Rumour has it that the biggest question coming out of the new mortgage rules announced by the Finance Minister last month, which was what is the exact “higher” mortgage rate that clients will now have to qualify for, should be announced soon.

It appears that the new qualifying rate, which goes into effect on April 19, 2010, that all customers with less than a 20% deposit and are trying to secure a variable rate mortgage or any fixed product under 5 years will need to qualify for the higher of:

No official announcement has been made but it appears the qualifying rate will be posted on the Bank of Canada website each Monday at midnight EST.

Many lenders use qualifying rates already for mortgage shoppers looking to get variable or short term fixed rates anyways, but this move will standardize this process across the industry rather than leave it up to each lender themselves.

The odd thing about this qualifying rate is the contract rate. If you wanted a 5 year fixed mortgage, for example, you’d need to qualify based at the 5 year contract rate. The best current mortgage rate 5 year rate is 3.59%, versus the posted 5 year rate of 5.39%. However, if you wanted a 4 year fixed with a best current rate of 3.59%, you’d need to qualify at the 5.39% rate. The monthly payment difference based on a $250K mortgage with a 25 year amortization period is $249.93 or almost $3,000/year. So which would you choose?

We’ll update the post when we see an official announcement.

BMO (Bank of Montreal) has introduced a new 3.75% 5 year fixed mortgage with a maximum amortization period of 25 years. The current maximum amortization period is up to 35 years. Here are the details on this mortgage special:

BMO is still showing their posted 5 year rate at 5.39% on their website, while the 5 year fixed rate in their “special rates” section is stil 4.09%.

This is a major move by one of the big banks and comes as BMO reported a $657M first quarter profit this week and is focusing on growing its mortgage market share after a couple years of losing ground after deciding to stop selling their products through mortgage brokers in early 2007. BMO’s market share fell to 9.2% in the last quarter, down 0.7% from the same time last year.

BMO also released details of a new poll that showed:

If you’ve just returned from holiday in the Caymans, and didn’t have your BlackBerry with you on the beach, you may not have yet heard that Finance Minister Jim Flaherty announced 3 main mortgage rule changes that will go into effect on April 19, 2010. If you were here, then you know this has been all over the news and there is some confusion with the details, and how they will impact the mortgage industry.

We listed the main points on why these rules won’t have a huge impact, and the biggest question coming out of this is what 5 year rate will be used to qualify applicants?

The government has issued a statement that they will clarify this “shortly”. Although a lot of lenders are saying that they were already using higher rates, such as the 3 year fixed rates, to qualify people on lower variable and fixed rates. The 3 year rate they were using was the one available to them – the lender. Which make sense. You’re not really able to apply a 3 year rate that you don’t have access to.

If that’s the case, then logic presumes, that the same rule will be applied to a 5 year rate. Although as these changes are analyzed more in-depth it seems that they might have been rushed through without a thorough investigation into the effects, and without mortgage expert input.

So we wait and see what happens. There you go – you’re now updated and can go and put some aloe on that burn.

In the last Monetary Policy Committee meeting the Bank of Canada re-iterated their commitment to keep the target for the overnight rate which influences variable mortgage rates, at its current 0.25% until at least July 2010. As a result, that would make you think that variable mortgage rates would stay constant and there would be only way for them to go – up.

Well, think again. Variable rates from the big banks were hovering around Prime, 2.25%, for the past few months, then we saw RBC & TD drop their 5 variable closed rates to Prime – 0.10%, or 2.15%. This is the first time the banks have lowered these rates below Prime since the international economic crisis began.

Mortgage brokers were offering lower variable rates down to Prime – 0.30% (1.90)% for a 5 year term, and then there was a new product introduced by a couple lenders a few weeks ago of a 1 year variable closed rate which was offered at 1.85%.

But we still hadn’t seen the big discounts to Prime that were around 18 months ago, and that our Mortgage Rate Outlook Panel had said would return this month. Then this morning, ING DIRECT came out with a 5 year variable closed rate through one of our broker partners at Prime – 0.45% or 1.80%, with 25% annual pre-payment privileges. This is the lowest mortgage rate we’ve seen thus far.

View the 1.80% 5 year variable closed rate here.

So what happened? Why are variable rates dropping even though the Bank of Canada hasn’t changed its main interest rate? As some of our panel members explained:

Rob McLister, Editor, CanadianMortgageTrends.com: Prime rate won’t drop but discounts to prime will get juicier. Don’t expect anything to celebrate over, but variable-rate discounts should widen slightly from today’s typical prime – 0.15%. An average of prime – 0.25% appears doable in 30 days, and some brokers will likely advertise 10-20 basis points below this number.

George Hugh, Vice-President, Treasury, ING DIRECT: With the threat of increasing interest rates over the next year 12 to 18 months, many banks are in favour of placing their clients into VRM mortgages with the hope of locking them into a higher fixed rate in the future. As a result, you can expect to see VRM rates below 2.00%.

I don’t know if we’ll see the Prime – 1.00% variable rates before Governor Carney increases rates again in Q3 2010, but it looks like the trend is we’ll see larger discounts to prime over the next few months.

To stay on top of things, you can visit our latest mortgage rate changes page or sign up to RateWatch and we’ll fire you over an email whenever the best mortgage rates change on RateSupermarket.ca.

RBC announced it is dropping its variable mortgage rate effective today, February 9, 2010, to Prime – 0.1% or 2.15%. This is a “* special rate” (see below for details) which enables RBC to become the first bank to drop its variable rate below prime and is following the thoughts of our Mortgage Rate Panel Outlook, who believed that larger discounts to prime will be coming back in vogue over the next few months.

Mortgage brokers have been offering variable rates below prime for a few months now with the current 5 year variable on RateSupermarket.ca listed at 1.90% and the lowest rate we’ve seen to date is the 3 year variable rate down to 1.85%.

It’s still a very positive sign for mortgage shoppers, that a big bank is bringing the discount to prime back on its variable rates, and could be a signal of things to come if/when the other banks follow.

* Special offer conditions

For mortgages approved on or before February 28, 2010 funds must be advanced within 90 days of date of application in order to qualify for the Special Offer rate. Offer may be changed, withdrawn or extended at any time, without notice.

Applicable to residential mortgages only and subject to Royal Bank of Canada lending criteria for residential properties. Some conditions apply. Rates shown for the applicable term are Royal Bank of Canada’s special discounted rates and are not the posted rates of Royal Bank of Canada. Offer may be changed, withdrawn or extended at any time, without notice

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The Globe and Mail had a great article about the most popular mortgage rate topic of the moment which is whether to go with a fixed rate or variable rate mortgage.

It looks at the biggest question people are facing right now if they’re in the market for a mortgage: with fixed rates so low, does it makes sense to lock in your mortgage now for 7-10 years, or is the premium over variable mortgage rates too high to make sense?

The lowest 7 year fixed rate listed on RateSupermarket.ca is currently ING @ 5.25% and the best 10 year is 5.35%. With 5 variable rates at 1.95%, you would be paying a hefty premium for the security of knowing your ongoing payments for the next 7-10 years, but the article goes on to say, the best option really depends on what your risk tolerance is.

As always speak to a mortgage expert before making any decisions.

TD Canada Trust announced their lowering their fixed mortgages rates effective tomorrow January 29, 2010. The biggest changes is the -0.20% change on the 3 year fixed rate to 4.30%. They are the most recent of the big banks dropping their posted rates this week.

TD’s recently lower mortgage rates include the following:

TD also has a 5 year fixed special on their website for 4.24%, which compares to the lowest 3.75% 5 year fixed available here. Their 5 year closed variable rate remains at Prime (2.25%).

RateSupermarket.ca was founded to provide transparency to a very complex mortgage industry. We are constantly working hard with our lender and broker partners to provide as much detailed information as possible in our Canadian mortgage rate comparison searches over and above the latest, update rate information. This includes further details such as prepayment privileges, portability, assumability and other options that are also important in determining which mortgage product is right for your own situation.

We are pleased to announce the latest update we’ve developed and released on the site is the “Details & offers” section in the mortgage rates search results as shown below:

Details & offers

The idea here is for our partners to include any specific details and special offers that are available for the mortgage rate their listing with us. Examples of details that can appear are:

• Quick closes – if the rate listed is a discounted special with a specific closing date needed (ie. within 30 days)
• Prepayment details – which outlines the amount stated in a percentage (%) that you can can prepay ahead of schedule without penalty both monthly and annually
• Usually stated as 20%/20% with the 1st term for monthly prepayments and the 2nd for annual prepayments
• So 20/20 or 20%/20% means you can over pay 20% of the mortgage over and above your monthly and annual payments respectively
• Special offers – such as free appraisals, if any closing costs are covered by the lender or broker and so on

We have also included the “Details & Offers” information on the best mortgage rates page, to help you see what is included with the best products on offer.

We hope you find this information useful and we will keep you updated as we add more features to try and make our comparison results as detailed and accurate as possible.

Happy mortgage shopping.

Kelvin

A new 1 year variable rate product has recently come onto the market which is being offered by one of our broker partners, True North Mortgage. This is interesting as the most popular closed variable mortgage term has historically been the 5 year, with a 3 year increasing in popularity over the last year as well.

The 1 year product is being offered to take advantage of mortgage shoppers who believe that variable mortgage rates with larger discounts to prime will come back into the market. This is the view of True North Mortgage’s President, Dan Eisner, who in our last Mortgage Rate Outlook Panel that, “It is a New Year and banks want to kick it off with lots of mortgage volume. Thus, more banks are going to discount their rates off of prime. That’s good for home buyers!”

Before the economic crisis happened last year, variable rate mortgages were being offered with large discounts to prime (the Prime Rate is currently 2.25%) such as Prime – 0.65%, and that’s how there are some lucky home owners out there paying under 2% on their mortgage right now. As the banks liquidity started drying up and capital was hard to come by, the discounts disappeared and variable rates were being offered above prime. As Canada started heading out of the recession and liquidity returned to the banking system, many lenders are now looking to re-gain market share lost over the past year.

Variable mortgage rates with discounts to prime are back, with the best variable rate product with a 5 year term on RateSupermarket.ca currently being offered at Prime – 0.30% or 1.95%, and the 3 year variable at 1.85%

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So the thinking with the 1 year variable is that if you believe larger discounts to prime will come back to the market in the next year, you can take out a 1 year variable rate for now, and then switch into a longer variable rate term next year without a penalty, rather than waiting for 3-5 years. The 1 year product comes with:

So this might be an interesting option to discuss with your mortgage planner and as always be sure to speak to a a mortgage expert before making any final decisions.

Best of luck and you can compare the best variable mortgage rates in your area now.

Today, in an interiew with CTV’s Question Period, to be aired next week, Canadian Finance Minister, Jim Flaherty, said that the Canadian government is looking at the changing regulations in the mortgage market and “measures will be taken if there’s evidence of excessive demand in the housing market”.

This comes after the Bank of Canada’s announcement last week that they are concerned that Canadian consumers are taking on too much household debt at the moment, due to low interest rates, especially mortgage rates which are currently near all time lows. And home owners need to start factoring in an increase in interest and mortgage rates (2-4%) over the next few years, to make sure they can still handle their debt payments.

The Finance Minister specifically identified two measures that could be taken:

1. Raising the minimum down payment from 5% ‘to a higher figure’

What this means is that the government would be forcing Canadians to save more money in order to afford a higher down payment on any house purchases. For example, the minimum deposit on a $300,000 mortgage today is 5% or $15,000. Although no specfic number was identified today, if this were to go up to 10%, the minimum deposit needed would be $30,000 (10%).

This would force Canadians to pay higher down payments, thereby, enforcing more financial prudence before they could buy a house, and would reduce the number of people who could qualify for a mortgage, which would acheive there goal to slow down the housing market.

2. Reduce the amortization period ‘from a maximum of 35 years to something less’

The amortization period is the number of years a mortgage holder takes to pay back the loan. The current maximum term is 35 years (reduced from 40 years in October 2008), and if this were reduced (again no specific number was identified) to 30 years, that would effectively increase monthly mortgage payments, as you would have less time to pay the home loan back.

What is the government trying to do?

Flaherty is basically looking at ways to try and cool down the housing market if it gets out of hand. So this is a warning shot towards the main driver at the moment, low mortgage rates. As Flaherty can’t control mortgage rates, this is the Bank of Canada’s job and they are independent, he’s looking at changing regulatory measures within his control that will curb the enthusiasm for buying houses. Raising the minimum downpayment will reduce the number of people who could qualify for a mortgage, especially at the lower end of the market, where new and first time home buyers who are just on the brink of being able to buy a house, won’t be able too.

While decreasing the maximum amortization period would, increase the minimum monthly payments home owners could make on their mortgage, again decreasing the number if people who could qualify.

Is this good or bad?

Looking at the measures seperately, we believe Good and Bad.

Taking the first one – increasing the required deposit amount. We believe this is a good thing. As shown in our example above, if someone were forced to save an extra $15,000 to take out a $300,000 mortgage, they would have to save or borrow more money from family and friends, making it harder for them to buy, especially for first time home buyers. This would force more prudence, reduce the number of people able to qualify for a mortgage and provide a more stable, less leveraged mortgage market.

Secondly, decreasing the maximum amortization period, could put homeowners in a challenging situation when rates increase in the future, as the government has forecasted. Many mortgage holders at the moment who are paying back their home loans over 35 years, can actually qualify or afford to repay based on a 25 year term with higher payments. They choose a longer repayment term as it provides more flexibility and reduces risk – as they can increase payments when times are good and reduce them when times are bad. Taking this option away and making them pay higher amounts all the time simply increases their risk, which could put added pressure on people when rates increase.

As always, make sure to compare mortgage rates and speak to a licensed mortgage specialist about your personal situation before making any decisions on your mortgage

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