Calculating Your Mortgage Insurance Premium

Here's an excellent video from RateHub that explains how mortgage insurance is calculated. Viewer beware, these are not Montreal prices they are playing with!

Hat tip to Allison Lampert of The Gazette for this.

Canada Mortgage and Housing Corp. to Increase Mortgage Insurance Premiums May 1

 Anyone buying a home in Canada and who has less than 20 per cent of the purchase priceto use as a down payment  is going to see the cost of that purchase increase a little bit come May 1st, 2014.

The increase will happen because the Canada Mortgage and Housing Corp., a federal agency that insures all so-called high ratio mortgages, is raising its premiums by 15 per cent. It is the CMHC's first hike since the late 1990s.

CMHC mortgage insurance allows those with a modest down payment to get their foot in the home ownership door. Depending on the size of a buyer's down payment, the insurance premium currently ranges from 0.5 per cent and 2.75 per cent of the purchase price. On a $250,000 purchase, that translated to a $6,875 premium paid down over the life of the mortgage.

Under the new fee structure, the premium will rise to a maximum of $7,875, an added cost of about $5 per month on the typical 25-year, $250,000 mortgage. (We always use the $250,000 example but the average cost of a Montreal single-family  home is actually close to $291,000. Let's not be too picky.)

On its own, the rate increase is not a killer, but it does come a 18 months after CMHC tightened mortgage rules so that buyers can spread their mortgage over a maximum of 25 years instead of 30. That sidelined some first-timers who were scared off by the prospect of seeing their mortgage payments climb by more than $150 a month.Here comes another $5.

The CMHC has a handy chart showing the different cost increases.

The rate change will not affect anyone who already has a CMHC-backed mortgage, only new business. The effects won't be as dramatic as the change to amortization rules instituted in June, 2012. Still, every time the feds tinker, the market tightens just a bit.

What If My Co-owner Wants to Rent Out His Flat?

One of the most popular posts on my blog is the one dealing with the differences between Properties Held in Divided Ownership Versus Undivided Co-Ownership

Here's the latest question. I thought it deserved its own entry. 

Hello,

I own the lower portion of an undivided co-property. The owner of the upper is moving and has has been trying to sell his section. Since he has not had any offers he is now considering renting. According to our co-prop agreement he requires permission from the institution with which he has a mortgage and from me. I do not feel comfortable having someone who is a tenant rather than an owner living above me. Therefore I do not want to give him permission. According to him he says that he does have the right to rent out his apartment regardless of any reason I give. Is this true? Can he challenge this if I don't want to give him authorization?

Thank you for any help

Hello Anonymous,

There are two issues. First, if the agreements says you must consent, then that should be the end of the story. I would hope that your neighbor would  drop the matter there.

The second issue has nothing to do with you but is equally germane and potentially waaaay more scary for your upstairs neighbor. What does the mortgage lender say? Generally speaking, lenders (and in Quebec that means either National Bank or Caisse Desjardins) do not allow owners of undivided co-owernship properties to rent their places out because there is no automatic right for a financial institution to repossess the unit, ie to get a tenant out. That makes it harder for them to sell if a borrower defaults on a mortgage.

You have the same mortgage lender, presumably. What does your mortgage say? If there is a prohibition against renting, it will be there in black and white. If your upstairs neighbor violates the terms of his mortgage the bank could, in theory, call the mortgage loan.

I would be surprised if he has the right to rent.I would be surprised if he would want to go up against his bank. That doesn't generally go well.

Hope this is helpful.

Mortgage Rules Change Today

Starting today, borrowers face a new set of rules when it comes to mortgage lending in Canada.
The changes will have particular impact on younger/first-time buyers and could make it harder and/or more expensive to buy that first home.

As of today, buyers with less than a conventional 20-per-cent down payment will no longer be able to spread their mortgages over 30 years. The amortization period is being shrunk to 25 years. This is the measure that has been making headlines since June when the new rules were announced by Finance minister Jim Flaherty.  Funny thing is, the 25-year mortgage was the norm until relatively recently. The 30-year mortgage was introduced to stimulate the housing sector. Now that the job is done, we are reverting to the old rules.

 If you have 20 per cent to put down and thus don't need the Canada Mortgage and Housing Corp. to insure your mortgage, you can still get a 30-year term.

The second change to the mortgage game is that home owners will no longer be able to take quite as much equity out of their homes. Starting today, owners will be able to refinance up to 80 per cent of the value of their homes, down from 85 per cent.

 Flaherty put the new measures in place to A) cool key overheated housing markets. B) to discourage Canadians from taking on too much debt C) to persuade homeowners to stop treating their houses like ATM machines and pay off those pesky mortgages.

Flaherty announced the new measures largely in response to overheating in the Toronto market. Not everyone thinks they were the best approach.

In an interview with The Globe and Mail, Philip Soper, the head of Royal LePage, said that Flaherty used a hammer, when a fly swatter might have done the job.

 “The market is clearly cooling on a national basis, and I’m concerned that what is essentially a Toronto problem is being attacked with a blunt instrument that’s going to hurt the housing market nationwide,”

Maybe so. Mortgage industry insiders say the tightening will have the same effect as a one-per-cent interest rate hike. The government says the more stringent requirements will have an impact on about 5 per cent of new buyers, forcing them to the sidelines until either they save more or have higher paying jobs.

Some think the tighter lending rules will result in a market slowdown that would make it easier for young/first-time buyers to get into the market. Guess we'll see.

Several of my buyer clients have asked me what the mortgage rules will mean. I'm not convinced it will have much impact in Montreal. I don't see too many buyers opting for 30-year mortgages. I think I've had two clients over the course of the last two years. In Greater Toronto, some 40 per-cent of first-timers opt for 30-year mortgages. Different market, different circumstances. If clients ask my opinion, I encourage them to put down as much of a down payment as possible and to opt for as short an amortization period as possible. Call me crazy but I don't think it would be a terrible thing if marginal buyers were forced to the sidelines.

One last point. As of today, the CMHC will no longer insure mortgages priced above $1 million. It boggles my mind that the federal government was up until now insuring houses worth that much. Whatever happened to buying within your means. scraping and skimping to buy that first home? Seems to me that a $1-million home ought to be a move-up property. It would be in Montreal, but I suppose that in hotspots like Toronto and Vancouver, that kinda cash will get you a crack house or shack.

Check out  Crack Shack or Mansion and you'll see what I mean.

It's Like Having a Mortgage Broker in Your Pocket!

I've just downloaded a new Bank of Montreal mortgage app for my smart phone.  This handy tool allows me to calculate mortgage costs based on different scenarios - five per cent down, 10 per cent down, 25-year amortization, 30-year amortization, etc.

It has other functions, too. Users can create  profiles for the different properties they visit and even start the preapproval process with a BMO mortgage specialist with just a few taps of the screen.

So far, the thing seems to only work with iPhones and Androids.

You can find out more here

Foreclosures Down in 2010

Good news from an economist at the Quebec Federation of Real Estate Boards. The number of properties that went into foreclosure, or were seized by mortgage lenders because of non-payment of debt, fell by 15 per cent last year to 2,356.

That compared to 2,782 properties seized in 2009. The report was prepared by economist Paul Cardinal.

How does foreclosure work? If you have a mortgage, you are bound by the terms outlined in it. Your lender will expect payment according to the agreed-upon schedule. If you fall 30 days behind in  payments, the lender will send a letter threatening action if the payments are not brought up to date. They have to warn you before beginning foreclosure proceedings.

Here's the thing. Bankers are not sitting in their money-filled towers eagerly waiting for you to default on your mortgage. They really would much rather keep you in your house and paying them regularly. If you're having temporary problems paying a mortgage because of ill health or a temporary work stoppage, it's better to tell your bank up front. Chances are they'lll work out an arrangement of some sort. The worse thing you can do is try to duck your lender.

The lender must publishes a notice in the Quebec Land Registry notifying the borrower that his or her property will be seized if the outstanding balance is not repaid within 60 days. Then they ask the court's leave to begin proceedings. The 60 days gives the borrower time to get his poop in a group. That could mean scaring up the cash to pay back the arrears. Often it means putting the property up for sale to pay off the debt and walk away with whatever equity has built up.

Here's the bad news. Once the bank has begun foreclosure proceedings that will necessarily mean extra legal costs - thousands if not tens of thousands of dollars depending on the file and the number of legal manoeuvres involved. Eventually that comes out of the defaulting party's end of the sale.

7,288 mortgage holders received foreclosure notices in Quebec last year, versus 8,809  a year earlier. That represented a 17-per-cent decline in notices sent out.

A notice does not necessarily translate into a foreclosure. About 58 per cent of those served managed to repay their arrears and hang onto their homes. That left the unfortunate 12.5 per cent who couldn't and didn't. Those 909 had their property seized and sold. 597 or about 8 per cent were able to sell their properties and repay their debts. Another 8 per cent, or 607, repaid their defaulted amounts and at least temporarily got their lenders off their back but then received second notices a few months later.

In Montreal. 175 mortgage holders lost properties to foreclosure last year, a 29-per-cent decline compared to the 247 of 2009. The hot spot in the province was the Montéregie region south of Montreal where 488 foreclosures took place, down from 586 a year earlier.  In fact, the number of foreclosures fell across the province except for in four regions, the Mauricie, Gaspésie-Îles-de-la-Madeleine, Centre du Québec and Abitibi-Tèmiscamingue.

A jump in foreclosures is often a sign of trouble ahead for the real estate market. In Quebec,  1 out of every 278 sold properties received a so-called 60-day notice last year. That compares to 1 in 59 in the U.S.  One out of every 860 Quebec properties was foreclosed upon, versus 1 of 45 in the U.S.

More significantly, foreclosures accounted for between 2 per cent and 2.5 per cent of all residential sales in Quebec last year. That stacked up against 26 per cent in the U.S.

A strong Quebec real estate market helped absorb those foreclosed properties efficiently. Over all property prices rose 8 per cent in the province last year.

Montreal Police Issue Warrant for Alleged Mortgage Fraudster

Stephane Giroux of CTV News has an excellent report tonight about a man suspected of obtaining mortgages for at least five Montreal properties he didn't own.
One Westmount homeowner was tipped off to the scam when a bank evaluator showed up at her door to do a evaluation for the person seeking the mortgage.
An eagle-eyed clerk at Westmount city hall also noticed that welcome tax bills were being sent to the same individual for several residential properties within a few blocks of each other.
Mortgage fraud reached epidemic levels in Ontario during the hot real estate market of the early 2000s. It seemed that scammers were able to easily obtain identification documents that allowed them to obtain false mortgages on properties and then either disappear with the cash, or, in the case of the truly bold and brazen, resell the property and disappear with the cash.
This kind of scam has never been a huge problem in Quebec, which is why this story is so noteworthy. Here, unlike Ontario or the rest of Canada, notaries play a key role in assuring an orderly and meticulously researched and documented property transfer.
Notaries have an obligation to read all the ownership documents attached to a property, sometimes going back a hundred years or more to ensure that the vendor has the legal right to sell. They verify that there are no mortgages or other liens on the property when it passes from vendor to buyer.  They meet with both parties, and though it usually seems rote and a little insulting, they ask to see two pieces of ID from each party, to be sure the buyer is who he says he is and the vendor is who he says he is.
In this case, the scamster appears to have bypassed the notary and gone to a lawyer. The police investigation will reveal whether the lawyer preformed his or her job dilligently.
The good news is that the homeowners did not lose their properties and are not out of pocket. Looks like the banks who left the fake mortgages might not have been so lucky. 

What You Should Know About Getting a Mortgage

Making an offer to purchase a home includes successfully negotiating three key points: price, inspection and financing.
Financing can be the trickiest of the three and the one element over which the buyer has little control. Buyers wait for banks. Banks seldom hurry for buyers.
I recently had a client purchasing his first condo. He had a 20 per cent down payment. The inspection went quite well. The deal nearly fell apart as his bank dithered over whether or not to give him a mortgage.
As it turns out, the mortgage department was hung up on his credit report, which showed that he owed $700 to a cell phone company.  Their attitude was "Why should we take a chance on a guy who doesn't pay his bills?"
My buyer had paid his phone bill and had the monthly statements to prove it. As it turns out, he was the victim of identity theft. Someone used his name to take out a phone contract, ran up $700 in long-distance charges in one month and then disappeared.
It took some fast talking to persuade the bank that he wasn't a deadbeat. They wanted all kinds of  paperwork proving it, paperwork that would have taken him weeks, if not months, to sort out. He didn't have that much time. In most cases, buyers have 10 to 15 days to get their financing approved. If the time runs out before the bank given its approval, the vendor can back out of the deal. My guy had 15 days to get his mortgage approved. We were now 18 days into the process, with no answer in sight.
In this case, the vendors gave him a little extra time and he persuaded the bank that the phone bill was not his.
It was a needlessly nerve-wracking mess.
Here's the point. It's a good idea to have a look at your credit report periodically, just to make sure that everything is in order. You can correct errors that might be dragging your credit score down. It's always better to do this before you are in the process of seeking credit.
The higher your credit score, the better mortgage rate you'll be offered. 
Industry Canada walks you through the ins and outs of obtaining a copy of your credit report here. 
If you are buying a property and need a mortgage there are a few standard documents that any mortgage lender will want to examine. It's your job to collect and deliver them, electronically, by fax or in person, in a timely fashion.
Here's what your bank will ask to see:
*A letter of employment from your Human Resources department, stating how long you've worked for your employer.
*A recent pay slip.
*If you are self-employed, the bank will instead ask to see your Notice of Assessment from the federal government for the previous income-reporting year. Sometimes the bank will ask to see the last two NOAs.
*The last three monthly bank statements.
*A list of your assets, including investments.
*A copy of the property listing.

With these documents in hand, the bank will then determine your credit worthiness.  It all boils down to a few basic questions.

*How much of your gross income is used to service your debt each month?
*How much do you have for a down payment? How long has that money been in your account?
*How stable is your employment?
*How good are you at paying your bills on time?

All lenders have their own criteria for evaluating the information. You don't necessarily have to be perfect. Sometimes meeting three of the four criteria is good enough. Depends on the bank. Depends on the circumstances. It is not a bad idea to think about cleaning up your credit before you decide to start house hunting.
If you can't do that, why not consider working with a mortgage broker.  Brokers know the quirks of all the banks and they know how to push a file through the system. For example, if you have a bankruptcy in your past, a broker can steer you to a lender that won't automatically refuse you because of it.
I wish my first-time buyer had been working with a mortgage broker. It would have saved us all a lot of time and worry.

Divided Versus Undivided Co-Ownership, What's the Difference?

I'm working with a new client ready to buy his first property.  He said he was looking for a condo, but I've come to realize that buyers throw that term around without knowing what it means.
In Quebec, there are two kinds of shared ownership properties: undivided co-ownerships and divided co-ownerships. People tend to use the word condo to mean both but they are distinct and there are things a buyer should understand about each before purchasing.
When buying into an undivided co-ownership property, you are, in fact, buying a share in a property as a whole. In a triplex, that typically means that you are buying about 33 per cent of the roof, foundation, walls and yard. You are given exclusive use of a portion of the property but you are essentially a shareholder in the whole.  The property has one tax account, divided among the owners according to their share of the property. One of the big advantages to this kind of ownership is that property and school taxes are substantially lower.
Undivided co-ownerships have their own particularities. 
As a rule of thumb, asking prices for undivided properties are lower than those for divided properties of similar size and with similar features. That's because buyers are obliged to provide a larger down payment when buying into an undivided property, 20 per cent down, versus the usual minimum 5 per cent.
Only two lenders will mortgage them: The National Bank and the Caisse Populaire. You can't choose, the lender will already be in place when you make an offer to purchase.
The third thing about undivided properties is that you have no automatic right to occupy the premises. Whaaaa?  It's true. If you lease your "apartment" in an undivided co-ownership building, Quebec law says that you cannot then reclaim it unless the tenant agrees to go.  It is equally true that if a rental building is turned into a undivided co-ownership property, the tenants cannot be turfed out, regardless of how many months notice they are given, or how much money you offer them as an inducement to leave.
For this reason, many undivided properties have clauses in their co-ownership agreements that forbid owners from leasing their properties.
Life is much more straightforward with a divided co-ownership property. Properly, this is what people mean when they talk about condos.  You own your unit, its walls, floors and ceilings. Your tax bill will be higher, because it will more closely reflect the market value of your individual unit. This kind of ownership is relatively new in Quebec. It only became possible to divide a property after the Quebec Civil Code was revised by the National Assembly in 1969.
Unlike an undivided, the down payment can be as low as 5 per cent and you can seek a mortgage with any lender you like.
Which is the better option? There is no easy answer. For some people, substantially lower tax bills trump all other considerations.  For others, there is a clean, simple logic to owning a unit, versus a share in a property.
The main thing is to consider what you're buying into. Read the co-ownership agreement. It will be so very booooooooooooring, but you'd be a fool not. A good agent will read it too, and advise you on potential problems. Are dogs allowed or not? Are carpets mandatory, or can you have hardwood floors? Are window boxes okay? Who has use of the yard or the basement? How much is each owner required to contribute to the reserve fund. All will be spelled out in a well-written co-ownership agreement.
Also read the minutes to the last two or three annual meetings of the co-owners. These will give you an idea of the issues and possible conflicts in the building. Examine the financial statements so that you know what big bills may be coming due and how much money is in the reserve fund.

You'll Never Know If You Never Ask

Canadians are getting to be quite good a negotiating lower mortgage rates, according to a new report from an industry trade group.
For example, in the last year, the typical mortgage-seeking consumer was able to knock 1.68 per cent off the rate posted by their lender,.
That news flash comes to us from CAAMP, the Canadian Association of Accredited Mortgage Professionals. Other highlights:
Three quarters of Canadians who renewed this year saw their interest rate reduced.
The big lesson here? Always ask for a rate reduction. If you aren't confident that you can negotiate with your lender, use a mortgage broker. You don't have to pay for their services. What you might not know is that when you shop for mortgage credit it can actually have a negative effect on your credit rating. Better to let a broker make the call for you.
Other CAAMP tidbits:
There are 9.1 million homes owned in Canada. with a combined estimated value of $2.67 trillion. The outstanding mortgage balance, or money owing, on these homes equals $739 billion.
As a country, we have a 72.3 per cent ownership stake in our homes, compared to the U.S. average of 43 per cent.
But wait, you say. We don't own our houses collectively. Right!
According to CAAMP, 40 per cent of Canadian homeowners have at least a 50 per cent equity stake in their homes.
Two per cent of homeowners owe more on their mortgages than the properties are currently worth. How can that be? Just remortgage your house and then watch a market - Calgary? Vancouver? take a downward turn.
15 per cent of Canadian mortgage holders took money out of their houses this year, often to pay down other debt or consolidate debt. In all Canadians applied $34 billion of their built-up home home equity to other debt or projects or this year.

Variable vs Fixed Not the Only Mortgage Question

Several of Canada's big banks cut their mortgage lending rates by between .10 per cent and .20 per cent over the weekend. The trimming will certainly have some borrowers wondering if they should lock in, or renegotiate.
Mortgage guru Moshe Milevsky of York University has a bit of advice - don't be so obsessed with fractions of percentage points.
That's a new tune from Milevsky. The professor earned a lot of ink a few years back with a study that showed that between 1950 and 1999 buyers who opted for a variable-rate or short-term mortgage over a five-year, fixed-rate mortgage saved substantially 88 per cent of the time. How substantial? According to Milevsky, as much as $22,000 on a $100,000 mortgage over 15 years.
In a recent interview with Canwest, Milevsky said the strategy was still sound last time he checked, with 85 per cent of those going short saving money.
But now Milevsky says that people are too focused on the dollars and are focusing too little on the sense, pun intended. In today's market, there are "three or four things" more important than the spread in mortgage rates. There were real savings to be had when the fixed rate was nine per cent and the floating rate was five per cent.
Today, the difference can be as little as one percentage point. The mortgage guru now counsels buyers to focus more on how much they can spend, how solid their credit rating is and what their employment status likely will be in five years' time. Once those are clear, then the question of long or short might become more obvious.

CMHC and the Big Banks Tackle Mortgage Default Worries Head On

Canada Mortgage and Housing Corp. and the country's biggest lenders are launching a campaign aimed at heading off an increase in mortgage defaults.
They will urge mortgage holders to approach their lenders about easing the terms of their mortgages before financial problems get out of hand.
The campaign is a reaction to a rising number of mortgage defaults in this country - though the problem is minuscule compared to what's going on in the U.S..
According to the latest figures from the Canadian Bankers Association, as of last October .29 per cent of Canadian mortgages were in arrears, up from 0.26 per cent a year earlier. To be in arrears, mortgage payments must be 90 days late.
The Canadian situation stands in stark contrast to the U.S., where Washington has introduced a $75-billion mortgage bailout that offers lenders incentives to modify existing loan agreements and standardizes the terms for loan modifications. As many as 6 million U.S. homeowners are at risk of defaulting on their mortgages in the next few years.
Canada wants to nip the problem in the bud. Borrowers are being encouraged to talk to their lenders to find alternatives such as skipping payments, tacking late payments onto the balance of the loan, extending the term or amortization amount or locking into a fixed rate.

Should I Stay or Should I Go?

The immortal words of The Clash ring in my ears every time I hear the Bank of Canada has cut the prime rate. (I'm sure this is exactly what Joe Strummer and the boys had in mind when they penned Combat Rock's punk anthem)
More to the point for many mortgage holders is whether now is the time to break the shackles of their fixed-rate mortgages for the low, low and lower cost of a variable-rate mortgage. In 2005, a five-year fixed rate of 5.5 per cent sounded like a pretty sweet deal, especially as compared to the 18 per cent folks were paying in the early 1980s.
Times change. With the latest BoC cut, banks are offering variable-rate mortgages for as little as 1.9 per cent.
So, is it worth breaking your existing fixed-rate to get with the variable flow? A tricky question but one that Professor Moshe Milvesky of York University might be able to help you with.
Milevsky has created an interactive mortgage savings calculator that allows you to punch in a few numbers and let you see how much you'll save by breaking one mortgage and opting for another. The math is simple, in theory. The penalty could be as straightforward as the equivalent of three months of interest at your current rate.
Increasingly, however, banks are basing the penalty on something called an Interest Rate Differential (IRD) . It's based on a hocus-pocus calculation of the spread between the actual and new rate, multiplied by the balance owing and the number of months of payments left on the mortgage term.
Milevsky got a lot of ink in 2001 with a study that showed that people who opted for variable rate mortgages came out ahead of those who chose the stability of fixed rate mortgages 88 per cent of the time. I interviewed him and was persuaded to go the variable rate route. Haven't regretted it, either.
Today's environment might be the time when locking in makes sense, he told ctv.ca