Tag Archives: mortgage professional
Mortgage holders well prepared for rate hikes
REM Online
A survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP) says Canadians appear well prepared to face the new phase of the residential mortgage market, in which interest rates are rising and house activity is expected to ease.
The survey found:
· Consumer concern about rising rates is offset by increasing home equity.
· Many mortgages were renegotiated at lower rates; amortization periods are declining.
· Many Canadians have used cost savings from low rates to pay more than required, providing flexibility to deal with mortgage rate increases.
· Mortgage debt is a priority – the vast majority of Canadians have never missed a payment.
· A high percentage of Canadians still believe it is a good time to buy a home.
The report, entitled Prudence Paying Off For Canadian Mortgage Borrowers, is authored by CAAMP chief economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in April.
Canadians are positive about the housing market in their communities, but only 3.4% said they were very likely to buy, suggesting activity may slow during the remainder of this year. This number is slightly lower than that of previous surveys.
Still, Canadians across the country are bullish about house prices. Almost one-half of those surveyed expect prices to rise and 44% expect them to remain stable. These numbers, when tabulated with previous survey results, show the highest number of Canadians indicating they expect house values to increase rapidly. Previously, attitudes varied between provinces, but this spring, optimism is nationwide, says CAAMP.
rising mortgage rates
The report simulates the impact of mortgage rate increases up to 5.25% and finds that about 375,000 mortgage holders are already challenged by their current payments, and another 475,000 might be if their rate rises to 5.25%. “But many borrowers are paying more than required, they already have significant equity, and they have flexibility to adjust payments in the event of future challenges,” says Dunning. “The very high percentage of Canadians who have never missed a payment confirms that Canadians take their mortgage obligations seriously.”
The survey says the average outstanding mortgage principal is $138,000 and for mortgage borrowers, the average amount of equity represents 53% of the average value of homes ($297,000). Approximately 11% of mortgage borrowers withdrew equity from their home in the past year, totaling $20 billion, a substantial reduction compared to the $34 billion estimate of 2009. The results indicate caution on the part of borrowers, says CAAMP.
This view is accentuated by the fact that among mortgages transacted during the past year, 65% are fixed rate, 29% are variable or adjustable, and six% are combination mortgages. Most terms are long – 70% are five years or longer, nine% have short terms of two years or less, and 21% have terms of three or four years. Significantly, of the 65% with fixed rates, 12% locked in from a variable rate during the past 12 months and a further 10% had locked in more than a year ago in anticipation of rising interest rates, says the association.
Ninety-three% of mortgage holders have never missed a payment and of the seven% who have, four% did so during the past year. The survey data indicates that recent purchases and extended amortization periods are no more risky than are prior purchases and shorter amortization periods.
Mortgage holders have also been flexing their muscles – negotiating significant discounts on posted interest rates, says CAAMP. Over 80% of borrowers negotiated a discount of one percentage point or more. Last year, the average five-year fixed rate was 4.10% while the average posted rate was 5.57%. For new mortgages taken out in the last year, 50% obtained their mortgage from a Canadian bank, and 30% from a mortgage broker.
“Our spring survey report reveals a remarkably mature borrower,” says Jim Murphy, president and CEO of CAAMP. “We find that Canadians have taken advantage of the low interest rates to increase their regular payments (16%) and make lump sum payments (13%). This planning puts them in a stronger position to weather more expensive borrowing.”
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Contact the Jeffrey Team for more information - 416-388-1960
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Housing offers glimpses of cooling
Single starts tumbled last month, while survey shows fewer people plan to buy
Tavia Grant – Globe and Mail
Canadian housing activity continues at a bustling pace, but there are glimmers the market is set to cool.
Housing starts rose at an annualized pace of 201,700 units last month, Canada Mortgage and Housing Corp. said Monday, though gains in multi-unit construction masked the first sizable slide in single-unit activity in a year.
A separate survey showed fewer Canadians have firm plans to buy a house. And resale activity is already slowing.
Most economists – including Bank of Canada officials – expect the housing market to slow from its torrid pace. Rising interest rates, tighter mortgage rules and a new sales tax in Ontario and British Columbia will likely dampen activity in the second half of this year. And though monthly numbers – especially in the building sector – can be volatile, economists said the drop in single-family homes suggests the sector is already softening.
“Is this a signal that single-market construction activity will ease going forward? Probably,” said Yanick Desnoyers, assistant chief economist at National Bank Financial.
Quarterly growth in the housing sector is cooling “rapidly,” and he expects the sector will actually have a negative impact on Canada’s economy next year.
Higher interest rates are a chief reason for the expected slowdown. The Bank of Canada is widely expected to boost its key lending rate next month. “The sensitivity of Canadian households to interest-rate hikes is very, very high right now” because debt levels of many households have far outstripped personal-income growth, Mr. Desnoyers said.
The resale market, meantime, also points to some moderation as activity has eased from record levels and more supply is coming into the market, the Canadian Real Estate Association said in March.
Canadians seem set to take a breather. Just 3.4 per cent say they are very likely to buy a house in the next 12 months, “suggesting activity may slow during the remainder of this year,” a Canadian Association of Accredited Mortgage Professionals report said Monday.
To gauge the effect of rising rates, the association simulated the impact of mortgage-rate increases up to 5.25 per cent. The current average mortgage rate is 4.02 per cent among households that locked in fixed rates during the past year.
It found that about 375,000 mortgage holders “are already challenged” by their current payments, and an additional 475,000 might be in trouble if their rate hits 5.25 per cent.
Mortgage rates have already risen, though several banks – including Royal Bank of Canada on Monday– trimmed some rates in recent days. RBC’s five-year closed rate is now 6.10 per cent – still higher than several months ago.
CMHC’s report showed multiple starts rose 27.2 per cent. Single urban starts tumbled 12.7 per cent – the first big drop since last April.
Starts climbed 16.4 per cent in British Columbia, 6.7 per cent in the Prairie region, 4.5 per cent in Ontario, and 1.1 per cent in Quebec. They fell 3.3 per cent in Atlantic Canada. The country needs a pace of about 175,000 to 185,000 units a year to keep up with demographics, economists estimate.
Canadian mortgage numbers
5.55 million – Number of mortgages in Canada, out of a total 9.3 million homeowners in the country.
$138,000 – Average outstanding principal.
$770 billion – Outstanding mortgage principal on primary residences in Canada.
0.45% – Portion of Canadian mortgages in arrears as of February.
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Contact the Jeffrey Team for more information - 416-388-1960
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Don’t let rising rates rush you into a bad decision
Chaya Cooperberg – Globe and Mail
When RBC announced a 25-basis point hike on fixed rate mortgages, the news triggered a flurry of calls to mortgage brokers around the country. Homebuyers are worried they’re running out of time to lock in to an affordable interest rate in a heated housing market.
“I say, don’t panic,” said Jeff Mayer, a mortgage broker with Mortgage Intelligence in Toronto. “People tend to have this theory that they won’t be able to buy, but there are a lot of options.”
The fear of rising rates is keeping Mr. Mayer’s office busy these days. “We were doing 40 deals a month about two months ago. Now we’re doing 75,” he says.
But the frenzy to buy can lead some to risk rushing the process and missing or misunderstanding important steps. First-time homebuyers are especially vulnerable.
“A lot of first-time buyers can’t wait to get out there and house hunt, but they need to understand that this is not a decision to enter into lightly,” says Mr. Mayer. “With things changing rapidly in the marketplace, it does get confusing and you have to make sure you’re prepared.”
He prepares first-time buyers by explaining all the steps in the process and pointing out the pitfalls.
Here are some of Mr. Mayer’s tips:
- Get your down payment and deposit ready. A down payment must come from your own resources, and in most cases must have been held in your account for at least 90 days. If you’re using a gift from your parents or other family member for a down payment, you’ll need a letter stating that it is actually a gift and does not need to be re-paid. These funds will likely need to be deposited in your account two weeks before your purchase closing date.
- First-time buyers shouldn’t forget that they have the ability to finance their homes through The Home Buyers‘ Plan. It allows you to withdraw up to $25,000 ($50,000 per couple) from your RRSP to buy or build a home.
- Figure out what you can afford. The best way to do this is get pre-approved for a mortgage. Not only will it help you figure out your monthly payments and home buying costs, the financial institution may also offer to lock-in the interest rate for up to 120 days.
“This is very helpful if you’re buying in a rising rate environment,” says Mr. Mayer, but he cautions that many lenders are not offering this lock-in option anymore.
He also warns that a pre-approved mortgage is not a guarantee that the financial institution will actually lend you the money. Your application will still be subject to a full review when it comes time to sign the papers. Even if your application is approved, you need to be careful not to change your debt-to-income ratio, through a job change or a large purchase, or you may no longer qualify for the mortgage.
“Until you close and the money is transferred, you’re not fully approved. The bank can always pull that approval.”
- Get in touch with the professionals. A lot of work goes into getting you into a new home. You will need a team of people, which may include a mortgage broker, a real estate agent, real estate lawyer, home inspector and home insurance agent.
- Mr. Mayer insists that buyers step up and take responsibility for the process early on. “Don’t go into it blind assuming everyone else will do everything for you. People spend more time planning a wedding, which is $40,000, than on their house. The client needs to spend more time. It’s a very big investment.”
- Choose the right property. Many people fall in love with the look and feel of a home and realize too late that it needs a new roof and is too close to the railway tracks. Mr. Mayer provides his clients with a checklist covering the basics – such as square footage measurements and the age of the furnace – to help buyers stay objective when viewing a house. “Look at the location and educate yourself on the property. Make sure it’s a property you can grow into and not grow out of.”
- Come up with an offer strategy. In competitive real estate markets, it is common for vendors to put off accepting offers until a particular date. This means buyers may be bidding for a home along with several other parties. It’s easy to get caught up in the emotion, so it is important to decide on a maximum price before bidding and to stick to it.
- Get ready to close. When buying a home, it pays to learn about closing costs, which can represent up to three% of the purchase price, including land transfer tax, lawyer’s fees, appraisal fees, title insurance and home inspection fees. A mortgage professional can help estimate how much these will cost and offer ideas for how you can cover these costs.
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Contact the Jeffrey Team for more information - 416-388-1960
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