Dreyer Group Mortgage Brokers

604-688-6002

How badly would you be hurt in a housing market price correction? – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

How badly would you be hurt in a housing market price correction?

Canadian real estate and housing boom may be ending, Scotiabank warns – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Canadian real estate and housing boom may be ending, Scotiabank warns

home_construction.jpg.size.xxlarge.promo‘More subdued trajectory’ over coming years could impact jobs, renovation industry and consumer confidence, bank report warns.

By:  Business Reporter, Published on Wed Apr 16 2014

Boom times are over for Canada’s housing sector and the impact of “a more subdued trajectory” will be felt everywhere from construction and home renovation sites to retail stores, a Scotiabank Economics report predicts.

Housing has generated a staggering $1.7 trillion in net new wealth for Canadians since 2000. A slowdown in house price gains — or even a possible slump in prices — “will reinforce a more cautious trend in consumer spending,” warns the Industry Trends report released Wednesday.

“Canada’s long housing cycle is turning. Residential investment stalled last year as affordability constraints tempered home sales, and builders scaled back the number of new developments,” notes the report by Scotiabank economist Adrienne Warren.

“We expect the sector will remain on a more subdued trajectory over the next several years, imposing a modest drag on output growth.”

Calling housing “a large and integral part of the Canadian economy,” Warren points to the following factors that emphasize how broad the impact could be.

· Residential investment, which includes new construction, renovations and the costs (from commissions to appraisals) of buying and selling real estate, added up to $128 billion in 2013 alone.

· That investment increased, on average, by 4.2 per cent between 2000 and 2012, almost double the GDP growth rate of 2.2 per cent, and accounts for almost 7 per cent of overall economic output, the highest among the G7 countries and double the rate of the U.S.

· Forty-five per cent of that boost to the economy comes from new construction, 37 per cent from renovation and 18 per cent from real estate transaction and transfer costs.

· Renovation spending, which totalled more than $47 billion in 2013, has reached record levels and become the fastest growing segment of real estate investment as more homeowners took advantage of their rising home values, low interest rates and government tax credits, to spruce up their nest rather than move to a new one.

· The total spent to create all those granite-clad kitchens and Euro-style bathrooms, and boost the value of Canada’s housing stock, grew by an average of 6 per cent between 2000 and 2012, notes Warren. That’s double the 3 per cent annual growth rate of new housing construction during the same period.

· There are many spillover benefits for secondary industries such as appliance manufacturers, suppliers of building materials, engineering services etc.

Housing remains a labour force giant, with 235,000 Canadians employed in residential construction in 2011 and another 245,000 in the real estate services sector alone.

But anyone doubting the impact of Canada’s decade-long housing boom just needs to consider one other number: Where Canadians are now worth $1.7 trillion more than they were back in 2000, the depressed housing market of the 1990s generated a relatively paltry $324 billion in new household wealth.

Warren likens the coming years for the housing market as ones of “less tailwind to more headwind” and expects to see resale activity edge lower in 2014/2015.

“Rising mortgage rates, combined with high home prices and stricter mortgage regulations, will strain affordability, especially for first-time buyers in major urban centres.”

But population growth and a healthy labour market should keep sales levels close to 10-year norms. A softening of sales should slow price growth, with the greatest risk of an actual downturn in prices likely in the “more amply supplied high-rise segment than for single-family homes,” she notes.

CMHC cutting back on what it covers with mortgage default insurance – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Vancouver Mortgage BrokerCanada Mortgage and Housing Corp., the Crown corporation that controls the vast majority of mortgage default insurance in the country, says it plans to get out of the market for second homes and is adding restrictions for self-employed Canadians.

Effective May 30, CMHC said it will discontinue insuring second homes and will require self-employed Canadians to have third party income income validation.

The Crown corporation said the changes are being made as part of its review of its mortgage loan business. The organization has already said it is raising rates across the board May 1, a move that comes after the federal government last year appointed a new chair for CMHC and brought in a new chief executive.

“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system” said Steven Mennill, senior vice-president, insurance, in a release. “As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.”

The agency said it’s the first set of changes resulting from the review of its operation. The Financial Post reported this month that Evan Siddall, a former investment banker brought in as CEO, has been asked about the possibility of a risk-based method of assessing mortgage default insurance. Sources say the new CEO has told people he doesn’t disagree with the principal of risk-based insurance.

The changes announced Friday affect a small portion of the market. CMHC said its second home and self-employed without third party income validation business account for less than 3% of CMHC’s insured business volumes in units.

“Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market,” the agency said in a release.

CMHC first introduced the program for self employed people in 2007 in response to “industry competition” which at its peak saw some U.S. players enter the market and encourage changes that created amortization lengths as long as 40 years. The government has since restricted loans to 25-year amortizations.

The second home product was introduced in 2005 and applied when purchasing an owner-occupied second home anywhere in Canada.

CMHC said it will limit the availability of homeowner mortgage loan insurance to only one property (one to four units) per borrower/co-borrower at any given time.

Benjamin Tal, deputy chief economist with CIBC, said the announcement was not “a big surprise given the mandate of providing more stability. That might not be the end of it. We might see more coming from CMHC.”

Finn Poschmann, vice-president of research at the C.D. Howe Institute, said the requirement for validation seems reasonable.

“What is interesting is the question of whether the change will tend to shift risk away from CMHC and toward the private insurers. Whether that is the outcome will be determined by the private insurers’ responses,” he said, in an email.

gmarr@nationalpost.com
twitter.com/dustywallet

How lower interest rates are making variable mortgages more tempting – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Consumers facing record housing prices are probably increasingly tempted to go with a floating rate mortgage and all the risks that come with an interest rate linked to prime.

mortgage (1)The lure is right in your face on every mortgage rate comparison site. The five-year fixed-rate mortgage has dropped as low as 3.09% with discounters and the major banks aren’t too far off that rate, most of them offering special deals. All this comes as yields in the bond market have dropped, sending fixed rates down.

Floating rate mortgages are as low as 2.35% with the discount off the prime lending rate 65 basis points. Better yet, it has never been easier to get a variable rate mortgage since the government changed the rules in April 2010 so anyone applying for a variable rate can qualify based on the five-year posted rate.

Vancouver and Calgary home sales still climbing with prices up

2,530 homes were sold in Vancouver in February, a 40.8% increase from a year ago, while Calgary sales jumped 8.7% from last year. Continue reading

The qualifying rate is based on an average of the six big banks’ posted rate for a five-year closed mortgage. Declining bond yields have lowered that qualifying rate to 4.99%.

The decline may not sound like much but Rob McLister, editor of Canadian Mortgage Trends, says it means a consumer with a $300,000 home and 5% down needs 2% less income than they did just a few months ago.

Ottawa changed the rules about four years ago to tilt the playing field in favour of locking in your mortgage. When you lock in your mortgage for a term of five years or longer, you are able to use the rate on your contract for determining how much you can borrow. Go variable and you must use qualifying rate which is still almost 50% higher.

“There has been talk of changing it, speculation that the [Office of the Superintendent of Financial Institutions] will mandate the banks use the qualifying rate for five years terms and longer,” said Mr. McLister, noting nothing has happened yet.

The federal government tends to like the idea of consumers locking in their mortgages because it offers protection from a sudden jolt in the prime rate — even as the Bank of Canada looks poised to go a record five years without moving its overnight lending rate.

Consumers are probably lured more by deals than anything else and the past year saw well-advertised rate wars over five-year fixed rate mortgages with the rate dropping to 2.99% for the term.

The Canadian Association of Accredited Mortgage Professionals said in a recent study that 82% of purchasers in 2013 went with a fixed rate product. The tide clearly turned last year because CAAMP says 67% of  consumers with a mortgage are in fixed. The percentages are climbing for locking in.

Mr. McLister says the general rule is when the gap between the five-year fixed and variables reaches 100 basis points or one percentage point, people start to shift to a floating rate.

We don’t know what a good interest rate is anymore, we really don’t

“You’re talking about somebody who lent money at 21%,” said Laura Parsons, a Calgary-based mortgage specialist with Bank of Montreal, about the difference in rates. “We don’t know what a good interest rate is anymore, we really don’t.”

Ms. Parsons says fixed remains as popular as ever because the rate is still very low by historical perspectives. She suggests if you do pick a variable mortgage, take the savings compared to fixed rate and apply it to the principle.

“You set your payment higher in case the interest rate does change,” says Ms. Parsons.

There is a fair bit of money to be saved, as long as the variable rate is at 2.35%. Consider a $500,000 mortgage with a 25-year amortization.

FP0305_BankRates_C_JRBased on monthly payments, you pay $54,333.66 in interest over the five years of your mortgage at 2.35%. Raise that rate to 3.09% and the interest comes to $71,472.09. That savings could be pumped back into your mortgage, lowering the principle owed and further reducing interest costs.

Jim Murphy, chief executive of CAAMP, says the easier qualification and low rate might push a few people back into variable but a fixed rate of 3% is tempting to lock down.

“You look at the news and it just seems the Bank of Canada is unlikely to raise rates,” said Mr. Murphy, who doesn’t think overnight rates will go up this year or possibly next year.

“That’s a year where you can have these rates,” he says, referring to savings from a variable rate product.

With house prices still at all-time highs, it’s easy to see why consumers would be tempted by the savings.

Canada housing correction could trigger another recession, BMO report says – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

canada_housingOTTAWA — A sudden and sharp correction in the housing market could have a devastating impact on the Canadian economy overall, enough to trigger another recession, says a new Bank of Montreal report.

Bank of Canada holds rate at 1%, cuts growth forecast for 2014

The Bank of Canada says it is keeping interest rates at historically low levels for the foreseeable future while shaving its previously posted expectation for the economy’s performance in the first quarter and 2014 as a whole.Keep reading.

The analysis by senior economist Sal Guatieri finds that even a 10% correction — what many would call a soft landing — could sap as much as one percentage point from gross domestic product growth, or basically halve the current growth rate.

The findings stems from an analysis on the contribution of the brisk housing market on the Canadian economy between 2002 and 2007, when prices rose five percentage points faster than incomes.

According to the BMO, the rapid escalation in home prices and construction added 0.56 percentage points to annual growth during those six years, and “lifted household wealth, confidence and borrowing ability.”

But now, with home values at or near record levels throughout the country and many economists predicting some kind of correction, the opposite scenario would unfold from a price and accompanying construction drop.

“This suggests a moderate correction could have a meaningful slowing effect,” Guatieri says in a report issued Friday.

“Based on our model, a 10% decline in prices and construction reduced annual growth by one percentage point, with the two channels contributing equally. Given underlying growth of just over 2%, prices and construction would need to fall more than 20% to spur a contraction.”

Guatieri adds that given the record levels of household debt accumulated by families, the negative impact of a correction could even be worse than the bank’s models project.

On Wednesday, Bank of Canada governor Stephen Poloz said while a housing correction remains a risk to the economy, the most likely outcome was for a “soft landing.”

The central bank took comfort in the fact price increases had moderated and that household debt levels had stabilized — while remaining elevated — at 164% of disposable income.

The BMO report does not suggest a major correction is in the offing, as some economists have predicted. In fact, it argues the opposite. Guatieri says the so-called “bubble” in housing is exaggerated and that Canada is not in the same position the U.S. found itself prior to the 2007 crash.

He notes that while the run-up in housing prior to the recent recession may have been similar in both countries, the boom was smaller in Canada and had been preceded by years of below average homebuilding, so was in part a response to pent-up demand. That was not the case south of the border.

He also points out that with the exception of Toronto, Calgary and a few other hotbeds, Canada’s housing boom essentially ended in 2008. Since then, price increases have risen only moderately more than incomes.

Still, Guatieri’s findings agree with the central bank’s contention that housing remains a key vulnerability to the economy as a whole.

“This speaks to the need for households to manage their debt prudently,” he said.

The Canadian Press

Cash-back mortages: A deal from your bank that regulators are not keen on – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

It’s the last refuge of those who don’t have money, but still want to own a home.

mortgageYou want some of these record low rates on the market but you’re locked into a mortgage. Just break it, right?

Not so fast, there’s a key question you need to ask before you commit to break a mortgage: how much will it cost you? Actually, it’s a question you should be asking before you sign up in the first place.

The banks have long used the offer of giving cash back as a lure to attract customers, many of whom can’t come up with the minimum 5% down payment demanded by government-backed mortgage insurance rules.

Whenever I withdraw money from my bank’s cash machine I  get this offer of instant money, if I take out a mortgage. “Cash Back Mortgage: you can get the cash you need to help pay your land transfer tax, lawyer’s fees, moving costs, closing costs and other expenses,” one bank website brags.

The deal is simple. The bank gives you cash up front to use however you want, except as the down payment.

The price of the upfront cash is a much higher interest rate — usually the posted rate, which may be almost two percentage points higher than you might get negotiating.

It’s a costly move when considered over a five-year mortgage term. My bank says you can get $20,000 up front on a $400,000 mortgage, based on a 5% cash-back mortgage. Based on monthly payments at the current posted rate of 4.99%, that mortgage will cost you $93,422.91 in interest over five years. The same mortgage will cost you $55,288,48 in interest at 2.99% — the going rate in the discount market.

You are paying almost $40,000 in interest — the difference between the posted and discount rate — to get $20,000 today. Even when you consider the money is in present-value dollars, it’s pretty clear why this type of offer is not a great deal for the consumer and is being discouraged.

You’re not supposed to use it for a down payment, but it finds its way there anyway, according to many people in the industry.

This past week the Office of the Superintendent of Financial Institutions reiterated it doesn’t like the practice at all, recommending mortgage default insurers not underwrite loans that use cash back for a down payment.

Draft guidelines on residential mortgage insurance underwriting practices issued by OSFI included a section on down payment.

“Incentive and rebate payments (ie. cash back) should not be considered part of the down payment,” said the regulator. In cases in which people don’t use their own equity and opt for non-traditional sources as a down payment, the regulator seems to want federally regulated mortgage insurers to consider that risky and charge a larger premium.

Led by Canada Mortgage and Housing Corp., the Crown corporation that has the largest position in the market, all mortgage default insurers will be raising their premiums come May 1.

It’s not mentioned very often, that even though you supposedly need to have 5% down, you are allowed to add the cost of mortgage insurance premium to your loan. Premiums are as high as 3.15% for a mortgage with 5% down, but not to worry, you can still add that to your loan which will take you to 98.15% of the value of your home.

Lenders have been giving cash back, it’s kind of a loophole to the 100% financing rule prohibition

“I think you want to have some savings mechanism in place to make sure you have some sort of down payment,” says Calum Ross, a Toronto-based mortgage broker, who is not a supporter of cash-back mortgages. “I think it’s a fundamental risk to the system if you don’t have any skin in the game.”

The cash-back market is a small percentage of the overall market, but it’s well known that people work around the so-called rule that is supposed to prevent you from using it for the down payment.

Rob McLister, editor of Canadian Mortgage Trends, says there’s not much banks or insurers can do if consumers are coming up with their 5% through other means, such as borrowing from family or putting it on a credit card.

“Lenders have been giving cash back, it’s kind of a loophole to the 100% financing rule prohibition,” Mr. McLister says, referring to a previous rule change that demanded the minimum 5% down. “But you can still get that down payment by borrowing at 18% on your credit card, if you want to.”

He wonders if during the comment period on the OSFI guidelines, there will be suggestions for even more restrictions on sources of borrowed down payments. Mr. McLister says credit unions, which have been allowed to do 100% financings because they are not federally regulated, will no longer be able to provide those loans if they are to be covered by government-backed mortgage insurance.

All this squirming happens over a minimum 5% down payment. Imagine if it went up 10% — something that scares everybody in real estate.

“Nodody wants to see that in the lending industry. It depends what it is — 6% is not a big deal, but 10% will be a major deal,” Mr. McLister says, adding he doesn’t think OSFI is pushing for a larger down payment.

Phil Soper, chief executive of Brookfield Real Estate Services, says people having trouble getting the 5% for a home are generally unsophisticated buyers.

“It makes sense, it’s hard to argue against more transparency in mortgage financing,” says Mr. Soper, about trying to get rid of cash-back programs. “People talk about it being used to cover closing costs or initial furniture or renovations and there are sources of credit for that.”

Benjamin Tal, deputy chief economist with CIBC, says some people will always find a way around rules and the cash-back stipulation from OSFI is no different.

“You can get a loan from a parent and call it a down payment [and then pay it back]. You can never underestimate the creativity of people,” says Mr. Tal.

Consumers should think twice about this offer. The national banking regulator seems to be saying as much.

Illustration by Chloe Cushman, National Post

Costly housing has more Canadians turning to renovations – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

home_renovationThe never-ending strength of the Canadian housing market has homeowners switching to renovations at a record pace, according to a new report.

Andrienne Warren, an economist with Bank of Nova Scotia, says the boost in the reno market has been “fuelled by rising home prices, tight resale market conditions, attractive financing costs and government tax credits.”

She says renovation spending has been the fastest growing segment of the market with real renovation outlays increasing at an annual rate of 6% from 2000-2012. This increase was double the 3% of new construction.

The spending on renovation has helped pushed housing prices because it increases the quality of the housing, said the report. That housing is eventually sold at a higher price.

Overall, Ms. Warren says the housing market may finally be turning. “Residential investment stalled last year, as affordability tempered home sales, and builders scaled back the number of new developments,” she said, adding Scotiabank expects a more “subdued trajectory” for housing over the next several years which will have a modest drag on the economy.

She estimates the housing sector contributed $128-billion to the economy last year when including residential investment, new construction, renovations and owner transfer costs such real estate commissions, legal and appraisal fees.

It has proven to be an important part of the economy with residential investment expanding at an annual rate of 4.2% from 2000-2012, almost double overall gross domestic product during the period. The sector contributed 0.3% annual to real GDP over the period.

The reports says a downturn, even if it’s just a softening market as opposed to a crash, will impact many industries.

“Apart from construction, industries most affected by a housing slowdown include manufacturing, retail and wholesale trade, finance, insurance and real estate professional and technical services,” says Ms. Warren.

Be careful before you break that mortgage – Consult with a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Low mortgage rates tempt, but penalties for breaking can be high

mortgage-breakingYou want some of these record low rates on the market but you’re locked into a mortgage. Just break it, right?

Not so fast, there’s a key question you need to ask before you commit to break a mortgage: how much will it cost you? Actually, it’s a question you should be asking before you sign up in the first place.

Don Hurman, a 64-year-old from Okotoks, Alta., learned the hard way when he incurred a $10,000 penalty after selling his house halfway through a five-year mortgage term. Some mortgages let you port the loan to a new home but Mr. Hurman was forced to break his and pay what is called the interest rate differential.

5 questions to ask before breaking your mortgage

1. You need to know what the penalties will be before you even sign a mortgage. You may tell yourself you have no plans to break that mortgage, but surveys says 9% of Canadians refinance before the term is up.

2. Can I port that mortgage? Let’s say you have to sell your home, can that mortgage be transferred to the next property you buy?

3. Are you tied to that bank you signed your mortgage with forever? Some mortgages cannot be broken unless you sell your home.

4. What are the prepayment terms on your mortgage? Large prepayment terms will allow you to pay a lump sum on your mortgage, thereby lowering the penalty for breaking any term left.

5. How will the interest rate differential penalty be calculated? This may be the most important factor. If the bank uses the qualifying rate or posted rate to calculate any penalty, it will cost you a bundle.

He said even though his new mortgage was at a better rate, the penalty in the end was much higher than any savings.

“I involved the bank head office, the ombudsman, the government, all to no avail,” he says. “Always find out the penalty info should you sell before the term is up before you sign on the dotted line. I found out the hard way.”

Mr. Hurman, who now says he is a renter, laments he couldn’t even write off the charge against his taxable income

Breaking a mortgage is not a minor issue when you consider 9% of borrowers end up refinancing their mortgage before the term is up, according to the Canadian Association of Accredited Mortgage Professionals.

Laura Parsons, the Calgary area manager for mortgage specialists with Bank of Montreal, said the penalties are key.

“You really have to understand what they are,” said Ms. Parsons, who agrees that a lot of people do not. “There is a responsibility of clients to read their documents but also for the lawyers to explain all the terms and conditions.”

She chalks part of this up to people being so emotionally involved in the purchase of their home that they don’t read everything in their contract or even bother to ask questions.

Ms. Parsons says people have become so focused on getting the lowest rate, they are paying too little attention to the terms of the contract which may be onerous. BMO’s own advertised 2.99% rate on a five-year fixed rate closed mortgage, which has gained so much attention, has a key stipulation that you can’t get out of the mortgage unless you sell.

There’s no penalty at all when a mortgage is open but that’s why you pay a higher rate.

“When it’s open you have full capability of paying it off at any time. When it’s closed, you get a better rate but we call the shots as far as what you can and can’t do,” says Ms. Parsons.

The penalties on a closed variable rate mortgage are pretty simple — three months interest. It gets more complicated once you lock in a rate.

Lock in and the penalty is usual the greater of three months interest or what is called the interest rate differential. How that IRD is calculated is the real sticking point.

Sometimes the IRD is calculated over just the term of the mortgage and sometimes it is calculated based on amortization length which can be as long as 25 years. The IRD is intended to compensate the bank for interest it loses when you break your mortgage.

The IRD is supposed to represent the difference between the rate on your contract and the interest rate the bank could charge if it was re-lending the funds. That rate will be based on the term left on your contract. If you have a five-year mortgage and break after three years, a comparable two-year rate will be used.

A key issue that has emerged is whether the bank calculates the penalty based on the posted rate or not. Using the posted rate is going to jack up your penalty considerably.

Vince Gaetano, a principal at monstermortgage.ca, says the banks use the mortgage qualifying rate to calculate penalties. The qualifying rate is normally used for consumers to make sure they can afford a hike in rates. It’s based on the five-year posted rate of the major banks and published by the Bank of Canada.

Mr. Gaetano wrote to the former finance minister, Jim Flaherty, to complain about the practice which he says cost a client a $28,369.51 penalty on a $469,000 mortgage that was being broken.

He says the bank used the mortgage qualifying rate of 5.24% — it’s now 4.99% — on a five-year rate to calculate the penalty on a 3.99% mortgage that was being broken. Mr. Gaetano says the real rate in the marketplace was about 3.69% so his client should have been charged a penalty based on 30 basis point IRD which would have been $5,862.50.

“They’ve added a clause to the contracts,” said Mr. Gaetano, adding the discount you received when you signed the mortgage is also part of the discharge charge.

He says consumers feel like they are “grinding down” the lender to get a great rate but are oblivious to the potential penalty awaiting them.

Mr. Gaetano says almost all of the banks have started charging this way. “An interest rate differential should only be [the banks] getting stuck with a higher rate because today the rates are lower,” says the mortgage broker. “So in that case, you pay the differential.”

There are some things you can do to mitigate that charge. If you have prepayment privileges, you can max them out before you break. If you have a mortgage that says you can prepay 20% once a year, on say a $500,000 mortgage you might be able to bookend two payments of $100,000 at end and beginning of the year, if you have the cash.

Some lenders will let you take the penalty and add it to your new mortgage but then you’re paying interest on interest, which seems pretty excessive.

The worst part might be that some people say they want to break their mortgage without any concept of what the penalty will be and by then it’s too late.

“No they don’t tell you [what the charge will be],” said Mr. Gaetano, adding consumers renewing their contracts should be very careful because while this may not have all been spelled out in old contracts the new conditions certainly are.

Financial Post
gmarr@nationalpost.com
twitter.com/dustywallet

What to look for on your 2013 income tax return – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

What to look for on your 2013 income tax return

raffi_tax_illustration.jpg.size.xxlarge.letterboxIt’s another good year for do-it-yourself tax filers. There aren’t too many tax changes and one really lucrative new tax credit.

There aren’t too many personal tax changes on this year’s tax return, but make sure you maximize credits and deductions.

By: Evelyn Jacks Special to The Star, Published on Sun Mar 02 2014

It’s another good year for do-it-yourself tax filers. Like last year, there aren’t too many personal tax changes – just one really lucrative new tax credit to encourage people to get into the habit of charitable giving.

First time donations: A big change this year encourages more people to donate to charity. First time donors are entitled to an additional 25 percent credit for cash donations up to $1,000 made in 2013 to their favorite charity. Here’s how it usually works: on the first $200 given, you’ll get a 15 per cent federal credit, for the balance, a credit of 29 per cent. In Ontario, when the 11 per cent provincial credit is factored in, close to 40 per cent of your $1,000 gift is refunded.

If you or your spouse gave for the first time (or neither of you have done so since 2007) an extra 25 per cent is added to the 15 per cent and 29 per cent respectively. You’ll get close to 60 per cent of your donation back; that’s right, tax savings of almost $600 of the $1000 you gave. But you can only make the claim once now until 2017. Donations from prior years will not qualify.

Super-size your credits : Maximizing your credits is another way to find more savings. A printed copy of the tax forms is a good guide for hunting down receipts like student loan interest, public transit amounts or children’s arts or sports classes. The federal tax brackets and most personal amounts have been indexed by 2 per cent. The pension income amount, First Time Home Buyer’s Tax Credit and the $5,000 tuition, education and textbook transfer maximum are notable exceptions.

Take special note of the Family Caregiver Amount (FCA), introduced last year to support families who give care to disabled dependants. It’s now $2,040. If you’re claiming an infirm spouse, dependent child, or other dependant who lives with you, add the FCA to your regular claim.

Maximize medical expenses : Everyone seems to miss here, because there are so many opportunities. For example, claim unreimbursed medical costs for yourself, your spouse and dependent children. Also include costs for a grandchild, parents, grandparents and other extended family member who you supported if they lived in Canada during the year. Your claim is reduced by a percentage of your net income, so it’s usually better to claim costs on the lower earner’s return.

Don’t forget medical travel costs: If you have to travel to another community to receive cancer treatment or other medical services not available locally, claim costs of driving or taking public transportation fares if you travel at least 40 km. If it’s 80 km or more, you can claim meals and lodging. Keep receipts and a log of driving distances.

Even the dog may be claimable : Other important medical expenses include costs from a dentist, optometrist, speech-language pathologist, naturopath, acupuncturist, audiologist. Private health care premiums like Blue Cross count. Yes, even the costs of training and maintaining guide dogs to provide care for infirm dependants qualify. Starting in 2014, service animals used to help a taxpayer manage severe diabetes will qualify, too.

Out-of-country assets: Failure to file enhanced Form T1135 Foreign Income Verification Statement can bring unexpected and expensive penalties for investors this year. Report the cost (not market value) of offshore funds including foreign bank accounts, and the portion of foreign equity held in brokerage accounts. If you get a T-slip from your broker or a mutual fund company, no further reporting is required.

Real estate held in a foreign country is on the list. So, the big question is this: must your Florida or Arizona winter home be reported? Not unless it is used primarily (50 per cent of the time or more) for business or rental purposes.

Split pensions: You can elect to split private pension benefits from a Registered Pension Plan (at any age) and RRSP (at age 65 or later) with your spouse or common-law spouse. To do so, both spouses must file form T1032 Election to Split Pension Income with their returns. This is really lucrative for some couples when up to half the pension of the higher earner is taxed in the lower earner’s tax bracket and a second $2,000 pension income amount becomes available. If you missed, go back three years to minimize your tax on this income. For the 2010 tax year, file an adjustment by April 30, 2014.

File early: File early to invest your refund, put it into your RRSP if you have room, or pay off bills. No RRSP room? Consider investing in a Tax Free Savings Account (TFSA) for tax free savings.

File on time, if you owe: It always pays to file an audit-proof return: report all income, including barter and cash transactions, and all the deductions and credits you’re entitled to. Then file on time, especially if you owe money. You’ll save on late filing penalties and interest charges. But, if you can’t pay, arrange to pay the Canada Revenue Agency (CRA) over time. Proactivity will save you money: make the call, or have a tax pro do it for you.

2013 Tax facts

 

  • This year’s filing deadline is April 30.
  • The average refund last year was $1,641
  • 76 per cent of Canadians filed an electronic tax return last year.
  • 6 million Canadians filed a paper return, a 30 per cent decline from 2012.
  • The average paper return takes 4 to 6 weeks to process, online returns take about 8 days.
  • The current interest rate charged on unpaid personal taxes is 5 per cent.
  • The interest rate paid on over payments by individuals is 3 per

    Source: Canada Revenue Agency

    Evelyn Jacks is president of Knowledge Bureau , a national educational institute and author of Jacks on Tax, Your Do-it Yourself Guide for Online Filers.

 

Three key questions about Canada’s new mortgage insurance rules – Ask a Vancouver Mortgage Broker

Canadian Mortgage News

CMI 101 Series

Dreyer Group 101 Series

Financial FYI Series

First Time Buyers

Home Buying 101

Home Insurance

Latest News

Mortgage Rates

Refinancing

Retirement Planning

Self Employed

Canada‘s housing watchdog released a set of long-awaited guidelinesfor the country’s three mortgage insurers on Monday.

RG-04MAR13-4370The new guidelines spell out the practices that the Office of the Superintendent of Financial Institutions wants to see from the country’s three mortgage insurers, Canada Mortgage and Housing Corp., Genworth MI Canada and Canada Guaranty.

Here are answers to three key questions about the proposed rules:

Matthew Sherwood for The Globe and Mail

Why is Canada’s financial regulator releasing new mortgage insurance guidelines?

This stems from global efforts to prevent another crisis like the U.S. subprime mortgage crisis. When that crisis was taking a toll on the global economy in late 2008, leaders of the G20 countries took a group that had existed, called the Financial Stability Forum, and broadened its membership and tasked it with developing strong regulations that would contribute to financial stability around the world. The group, which now includes regulators and banking experts from around the world, was renamed the Financial Stability Board in 2009. It is chaired by former Bank of Canada governor and current Governor of the Bank of England Mark Carney. One of the recommendations it made, more than two years ago, is that all countries should review their rules for mortgage insurers. (It was also the FSB that recommended that all mortgage insurers be regulated, part of the reason why former Finance Minister Jim Flaherty gave OSFI oversight over Canada Mortgage and Housing Corp.)
iStockphoto

What will happen now?

The regulator, the Office of the Superintendent of Financial Institutions, has worked for a long time on these draft guidelines for the mortgage insurance industry. It had originally said they would be released in early 2013.
Mortgage insurance officials have already seen the draft. It will now be open for a comment period until May 23 before being finalized.
This is the same process that happened when OSFI released its mortgage underwriting guidelines for banks in 2012. After the initial draft rules were issued banks fought unsuccessfully to have the regulator take out a proposed rule that capped the amount that any individual homeowner can borrow on a home equity line of credit at 65 per cent of their home’s value. Real estate professionals say that rule change had an impact on the housing market.
The mortgage underwriting guidelines for the banks were known in the industry as “B-20”. The new rules being released today for the mortgage insurers are known as “B-21.”
Fred Chartrand/The Canadian Press

Is this different from the new rules for mortgage insurers that former Finance Minister Jim Flaherty brought in?

Former Finance Minister Jim Flaherty tightened Canada’s mortgage insurance rules four times in the wake of the financial crisis. The most recent set of changes took place in July 2012 and, among other things, capped the maximum length of an insured mortgage at 25 years.
Mr. Flaherty made changes that he felt were necessary to keep consumer debt loads and house prices from rising too quickly. The changes were very specific – for instance cutting amortizations and saying that homes over $1-million weren’t eligible for government-backed insurance. Beyond his concerns about debt levels and home prices, Mr. Flaherty also had an interest in limiting the amount of exposure that taxpayers were building up to the housing market. The government backstops the vast majority of the country’s mortgage insurance.
OSFI, on the other hand, is responsible for keeping the country’s financial institutions in good shape and minimizing the impact that the collapse of a bank or insurer would have. The guidelines it released for mortgage insurers on Monday are broader and less specific. They outline the minimum steps that mortgage insurers should be taking to ensure that they are minimizing their risks.
SEO Powered By SEOPressor