Rates have substantially increased over the last 6 of months. We have seen 3 prime rate increases with more on the horizon. Fixed rate mortgages have also followed suit due to bond market instability and the increases are noticeable. Consumer’s have rapidly moved from Adjustable rate products to longer term Fixed rates of 5 years or greater.  Fixed rate advantage is that they provide consumers with added security and stability against an unstable market without an end in sight!  Questions still to be answered in the coming months. When will bond rates stabilize?  Will global pressures continue to drive increases?  Will we see a return to historical norms? What will be the impact of NAFTA negotiations/deterioration on the Canadian economy?

Perhaps the interim answer to all this instability and volatility is to start looking a longer “term” such as  7 & 10 year terms. These longer term mortgages help insulate homeowners against potential increases in the short to long-term – as well as provide safety and consistency with mortgage payments that won’t fluctuate with the market.

We don’t have to go back very far (6-7yrs) to a time when 10 year mortgages were a very popular option. During that time many case studies show this product didn’t work out for those borrowers who selected those 10 year terms because back then we were in a more stable rate environment and there was very little difference between the 5 & 10 year rates at the time. Shortly after this period, rates quickly dropped to even further all-time lows. Compare those details to our current market trends  and it becomes quickly apparent rates have been continually rising with more increases forecasted.

Is it your time to renew your mortgage? Are you looking to move this year? Why not look at a longer term mortgage option today? It’s time to discuss your options available!

www.denisedunkley.ca

When you purchase a property, you may be a little overwhelmed by all the insurance offers related to the purchase of said property. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing, and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance (there are three mortgage default insurers in Canada – CMHC, Genworth, and Canada Guaranty) is solely for the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 8 Benefits of using Mortgage Life Insurance

1. Peace of Mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you pass on.
2. Mortgage Paid Off in the Case of Death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.
3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.
4. It Protects your Family’s Finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.
5. Lost Wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time (ex. up to 3 years). Unexpected life events such as a serious car accident can result in missed mortgage payments because of loss of wages as you need to recover from injuries.
6. Portability –certain Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.
7. The Younger you are, the Less Expensive– Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.
8. Good Health = Coverage for Unexpected Illness Later on –After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are regarding the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if later you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact your mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

NOV, 16, 2017 – This article is compliments of Geoff Lee, Accredited Mortgage Professional, Dominion Lending Centres

DIRECT RESPONSES OR INQUIRIES TO:  Denise Dunkley 905.380.2241  Email: ddunkley@dominionlending.ca

On October 17th 2017 the Office of Superintendent of Financial Institutions announced several new regulatory changes that will take effect on January 1st, 2018. Here is a summary of what you need to know about the upcoming changes.

Important Terms To Know Before Reading

Insured Mortgage / High Ratio Mortgage: Less than 20% down payment.
Non Insured Mortgage / Conventional Mortgage: 20% or greater down payment / equity.
Bank of Canada Rate (BOC): The 5 year fixed posted rate (currently 4.99%).
Contract Rate: The actual rate offered by the lender to the consumer.
Benchmark Rate/Qualifying Rate: Stress Test: Bank of Canada Rate OR Contract Rate +2%, whichever is greater.
LTV (Loan To Value): The size of a mortgage compared to the value of the property securing the loan.
TDS: A total debt service ratio (TDS) is a debt service measure that financial lenders use as a rule of thumb when determining the proportion of gross income that is already spent on housing-related and other similar payments.

1) QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES

Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer with a down payment of 20% or more?

The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.

The stress test for non-insured mortgages applies to both fix rate and variable rate mortgages. On variable rate mortgages, the rate at time of funding is based on Canada’s prime rate (presently 3.20%) +/- a given margin. Today’s average variable rate is prime – .45% (3.20% is prime – 0.45%) = 2.75%. So applying the stress test of the greater of the two qualifying rates; Bank of Canada is 4.99% and the actual rate of 2.75% + 2% = 4.75% thus the BOC would be the qualifying rate to use since its higher.

For Example:

*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization. **In order to qualify for any variable rate, as in the past, you must qualify at the BOC rate.

What if I don’t qualify at best rate lenders?

The qualifying stress test rule will also apply to alternative lenders (also know as B lenders) who are governed by OSFI. Any federally regulated lender will have to adhere to the stress test ruling. This will be all mortgage lenders in Canada excluding private lenders and Credit Unions. To counter this much higher qualifying rate, these alternative lenders will have the discretion to revisit their own income-todebt-ratio (TDS) calculation policies.

For example, presently these alternative lenders have the ability to approve mortgages with a 50% TDS (banks are more like 42% on average). Under the new stress test rules, alternative lenders will most likely have to increase the TDS policy to a higher figure to offset the higher qualifying mortgage payment under the stress test rate calculation. DLC will communicate to our network as soon as lenders are able to communicate their decision.

2) LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.

What does this mean?

OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets” like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.

3) RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.

What does this mean?

For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OSFI.

HOW CAN DOMINION LENDING CENTRES HELP?

Now, more than ever, new homebuyers and existing homeowners are going to rely on mortgage brokers for their guidance and expertise in navigating through these regulatory changes.

There are differences among the many lenders that we have access to and the greatest value a broker can provide is the knowledge of the lending environment and in choosing which lender is best suited for your needs. Dominion Lending Centres will continue to educate our mortgage professionals as new data arises. This way you can be kept up to date with all of the latest information.

Exactly One Year Ago

One year ago OFSI said that they would review its B-20 guidelines scrutinize the standards even more. Last week they fulfilled what they said.
Last Thursday, The Office of the Superintendent of Financial Institutions released various proposals that paved the way for more regulation with Canadian mortgage standards. This mainly applies to federally regulated lenders.

The Biggest Changes

The biggest changes come in the form of a stress test that will be implemented for all uninsured mortgages (mortgages with a 20% down payment or more). Current banking rules only allow insured mortgages, variable rates and fixed mortgages of less than 5 years to qualify at a higher rate. This rate is, of course, The Bank Of Canada;s own posted rate at 4.64%, which is a few points higher than typical contract rates.

Going Forward

Going forward, it will be replaced by a 200-based-point buffer above the borrowers contract rate.

Other proposed changes include:

• Requiring that loan-to-value measurements remain dynamic and adjust for local conditions when used to qualify borrowers; and
• Prohibiting bundled mortgages that are meant to circumvent regulatory requirements.

The practice of bundling a second mortgage with a regulated lender’s first mortgage is often used to get around the 80%+ loan-value limit on uninsured mortgages.

Although It’s Going To Affect Less Than 1% Of Canadian Mortgages

Industry experts say that this change will impact less than one percent of all Canadian mortgages.

The extension of stress testing to all uninsured Mortgages would have a far greater impact. it would shut many borrowers out of the market, driving them into less suitable housing or sending them into the arms of credit unions or sub-prime lenders that are not federally regulated.

Mortgage Professionals Canada has expressed questions and concerns to Thursday’s proposed regulations.

“We have initiated concerns with the impact that 2% stress tests will have on Canadian consumers and questions around the uncertainty that the dynamic loan-to-value measurements may have in the marketplace”, it said in an email to members.

OFSI said it’s proposed changes will be available until August 17th, 2017. Public feedback can be sent to B.20@OSFI-BSIF.gc.ca

The updated B-20 guidelines for mortgage standards will be issues in the fall and come into effect shortly after.

The Globe and Mail – Published Monday, Nov. 14, 2016 10:39AM EST

Beware what you wish for, Mr. Trump. On Labour Day, Donald Trump, then a long shot for the White House, now president-elect, decried ultralow interest rates. They have created a “false economy,” the Orange One bellowed, and that “at some point, the rates are going to have to change.” They’re changing, fast, maybe faster than Mr. Trump wants. Related: Top Links: Sell-off in bonds, dividend stocks intensifies.

Why Donald Trump’s win is a boon for Canadian bank investors U.S. bond yields began to rise last week as bond prices fell, raising the cost of government financing. The bond rout continued on Monday and turned global. Why? Because bond investors are betting that Mr. Trump’s pledge to stimulate the economy through deficit spending and protectionism will trigger inflation and inflation is generally bad news for bondholders. The irony is that Mr. Trump needs cheap money to fund his lavish spending program and deliver his promised 5 per cent to 6 per cent American growth, about double the current rate. The bond vigilantes’ message: You can borrow all the money you want, Donald, but you’re no longer gonna get that debt at clearance-sale prices.

On Monday, the yield on 30-year U.S. Treasuries rose above 3 per cent for the first time since January, while 10-year yields rose 10 basis points to 2.3 per cent, according to Bloomberg data (100 basis points equals one percentage point). Only four months ago, the 10-year yields were a mere 1.3 per cent. Yields across the European Union also climbed, with Italian 10-year yields up 6 basis points, to 2.08 per cent. The German 30-year bond moved above 1 per cent for the first time since January. The dollar rose on the prospect of higher rates, pushing the euro down to $1.07 (U.S.), wiping out all of the gains against the dollar it had made over the past year. The yen was also weaker.

The question is whether the yield rise will stop here or whether it’s just the first upward jolt in a series of upward jolts. And if yields keep rising, how long can the stock and real estate markets remain insulated from the bond rout?

Mr. Trump loves debt. He built his casino and hotel empire on debt (a strategy that did not always work, as several bankruptcy filings have shown). He wants to use debt to fill the low-growth holes in the U.S. economy. While his economic plan lacks details, he has pledged to spend $1-trillion to rebuild America’s clapped-out infrastructure. He wants to boost military spending and reduce personal and corporate tax rates. The latter would fall to 15 per cent from 35 per cent, making the United States, in effect, a low-tax haven. Deficits would soar.

The big spending plans have spooked bond investors, who evidently think the long era of low interest rates and benign inflation might be coming to an end. Estimates made by the Committee for a Responsible Federal Budget say that Mr. Trump’s economic plan, such as it is, would push the United States debt load to 105 per cent of gross domestic product, up from 75 per cent. That would be substantially higher than the average debt in the euro zone, home of the “debt crisis,” which was about 90 per cent at last count. When debt loads reach 100 per cent of GDP, economic growth becomes impaired, as Italy has learned.

Some economists were warning months ago that the extraordinarily long bond market rally was about to get into trouble. They said so even before they had any inkling that Mr. Trump and his fiscal stimulus machine would roll into Washington. The bond rally has its roots in the high-inflation era of the 1970s. To kill inflation, president Jimmy Carter unleashed Paul Volcker, chairman of the U.S. Federal Reserve. In the “Saturday night massacre” of Oct. 6, 1979, the Fed boosted the discount rate to 13 per cent. Not long later, interest and inflation rates began their downward journey and bond values rose. Since 1982, annual bond returns have averaged about 8.5 per cent. In the euro zone, European Central Bank interest rates are now zero or negative and inflation is nowhere near the 2-per-cent target rate, in spite of a lavish quantitative easing program designed to stoke inflation.

But what happens if inflation comes creeping back, which it appears to be doing? “Perhaps the most interesting scenario is the case where the central banks simply hit their [inflation] targets,” Balazs Csullag, Jon Danielsson and Robert Macrae wrote last June on the Voxeu.org economists’ site. “A rational buy-and-hold investor who trusts the central banks should not buy long-dated bonds.” Mr. Trump has awakened the bond vigilantes. They can be nasty.

In 1994, they battled president Bill Clinton and won. In his first term, Mr. Clinton wanted to boost spending and implement a middle-class tax cut. Investor worries about high spending sent U.S. 10-year yields above 8 per cent and Mr. Clinton was forced to dilute his domestic economic agenda. The U.S. economy under Mr. Trump could be entering a danger zone. If rates continue to rise, the newbie president might be forced to scale back his stimulus plans. At the same time, the stock market would not be supported by a stimulated economy or record-low interest rates. Trouble lies ahead.

There has been no shortage of opinion following the recently announced mortgage rule changes, and the country’s largest network has now weighed in. “The new mortgage rules announced by the Federal Government on October 3, 2016 caught the entire industry by surprise and we continue to assess the potential impacts of these changes”, Gary Mauris, President of Dominion Lending Centres, said. “Our current view is that the new rules will make it more difficult and more costly for many Canadians to obtain a mortgage.

“In turn, this should result in more Canadians using a mortgage broker as we have access to hundreds of lenders who can provide the right mortgage product at the best rate.”

DLC released a three-page report Thursday, focusing on the implications of the recently implemented rules.

It breaks down each of the rules and provides an explanation, with the homebuyer in mind.

And while the network anticipates the changes will have little material impact on its own bottom line, it’s also confident some of the new rules will evolve as industry stakeholders are consulted.

“After speaking with senior officials in the Federal Government, we anticipate they may still amend many of the new rules in response to industry and consumer feedback,” Mauris said.

10/03/2016

The Liberal government has announced sweeping changes aimed at ensuring Canadians aren’t taking on bigger mortgages than they can afford in an era of historically low interest rates.

The changes are also meant to address concerns related to foreign buyers who buy and flip Canadian homes.

Below is a breakdown of the four major changes Finance Minister Bill Morneau announced Monday.

The current rules

Buyers with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages.

In situations in which the buyer has 20 per cent or more for a down payment, the lender or borrower could obtain “low-ratio” insurance that covers 100 per cent of the loan in the event of a default.

Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. The federal government backs the insurance offered by the two private-sector firms, subject to a 10-per-cent deductible.

——

The change

Expanding a mortgage rate stress test to all insured mortgages.

What it is

As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent.

Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.

For more information – Or to be pre-qualified email: ddunkley@dominionlending.ca

Five previous federal housing moves since 2008

Monday’s package of announcements is the sixth time since the onset of the 2008 financial crisis that Ottawa has taken policy action in response to concerns about Canada’s housing market.

July, 2008: After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.

February, 2010: Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90 per cent of a home’s value, down from 95 per cent. The move also set a new 20-per-cent down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.

January, 2011: The Conservative government under Stephen Harper tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage to 30 years. The maximum amount Canadians could borrow via refinancing was further lowered to 85 per cent.

June, 2012: A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages. A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage. Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value. Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.

December, 2015: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.

The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10 per cent from 5 per cent for the portion of a home’s value from $500,000 to $1-million.

All eyes were on Ottawa this week as the new government unveiled its first budget.

Deficits of roughly $30 billion are due in coming years, with about half the borrowing resulting from new government spending plans:

~ In addition to tax changes and the new Canada Child Benefit, sizeable spending is planned for affordable and seniors’ housing, federal infrastructure, indigenous peoples, and public transit. These commitments total more than $27 billion over two years.

~ Government spending, together with robust near-term economic momentum, have led us to upgrade our growth outlook for Canada. Real GDP is expected to grow by 1.9% this year, ticking up to 2.0% growth in 2017.