Monday, April 28, 2014

CMHC cutting back on what it covers with mortgage default insurance

Garry Marr | April 25, 2014 | Financial Post
Canada Mortgage and Housing Corp., the Crown corporation that controls the vast majority of mortgage default insurance in the country, says it plans to get out of the market for second homes and is adding restrictions for self-employed Canadians.
Effective May 30, CMHC said it will discontinue insuring second homes and will require self-employed Canadians to have third party income income validation.
The Crown corporation said the changes are being made as part of its review of its mortgage loan business. The organization has already said it is raising rates across the board May 1, a move that comes after the federal government last year appointed a new chair for CMHC and brought in a new chief executive.
“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system” said Steven Mennill, senior vice-president, insurance, in a release. “As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.”
The agency said it’s the first set of changes resulting from the review of its operation. The Financial Post reported this month that Evan Siddall, a former investment banker brought in as CEO, has been asked about the possibility of a risk-based method of assessing mortgage default insurance. Sources say the new CEO has told people he doesn’t disagree with the principal of risk-based insurance.
The changes announced Friday affect a small portion of the market. CMHC said its second home and self-employed without third party income validation business account for less than 3% of CMHC’s insured business volumes in units.
“Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market,” the agency said in a release.
CMHC first introduced the program for self employed people in 2007 in response to “industry competition” which at its peak saw some U.S. players enter the market and encourage changes that created amortization lengths as long as 40 years. The government has since restricted loans to 25-year amortizations.
The second home product was introduced in 2005 and applied when purchasing an owner-occupied second home anywhere in Canada.
CMHC said it will limit the availability of homeowner mortgage loan insurance to only one property (one to four units) per borrower/co-borrower at any given time.
Benjamin Tal, deputy chief economist with CIBC, said the announcement was not “a big surprise given the mandate of providing more stability. That might not be the end of it. We might see more coming from CMHC.”
Finn Poschmann, vice-president of research at the C.D. Howe Institute, said the requirement for validation seems reasonable.
“What is interesting is the question of whether the change will tend to shift risk away from CMHC and toward the private insurers. Whether that is the outcome will be determined by the private insurers’ responses,” he said, in an email.

Monday, April 21, 2014

Bank of Canada monetary policy decision: The 4 key takeaways

Pamela Heaven | April 16, 2014 Financial Post
The Bank of Canada held its benchmark rate steady Wednesday, and kept its ‘neutral’ stance on future moves in an as-expected policy statement that had the market, if not economists, stifling yawns.
“When in doubt, do nothing, and for the most part, that’s what the Bank of Canada opted to do in today’s monetary policy statement,” said CIBC economist Avery Shenfeld.
Overall, the message was little changed, though the bank cut its growth forecast on the year from 2.5% to 2.3% on the impact of the harsh winter. It also pushed up its call for inflation this year, while at the same time warning about the risks of low inflation.
“Somehow, the Bank managed to find a way to sound even more concerned about ‘lowflation’ even as they upgraded the forecast for headline inflation,” said BMO chief economist Douglas Porter.
The following press conference did yield some insights, Porter said. Bank Governor Stephen Poloz — again — did not close the door on possible rate cuts. The central banker also said businesses were telling the bank they were having difficulty passing on the cost increases from the lower Canadian dollar.
As for the statement, here are Porter’s four key takeaways:
On inflation: “Inflation in Canada remains low. However, higher consumer energy prices and the lower Canadian dollar will exert temporary upward pressure on total CPI inflation, pushing it closer to the 2 per cent target in the coming quarters.” However, there is no major change to the view on core inflation. Somehow, the Bank managed to find a way to sound even more concerned about ‘lowflation’ even as they upgraded the forecast for headline inflation.
On growth: “Overall, global growth is expected to pick up to 3.3 per cent in 2014 and increase further to 3.7 per cent in 2015 and 2016 – largely unchanged from the January Monetary Policy Report (MPR). The Bank continues to expect Canada’s real GDP growth to average about 2 1/2 per cent in 2014 and 2015 before easing to around the 2 per cent growth rate of the economy’s potential in 2016.” The Bank trimmed its GDP forecast for 2014 by two ticks to 2.3% (now in line with us), but kept next year at 2.5% (also in line).
On the dollar: “The lower Canadian dollar should provide additional support. We continue to believe that rising global demand for Canadian goods and services, combined with the assumed high level of oil prices, will stimulate business investment in Canada and shift the economy to a more sustainable growth track.” There was no mention of the currency in the previous Statement (March). As well, today’s MPR included a special box on the potential impact of a weaker C$, and which industries could benefit. There wasn’t anything especially earth-shattering here, just another pointed reminder that their view is a weaker currency leads to a better growth backdrop. Also, their view of a gradual upturn in growth “hinges critically on the projected upturn in exports and investment”.
On household debt: “Recent developments are in line with the Bank’s expectation of a soft landing in the housing market and stabilizing debt-to-income ratios for households. Still, household imbalances remain elevated and would pose a significant risk should economic conditions deteriorate.” The Statement actually repeats the phrase “household imbalances remain elevated” in the summary paragraph, in case we missed the message, and this wording is slightly different than in March (and suggests a touch more concern).

Monday, April 14, 2014


Recently BMO cut their 5 year rate to 2.99% – speculation was that it was due to Jim Flaherty’s recent departure. In these times, when interest rates seem to be the talk in real estate and in business in general, I thought it would be great to discuss what else you might be giving up for that supposed great rate!
Amortization is one aspect as to what your monthly payments will look like – for example 25 year vs. 30 year amortizations. With a 30 year amortization you pay more interest over the life of the loan but your monthly payments are less as you are stretching it out so to speak. BMO has capped their mortgage with a 25 year amortization, so your mortgage payments will be higher.
Lump Sum Payments: with BMO’s regular mortgages you are allowed a 20% lump sum payment each year. With the 2.99% mortgage you are only allowed 10% maximum towards your lump sum payment.
The term of the 2.99% mortgage is fully CLOSED for five years, unless you sell the property, refinance with BMO only or renew into another BMO mortgage.
Furthermore, this mortgage does not come with “skip-a-payment” option or the “portable/assumable” option either. It is a basic no-frills mortgage.
So when shopping for a mortgage, make sure you are looking at what options you require first and then the rate.
For instance if you purchase a property intending to live in it for a while but after a year figure out that you need to move and you took out a no-frills mortgage, such as this one, you could break it, however you would be facing high penalties to do so and furthermore, what if you had a buyer who wanted to assume the mortgage or you wanted to port the mortgage to your new home with this great rate? You would be hard pressed to do either of those things.
When looking at any mortgage product always ask yourself the following:
How long do I intend to live in this house? Is it a starter home or the home I intend to live in for the rest of my life or until I retire?
Do I need the assumable or portable option?
How much do I intend to put towards the lump sum payment each year?
Do I want Variable or Fixed and Open or Closed?

Answering these simple questions will first tell you if the mortgage product being offered is the right one for you and then you can consider rate. Doing this step backwards and only considering rate can come back to bite you in the end.
 Posted on by Amina Mohamed

Wednesday, April 9, 2014

Spring clean your way to a more valuable home

Spring clean your way to a more valuable home
Gail Johnson | Pay Day – 

Love it or ignore it, spring-cleaning season is upon us again.
While it’s refreshing to throw open the windows and sweep up the crumbs behind the fridge every now and then, there’s plenty of things you can do around the house today that can increase the value of your home tomorrow. You don't have to wait for the polar vortex subsides.
“Start with a good, deep clean,” says Airdrie, Alberta, realtor Michelle Carre. “Think about things like scuff marks on baseboards, cleaning the window sills and blinds. Really get in there and get it to a point where maintaining it is going to be a lot easier because all the hard stuff’s done.”
If the thought of spending a sunny spring day inside with dust bunnies and cob webs is as unappealing as it sounds, Carre says it’s there’s value in hiring someone else to do it.
“Investing in a professional cleaner to do a deep clean is probably well worth it,” she says.
“They come in as a team of two or three or four and have it done in a couple of hours.”
Be sure to dust ceiling fans — to avoid a “dust rain” when you turn the thing on after so much neglect — as well as light fixtures.

Other cleaning jobs and small fixes can do a world of good for your home’s value.
“Whether you paint your house or fix up the yard, your efforts don’t need to be costly; even inexpensive improvements and minor repairs go far toward attracting buyers,” says Anne Wolf, sales representative with Sutton Wolf Realty Brokerage in Strathroy, Ont.
“It’s best to avoid making major renovations just to sell the house since you’re unlikely to recoup those costs from your selling price. Make minor repairs to items such as leaky faucets, slow drains, torn screens, gutters, loose doorknobs, and broken windows.”
Priorities in the home when it comes to resale value include the kitchen, bathrooms, and front entrance. That last one is often overlooked, Carre says. Make sure the doorbell functions and that the lock works well. Consider replacing dated or worn handles and giving the door a fresh coat of paint.
“The front porch is where you [potential buyers] spend the most amount of time: if I have to struggle with the key, they’re standing there,” Carre says. “They’ll look around and if it’s not presentable they’re already doing price reductions in their mind. They start liking the house less and less.”
If you’re thinking resale, you don’t necessarily have to overhaul the kitchen and bathroom, renos that can get pricey, swiftly.
“I don’t suggest people go and spend a bunch of money,” Carre says. “But sometimes it’s worth looking at smaller jobs. If you’ve updated the back splash and countertops in your kitchen but still have 1995 emerald green carpet on the stairs, it’s probably worth it to go get a quote and maybe spend money on getting the stairs redone.
“If it’s just a staircase or one room where there are tears in the linoleum or original carpet, spending a little bit of money can make a huge difference,” she adds.
If you really want to take it up a notch, consider getting rid of the “popcorn” ceilings that were so popular in the 1970s — just remember to get the stuff tested for asbestos before handling it yourself or hiring someone to remove it.
In other cases, cosmetic touches aren’t enough.
“Water stains on ceilings or in the basement alert buyers to potential problems,” Wolf says. “Don’t try to cosmetically cover up stains caused by leaks. If you’ve fixed the water problem, repair the damage.”
Wolf points to the Canadian Mortgage and Housing Corporation Maintenance Schedule as a useful guide to small jobs now that can also save you on bigger repairs down the road.
Among its tips:
  • Check eaves troughs and downspouts for obstruction and loose joints.
  • Seek out any damaged caulking and weather stripping around windows, doorways, and electrical outlets.
  • Keep an eye on exterior siding and trim for signs of deterioration and clean, repaint or replace if necessary.
  • Check the stability of guardrails and handrails.
  • Look for and seal off any holes in the exterior that could mean an entryway for small pests.
  • Patch cracks in walkways, replace loose bricks, and repair broken steps.
  • Ensure that that bathroom exhaust fans and kitchen range hoods are operating properly.