to discuss three topics that the Governor of the Bank of Canada, Mark Carney, has touched on, and how you can keep yourself immune from such dire straits as are being predicted.

In the first article, Why No Canadian Is Safe From Rising Rates, we are reminded that a short while ago Prime rate was 6.25%. So you know all those people who are gloating that their rate is 2.1% now? Well if we are to head back to 6.25% they’ll be gloating that their rate is 5.35%, or maybe they won’t be gloating at all. The point is that we’re not that far removed from such high rates and today people need to stop fretting over .10 basis points in their rate, thinking they could’ve done better. Trust me, it could be a lot WORSE.

In a more wide-ranging article, Your Finances Could Get A Big Shock, doom & gloom is rampant as the message-du-jour, should the Euro-crisis not resolve itself one way or another.  What Carney and the Bank is worried about is the problems in Europe will spread to the US (our biggest trading partner), and impact us in 2 ways: tighter lending standards and more importantly higher unemployment. With our debt-to-income ratio already higher than what was seen in the UK and US at their peaks, the reason for worry is legitimate.

So what to do?

I’ve been saying it all along - pay down your mortgage balances now, start with aggressively adding money while rates are low. Another thing everyone should have is…



In a release today, OSFI has said that it will rely on the banks and lenders to assess how they will look at renewals, and that clients track record of repayment should be the key factor vs re-qualifying fully.

See the release here:


This is a huge relief to those in the industry and many thanks to CAAMP and IMBA for their hard work in this regard.

Carry on then!


Predicting The Future.

I’m hearing more and more rumblings about the impact that OSFI wants to have on Canadian lending standards, and I am getting more and more worried that one major change may be coming down the pipes: requalifying for a mortgage at renewal. There are so many reasons why I don’t think this is a very prudent move to enforce, least of which of course is the fact that I think it will cause a market downturn. Most of all, it will cause stress for the many first-time buyers who do not come equipped with a a degree in being able to tell the future. Make that, a Ph.D. in this field. I have yet to meet a graduating member of the University of Foretelling actually.

Ok I’ll stop being sarcastic.

On a serious note, let me tell you what could happen to my current crop of 2012 first-time buyers:

They could lose their jobs.
They could change careers.
They could start a family.
They could switch to being self-employed.
They could be on a sabbatical.
They could be on a world vacation.
They could ....

Well, you get the idea, right? Because we all plan our lives (at least some of us), and because plans sometimes go the wayside when unexpected things happen, it would be foolish for a bank to ask a client who has never missed a mortgage payment in five years and whose equity position has risen because of a good housing market to suddenly have to requalify and submit job letters, paystubs, or explanations as to why they are where they are financially. Surely the clients who keep missing payments could feasibly be made to qualify, but if in Canada our repayment rate is in the high 90s, what’s…

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