Well it is that time of the year again. RRSP contribution season. I had two calls today asking “I want to buy a new home but want to save for my retirement as well. I can’t do both as the downpayment would then be used for the RRSP contribution. What are my options?”
After further analysis I believe the just announced mortgage rule changes punish responsible, and especially first time, homebuyers. I am specifically referring to the reduction in maximum amortization from 35 to 30 years.
Over the last several months, the Federal Government and the Bank of Canada have been giving “hints” that they were concerned that Canadian debt loads were getting to high. These “hints” came in light tones to start and became louder. This was widely reported by the media. So I knew they were going to do something about it. It would be whether by raising interest rates or by regulation changes.
UPDATED: It was confirmed today by Finance Minister Jim Flaherty that indeed these are the rule changes. The first 2 will be in effect March 18, 2011 and the 3rd one April 8, 2011.
The benefits of having time shift for TV in Canada. CTV News is announcing that a new conference has been called to announce the changes to the mortgage rules in Canada. According to the report the changes are a follows:
1. Mortgage amortization periods will be reduced to 30 years from 35 years.
2. The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from the current 90 per cent.
3. The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
Overall these changes are not as bad as some of the speculation that have been reported.
Timing of these changes are not know at the time of this writing. My guess would be, assuming an announcement tomorrow, March 17, 2011.
For the news report reference go to here CTV News.
What do you think about these changes? Will it affect you?
Your comments are always welcome.
Today, the BC Provincial government announced an increase to the threshold where homeowners would still be eligible for the Homeowner’s Grant. The threshold is now $1.15 million in value. Previously, it was $1.05 million.
The basic grant remains at $570 for all that own and live in a property now valued up to a maximum of $1.15 million based on the BC Assessment value. Seniors, permanently disabled and eligible war veterans receive an additional $275 grant.
For all the detailed info you can read it here.
The 2011 BC Property Assessments are now available online. All property owners should be receiving these notices by mail in the next few weeks. However, for a limited time all this information is available at BC Assessment.
For those unfamiliar with what this is, the BC Assessment Authority is a Provincial Government agency that annually values all properties in the Province. This data is primarily used by municipalities to determine property taxes, school levies, etc.
Of course, other agencies, the general public and others can also use this information as a measurement of what the value of a property may be worth.
I caution everyone that these values are not “set in stone”. There are reasons why an actual property may be worth more or less (renovations, deterioration, alterations, etc.). As well, these “valuations” were done as of July 1, 2010 and depending on what the market has done since then, will influence the actual value on a particular date.
With the bond market yields rising due to concerns about China, Ireland, etc. TD Bank was the first major lender today to increase mortgage rates on terms one to five years. It appears that the 5 year fixed rate will still be under 4% but there is a big jump from where we are currently.
As of this post, no other lenders have matched the increase so there is still time to lock current rates in. However, the window of opportunity is very small so I would suggest you do it now.
A new program was recently launched that I believe will benefit both sellers & buyers in today’s marketplace. It is called the Buyer Protection Plan.
One of the greatest obstacles for sellers currently is the reluctance of buyers to make that purchase as they believe that prices will come down. Who can blame them? Depending on the day or news source, there are wide ranging forecasts – from the housing market is in good shape, to a possible slight correction in price, to a “housing bubble” that will mean a dramatic price reduction. So, many buyers are just waiting…Sellers in the meanwhile will have to choose between withdrawing their home from the market or reducing the price.
What if we could take some of this fear away? Well, this is where the Buyer Protection Plan comes in.
The program is designed to reimburse the purchaser a preset amount should the property value drops by 5% or more a year after the purchase. It is almost like a “partial price guarantee”.
For sellers, this program makes their property a bit more attractive and differentiates it in the marketplace. For buyers, it provides them with a level of confidence that if they buy and prices do go down they will get some of the money back.
The Buyer Protection Program is only offered via approved mortgage brokers and approved realtors.
For more information and details visit Buyer Protection Plan.
What are your thoughts on this new program? As always, I would like to hear from you.
In a post dated May 7, 2010, I alerted readers that Canadian mortgage insurers were not insuring “non-conforming strata” properties. For the full post read here.
I subsequently wrote an update post on May 19, 2010 advising that the decisions by the mortgage insurers had been reversed and all was okay again. Read more here.
During that time frame, most lenders I spoke to had no issues providing that financing for those types of properties on a conventional basis (equity of 20% or more).Therefore, I thought the issue had died since the insurers were again okaying them. All was good again.
Well, apparently not. I was just sent an email this reader of this blog and was told of a potentially serious problem that he had with a lender. I have his permission to publish what he sent me but he wanted to remain anonymous. This is what happened to him.
“Hello Wayne,
I wanted to thank you for your above noted article. My wife and I have recently agreed to purchase a new property that is part of a non-conforming strata. The purchase completeion date is later this month.
We were pre-approved for the mortgage on the new property by Coast Capital, which holds the mortgage on our current property. Coast Capital was informed that the new property is non-conforming with no Form B, no regular meetings, and no minutes of meeting. Coast Capital was also aware that we would be putting more than 20% of the total mortgage value towards a down payment.
Coast Capital informed us after we had removed all of our subjects on the purchase agreement that it could not provide us with a mortgage for the property because it is non-conforming despite our significant down payment. This has left us scrambling to find another lender at the last minute.
We are now working through this issue with our agent and broker but I wanted to let you know what my wife and I recently encountered with Coast Capital and encourage you to publish more articles on this issue because there appears to be a lack of understanding about this issue amongst agents, brokers, and lenders.”
This was the first time since early spring of 2010 that this issue has creeped up again. I have sinced spoke with a handful of lenders and have been advised that there are no changes to their guidelines and are okay with these types of properties.
I was informed by the writer that he did manage to obtain financing elsewhere and it appeared that all turned out okay. I wish to thank him for writing me and telling me his story.
Aside from the potential problems with properties of these types, I would also like add an additional caution. NEVER, EVER remove the subjects on a property unless you are 100% certain that the financing is in place. Even if you are pre-approved make sure you have a firm commitment from the lender before doing so. The type and condition of the property may be the problem and not you.
As always, I want to hear from you.
I regularly encounter clients that have no idea what the credit score or credit history is like. This is not a good thing. Even for the vast majority that probably have a very good credit score/rating.
Why?
Well, whenever you go to apply for loan (mortgage, car loan, credit cards, etc.) the credit grantor will undoubtedly pull a copy of your credit report. Do you want to be surprised? And believe me, some people are surprised that the late payment they made on a previous loan 2 or 3 years earlier is on there. If this happens you may be asked to provide an explanation and wouldn’t you want to be prepared?
Assuming you have always paid your bills on time, it is still important to review your credit report on a regular basis. I suggest at least once a year. This way if there are any errors, and they do happen, you can have it corrected early. Also, with identity fraud on the rise you can ensure that no accounts have been opened using your info and turning you into a victim.
There are two main credit gathering agencies in Canada. Both Equifax and Transunion will provide you a copy of your own credit bureau upon request. In fact, you can order a copy online for a small fee.
I encourage you to know your credit score and history. It is an important part of your financial picture.
As always I would like to hear your comments.
The Royal Bank, TD Bank & CIBC all dropped rates again today. In fact the Royal Bank lowered rates over the weekend without much fanfare. This has been a common practice lately with them. The 5 year posted fixed rate is now at 5.39% at the three banks and others will follow undoubtedly. We have now seen a drop of 40 bps in the last month on the 5 year fixed rate term.
And based on the yields on the 5 year bond we may see further decreases as there is room so stay tuned.
