How to avoid mortgage fraud

October 18, 2010

Six suggestions for avoiding mortgage fraud

By DIANNE NICE
Globe and Mail Update

Don't be talked into a deal that's too good to be true

Whenever the housing market starts to heat up, so does mortgage and real estate fraud. Buyers rush through deals to avoid losing out, but can end up being scammed if they're not careful.

While there are no statistics on these types of fraud in Canada, in the United States, it is estimated to cost victims between $4-billion and $6-billion (U.S.) a year.

"Mortgage scams are carried out in all different forms and involve a multitude of people, some who don't even know they're being taken advantage of," says Diane Scott, president of the Calgary Real Estate Board.

Ms. Scott says at least two types of mortgage fraud have occurred in Calgary this year. One is property flipping, in which a dishonest seller artificially inflates the value of a property using a phony appraisal and then sells it for a large profit. The phony appraisal often remains with the property through multiple transactions, making it difficult to determine the property's true worth, and the end buyer is left paying for a mortgage that is much higher than the home's value.

The other involves "straw buyers," who are offered money to lend their identity and good credit record for use on fraudulent mortgage applications. The fraudster uses the information to apply for a loan, then disappears with the money, leaving the straw buyer on the hook for the mortgage payments.

Other types of real estate scams include title fraud, where your identity is stolen and used to assume the title of your property, which can then be used to sell your home or get a new mortgage. The criminal takes the mortgage money and runs. You may not even find out about the fraud until the lender contacts you or someone pulls up in a moving van, claiming to be the new owner of the house.

And there's also foreclosure fraud, in which a homeowner having trouble paying a mortgage is offered a loan in exchange for up-front fees and an agreement to transfer the property title to the scammer, who is then able to take the victim's loan payments, sell the house or remortgage it and leave with the money.

While a lawyer, realtor or licensed mortgage broker can help ensure all legal precautions are taken, it's still important to do your homework before you buy, Ms. Scott says. Here's her advice on how to avoid becoming a victim of fraud:

1. Beware of unusual offers. Never lend your identity to anyone or sign documents you do not fully understand. "If it sounds too good to be true, then it probably is," Ms. Scott says.

2. Do the math. Look at the listing history on the property and do a comparative market analysis. Check the number of sales and price ranges for the community. If the home's listing price is much higher than the average value of neighbouring homes, it could mean someone is flipping the property or has had it fraudulently appraised.

3. Don't assume the seller is honest. Get your own realtor or independent representation for your purchase. If the seller objects, something is wrong.

4. Do a land title search. This will show the name of the property owner, any mortgages or liens registered on the title, as well as previous sales and transfers. You can also buy title insurance to protect against title fraud.

5. Get your own appraisal. You may want to include, as part of your offer to purchase, the option to have the property appraised by a member of the Appraisal Institute of Canada [http://www.aicanada.ca].

6. Secure your deposit. Make sure your money is being held in a real estate trust account by a realtor or lawyer. This will ensure your money is safe until the deal closes.

FIRST TIME HOME BUYERS

First-Time Buyers represent the largest group of purchasers in today’s real estate market. Recognizing this, Lenders and Insurers have developed progressive ways to allow for many Canadians to purchase their first home, which would otherwise not have been possible under traditional programs. The most common program utilized today by First-Time Buyers is the 95% high-ratio financing program through both the Canadian Mortgage and Housing Corporation (CMHC), and Genworth Financial (formerly GE Mortgage Insurance). Learn more about High Ratio Mortgage Insurance.

There are other programs available for First-Time Buyers in order to assist them with the purchase of their first home. Applicants are often enticed by some lenders with 5% down by offering cash back programs for the down payment or for the purchase of appliances etc. Just be aware that these mortgages are offered a significantly higher than discounted rates, and the cash back is pro-rated in the case that you re-finance your mortgage.

There are also programs available through Genworth Financial and secondary mortgage lenders through a self-insured program, that allow for 95% financing with higher premiums for the greater risk they take on these types of transactions.

These can vary significantly and applicants should consult with a mortgage professional for details on how these programs work. CMHC also permits first-time buyers to borrow their 5% from any other source under certain conditions. For further assistance in understanding these programs and how they work, please feel free to contact us at 416 989 1000.

Minimum down payment requirements for non-owner-occupied homes will increase to 20% from 5%, and the way that rental income is considered has been scaled back as well. This rule will have the most dramatic impact of all three changes, but only on real estate investors.

The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $25,000, from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. For more information please click on the link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

If you buy land or an interest in land in Ontario, you must pay Ontario's land transfer tax. If you are a first time home buyer, you may be eligible for a refund for all or a part of the tax. For more information, please follow this link. http://www.rev.gov.on.ca/en/tax/ltt

Land Transfer Tax Calculator:

 http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.html

HST and real estate

Do I have to pay Tax?

The harmonized sales tax introduced by the Liberal Government in Ontario went into effect in July 2010. Although tax is collected at a rate of 13% on the sale price of good and services, it doesn't apply to every type of home or every type or real estate.

New Home purchases are subject to HST but may qualify for an HST rebate.  Resale homes are sold without HST.  Land may be exempt from tax, but realtors and other professionals must charge HST on the purchase price.  However, if the home is going to be your primary place of residence, it may qualify for a partial HST rebate, depending on sale price.

You can get the HST Rebate application here

You do not have to pay HST on the purchase price of a used residential home.  Revenue Canada defines "used residential property" to include a previously occupied house, condominium, summer cottage, vacation property or non-commercial hobby farm.

HST applies to most of the services provided in completing the real estate transaction.  For example, 13% HST is applied to the commission a realtor charges for facilitating a sale.  The tax is paid by the person responsible for paying the commission - generally the seller. 

HST also applies to many of the other services involved in the real estate transaction, including appraisal feed, referrals, surveys and legal assistance.  HST is charge on these fees regardless of whether the house purchase is itself HST exempt or not.

One exception is that mortgage broker fees are HST exempt if the fees are charged separately from any taxable real estate commissions.  As well, mortgages and interest on mortgages are HST exempt.

HST is not normally due and payable when the real estate transaction is completed - generally the "closing date".  In some cases, HST could be payable on transfer of possession.  Your realtor can answer your questions about closing dates and HST payments.  For additional information contact you local Revenue Canada Tax Services Office.

$ reasons why homeownership makes sense

Home ownership can be the best investment you’ll ever make – despite the regular headaches. If you’re in the market to buy a home, think about a few tax tips that could save you a bundle in taxes.

1. Principal residence exemption. You’re likely aware that selling a home can be a tax-free event. The reason? Each “family unit” is entitled to designate one property as their principal residence. A family unit consists of you, your spouse or common-law partner, and any unmarried children under age 18. You have to ordinarily inhabit a place to call it your principal residence, but you’ll be entitled to an exemption to shelter any capital gains on a sale of your principal residence later. If you own more than one property, speak to a tax pro about the exemption because the rules can be complex.

2. Home Buyers’ Plan (HBP). The HBP will allow you to borrow, tax-free, up to $25,000 from your registered retirement savings plan (RRSP) for the purpose of buying or building a home.

You must be a first-time home buyer, which will be the case if you or your spouse (or common-law partner) haven’t owned a home that you occupied as a principal residence in the year of the RRSP withdrawal or the preceding four years.

You generally must repay the amount back to your RRSP over a 15-year period. Be aware that I’ve simplified the rules here. Check out Canada Revenue Agency’s publication RC4135, available at cra.gc.ca, for more.

3. First-Time Home Buyers’ Tax Credit. The 2009 federal budget introduced a new tax credit for first-time home buyers. If you buy a home and you and your spouse (or common-law partner) haven’t owned a principal residence that you occupied in the year of your purchase or the preceding four years, then you may be entitled to a tax credit worth up to $5,000, multiplied by 15 per cent (the applicable percentage for 2010), or $750. The credit can be claimed by either spouse, or both, as long as the total doesn’t exceed the allowable $750.

4. Deducting expenses. You may be entitled to claim a deduction for a portion of home costs such as mortgage interest, property taxes, utilities, repairs, landscaping, and more. How? Two ways.

First, think about establishing a home-based business and a home office which is your principal place of business, or is used on a regular and continuous basis for meeting clients. If this doesn’t suit your fancy, then consider renting out part of your residence to a tenant.

Your property will still be considered your principal residence even when you use it to earn income (from rents, or a business) as long as the partial use of the place for income-producing purposes is ancillary to the main use as your principal residence, you don’t make any structural change to the property, and you don’t claim capital cost allowance (CCA) on the property. Finally, don’t forget to claim moving expenses if you make a qualifying move to a new residence.

5. Multiplying exemptions. It may be possible to shelter the capital gains on more than one principal residence. This generally involves putting each property into separate names rather than holding them jointly. The rules are complex enough to make your head spin, so speak to a tax pro for more details.

With thanks to Tim Cestnick, who is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

In USA, 500 people arrested for mortgage fraud

Nearly 500 people have been arrested in a U.S.-wide crackdown on mortgage fraud since the operation began March 1. Federal officials found that Las Vegas was one of the major centres where scams were situated to falsley inflate house prices.

"I heard this many times," said Scott Hunter, a Las Vegas FBI agent who has interviewed hundreds of people lured into buying homes by crooked real estate agents, brokers and loan officers, to the Associated Press. "They said, 'Don't let your good credit go to waste. You can purchase these properties. This is how you acquire wealth.'

And when the party stopped and they were not able to keep inflating the prices on these houses, the whole thing collapsed."

Daniel Bogden, Nevada's U.S. attorney, said 123 defendants were charged, convicted or sentence within his state since the crackdown, named Operation Stolen Dreams, began. According to AP, Bogden estimated the losses in Nevada at almost $250 million.

OECD urges Canada to raise interest rates

By CBC News, cbc.ca, Updated: May 26, 2010 11:40 AM

OECD urges Canada to raise rates

Canada should raise interest rates "without delay" and let economic stimulus measures expire to avoid inflation, the OECD said in its annual forecast Wednesday.

The Organization for Economic Co-operation and Development recommended the Bank of Canada continue to raise rates to more normal levels over this year and through 2011.

The advice comes six days before the bank is scheduled to announce whether it will increase its benchmark lending rate from record low levels.

Many economists had been predicting that with signs of growing economic recovery, the bank would start raising rateson June 1, but that has become less certain amid concerns that the effects of the European debt crisis may spread, slowing recovery in North America and growth in emerging economies.

The OECD said the bank should proceed with higher rates, and that the government should outline spending cuts and the details of how it plans to reduce its deficit.

The OECD has also raised its forecast for Canadian economic growth, to 3.6 per cent this year and 3.2 per cent next year.

It said the Canadian economy is recovering "vigorously" from the recession, lifted by a recovery in trade and government stimulus.

It did, however, warn the "high rate of household indebtedness" could undermine the recovery. In its overall forecast for its member countries, the OECD said the world economy is recovering "faster than expected."

But, it said, the debt crisis and overheating in emerging-market economies present increasing risks.

'Critical time for the world economy'

It projected OECD countries will grow by 2.7 per cent this year and 2.8 per cent in 2011.

Its forecast called for the U.S. economy to lead the OECD, with expansion of 3.2 per cent in both 2010 and 2011.

It predicts Japan's growth will be 3.0 per cent this year and 2.0 per cent in 2011.

European members of the OECD will be weighed down by the debt crisis, it said, and will growth at 1.2 per cent in 2010 and 1.8 per cent in 2011.

The need to deal with the debt crisis and still get deficits under control will require careful policy co-ordination, said Angel Gurria, the OECD's secretary general.

"This is a critical time for the world economy," he said in a statement.

Royal bank announces yet another mortgage rate increase

I hate people who say " I told you so", but the fact is, I have been warning everyone for months that the incredible mortgage rates we have been enjoying would not last much longer. So far, we are only seeing changes to fixed rate mortgages. Variable rate mortgages are still attractively priced, since the prime rate is only 2.25% today. Here is the latest announcement.

Royal Bank of Canada, the country’s largest bank, is leading the way on another round of mortgage-rate hikes, boosting borrowing costs Monday for the third time in recent weeks.

The rate on a five-year closed mortgage is now 6.25 per cent, an increase from the previous rate of 6.10 per cent. A one-year closed rate will, as of tomorrow, be priced at 3.80 per cent. All rates were increased by 15 basis points.

It’s the third move in a month as Canadian banks prepare for an era of rising interest rates. The Bank of Canada last week signalled that its key lending rate will rise, as early as June, as the economy recovers.

Banks can adjust the rate they charge, so customers could still pay a lower rate than what’s posted. Other banks tend to follow with rate hikes once one does, and the actual rate a customer pays depends on a variety of factors, including their financial situation, whether they use a mortgage broker, and how good they are at negotiating.

The hike comes the same day as Canada Mortgage and Housing Corp. released a study showing that 81 per cent of recent home buyers feel comfortable with their current level of debt.

Two thirds of the 2,500 people surveyed said there is a chance they will pay off their mortgage sooner than required, while 27 per cent said they have increased regular payments to eliminate their mortgage sooner.

For advice on mortgage and other financial matters, email Ross at rosst@rosstaylor.org, or give him a call at 416 989 1000.

For our thoughts on debt and credit problems, visit our website at www.doctorcredit.ca

RBC raises mortgage rates again

The posted five year rate at the country's largest bank is now 6.1%. This follows a 0.25% increase this morning, on the heels of a 0.6% increase two weeks ago. These steady increases are pretty much what we have been predicting the past few months. From this morning's Globe and Mail.......

Royal Bank of Canada (RY-T59.39-0.18-0.30%) , the country's largest bank, has raised mortgage rates again.

The move, which will result in a 0.25 percentage point increase in the cost of a number of fixed-rate mortgage products that the bank offers, is likely to spark another round of rate hikes among the country's mortgage lenders.

RBC kicked off one series of hikes a little more than two weeks ago, and most experts said that was the start of a steady rise in mortgage rates.

At that time the cost of a five-year closed rate mortgage from RBC and many of its competitors rose by 0.60 percentage points to 5.85 per cent.

Royal Bank's Canadian mortgage portfolio amounted to about $148.5-billion in the latest quarter.

The banks say they are raising rates because their cost of funds is increasing.

Variable mortgages (almost) always best

This from today's Financial Post - April 6, 2010

Whether They're Taking On New Mortgages Or Renewing Ones They've Held For Years, Homeowners End Up Asking Themselves The Same Question: Should They Lock In Their Mortgage Or Should They Let It Float With A Variable Rate. Here, Toronto-Based Wealth Manager Scott Tomenson Makes The Case For Variable.

http://www.financialpost.com/magazine/story.html?id=2766742 

ARE VARIABLE MORTGAGES AS GOOD AS THEY LOOK?

Q: My fiancé and I have just bought our first home and we are going in circles about what is the best mortgage for us before we close. We currently have a locked-in fixed rate with a bank of 3.98%, which we prefer to the uncertainty of taking a variable mortgage. But would we be better off with a variable-rate mortgage, especially if we saved money during periods when rate are low and use that to make payments on principal? Will that offset costs when our payments are higher than our current fixed rate? Getting Dizzy, Ontario

A: Historically, as far as interest rates are concerned, it is better to float your mortgage interest rate (i. e., choose a variable rate mortgage). This is a result of the "yield curve." The "normal" yield curve is positively sloped, with interest rates lower for short-term maturities (one to two years) and higher for longer-term maturities (five to 30 years). When the economy strengthens, the Bank of Canada will raise short-term interest rates (they only have control over short-term rates) and the base for variable-rate mortgages (usually the prime rate) is moved higher. This action signals a period of "tightening" of monetary policy to cool the economy and reduces inflationary pressures.

The vehicles that determine longer-term interest rates -- bonds -- tend to move according to inflationary expectations: If bond investors anticipate inflation (because of economic growth), they demand higher returns (interest rates) as protection from inflation. When the Bank of Canada is perceived as "fighting" inflation by raising short term interest rates, long-term rates have a tendency, in most cases, to remain stable or improve, because long-term bond investors are content that inflation will not grow.

In essence, while short-term interest rates may go up, they do so only until the Bank of Canada has slowed the economy enough to curb anticipated inflation. Then, as economic growth slows, the bank starts to lower them. The yield curve will flatten (with higher short-term interest rates) for a time, but when the economy slows, short-term rates will go back down and the yield curve returns to its "normal" positive slope.

Over this time, variable-rate mortgages will move up to being approximately equal to locked-in five-or 10-year rates, but that's followed by a period when they return to lower levels. More often than not, over this time, it is less costly to have held the variable rate debt. Exceptions to this situation would be times of hyper-inflation (like in the 1980s) when short-term interest rates went to extreme levels.

If you had a variable mortgage at prime minus over the past few years, as I did, it's been a great ride. I kept my payments level and the low interest rates allowed to me to pay off massive amounts of principal. True, the economy is strengthening and short term rates will go up a bit over the next couple of years, but I don't think it will be dramatic. The case for variable-rate mortgages remains strong.

Consider a 3 or 4 year mortgage term

According to CMHC statistics, the average mortgage in Canada only lasts 38 months, with only 29% of all 5 year terms making it to the full 5 year mark.  Due to property appreciation, the need for additional funds, life changes, moves, etc, a 3 or 4 year term just seems to be a better fit for most Canadians. 

By taking a 3 or 4 year term, you get a better rate than on the 5 year, and could very well save interest penalty charges by not having to refinance part way through a 5 year term.

Your interest rate will be better  than on the 5 year term. Example three years today at 3.5% or four years at 3.79%. Whereas the five year rate is 3.89%

(Note : rates change constantly, but the prinicple should be valid almost all the time)

The industry advertises and competes on the 5 year term, and people always shop and research 5 year rates, but in light of the reality we see above, you should consider a slightly shorter term.

Mortgages getting tougher on self employed folks

CMHC is tightening the criteria needed for self-employed borrowers to get mortgage insurance, changes that will come into effect on April 9, according to Canadian Mortgage Trends.
 
Borrowers who apply under CMHC's self-employed stated income product will need a 10 per cent down payment instead of the five per cent down payment now required. These borrowers will also only be able to refinance up to 85 per cent loan to value instead of 90 per cent.

Debbie Thomas, partner and broker of record at The Mortgage Group, recently told CMP she has noticed a trend of insurance guidelines tightening for self-employed borrowers, who often write off a large portion of their income for tax purposes.

"The whole issue of reasonability has now been forced back and self-employed deals that used to be approved are not even close to being approved today," said Thomas. "It hasn't been an announcement or anything that has come out from the lenders or insurers, but it's something we've definitely noticed."

Insured Stated Income Programs Tighten Up

CMHC has felt for a while that too many people apply for stated income mortgages who shouldn’t.

Therefore, effective April 9, CMHC is adding more restrictions to its Self-Employed stated income product..

For one thing, it’s reducing the maximum allowable loan-to-value. 

Self-employed borrowers who choose to apply under this program, and not verify their income using traditional means, will have to put down 10% when purchasing a home (instead of 5% today).

Stated income applicants who wish to refinance will be limited to 85% loan-to-value (instead of 90% today).

CMHC says:

• The Self-Employed program is intended for self-employed borrowers “who have difficulty providing documentation for their current income level.” These are often people who’ve recently begun to work for themselves.


• Self-employed borrowers in the same business for over three years will no longer be eligible for approval without traditional proof of income.


• A business license, GST license, or articles of incorporation will be required to validate the applicant’s length of self-employment.


• Commissioned employees are no longer eligible for approval under the Self-Employed program.

As insurers pull back further from the stated income market, some expect uninsured lenders to eventually fill the void.  Self-employed borrowers, with hard-to document income, will then pay notably higher rates and fees as a result of using such programs.

How long can interest rates stay so low?

I hate to sound like everyone else – it often pays to be different, but we must recognize  most economists and experts are forecasting interest rate increases beginning as early as this Summer.

The Bank of Canada rate was 4.25% in January 2008, and now it is only 0.25%, and has been there for almost a year. This has resulted in the lowest consumer borrowing (and saving) rates ever!

The Central Bank sets its interest rates to keep inflation at around 2%. But the Canadian economy grew at an annual rate of 5% in the last three months of 2009 – a very healthy growth rate – but this is bringing inflation fears into the picture. If inflation sets in, interest rates can only go up.

Historically, economists are never that reliable in predicting where interest rates will be in the future – but they do usually get the direction correct! Most see increases of one to one and half percent by the end of the year. Next year and the year after, who knows?

What does all this mean for us?

If you have invested money in savings accounts and GIC’s, now may not be a good time to lock in for five years (which is traditionally the term offering the highest interest rates.) Keep your holding periods short, in the hope that higher rates are around the corner. The major banks are quoting five year rates at only 2%, and a “high interest” savings account might only be yielding 0.75% right now.

If you have a car loan

Your rate is most likely fixed, so none of this should concern you much.

If you are using your personal or business lines of credit

You can expect to see your minimum monthly payments increase at the same time as interest rates are rising.

If you are buying a home now, or your current mortgage is coming up for renewal,

If you qualify for the best interest rates, that means a five year fixed rate mortgage would be around 3.69%, but a variable rate mortgage might be as low as 1.95%.

Many homebuyers are very attracted to the 1.95% rate and make their buying decisions today based on this low rate with its very low monthly payment.

For my money, I want to sleep at night and not worry about this stuff. I like five years at 3.69% -it’s amazing! But that’s me – I am a bit conservative.

If you already have a mortgage

You may not be able to do anything yet, since penalties to break existing mortgages can be very high. You should ask your mortgage specialist what your penalty would be, and then decide.

Some people have variable rate mortgages from a few years ago, where their rate today is as low as 1.15% . They will be reluctant to do anything different unless they really feel pressure – I don’t blame them.

But remember, the key word is “variable”. It can go up or down. Hard to go lower than 1.95% or even 1.15%, but if rates start going up and up, variable mortgage rates could become very uncomfortable one day.

It’s an individual decision, and depends on many things. Talk to your mortgage specialist if you want an informed second opinion.

Bank of Canada urged to hike rates by up to 4% starting June 2010

Lifted from yesterday's Financial Post - folks - for all you variable mortgage types - you are being warned!

Bank of Canada urged to hike rates after June

Paul Vieira, Financial Post  Published: Tuesday, February 23, 2010

OTTAWA -- The Bank of Canada should uphold its conditional pledge to keep its key policy rate at 0.25% until July but should then embark on sharp rate hikes of 50 basis points at every announcement date until mid-2011, says an analysis prepared for the C.D. Howe Institute.

The call for sharp rate increases after June emerged Tuesday, one week before the Bank of Canada releases its latest interest-rate statement. Further, recent data indicate the Canadian economy likely expanded in the final quarter of 2009 at a faster pace than the central bank expected (4% vs 3.3%), and inflation is now closer to the central bank's 2% preferred target than it previously envisaged.

The report suggested the central bank, in response to the great recession, cut rates at a pace faster than the drop in inflation. As a result, the central bank should follow a similar pattern in increasing borrowing costs at a rate faster than inflation once the recovery takes hold, argued Michael Parkin, an economics professor at the University of Western Ontario.

Based on a number of assumptions, Mr. Parkin calculates that increases of 50 basis points from now until mid-2011 are appropriate, leading to a central bank benchmark rate of roughly 4.25% (assuming eight scheduled rate announcements from July to the middle of next year).

"While the bank might want to raise the overnight rate more slowly than 50 basis points at every announcement date, doing so would keep the real overnight rate negative through a period in which the economy is returning to normal and run a serious risk of leading to excess demand and rising inflation expectations in 2012 and 2013," Mr. Parkin wrote.

The paper added the current rapid growth rates of the monetary base and monetary aggregates must be slowed, and this could only occur if the policy rate follows a sharply rising path.

Still, the Bank should keep its conditional commitment to leave the benchmark rate unchanged until July or risk damaging its credibility, Mr. Parkin said. Other conclusions from his analysis include:

• The Bank should publish conditional statements about the future path of the policy rate to help shape market expectations and avoid surprises that disrupt financial markets, output, and employment.

• And measures aimed at easing credit conditions should be unwound but "with care," he added, to ensure a gradual return to normalcy in credit markets.

Tougher to be a real estate speculator now

Mortgage rules were tweaked by Finance Minister Flaherty today. Here is an article courtesy of CBC News.

Flaherty to toughen mortgage rules

Last Updated: Monday, February 15, 2010 | 9:45 PM ET Comments132Recommend64

CBC News

Finance Minister Jim Flaherty will announce new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise, CBC News has confirmed.

Finance Minister Jim Flaherty is set to impose new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt. (Fred Chartrand/Canadian Press)Sources say the measures will discourage reckless real estate speculation, such as borrowing heavily for an investment property that is not the investor's primary residence. Flaherty is also set to deter households from taking on more mortgage debt than they can afford to repay when interest rates rise, as they are expected to do later this year.

The finance minister is also expected to discourage people from raising cash by refinancing their homes with larger mortgages — again because they may not be able to make the payments at higher interest rates.

The Canadian Press reports that Flaherty will implement a debt affordability or income test that applicants must pass to qualify for mortgages insured by the Canada Mortgage and Housing Corp.

There has been speculation that Flaherty might raise the minimum down payment on a home — now five per cent — and lower the maximum amortization period for mortgages — currently 35 years.

Sources have told CBC News that those measures are not part of Tuesday's announcement. However, they could be considered in the future.

Economists and policy-makers have expressed concern that very low interest rates have encouraged Canadians to take on too much debt.

In the case of home mortgages, there are fears that rising rates would force people to walk away from properties they could no longer afford — as happened in parts of the U.S. in 2007 and 2008 — flooding the market with homes for sale and causing prices to collapse.

With files from The Canadian Press

Read more: http://www.cbc.ca/money/story/2010/02/15/flaherty-mortgage-rules.html#ixzz0ffddwwuO

Mortgage rates headed lower real soon?

 

RateSupermarket.ca's panel of financial gurus believe we could possibly see lower fixed mortgage rates and bigger variable rate discounts to prime

TORONTO, Feb. 4 /CNW/ - RateSupermarket.ca, Canada's rate comparison website for personal finance products such as mortgages and insurance, has announced the results of their Mortgage Rate Outlook Panel for February 2010.

The results of this month's mortgage rate outlook tell a divided story. 43% of panel members expect fixed mortgage rates to slightly decrease this month, while the same percent believe that fixed rates will stay where they are. Variable mortgage rates are expected to remain unchanged for the month.

Fixed rates: Unchanged or slight decrease

The mortgage market has seen a strong start to 2010 as consumers scramble to secure low rates before an expected interest rate hike in the second half of the year. As lenders fight for market share fixed rates could drop a few basis points over the coming weeks - but it will be short lived, so keep your eyes peeled.

Panel members who believe fixed rates are likely to remain unchanged cite a weak US dollar and stronger than expected figures for recent economic growth; hence, the slight decrease in bond yields over the past month are unlikely to be passed on by lenders.

Variable rates: Unchanged

The majority of our panel members (80%) still believe that variable mortgage rates will remain unchanged in the short term. The Bank of Canada has been quite clear about maintaining the current overnight rate in the first half of 2010, subject to inflation. Also, interest rate changes prior to the federal budget on March 4th are extremely unlikely. Although no decrease to the interest rate is expected, a few of our industry experts believe that lenders will boost discounts on prime, resulting in lower variable rates.

To read detailed commentary from our panel members, please visit: www.ratesupermarket.ca/mortgage_rate_outlook_panel/

About the Mortgage Rate Outlook Panel

The panel includes some of the country's top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

    This month's panel members:

    -   Dan Eisner, MBA. AMP. President, Verico True North Mortgage

    -   George Hugh, Vice President, Treasury, ING DIRECT

    -   Elisseos Iriotakis, President, SAFEBRIDGE Financial

    -   Gregory Klump, Chief Economist, Canadian Real Estate Association

        (CREA)

    -   Dr. Ian Lee, Director of MBA Program, Sprott School of Business,

        Carleton University

    -   Rob McLister, Editor, CanadianMortgageTrends.com

    -   Garth Turner, Noted Canadian Author, Columnist, Speaker and Financial

        Commentator, Former MP

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is an independent, impartial resource that is not affiliated with any mortgage lender or broker. It is the only resource in Canada that allows visitors to compare the whole mortgage market in the country. RateSupermarket.ca also compares car insurance, home insurance, condo/tenant insurance, life insurance and credit cards.

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One year variable mortgage is the hottest product now

Many of us recall the glory days of variable mortgage rates - prime less 0.95 or even prime less 1.1%. As such, many clients who now want a variable mortgage are reluctant to commit to a five year term today - in case the discount improves soon.

Street Capital recently came out with a one year ARM (adjustable rate mortgage) at a kick-ass rate of prime less 0.25%.

So for those of you waiting for deeper discounts, now you can have your cake and eat it too !

Essentially it's a free call on the market for a year.

More interest rate worries from Ottawa

The end of free money: Investors had better get used to the idea of rising rates Paul Vieira, Financial Post Published: Friday, January 08, 2010 Mark Blinch/Reuters

Mark Carney, the governor of the Bank of Canada, would dearly like to avoid raising rates before his U.S. counterpart for fear of further appreciation in the Canadian dollar. OTTAWA -- As usual, equity markets were ahead of the curve in terms of signalling an economic recovery. Of course, it didn't hurt that investors could tap money, virtually for free, due to historically low interest rates. The unprecedented run in markets has boosted confidence among households, and helped solidify the economy's shaky foundations.

But the improving economic outlook undoubtedly applies increasing pressure on the U.S. Federal Reserve and Bank of Canada to hike interest rates from record-low levels. Are traders and investors ready for the end of nearly free money? Thursday's surprise move by China to raise rates on short-term treasury bills shows just how touchy the subject will be for the year ahead. The move had the immediate effect of cooling down red-hot stock markets in emerging countries.

 "Markets are more comfortable that a recovery is here," says Mark Chandler, fixed-income strategist at RBC Capital Markets. "The next thing now, then, is how are we going to normalize rates. We are at emergency levels, but we are no longer in an emergency situation. So it's a question now of timing and magnitude." At present, federal fund futures - which provides a gauge of market expectations for U.S. Federal Reserve interest rates - are pricing in a policy rate of 0.90% by the end of 2010, up from its current target range of 0% to 0.25%.

That means markets are expecting roughly 75 basis points to nearly a full percentage point in interest rate hikes. A similar instrument in Canada pegs the Bank of Canada's overnight rate to rise 100 basis points, to 1.25%, in the same timeframe. Mr. Chandler adds the biggest debate in financial markets is the size of the first rate hike, from either the Fed or the Bank of Canada. "When there's all these messy [liquidity] programs out there, and [the central bank] is not really moving for pure inflation reasons, then we are not sure the normal guideposts hold. So it will be a top-of-mind issue for financial markets."

Views on the timing and magnitude of rate hikes are all over the map. Complicating matters is the recession just passed was like no other, prompted by the near collapse of the Western world's financial sector. Central banks might err in keeping rates too low for too long to stoke private-sector demand.

Meanwhile, in Canada, Mark Carney, the governor of the Bank of Canada, would dearly like to avoid raising rates before his U.S. counterpart for fear of further appreciation in the Canadian dollar. Still, investors had better get used to the idea of rising rates, just as they should understand that the great global stock market rebound - with the Toronto index up roughly 56% from lows last March - can't carry on forever. As a starting point, findings from a CIBC World Markets analysis suggest every 100-basis-point increase in the central bank's overnight rate knocks stock valuations down by roughly 5%.

 "Now is not the time for Canadians to become complacent," says Andrew Pyle, wealth advisor and markets commentator at ScotiaMcLeod. "If we are entering a different phase where rates are heading higher, which I believe, then that means we are not going to see a repeat of last year's rally."

Prior to this recession, the prevailing wisdom was that central banks commence policy tightening roughly six months after the unemployment rate peaks. Recent job data in Canada indicate the labour market has indeed stabilized, and there are signs of a turnaround in the United States - even though payroll data for December, released yesterday, fell short of market expectations. Economists at BMO Capital Markets said in a recent note they expect U.S. unemployment to peak this quarter, and have tentatively penciled in a rate hike from the Fed in September.

As for Canada, they forecast the Bank of Canada to begin tightening in July, once its conditional pledge to keep rates at 0.25% ends. Others differ. Perhaps the most controversial call of all comes from analysts at Goldman Sachs, who believe the Fed will not raise interest rates for two years.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, said the first few rate hikes following an easing period generally have little impact on the immediate direction of equity markets. The bigger impact comes during the final rate hikes in a tightening stage because they tend, more often than not, to push an economy into a tailspin. Perhaps the most stunning example was in 1937-38, when Fed moves to withdraw stimulus pushed the U.S. economy back into a deep tailspin and sent markets reeling. There's little concern Ben Bernanke, the U.S. Fed chairman who is a student of the Great Depression, would allow history to repeat itself and tighten too soon. The same goes for Mr. Carney.

Peter Buchanan, senior economist at CIBC World Markets, believes central-bank tightening will not begin until into 2011. Regardless of when the tightening starts, he says the initial impact should be negligible for publicly-traded Canadian companies. "We are starting from fairly low rates at this point in time, but one thing to bear in mind is that Canadian corporate balance sheets are in good shape. Debt-to-equity levels are quite low and that means if rates go up, that won't be a lot of stress on companies from a financial standpoint," Mr. Buchanan says.

In a report he recently co-authored, he indicated there's little risk that dividend-paying companies - which tend to be highly exposed to interest-rate movements - would scale back dividend payments in the event of tightening. "If anything, this past recession saw a milder rise in the TSX payout ratio than what we've seen in past economic downturns," the report says. It adds firms are paying out only 40% of consensus 2010 operating earnings in dividends - a smaller amount compared to the previous downturns in the early 1990s and 2000s. That provides some assurance that dividend-paying issuers won't be caught in a trap once borrowing costs rise.

David Baskin, president of Baskin Financial Services in Toronto, says dividend-paying stocks, including REITs, still "have some catch up to do," as they have yet to advance at the same pace as other asset classes during the recent rally. The TSX composite index has climbed 56% from its low last March. In comparison, the exchange's utilities and telecom subindexes have risen roughly 26% and 15%, respectively, during the same time period. "As more and more clients come up out from their nuclear bomb shelters, they see that GICs and Canada Savings Bonds look unattractive - while old-fashioned utilities look good," Mr. Baskin says.

As for asset classes to avoid in an era of pending rate hikes, money managers and advisors appear universal in their dislike of longer-term fixed income. "I would be very, very hesitant to hold long-term fixed income products in this market. We would find that very scary," said Michael Sprung, president of Sprung & Co. Investment Counsel in Toronto. "The fear is that when interest rates rise, the prices for long-fixed instruments will fall precipitously." Mr. Sprung, who believes there's a risk of a double-dip recession, said once interest rates begin to rise, "people are going to start to worry about the stamina of this recovery. And that could cause commodity prices to come off a little bit, which would be reflected in the TSX."

Still, there are those, such as Mr. Pyle, who indicate market participants are prepared for central bank tightening - and would welcome the development. "They are ready to engage that question now, and some market participants would be ready if it meant protecting against even higher interest rates down the road by putting a cap on where long-term borrowing rates and mortgages will go," he says. Long-term interest rates - for funding of more than five years - have returned to somewhat normal levels. Last week the yield on the U.S. 10-year Treasury note rose to 3.9%, its highest level since early June. After the jobs numbers yesterday they closed at 3.83%. A Bank of America-Merrill Lynch report warned this week that 10-year yields above 5% could prove "destabilizing" for the markets. What could push such a move are concerns of uncontrolled government spending. "We are starting to price in supply risk and inflation risk," Mr. Pyle. "If that's not arrested any time soon, then those long-term rates will continue to rise and that becomes a risk for the equity markets, as debt-servicing costs for businesses and households go up."

Mortgage rates likely going up very soon

We have word that the Canadian bond market rates are going up, which means mortgage rates will follow suit. If you are shopping for a mortgage, try to get a commitment issued asap.

Ross

Ottawa mulling mortgage rule changes

This rumour has got traction. It sounds like it will come to pass and that the government is trying to  pre sell the notion in the court of public opinion. If you or your children are planning a low downpayment purchase transaction soon, with a long amortisation period, (30-35 years), now would be a good time to do so. Here is an article from CBC 's website, with input from Canadian Press.

Ottawa mulls tighter mortgage rules

Flaherty and Carney getting nervous

Last Updated: Monday, December 21, 2009 | 10:17 PM ET Comments317Recommend95

CBC News

Ottawa is considering new measures to tighten mortgage standards and prevent would-be homebuyers from taking on more debt than they can afford.

Finance Minister Jim Flaherty said in an interview with CTV he's worried about people piling up debt while interest rates are low and then getting into trouble when interest rates rise, as they inevitably must.

Finance Minister Jim Flaherty says he worries about Canadians taking on too much debt. (CBC)As a result, the Conservative government is considering increasing the minimum down payment from five per cent "to a higher figure," he said, and Ottawa may also reduce the amortization period from a maximum of 35 years "to something less."

Twenty-five-year mortgages used to be the norm, until lenders started making 30-, 35- and 40-year mortgages available to stimulate demand. In mid-2008, the Department of Finance moved to trim the maximum paydown period to 35 years and to require a minimum five per cent down payment for new federally insured mortgages.

Even so, 18 per cent of Canadian mortgages are for terms longer than 25 years, and 10 per cent are amortized over 35 or 40 years, a recent Scotiabank report estimated.

The average price of a resale home in Canada hit $337,231 in November, the Canadian Real Estate Association said last week. That's 19 per cent higher than the depressed levels of a year earlier.

Flaherty's comments echo Bank of Canada governor Mark Carney, who last week urged consumers to get their financial houses in order to prepare for when the central bank inevitably raises its key policy rate from its current emergency record low of 0.25 per cent.

Proceed with caution: CIBC

Word that Ottawa might step further into the red-hot real estate market had housing watchers buzzing Monday.

"You could basically shut down 25 per cent of the market," CIBC economist Benjamin Tal told CBC's The Lang and O'Leary Exchange. "It's going to be significant because we're talking about a lot of money that took advantage of those rates."

"What the Bank of Canada and Finance Department are saying is that people are abusing these rates, but they need to be careful not to risk this fragile recovery."

Though he admits more lending caution would be prudent, he advocates Ottawa be wary of anything as drastic as a hard cap of 30-year amortizations, or minimum 10 per cent down payments, for example.

"If you want to do it, do it in a gradual way that you do not kill housing [because] housing is the only thing ticking in this market," he said. "The timing is tricky."

With files from The Canadian Press

Mortgage rule changes ahead?

Toronto — The Canadian Press Published on Monday, Dec. 21, 2009 6:28AM EST Last updated on Monday, Dec. 21, 2009 11:53AM EST

CTV says Ottawa is considering raising the minimum down payment for home buyers as well as reducing the amortization period in order to stop some consumers from taking on too much debt.

In an interview with CTV Question Period, to be aired next week, Finance Minister Jim Flaherty says the measures will be taken if there's evidence of excessive demand in the housing market.

Flaherty says the new measures would target consumers “who are taking on obligations that they will not be able to handle in the future when the interest rates do rise.”

Investor Education: Should I buy a home now, or wait and save more money? Understanding house prices Is it better to buy a home, or choose some other investment? Charlie's story What makes buying a home different from other investments? What are some renovations that add value to my home?

He says the likely measures the government will take is to increase the size of the down payment from 5 per cent “to a higher figure” and to reduce the amortization period “from a maximum of 35 years to something less.”

Those measures would increase the monthly payments, making it more difficult for some people to take on a mortgage and purchase a home, without having to increase the interest rate.

Last week, the central bank warned that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements