The Bank of Canada met earlier this week and agreed to maintain the target for the overnight lending rate at 1 per cent. This came as no big surprise since most are predicting that the current rate environment will not change for the next 8 months or so. It is safe to say that rates will not change until global financial conditions improve and no longer restrict the Canadian economy from running at optimal levels. Check out our coverage of the rate announcement here.
BMO, Scotia and TD all forecast that by the end of Q4 2013 the overnight lending rate will sit at 1.50 per cent; however, RBC believes that it will increase even further to 2 per cent. Only time will tell. The next meeting is scheduled for September 5th, 2012.
Facelift to CMHC Guidelines And How the Lenders Responded
The CMHC guidelines have most definitely affected new insured mortgages but what about the conventional deals? That may sound like a really silly question; but some lenders have decided to have consistent underwriting rules across the board for both their conventional and insured business. This allows them to securitize their portfolios and free up some capital with the creation of MBSs.
The good news is that so far the major banks have maintained their 30-35 year amortizations for conventional deals and nearly all of the lenders that your mortgage broker has access to maintained the extended amortizations as well. ING Direct and Desjardins are two big names that you may be surprised to hear have dropped their amortizations to a maximum of 25 years for their conventional business as well.
HELOCs at 80 Per Cent
The Big 5 and other FIs with national exposure are federally regulated by OSFI. This means that OSFI sets the rules and regulations and all must comply. As a reminder: OSFI recently made some changes to their B-20 underwriting guidelines, with the biggest change decreasing LTV for HELOCs from 80 per cent down to 65 per cent. Since credit unions are provincially regulated, they are not required to conform to these rules and are still offering 80 per cent LTV on their HELOCs.
Conventional Offerings at Credit Unions
Credit unions are able to offer their conventional clients:
- 80 Per Cent Loan to Value on HELOCS: CMHC does not insure HELOCs so it is up to the institution to decide what a conventional LTV is. Many are sticking with 80 per cent.
- Stated Income: Some credit unions still offer stated income programs. The approval is still based on their lending guidelines and the overall risk to the institution.
- Qualifying Rate: If you have a variable rate mortgage or are in a fixed mortgage rate with a term less than 5 years, you will need to qualify at the greater of your mortgage rate or the BoC 5 year benchmark rate if visiting a lender that is federally regulated. However if you head down to your nearest credit union, you will likely only need to qualify at their 3-year posted rate!
- Cash Back Down Payments: You may still be able to use 5 per cent cash back for your down payment, granted that it is a conventional deal at a credit union. This means that in order to slip under the insured radar gun, you would need to come up with 15 per cent on your own, and then use the other 5 per cent cash back as your down payment. This type of a deal would not be permitted by a financial institution under OSFI’s rules.
Your Move, Credit Unions…
Finance Minister Jim Flaherty released draft guidelines this month to advance the option for CUs to expand nationally and become federally regulated institutions. These changes would allow CUs to compete with the Big 5, who – for 4 years straight – make up the soundest banking system as voted by the World Economic Forum.
A national platform would grant an opportunity for CUs in different provinces to partner up, enhance their economies of scale and compete more aggressively on pricing. Yes, a more competitive rate environment would be great news for the Canadian consumer; but nothing comes for free. This is a two sided coin and a national presence means you can kiss the above 4 offers goodbye.
RateSupermarket.ca’s Week in Review
No good news to report here this week on our Best Mortgage Rate page. The only changes that were made on a week-over-week basis were increases to rates. The biggest changes were to the 3 year variable rate which increased 30 basis points and the 5 year variable rate which increased 14 basis points. But I don’t like to be the bearer of bad news so I have to tell you that the 5 year fixed rate did get as low as 2.94 per cent this week. This was the absolute lowest rate that we’ve ever seen in the 5 year fixed term spot on RateSupermarket.ca. Will it come back? It just might! Be the first to know and follow us on Twitter and Facebook!
Just under half of RateSupermarket.ca’s visitors were searching for the best 5 year fixed rate, nearly one third was looking for a 5 year variable rate and around 5 per cent were searhing for a 3 year fixed rate.
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