Nuts & Bolts of the Federal 2019 Budget | What you REALLY need to know!

General Beata Gratton 21 Mar

Nuts & Bolts of the Federal 2019 Budget | What you REALLY need to know!

On March 19, the Federal Government announced the official 2019 budget. One major topic on the discussion table (and one we were all holding our breath for) was the discussion of affordable housing in Canada. So just what happened on “Budget Day?” Here are the highlights of the 2019 Federal Budget:

MORTGAGE INDUSTRY RELATED:

CMHC First Time Home Buyers Incentive Plan

-This would give first time home buyers the ability to share the cost of buying a home with CMHC
-For existing homes – the incentive would provide up to 5% (funding/equity sharing) of the PURCHASE PRICE
-For newly constructed homes the incentive would provide up to 10% (funding/equity sharing) of the PURCHASE PRICE
-Funding/Equity sharing means that CMHC would cover a percentage of the purchase price

Example:

  • 400K purchase price, 5% down payment (20K), AND 5% CHMC shared equity mortgage (20K), the size of the insured mortgage would be reduced from 380K down to 360K, which would lower the monthly payment amount for the first time home buyer

To qualify for the program:

  • 120K max household income
  • Cannot borrow more than 4x their annual household income – making max purchase price approx. 505K
  • 100k household income would mean max 400K mortgage in order to use this program.

HOME BUYERS PLAN RRSP INCREASE

An increase of the previous $25,000 for RRSP withdrawal amount through the Home Buyers Plan to $35,000
These were the only two key changes that came out of the Federal Budget (so far). It provides minimal assistance for First Time Home Buyers, especially in a market like Vancouver and the Fraser Valley, who have home prices well above the 505k purchase price limit. However, it could provide assistance to those looking to purchase condos or townhomes ore in more rural areas. One area that will remain the same for the mortgage industry is the continued B-20 stress testing measures (which have recently come under fire)

The predicted start time is Fall 2019 for these guidelines. We will keep you updated on any new additions or changes as the information becomes available. If you have any mortgage related questions, contact a Dominion Lending Centres mortgage professional near you.

– by Geoff Lee

Federal Budget 2019–Actions for Homebuyers

General Beata Gratton 20 Mar

Federal Budget 2019–Actions for Homebuyers

 

In its fourth fiscal plan, the Trudeau government spent its entire revenue windfall leaving the deficit projection little changed. In this election budget, Finance Minister Bill Morneau announced $22.8 billion over six years in new spending initiative mostly for homebuyers, students and seniors. Trudeau promised in his first budget to have eliminated all red ink by this year. He will instead head for an October election with an annual deficit of nearly $20 billion. Ottawa is projecting a string of double-digit deficits through the end of 2022.

The key debt-to-GDP ratio is expected to be 30.8% this fiscal year and edges downward only very slowly to 30% over the four-year forecast horizon.

Today’s budget offered help to young homebuyers, many of whom find it very difficult to afford to purchase in some of our more expensive cities. There were two measures targeted at first-time homebuyers:

Maximum Withdrawal from RRSPs Is Increased

The simplest to understand is the $10,000 increase in the federal Home Buyers’ Plan (HBP) maximum tax-free withdrawal from RRSPs to $35,000, effective immediately. This allowable withdrawal for first-time buyers will now also apply to people experiencing the breakdown of a marriage or common-law partnership who don’t meet the usual requirement of being a first-time homebuyer.

The new limit would apply to HBP withdrawals made after March 19, 2019.

Those taking advantage of the higher HBP limit will have to keep in mind that the repayment timeline is unchanged. Home buyers must put the money back into their RRSP over 15 years to avoid full ordinary income taxation on HBP withdrawal. Now Canadians using these funds will have to repay a maximum of $35,000 – instead of $25,000 – over the same period.

The Boldest Move: The CMHC First-Time Homebuyer Incentive

A $1.25 billion fund administered by the Canadian Mortgage and Housing Corporation (CMHC) over three years will provide 5% of the cost of an existing home and 10% of the price of a new home through what amounts to an interest-free loan to be repaid when the property is sold. The money would go to first-time home buyers applying for insured mortgages. The key stipulations are:
• Users must have a downpayment of at least 5%, but less than 20%;
• Household income must be less than $120,000;
• The purchase price cannot be more than four times the buyers’ household income.
For example, say you’re hoping to buy a $400,000 home with the minimum required 5% down payment, which works out to be $20,000. With the new incentive, you could receive up to $40,000 (for a new home) through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. This would lower your monthly mortgage bill from over $1,970 to less than $1,750. The incentive is 10% for buyers purchasing a newly built home and 5% for existing homes.

Homeowners would eventually have to repay this so-called ‘shared mortgage,’ likely at resale, though it is unclear how this would work. CMHC might share in any capital gain (or loss)– receiving 5% or 10% of the sale price (not the purchase price). At the time of this writing, these details had not been hammered out.

These stipulations effectively limit purchases under this plan to properties priced at less than $500,000 ($480,000 maximum in insured mortgage and incentive, plus the downpayment), which is close to the national average sales price of $468,350 (which is down 5.2% from the average price one year ago). However, the national average price is heavily skewed by sales in Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive markets. Excluding these two markets from the calculations cuts close to $100,000 off the national average price, trimming it to just under $371,000. What this tells us is that the relief for first-time homebuyers is pretty meagre for young people living in our two most expensive regions.

Arguably, the max price point of $500,000 for this plan is where the affordability challenge only really begins in our higher-priced housing markets. The most acute affordability problems surround medium-sized and larger condo units or single-detached homes in the GTA and GVA; yet, most of these are beyond the price range covered by the CMHC plan. The impact, of course, would be broader in other regions, but affordability in many of those is historically quite normal. The most significant impact will be in low-priced new builds.

Also, mortgage applicants under this plan still have to qualify under the federal stress test, which ensures that borrowers will be able to keep up with the payments even if interest rates rise by roughly two full percentage. The incentive, however, would substantially lower the bar for test takers, as applicants would have to qualify for a lower mortgage.

Before the budget, many stakeholders had been arguing that with the rapid slowdown in the economy and the Bank of Canada unlikely to raise interest rates this year, the B-20 stress test is too onerous and should be eased.

The government is hoping to have the plan up and running by September.

Bottom Line: These housing measures are focused on the demand side of the market, rather than encouraging the construction of new affordable housing. And while the budget does earmark $10 billion over nine years for new rental homes, it does not propose tax breaks or reduced red tape for homebuilders.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

When Death Strikes Suddenly

General Beata Gratton 20 Mar

When Death Strikes Suddenly

Recently I was finishing up a mortgage with a young couple who had just had a beautiful baby girl. I brought up the topic of mortgage and life insurance as well as getting a will written up. The response from the husband was that it was such a morbid topic and a real downer when they were excited about their new home.

The fact is that people, even young people die from car accidents, cancer, and even accidental drownings while on vacation. It’s a topic everyone avoids but it needs to be addressed, particularly when you are taking a major financial step like buying a home. What would happen to your spouse if you died suddenly with your mortgage not paid off?

I spoke to a major Canadian mortgage company about this topic.
I asked if the surviving spouse would be kicked out of the house. “ When someone dies who was on our mortgage we want to know right away . We ask for a copy of the death certificate so that we can take them off title. We will let the mortgage run it’s term if payments are being made on time. Many surviving spouses receive a life insurance policy and can pay off the mortgage or at least keep up the payments. We will renew the mortgage if payments are up to date. However, should the surviving spouse want to refinance the mortgage they would have to re-qualify for it.”

So what can you do to make life easier for your family should you die with a mortgage on your home? The easiest option is to have sufficient life insurance to ensure that they can keep up payments or to pay off the mortgage. Dominion Lending Centres mortgage professionals all offer MPP (Mortgage Protection Plan), a life insurance policy that pays off the mortgage in full in case of the death of the policy holder. The payments never go up because the mortgage balance is going down as the insured person gets older.

Another option is term insurance or whole life insurance. Speak to your favourite insurance broker about this.
Finally, if the surviving spouse is 55 or older, and they can’t afford to maintain the mortgage, a reverse mortgage may be the solution. No payments are made on the principal unless you decide you want to. When the widow(er) moves out the sale of the home pays off the mortgage and interest.

While it can be a “downer” to talk about death and disability, a responsible home purchaser needs to have the conversation with their Dominion Lending Centres mortgage professional at the time of their purchase, refinance or renewal. The sudden death of a family member causes enough grief for the survivors, why add to their misery. As the old commercial used to say “Why wait for spring, do it now”.

– by David Cooke

March is Fraud Prevention Month

General Beata Gratton 19 Mar

March is Fraud Prevention Month

You may have seen advertisements warning you to be aware of phishing schemes and other scams. In the past week, I have received fraudulent emails claiming to be Shaw Cable, RBC and even the FBI. These are easy to spot because of mistakes in the letterhead, spelling mistakes and formal language that would fit in well in the 19th century. What is not as well-known is mortgage fraud. Fraudulent mortgages cost lenders every year. These losses result in higher costs and interest rates for consumers – so fraud ends up costing all of us money. What types of fraud should you be aware of?

Fraud for Shelter  – this is when an applicant gives false information concerning their income or job status in order to obtain a mortgage to buy a home. While they may plan on paying off the mortgage in full this is still fraud. Another form of fraud is when you sign a declaration at the lawyer’s office saying that you will be living in the property when you have no intention of living there.
Fraud for Profit – a friend says they know someone who needs to buy a house now but their credit won’t be satisfactory for another 3 or 4 months. They ask you to say you are the buyer and provide your credit history in exchange for $5,000 for your trouble. The problem for you the “straw buyer” is when they flip the home and run off with the profits leaving you on the hook for a mortgage and having to deal with legal authorities as well.
Foreclosure Fraud – a fraudster approaches a homeowner who is in financial trouble with a debt-consolidation scheme that involves the owner paying an upfront fee and signing over title to the home to the fraudster.
• the home owner receives cash from the fraudster to address immediate bills and remains in the home paying “rent” or “consolidated debt payments” to the fraudster
• the fraudster pockets all of the owner’s payments and ignores bills and taxes, which leads to debt-collection procedures against the owner
• the fraudster may re-mortgage or sell the property to an accomplice, leaving the owner without the property title, homeless and still in debt

Title Fraud – This is when someone forges your identity and either sells your property or takes out a mortgage on the property. Buying title insurance for a home under $500,000 can cost you between $50 and $175 and covers any legal fees you have to pay to regain your property.

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

– by David Cooke

Why reverse mortgages are bucking the downward trend

General Beata Gratton 18 Mar

Why reverse mortgages are bucking the downward trend

The reverse mortgage market in Canada has been increasing at a phenomenal rate over the last few years.

In fact, for HomeEquity Bank, the provider of the CHIP Reverse Mortgage, growth was well over 40% in August, bringing Canada’s outstanding reverse mortgage balance to $3.03 billion.

Compare this to the latest growth in lending for new and renewal mortgages at just 4.1% – this is the lowest since May 2001. Much of this slow-down in mortgage growth is a result of the introduction of the new mortgage stress test, which has made it harder for borrowers to qualify for the mortgage they need, as well as a significant jump in mortgage interest rates.

So, how is it that reverse mortgages are growing so much faster than conventional mortgages? And who is driving this growth?

The reverse mortgage solution and why it matters to you

The CHIP Reverse Mortgages allows you to tap into the equity of your home is available to Canadians aged 55 and over. The key difference from a regular mortgage is that borrowers don’t have to make any regular repayments. This means they can have a considerable injection of cash without having to pay off what they owe until they sell or move out of their home.

The number of Canadians over 65 has jumped by 20% since 2011, so the potential market for reverse mortgages has grown enormously in just a few years.

Life expectancy is now at almost 83 and more people are living into their 90s and beyond 100 than ever before. Retirement can now easily last 20 years or more, which can put a big strain on retirement savings. Many retirees are therefore having to look at ways to supplement their retirement income.

There are many reasons for taking out a reverse mortgage. These include paying off high interest debt, maintaining a good standard of living, improving or retrofitting their home and helping family out financially.

Canadians prefer to stay in their homes during retirement

A recent Ipsos/HomeEquity Bank survey revealed that a staggering 93% of Canadians aged 65+ are determined to stay in their homes during retirement, rather than downsize or move in with relatives or into a care home.

Almost 70% said that maintaining their independence was the most important reason for staying at home. Others also want to stay close to their family, friends and community.

Downsizing is an increasingly unpopular option

While downsizing has often been seen as a key strategy for accessing some home equity, its popularity is declining. Another Ipsos survey revealed that 48% of homeowners don’t plan on downsizing and that 39% are skeptical that downsizing would actually save them any money. People who regretted downsizing said the key reasons were missing their old neighbourhood, family and friends, which can play a big role in emotional well-being in your later years.

Nevertheless, 31% of retirees say they need to cash in on their home’s equity to live comfortably in retirement. So, if they don’t want to downsize, what are their options?

How the reverse mortgage helps out retirees

The introduction of the mortgage stress test has made it even harder for retirees to qualify for the kind of mortgage they need to effectively improve their finances.

Even those that do qualify often struggle to make the monthly payments required from a conventional mortgage or line of credit. A reverse mortgage provides them with tax-free cash that enable retirees to live the retirement they want, with no negative impact on their monthly income. For many retirees, a reverse mortgage is the only option available to them that provides them with the finances they need without regular required payments.

If you would like to find out more about the CHIP Reverse Mortgage and how it could help improve your retirement finances, contact your Dominion Lending Centre mortgage professional.

– by Rebecca Burgum

Mortgage Stress Test – Not the Bad Guy

General Beata Gratton 15 Mar

Mortgage Stress Test – Not the Bad Guy

Ever since the federal government regulator, The Office of the Superintendent of Financial Institutions (or OSFI) brought in the Mortgage Stress Test, there has plenty of blame heaped upon it for slowing home sales and new home starts. Even though it has slightly reduced how much of a mortgage I can approve my clients for, the initial logic is sound. The stress test attempts to protect Canadians from taking on more mortgage debt than they will be able to afford when their mortgage renews down the road.

What it doesn’t do is curb additional debt and other financial factors after the mortgage starts. Many clients do not consider long-term changes like, child care expenses, new vehicle loans, ongoing credit card and line of credit debt payments.

I work with many first and second-time homebuyers with wide-ranging financial details. The stress test is a limiting factor, but in no way is it the largest culprit in preventing my clients from getting mortgage they are requesting. credit cards, lines of credit and vehicle loans have a much larger impact on reducing the mortgage borrowing ability for most of my clients.

Here are some real-world numbers on two hypothetical first-time homebuyer scenarios that help to illustrate what consumer debts can have on a mortgage application.

1. Individual or couple – scenario 1
Buyer(s) with household gross income of $80,000 that have $17,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $250,000 detached home.
An additional monthly credit or loan payment of only $300 per month will prevent mortgage approval for this application.

2. Individual or couple – scenario 2
Buyer(s) with household gross income of $125,000 that have $33,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $500,000 detached home.
An additional monthly credit or loan payment of only $500 per month will prevent mortgage approval for this application.

Credit cards, lines of credit and vehicle loans are exceedingly easy to obtain but could stand in your way when you are looking to buy your first or next home. Please consider carefully before financing anything. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

– by Kevin Carlson

February Home Sales Weaken Sharply–Was It Weather or Stress Tests?

General Beata Gratton 15 Mar

February Home Sales Weaken Sharply–Was It Weather or Stress Tests?

 

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales dropped sharply from January to February, plummeting 9.1% to its lowest level since November 2012. The month-over-month decline was the biggest since the B-20 stress test was introduced in January of last year.

The number of existing home sales was down in three-quarters of all local markets, including all major cities. Actual (not seasonally adjusted) sales activity was down 4.4% to reach the lowest level for the month of February since 2009. It was also almost 12% below the 10-year February average. In British Columbia, Alberta as well as Newfoundland and Labrador, sales were more than 20% below their 10-year average for the month.

 

New Listings
The number of newly listed homes declined by 3.2% in February, led by GTA regional municipalities that surround the City of Toronto, in addition to Hamilton-Burlington, Calgary, Edmonton and Winnipeg.

With sales down by more than new listings in February, the national sales-to-new listings ratio eased to 54.1% compared to 57.6% in January. Looking beyond its monthly volatility, this measure of market balance has remained close to the long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about 70% of all local markets were in balanced-market territory in February 2019.

There were 5.7 months of inventory on a national basis at the end of February 2019, a three-and-a-half-year high and above its long-term average of 5.3 months. That said, there are significant regional differences. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and the Maritimes.

Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was little changed (-0.1%) y/y in February 2019. That said, it still marked the first decline in almost a decade.

Condo apartment units recorded a y/y price increase of 2.4% in February, while townhouse/row unit prices were up 1%. By comparison, one and two-storey single-family home prices were down 1.7% and 1% y/y in February.

Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y/y basis in Greater Vancouver (-6.1%) and the Fraser Valley (-2.8%). By contrast, prices posted a y/y increase of 3% in Victoria and were up 7.7% 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 (+6.8%), the Niagara Region (+6.5%), Hamilton-Burlington (+5%) and the GTA (+2.3%). By contrast, home prices were little changed (+0.2%) on a y/y basis in Oakville-Milton, while in Barrie and District prices remain below year-ago levels (-4.3%).

Across the Prairies, supply is historically elevated relative to sales, and home prices are down from year-ago levels. Benchmark prices were down by 4.4% in Calgary, 4.5% in Edmonton, 5.1% in Regina and 3% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply come back into better balance.

Home prices rose 7.4% y/y in Ottawa (led by a 10.8% increase in townhouse/row unit prices), 6.2% in Greater Montreal (led by a 7.8% increase in apartment unit prices) and 1.6% in Greater Moncton (led by a 7.9% increase in townhouse/row unit prices).(see Table 1 below).

Bottom Line

It appears that the housing slowdown is deepening, adding to the weakness in the overall economy. Some of the softening in February might have been weather-related, but tighter mortgage credit availability was no doubt an issue as well. Many are now calling for an easing in the stress test qualification rate from the posted five-year fixed rate, currently at 5.34%, to closer to the actual conventional rate, about 200 basis points lower.

Finance Minister Bill Morneau, who is set to deliver his pre-election budget next week, is also being pressured to extend mortgage terms from 25 years to 30 years to help ease the situation.

“For aspiring homebuyers being kept on the sidelines by the mortgage stress-test, it’s a bitter pill to swallow when policymakers say the policy is working as intended,” said Barb Sukkau, CREA’s president. “Fewer qualified buyers means sellers are affected too.”

Today’s housing release comes one day after Statistics Canada announced that Canadian home values fell last year for the first time in 30 years amid falling prices in the Vancouver region–the priciest in the country–even as household debt burdens hit another record high. The 0.6% decline in house prices is the first decrease in countrywide home values in data going back to 1990.

Households meanwhile experienced a rise in debt burdens at the end of last year, with the debt to disposable income ratio hitting a record 174% in the fourth quarter. The deterioration reflects a sharp slowdown in income growth at the end of 2018.

Canadians are also spending a larger proportion of their income on servicing the debt. The debt service ratio rose to 14.9%, the highest level since the fourth quarter of 2007.

In a separate report, the agency said new home prices fell 0.1% in January from a year earlier — the first decline since 2009. While the index doesn’t include condominiums, the weakness was driven by declines in the Toronto and Vancouver regions, which fell 1.5% and 0.3% respectively.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

3 “Rules of Lending” – What Banks look at when you apply for a Mortgage

General Beata Gratton 14 Mar

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.

– by Kelly Hudson

Why I chose a Mortgage Broker?

General Beata Gratton 13 Mar

Why I chose a Mortgage Broker? Our House Magazine – Winter

Amanda Moss and her husband Robert have had a mortgage on various properties for almost 10 years. The Chilliwack B.C. couple was a few years into their mortgage term, but looking to pay off some extra bills and clear up some financing. They hadn’t considered the option of refinancing until Amanda got some advice of a friend. The friend recommended a mortgage broker to help them through the refinancing process. The couple is now back on sold financial footing thanks to the help of their Dominion Lending Centres mortgage broker.

Why did you choose a mortgage broker?

I happened to be on a girl’s trip to Seattle and I mentioned to a friend, because my husband and I both make decent income, we wanted to refinance. She said she had the perfect broker for me. When I got back to Seattle I called him right away.

How was your experience working with a mortgage broker?

I had a really great experience with Dominion Lending Centres and with my mortgage broker. He was very professional and went out of his way to reassure us through the process. Refinancing can be stressful, with so much paperwork and questions along the way, but our broker was always willing to provide advice and even dropped by our house to pick up documents. Overall it was a great experience!

What advice would you give someone in your situation?

Managing your finances can be very stressful. Our mortgage broker was able to lower our monthly payments which has allowed us to focus on our family and worry less about money. My husband and I found that dealing with a mortgage broker was easy, and also and provided us with multiple lending options, so that we could get the best rate possible. This was a nice change from just dealing with one bank. My advice to you is to be open to using a mortgage broker as they fight for you and your best interest.

– by Jeremy Deutsch

What is an Uninsurable Mortgage?

General Beata Gratton 13 Mar

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.

– by Kristin Woolard

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