More
Canadians Refinancing mortgages to pay
off other debts
By Brenda Bouw, THE CANADIAN PRESS
2009-01-28
VANCOUVER, B.C. - Record low interest
rates are spurring more Canadians to
refinance mortgages to consolidate debt,
a trend that is expected to grow as
Ottawa moves to loosen lending
conditions and encourage spending on
housing.
While refinancing your mortgage at a
lower interest rate can save you money
even after paying a penalty, experts
warn there are dangers to taking out
bigger mortgages with home values
dropping and unemployment rates rising.
Laurie Campbell, executive director of
Credit Canada, a non-profit credit
counselling organization, said while it
makes sense to pay off a credit card
with a 19-per-cent interest rate with
money from a higher mortgage at a rate
of just four or five per cent, there can
be "a false sense of security."
She said people who already have a
problem paying off credit cards are
usually the first to repeat the mistake
of getting more heavily into debt.
"We have seen it over and over again in
our office," said Campbell.
"People have great intentions and get a
line of credit or a home equity loan or
refinance their mortgage to get out of a
scathing debt situation, only to turn
around and rack up their credit cards
again."
She also said people who refinance their
mortgages to consolidate debt are often
taking out a bigger mortgage.
A recent survey by the Canadian
Association of Accredited Mortgage
Professionals, which represents Canada's
$900 billion mortgage industry, shows
about one in five borrowers took out an
increased amount of cash from their
mortgages when refinancing.
The November survey showed the average
draw rose 20 per cent to $41,000
compared with a year earlier.
Of those surveyed who took out larger
mortgages, 56 per cent said they used
the money - which totals $18.5 billion
nationally - for debt consolidation and
repayment. About 30 per cent of these
funds went towards home repair and
renovation.
Meantime, statistics kept by the
Canadian Bankers Association show the
number of mortgages in arrears has grown
to 0.31 per cent in November, or 12,048
mortgages, from a total of 3.9 million
mortgages nationwide.
That's a 22 per cent increase in the
number of arrears compared with 0.26 per
cent or 9,862 in November, 2007, when
there were about 3.81 million mortgages
in Canada.
The rise in mortgage levels and arrears
comes as Ottawa announced plans in its
federal budget Tuesday extending the
Insured Mortgage Purchase Program by an
extra $50 billion to $125 billion.
The move is meant to encourage banks to
increase mortgage lending, especially
after Finance Minister Jim Flaherty and
Bank of Canada Gov. Mark Carney began
urging the banks to increase money
available for loans to consumers and
companies.
Ottawa also offered a temporary home
renovation tax credit of up to $1,350
toward a wide variety of home
improvements, increased the RRSP
withdrawal limit for qualified home
buyers to $25,000 from $20,000, and
introduced up to $750 in tax relief for
closing costs for new first time home
buyers.
Jim Murphy, president and CEO of the
mortgage group also known as CAAMP, said
Ottawa's moves are needed during these
uncertain economic times. For example,
consumer confidence is at its lowest
level in more than a quarter century,
unemployment is rising and house prices
are falling in many Canadian markets,
recent reports show.
"These are all measures aimed at trying
to instill confidence in the housing
market, " said Murphy.
"I think the key message is the need for
consumer confidence, and governments
have an important role to play in that."
But Campbell said she is concerned about
the already "unstable" debt levels out
there today.
"I understand the logic of spending your
way out of a recession," she said, but
added that Canadians "due to high debt
levels are in no position to do that."
She points to a recent Vanier Institute
study that found the average household
debt in Canada surged to over $90,000
last year, while the total debt to
disposable income ratio climbed to 140
per cent.
"To encourage spending during the
highest ever debt levels in Canada
unfortunately is problematic," Campbell
said.
Justin Blacklock, mortgage manager at
Averbach Mortgages in Vancouver, said
his company has been getting a lot of
calls recently from customers wanting to
refinance mortgages.
He said rates for most fixed mortgages
have dropped by about one percentage
point in recent months.
Blacklock said while refinancing is a
great idea for many people - even after
a typical penalty of three months'
interest - there are many factors to
consider, especially if the value of
your home has dropped.
They include possible legal costs, the
price of a possible bank appraisal of
your home, and the loan-to-value ratio
on your property.
For instance, if you borrowed against 90
per cent of your home, and the value
dropped 10 per cent, you may not be able
to refinance at all.
Blacklock also said people with 40-year
amortization terms on their mortgages,
which are no longer available in Canada,
may also be unable to refinance if their
credit isn't strong enough.
"Before people get excited about saving
$200 on month, they need to realize that
some people aren't eligible (for
refinancing)," Blacklock said.
Government
sets the ground rules
September 2008
In an effort to prevent the
Canadian economy from developing a
US-style housing bubble, the Department
of Finance nipped things in the bud in
July when it announced that the
government would no longer guarantee a
variety of the mortgage industry's more
'innovative' products.
The staples that many mortgage
brokers relied on to service their
clients - namely 40-year amortizations
and zero-down loans - will no longer be
backed by the government. And while
there were short-lived rumours that
newer insurers such as PMI Canada and
AIG United Guaranty wouldn't follow in
the footsteps of CMHC and Genworth, and
instead find a way to keep the popular
products, that possibility isn't looking
promising.
While CMHC was the first insurer to
drop the "risky" products, Genworth and
AIG soon hopped on board. PMI was
scheduled to meet with the Department of
Finance at the end of July to discuss
potential alternatives to the new
ruling.
Lenders - such as ING Direct and CIBC
- quickly announced that they would no
longer be offering such products either,
and they weren't going to wait for the
October 15 deadline. The changes were
effective immediately.
The government's seemingly sudden
decision to place parameters on the
guarantee offered to insurers has never
before been seen in the industry - and
many expect it's merely the beginning of
things to come.
"What was included with the
government guarantee was never
stipulated before," said one industry
insider who requested not to be named.
"The government has provided guidelines
to the insurers about what's allowed
inside the box, but it hasn't said
what's allowed outside the box."
For the time being, 40-year
amortizations and zero-down loans in the
prime space are all but dead - creating
a new opportunity for non-prime players
to enter the marketplace (see News
Analysis on page 26).
In the meantime, many in the industry
believe, on the record, that this was a
good decision on the part of the
Canadian government.
"These types of products were
detrimental to the industry because they
were fuelling housing prices," said Bill
Jamieson, vice president of Centum
Financial Group. "I don't think the loss
of these products is going to have a
significant impact on the industry. The
majority of them were sold to a minority
of individuals."
Brian Bell, vice president of product
and marketing for AIG, agrees, adding
that this was a prudent move on behalf
of the Canadian government.
"This leaves more opportunities for
the industry to assist borrowers that do
get into financial trouble," he said.
"When you're fully extended at 40 years,
you have nowhere to go. There's no
workout solution. At 35 years, you have
some options - you can restructure your
mortgage more easily."
That said, there are some members of
the industry who feel that the
government's decision is coming after
the damage, if any, has already been
done. Others believe there is nothing
particularly wrong with these products
if they are properly used.
Bank of Canada Keeps Key Rate at a Four-Decade Low
June 2008
The Bank of Canada left its
benchmark lending rate at a
four-decade low of 2 percent, where
it's been since a cut in April,
saying economic growth is rebounding
as expected and inflation is rising
because of oil prices.
The target rate for overnight loans
between commercial banks stays at
double the equivalent U.S. federal
funds rate of 1 percent. All 32
economists surveyed by Bloomberg
News expected the central bank to
leave borrowing costs unchanged
today.
Policy makers left their forecasts
for economic expansion and price
increases unchanged from April and
information received since then
``has been generally consistent with
the Bank's expectations,'' the
Ottawa-based Bank of Canada said in
a statement. ``The notable exception
has been the sharp rise in world oil
prices,''
The Bank of Canada will increase
rates later this year to keep rising
demand and energy prices from
sparking rapid inflation, analysts
at Bank of Montreal and National
Bank say. Economic growth is only
now approaching the 3 percent mark
where the central bank says
inflation picks up, after a record
21 percent rise in the currency last
year slowed Canada's C$1.1 trillion
($818 billion) economy, the world's
eighth largest.
``The statement on its own was
fairly neutral, not flagging any
near-term shift in policy,'' said
Paul Ferley, assistant chief
economist at the Bank of Montreal.
He predicts the central bank will
raise rates in September.
The central bank's preferred measure
of inflation, called the core rate,
factors out the impact of oil
prices.
The Canadian dollar traded at 74.22
U.S. cents at 10:10 a.m. Toronto
time, down from yesterday's 74.26
cents. It has soared from about 64
U.S. cents at the start of last
year, making exports more expensive
to U.S. buyers.
`Factored In'
Major central banks worldwide have
kept rates unchanged in recent
months after cuts of their own. The
European Central Bank left its
benchmark interest rate at a
six-decade low of 2 percent Thursday
to support an economic recovery in
the dozen euro nations.
U.S. Federal Reserve policy makers
voted unanimously in May to keep the
benchmark U.S. interest rate at a
45-year low of 1 percent and
suggested they will lift borrowing
costs at a ``measured'' pace to head
off inflation.
Canada has reported
faster-than-expected economic growth
and job creation in recent weeks,
signaling an economic rebound.
Employers added 56,100 workers in
May, the biggest gain in six months,
led by hiring in construction and
manufacturing, Statistics Canada
said Friday. The economy grew at a
2.4 percent pace in the first
quarter.
``Even a steady pace of interest
increase will not slow down the
manufacturing sector from thinking
about expansion,'' Jeff Lipton,
chief executive officer at
Calgary-based Nova Chemicals Corp.,
said in an interview last week. The
company's products are used to make
grocery bags, automobile parts and
carpets. ``It's already factored in
and the rates are extremely low and
will remain low for quite a long
time.''
The central bank cut rates five
times in the past year, with the
last move a quarter-point reduction
in April.
Shy of Target
The Bank of Canada today kept its
April predictions that the economy
will grow 2.75 percent this year and
its preferred gauge of the inflation
rate will be below 2 percent until
the end of 2005.
Inflation has remained shy of the
central bank's 2 percent target. The
consumer price index advanced 1.6
percent in April from the year-ago
month, the fastest pace in four
months, fueled by rising prices for
gasoline, electricity and
cigarettes, Statistics Canada said
May 20.
The central bank's statement on
energy prices and inflation isn't
new. In a speech last week in
Toronto, Deputy Governor Sheryl
Kennedy noted that rising energy
prices are boosting prices.
National Rental Vacancy
Rate Edges Lower
OTTAWA, Ontario, June 05,
2008 — The average rental
apartment vacancy rate in Canada's 35
major centres1 decreased slightly to
2.6 per cent in April 2008, from
2.8 per cent in April 2007, according to
the spring Rental Market Survey2
released today by Canada Mortgage and
Housing Corporation (CMHC).
“The Canadian economy remains very
supportive of strong demand for both
ownership and rental housing thanks to
solid job creation and healthy income
gains,” said Bob Dugan, Chief Economist
at CMHC's Market Analysis Centre. “High
levels of immigration and the increasing
gap between the cost of home ownership
and renting continue to drive rental
demand in 2008. These factors have put
downward pressure on vacancy rates over
the past year.”
The results of CMHC’s spring survey
reveal that the major centres with the
lowest vacancy rates in April 2008 were
Victoria (0.3 per cent), Kelowna
(0.3 per cent), Greater Sudbury (0.7
per cent), Vancouver (0.9 per cent), and
Saskatoon (0.9 per cent). A unit is
considered vacant if, at the time of the
survey, it is physically unoccupied and
ready for immediate rental. In other
words, a new tenant can sign a lease for
a vacant unit and move in immediately.
All major centres in British Columbia
except for Abbotsford, posted a vacancy
rate below one per cent due to rising
migration to British Columbia and
relatively high home ownership costs
that have resulted in increased rental
demand. Provincially, vacancy rates were
lowest among the western provinces,
especially Manitoba (1.0 per cent),
Saskatchewan (1.2 per cent), and British
Columbia (1.1 per cent). This is largely
due to the migration of workers from
Central and Atlantic Canada, who settle
in rental housing upon their arrival in
the western provinces. As for Alberta,
both Edmonton and Calgary have seen
increases in the vacancy rate, mainly
due to reduced migration into the
province and increased supply of
non-traditional forms of rental
accommodations such as rented
condominiums and basement apartments.
At the other end of the spectrum, the
major urban centres with the highest
vacancy rates were Windsor
(13.2 per cent), Moncton (5.5 per cent),
and Hamilton (4.7 per cent).
The highest average monthly rents for
two-bedroom apartments in Canada’s major
centres were in Calgary ($1,096),
Toronto ($1,075), Vancouver ($1,071),
and Edmonton ($1,000). Of all the major
centres, these four were the only ones
with average rents at or above $1,000.
The lowest average monthly rents for
two-bedroom apartments were in Saguenay
($497), and Trois-Rivières ($501).
Year-over-year comparison of rents
can be slightly misleading because rents
in newly-built structures tend to be
higher than in existing buildings.
Therefore, CMHC provides an analysis of
rents that excludes new structures,
resulting in a better indication of
actual rent increases paid by tenants.
Overall, the average rent for
two-bedroom apartments in existing
structures across Canada’s 35 major
centres increased by 3.6 per cent
between April 2007 and April 2008. While
the average rent for two-bedroom
apartments in existing structures
increased in all major centres, rent
increases were particularly strong in
Saskatoon (21.3 per cent), Edmonton
(13.7 per cent), Regina (10.4 per cent),
and Abbotsford (9.1 per cent). When
these four centres are excluded, the
average rent increase in existing
structures in the remaining 30 centres
was only 2.3 per cent.
CMHC’s spring Rental Market Survey
found that the average rental apartment
availability rate in Canada’s 35 major
centres was 4.9 per cent in April 2008
down from 5.4 per cent in April 2007. A
rental unit is considered available if
the unit is vacant (physically
unoccupied and ready for immediate
rental), or if the existing tenant has
given or received notice to move and a
new tenant has not signed a lease.
Availability rates were highest in
Windsor (15.6 per cent), Hamilton
(8.1 per cent) and Moncton
(6.4 per cent), while the lowest rates
were in Kelowna (1.3 per cent),
Vancouver (1.3 per cent) and Winnipeg
(1.5 per cent).
As Canada’s national housing agency,
CMHC draws on over 60 years of
experience to help Canadians access a
variety of quality, environmentally
sustainable, and affordable
homes — homes that will continue to
create vibrant and healthy communities
and cities across the country.
1 Major centres are based on
Statistics Canada Census Metropolitan
Areas (CMAs) with the exception of the
Ottawa – Gatineau CMA which is treated
as two centres for Rental Market Survey
purposes and Charlottetown which is a
Census Agglomeration (CA).
2 CMHC’s Rental Market Survey is
conducted twice a year in April and
October, to provide vacancy,
availability and rent information on
privately initiated structures in all
centres over 10,000 population across
Canada. Reports are released in June and
December.
The spring survey covers apartment
and row structures containing at least
three rental units, and unlike the fall
survey does not report information on:
- Smaller geographic zones within
centres
- Secondary rental market (rented
condominium apartments, single
detached, semi-detached, duplexes or
accessory apartments).
Housing Starts Move Higher in May
OTTAWA, Ontario, June 09,
2008 — The seasonally adjusted
annual rate1 of housing starts was
221,300 units in May, up from 213,900
units in April, according to Canada
Mortgage and Housing Corporation (CMHC).
“Housing starts in May moved up from
the strong level posted in April. Most
of the increase reflected a rise in
single starts, which in April had
reached their lowest level since May
2001,” said Bob Dugan, Chief Economist
at CMHC’s Market Analysis Centre.
In May the seasonally adjusted annual
rate of urban starts edged up by
4.0 per cent to 192,800 units compared
to April. Urban multiples rose
1.9 per cent to 116,100 in May, while
singles increased 7.3 per cent to 76,700
units.
The seasonally adjusted annual rate
of urban starts went up in all regions
of Canada, except Ontario, which saw a
decrease of 7.4 per cent to 67,600 in
May. Urban starts increased to 8,900
units in Atlantic Canada, 44,100 units
in Quebec, 36,800 units in the Prairies,
and 35,400 units in British Columbia. In
terms of single urban starts, all
regions were up in May.
Rural starts were estimated at a
seasonally adjusted annual rate of
28,500 units in May2.
For the first five months of 2008,
actual starts in rural and urban areas
combined were up an estimated
0.7 per cent compared to the same period
last year. Year-to-date actual starts in
urban areas have increased by an
estimated 5.6 per cent over the same
period in 2007. Actual urban single
starts for the five months of this year
were 14.8 per cent lower than they were
a year earlier, while multiple starts
increased by 22.7 per cent over the same
period.
1. All starts figures in this
release, other than actual starts, are
seasonally adjusted annual rates (SAAR)
— that is, monthly figures adjusted to
remove normal seasonal variation and
multiplied by 12 to reflect annual
levels.
2. CMHC estimates the level of rural
starts for each of the three months of
the quarter, at the beginning of each
quarter. During the last month of the
quarter, CMHC conducts the survey in
rural areas and revises the estimate.
As Canada’s national housing agency,
CMHC draws on over 60 years of
experience to help Canadians access a
variety of quality, environmentally
sustainable, and affordable homes —
homes that will continue to create
vibrant and healthy communities and
cities across the country.
Mortgage rates drop to 11-month low
Last Updated: Friday,
April 11, 2008 | 4:35 PM ET
CBC News
Canadian banks have begun to lower
fixed mortgage rates to their lowest
levels since last spring. RBC
Royal Bank announced Thursday that
it would chop most of its mortgage
rates by a fifth of a percentage
point, effective Friday. TD Canada
Trust, BMO Bank of Montreal,
Scotiabank and CIBC followed later
with similar cuts.
The posted rate for a five-year
closed mortgage drops to 6.99 per
cent. That's the first time the
posted rate for the popular
five-year term has been below seven
per cent since last May.
The posted rates for a one-year
closed mortgage falls to 6.95 per
cent at some banks and 6.90 per cent
at others.
Banks will generally chop at
least one percentage point off their
posted rates — especially for their
longer-term fixed mortgages.
Other mortgage lenders, such as
virtual banks and some credit
unions, promise to beat the best
rates offered by the major banks.
The Bank of Canada has cut its
key overnight lending rate by a full
percentage point since early
December as it tries to keep the
Canadian economy from following the
U.S. into recession.
That's led to a similar one
percentage point drop in variable
rate mortgages and other floating
rate loans tied to the banks' prime
rate.
But fixed mortgage rates have
been much slower to drop. Since the
start of December, the posted
five-year fixed mortgage rate has
fallen by two-fifths of a percentage
point, counting Thursday's rate
drop.
Longer-term mortgage rates
reflect the cost that banks pay to
borrow money in the capital markets.
Analysts say the global credit
crunch — triggered by the U.S.
subprime mortgage crisis — has made
it more expensive for Canadian banks
to access funds.
A further cut in the Bank of
Canada's key lending rate is
expected when the central bank makes
its next scheduled announcement on
April 22, so borrowers can look
forward to a corresponding drop in
their variable rate mortgages then.
Is your mortgage tax deductable?
Canadian homeowners are green with
envy over the fact our neighbours to
the south are allowed to deduct the
interest paid on their mortgages
from their taxes. Is it possible to
do the same thing here?
April 09, 2008
I received an elegant little
flyer in my mailbox the other
day. It was a small glossy
fold-over, and it had a quality
look and feel to it. The only
text on the front flap of the
flyer asked me a provocative
question: "Is your mortgage tax
deductible?"
The inside of the flyer told me
that I could learn how to
collect tax refunds from my
mortgage. "Canadian homeowners
are entitled to collect Tax
Refunds from their mortgage
payments under Canada Revenue
Agency (CRA) guidelines for
'Cash Damming'. By following
CRA's specific guidelines for
borrowing and investing, you
will claim thousands of dollars
in Tax Refunds every year from
your mortgage." The small flyer
mentioned "Tax Refund" five more
times, and twice pointed out
that I could use my Tax Refund
to pay off my mortgage faster.
That's pretty exciting, if you
ask me. If I wanted to know
more, I could attend a seminar
offered by a mortgage broker.
Now, on the face of it, who
wouldn't want to know more? If
you didn't already know
something about this topic, this
would have to be very compelling
stuff. The biggest single
expense of many Canadian
families is their mortgage
payment, and we've all been
making those mortgage payments
with after-tax dollars. Many a
Canadian has looked across the
border in envy at the tax
deductibility that Americans
enjoy on their home mortgage
interest. If it turns out that
we can be getting Tax Refunds
from our mortgage payments too,
well, that's just a no-brainer.
As it happens, I am quite
familiar with this topic and
strategy, so I can spare you the
inconvenience of having to leave
the comfort of your home to
discover how this works. In
fact, I'm going to provide you
with all the essential
information that you really must
know about Canadian mortgage
deductibility and Tax Refunds,
all in the very next paragraph!
How can I possibly do that? By
using an enhanced information
conveyance technology I like to
call No Baloney™. Ready? Here's
what you really need to know
about Canadian mortgage
deductibility and Tax Refunds:
In Canada, when you borrow
money to buy your home, you
can't deduct the interest. When
you borrow money to make certain
investments, you may be able to
deduct the interest. (See your
tax professional for details.)
There. Now that we've covered
all the really important stuff,
let's review some of the
details. First of all, nothing
about buying your personal
residence is tax-deductible. You
don't get to deduct your
mortgage interest, there are no
special tricks that have escaped
your notice, and you will not be
getting "Tax Refunds" from your
mortgage payments. Period.
That being said, when you borrow
money to make investments which
have a reasonable expectation of
income, you may be able to
deduct the interest on the debt.
So if you use your home as
collateral when you borrow money
to invest, you may be able to
deduct that interest expense
from your income taxes. You
could, therefore, have a
mortgage with interest that is
partially or entirely tax
deductible. However, it's very
important to remember two
things: (1) No matter how you
twist it, turn it, or wordsmith-manoeuvre-it,
the money you borrow to buy your
principal residence is not
tax-deductible; (2) The only way
the interest on your home
mortgage can be tax-deductible
is if you borrow against the
equity you already own in your
home, and use that money to
investment. The reason it's so
very important to be clear about
this issue is that borrowing to
buy a home is something that
most people must do in order to
buy a home, and as long as they
can afford their mortgage
payment, they're psychologically
comfortable doing so. They
generally don't worry that their
money is at risk. In fact, they
feel a sense of security about
the equity they are building as
they pay the mortgage down.
Borrowing to invest, on the
other hand, is not something
that anyone needs to do, and
most people are not
psychologically comfortable with
it. In order for borrowing to
invest to make sense, the
average long-term, after-tax
return on the underlying
investment has to be higher than
the after-tax interest rate on
the loan. That invariably means
taking on investment risk. And
for most people, tolerating
investment risk is already
sufficiently challenging without
the added stress of knowing that
those investments were made with
borrowed money. Think about the
recent gyrations in the stock
markets, and consider how using
leverage might change your
emotional response to the
hysteria.
Don't get me wrong - I'm not
picking on leverage as a
concept. Using "other people's
money" is an age-old investment
strategy, it absolutely has its
place as a financial planning
strategy, and I've used it
myself.
What I am picking on is the
packaging of leverage - a
strategy that inherently adds
risk to investing - as a clever
and heretofore overlooked way to
get tax benefits on your home
mortgage.
Let's be No Baloney™ clear:
For some people, borrowing money
to invest may be an appropriate
investment strategy. But
borrowing money and investing it
because you can get a tax
deduction on the interest
expense is a ridiculous tax
strategy.
Condos in T.O.: Still rising up,
up, up
Openings in 2008 nearly double that
of same time last year
New Homes Services
April 10, 2008 09:34
In the first two months of 2008,
the Toronto condominium market
has seen nine new high-rise
condominium openings, compared
with five during the same period
last year, according to
Urbanation.
“In fact, we are forecasting
19,000 sales in the new condo
market,” says Jane Renwick,
Urbanation’s editor and
executive vice-president.
These CMA results and
projections include:
• 2007 was a record-breaking
year for the Toronto condo
market, and annual unit sales
increased by 40 per cent (22,654
new unit sales in 2007 vs.
16,114 in 2006 and 16,224 in
2005).
• 104 new condo projects opened
in 2007 vs. 84 in 2005, the
previous record.
• 2007 Toronto condo prices rose
11.3 per cent in the new sale
market over 2006 prices.
• The expected price increase in
the new sale market was partly
driven by growth in Toronto’s
luxury and “super luxury” condo
segment (defined as projects
that trade over $600 per square
foot), which represented 3,784
new units in 2007 and averaged
$844 per square foot.
• “Non-luxury” units in the new
sale market, by contrast, in the
CMA averaged $360 per square
foot once the luxury units were
factored out.
• Price increases in the resale
market were even more
substantial, rising 15.1 per
cent — from $278 per square foot
in 2006 to $320 per square foot
in 2007.
Balancing the 2007 price
increases, condo mortgages
remained affordable, as interest
rates persisted at historically
low levels.
Amortization periods also
extended to 40 years, generating
lower monthly payments or
allowing the purchaser of a more
expensive unit the same monthly
carrying cost of a mortgage
based on a 25-year amortization.
Furthermore, the definition of a
conventional mortgage changed in
2007 from 25 to 20 per cent
down, reducing mortgage
insurance requirements at the
same time. Unlike the U.S. sub
prime market, however, Canadian
lenders did not relax their
credit evaluation standards, and
the Canadian mortgage default
rate remained at just 0.25 per
cent (one in 400 mortgages).
“The Toronto condo market
remains buoyant because of low
unemployment, low interest
rates, high population growth
and positive demographic changes
that favour condominium living,”
added Renwick. “Urbanation
expects the general sales
momentum of recent years to hold
through 2008, although the sales
performance of 2007 will be
difficult to duplicate.”
Borrowing against your home can be good, but risky,
way to grow net worth
By Ross Marowits, THE
CANADIAN PRESS
2008-04-10 19:45:00
MONTREAL - U.S. housing foreclosures
may spook some Canadian homeowners, but
borrowing against your home to fund the
purchase of market investments remains a
potentially lucrative way to expand
personal net worth over the long-term,
advisers say.
But it's not for the faint of heart.
Along with the potential for great
rewards is the possibility of disaster
for those who aren't properly suited for
the risks.
Leveraged borrowing to invest
reflects the belief that in the long run
a diversified portfolio of equities
should outperform the cost of borrowing.
As an added benefit, interest costs
incurred are tax-deductible.
On a 25-year, $150,000 mortgage, this
strategy could increase after-tax net
worth by more than $75,000 compared to
just paying down a mortgage, the
Investors Group says of its home equity
diversification plan.
Similar programs are offered across
the country by various financial and
lending institutions.
"It's really suitable for those that
are investing for the long-term, a
minimum of six years and are able to
ride out market fluctuations," Jack
Courtney, an assistant vice-president of
the Winnipeg-based company, said in an
interview.
The ideal candidate is an investor
who is comfortable with risk, is in a
high income tax bracket, is a long-term
investor, and has a sustainable cash
flow, he said.
With most share prices floundering,
dollar cost averaging may make this an
ideal time to invest.
"Over time, the return on equities
and the reduced after-tax cost of
borrowing from deductibility of the
interest should improve your net worth
over time versus just paying down your
mortgage," Courtney said.
Since borrowing can magnify gains as
well as losses, it's not for everyone,
Courtney concedes.
Having a steady income with
consistent cash flow is key. It's not
for those who struggle to make their
monthly mortgage payments.
Leveraged investors must have the
stamina to weather short-term
fluctuations in the market since much of
the gains come at the end of the
investment horizon.
Financial author Gordon Pape warns
against leveraged borrowing.
"I see leveraging as the financial
equivalent of a loaded gun," he wrote in
his book Sleep-Easy Investing.
"People who are knowledgeable can use
it effectively; everyone else will
probably shoot themselves in the foot."
He said some financial advisers
aggressively encourage clients to use
leveraging because of the significant
fees and commissions they earn.
Their arguments can be compelling in
bull markets, when stock prices are
soaring.
But as the Ontario Superior Court of
Justice ruled in 2005, investors that
borrow take a risk in addition to the
investment risk.
The court rejected a lawsuit by 22
elderly investors who suffered heavy
losses from leveraged investments who
had claimed their advisers made
"negligent representations."
"What all this boils down to is that
if you decide to go into debt in order
to get rich quick, you're on your own.
The cavalry isn't going to charge in to
save you if you run into trouble."
The Investment Funds Institute of
Canada has warned that the practice of
using borrowing to finance mutual fund
purchases is on the rise and is
potentially destabilizing for the mutual
fund industry.
In a 2005 advisory, it offered
several tips to investors, including the
need to keep a sufficient financial
cushion to see withstand market
declines.
The Ontario Securities Commission
published a booklet in 2006 warning that
the downside of using a line of credit
to invest is "that you could be putting
your equity, and possibly your home, at
risk."
Adrian Mastracci, portfolio manager
of KCM Wealth Management, estimates that
less than one quarter of homeowners with
mortgages borrow on their equity, but
mostly to purchase a second residence or
fund renovations.
The strategy can be successful and
boost an investor's net worth. But he
cautions people to be careful.
"Just make sure you can protect
yourself in the very worst situation,"
he said in an interview from Vancouver.
"If you can do that, then borrowing for
you is not as big a deal as it could
be."
But if you would have a problem
making a payment if the investment
floundered, he said, investors should
think twice about it.
"When everything is going positive,
leverage is wonderful. However, when
things turn against you then of course
you get clobbered to death."
Since mortgage interest is not tax
deductible in Canada, the best risk-free
investment is paying off ones house, he
said.
Toronto's condo market booms
Lagging US home sales haven't hit
the Canadian city's real estate market –
yet.
By Dorn Townsend |
Correspondent of The Christian Science
Monitor
Toronto - The housing market in much
of the United States may be moribund,
but in Toronto, something of a boom
mentality still exists.
In March, several hundred Toronto
residents braved the cold to line up
before the opening of the sales office
of a new condo project. Certified checks
in hand, they wanted to make sure they
got their choice within Aura, a proposed
75-story residential tower scheduled to
go up downtown.
This isn't the first time condo sales
debuts have drawn large crowds. In
November 2007, speculative buyers waited
patiently beside heat lamps to place
deposits on another 80-story slab.
Despite a last-minute price hike –
apartments advertised for $2 million
catapulted to $8 million – sales
remained heavy.
Prices of real estate in Toronto have
risen about 5 to 6 percent a year for
the past several years, according to the
Toronto Real Estate Board. The average
condo now sells for $394,000 Canadian
(US $390,446).
In 2008, 21,000 condo units are
expected to hit the market and an
additional 35,000 units are under
development, according to Urbanation, a
firm that tracks condo development in
Toronto. The city is second only to the
New York City region, the epicenter of
condo building in North America.
But given how closely linked
Toronto's economy is to trade with the
US, some officials question how long the
city's housing market can shrug off the
effects of a downturn south of the
border.
"People here have a sense that
Toronto's economy is decoupled from the
American economy and that just doesn't
make any sense," says Garth Turner, a
federal parliamentarian from suburban
Toronto and the author of "Greater Fool:
The Troubled Future of Real Estate."
Other worries about the health of
Toronto's economy persist. With the
Canadian dollar having strengthened
enough to trade virtually at par with
the US dollar, the region's
manufacturing base has been losing out
to companies in Asia. Money spent on
Hollywood productions, a staple for the
city, fell in 2007, enabling Boston and
Detroit to vie as the new Toronto within
film circles.
In March, the Toronto Dominion Bank
revised its earlier estimate of 2.8
percent growth to a mere 0.5 percent.
Yet this gloominess hasn't seriously
dented the city's real estate market.
Two key differences in Canadian
mortgages appear to be at work – fewer
subprime loans and different tax rules.
While several of Canada's big five
banks suffered losses stemming from
investments in subprime assets, Canadian
home buyers have largely steered clear.
Only about 5 percent of mortgages in
Toronto were subprime.
Then, notes William Strange, a
professor of real estate at the
University of Toronto's Rotman School of
Business, "Canadians can't deduct
interest on their mortgages from their
income tax like homeowners in the States
can, [so] people here tend to pay off
their mortgages faster."
The condo boom has also been driven
by a set of 2006 new laws aimed at
containing sprawl initiated by Ontario's
Liberal government.
"There's not much demand for
single-family homes anymore," says Jim
Ritchie, vice president of marketing of
Tridel, one of the city's most active
developers. "By creating laws to limit
sprawl, the Liberals created a whole new
industry of urban infill."
But with up to 40 percent of new
condo units in Toronto being bought by
speculative investors rather than
homeowners, the conditions are in place
for a realestate bubble to form,
analysts say. If prices decline and
investors abandon their deposits, that
could send the market tumbling.
"When it looks like prices might
start to fall, this market will turn
downwards on a dime," says Mr. Turner.
Still, other observers remain
cautiously upbeat.
"The thing that marks the boom in
Toronto is that unlike New York City or
Miami at its height, prices here are
still really affordable," says Jane
Renwick, editor of Urbanation. "Still,
there's a sense that the city's real
estate market is now in the eighth year
of a five-year cycle."
Canada's Condo
Market Remains an Opportunity For
First-Time Homebuyers
Wednesday, March 26, 2008;
Posted: 10:08 AM
GNW
TORONTO, Mar 26, 2008 (Canada NewsWire
via COMTEX) -- Condominium markets in
Canada will continue to offer solid
opportunities in 2008 to first-time
homebuyers looking for accessible,
affordable housing in Canada's major
urban centres, according to new data
released today by Genworth Financial
Canada, a subsidiary of Genworth
Financial, Inc.
Genworth's Winter 2008 Metropolitan
Condominium Outlook concludes that while
condo sales numbers are downshifting
from near-record levels in eight cities
surveyed, resale prices should continue
to advance in 2008 and grow steadily
through 2012. As a result, condos remain
a good entry point for first-time buyers
and a good investment for market
entrants.
With drops in condo starts from
historically high levels in Montreal,
Calgary, Edmonton, Vancouver and
Victoria, the country will see balancing
between re-sales and new condo starts
over the next few years. This will
encourage moderate price growth and in
turn maintain the affordability factor
of condominiums. All markets will see
price increases in 2008, ranging from
1.6 per cent in Ottawa to 6.4 per cent
in Edmonton.
"Condominiums are still filling the
demand for relatively affordable
housing. With prices for single-detached
homes rising well above $500,000 in
Toronto and Calgary, and to at least
$600,000 in Vancouver, the condo market
remains extremely important to
first-time buyers who wish to remain in
Canada's largest urban communities,"
said Peter Vukanovich, president of
Genworth Financial Canada.
The Genworth report, produced with
the Conference Board of Canada,
concludes that "recently elevated
volumes suggest condos are becoming
entrenched in most communities."
Edmonton, Vancouver and Victoria are
estimated to have posted record high
starts volumes in 2007, while Calgary
and Ottawa hit all time highs in 2006.
"Canada's condo market continues to
remain a good opportunity for first-time
home buyers. The slower rate of price
appreciation in 2008 will benefit
first-time buyers looking to get into
the market, and the innovative mortgage
solutions available to them make that
first-time purchase more accessible and
affordable than ever," said Vukanovich.
"This report underscores the solid
value condominiums offer to first-time
homebuyers looking to get a foothold in
Canada's robust housing market. A condo
offers an affordable opportunity to
begin to build equity in a home of your
own," said Jim Murphy, President and CEO
of the Canadian Association of
Accredited Mortgage Professionals (CAAMP).
The Winter 2008 Metropolitan
Condominium Outlook reviewed resale
condo markets in Quebec City, Montreal,
Ottawa, Toronto, Calgary, Edmonton,
Vancouver and Victoria. All eight
markets registered moderate price growth
in 2007 and are forecast to continue to
have moderate growth this year and
through 2012.
Housing Starts Rebound in January
OTTAWA, Ontario, February 08,
2008 — The seasonally adjusted
annual rate1 of housing starts was
222,700 units in January, up from
184,700 units in December, according to
Canada Mortgage and Housing Corporation
(CMHC).
“Historically low mortgage rates,
solid employment and income growth as
well as a high level of consumer
confidence continue to underpin the high
level of housing starts”, said Bob
Dugan, Chief Economist at CMHC’s Market
Analysis Centre. “Housing starts in
January returned to a level more
consistent with our expectation that
housing starts will total 211,700 units
in 2008, remaining above the 200,000
mark for the seventh consecutive year.”
In January the seasonally adjusted
annual rate of urban starts increased
25.2 per cent to 189,500 units compared
to December. Urban multiples surged
64.1 per cent to 108,000 units in
January, while singles fell 4.8 per cent
to 81,500 units.
The seasonally adjusted annual rate
of urban starts increased in four of
Canada’s five regions in January. Urban
starts registered an increase of
43.7 per cent in Ontario, 22.4 per cent
in Quebec, 19.4 per cent in the Prairies
and 17.5 per cent in British Columbia.
The Atlantic region bucked the trend and
registered a decline of 17.4 per cent in
January. Urban multiple starts were up
in all regions except in the Atlantic.
Urban singles were down in all regions
except Quebec and Ontario.
Rural starts were estimated at a
seasonally adjusted annual rate of
33,200 units in January.
Actual starts in rural and urban
areas combined, decreased by an
estimated 11.1 per cent in January 2008
compared to January 2007. In urban
areas, actual total starts decreased by
an estimated 11.5 per cent. Actual urban
single starts for January 2008 were down
15.7 per cent compared to January 2007,
while multiple starts fell an estimated
8.9 per cent over the same time period.
1. All starts figures in this
release, other than actual starts, are
seasonally adjusted annual rates (SAAR)
— that is, monthly figures adjusted to
remove normal seasonal variation and
multiplied by 12 to reflect annual
levels.
As Canada’s national housing agency,
CMHC draws on over 60 years of
experience to help Canadians access a
variety of quality, environmentally
sustainable, and affordable homes —
homes that will continue to create
vibrant and healthy communities and
cities across the country.
Courtesy of CMHC.
Benefits of a healthy Canadian mortgage
market
Thursday, January 10, 2008 | 07:45
AM ET
By Ellen Roseman, personal
finance columnist, Toronto Star
The Canadian mortgage market is healthy
and thriving, unlike what's happening in the
United States. There's never been more
flexibility for borrowers.
Take the amortization period, the amount
of time you have to pay back the loan. You
used to get 25 years. Now you can stretch
the payback to 30 years, 35 years or even 40
years.
This can be helpful for first-time buyers
or move-up buyers who want to get more
property for the same payment. But remember,
the extra years of amortization can add
hundreds of thousands of dollars to your
total costs.
The down payment requirements are also
more liberal. No longer do you have to put
down 25 per cent of the price for a
conventional mortgage without buying
insurance against default. Now you need only
a 20 per cent down payment to avoid the
insurance premiums.
There used to be only two mortgage
insurance providers. Canada Mortgage and
Housing Corp. was the crown corporation with
a dominant market share and General Electric
(now called Genworth) was the private sector
rival.
Now a third player, AIG United Guaranty,
has burst onto the Canadian scene with a
batch of innovative products. The other
providers are scrambling to keep up, knowing
that other U.S. companies plan to come up
here.
Mortgage insurance protects lenders from
default. It allows them to offer low and no
down payment options, which can be combined
with long payback periods, making it easier
for cash-strapped borrowers to afford the
homes of their dreams.
Is this a sign of a frothy real estate
market? Is Canada sliding down the same
slope of predatory lending that has hurt the
U.S. market? What if property values start
going down? Will many borrowers suddenly
default?
So far, mortgage arrears are not going
up. In fact, they're the lowest in a decade.
Canadians are borrowing conservatively and
keeping up their payments in a strong job
market. Still, no one knows what the future
will bring.
My advice: Budget carefully before buying
a house or trading up to a new one. Know
what your total costs are, not just your
monthly payments. Don't accept all the
credit that you qualify for, since some
mortgage innovations profit the lender more
than you.
For the Business Network, I'm Ellen
Roseman in Toronto.
Canadian Boomer
Resilience: 84% Not Scared Off Real Estate
Despite U.S. Housing Downturn
- 21% of
Canadian baby boomers plan to make a real
estate purchase in the next three years,
according to a recent Mortgage Intelligence
survey -
Oct. 23,
2007, Toronto, ON – Eight out of
ten (84%) Canadian baby boomers, aged 41-61,
state they are not hesitant to consider a
real estate purchase despite U.S. housing
market volatility, according to a new online
survey by Angus Reid Strategies on behalf of
Mortgage Intelligence Inc. In fact, 21% of
boomers surveyed anticipate making a real
estate purchase in the next three years; 63%
are not apprehensive about Canadian real
estate, but have no plans to purchase within
three years; 6% are not considering a
Canadian real estate purchase because of the
U.S. housing decline; and 10% do not know
how they feel about Canadian real estate.
“Canadian boomers
are a savvy bunch, and our survey indicates
that despite the turmoil in the U.S., they
clearly understand the long-term value of
real estate,” said John Schipper, President,
Mortgage Intelligence Inc. “With
approximately 2 million boomers planning to
buy a home within the next three years, this
segment will be a major driver of the
Canadian real estate market.”
Results from two
polls commissioned by Mortgage Intelligence,
a leading Canadian mortgage brokerage, shed
light on some interesting Canadian baby
boomer real estate trends:
-
24% of younger
boomers (between the ages of 41 and
54) are more likely to have plans to
purchase real estate in the next
three years versus 13% of older
boomers (between the ages of 55 and
61). (Angus Reid Strategies).
-
17% of those
interested in purchasing real estate
are most interested in investment
properties, followed by 15% who want
to downsize. (Corporate Research
Associates).
More younger
boomers are looking for out-of the box
solutions for generating additional
disposable income, including real estate
investments observes Barry LaValley, founder
and president of the Retirement Lifestyle
Centre and Special Advisor to the Scotiabank
Group.“ A sub-element of the investment real
estate boom is the ‘tear down’ property
market. Boomers are seeking out inexpensive
properties that can be dressed up and resold
for a profit,” said LaValley.
“Real estate
clearly remains an important investment
strategy for boomers as they plan for their
retirement years,” said Schipper. “Every
day, our mortgage consultants work closely
with these clients to offer consultative
service, knowledgeable advice and flexible
mortgage solutions to meet their changing
lifestyles.”
About the survey
The first poll was conducted by Angus Reid
Strategies on September 25, 2007 among a
representative sample of 490 Canadian
boomers. The results are based on two-sided
tests with significance level 0.05. The
second poll was conducted by Corporate
Research Associates Inc. in a nationwide
study of 1,000 baby boomers across Canada
between August 10 to September 4, 2007. An
overall sample of 1,000 drawn from the
population would expect to provide results
accurate to within plus or minus 3.1
percentage points 19 times out of 20.
About
Mortgage Intelligence Inc.
Mortgage Intelligence Inc. is among the
largest and fastest growing mortgage brokers
in Canada, with more than 1,000 independent
consultants and associates in offices across
Canada. Mortgage Intelligence consultants
help clients make better mortgage decisions
for their home, revenue or vacation
properties, renewals, home renovations, debt
consolidation needs, and specialized
mortgage requirements. The company had
funded volumes in excess of $7.8 billion in
fiscal year 2006. For more information,
visit:
www.mortgageintelligence.ca.
Mario Toneguzzi, Calgary Herald
Published: Wednesday, January 16, 2008
The MLS resale market set a new standard
nationally in 2007 with the number of sales, new
listings, average price and dollar volume in
Canada's major markets all reaching their
highest annual levels ever.
According to statistics released Tuesday by
the Canadian Real Estate Association, total
dollar volume for all MLS residential
transactions last year hit $118.3 billion, a
19.6 per cent hike from 2006.
In Calgary, the total dollar volume for the
year was $13.3 billion, up 16.4 per cent.
Calgary was behind only Toronto, at $35.9
billion, and Greater Vancouver, at 22.2 billion.
"The statistics show just how dynamic the
Canadian housing market was in 2007 in virtually
all parts of the country," said Ann Bosley,
association president. "The record sales
activity also shows it remains a very affordable
real estate market."
In Calgary, total MLS sales were down 2.6 per
cent to 32,176 while the average price (for all
residential properties) rose by 19.4 per cent to
$414,066. New listings also increased by 21.2
per cent to 54,202.
Nationally, total MLS sales were up by 7.9
per cent to 362,934, the average price rose by
10.8 per cent to $326,055 and new listings also
increased by 4.6 per cent to 587,607.
The resale market in Alberta remained strong
in 2007, said Richard Corriveau, regional
economist with the Canada Mortgage and Housing
Corp.
In the province, it was the second-best year
on record with overall sales at about 72,000,
only a few percentage points down from 2006.
"That said, the first half of the year looked
like we'd be on pace to outperform 2006, and in
fact it had a number of forecasters, ourselves
included, chasing a new record for the year,"
said Corriveau.
"Only once the acceleration of prices took a
stranglehold on demand and we saw net migration
drop considerably did we realize a new record
(for sales) likely would not be set and the
market started to decline over the second half.
So it was a tale of two markets."
The real estate association said sales set
new annual records in a number of major markets
including Regina, Saskatoon, Winnipeg, Toronto,
London, Ont., and St. Thomas, Ont.,
Hamilton-Burlington and District, Ont.,
Kitchener-Waterloo, Ont., Ottawa, Montreal,
Quebec City, Saint John, N.B., Halifax, and
Newfoundland and Labrador.
But despite the record year, data for the
month of December showed sales in Canada dropped
by four per cent compared with December 2006
while sales in Calgary were off 27.2 per cent
from a year ago.
Corriveau said the resale housing market
across the country is experiencing a soft
landing in many of the markets due to the
escalation in prices.
"But a saving grace for the markets has been
the introduction of the extended amortizations.
If we consider our forecast one year ago, the
overall result across Canada exceeded forecasts
and the strong take-up of the extended
amortization product is one contributing factor
to that," said Corriveau.
The real estate association said sales rose
more than new listings in 2007 and, as a result,
the overall MLS market tightened in 2007
compared with the previous year.
OTTAWA, January 9, 2008 —
Housing starts in 2007 are estimated at 229,600,
surpassing 2006 starts, and reaching their
second highest level in nearly two decades.
However, the seasonally adjusted annual rate1 of
housing starts in December decreased to 187,500
units from November's 233,300 units, according
to Canada Mortgage and Housing Corporation (CMHC).
“Growth in 2007 housing starts was driven by
low mortgage rates, solid employment, income
growth and a high level of consumer confidence,
said Bob Dugan, Chief Economist at CMHC’s Market
Analysis Centre. “Even with the weakness in
residential construction in December, new home
starts are estimated at 229,600 units in 2007,
surpassing 2006 levels.”
After two strong months in October and
November, the volatile multiples segment and
single-detached starts fell in December mainly
due to harsh winter weather. Also, the
seasonally adjusted annual rate of urban starts
decreased 23.2 per cent to 151,600 units in
December, compared to November. Urban singles
were down 12.6 per cent to 85,600 units in
December, while multiple starts decreased 33.7
per cent to 66,000 units.
In December, the seasonally adjusted annual
rate of urban starts increased in two of
Canada’s five regions. Urban starts registered
an increase of 3.4 per cent in Quebec and
1.2 per cent in the Atlantic region. British
Columbia, Ontario and the Prairies all recorded
a decline in activity for December (-36.7 per
cent, -33.1 per cent, and -17.1 per cent
respectively). Urban single starts were down in
all regions except the Atlantic and British
Columbia, while only Quebec saw an increase in
urban multiple starts.
Rural starts were estimated at a seasonally
adjusted annual rate of 35,900 units in
December.
For the year 2007, actual starts, in rural
and urban areas combined, increased by an
estimated 1.0 per cent compared to 2006. In
urban areas, actual total starts in 2007
decreased by an estimated 0.6 per cent. Actual
urban single starts for 2007 were down 3.5 per
cent compared to 2006, while multiple starts
grew an estimated 2.1 per cent in 2007 compared
to 2006.
Housing starts are expected to remain strong
in 2008, but are forecast to decrease to 214,300
units.
1. All starts figures in this release, other
than actual starts, are seasonally adjusted
annual rates (SAAR) — that is, monthly figures
adjusted to remove normal seasonal variation and
multiplied by 12 to reflect annual levels.
As Canada’s national housing agency, CMHC
draws on over 60 years of experience to help
Canadians access a variety of quality,
environmentally sustainable, and affordable
homes — homes that will continue to create
vibrant and healthy communities and cities
across the country.
On Average, Households Across Ten Major Centres
Spent More Than $11,000 on Renovations in 2006
OTTAWA, June 14, 2007 — Approximately
1.5 million households in 10 major Canadian
centres surveyed1 indicated they completed
renovations last year, costing an average of
more than $11,000, according to the new
Renovation and Home Purchase Survey released
today by Canada Mortgage and Housing Corporation
(CMHC).
“More than $17.3 billion was spent on
renovations last year across the 10 major
centres surveyed,” said Bob Dugan, Chief
Economist at CMHC. “As well, 46 per cent of
homeowners in these 10 centres surveyed
indicated that they intend to spend $1,000 or
more on renovations this year.”
The new Renovation and Home Purchase Survey
is part of CMHC’s suite of enhanced surveys and
analytical reports. The Renovation and Home
Purchase Survey reports on actual renovation
expenditures made in the previous year, as well
as intentions to buy or renovate in 2007 in
10 major centres across Canada3. The new survey
enables all market participants to benefit from
timely information on renovation market trends.
Close to half (47 per cent) of households
reported that the cost of renovations was in
line with what they had budgeted. More than a
third of households went over their planned
budget for the renovation. Twenty-four per cent
of households that undertook a renovation
project were do-it-yourselfers who hired a
contractor for a portion of the work. Slightly
more households contracted out the renovation
work (40 per cent of respondents) as opposed to
doing the work themselves (34 per cent).
The main reason given by households for
renovating in 2006 was to update, add value or
to prepare to sell the residence (61 per cent).
Thirty per cent of respondents stated that the
main reason for renovating was that their home
needed repairs. The top three renovations
completed last year were: remodelling of rooms
(34 per cent), painting or wallpapering (32 per
cent), and hard surface flooring and
wall-to-wall carpeting (32 per cent).
The share of households who spent $1,000 or
more on renovations in 2006 was the largest in
St. John’s at 37 per cent, followed by Halifax
at 36 per cent, while a smaller proportion of
households in Vancouver (30 per cent) undertook
renovations last year.
As for renovation intentions across the
10 major centres in 2007, they are strongest in
Edmonton and Winnipeg where 51 and 50 per cent
of consumers, respectively, indicated they
planned to undertake renovations costing
$1,000 or more this year. The share of potential
renovators is lowest in Toronto and Vancouver
with 43 per cent of households in each centre
intending to renovate.
On the home purchasing front, eight per cent
of households across the 10 major centres
surveyed intend to purchase a home in 2007 that
will be used as a primary residence. About half
of the households that stated they intend to
purchase a home in 2007 are first-time buyers,
compared to 40 per cent in 2006. The majority of
first-time buyers are between the ages of 25 and
34, with a household income between $80,000 to
about $100,000.
Home buying intentions are strongest in
Calgary where 14 per cent of households reported
that they are considering buying a home this
year. Purchase intentions are also strong in
Edmonton where 11 per cent of households plan to
buy, while the share is lowest in Montréal and
Québec (6 per cent).
As Canada’s national housing agency, Canada
Mortgage and Housing Corporation (CMHC) draws on
over 60 years of experience to help Canadians
access a variety of quality, environmentally
sustainable, and affordable homes — homes that
will continue to create vibrant and healthy
communities and cities across the country.
For more information call 1-800-668-2642.
1 Ten major centres are: St. John’s, Halifax,
Québec, Montréal, Ottawa, Toronto, Winnipeg,
Calgary, Edmonton, and Vancouver
2 The Renovation and Home Purchase survey is
an updated and expanded version of the consumer
Intentions to Buy or Renovate a Home Survey. The
new survey is conducted in selected Canadian
centres. It provides information on the most
popular renovation projects undertaken and homes
purchased in the prior year, as well as, on
household intentions to buy or renovate in the
upcoming year. Respondents are also asked about
motivations or barriers; the type, size and
price range of homes; insights about their
planned renovations as well as important
demographics, income, tenure, and location
information.
3 All 10 centres were asked whether they
intend to spend more than $1,000 on renovations
in 2007 and whether they intend to buy a home in
2007. More detailed questions on intentions to
buy or renovate were asked in Halifax, Montréal,
Toronto, Calgary, and Vancouver.
44 per cent of Canadians are off track
about how much money to set aside for home
ownership
- Mortgage
Intelligence survey reveals that many Canadians
allocate too little or too much money for
housing costs compared with mortgage lending
standards -
December 3,
2007, Toronto, ON – When asked what
percentage of gross household income a homeowner
should set aside for housing costs, 44 per cent
of Canadians select amounts deemed to be too
high or too low based on mortgage lending
standards, according to a new Angus Reid survey.
The survey, commissioned by Mortgage
Intelligence, a leading Canadian residential
mortgage brokerage, was designed to determine
how closely Canadians’ perceptions of housing
affordability are aligned with Gross Debt
Service (GDS) ratio guidelines.
The GDS ratio is a
popular measure for lenders to evaluate the
financial condition of borrowers. According to
general mortgage lending standards, a GDS ratio
for monthly housing costs – which includes
mortgage principal and interest payments,
property taxes and heating expenses - should not
exceed 32 per cent of gross household income at
the high end. Of those surveyed, 47 per cent
correctly selected a range of 20 to 32 per cent
of gross income for housing costs.
About 27 per cent of
respondents underestimated the amount of gross
income a homeowner should set aside for housing
expenses, estimating 20 per cent of gross income
or lower. On the flip side, 17 per cent of
respondents overestimated, stating that 41 per
cent or more is enough to cover housing
expenses.
“Canadians whose
monthly housing expenses exceed a maximum GDS
ratio of 32 per cent risk overextending
themselves and could face challenges in meeting
their mortgage obligations, while those who
underestimate housing costs may be taken aback
by the reality of rising housing costs in
Canada” said John Schipper, President of
Mortgage Intelligence. “It’s important that
homebuyers properly evaluate their current
financial situation and seek proper guidance
about what they can truly afford.”
In addition to the
GDS, another important financial measure for
home affordability is the Total Debt Service
(TDS) ratio. In addition to housing costs, this
ratio also takes into account debt payments on
bank loans, car loans, credit cards and other
regular commitments, including alimony or child
support. Typically, lenders require that a
borrower’s TDS ratio not exceed 40 percent of
his or her monthly gross income.
“Online tools, such as
mortgage calculators, are a good starting point
for homebuyers to determine appropriate housing
budgets, but they shouldn’t stop there,” added
Schipper. “A one-on-one consultation with a
mortgage professional will help borrowers define
a plan that ties home ownership dreams to
personal and financial goals.”
Some interesting
provincial distinctions were also apparent in
the survey findings. In Atlantic Canada, 38 per
cent of respondents set aside up to 20 per cent
of their gross income for housing, while in the
Prairies 30 per cent of respondents state that
41 per cent or more of gross income is an
appropriate allocation.
Mortgage Intelligence
has more than 1,000 independent consultants and
associates in offices across Canada. To identify
a consultant, homebuyers can call
1-877-667-5483.
About the
survey
Some interesting provincial distinctions were
also apparent in the survey findings. In
Atlantic Canada, 38 per cent of respondents set
aside up to 20 per cent of their gross income
for housing, while in the Prairies 30 per cent
of respondents state that 41 per cent or more of
gross income is an appropriate allocation.
About Mortgage
Intelligence Inc.
Mortgage Intelligence Inc. is among the largest
and fastest growing mortgage brokers in Canada.
Mortgage Intelligence consultants help clients
make well-informed mortgage decisions for their
home, revenue or vacation properties, renewals,
home renovations, debt consolidation needs, and
specialized mortgage requirements. The company
had funded volumes in excess of $7.8 billion in
fiscal year 2006. For more information, visit:
www.mortgageintelligence.ca.
Are 40-year mortgages a
good idea?
The Toronto Star
Thu 10 Jan 2008
Page: AA06
Section: Opinion
I believe 40-year mortgages will push real
estate prices higher, as it did in Japan, where
99-year mortgages are available, as well.
Reducing the minimum down payment may entice
people to buy houses they can't afford. In the
short term, rental unit prices may fall, only to
rebound later when real estate prices skyrocket.
If that happens, affordability will drop and
40-year mortgages may become the rule. In this
scenario, real estate and lenders will be the
big winners, whereas consumers will lose.
Oswald Barmasch, Thornhill
Forty-year mortgages are designed to pad banks'
income and to sustain the property bubble in
Canada. If a prospective buyer can't afford to
buy a house over 25 years, he/she shouldn't buy
one. It's hard enough to project what interest
rates will do over 25 years when you roll over
your five-year mortgage; try to imagine that
risk over 40 years.
Richard Pearson, North Vancouver
Mortgages are amortized over a 40-year period,
but as far as I know the longest mortgage term
available is 10 years. Do I think a mortgage
amortized over a 40-year period is a good idea?
Debt these days is in fashion just like disco
dancing was in the '70s, so why not go with the
flow.
John Missios, Toronto
Forty-year mortgages will increase Canadians'
overall debt and increase home prices since it
will allow more people to buy what they could
not normally afford. Haven't the Canadian banks
learned anything from the mortgage fiasco in the
United States?
Thomas Patricio, Toronto
A 40-year mortgage is a terrible idea. It's the
slippery slope some Americans fell down last
year. It allows banks to seduce inexperienced
buyers into extending their credit beyond what
is affordable and sustainable. Consider how much
more interest they will accumulate!
Bryndis Swan, Kingston, Ont.
Sometimes having more options can create immense
possibilities for all. If the 40-year mortgage
opens doors to someone, then let's play fair and
make opportunities accessible to all. Not
everyone is a child of a baby boomer and able to
count on their parents for help.
Danielle Filiatrault, North Bay
This won't help anyone. Instead, it will drive
home prices higher, forcing us to pay more
interest over the life of the mortgage. If the
recent subprime meltdown taught us anything, it
is to be more prudent about who we extend credit
to.
Marc Sage, Woodbridge
Affordable housing is a good idea, not 40-year
mortgages!
Peter Nadorvolgyi, Toronto
What a great idea! This way we willhave more
money to buy bank stocks, since the banks will
be the only ones making money.
Peter Lafarciola, Toronto
The price of a house doubles when you take out a
40-year mortgage. If you want to save a few
hundred bucks a month on your mortgage, buy the
house you can afford, not the one you will still
be paying off into retirement.
Ryan Miller, Toronto
The 40-year mortgage is just another way for
greedy vendors to suck people into living and
buying beyond their means. Are we to stay in
debt for the rest of our lives just so we can
appear to live large?
Melissa Hillier, Toronto
I think a 40-year mortgage is a great idea for
first-time buyers. Their monthly payment will be
affordable and they could purchase larger homes.
George George, Markham
© 2008 Torstar Corporation
Idnumber: 200801100098
Edition: Ont
Length: 550 words
New mortgages add on the
years
The Toronto Star
Wed 09 Jan 2008
Page: B01
Section: Business
Byline: Ellen Roseman
Source: Toronto Star
If you're buying a home, you should find it
easier than ever to get a mortgage.
While the U.S. mortgage market is troubled,
Canada's mortgage market is still healthy,
competitive and innovative.
Several changes introduced last year make it
easier for buyers with a good credit record to
move into their dream homes more quickly.
But don't take all the financing you're
offered just because you qualify for it. Some
mortgage products are too expensive and benefit
lenders more than borrowers.
You can now pay off your mortgage over 30 to
40 years, instead of up to 25 years as before.
This allows you to reduce your monthly payments
or buy a bigger house for the same monthly
payment.
"A surprising number of existing homeowners are
looking at this as an opportunity to purchase
'more house' while leaving their monthly
payments unchanged," says mortgage broker
Elisseos Iriotakis, a principal with Safebridge
Financial Group.
Extending the mortgage amortization to 30 to
40 years doesn't mean locking in an interest
rate for that long. You can get a fixed rate for
up to 10 years - though most borrowers opt for
five - after which you must renew the mortgage.
This means negotiating with your current lender
or switching to a new one.
You can now get a conventional mortgage by
putting down 20 per cent of the purchase price.
Until last year, you needed a 25 per cent down
payment to avoid a "high- ratio mortgage," one
that was insured against default by the Canada
Mortgage and Housing Corp. or Genworth Financial
Canada.
Mortgage default insurance protects the
lender from losses in case the loan is not
repaid.
If you have a down payment of 20 per cent or
less, you must pay an insurance premium ranging
from 1.75 per cent to 3.1 per cent of the loan
value. This premium is usually added to the
total mortgage amount and spread over the same
repayment period.
Those with low down payments can get a
mortgage without default insurance from some
non-bank lenders. However, they pay a much
higher interest rate and extra administrative
fees.
Mortgage insurance is no longer dominated by
two players, CMHC and Genworth.
AIG United Guaranty, a subsidiary of New
York-based American International Group Inc.,
made a splash when it came into Canada's
mortgage insurance market last year. AIG offers
new options, such as a product for buyers who
can put down only 3 per cent of the purchase
price. The payments can be spread over 30 to 40
years.
Cash-strapped borrowers once needed a 5 per
cent down payment to get the same flexibility.
Though insured "no money down" mortgages are
also available, they require a higher credit
score and higher fees.
AIG's 3-per-cent-down mortgage insurance product
is attractive to people buying in Toronto, says
mortgage broker Ann Pope-Todd of Assured
Mortgage Services.
"Because the city imposed a new land transfer
tax ... many people don't have a 5 per cent down
payment," she says.
You can now qualify for a low-down-payment
mortgage if you're self-employed or work on
commissions. CMHC has introduced self-employed
simplified insurance, which allows you to buy a
home with as little as 5 per cent down. And you
don't have to hand over your tax returns for the
last few years to qualify.
"A self-employed person used to need a down
payment of 15 per cent to 25 per cent to get a
conventional mortgage from a bank," says Bill
Nugent, a broker with Mortgage Intelligence in
Newmarket.
Self-employed simplified insurance is
available for mortgages with a payback period of
up to 40 years.
You can now qualify for a mortgage if your total
debt load is more than 40 per cent.
When looking at whether you can afford to buy a
house, lenders look at the gross debt service
(GDS) ratio. Monthly housing costs, including
mortgage, property taxes and heating, shouldn't
exceed 32 per cent of gross household income.
They also look at the total debt service
(TDS) ratio, which takes into account debts such
as bank loans, car loans and credit card
balances.
If your total debt load exceeded 40 per cent
of your monthly gross income, you used to be
turned down when applying for a conventional
mortgage.
Today, many lenders will give you one if your
total debt load is 42 per cent of household
income. Some go up to 44 per cent.
"The thing that gets missed is that these are
maximums," says John Schipper, president of
Mortgage Intelligence Inc.
He believes lenders should require borrowers to
do a monthly budget for a realistic view of
their income and expenses.
Schipper is also concerned about the longer
payback periods.
"My daughter is 23 and wants to buy a condo. I'd
suggest a 40-year mortgage. I see a place for
them if they're effectively managed," he says.
"But they can be used by unscrupulous lenders
or brokers. Say, offered to 50- year-olds."
When you stretch out the mortgage payments for
so many years, your total costs are much higher.
Suppose you buy a $375,000 house, put down
$75,000 and take out a $300,000 mortgage at 5.99
per cent (the lowest current five-year rate).
You'll pay almost $784,000 with a 40-year
mortgage, compared with $575,000 on a 25-year
mortgage (assuming the rate stays the same).
That's more than $200,000 in extra costs -
and for what?
By extending the payback period, you'll save
only $285 in your monthly payments.
You could get the same bang for the buck - about
$9 a day - by bringing your own lunch to work or
taking public transit instead of your car.
Will Dunning, a housing economist in Toronto,
believes Canadians "borrow conservatively,
especially for homes," and there's no danger yet
of Canada heading down the same road as the U.S.
"The mortgage arrears rate is remarkably
low," he says. "It's the lowest in a decade."
© 2008 Torstar Corporation
Idnumber: 200801090052
Edition: Ont
Length: 984 words |
