New Rule #1: Increased qualifying rates on fixed terms less than five years and variable mortgages.
Effective April 19, all high-ratio insured mortgages that have a variable rate or a fixed term under five years will be qualified using the:
the chartered bank 5-year posted rate (5.39% today), or
There’s been a lot of speculation surrounding this change. The new qualifying rate has been a big question mark ever since the Finance Department announced its new mortgage rules on February 16.
The posted qualifying rate will be published by the Bank of Canada each Monday at approximately 12:01am Eastern Time.
Currently lenders use qualifying rates that range from discounted 3-year fixed rates (like 3.29% today) to posted 5-year fixed rates (5.39% today).
Going forward, mortgages with terms of five years or more will use the contract interest rate. This is key because it suggests lenders will still be able to qualify insured 5-year fixed borrowers using heavily discounted contract rates (e.g., 3.75% instead of 5.39%, as of today).
New Rule #2: 5% increase in the down payment requirement when refinancing. (90% LTV will be the new maximum for refinances. Currently it’s 95%.)
New Rule #3: 15% increase in the down payment requirement for rental property financing. (20% will be the minimum down payment for insured rental financing. Currently it’s 5%.)
These new rules are currently scheduled to take effect April 19.
The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.
The IRD is based on:
The amount you are pre-paying; and,
An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.
Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD. Variable-rate mortgages do not have IRD penalties.
Things to note…
Each lender has its own formula for calculating penalties.
Some lenders use posted rates for their IRD calculation and some use discounted rates.
Some lenders round up to the next longest term when determining comparable IRD interest rates. Some round down.
The Interest Act prohibits IRD penalties on terms over 5 years, after five years has elapsed. In such cases, a maximum 3-month interest penalty may apply. For example, someone who has been in a 6-year mortgage for 60 months or more would pay a 3-month interest penalty (maximum) to break it before maturity.
A small number of lenders prohibit breaking a mortgage early—regardless of the penalty—unless in the case of an approved bona fide sale.
The moral: Always contact your lender directly for an exact penalty quote.
I’ve been getting A LOT of questions about The British Columbia Government’s new Harmonized Sales Tax and how it will affect Vancouver Real Estate. My 2 Part interview with Tony Spagnuolo, owner of one of the largest real estate specific law firms in the lowermainland.
BOTH Part 1 & 2 of the interview are below.
www.bcrealestatelawyers.com
4 Quick Facts on BC’s proposed new 12% HST effective July 1, 2010:
It only applies to BRAND NEW properties and is paid when the property completes at the Land Titles Office. The HST is NOT PAYABLE on re-sale properties or used properties.
Increase in the maximum threshold for rebates on HST from $400,000 to $525,000;
The maximum rebate will be increased to $26,250;
Transitional rules will apply – if you enter a contract before November 18, 2009, but complete after July 1, 2010, the provincial portion of HST will not be payable. This means you will pay only 5% GST, as you do today.
I’ve included a PDF link of the Press Releases from the BC Gov’t below.
If you’re buying a Pre-Sale, and Assignment, or a Property that is completing after July 1, 2010 and you think HST may be payable – SPEAK TO YOUR ACCOUNTANT AND YOUR LAWYER!
The Mistakes Smart People Make When Buying a Home – and How to Avoid Them
Mistakes
Prevented By
1. Not knowing how much they can afford to pay for a house before they make an offer.
Get pre-qualified for a mortgage from a Lender, so you know in advance exactly how much you can afford.
2. Not finding out in advance whom the real estate agent represents.
Asking your Realtor. Most people think their agent is working for them. But unless the agent is working as your buyer representative, he/she represents the seller.
3. Not realizing that the wrong mortgage can cost thousands of dollars in unnecessary interest and taxes.
Consulting with a mortgage consultant before making a final decision on which mortgage to choose.
4. Not discovering hidden defects before buying a home.
Hiring a professional to conduct a pre-purchase home inspection.
5. Not knowing how debt can affect their ability to buy or refinance a home.
Twitter is a free social networking and microblogging service that enables its users to send and read messages known as tweets. Tweets aretext-based posts of up to 140 characters displayed on the author’s profile page and delivered to the author’s subscribers who are known as followers.
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On April 19 our government will lay down three major rule changes to “prevent” a housing-price bubble and keep homeowners from getting “overextended.”
These new rules apply to government-backed insured mortgages only.
5-Year Fixed Qualification Rates
The New Rule: Borrowers will need to qualify using a 5-year fixed rate regardless of what term they choose. If you want a 1.95% variable rate, for example, you will need to show that you can afford payments at a higher fixed rate, like 4.09%.
The Government’s Reasoning: “This initiative will help Canadians prepare for higher interest rates in the future.”
The Effect: It will now be harder to qualify for a variable-rate mortgage, but not much harder. Most lenders already use three- or five-year mortgage rates to calculate a borrower’s debt service ratios. For many discount lenders, this means the qualifying rate will go from something like 3.25% to 3.89%-not a huge difference.
90% Maximum Refinancing
The New Rule: No longer will you be able to refinance your home to 95% of it’s value. 90% will be the new refinance maximum.
The Government’s Reasoning: “This will help ensure home ownership is a more effective way to save.”
The Effect: Borrowers will be less able to pay off high-interest debt with lower-cost mortgage money. On the upside, this rule has the positive effect of keeping equity in the home (which is quite helpful when home prices fall). It also discourages homeowners from relying on home equity to bail themselves out when they accumulate debt.
80% Maximum Insured Financing On Rentals
The New Rule: People buying non-owner occupied rental properties will need to put down 20% to get an insured mortgage, versus 5% previously.
The Government’s Reasoning: To reduce speculation.
The Effect: The number of investors creating rental housing will drop notably. Investors will need to borrow down payment funds elsewhere (assuming it’s allowed) or use higher-cost non-insured lenders to get 90% financing. Note: This rule does not apply to multi-unit owner-occupied homes with rental units (like duplexes and triplexes).
What to Expect:
Undoubtedly there will be a rush of applications to beat the April 19 deadline.
The government says “Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.”
The 80% rental rule will crush the income property financing business for some lenders and brokers.
If history is a guide, certain lenders will implement these guidelines early (i.e. before April 19).
OTTAWA — Amid warnings about “reckless” housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.
He said at a Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. This measure would apply to all first-time buyers. Homeowners with insured mortgages are not affected, unless they choose at a later date to extend the amortization or look to refinance.
Other rule changes unveiled would affect people looking to refinance their mortgages — lowering the maximum amount that can be withdrawn to 90% from 95% — and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would affect people looking to buy condo units or duplexes for rental income. Previously, only a 5% down payment was required.
But Mr. Flaherty said the changes, to take affect April 19, were not meant to stop a possible housing bubble, as some warned was upon us unless Ottawa was prepared to act.
“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one,” Mr. Flaherty said.
The existing home sale market has been on a tear, largely powered by historic low rates. Last April, the Bank of Canada cut its benchmark policy rate to 0.25% and pledged to keep it there until this July in order to stoke economic growth.
Eric Lascelles, chief economist at TD Securities, said the Canadian housing market should continue on a “turbo-charge” ride until the April 19 implementation date, “then cool sharply, and then resume a more modest rate of ascent. In theory, home prices should take a mild hit immediately, as the number of Canadians capable of financing a home will dip slightly. The market’s expectation for rate hikes should be scaled back modestly as housing slows and the need to address it via monetary policy fades.”
Mr. Lascelles added the move will likely add to Canada’s already sterling reputation among currency and bond traders that the country “gets it” in terms of financial regulation.
Mr. Flaherty said the measures would “have some stabilizing effect on the housing market. And stability is a good thing.”
He said the changes should still make housing affordable for first-time homebuyers. His main concern, he added, was that Canadians were at risk of overextending themselves as interest rates are at historic lows and are bound to climb.
“This will help Canadians prepare for higher interest rates. One must always guard against the temptation take on more financial risk simply because interest rates are lower.”
Further, he said data emerged indicating people were engaging in “reckless speculation” by buying multiple condo units and not choosing to live in them. As a result, the Minister decided to move before the March 4 budget, when many people speculated changes might be introduced.
“We are encouraging people to build equity [in their home] over time, using home ownership as an effective way to save – rather than as a vehicle for quick cash,” he said.
The changes “will discourage the kind of reckless real estate speculation that could drive prices to unsustainable levels which does not serve Canadian homebuyers.”
The decision to adopt new mortgage rules emerged after nearly a week of dire warnings from prominent Canadians — such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge — that the housing market was on the verge of possible trouble, as price increases were not sustainable and present mortgage rules were too lax.
Frank Techar, president of personal and commercial banking at Bank of Montreal, said the bank supports Ottawa’s moves, although adding the lender does not believe the country faces a housing bubble.
“Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent,” Mr. Techar said in a statement.
He said the bank “for several months now” has been encouraging Canadians to stress test their financial budget using a mortgage payment based on a higher interest rate.
The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95% of the loan value. The government’s housing agency had offered mortgage insurance on loans worth as much as 100% of the home value and amortization periods of as many as 40 years since 2006.
Homebuyers with a down payment of less than 20% of the property’s value are required to obtain government-backed insurance in exchange for financing.
Canadian home prices and resales will grow to records this year, boosted by low interest rates, the Canadian Real Estate Association said in a report last week. Canadian new home prices rose 0.4% in December from November, the sixth straight gain, according to government figures.
As recently as two weeks ago Mr. Flaherty said there was “no substantial concern” about the emergence of a housing bubble after meeting with private-sector economists. And in an interview with the Financial Post in late December, he said there was “no evidence” of asset bubble in real estate.
In an address last month on behalf of a deputy governor, Bank of Canada advisor David Wolf dismissed talk of a housing bubble in Canada as “premature,” warning that calls for higher interest rates now in an effort to temper real-estate markets would be akin to “dousing” the economic recovery with cold water.
However, the Bank of Canada said addressing housing excesses was best left in the hands of the Minister of Finance, through regulatory changes such as the ones announced Tuesday.
Vancouver Mortgage Broker Mark Fidgett explains How to Choose a Notary or Lawyer to handle the home buying transaction
The Notary or Lawyer will register the title in your name. They’ll register the mortgage on title and make sure that the title is free to be transferred.
Most Banks will let you choose your own Lawyer or Notary.
BUT BE VERTY CAREFUL when choosing your own because I’ve seen prices range anywhere from $700 all the way up to $1500 FOR BASICALLY THE SAME WORK
You may ask how’s this possible.
Please understand there’s not set price in the industry, it’s totally up to the individual Lawyer or Notary to charge whatever they want.
Rest assured, when you’re working with me, you don’t have to worry about this because I work with some great professionals.
BUT If you do decide to choose your own here’s some great advice.
When asking for a price, make sure you identify what you’re buying.
Whether it’s a house, a townhouse or a condo.
Let them know if there will be a mortgage and
MOST IMPORTANTLY –
ASK FOR AN ALL IN PRICE.
Often when asked for a price, they’ll quote their fee PLUS disbursements.
YOU DON’T WANT THAT you want an ALL IN PRICE and they should be able to give you that.
There are really only two things to note if you wish to buy here as a foreigner: In Canada you must pay 25% of your rental income to Revenue Canada and when you sell you need to pay 25% of any capital gain. Whoa - “Ouch” you say. Not to worry - it is 25 per cent of the NET rent and the NET capital gain - as long as you file the appropriate forms and have a Canadian agent, otherwise taxes will be collected on the gross rent and/or the sale price.
To do:
Once you buy the property, immediately file a form called the NR6 in advance of the first day of rental income. Attach a pro forma rental statement, for example: “I expect $2,000 a month, my expenses are $1,900. My net rental income is expected to be only $100.” Then you only need to pay $25 per month to the (less) happy taxman. You have to file that form every December.
You need a tax agent in Canada who represents you - could be a realtor, property manager or tax accountant. Your agent must file form NR4 with Revenue Canada before March 31 to state how much rent actually was collected.
He or she must file a tax return on your behalf every year by June 30.
When you sell with a profit you file form T2062 (say you paid $800,000 and sold for a million - of the $200,000 profit the taxman will grab happily $50,000).
If you made your euros growing the “wacky tobaccy” and you wish to pay cash, your rental agent, by law is required to report your cash down payment ($10,000 plus).
That’s it. But please note: Just because it is easy, legal and safe to own property in canada, it does not mean that all property is a good investment - just as in the place you come from. There are good and bad deals, good and bad agents and it is up to you to do some research, find an experienced agent, and if what you are buying sounds too good to be true - it is.
Vancouver Mortgage Broker Mark Fidgett explains High Ratio Mortgages
Banks and financial institutions are not allowed to lend against real estate mortgages unless the down payment is at least 20% of the value of the property. In order to achieve a higher level of financing, lenders need to obtain mortgage default insurance from one of three institutions in Canada - the Canadian Mortgage and Housing Corporation (CMHC), Genworth Financial (formerly GE Mortgage) and AIG United Guaranty. In the event the borrower is unable to pay the mortgage, the lender will be paid by these institutions.
AIG is not widely used due to the financial difficulties experienced by their parent company in the US.
It is the lender’s choice as to which mortgage insurance company to use. Many lenders have a preference as to which mortgage insurance company to use.
There may be cases where one mortgage insurance company is more suited to the transaction. For example, Genworth has a more flexible policies for rental suites. Genworth will accept non-conforming basement suites while CMHC will not.
The insurance premiums is computed based on the level of financing, as shown below
Loan to Value ratio
Premium
Up to 65.00%
0.50%
65.01 - 75.00%
0.65%
75.01 - 80.00%
1.00%
80.01 - 85.00%
1.75%
85.01 - 90.00%
2.00%
90.01 - 95.00%
2.75%
Note: premiums are for fixed rate or capped variable single advance mortgages. Please contact www.notapennydown.com for other types of mortgages..
The cost of mortgage default insurance is paid by the borrower and can be added on to the mortgage amount. Note that with high-ratio mortgages, CMHC, Genworth or AIG will do the appraisal so there is no appraisal fees in a high-ratio transaction.
If there’s one thing the Olympics are known for, it’s the partying atmosphere. Vancouver will basically transform into a North American Little Europe over the extent of the Games. We present to you, a complete guide of the hottest parties during the Vancouver 2010 Olympics:
