Flaherty Targets CMHC

Earlier this month, the Federal government announced that, in an effort to further curb mortgage lending and prevent a housing bubble, it will now charge Canada Mortgage and Housing Corporation (CMHC) a "risk fee" on the insurance it writes.

 

CMHC offers mortgage default insurance for homebuyers who have less than 20% down. This insurance protects lenders if you can't fulfill your mortgage obligation - but the homebuyer is actually the one who pays the premium.

Unlike private insurers Genworth and Canada Guaranty, however, CMHC is a Crown corporation. If lenders are forced to use their CMHC insurance, it's actually the tax payer who's going to be picking up the tab. To add to the CMHC controversy, the Crown Corporation is backed 100% by the Federal government. If it gets into trouble, the government will completely bail it out. The other default insurers are only backed 90%.

To limit its exposure, as of January 1 the government will be charging CMHC a "risk fee" of 3.25% on all its insurance (a rate that is higher than the one already paid by private insurers), as well as capping the amount of insurance CMHC can issue at $600 billion.

Despite the steps to reign in CMHC's business, most experts believe the average consumer won't notice a difference. If you have any questions or concerns about your ability to qualify for a loan -- or any other mortgage-related questions -- please don't hesitate to drop us a line.

 

Happy People Live in Small Houses

If you've felt stressed and short on time lately, maybe your house is to blame - at least that's what Joshua Becker at Becoming Minimalist believes.

After visiting his parents' new downsized home, he sat down with his mom to figure out why they were so much happier living in less square footage. She came up with 12 reasons. Here are some of our faves:

Less time spent cleaning. 'Nuf said.

Less expensive. Smaller homes are less expensive to purchase and less expensive to keep (mortgage, insurance, taxes, heating, cooling, electricity, etc.).

More time. Many of the benefits above (less cleaning, less maintaining, mental freedom) result in the freeing up of our schedule to pursue the things in life that really matter - whatever you want that to be.

Less temptation to accumulate. If you don't have any room in your house for that new treadmill, you?ll be less tempted to buy it in the first place (no offense to those of you who own a treadmill? and actually use it).

Wider market to sell. By its very definition, a smaller, more affordable house is affordable to a larger percentage of the population than a more expensive, less affordable one.

Have you downsized recently? What do you love most (or least) about your new smaller home?

How to make money off your home.

One of the reasons you likely got into home ownership in the first place is because you saw it as a good investment. But real estate appreciation isn't the only way owning a home can make you money. This article in Canadian Living magazine does a great job of highlighting 7 Ways your Home can Make you Money.

In addition to the obvious (i.e. renting out your basement), the article highlights a few less common ways to make money from your home - like running a bed and breakfast (definitely not for everyone) or renting your home out to a television or film company.

Depending on where you live, you may also want to look into making some green renovations. Not only will this save you money in energy costs (which is essentially the same as making money, isn't it?), but some jurisdictions allow you to sell additional energy (like that generated from the installation of solar panels) back to the grid.

Starting your own backyard vegetable and fruit garden may also be an option for you. Not only will this save you money on your grocery bill, but if your garden is big enough - and productive enough - you may also want to look into selling some of your homegrown food at a local farmers' market.

Has your home helped you earn additional income? If so, we'd love to hear how!

Costs up upsizing your home.

Very few people stay in their starter home forever. Most of the time - whether it's because of a growing family or a growing income that allows you to purchase something better - homeowners opt to move to a larger abode. If you're finding yourself in this situation, keep in mind that with a larger home comes larger costs. Below are just a few things to consider when you're determining how much more house you can afford: 1. Mortgage Unless you're moving to a significantly less expensive area, chances are you're going to require a larger mortgage as your home's square footage increases. You can opt for a higher amortization to keep your monthly payments low (think 25 years), but this will also increase the amount of mortgage-paying years you have left. 2. Regular Maintenance (lawns, cleaning, snow removal) This will be a particular shock if you're moving from a condo to a house. Lawns, gardens, snowy driveways - these all need to be maintained. Also, the bigger the house, the more you're going to have to clean (if you're into that sort of thing). Whether you hire people to perform these tasks or you opt to do them yourself, you're either looking at more money or more time spent on them. 3. Property taxes Again, unless you're moving to an area that has lower taxes, chances are you're going to be paying more for a larger home. Find out from your Realtor roughly what the taxes are in your ideal neighbourhoods, and factor this into your budgeting before you start looking. 4. Utilities Bigger house means more rooms to heat - and cool. You may also have to pay for water, sewage and other costs such as water heater rentals. 5. Emergencies If you're already living in a house, this likely won't be an issue because you're used to the threat of unforeseen maintenance issues. If you're moving from a condo, however, it's important to note that you're no longer paying maintenance fees for a reason. If something goes wrong, you have to foot the bill yourself. Make sure you have a reserve fund ready. 6. Home insurance With a bigger home comes a bigger home insurance payment. 'Nuf said. Depending on where you're moving to, some of these costs might be offset. Particularly if you're moving closer to work - which will likely lead to lower gas bills and car insurance. If your new home is newer, and more energy efficient, you may not notice a huge difference in utility bills. And if you're moving out of a larger city, your cost of living might decrease all around. Make sure you figure out roughly how much new house you can afford before you start looking. There's nothing worse than finding your dream home only to realize it's going to make you house poor.

Is home buying about to become more difficult?

Just when you thought mortgage rules couldn't be tightened any more, the Office of the Superintendent of Financial Institutions Canada (OSFI) said it's "looking into" doing just that, by potentially eliminating amortizations over 25 years.

Thanks to last year's mortgage rule changes, amortizations over 25 years are no longer available to high ratio buyers - or those with less than 20% down. But individuals with larger down payments can still access 30- and 35-year amortizations.

That's what OSFI is looking to potentially stop. It's currently consulting with financial institutions on the matter to see if this solution is something that makes sense, and if it could potentially help stabilize the housing market (and its ever-rising prices), curb consumer debt levels and reduce the risk of exposure to rising rates.

It's a shame that the government is looking to eliminate this mortgage tool as a means of curbing household debt. Individuals already have to qualify for the five-year posted rate at a 25-year amortization - you'd think that would be enough.

That being said, interest rates have been extremely low for quite a while, and the housing market seems to have resisted previous attempts to cool it down. Finance Minister Jim Flaherty - along with the Bank of Canada - have repeatedly expressed concern over the housing market. They'd rather see a soft landing than a bust - and really, who can blame them?

If you're in the market for a new home or refinance, and were hoping for an amortization longer than 25 years, you may want to give us a call sooner rather than later. You never know when the rules are going to change again!

What don't you miss about renting?

In this day of low interest rates, the temptation to buy a home versus renting one is higher than ever. This article in the Globe offers some great insight into the buying versus renting debate, and how to determine what's right for you.  While it's true that homeownership isn't an ideal choice if it's going to leave your house poor, or if you're not ready to settle down in one location, there are definitely a lot of positives involved for those willing to take the plunge. Below are some things our clients appreciate most about home ownership. 

1.      Forced savings

While some people are good at saving their extra income, others are not. For the less-than-savvy savers among us, home ownership can be a great thing, as it's forcing you to sock away money every month. Instead of paying someone else's mortgage, you're paying off your own - and building equity in the process.

2.     The freedom to make the place "yours"

When you own your own home, you're not stuck with someone else's choice of paint colours, flooring or fixtures. How you customize your home is only limited by your imagination - and, maybe, your savings account.

3.       The desire to keep your place nice

Even though you live there, when you rent a place it's never really quite yours. While you may want to keep it nice and presentable, if something major goes wrong - or if you crack a tile here or there - it's not that big of a deal because someone else will pay to get it fixed and, if they don't, you can always move into a nicer place without much of a hassle. When you own, you always have resale in the back of your mind. This motivates you to deal with potential issues before they become major (costly) problems, and upkeep your home so you have less headaches should you eventually decide to move.

4.     Freedom from crazy landlords

If you've rented for a while, you've likely come into contact with a landlord or two who wasn't quite, well, ideal. One of the biggest perks to owning your place is you don't have to answer to anyone - but, on the flip side, you have to handle all of those household issues on your own. Still, it's a small price to pay for freedom. 

How much is your credit score costing you?

It's always important to keep an eye on your credit score, whether you're in the market for a new mortgage or not. Not only does regular monitoring alert you to potential identity theft, but it will also allow you to deal with any potential credit errors before the eleventh hour.

 

According to this infographic by Canadian lender Xceed, the most common credit reporting error is a Tradelines (or Consumer Reports) error. This is a negative item on your report that, while it may be yours, features some sort of mistake - like the incorrect number of days a payment is late, incorrect balance or missing account information. If the information is wrong, you can dispute it - and if the credit bureau is unable to verify the information within 30 days, the entry has to be removed from your credit file.

Other ways mistakes can find their way onto your credit report is if you have a hard-to-spell last name or a name that changed after you were married. This can lead to confusion among creditors -- and increases the possibility that someone else's missed payments will find their way onto your report. Occasionally, collections agencies also fail to report when a collection has been paid in full - and the mark on your credit report continues to bring your score down.

If you spot an error on your credit report, it's important to dispute it in writing to either (or both) of Canada's two credit bureaus - TransUnion and Equifax. A low credit score can cost you thousands when it comes to your mortgage, primarily because the best rates are reserved for those with a good score. Once you fix any outstanding errors - or pay off outstanding debts - you'll be amazed at how quickly your score can improve.

Must-have tools every homeowner should own

Since deciding to sell my house I've had to do a few repairs.  You know that list of "things that need doing but don't really bug me enough to invest the time"?  Rummaging through the basement I found enough tools to do most of the work but I did have to make a few trips to the hardware store. 

I have decided to share my "must have" list with you.  Hardware stores can be overwhelming if you don't know what you're looking for. Whether you've bought your first home or have decided that 2013 is the year you become "handy", below is a list of "starter" tools every homeowner should have on hand:

1. Toolbox
2. Hammer
3. Pry bar
4. Vise grips
5. Needle-nose pliers
6. Screwdrivers (mixed set
7. Wire cutter/stripper
8. Tape measure (16-foot)
9. Reversible drill with bit set
10. 9-inch torpedo level


If you don't feel like buying each of these tools individually, there are some great starter tool kits available that have everything you need - from screwdrivers to pliers to measuring tapes - in one handy box. With the basics on hand, you can buy additional tools - like hand saws or sanders - as the need arises, which might be a little easier on your wallet.

How to live with less.

 

 

 

If you've already started your spring cleaning, chances are you're all too familiar with our society's obsession with "stuff"?. For those of you looking for some inspiration to purge those unneeded things, you might want to check out this New York Times article , "Living with less -- a lot less" by Graham Hill.

 

Hill made a killing during the Dot Com era, and immediately spent his fortune on material items - houses, gadgets, cars, you name it. The article explains how managing these items became a job in itself, and how it eventually started to suck the life out of him.

After achieving his "ah-ha"? moment, he purged everything and now lives in a 420 square foot condo in Manhattan. Without a lot of extra stuff taking up space, he's been able to organize it in a way that allows him to entertain dinner parties for 12, accommodate overnight guests (in their own room) and watch TV in his own "media room"?.

Here's a video of what his new lifestyle looks like:

http://gizmodo.com/5967622/the-tiny-transforming-apartment-that-packs-six-rooms-into-350-square-feet

Hill is hoping his next business venture will get more people living a minimalist lifestyle. Life Edited offers similar living solutions to those that exist in his condo.

http://www.lifeedited.com/

Whether you're living in a 420 square foot condo or not, it's always good to partake in some regular decluttering to avoid letting things get out of control. If this is what you're planning on doing this spring, good luck and happy purging!

How to tell if your home is overvalued

It seemed natural that with the introduction of record-low interest rates, threats of housing bubbles wouldn't be far behind. For years, the Federal government, Bank of Canada - and now, the International Monetary Fund - have warned about potential housing overvaluation across the country.

The thing is, saying that houses across Canada are, on average, 10% overvalued doesn't make much sense. Canada is a vast country - and housing markets vary drastically from one area to the next.
So how can you tell if your house is overvalued? Well, that's a difficult - if not impossible - question to answer (unless you're an economist - but even then...). That being said, I've always liked this concept that was printed in the New York Times way back in 2005. It employs a mathematical equation similar to that used in the stock market, to determine if stocks are overvalued. The equation looks at a house's "rent ratio": You take the price of a house in a typical area and divide it by the cost to rent it for an entire year. The result is the rent ratio - and the lower the ratio, the better. Typically anything under 20 is considered "bubble safe".
The article acknowledges this is an imperfect measure - mainly because it's not always easy to find out what your house would get on the rental market. That being said, it has proven to be somewhat useful - and is definitely worth a shot if you're worried about buying a home that's potentially overvalued!

The Trouble with Schemes

You can well imagine that in my business we see  a lot of different arrangements for home ownership.  I must say that even after 25+ years in the business I'm still shocked at the creative ways people achieve home ownership. 

But a scheme is a scheme and while they make perfect sense to you they usually come unravelled and it's never pretty.  Take the case of the friend who bought a house for her friend to get her through an ugly divorce.  The deal was in three years when everything had settled down the person going through the divorce would take over, remortgage and pay her friend back.  The benefit to person going through the divorce was a roof over her head for her children, no apparent assets to declare in the divorce and the chance to build some equity for her future.  The benefit to the friend?  The house is in her name and she owns it.  Technically she can do what she wants with the house.

Fast forward 3 years.  It's time to take over the house and the divorce is still in the "ugly" stage.  Settlement has not been achieved and what has been decided has been screwed up by the courts interpretation of the agreement.  At the root of the fight is some joint credit that is now seriously in arrears.  But there is now equity in the house and taking it over will give our subject some net worth.  Not so fast.....

Here's how a lender sees it.  You didn't pay your bills.  End of story.  You had a contract to pay and seriously the lender doesn't give a crap about your personal arrangement.  You both signed a contract agreeing to pay the debt.  Any sudden asset in your name shows you acquired some net worth while neglecting what you already owe.  A creditor will see you has having built net worth using their money - the money you neglected to pay them. 

So what happens now?  If this scheme, okay "arrangement", is to conclude this client must pay back 100%  of the joint debt under question.  What a waste of three years!  If you're thinking of divorcing make sure you understand the rules around credit.  Don't let the courts decide because they will take years to state the obvious and all you can do is scheme your way into a mess. 

As for this case?  Well I guess the friend who owns the house will have to decide what she is going to do with it. 

Hidden Mortgage Fess are making a Come Back.

It's never a good thing when banks are predicting their profits to slide - which is expected to happen in 2013. As Rob Carrick mentions in this article in the Globe, it usually means they're going to find other ways to ding customers - like through excessive mortgage breakage fees.

You've likely heard a few horror stories of friends or relatives who tried to get out of their mortgage early. Maybe they had to relocate temporarily, and opted to sell their home in favour of renting another. Or maybe they wanted to move to a larger home, and realized a little too late that the rock-bottom rate they were paying on their existing mortgage was low because it didn't include portability features. 

These stories don't usually end well - and often involve hefty interest rate differential fees (that compensate the bank for the money it would have made had you kept your mortgage through the agreed upon term) as well as a host of other fees, such as reinvestment fees, discharge fees and transfer fees. 
 
Before you ever sign on the dotted line of a mortgage, it's wise to inquire about what will happen should you opt to pay off that mortgage in full, move to a larger or smaller house or refinance down the road. If you already have a mortgage and didn't have your mortgage breakage fees explained to you upon signing, it's wise to look into it now. Just in case your future home ownership plans will require extra funds.

If you have any questions or are thinking about breaking your mortgage, don't hesitate to give us a call. We can explain the pros and cons of such a move in person, and help you minimize the damage.

A Brief HIstory of Mortgages in Canada

When you make your mortgage payment every month (or every other week, if you're into paying your mortgage off faster), have you ever wondered what your mortgage may have looked like 100 years ago? No? Well, below is a brief history of how mortgages have come to evolve in Canada:

The War Measures Act

Canada's first mortgage lending program took effect in 1918, under the War Measures Act. At this time, the Federal government was the only lender - it appropriated $25 million to the provinces, intended to be re-lent for the construction of residential units and mortgage loans.
At this time, the maximum loan was to be between 80 and 90% of lending value, or $4,500 - whichever was smaller. Annual interest was charged at 5%, with 20-30 year contractual terms. The weirdest thing about these loans? They weren't amortized. For that 20-30 year contract, mortgage holders were only required to pay interest periodically, with the entire amount due at the end.
The Dominion Act

The War Measures Act was replaced by the Dominion Act in 1935. The major difference here was that the government gave up its position as the country's sole mortgage lender, and instead joined forces with institutional lenders - namely, insurance, trust and loan companies.
Under this act, the government provided 20% of the lending value, with the private lenders providing between 50 and 60%. The interest rate was still set at 5%, but these loans were set at 10-year terms, with the provision for a 10-year renewal.
These loans were amortized, and the payments looked much like the payments you make today - equal payments made up of a combination of principal and interest.
The National Housing Act

The National Housing Act was first introduced in 1938, and was amended in 1944 and again in 1954, when it became the Act that we recognize today.
This Act came with a number of changes, the most notable being the introduction of banks as private lenders. Because of the post-war housing boom, Canada needed more private lenders - and this Act was designed to add more funds into the mortgage pool.