CIBC expects non-conventional (high-risk) Canadian mortgages to double in popularity in five years. (See Globe & Mail story). But don’t be surprised if it happens a lot quicker than that. With our newfound access to bigger mortgages for the same income level, Canadians will surely follow the same path as Americans (i.e. buy more expensive houses than they could normally afford, and extend their repayment periods).
Americans take out unconventional mortgages 22% of the time (versus 5% in Canada). That means we Canadians have some catching up to do…and we will. Our average debt-to-income ratio is already at a record level of 122%, versus 117% last year. We won’t be adverse to piling on even more mortgage debt in 2007.
Competition among mortgage insurers is paying off.
Insurers are now increasingly basing mortgage premiums on a new policy called "risk-based" pricing. This means that your mortgage insurance fees can now be based on your credit score. No longer will you be slapped with a flat insurance fee if you don’t have the required 20% down payment.
Here’s an example: Just weeks ago you would have paid almost 4% of your mortgage in insurance fees if you got a 0% down mortgage. Now Genworth Financial is offering the same insurance for only 3.1% if you have a credit score over 679. (Source: Globe & Mail)
For those with bad credit, it remains to be seen if mortgage insurance premiums will increase to compensate.
Here’s some more good news for the 40% of Canadians who don’t have 25% to put down on a new house.
Ottawa wants to let people borrow up to 80% of a home’s cost without needing mortgage insurance. Currently mortgage insurance is required by law if your mortgage is for 75% or more of your home’s value.
Parliament has until April 24 2007 to consider the legislation. If it passes, it could save homeowners roughly $1000 over 25 years per $100,000 borrowed.
It’s unclear, however, if mortgage insurance premiums for people with less than 20% down will rise to offset these lost fees.
Ontario has passed the Mortgage Brokerages, Lenders and Administrators Act, 2006.
It’s the first update to laws governing the fast growing mortgage brokerage industry in 30 years.
While details haven’t been finalized, the law mandates that:
- Those who sell, lend, or trade in mortgages be licensed
- Mortgage professionals meet minimum educational requirements
- Mortgage brokers act on behalf of only one brokerage
- Mortgage agents be closely supervised by compliance officers in their firms
- New penalties up to $200,000 be levied for violations of the law
Are you and your roommate tired of renting? How about splitting on a new house? Vancity bank in B.C. might be happy to accommodate you with its new "Mixer Mortgage," a mortgage made for two!
(Story by Langley Times)
According to the Canadian Institute of Mortgage Brokers and Lenders…
- 66% of Canadians with mortgages choose a fixed-rate
- 22% choose a variable rate
- 12% select a combination of the two
- The most popular mortgage term is 5 years.
5 percent of Canadians take out non-conventional mortgages (interest-only, 100% financing, etc…). In the U.S. the number is 20%.
Could the U.S. housing bubble have anything to do with America’s penchant for higher risk mortgages with more buying power? We think so.
Furthermore, once non-conventional mortgages take hold in Canada (and they will), some think this same logic will apply here. The result? Many expect another bump up Canadian home prices.
First National has announced a new 100% mortgage geared to good credit customers with no money for a down payment. Here’s the details:
- Amortization: Up to 35 years (40 years as of Dec. 15, 2006)
- Rate Guarantee: 120 days
- Mortgage Insurance Surcharge: 3.1 to 4.1% depending on insurer and amortization
- Minimum Credit Score: 680 to 710 depending on insurer
Keep in mind, you still need to come up with about 1.5% in closing costs. Call Melanie McLister at MyVirtualMortgageAgent for rates or more details: (800) 280-2460
Here’s two factors that suggest Canada’s housing market might not succumb to the same type of housing "correction" as in the U.S.
- The number of Canadians with mortgages in arrears is at a record low. In the U.S. mortgage foreclosures are up 42% in the past year.
- In the U.S., real estate comprises 34% of typical household assets. In Canada that number is only 20%.
Source: The Gazette