Spotlight On Mortgages: August 2, 2013

Spotlight on Mortgages

Mortgage Defaults On The Decline: Genworth

Fewer Canadians are defaulting on their mortgage loans this year, according to the Q2 earnings report released by Genworth MI Canada this week. Genworth, a private mortgage insurer that provides default coverage for high-ratio borrowers (an alternative to coverage provided by the CMHC), reported that losses on default claims are $9 million lower than in Q1, and $13 million lower year over year.

 The decline indicates that the number of high loan-to-value borrowers is dropping. While this is due in part to last summer’s CMHC rule changes squeezing some buyers out of the market, fewer defaults also suggest that Canadian credit situations are improving amid a strengthening economy.

The insurer also noted that business is booming with a net income of $88 million – a sign of a healing mortgages market.

“Our business continues to perform well,” stated Brian Hurley, Genworth chairman and chief executive officer, in a release.  “A balanced housing market, stable economic climate and strong portfolio quality have all contributed to the positive trends in our business, in particular our loss performance.”

Taking Debt Warnings To Heart

Department of Finance Minister Jim Flaherty has long warned Canadians that dangerously high household debt levels create vulnerability throughout the entire economy. It was this warning that prompted the CMHC to instill those restrictions to mortgage affordability last summer. However, while the overall national debt picture is getting rosier, new numbers from a CIBC debt poll indicate that spiraling debt is still an out-of-control issue for some Canadians, as 14 per cent of respondents believe they’ll never be debt free. An additional 10 per cent said that while they intend to conquer their debt eventually, they have no idea when they’ll manage to do it. In all, this means 24 per cent of Canadians are operating without a debt repayment timeline.

“While past research has shown many Canadians are making progress on reducing debt, there is a smaller group that feels they won’t be able to achieve debt freedom in the long run,” said Christina Kramer, executive vice president of Retail Distribution and Channel Strategy at CIBC. “Carrying debt over the long term without a plan to pay it off means you are taking a risk with your long term financial goals, including retirement.”

Make An Interest Attack Plan

While a mortgage provides a set-in-stone financing plan, revolving debt like credit cards, LOCs and HELOCs can mire a borrower in debt with no resolution in sight.

An effective approach for paying down debt is to tackle high interest commitments like a credit card balance first, as those sky high interest rates will burn a hole in your wallet over the long term. One method is to transfer your balance to a card with a low balance transfer option, which can give you a bit of an interest break while you focus on the debt principal amount. Our top pick: the MBNA Platinum Plus® MasterCard® Credit Card, which offers zero per cent interest on transferred balances for an entire year. It’s one of the most competitive options on the market (and for a limited time, is tossing in a free $100 gift card for those approved).

Checking In With Our U.S. Neighbours

While Genworth’s numbers can be attributed in part to an increasingly cautious debt approach, today’s higher mortgage rates will present a trend in the coming quarters, as buyers may be forced to reassess their down payment savings. As we reported last week, bond yields remain at a yearly high, along with fixed mortgage rates, in response to investor speculation over the end of the U.S. bond buying program. This week’s Federal Reserve policy statement employed more damage control, adamantly assuring that there will be no change to interest rates or quantitative easing efforts. Whether this dovish language will calm bond markets remains to be seen – it appears fixed mortgage rates will remain on par with high summer temperatures for the rest of the season. Not sure how this will affect your bottom line? Stress test your mortgage rate with our handy calculator tool.

Week In Review

No changes to report from this week’s Best Mortgage Rates table. Wondering where rates will go next? Stay tuned for this month’s edition of the Mortgage Rate Outlook Panel, due out next week.

Related Topics

Mortgage News / Mortgages

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