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.

Say goodbye to the penny, hello to more cross border shopping and anyone over 54 should get ready to wait longer for their old age security benefit.

The Federal Government has delivered a budget that can be described as slow and steady, with some unique changes weaved in. Finance Minister Jim Flaherty is cutting $5.2 billion in spending over the next 3 years in hopes that Canada can dig itself out of deficit by 2015.

It is not as austere of a budget as many economists and opposition party officials were expecting, but it does confirm the Federal government will continue to operate in the red for years to come. Here’s how the 2012 Federal Budget will affect Canadians going forward.

Where the Government will Implement Cost Saving Measures

The government will cut 19,200 federal pubic sector jobs over the next three years.  Those cuts represent more than 4 per cent of the total public sector work force. Also, public servants will pay more into pensions and get fewer benefits at the end.

The CBC is losing 10 per cent of annual funding over the next three years, which could result in loss of programming and jobs at the country’s public broadcaster.

At an annual saving of $11 million dollars, the beloved penny will be phased out starting this fall. But it will still hold value for spending.

Age of eligibility for Old Age Security will gradually rise to 67 from 65 starting in 2023. Good news for anyone 54 or older as of March 31, 2012 as they will not be affected by this change. For the rest of us we will have to wait two years longer to get the government benefit. As well, the retirement age for federal public servants will rise to 65 from 60 for people hired in 2013.

Also, Canada will review participation in some international organizations. The Katimavik program for youth will be eliminated.  Government will sell some official residences abroad and downsize others and the Atlantic Investment Tax credit will be phased out.

Where the Government will Spend Money

The government is focusing on job creation by putting $50 million into job skills training for young people. The budget wants to clear the backlog in federal skilled worker program by removing some applicants and refunding their fees, which will total $130 million. They can reapply under new criteria. Also the temporary hiring credit for small business is extended one more year. All good for Canadians looking for work right now.

For those still out of work, $482 million will be spent over two years to improve the effectiveness of the employment insurance system, including incentives for accepting work and ensuring benefit levels align with local labour market conditions and a cap on annual increases to employment insurance premiums until the operating budget is balanced.

There is good news for young First Nations, $275 million will be spent to build and renovate schools on reserve, and renewal of the Urban Aboriginal Strategy. Also, $330 million will be spent over two years to improve water systems and water quality in First Nations communities.

Where the Government will Keep the Status Quo

Canada will continue with the International Space Station mission until 2020.  Here on earth, the Canadian Forces regular force strength will remain at 68,000 and reserves to stay at 27,000.

There is also no significant tax changes for individuals.

Unusual Changes

If you like to shop you are in luck. The government has raised crossed border shopping limits. Starting this summer you can bring back up to $200 for 24-hour trips and $800 for trips of 48 hours or more.

Eligible Canadians will be allowed to defer old age security for a maximum of five years, beginning in 2013, in exchange for higher benefits.

Changes may be coming to the Canada Mortgage and Housing Corporation. The budget proposes amendments to strengthen the oversight of CMHC and to ensure its commercial activities are managed in a way that helps the stability of the financial system.

Not Far Enough

Overall this budget does not go as far as some were first predicting, especially when it comes to federal job cuts.  I remain skeptical that these slow changes can really bring the country into the black by 2015. The Federal government played it very safe, despite having a majority government for the first time this decade.

So you scrimped and saved to build up a down payment nest egg; got pre-approved for a mortgage; went to all those open houses and viewings; made some offers – probably lost out on some bidding wars; and, finally, bought a place. Congratulations. Now here’s a list of all the additional costs you’re about to face on top of the price you paid for the house.

Ownership is Taxing

Each province charges homebuyers a “land transfer tax” on their purchase. In Ontario, the rate is charged as follows:

• 0.5 per cent of the value of the consideration up to and including $55,000,
• 1.0 per cent of the value of the consideration which exceeds $55,000 up to and including $250,000, and
• 1.5 per cent of the value of the consideration which exceeds $250,000, and
• 2.0 per cent of the amount by which the value of the consideration exceeds $400,000.

On a $500,000 home, that works out to $6,475. And as much as the rest of the country loves to mock Toronto, homeowners there deserve some sympathy as they get dinged for a second, municipal land transfer tax that adds a graduated fee of 0.5% to 2% on the purchase price. On a $500,000 purchase – roughly the current average resale price in the city, that’s another $5,725, for a whopping $12,200 in land transfer taxes. (First-time homebuyers qualify for a rebate of up to $2,000 on the provincial portion and $3,725 for the Toronto bill.)

Those are just one-time fees. You can also look forward to a monthly property tax bill based on the assessed value of your home. Using Toronto as an example again, in 2011 the rate was 0.56 per cent.

Mortgage Insurance

Now about that down payment you scraped together; unless it was equal to at least 25 per cent of the purchase price, you’re going to need to buy mortgage loan insurance from the Canada Mortgage and Housing Corporation (CMHC). The fees range from 0.65 per cent on mortgages covering up to 75 per cent of the value, and 2.75 per cent if you only put 5 per cent down.

In other words, if you try to buy a $500,000 home with only $25,000 for the down payment, you’ll pay more than half that again ($13,750) in mortgage insurance fees. The upside is that this fee can be rolled into your mortgage amount. The downside is that that means slightly higher payments.

Lawyers’ Fees

Buying a house requires a lot of paperwork – and a hand cramp’s worth of signatures on all those documents. A real estate lawyer will charge you somewhere in the neighbourhood of $1,000 to walk you through all those signatures.

Moving Costs

If this is your first place, you might be able to get away with just the cost of renting a van and paying for pizza and beer for some buddies to help you out. But once you’ve started accumulating stuff in one home, you’re going to want to hire pros to move it to another. You can try your luck with one of the cheapie discount movers, but make sure you do your due diligence in background checks so you don’t fall prey to a scammer. (One common ploy is to call you on the morning of the move to say their truck broke down, but they can recommend another company – that charges double their rate.)

Hiring a reputable mover that belongs to an organization like the Canadian Association of Movers can buy you peace of mind, but even a simple cross-town move starts at about $1,000.

Utilities

All the pipes and wiring running into and out of your house are attached to a utility bill. Prior to moving in you’ll need to set up accounts for your electricity, heat, municipal water/sewer/trash collection, telephone/internet, and cable or satellite TV.

For most, you’ll be charged a new account set-up fee, and there may also be installation costs for things like putting in a satellite dish or adding phone jacks. Note too that some utility companies require a deposit (of as much as $300) for new account holders that they’ll reimburse you for after a year of paying your bills on time).

And even if you’re just moving down the block or across town, your utility companies are likely to charge you “administrative” fees for transferring your account.

First-time Homeowner Expenses

If you’re moving from an apartment or condo (or your parents’ basement) into your first house, there are a number of must-have items you’ll need to pick up. Depending on the season, you’ll need a garden hose, rake, lawnmower and other gardening tools to maintain your yard or a shovel and rock salt to deal with the snow and ice.

As soon as your budget allows, you’ll also want to get a set of patio furniture and a barbecue so you can properly enjoy your new yard.

Canadian debt levels are at historic highs and this is largely due to people taking on bigger mortgages.

Mortgages make up 68 per cent of Canadian’s total debt, according to the CMHC’s Canadian Housing Observer 2011. That’s a total of $1.042 trillion we owe on our houses. CMHC insurance is required for anyone buying  a home with less than 20 per cent down.

CMHC insurance stretched to its limit

As a result the Canadian Mortgage and Housing Corporation (CMHC) has been insuring more mortgages to satisfy the appetite of Canadians wanting to buy bigger and more expensive homes.  With interest rates at historic lows, money is cheap and this makes real estate very attractive.

In addition, banks are moving to take risk of their books and looking for insurance on loans that have higher ratios. It’s not required by law, but what it does is it securitizes these loans,  gets them off the banks balance sheet and reduces their capital requirements. Banks are paying the insurance premiums to do this, but its worth it- for them.

The problem is it’s putting tax payers at risk, as more and more loans are backed by the federal government and the increase is reducing the room in the CMHC limit of $600-billion possibly making the insurance unavailable to those who really need it.

For more information on why the CMHC is approaching this limit now, check out my interview with George Hugh, President of Taurus Mortgage Capital.

New homeowners have the most to lose

In a worst case scenario, if there was a U.S style housing crisis in Canada, taxpayers would be on the hook for 100 per cent of the shortfall of all insured mortgages.

In a softer example, if the limit was reached and CMHC had a reduced amount of power to insure mortgages with less than 20 per cent down, many new homeowners and middle class families with low ratio mortgages would be unable to fulfill their dream of buying a home. This short-term affect would mean people would have to wait longer to save the hefty down payment needed to avoid CMHC mortgage insurance.

For the medium term there could also be a pull back in home prices as less people would be in the market shopping for a home. Less demand means less reason for home prices to rise. It’s simple economics.

In my opinion this would be the positive result of CMHC insurance limits being reached.   I suspect anyone looking for a home in a big centre like Toronto would agree that $450,000 is not the normal average price of a single family home.

What can CMHC do?

CMHC could go to parliament and ask for this limit to be raised. The last time that happened was 2008 when the limit was raised $150-billon to where it is right now. On average every 3-5 years as the mortgage market grows, CMHC has asked for, and received, approval from parliament to raise this limit.

But does that mean it should? If Canadians debt levels are the highest in history, mainly due to mortgages, should the government make exceptions for this to continue? As well should banks be allowed to insure loans with high ratios to reduce their own risk? In both cases I think no. The CMHC was created to help responsible Canadians get into a home with a lower ratio mortgage and they should stay with that ultimate goal.

Canadians continue to live beyond their means

This limit almost being reached is another example that Canadians are living a lifestyle that’s unaffordable. It clearly shows without historic low interest rates and security like mortgage insurance, it would be unattainable to live the way we do.  It may seem harsh, but anyone reading my weekly blogs on ratesupermarket.ca  will know that I strongly feel Canadians have become addicted to cheap money and are living a borrowed lifestyle that is unsustainable.

CMHC should not ask for it limits to be raised, it would be irresponsible. What it should do is stop insuring very low ratio mortgages and halt giving banks the freedoms to off load risk on higher ratio loans.

Finally, the CMHC limits being reached may be a concern to the banks  and economists. But to the average homeowner it’s a reminder that we cannot rely on the government to help us out with our home purchase and saving for our own future will make us more financially secure.

There are a handful of clever financial moves out there that you can pull to work existing banking and tax rules. Using your RRSPs to pay down your mortgage is one of them.

It’s known as a self-directed mortgage. It’s not a commonly used trick, but one that might suit you if you’ve got more socked away in retirement savings than you have left on your mortgage.

Secondly, you’ve got to have a great financial team at your bank who will lead you through this somewhat complex manoeuvre. Said team should run the numbers carefully to make sure it makes financial sense for you.

What is a self-directed mortgage?

The RRSP mortgage is often called the self-directed mortgage. The premise is somewhat simple: you take your RRSP money, pay off your mortgage, and then gradually put money back into your RRSPs. Instead of merely borrowing from the bank to pay for a house, you borrow from your own RRSP savings to do the job.

That means you’re paying interest to yourself, not the bank. This is the appeal of the move.

The Costs

To do a self-directed mortgage, which takes some help from the bank and legal professionals, there are additional costs. Banks usually charge a one-time fee to set up the mortgage of $250 to $300 and annual fees of around $250. As well, there are legal fees of around $1,000 at the start.

This new mortgage must be insured by the Canadian Mortgage and Housing Corporation (CMHC), the idea being that you don’t want to lose all your retirement savings if there’s a problem, so you need coverage. That will run you about 0.5% of the entire mortgage amount.

The Rules

This is a strictly organized move, and your bank or financial planner can inform you of all the regulations. One is that you must pay the going interest rate to yourself as you pay back your RRSP.

The Upsides

Since you are paying off your RRSP mortgage regularly, with interest, you are guaranteed a good rate of return on your retirement savings. Even if the markets go up and down, you’re paying interest every month — and that’s the mortgage rate, not the very low interest rates that savings account or money market funds pay out.

The Downsides

Mainly, it’s the sea of charges I mentioned earlier. As well, you are locked into this program long term — you can’t liquidate your money or change your mind all of a sudden. Also, some critics note that this move works better in higher interest rate climates: so you’re making a higher fixed rate on your RRSP investment. (However, the market volatility of today might negate this situation: no one is assured of their investment returns on the market right now.)

Get Advice

Like many of these complex financial moves, this is not something to embark on lightly. You need a great financial advisor or bank representative to help you truly understand how this works and to crunch the numbers specific to your situation to be sure it really makes sense for you.

Let’s play a wonderful game called: “Who is CMHC, and what do they do?”

When you visit your lender to apply for a mortgage, one of the first questions they will ask is “How much do you have for a down payment?”.  If your answer is anything less than 20% of the purchase price, you are legally required by the Canadian government to obtain mortgage default insurance.  Why?  Because you have less skin in the game and are seen as a bigger risk than Mr. Moneybags who has 50% down – makes sense!  And yes, you pay for the insurance which protects the bank in the event that you default on your mortgage.

The Canada Mortgage and Housing Corporation (CMHC) is the largest provider of mortgage default insurance and is run by the government.

BREAKING NEWS FROM CMHC

Making headlines this week was CMHC’s announcement that they are approaching the $600-billion cap set by the federal government (I would guess so considering they were backing nearly $541-billion in mortgages by the end of 2011).  The main driver is an unexpected level of requests for portfolio insurance by lenders.  CMHC claims that their budget will only affect lenders as it inhibits how much bulk/portfolio insurance they can offer to them.  They claim that this will not affect the availability of insurance for qualified home buyers, nor will it affect the cost of buying a house.

Why is this happening?  Do more Canadians have high-ratio mortgages or something?

Interestingly enough after browsing through CMHC’s Quarterly Financial Report released June 30, 2011, I found that the average mortgage in CMHC’s portfolio had 45% equity (this is well over the 20% minimum required to avoid insurance) and only 28% of CMHC’s portfolio legally required the insurance.

This means lenders have gone to CMHC themselves and paid to insure the conventional mortgages they have outstanding.  Now why would they do such a thing?  Why would lenders spend money to insure what is deemed as a low-risk, conventional mortgage?

Simply put: money!

The answer, for dummies:

There is a fancy thing out there called a Mortgage Backed Security (MBS), which are formed through a fancy process called securitizing mortgages; but I’m going to try to describe it to you in layman’s terms and take a few procedural steps out of the process.

Let’s say you’re a lender and you have $1-billion that you have lent out in mortgages.  Until more money comes in you’re just sitting on this book collecting principal and interest payments from the mortgage holders; not a bad deal.  Not a bad deal at all.  In fact, it’s a pretty good deal!  Through that fancy securitizing process, you turn your book into an MBS, approach some investors and pitch the idea of investing in the MBS (essentially buying your book of mortgage business).

Your pitch highlights how they will now enjoy the stream of income in the form of mortgage payments from the mortgage holders, and they seem quite interested in that type of return.  Then you tell the investors that the risk from the high-ratio mortgages in the bundle has even been dealt with since they are guaranteed by a Crown Corporation called CMHC.  So, even if the mortgage holders are unable to make payments and default on their mortgage the investors will still receive their payment!  This is a great selling feature, but they still aren’t quite on board. They argue that just because a mortgage is deemed as conventional (20% or more in equity for purchases), doesn’t mean that someone can’t lose their job, for example and default on their mortgage.

You’ve got them on the line… now reel them in!

Ok ok ok, you can see their point.  So what are you going to do about it?  You’re going to go out and purchase that insurance separately from CMHC and pay for it out of your own pocket to ensure that the ENTIRE portfolio has that CMHC guaranteed stamp of approval on the back.  With that stamp, it’s a done deal and a win-win situation.  You just freed up some capital by selling off the book and received a premium for arranging the mortgage/being the middleman, while the investors are happy with their risk-free, guaranteed, no-default purchase!  Capiche?

Stay tuned for what the experts are predicting will happen next… will CMHC Raise the Roof?

RateSupermarket.ca Week in Review

Bond yields haven’t made any big moves over the past week, contributing to the lack of change in mortgage rates again this week.  Interested in hearing what our panel of experts have to say about rates this month?  Check out our Mortgage Rate Outlook Panel!

*This chart is based on changes over the last week to our Best Mortgage Rates Canada page. Mortgage Rates may vary depending on Province.

What rates are RateSupermarket.ca visitors searching for this week?  Once again, the 5 year fixed closed rates (49.4 per cent) and the 5 year variable closed rates (48.3 per cent).  The next leading searches were for 4 year fixed closed rates (0.7 per cent) and 3 year fixed closed (0.4%).

It has always made sense to run your home as efficiently as possible, energy wise. But the stakes are higher these days. Gas and electricity prices are on the rise. Will they go higher? Oh, you bet!

Buying energy efficient appliances, sealing up your windows and doors, getting better windows and doors, insulating your roof and basement, upgrading your furnace, turning down your water heater, getting a tankless water heater: all these household changes mean dollar savings every month when you get your energy bills.

These savings add up fast. Replace five of your most commonly used light fixtures or bulbs with Energy Star rated versions and save $70 a year. A new Energy Star window will save you $20 to $95 dollars a year in wasted heat and cooling. Install a programmable thermostat (and program it to work around when you work and sleep) and save as much as $180 a year. Switching to Energy Star appliances will save you between $300 and $600 a year (the fridge is the big one: you save $100 or more a year by replacing an old one and even more if you chuck the basement beer fridge).

For more specifics on what you would save, check out Natural Resources Canada’s Energy Star calculator.

But turning your home into an energy smart zone has benefits beyond saving on gas and electricity. Here are a few benefits you might not have considered:

Your mortgage

Energy efficient mortgages (EEMs) give you financial incentives to either buy an energy efficient home, or upgrade your existing or newly bought home to make it greener.

The Canadian Mortgage and Housing Corporation (CMHC) has a great plan for first time homebuyers. CMHC is most famous for offering mortgage insurance for people with too-small down payments for their first home. Under the organization’s green mortgage program, you can get a 10 per cent refund on your mortgage insurance if you buy a green home or make energy efficient renovations. You can also extend your amortization up to 30 years under the program (why you’d want to do that we don’t know, longer amortizations cost you money in the long run!).

Meanwhile, private lenders have programs too. RBC’s Energy Saver Mortgage for instance, offers $300 back when you get a home energy audit. (An audit involves a trained expert going through your home to identify where your home is inefficient and suggest where you can make changes to save money and energy loss.) TD Canada Trust runs a Green Mortgage that offers you 1 per cent off the posted rate of a five year fixed mortgage, gives you up to 1 per cent cash back on your mortgage and donates $100 to the TD Friends of the Environment Foundation when you buy Energy Star products for your home or install solar panels.

Resale value

Kitting up your house with green changes big and small will one day impact your home’s attractiveness on the market. (Case in point: a recent build in my neighbourhood went for a startling price because the house was going to cost just $500 a year to heat.) Buyers are keen to walk into a house that’s been fully insulated has the most energy efficient appliances installed and has an appealing energy bill to back it up. There’s a growing trend among real estate agents themselves to think green and these types of professionals will be drawn to buying or selling your home.

Rebates

If you do it right, you can get hundreds or even thousands of dollars back from your eco-friendly home changes. The biggest deal in rebates right now is the newly relaunched federal EcoEnergy Retrofit Program. It requires a home audit but gives you as much as $5,000 back for making home improvements such as insulation and new windows or furnace. It runs just until next March, and you need to make the upgrades before that time to get the money back.

As well, most provinces have a wide range of rebate programs for doing things like taking away old fridges, giving you money back for new Energy Star appliances, offering rebates on windows and giving you money for switching to a tankless water heater. Natural Resources Canada has a pretty up-to-date list on the current programs available, but look to your province’s office of energy efficiency and hydro corporation for more information to be sure you catch all the deals.

When you spruce up your home to not just look good but run more efficiently, you can save a lot of money. Some of it right away, more over time. And it’s also just simply the right thing to do if you can afford it.

Diane
Writer for RateSupermarket.ca

It provides some great information on the volumes of mortgages issued by banks and other lenders as well as the market share for CMHC approved mortgages in 2009. Here are some of the stats:

NHA and Conventional Mortgage Loans Approved by Lending Institutions, by Type of Lender

Other includes: credit unions, caisses populaires, other smaller institutions and privately-insured loans in some areas.

From this data we can see that:

NHA and Conventional Mortgage Loans Approved by Lending Institutions, by Type of Lender (Dwelling Units)

Other includes: credit unions, caisses populaires, other smaller institutions and privately-insured loans in some areas.

From this data we can see that:

Average NHA and Conventional Mortgage Loans Approved by Lending Institutions, by Type of Lender

If we then take the loan values divided by the number of units we can look at the average loan values as follows.

Residential Mortgage Credit by Lending Institutions, 1984-2009

The report also included interesting data on the volumes of mortgages issued by the different lenders.

Residential Mortgage Credit by Lending Institutions, 1984-2009, Market share

We can also look at their market share over the years:

You can see that this table shows that the Chartered Bank’s market share dropped 6% year over year in 2009. Also the chart below shows the market in 1999

Versus the market in 2009, as the Chartered Bank’s market share dropped 10%

CMHC’s latest report on Canadian housing starts was released this morning and showed that the seasonally adjusted annual rate of housing starts in April 2010 was up 2,500 units or 1.3% over March 2010 to 201,700 units.

This is the latest evidence that Canada’s housing market is still doing exceptionally well and driving Canada’s economic recovery, and comes on the heels of Bank of Canada Governor Mark Carney’s comment last month that he expects the housing market to cool over the next few months as mortgage rates increase and HST comes into effect on July 1. I guess the cooling just didn’t start in April.

April’s provincial seasonally adjusted annual rate of urban starts housing start saw increases as follows:

• +16.4% in British Columbia
• +6.7% in the Prairie regions
• +4.5% in Ontario
• +1.1% in Quebec

The CMHC (Canadian Housing and Mortgage Corporation) which provides mortgage insurance to Canadians with less than 20% deposits on home purchases, completed an on-line survey of 2,507 recent mortgage consumers — all prime decision-makers — and the result is a unique perspective on attitudes and behaviours.

Their key findings include:

Mortgage Clients are Optimistic

An overwhelmingly high proportion of mortgage consumers (nearly 90%) believe that homeownership is a good long term investment and this optimism is fairly consistent across the country. Another indicator demonstrating confidence in the future is that almost 70% of purchasers are of the opinion that now is a good time to purchase a home in their community.

Confidence among mortgage consumers is also evident in their future moving intentions. Overall, about one-third of recent mortgage consumers anticipate leaving or selling their home in the next five years. Among this group, 87% state family and or personal circumstances (i.e. growing or decreasing family size, medical issues, or job transfer), or a general desire for change is main reason for selling or leaving.

Canadians are Astute Mortgage Consumers

Today’s mortgage consumers show what can be interpreted as a fairly high level of sophistication about the mortgage process and what it takes to carry a mortgage.

For example, 80% were at least aware of the existence of credit scores and one-third, at some time, and have actually contacted a credit agency to obtain their own score.

They also have a good understanding of the maximum amount of their gross (pre-tax) income that should be used to service housing costs and other debt. Nearly nine-in-ten (87%) reported that this level should be 40% or less of gross income.

Canadian mortgage consumers are relatively knowledgeable about the function and benefits of mortgage loan insurance (MLI). Nearly three-quarters (72%) recognize that MLI helps Canadians buy a home sooner with a smaller down payment and 76% believe that MLI provides an important benefit to the financial system.

Canadians Manage Their Mortgages Prudently

Several survey findings point to Canadians being careful in how they manage mortgage debt including:

Interestingly, as a means of reducing their amortization, 30% of mortgage consumers intend to use a combination of the mortgage features available to reduce their amortization.

Client Satisfaction Levels Still Relatively Strong

In 2009, the majority of mortgage consumers (78%) were satisfied with the service provided by either their lender or broker. Client satisfaction was also fairly consistent across all market segments. Compared to 2007, the proportion of those satisfied is down consistently by about five percentage points.

Overall, only a minority of respondents (14%) expressed any degree of dissatisfaction. The survey showed that getting the best rate or deal are the most important factors driving client satisfaction, cited by 57% of respondents.

Mortgage consumers were equally satisfied whether they used a lender or broker (79% lenders vs. 75% for brokers), but for slightly different reasons. For example, 22% of those using a broker indicated the main reason for their satisfaction was based on the ”service” provided, vs. only 11% for those using a lender. Conversely, those using a lender were nearly twice as likely to mention “a good relationship” as the basis for their satisfaction (22% for lenders vs. 12% for brokers).

In the majority of cases (76%) clients remained loyal to their existing mortgage lender. In the case of first-time buyers, 47% remained loyal to their existing financial institution. Loyalty was strongest among renewers at 90% (up from 83% in 2007). For the other three segments 2009 has seen a modest decrease in lender loyalty. This is most evident among first-time buyers where loyalty has fallen to 47% from 67% in 2007, likely a result of the increased use of brokers among first-time buyers. For repeat buyers and refinancers the decline has been more modest: from 63% in 2007 to 59% among repeat buyers, and from 71% in 2007 to 66% among refinancers.

First-time Buyers Increase Their Use of Mortgage Brokers

Survey results show that during the past twelve months about one-quarter of all mortgage transactions were arranged through the mortgage broker channel. Most notably, broker share among first-time buyers has increased to 44%, up from 35% in 2007. Among other market segments broker share has remained stable. In particular, broker share among those renewing their mortgage continues be relatively stable at 12%.

Demographically, brokers tend to do better among younger purchasers aged 25 to 34 years (42% share), and female purchasers (43% share).

Definitions

For the purpose of this survey, recent mortgage consumers are segmented as follows:

Refinancers — those who refinanced their home through a mortgage in the past 12 months.