CMHC Released their annual report last week, Tuesday May 8^th.  The Canadian Mortgage and Housing Corporation continues to be an integral player in contributing to the stability of the Canadian marketplace.  In 2011, spending on housing accounted for a whopping 20 per cent of Canada’s GDP last year and CMHC provided $2 billion in support of housing programs. Here’s a summary of the report.

Economic Indicators and Forecasts

Economic growth slowed to 2.5 per cent in 2011 compared to 3.3 percent in 2010. The economy is expected to grow by 2.1 per cent in 2012

The Bank of Canada has indicated that the overnight lending rate is likely to remain consistent at 1 per cent for 2012.  Mortgage rates (both fixed and variable) are expected to remain at low levels and CMHC predicts that there will be no exciting movements to posted mortgage rates.  The posted 1 year fixed mortgage rate is estimated to be between the 3.3 per cent and 3.6 per cent range, whereas the posted 5 year fixed mortgage rate is expected to be between the 5.1 per cent to 5.4 per cent range

The unemployment rate declined from 8.0 per cent in 2010 to 7.5 per cent in 2011, while 2012 will see a rate of about 7.0 per cent

Housing starts were up just over 2 per cent from 2010.  Sales of existing homes are expected to increase slightly in 2012 along with the average price (estimated to be around $368,900 in 2012).

Mortgage Loan Insurance

Back in the beginning of February 2012, CMHC was front and center with their news that they were approaching their $600 billion cap for loan insurance which is set by the Federal Government.

In 2011, CMHC had planned to only increase their insurance in force by 3.7 per cent to $533-billion.  However, they actually increased it over 10.3 per cent to $567-billion and are quickly approaching their $600-billion limit.  As you can see, the largest contributor to this increase is from the multi-unit residential units.  CMHC is the only insurer of loans for large multi-unit rental properties, including nursing and retirement homes.  Increased life expectancy paired with the aging baby-boomer cohort translates to a heightened demand for nursing homes and retirement homes alike.

What the Average CMHC Customer Looks Like

The quality of borrower is the only saving grace to the increasing level of CMHC insurance issued.  The average equity in CMHC’s insured portfolio stands at 44 per cent meaning that the average person is financially stable and could withstand any potential adjustments to housing prices.  To put this into perspective the average home price in Canada is approximately $370,000 and would therefore have a mortgage balance of $207,200.

Thankfully, the average credit score of CMHC-insured high ratio loans is 724!  Since CMHC has sound underwriting practices the majority of homeowner loans are held by consumers with strong credit scores who demonstrate a prudent approach to managing their mortgages.

A Look at Real Estate Market Stats for April 2012

Over the last week the Real Estate Board of Greater Vancouver (REBGV) and Toronto Real Estate Board released their monthly real estate market reports.  Here is a summary of their findings:

Toronto Real Estate Stats | The Big Smoke

All Toronto real estate statistics are up on a month over month and year over year basis.  The number of listings and the average price have both increased and sales are keeping up to speed – seems to be a good balance!

Toronto has experienced the strongest sales growth across its single detached dwelling category, however, the listings have not kept up to the demand.  This situation could be problematic, especially if consumers begins to reason with cheap credit and think that since mortgage rates are at all-time low they can afford to put in a higher offer.  This could cause competition to stiffen, bidding wars to intensify and lead to an artificial inflation to prices.

Vancouver Real Estate Stats | Van-City

Vancouver experienced a decrease in sales in April, both month over month, and year over year; whereas both the prices and the number of listings have increased.  April 2012 actually saw the fewest monthly sales in Vancouver in over a decade.  Cheap credit has pushed house prices higher! But…Eugen Klein, President of REBGV, claims that, “although April sales were below what’s typical for the month, we continue to see, with a sales-to-active listings ratio of nearly 17% a balanced relationship between buyer demand and seller supply in our marketplace”.

Hmmm… an increase to prices and listings paired with a decrease in sales activity – sounds like a buyer’s market to me, which isn’t necessarily a bad thing…until you throw cheap credit into the mix.  Eventually something’s gotta give – when sellers outnumber buyers and prices are high, the only way to entice more buyers to enter the market is with (you guessed it) lower prices!

The problem with having low mortgage rates (a.k.a. cheap credit) is that consumers can essentially afford more, so they buy now at inflated prices!  Then as a pricing correction occurs and the market cools off, consumers could find themselves underwater (which is exactly what happened in the US). Since Canadian listing prices aren’t necessarily “correcting” as quickly as the government would like to see, they’ve started to make changes to offset the borrowing frenzy that cheap credit has created.

OSFI Stepping in to Make Changes

OSFI released their draft recommendations to federally regulated lenders to tighten underwriting practices with an aim to enhance the quality of borrowers and strengthen the Canadian credit system and marketplace.  OSFI wanted to hear the suggested feedback from lenders and how they would change the draft guideline.

You can check out other comments that I’ve made on the draft recommendations thus far here.  But..I wanted to touch on yet another controversial issue surrounding the proposed changes.

Target: HELOCs

Since CMHC no longer insures HELOCs the maximum loan to value has been capped at 80 per cent.  However in an effort to keep Canadian spending in check, OSFI has considered decreasing the maximum loan to value to 65 per cent.

The draft guideline states that amortizations need to be defined for HELOCs, or that there needs to be a change to the minimum payment requirements which is currently “interest only”.

Of course major banks and lenders would be affected by the proposed regulatory change to HELOCs, but much attention has been focused on what Manulife Financial thinks about all of these changes.

Manulife One Account

The Manulife One account enables you to run all of your banking (savings account, mortgage, chequing account, etc.) through one account.  How?  It is basically a HELOC that consolidates all of your accounts into one, and pays interest on any positive balance once all of your debt is paid off.

The main selling feature of the Manulife One account is the interest savings and benefits of having your pay cheque and other deposits directly applied to your debt (compared to having interest accumulate in-between payments).  Sounds great…but the problem is that Canadians aren’t paying down their revolving debt, they are re-using it!  How do we fix this? The leash needs to be tightened by enforcing a “principal and interest” payment, compared to the current “interest only” payment minimum.

But..with these proposed regulation changes to HELOC lending guidelines (increasing the amount of equity required from 20 per cent up to 35 per cent), the Manulife One account and Manulife as a whole, could be “collateral damage in the process” says Manulife Financial CEO Don Guloien.  Manulife experienced record loan volumes which were largely driven by the success of the Manulife One Account.  But Guloien commented that he is on board with the proposed changes suggested by Finance Minister Jim Flaherty, and supports any changes that will harness the increases in home prices and decrease consumer debt levels.

RateSupermarket.ca Week in Review

The single change made to the best mortgage rate page over the last week was to the 3 year variable mortgage rate which dropped to 2.80 per cent while all other rates have remained steady.

Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

The 5 year fixed mortgage rate remains the most popular searched rate, with 47.5 per cent viewing rate.  And nearly a quarter (23.5 per cent) of visitors are searching for a 5 year variable mortgage rate.  Nearly 1 in 9 (8.7 per cent) of visitors have checked out the 10 year fixed mortgage rate rate over the last week and finally under 5 per cent are looking at the 3 year fixed mortgage rate fixed (4.7 per cent of visitors) and 4 year fixed mortgage rates (4.1 per cent).

The Subprime Market in Canada

There have been talks about Canada’s subprime mortgage industry getting out of control as the banks turn more and more clients away who have less than perfect credit.  Who are these so called less than perfect clients turning to?  In some cases, sure they’re turning to Alt-A lenders (which stands for Alternative A-Paper lenders, also known as subprime or “B” lenders) who often price upwards of 100 basis points over posted rates.

A growing number of mortgages are being funded outside of The Big Five banks.  Speculation suggests that this is due to the recent changes brought on by the CMHC including shortening amortization periods and increasing down payment amounts. Naturally, the banks do not want to lend to anyone that doesn’t qualify for CMHC insurance.

However, there are many qualified individuals who turn to lenders outside of The Big Five for other reasons.  One example of this would be someone who is self-employed and whose taxable income after deductions makes it tough to gain approval through the conventional line up.  It is important to understand that just because it isn’t a prime mortgage through one of The Big Five, does not necessarily mean that it is a sub-prime mortgage.  There is a market out there that has been referred to as a “near prime” mortgage and is nothing close to the literal subprime market that was created in the states.

The NEAR (not sub) Prime Mortgage Market in Canada

There is a misconception that if you don’t qualify for a mortgage at a major bank you can easily just go through a mortgage broker instead.  The decision to call on a mortgage broker and their lenders is different for everyone but the mortgages available through the broker channel are not by any means of a lower quality or riskier (heck, half of the time brokers fund mortgages with major banks).

But if you do find yourself in a tough situation (such as our self-employed friend above), a mortgage broker may have access to alternative lenders that specialize in arranging home loans for ‘near-prime’ borrowers.

It is important to note that loans for the NINJAs (no income, no job and no assets) and negative amortization loans etc. are NOT readily available through a mortgage broker.  These are the true ‘subprime’ mortgages and are typically referred to as private mortgages funded by people with deep pockets who don’t use leveraging techniques to make the deal.  These private mortgages will often help out a client who needs a second mortgage and their current lender will not surpass the 75-85 per cent loan to value level.  This LTV rule of thumb ensures that the lender has a 15-25 per cent cushion on the value of the home before the lender is really at risk.

Is Canada Really Headed for a Meltdown?

I don’t see it that way!  At first glance, the fact that more and more mortgages are being funded outside of RBC, TD, BNS, BMO and CIBC mixed with a decrease in the average price of a home could signal a cause for concern; but experts are saying that Canada has no true subprime market.

Yes monthly home sales are at an all-time high but year over year we are not seeing the same exponential growth in sales nationally.  This is due to moderate gains in major centres (Toronto, Calgary, Montreal, Ottawa and Quebec City) which are offset by declines in Vancouver and the Fraser Valley.  Last year Vancouver ran at unusually strong sales levels and things are just starting to get back to normal vs. the crash that some are suggesting.  *A look at March 2012 versus February 2012 and March 2012 versus March 2011. Statistics taken from CREAstats

The other concern is the decrease in the average sale price of homes nationally.  Again, last year Vancouver had record high-end home sales in their priciest of neighbourhoods.  There definitely has been a decline in the average sale price of homes in Vancouver but this is due to the change in the sales mix, not due to housing deflation by any means.  Overall Toronto is actually stronger than last spring.  The tug of war between Toronto and Vancouver has made it seem that prices are decreasing but it’s really just an adjustment to the marketable properties available.

RateSupermarket.ca Week in Review

The biggest change this week on the Best Mortgage Rates page was for the better!  The 5 year fixed rate and the 3 year variable rate both dropped by 10bps.  Small movements were seen in the 3 year fixed rate (up 5bps) and the 7 and 10 year fixed rates (both up 1bps). Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

The most popular searched rate remains, still in the lead is the 5 year fixed rate (47.4 per cent of visitors searched for this rate over the last week).  Following the 5 year fixed are the 5 year variable rate (21.8 per cent), 10 year fixed rate (8.4 per cent) and the 3 year fixed (7.0 per cent).

The Bank of Canada is hinting a hike in the overnight lending rate is coming soon. This move will affect the payments on variable mortgages, lines of credit or any debt connected to the floating rate.

Short-term overnight rates have been stalled at 1 per cent since September 2010 and the Bank of Canada knows they can’t stay there for too much longer. It’s because Canadians continue to take on more cheap debt and inflationary pressures are starting to creep in.  More recently the Central Bank noted improved prospects for both the global economy and ours. Indicating Canadians could handle a higher cost of borrowing.

If you’re worried about your ability to service debt in a higher interest rate environment, there are plenty of steps you can take right now to prepare.

Fix your Mortgage Rate

If you’re on a variable rate mortgage you may be able to lock into a fixed rate without any costs. Talk to a mortgage expert to see what your options are. With your rate fixed for five years you can more easily budget and manage your money over that time.

Start Paying More Principal Down

The smaller your debt is the easier it will be to handle.  If you’re carrying a large mortgage or a substantial line of credit, start paying down your loan as aggressively as possible. Every cent you put in today will save you money down the road, especially when rates start to rise and that money gets more expensive to carry.  This is true even if your mortgage term is fixed, because you will be better prepared when it comes up for renewal.

Don’t Take on Any New Liabilities

With interest rates so low, there may be a temptation to take on more debt. But if you’re already carrying a high load, this is not the time to start major home renovations or buy a new car. If possible start saving for those new purchases so you can avoid paying any interest at all. This is a good habit to have no matter where interest rates stand.

Say NO to an Expensive Home

If you’re out shopping for a mortgage, don’t take on the maximum your bank is offering. There is an easy method to figure out what you can afford. Calculate your monthly household income after taxes. Ideally your mortgage payments should represent 25 to 30 per cent of that number. Aim to have your payments around 25 per cent for now so they won’t exceed that comfortable amount when rates rise. If your ratios are too high then you need to find a less expensive house.

Base your Payments on a Higher Rate

Make the lifestyle changes you need to cut back on your spending now. Don’t wait until rates go up to see where you can save. I recommend paying your mortgage at a rate of at least 5 percent. This will help you adjust your budget early to handle those higher payments later.

Stay Invested in Canada

Higher interest rates will mean a stronger Loonie. If you’re looking to convert any cash to U.S. dollars holding off for a year could save you a great deal of money. This is especially true for anyone buying real estate in the U.S. My advice, start saving your cash in Canadian dollars, you could get a better exchange rate at the beginning of next year when rates are expected to rise.

Don’t Forget About “Normal” Conditions

The Bank of Canada likes the overnight lending rate to be around 6 per cent. Meaning in normal economic times commercial banks will offer a prime rate closer to 8 per cent. Don’t worry that isn’t happening anytime soon. But it’s important to keep in mind that in the last 30 years Canada’s interest rate has fluctuated dramatically.  In 1980 it reached an historical high of 18 per cent and a record low of 0.25 per cent in April of 2009.

Who is Most Vulnerable

Anyone holding an adjustable or variable rate mortgage will be affected, as the banks will raise prime from the current level of 3 per cent. Also if you have a floating rate on your personal debt you should also be aware of the higher cost of borrowing and what that means to your budget. A hike is still months away and taking these appropriate steps now will protect you and your family from rising costs.

With Governor Mark Carney hinting that the Bank of Canada will be increasing interest rates comes Scotiabank’s UVRM (Ultimate Variable Rate Mortgage) offering protection from rate increases.

What the Ultimate Variable Rate Mortgage Offers:

• “Low interest rate” with cap rate protection
• Fixed payments that will not increase with changes to prime
• More of your payment going to principal
• Convert to a fixed rate at any time
• 15/15 pre-payment privileges (15 per cent lump sum payments and increase your     regular payments by 15 per cent each year) along with Match a Payment and Skip a Payment options
• Available for both high ratio and conventional mortgages
• Flexible payment frequencies
• Monthly compounding frequency

Taking a Closer Look

Great product!  It offers the best of both worlds, really.  Scotiabank’s 3 year fixed rate sits at 3.99 per cent and their UVRM (also a 3 year term) is priced at Scotiabank’s prime rate, which currently sits at 3 per cent.  But the UVRM will never exceed the cap rate at 3.99 per cent!  Hmmmm let’s see would I rather go fixed for 3 years at 3.99 per cent or would I rather start off at prime knowing that my variable rate will not exceed 3.99?  No brainer, variable please!

The guaranteed no change to your regular principal and interest payment is due to the fact that your payment is calculated using the cap rate.  I like this; essentially you are paying off your mortgage faster (at the fixed rate) by applying more to the principal amount with an inflated payment.  As long as your interest rate is lower than the cap rate you are paying off your mortgage faster with the fixed payment feature.

Most institutions will offer a variable rate for a conventional or high ratio mortgage; they often offer flexible payment frequencies, generous pre-payment privileges (15/15 is in line with industry standards), monthly compounding and the ability to convert to a fixed rate at any time.  What does impress me is the additional “match a payment” and “miss a payment” options.  You can pay double the amount of your regular payment at any time as many times as you would like each year!  If you’ve matched a payment, then you can miss a payment.

Final Thoughts

This product has a lot to offer.  However if you are in the market for a variable rate mortgage, there may be a more competitive rate out there for you.  Speak to a mortgage professional to find the product that best suits your needs and be sure you are getting what you pay for!

In the News this Week: No Changes to the Overnight Lending Rate

Earlier this week (Tuesday April 17th) the Bank of Canada announced that it will maintain its target for the overnight rate.  This marked the 13^th consecutive time that rates have been left alone over the past 19 months.  Although the Canadian economy has exceeded the Bank’s expectations from January and the U.S.’s own recovery has been on the up and up, it all wasn’t enough to have the BOC increase their overnight lending rate which remains steady at 1 per cent.  This pleases mortgage brokers and consumers alike as the prime lending rate also remains at the 3 per cent level.

BUYER BEWARE … Shedding Some Light on the Cash Back Mortgage

You might be wondering what a cash back mortgage is – it is exactly what it sounds like.  When your mortgage funds you receive a set percentage back in cash to go towards, well whatever you want!  Some will turn around and use a 5 per cent cash back amount as their down payment, a sly move around the minimum down payment required to qualify for a mortgage in Canada, unless you are using a private lender of course.  The pro with this type of mortgage is that you can do whatever you want with the cash back!

The Cons: Nothing Comes for Free

I did some research around cash back mortgage rates among the major banks and found that on the surface, they are priced at par with regular fixed mortgage rates.  This makes them quite attractive to the average consumer.  However, when taking a deeper look I found out that the banks only offer discretionary pricing on their regular mortgage products and not on cash back mortgages; making the effective cash back mortgage rates higher than the standard fixed rates.  No room for negotiating a cash back rate!

If paying the posted rate isn’t bad enough, try getting out of a cash back mortgage.  Is it possible?  Yes!  Is it difficult?  Not really.  Is it expensive?  OH YA!  How do you feel about your first born or an arm and a leg?  These are things you may need to give up in order to pay out the penalty for breaking a cash back mortgage.  Sure the $9,000 in your pocket on closing was nice, but try paying it back on top of the standard IRD/3 month interest penalty charge.  It will most definitely cost you a pretty penny.

Claims to “pay off your mortgage 11 years sooner” with a Cash Back Mortgage?!

One of the major banks has advertised that you can pay off your mortgage 11 years faster with a 5 year fixed cash back mortgage at 4.24 per cent.  Not only will you pay off your mortgage faster but they will even give you $4,000 cash at closing (this is based on a 2 per cent cash back amount on a $200,000 mortgage).  That sounds great doesn’t it, so what’s the catch?

The catch is that their scenario is conditional upon your ability to pay more – funny … when you pay more you pay off your mortgage faster!  So I guess paying off your mortgage 11 years sooner really isn’t dependent on the advertised cash back product, which offers a higher rate and is more expensive if you decide to break it down the road.  With the same suggested principals you could pay off any mortgage faster, so why settle for a higher rate!?

The Offer Under the Microscope

In order to be mortgage free (based on $200,000 principal, 4.24 per cent 5 year fixed rate, 25 year amortization and monthly payments) 11 years earlier you have to increase your monthly payment frequency to accelerated bi-weekly payments, then increase your bi-weekly payments by nearly 9.5 per cent and finally make lump-sum payments of $3,000 per year.

From Scenario One – Two: By increasing the payment frequency from monthly payments to accelerated bi-weekly you can shave over 3 years off of your mortgage (mind you, the equivalent monthly payment translates to $1,168.10 which is nearly $90.00 extra each month).

From Scenario Two – Three: By increasing your bi-weekly accelerated payment to $590.00 (9.44 per cent increase) you can pay off your mortgage nearly 5 and a half years earlier (note: the equivalent monthly payment now translates to $1,278.33 which is over $200.00 extra each month).

From Scenario Three – Four: Now that you’ve increased your total annual principal and interest payments by approximately $2,400.00, this example also requires you to pay an additional lump sum payment of $3,000 per year.  By doing this, you will decrease your total amortization to 14.8 years from the original 25 years.

Bottom line:  It isn’t the mortgage product that is helping you to shave years off of your mortgage, it is taking advantage of pre-payment privileges which you can do with any product!

RateSupermarket.ca Week in Review

Another week of little to no movements in the best mortgage rates across Canada.  Little on the variable front and no movements on the fixed front.  The single change over the last week was an increase in the 5 year variable closed rate, up 5 bps to 2.75 per cent.  Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

Still remaining in the top 1 and 2 spot for most frequently searched mortgages are 5 year fixed (38.5 per cent of visitors searched for this rate) and the 5 year variable (32.9 per cent).  Gaining in popularity over the last week is the 3 year fixed rate, last week 4.8 per cent of visitors were searching for this rate and this week 5.5 per cent have.  Have you created an account on RateSupermarket.ca yet?  Get to it!  It allows you to save your searches so that you can easily sign-in and see the current best mortgage rate for your needs.

Increase to the Bank of Canada’s Qualifying Interest Rate

The Bank of Canada’s 20bps qualifying interest rate increase took effect Sunday April 8^th, 2012 at 11:59pm and currently sits at 5.44 per cent. This is one more tactic implemented to dampen the spending habits and enlarged credit balances Canadians are facing.  To keep up to date on key economic figures, check out RatePulse!

So what does this mean for you? Although you might be applying for a low rate (like a 5 year variable rate mortgage priced 20bps under prime, or a 1 year fixed rate at 2.39 per cent), your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios are still calculated based on the qualifying rate. Yes this does make it harder to get approved, but it really benefits all parties involved in the mortgage!

What Qualifying Rate Do Underwriters Use to Qualify You?

Short answer? It depends. If you’re applying for a variable rate mortgage, the Bank of Canada’s qualifying rate is most commonly used. If you’re applying for a fixed rate, it depends on a variety of factors based on the lender.

Some lenders will decipher your qualifying rate based on whether your mortgage is considered high ratio or conventional.  Generally speaking if your mortgage is considered high ratio you will be adjudicated using the BOC’s qualifying rate or the greater of your contract rate and the lender’s 5 year posted rate.  Whereas with a conventional mortgage lenders will either use their 5 year fixed posted rate, their 3 year fixed posted rate or consider the greater rate between your contract rate and the posted rate.

Another method used by underwriters is they consider the term of your mortgage.  If you have a term that is 5 years or greater, you can use your rate to calculate your debt servicing ratios.  However, if you have a term that is less than 5 years you are looking at the BOC’s benchmark rate.

Using a Higher Rate to Qualify Benefits Everyone!?

Using a rate that is higher than your contract rate quite obviously benefits the lender since they are covering their tails and mitigating some of the risk involved in deciding whether or not you will be able to sustain mortgage payments in the future.  They want to ensure that if/when rates increase (especially in the case of variable rate mortgages, which are designed to fluctuate with changing market conditions), your ability to pay off your mortgage is not compromised.

Inflating the qualifying rate also provides a form of insurance to you, the borrower, for the same reasons.  Think about it…let’s say you were approved for a 3 year fixed mortgage at 3.39 per cent and your ratios were brimming at 32/42 GDS/TDS at the time of approval.  Based on a $300,000 mortgage and 25 year amortization, your monthly payments work out to be $1,480.45.  At maturity your balance will be $275,834.68, however over the last 3 years interest rates have increased.  Now a 3 year fixed rate sits at 4.25 per cent and your new monthly payments are $1,604.46 (nearly $125 higher), plus your property taxes have increased, you have baby number two on the way, and your 15 year old vehicle is ready for the junk yard.  You wouldn’t be in such a bind if you were originally qualified (and perhaps declined) with a higher rate.

April 2012 Mortgage Rate Outlook

This month’s panel of mortgage experts think that fixed rates will increase and variable rates will remain unchanged.

The ideas behind the nearly unanimous outlook of an increase to fixed rates include: the upward trending bond yields (due to global economic uncertainty) which would signal similar movements to fixed rates, the end of the mortgage pricing war, and the unsustainable profit margins that the 2.99 environment created.

The mortgage panel agreed upon no changes to the variable rates based on the idea that the overnight lending rate will not be changed next week (following a rate announcement on April 17^th from the BOC).  Variable rate pricing is thought to stay in and around prime.  Recovery in the Canadian market has been slow, inflation has been stable, and the U.S. Federal Reserve isn’t looking to increase their rates until 2014.  This surely explains why Carney is limited to implementing changes and must keep Canadian interest rates in check with the American (rock bottom) rates.

RateSupermarket.ca Week in Review

Psst!!  Do you want to know when the best mortgage rates change?  Be the first to know and sign up for RateAlert, RateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

Over the last week there were no big movements in the best mortgage rates.  In fact, all of the rates remained unchanged with the exception of the 5 year variable rate mortgage which actually decreased by 5bps.

More and more people have moved away from searching the 5 year closed fixed and variable rates over the last week, although they remain the top two hottest searches.  An increasingly number of RateSupermarket.ca’s visitors are searching the 10 year fixed rate (7.3 per cent), the 3 year fixed rate (4.8 per cent) and the 4 year fixed rate (4.4 per cent).

The self-employed (including small business owners) have always had a hard time getting mortgages. If you’re using a good accountant – which every self-employed person should – you could have a significant amount of legitimate write-offs that bring your taxable income down to a fraction of what you truly make. Yet most financial institutions use that figure as their starting point to determine how much they’re willing to loan you. Run up some bad debt on a failed earlier business and…good luck.

And pity those who’ve gone through a divorce, which can hurt in countless ways. A friend recently revealed that when she first separated from her husband, she had no credit rating. She either wasn’t on or had been listed as the secondary account holder on all their bills and credit cards. Her soon-to-be ex blocked her from “his” credit cards and the most she could qualify for on her own was a low interest balance transfer card.

What to do When you Don’t Qualify for a Mortgage

The lessons here are A) If you can, try to not get divorced and B) even if you’re the happiest married couple on earth, both partners should have some credit rating – and access to key assets. After all, odds are that one of you will die before the other. But enough doom and gloom.

Here are a few other suggestions to help you secure a home loan.

Use a Mortgage Broker

Even if you’re the proud owner of a triple-A credit rating, you can benefit from the professional expertise of a mortgage broker. So if you have even the slightest concern about qualifying for a mortgage, a call to a broker should be your first move. They work with clients from all walks of life on a daily basis and, more significantly, work with dozens of different financial institutions.

In years’ past, the big banks oddly enough, couldn’t seem to understand the unique situation all their small business clients were in. Thankfully, things have changed. CIBC has a Self-Employed Recognition Mortgage, for example, that’s based on an applicant’s personal credit history, rather than their business’s credit. Similarly, RBC’s Self Employed Mortgage targets people with “a good credit history who have been in business for less than 3 years” and offers them the their standard posted rates.

Use an Alternative Lender

If it’s a bad (or no) credit situation you’re in, you’ll likely have to turn to alternative lenders. Don’t worry, we’re not going to send you to the local loan shark.

Also known as B-lenders or second-tier financing, the options available can range from a private mortgage held by the person you buy your home from to a subsidiary of the very same Big Bank that turned you down. The downside is that you may have to pay five or even ten percent above the going prime rate in interest. The upside is that you’ll be able to start building equity in your home – instead of paying rent – and, provided you make all your payments on time, when the mortgage comes up for renewal, you’ll be on solid footing to qualify for a traditional mortgage and competitive rates.

Still Declined?

Even if you do find yourself denied by all parties – or are reluctant to sign on for a mortgage at 15 percent – all is not lost. Spend the next few years building up your credit score (by paying all your bills on time, for starters) and, at the same time, build the balance you’ll have available for a down payment so your ready to purchase when the time comes.

There’s no doubt, your home is likely the largest purchase you’ll ever make. If you arrange your mortgage through the bank, it is their responsibility to ask you if you want to insure your mortgage through them. While it’s easy to say yes, it’s a good idea to explore your options thoroughly first. Mortgage insurance is a good idea for some, but there could be a better option – life insurance. Let’s look at each closely and compare them for their drawbacks and their benefits.

Bank Mortgage Insurance vs. Life Insurance:

Who’s Selling the Product?

For the most part, the person who sells you mortgage insurance at the bank is an employee of that bank. They are trained to sell you the products and services they offer. They are not, however, trained in other options and will, therefore, not offer you a more suitable option. When it comes to insurance premiums, there are no discounts available based on your health or family history, and premiums are subject to PST.

Certified agents who have been trained in many products, on the other hand, sell life insurance products. This means that they are able to find the product that best fits you and your family. Whereas there are no discounts available through your bank, life insurance companies offer discounts based on your health and family history, and premiums are not taxable. Furthermore, you choose your own beneficiary, whereas when you go with the bank your mortgage lender is the beneficiary.

The Policy Details

When you choose bank-offered mortgage insurance, you cannot consolidate policies. That is, you have to keep your mortgage insurance policy separate from your other insurance policies. When you choose life insurance, however, you have the ability to consolidate a term life policy with other insurance coverage, which allows you to take advantage of a lower rate plan.

Life insurance is more flexible than bank-offered mortgage insurance as well. With life insurance, you are able to switch lenders and take your coverage with you if you move. If you choose, coverage can be arranged for the rest of your life. With bank-offered mortgage insurance, on the other hand, you cannot take your coverage with you, as it is limited to one specific property. Some bank-offered mortgage insurance policies have restrictions for people over 60 years of age.

The Coverage

Regardless of the mortgage amount outstanding, if you paid for $250,000 of life insurance coverage, then $250,000 will always be the lump sum payment amount. Your coverage, therefore, remains constant. With bank-offered mortgage insurance, your coverage value decreases as you make payments because it matches your outstanding mortgage balance. Your cover value, therefore, is the amount of coverage you paid for minus the mortgage principal payments you’ve made.

Renewal Options

With bank-offered mortgage insurance, you are not guaranteed renewal at the end of your mortgage term. Policy terms and your insurance provider can change as well, and you cannot be covered for life. You can buy life insurance policies, however, that extend 10, 20 and even 30 years, with guaranteed renewal at the end of the policy. Your policy terms do not change, and the policy premiums are guaranteed. What’s more, there are policies available to convert to a permanent policy. Finally, while your mortgage lender owns the certificate of insurance when you go through the bank, when you choose life insurance, you own the policy and the coverage.

The Winning Option

While it’s easy to accept bank-offered mortgage insurance, it’s not always the wisest course of action. Shop around, compare policies and make the most educated choice for you and your family. You might be surprised by what you find in term life insurance – and how open your options really are. 

We cover fraud from time to time on RateSupermarket, and for a good reason. It’s all over the place, and your money and personal information are at increasing risk. Why? Because all it takes to rip someone off these days is a computer, Wifi, and a remotely clever idea.

In the financial sector alone, fraud incidents are worth $650 million a year in Canada.

Of that, mortgage fraud makes up $400 million. About 13 per cent of fraud incidents in Canada are mortgage-related, and they take up two-thirds of the dollar value of financial scams.

There’s $1.7 million worth of attempted fraud activity every day in Canada, according to Equifax Canada.

Experts say mortgage fraud can be quite sophisticated, and organized crime might be behind the big growth in this type of fraud. Fraudsters often target high value homes in big cities. And their work is fueled by increasing housing prices in places like Vancouver, Toronto and Montreal.

What is Mortgage Fraud?

Mortgage fraud is, generally speaking, when someone obtains a mortgage by providing false information. That means you could be accused of fraud if you lie on a mortgage application. A criminal will lie on an application and take a loan they have no intention of paying off, obtain this loan using the identity of someone who’s not aware of the loan, either through identity theft, or a family member using personal information, such as that of a spouse or an elderly relative (often this is coerced if they owe a debt to a criminal).

Often the mortgage is obtained with a number of fake mortgage documents like false paystubs and made-up bank statements. Often, the down payment on the home is also from a fraudulent loan the borrower has no intention of paying off.

Frequently, financial professionals such as brokers, agents, lawyers and bankers are involved in these schemes. One US study found that 80 percent of mortgage fraud was helped by industry insiders.

Often, these mortgages are never paid off — or perhaps one or two payments are made before the criminal takes off with the money.

What is Title Theft?

This specific form of mortgage fraud hurts not just lenders such as banks, but homeowners. In title theft, a criminal creates false documents that transfer the ownership of your home — they’ll also have to get your identity documents as part of the scheme. They use more fake information to discharge your mortgage (often they target expensive homes with small mortgages) and get a new mortgage. You as the homeowner only find out about this transaction months later when the bank comes looking for default payments on this new, fraudulent mortgage.

How to Avoid Mortgage Fraud

Getting involved in mortgage fraud is a terrifying and painful situation. You need to make a few moves to protect yourself against being a target. Here’s some tips

• Be aware of identity theft and never give away personal information like your SIN number unless you are 100% sure who is getting the information.
• Check your bank statements regularly and your credit score once a year to be sure there’s no funny stuff going on in your name.
• If you are buying or selling a home, only work with reliable, trustworthy lawyers, agents and bankers. While some of the biggest fraud stories have involved longtime real estate experts, getting a personal referral reduces the risk. If your professional does anything that seems unusual or fishy, ask questions and report the behaviour if you don’t get good answers.

Get Protected with Title Insurance

One of the biggest ways you can protect yourself form fraud is by purchasing title insurance when you buy a home. Title insurance covers you if the ownership if your home is put in question in any way — such as from fraud. It also covers things like needing to rebuild part of your home due to city permit problems, issues related to land because of not having a land survey.

Mortgage fraud is a scary subject, but one you should educate yourself on. Read up this and other types of fraud at places like the Canadian Anti-Fraud Centre and do your best to be informed about the topic so your wont ever become a victim.