MAY SHOWS SIGNS OF IMPROVEMENT IN BC AND ALBERTA

Statistics released late last week by the Canadian Real Estate Association (CREA) show that national home sales increased in May. Together with monthly gains in the previous two months, activity in May reached its highest level since early last year when the new B-20 stress testing was introduced. While last month’s home sales stood 8.9% above the six-year low posted in February 2019, this latest uptick has only just returned May’s sales level to its 10-year historical average (see chart below). Nationwide, sales were up 1.9% month-over-month, and relative to a year ago, sales rose 6.7% marking the biggest year-over-year gain since the booming summer of 2016.

Sales were up in only half of all local markets, but that list included almost all large markets, led by gains in both the Greater Vancouver (GVA) and Greater Toronto (GTA) areas. There were encouraging bursts of activity in Victoria, Calgary and, to a lesser degree, Edmonton. Resale activity was up 24% from April in Vancouver, Victoria posted a 10% gain, and Calgary resales rose 6.6% month-over-month.

These are early signs that the cyclical bottom has been reached in that region of the country. Market conditions are still soft, though. Property values remain under downward pressure for now with the MLS Home Price Index down from a year ago in May in Vancouver (-8.9%), Calgary (-4.3%) and Edmonton (-3.7%). That said, the rate of decline moderated in Calgary and Edmonton, which is a further sign that these markets are stabilizing.

New Listings
The number of newly listed homes edged downward by 1.2% in May. With sales up and new listings down, the national sales-to-new listings ratio tightened to 57.4% in May compared to 55.7% in April. Based on a comparison of the sales-to-new listings ratio with the long-term average, almost three-quarters of all local markets were in balanced market territory in May 2019.

There were 5.1 months of inventory on a national basis at the end of May 2019, down from 5.3 in April and 5.6 months back in February. Like the sales-to-new listings ratio, the number of months of inventory is within close reach its long-term average of 5.3 months.

Housing market balance varies significantly by region. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers in those parts of the country ample choice. By contrast, the measure remains well below long-term averages for Ontario and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains.

Home Prices

MLS® HPI data are now available on a seasonally adjusted basis in addition to the actual (not seasonally adjusted) figures. On a seasonally adjusted basis, the Aggregate Composite MLS® HPI edged down 0.2% in May 2019 compared to April and stood 1.4% below the peak reached in December 2018.

Seasonally adjusted MLS® HPI readings in May were up from the previous month in 12 of the 18 markets tracked by the index; however, home price declines in the Lower Mainland of British Columbia contributed to the monthly decline in the overall index. Markets where prices rose in May from the month before include Victoria (0.5%), Edmonton (0.2%), Saskatoon (0.4%), Ottawa (0.7%), Niagara (0.2%), Oakville (0.8%), Guelph (0.5%), Barrie (3.6%), Montreal (0.5%) and Greater Moncton (0.5%), with gains of 0.1% in the GTA and Regina. By contrast, readings were down from the month before in the GVA (-1.0%), Fraser Valley (-1.1%), the Okanagan Valley (-1.3%), Calgary (-0.1%) and Hamilton (-0.7%), while holding steady on Vancouver Island outside Victoria.

Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in the GVA (-8.9%), the Fraser Valley (-5.9%) and the Okanagan Valley (-0.7%). Meanwhile, prices edged up 1% in Victoria and climbed 4.7% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+5.7%), the Niagara Region (+5.4%), Hamilton-Burlington (+3.4%), Oakville-Milton (+3.4%) and the GTA (+3.1%). By contrast, home prices in Barrie and District held below year-ago levels (-6.1%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.3% in Calgary, 3.6% in Edmonton, 3.9% in Regina and 1.3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 8% y/y in Ottawa (led by a 12.2% increase in townhouse/row unit prices), 6.3% in Greater Montreal (led by a 7.6% increase in condo apartment unit prices), and 2% in Greater Moncton (led by a 15.9% increase in apartment unit prices). (see Table 1 below)

Bottom Line: The Bank of Canada is counting on a rebound in economic activity in the current quarter and believes growth will accelerate further in Q4 and 2020. That should keep the Bank on the sidelines for some time. Currently, the markets are expecting the Federal Reserve to cut interest rates in July and to continue to do so in 2020. Indeed, President Trump is lobbying hard for rate cuts. It is unlikely that the Bank of Canada will follow the Fed unless the trade war with China worsens. Political pressure is mounting on the administration to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

–DR. SHERRY COOPER

Street Capital Finally Finds its White Knight

After a year of searching for urgently needed growth capital, Canada’s sixth-biggest broker channel lender got the boost it required. Street Capital Group has agreed to be bought by RFA Capital.

The deal will take Street private. RFA is acquiring all shares for $0.68, a 36% premium over Friday’s closing price and about 1-times book value (a meaningful premium to where larger peers like Home Trust and Equitable Bank are trading today).

RFA started considering a Street acquisition last summer, RFA Managing Partner, Ben Rodney says. They formally started the process with BMO (Street’s investment banker) in January. The deal then presumably got an initial blessing from banking regulator OSFI since it’s involved in all planned bank acquisitions.

Pending the acquisition closing, RFA wants to take the combined entities from $6 billion a year in originations to $10 billion. “We have the funding in place to do that,” says Rodney.

RFA will inject $50 million of equity on day one. That should make OSFI happy, given many had questioned Street’s long-term viability after its stock price slid to half a buck.

But that’s the past. The future is brighter, for three reasons:

1. Street will get $5 billion in new funding
   • The funding will principally be for prime insured and uninsured mortgages. Not long ago, Street was completely out of the market on uninsured pricing due to an absence of willing investors.
   • It will also be used to ramp up Street’s non-prime lending. Rodney says, “Street doesn’t have efficient non-insured funding right now.” These new funds will “significantly increase the Street Solutions [alternative lending] business.”
   • The source of this funding is 100% Canadian institutional investors, says Rodney. Much of it comes from very high net worth investors who are patient long-term capital.
   • RFA will also “ramp up” Street’s deposit business and “diversify the channels we obtain those deposits (from)…,” Rodney said. Someday it will likely launch direct-to-consumer deposits, but we get the sense that is well down the road.
2. Street will get new products
   • We hear that, in time, the plan is to add a new HELOC, better refinance options, and an ultra-competitive “Value” (low-frills) mortgage product, among others. (Ideally, they’ll also consider competitive 1- to 4-year prime uninsured fixed terms, a market that’s been corned of late by big banks.)
3. Street will offer better pricing
   • “Expect to see more competitive rates,” Rodney said. And that’s not just PR talk. The lender he runs now, RFA Mortgage Corporation, is a highly efficient operator that has the lowest 5-year fixed rate in Canada.

“We are thrilled with the opportunity before us with RFA as our capital partner,” Street Capital Bank CEO Duncan Hannay told CMT. “This brings new strength to the broker channel…We’ll combine the benefit of a bank balance sheet to support non-prime lending with a scale originator in prime.”

Being a Small Bank: Burden or Advantage?

Naysayers may question the deal, citing the extreme regulatory and expense burden of running a schedule I bank. We asked Rodney how RFA would ensure a good ROI given that burden. “The way we are recapitalizing the structure and utilizing technologies to create efficiencies in the bank will allow us a competitive advantage,” he said.

“We are fixing the balance sheet,” he said, adding that “scale will cover the regulatory cost.”

Other facts of note:

• Rodney says RFA hasn’t decided yet if it will keep the name (Street Capital Bank of Canada) and run with a multi-brand strategy (like MCAP and RMG, for instance), or rebrand and consolidate both lenders.
• There are no plans to replace Duncan and Street’s senior management team, Rodney said.
• The deal is expected to close in the fall. Someone could always try to top RFA’s bid for the company and Street would be compelled to review such offers. But that’s less likely now, given the $4 million penalty Street would have to pay RFA for backing out, the need to win OSFI’s pre-approval, and the fact that RFA’s 68 cents-per-share offer is amply fair (relative to peer valuations), according to analysts like NBF and Raymond James.

–ROBERT MCLISTER

INTEREST RATE CUT MORE LIKELY THAN HIKE IN 2019

When the Bank of Canada decided this month to keep its benchmark interest rates stable at 1.75%, it signalled the weakening economy makes it unlikely a rate increase is anywhere on the horizon.

Inflation is not where it should be, we’re not in a deflation mode right now, but inflation is under control and there’s no real need for them to raise interest rates.

Because many of the economic indicators are pointing downward, this puts the bank in a position where it can’t raise rates. This makes refinancing a more attractive option for some homeowners this year.

A lot of economists are saying that Canada is heading back into another crisis, which is an indicator that rates may drop again. This new norm will probably stay around for a little while, but rates will eventually go up. And when it goes up, people have to be obviously prepared for it.

So, for now, homeowners shouldn’t worry too much about a sudden jump in rates. While this may be a new normal, if the economy begins a turnaround, they should be ready or a bump in rates, but I don’t think it’s going to happen the next couple of years.

Usually, Canada’s economy runs almost parallel to that of our southern neighbour’s. However, the two economies seem to have gone their separate ways lately.

There’s a divergence right now that is going to occur between the Canadian and U.S. economies. When people talk about the U.S. sneezing and Canada catches a cold—this is not what’s happening right now. There’s a divergence in the interest rates. Where in the States rates are going up, in Canada, rates cannot go up because of the way our economy is actually going.

The news isn’t all positive for Canadian homeowners though. Read our recent blogs on why too many Canadians are now ineligible for mortgages and why Montrealers in particular will see their municipal tax bills rise in the coming years. If you have any questions about mortgages, contact your nearest Dominion Lending Centres mortgage professional near you.

–TERRY KILAKOS

3 “RULES OF LENDING” – WHAT BANKS LOOK AT WHEN YOU APPLY FOR A MORTGAGE

Buying a home is usually the biggest purchase most people make and there are a lot of factors to consider. Our job is to provide you with a much information (as you can handle!!) so you make the best decision based your particular situation.

The 3 “rules of lending” focus on determining the maximum size of mortgage that can be supported by your provable (what you paid taxes on) income.

You need to consider two affordability ratios:

Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 36-39% of your gross monthly income. Housing costs include – your monthly mortgage payment, property taxes and heating. If you are buying a condo/townhouse, the GDS will also include ½ of your strata fees. The total of these monthly payments divided by your “provable” gross monthly income will give you your Gross Debt Service.
Mortgage payments + Property taxes + Heating Costs + 50% of condo fees / Annual Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42-44% of your gross monthly income This includes your housing costs (GDS above) PLUS all other monthly payments (car payments, credit cards, Line of Credit, additional financing, etc.). The total of all your monthly debts divided by your “provable” gross monthly income will give you your Total Debt Service.
Housing expenses (see GDS) + Credit card interest + Car payments + Loan expenses / Annual Income

What about the other 56% of your income?? This is considered to be used up by ‘normal’ monthly expenses including: taxes, food, medical, transportation, entertainment etc.)

Rule #3 – CREDIT RATING Everyone who will be on title to the property will need to have their credit run. Your credit bureau is important because it shows the lenders how well (or not) you have handled credit in the past. This gives them an indication of how you will handle credit in the future, and will you be a good risk and make your mortgage payments as promised. If you handle credit well, you will have a high Credit Score and get the best interest rates from the banks/lenders. If you have not handled credit well, and have a poor credit score, you will either be charged a higher interest rate or your application will be declined.

If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

–KELLY HUDSON

5 REASONS TO CONSIDER BUYING A CONDOMINIUM APARTMENT OR TOWN HOME

If you are thinking about purchasing a home in the near future, here are some reasons you may consider buying a condo apartment or town home. You should also be aware there are some cons as well.

Pros

1. They are relatively inexpensive. As your footprint is small and you share exterior walls with others, the cost for a condo is often far lower than owning a single-family dwelling.
2. No shoveling or painting. Most maintenance costs are covered in your monthly condo fees as are large repairs such as roofing and hallway carpeting.
3. Amenities. Often condos have a pool or gym which is included in your condo fees.
4. Security. for seniors and single women this is a big concern. Living in a building which a locked front door in addition to your own unit door is a big plus.
5.  A sense of community. Often condo boards have an annual picnic or event where you can meet your neighbours. This helps to develop a sense of community.

Cons

1. Restrictions on pets. How you can paint your front door or what you can do to your balcony can see like restrictions on your lifestyle . Be aware of these restrictions by reading the condo documents in advance.
2. Maintenance may not be done when you would like for it to be done. Major projects may be delayed if the condo board has not allowed for large expenses and this may result in a large special assessment payment. Be sure to read over the section of your documents that covers the reserve fund.
3.  Condo fees may go up higher than you can afford over the years. This is a particular concern to owners on fixed incomes.

Be sure to speak to your favourite Dominion Lending Centres mortgage professional before you go house hunting to get expert advice on how to proceed.

–DAVID COOKE

Siddall Launches Latest Volley in War of Words with the Mortgage Industry

For anyone who has been following the saga, it should be plainly obvious where Evan Siddall, head of the CMHC, stands on the mortgage stress test.

In a recent editorial, we took an in-depth look at Siddall’s at-times passionate defence of stricter mortgage qualification rules. Part of that included public comments in which he accused Mortgage Professionals Canada President and CEO Paul Taylor of “bold” self-interested rhetoric and “reckless myopia” for the association’s calls for tweaks to the stress test.

In an interview with the Globe and Mail on Monday, Siddall doubled down on his hardline stance against those in the mortgage and real estate industries who are calling for changes to the new regulations.

“The real estate lobby is on the wrong side of this issue, they’re being intensely self-interested, and somebody had to call them on it frankly because they were getting traction,” Siddall told The Globe and Mail, adding that he has received strong support from other policy-makers, economists and the public at large through his Twitter feed.

Siddall reiterated his conviction that loosening the requirements of the stress test or extending amortizations would result in increased debt levels and higher home prices.

Only a “calamity” in the housing market would warrant revisiting the stress test, he said, adding that the declines in home sales and prices since the stress test was introduced have been welcome.

In response to the comments, Mortgage Professionals Canada’s Paul Taylor told CMT, “I’m increasingly disappointed with the language choices of Mr. Siddall; the continued public mischaracterization of our positions, and more recently, his attacks on our industry’s character rather than our policy positions. The partisan political posturing is damaging the industry’s and government’s ability to engage in healthy conversations about the significant social impacts the fiscal policies are having across Canada.”

Taylor added that the association’s positions are formed with careful consideration of economic data, and that a “growing chorus” of economists are now asking whether the stress test may be too high, particularly given falling rates and the fact the benchmark rate remains unchanged.

Stress Test Formula Challenged

Siddall also participated in a panel discussion hosted by the Global Risk Institute this week where he was challenged on the formula behind the stress test by CIBC World Markets Deputy Chief Economist Benjamin Tal, who argued the formula should be more flexible to allow for adjustment when rates rise and fall.

“Maybe we have to inject a little bit more science into this,” he said, adding, “I really don’t know where it came from, and I think that if there is research around it, we need to see it.”

To which Siddall replied: “When you’re trying to convince a Minister to make a decision, you ought to make it simple and communicable and you don’t want to have to go back and have the conversation too many times,” Siddall replied, as reported by the Globe and Mail.

“The cost of simplicity here is too high,” Tal retorted, adding that “millions and millions” of Canadians are being impacted.

“Mr. Tal is 100% accurate when he suggests maintaining a poor solution because it is simple to explain is very bad policy,” Taylor said. “Given the magnitude of the economic impact the stress test can have, it is only logical to allow for continued discussion regarding the level at which it is set, and the manner in which it is derived.”

Siddall on 30-yr Amortizations: “I Think it’s Dumb”

Siddall was reportedly asked by an audience member for his thoughts on extending amortizations back up to 30 years, or potentially even 50 years.

“If you extend amortization, you’re increasing demand and increasing debt. So, you know my answer: I think it’s dumb,” he replied, before adding, “Fifty years is dumber than 30.”

More Details on the First-Time Home Buyers Incentive

Details on the CMHC’s First-Time Home Buyers Incentive have been slow coming out since the down payment assistance program was first announced as part of the Liberal government’s 2019 budget. Subsequent details have trickled out over the following months (here and here), with a few additional points being confirmed this week.

The $1.25 billion program is still on track to begin in September and will provide 5% of a first-time buyer’s down payment for the purchase of existing homes, or 10% for the purchase of a new build.

Siddall said homeowners would have to repay the government for its current market value share of the property after a maximum of 25 years if the house hasn’t been sold. He added homeowners would have the option to buy out the government’s share at any point before.

OSFI Says Stress Test is “Working”

Meanwhile, the Office of the Superintendent of Financial Institutions (OSFI), which was responsible for introducing the mortgage stress test, said this week that the new rules are “working.”

“The revisions to B-20 are working; strengthening mortgage underwriting across Canada and improving the resilience of the Canadian financial system to future shocks,” reads an information sheet released by OSFI.

“Since the B-20 revisions were put in place, lenders are approving fewer mortgages for the most highly indebted or over-leveraged borrowers,” OSFI added, saying new uninsured loans at 450% of a borrower’s income have levelled off at 14%, down from a peak of 20%.

In response to criticism that the stress test reduces options and hinders competition for renewals, since it applies to existing borrowers wanting to switch lenders, OSFI noted the difference between renewal and new mortgage rates for uninsured five-year fixed and variable rate mortgages has remained “largely unchanged” since the new rules were introduced.

“If a borrower decides to change lenders, the new lender must act responsibly by following their own established underwriting standards,” OSFI commented. “Business models and risk tolerances are different across lenders; it is not responsible for lenders to rely on the past underwriting standards of another lender.”

-STEVE HUEBL

99 YEAR MORTGAGES AND THE POWER OF AMORTIZATION

Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage.

Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.

Mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.

Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.

Amortization is only one tool that your Dominion Lending Centres mortgage professional can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

–DAVID COOKE

WHO REALLY SETS INTEREST RATES?

A recent article in the Huffington Post addressed the pricing strategy for the Big Six Banks, BMO, CIBC, National Bank, RBC, Scotia and TD and who really sets interest rates.  RBC announcing a rate drop in January and the other banks soon followed.  For consumers the banks are seen as leaders of the pack and everyone waits to see what else they will do.  The reality is the bank rates were higher than the market for some time.

The Huffington article states “Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.”

The drop in rates was a measure to bring bank rates in line with the non-bank lenders who have already been offering lower pricing. The only difference is the banks have high market share of the business and more profit each year so they can afford to spend money on media and other forms of advertising. The media attention helps them to capture more business with a rate drop after a lag time of passing on higher rates to consumers. The informed consumer working with an independent mortgage broker will already know the market and what mortgage product is best for their needs.

However, interest rates are not the only consideration when choosing a mortgage. Each time you make a purchase, renew your mortgage or take equity out to renovate, invest or other reasons, it is always best to consult with your mortgage broker for a review.

One of the big factors is the cost to exit that mortgage before maturity. Life happens. There are costs to breaking the contract early in the event of sale, marital break-up, death or need to consolidate other debts. Bank penalties for early payout are higher than non-bank penalties by a factor of 4 times. By reviewing your needs with your Dominion Lending Centres mortgage broker, we can discuss all of the options available from lenders including bank and non-bank, to ensure you are making an informed decision.

–PAULINE TONKIN

3 STEPS TO TAKE YOU FROM PRE-APPROVAL TO GETTING THE KEYS

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the three steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL
This should actually be the step BEFORE house hunting. Visiting your mortgage broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:
• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, two years notice of assessment and/or T4’s, a void cheque, and a number of other potential documents.
Once you are pre-approved it’s house hunting time for you! The benefit of having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.
When you do find just the right home for you, it’s on to step two.

STEP 2: APPROVAL
If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here. You may have to supply a few pieces of updated information but otherwise, it’s up to the lender to do the hard work at this point.
Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once they confirm that it aligns with the guidelines they have laid out for your loan, then it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.
Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

STEP 3: FINAL STEPS
Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the Lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:
• Void Cheque
• Two forms of identification
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.
All that’s left is to hand you the keys to your new home!
As one final step, keep asking questions at each stage of the mortgage process. You should check in with your Dominion Lending Centres mortgage broker if you have any questions along the way. They are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

–GEOFF LEE

WHAT IS AN UNINSURABLE MORTGAGE?

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.

–KRISTIN WOOLARD