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CMHC to return to lower-risk roots – Consult with a Vancouver Mortgage Broker

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evan-siddall17rb1The head of Canada Mortgage and Housing Corp. is shifting the priority of the mortgage insurer to helping Canadians buy homes they need, not the bigger, pricier homes they might want.

Chief executive officer Evan Siddall said in an exclusive interview that his first six months on the job have been focused on building an organization that will be more flexible and transparent, one that will do more to emphasize its social housing role and less to subsidize the banks. And one that will only help Canadians purchase homes they need. That will result in fewer and smaller new insurance policies, and will stem the risk to Canadian taxpayers of losses at CMHC should the housing market slump.

 

“We help Canadians meet their housing needs, not exceed them,” Mr. Siddall told The Globe and Mail’s editorial board, as he outlined the mandate that will guide his time at the helm of the mortgage insurer.

It’s a return in direction back CMHC’s roots, after a period in which it was accused of stoking the housing market. CMHC is the country’s dominant seller of mortgage insurance, which essentially reimburses lenders if a borrower defaults on a mortgage. The insurance is mandatory any time a federally-regulated lender sells a mortgage to someone who doesn’t have a down payment of at least 20 per cent. While the banks are technically responsible for paying the insurance fees, in practice they pass them on to home buyers.

Mortgage insurance reduces the risks to the banks, encouraging them to lend more, and making it easier and cheaper to obtain mortgages.

The Crown corporation was created in 1946 to help returning war veterans buy homes, but it has grown to become the size of one of Canada’s biggest banks. Over the past 10 years CMHC has at times dabbled in backing 40-year mortgages with no down payment, mortgages on second homes, mortgages on homes worth seven figures, and loans for condominium construction. But it has been recently scaling back amid fears of taxpayer exposure to the housing market

CMHC has an explicit government guarantee, leaving taxpayers on the hook if things go sour. Mr. Siddall said he does not believe the housing market is in dangerous territory, but even so, managing risk for taxpayers is a “sacred obligation.”

In recent months, the insurer has rolled out a string of changes that have underlined the shift in emphasis, including eliminating insurance for second homes and all individual insurance on homes over $1-million.

“The first thing we did as an executive group is we spent a lot of time thinking about our purpose,” said Mr. Siddall, a former investment banker at Bank of Montreal and Goldman Sachs & Co., who also worked as a special adviser to former Bank of Canada governor Mark Carney.

Mr. Siddall is continuing the direction that was set for the organization by former finance minister Jim Flaherty, who started pulling the government’s backing for homes priced over $1-million two years ago. But he is also putting his own stamp on CMHC at a time when current Finance Minister Joe Oliver has said he plans to take a less active role in the housing sector.

“We manage the government’s exposure to the tail risk of a housing crisis,” Mr. Siddall said. “And we do that with taxpayers’ money. That’s a sacred obligation and a core obligation of what we do.”

He added that the Crown corporation is choosing to cut its own risks. “There has been speculation that these changes have been imposed on us by Finance. That’s not true,” he said. “In fact, my first meeting with the Minister of Finance won’t be until later this week.”

That’s not to say there hasn’t been interaction with government, which recently placed the deputy minister of finance on CMHC’s board. Ottawa has been working to stem the growth of CMHC because it has racked up massive taxpayer exposure to the housing market, and some of its products have helped to fuel house prices.

Mr. Siddall said the Canadian market is “modestly overvalued” but he believes that there will be a soft landing, meaning a gradual petering out as opposed to any crash in prices.

“If prices continue to grow, all things being equal, we would be worried,” he said. “But we are not concerned right now about the level of prices or the level of activity in the housing market.”

Sales of existing homes in Canada sprang to life in May, rising 5.9 per cent from April, according to the Canadian Real Estate Association (CREA). That’s the highest month-to-month increase in almost four years, and was much higher than economists expected.

“The housing market remains remarkably resilient,” Bank of Montreal economist Benjamin Reitzes said in a research note. “As long as rates remain at rock-bottom levels, housing isn’t like to weaken much, if at all.”

While sales slumped through the cold winter months, price growth has continued to be relatively strong. CREA said Monday that it now expects the national average home price will rise 5.7 per cent this year to $404,300. In March it was forecasting a 3.8-per-cent increase to $397,000.

While the current prices don’t concern Mr. Siddall, he said the organization is worried about consumer debt levels.

“We are concerned about the elevated level of Canadian consumer indebtedness,” he said, adding that it removes consumers’ ability to withstand an unforeseen event.

During the meeting with The Globe, he emphasized the importance of CMHC’s basic role in the market, while acknowledging that more should be done to shift risk back to the banks and the private sector. His comments come amid criticism from groups such as the Organization for Economic Co-operation and Development (OECD), which argued in a report about the state of Canada’s economy last week that the government should consider privatizing CMHC’s insurance activities.

“People like the OECD, when they wonder about our model, kind of miss the memo about the role CMHC can play,” Mr. Siddall said. “Now, we [do] have a responsibility to attend to how large that should be.”

The OECD also called for changes to the system to ensure lenders take on more risk for home loans. It noted that in other countries with mortgage insurance, the insurance tends to cover 10 to 30 per cent of the losses, rather than 100 per cent, and suggested imposing a deductible.

The concept of a deductible is a “pretty good idea,” Mr. Siddall said, although it would take some time to be put into practice in Canada.

Finance Minister Oliver said Monday that the idea of having CMHC insure only a portion of mortgages, rather than the entire loan, is one that could be looked at. Mr. Oliver said he would like to see the private sector mortgage insurers take a larger share of the market and that when it comes to taking further steps to reduce risk, “the specific decisions taken by CMHC will be their decision.”

When it comes to CMHC’s large securitization arm, which essentially packages up mortgages and sells them as bonds or helps banks sell them, Mr. Siddall said he’s worried that it’s a low-cost form of wholesale funding for the institutions and “that means we’re subsidizing banks. … And that is something that over time we should address.”

It’s too soon to say how, he added. “We’ve got to make sure we do it in a way that’s supportive of markets, that we do it in consultation with banks so that we don’t disrupt their businesses,” he said.

With files from reporter Bill Curry in Ottawa

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Canadian home prices rise a modest 0.8% in May, typically one of the strongest months for sales: Teranet

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housesTORONTO — Canadian home prices rose in May but the pace of 12-month home price appreciation decelerated slightly, the Teranet-National Bank Composite House Price Index showed on Thursday.

Why Canada’s housing boom could be in for a big echo

A new report suggests housing market has stronger legs than thought because echo boomers, who now outnumber their parents, are poised to flood the market.Keep reading.

The index, which measures price changes for repeat sales of single-family homes, showed national home prices rose 0.8% last month, a modest reading compared to historical May readings for what is traditionally one of the strongest sales months of the year.

Prices were up 4.6% from a year earlier, a slowdown from April’s 4.9% price gain.

Meanwhile, Statistics Canada said Thursday its new housing price index rose 0.2% in April, following identical increases in both February and March.

The agency says the combined metropolitan region of Toronto and Oshawa, Ont., was the top contributor to the increase and had the largest monthly price advance in April, as prices rose 0.7%.

That is the largest monthly price increase for the region since November 2011.

New home prices in Calgary rose 0.6% and were up 0.2% in Hamilton, Winnipeg and the combined region of Saint John, N.B., Fredericton and Moncton, N.B.

Prices slipped in six metropolitan areas in April. Prices were down 0.5% in Regina and fell 0.3% in Vancouver.

© Thomson Reuters 2014

Bank of Canada warns Toronto’s condo market a ‘pocket of vulnerability’ in Canada’s housing sector

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condos_np5The Bank of Canada singled out Toronto’s condo market in its report on risks facing the country’s economy and financial system Thursday.

The central bank said in its Financial System Review that though Canada’s housing market was broadly in line with demand, the level of condo building was significantly above historical averages.

chart9

“While some of this increase can be explained by demographics, shifting preferences toward living in the city core, and raising commuting costs, the substantial increase in construction over the past 15 years has raised questions about its sustainability,” the bank wrote.

The bank highlights the Toronto condo market of particular concern because of the widening gap between the growing supply and dwindling demand.

Bank of Canada
Bank of Canada

The Bank said the number of unsold condos in the pre-construction stage also remains high. And prices for new units, at all stages of construction, have remained flat despite stronger sales so far in 2014.

Bank of Canada
Bank of Canada

The Bank worries that a correction in this “important market” could spill into the broader housing market, bringing down prices and sales.

Monster May for housing sales doesn’t mean the market won’t slow – Consult with a Vancouver Mortgage Broker

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canada_soldMay was a phenomenal month for existing homes sales across the country but the jump in activity might say more about the harsh winter than the state of the market.

Calgary’s housing market making a dramatic comeback

The Calgary housing market is so hot that an economist reported Tuesday that only 15 condominiums in the city remained built and unsold last month. Find out more

The Canadian Real Estate Association said Monday that sales in May jumped 5.9% from April which was the largest monthly increase in more than four years. Sales jumped in 80% of the markets surveyed by the group.

“Over the past 25 years, that widespread a monthly sales increase has been recorded only a handful of times,” said Beth Crosbie, president of CREA.

The group said there was a “delayed start” to the spring buying season as people deferred putting their homes on the market until the end of a harsh winter. With summer just about here, the group doesn’t think the pace of the last month can be maintained.

That’s a view held by many in the market.

“I think you are seeing the rougher winter held back supply and then it came on stream. It’s starting to balance out a bit,” said Martin Reid, president of Home Capital. “We think the price appreciation we saw in cities like Toronto will normalize.”

The average price of a home sold across the country in May reached $416,584, a 7.1% increase from a year earlier. Remove Greater Toronto and Greater Vancouver from the equation and the average price was just $336,373 last month with prices up 5.3% from a year ago.

CREA isn’t predicting any sort of crash and says sales should reach 463,400 this year, buoyed by continued low interest rates. At that level, sales would be up 1.2% from a year ago. By 2015, it expects another 0.9% increase in sales.

Prices also have some room to grow, says the group which is predicting the average home will sell for $404,300 this year, a 5.7% annual increase. Prices are forecast to only rise 0.7% next year.

Mr. Reid thinks price increases will be flat to 5% this year depending on the market with Toronto and Calgary being the exceptions. He warns people might need to get used to a new reality in housing.

“Price appreciation will be a lot slower than what we’ve seen over the last 10 years over the next few years though we see sales activity as reasonably good,” he said.

Robert Kavcic, an economist with Bank of Montreal, said while the housing market looks “balanced and sturdy overall,” once you check a little more closely you see individual markets like Toronto and Calgary are performing better.

“One reason policymakers might be a bit hesitant to act again soon is that strong price gains are confined to a few select markets, or even sub-markets, while a wide swath of the country (at least geographically) is seeing downright dreary conditions,” the economist said Monday.

Robert Hogue, senior economist with Royal Bank of Canada, cautioned that the huge jump in sales activity in May probably won’t hold up for the rest of the year.

“For the most part, [May sales] represent a temporary burst that will not be sustained much longer because there is minimal pent up demand to satisfy,” he said. “We expect the Canadian housing market to enter a moderation phase later this year once long-term interest rates start to raise.”

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Bank of Canada warns Toronto’s condo market a ‘pocket of vulnerability’ in Canada’s housing sector

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The Bank of Canada singled out Toronto’s condo market in its report on risks facing the country’s economy and financial system Thursday.

The central bank said in its Financial System Review that though Canada’s housing market was broadly in line with demand, the level of condo building was significantly above historical averages.

chart9

“While some of this increase can be explained by demographics, shifting preferences toward living in the city core, and raising commuting costs, the substantial increase in construction over the past 15 years has raised questions about its sustainability,” the bank wrote.

The bank highlights the Toronto condo market of particular concern because of the widening gap between the growing supply and dwindling demand.

Bank of Canada
Bank of Canada

The Bank said the number of unsold condos in the pre-construction stage also remains high. And prices for new units, at all stages of construction, have remained flat despite stronger sales so far in 2014.

Bank of Canada
Bank of Canada

The Bank worries that a correction in this “important market” could spill into the broader housing market, bringing down prices and sales.

Young urban condo buyers: Why not rent instead? – Consult with a Vancouver Mortgage Broker

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gi-carrick10rb1Question for all the young adults buying condos these days: What are you thinking?

Rent that little box in the sky and save your money for a house later on. Don’t buy something you’re going to grow out of in a few years.

“When you run the numbers, renting is probably a bit cheaper,” said David Fleming, a Realtor with Bosley Real Estate and writer of the Toronto Realty Blog. “But [young adults] think the market is going to go up, they want to pay down principal, they want pride of ownership. I’ve probably sold seven or eight condos this year to kids under 25.”

Mr. Fleming said some young buyers get help from parents to buy their condos, and then manage the monthly carrying costs of the mortgage and condo fees by finding a roommate to pay rent. Yet because young buyers tend to stay in their condos for only a short while, renting is still the better choice.

“I would say buyers in their 20s probably won’t live in that condo for five years,” Mr. Fleming said. “They’re going to either outgrow it, or find a mate and want a bigger, better or different place.”

Even if you meet someone and live together in your condo, you’ll probably want to move when you have kids. Mr. Fleming said an increasing number of couples are starting families in condos, but a house is still seen by most as the best place to do this.

Moving from a condo you own to a house will cost you a lot. If you used a real estate agent to sell the place, you might pay a $15,000 commission plus HST to sell a $300,000 condo. “It’s expensive to move,” Mr. Fleming said. “Hopefully you purchased that condo for $250,000.”

Condo prices are rising in some cities, so you might have that going for you if you buy. Data for May show the average condo price rose 6.7 per cent in Edmonton to $251,688. Calgary condos rose 1.9 per cent on average to $315,953, and downtown Toronto condos rose 7.6 per cent to $401,809. “I was a bit of a condo bear and now I’ve basically thrown my hands up,” Mr. Fleming said of the Toronto market.

But, as he is quick to point out, not all condos are equally good investments. Mr. Fleming said there are some poorly built condos in downtown Toronto that won’t hold their value as well as higher quality buildings. His description of one particular development is hilarious: “There’s no soundproofing, people are partying and puking in the lobby, there’s honking, there’s no infrastructure nearby – where do I get a coffee, where do my dry cleaning?”

Rent a downtown condo, don’t buy one. You still get to live the urban lifestyle and reduce commuting times. You’ll also have a decent selection of rentals to choose from. Mr. Fleming said Toronto’s overall rental market is tight, but one bedroom condos available to rent are plentiful. Two-bedroom, two-bath condos? Not so much.

A quick run through Kijiji found downtown Toronto one-bedroom condos for rent at $1,500 to $1,600 range. If you bought a similar condo for $300,000, then your mortgage payments would be $1,391 per month, assuming a 3-per-cent mortgage rate and a 5-per-cent down payment of $15,000.

Renting becomes a cheaper option when you add condo fees to that mortgage payment at about $400 a month and property taxes at $180 a month. Factor in the kind of home improvements that owners tend to make and you’ve got an even bigger rent-buy spread in costs.

There’s a theory that buying a small condo is like training camp for owning a home – you learn about mortgages, interest rates, budgeting and maintenance costs. Here’s a better way to prepare to own a home: Rent a condo and park all the money you’re saving as a renter in a nice, safe high-interest savings account held in a tax-free savings account. In the example just above, you’d save about $370 a month by renting. In a high interest account paying 1.25 per cent, you would end up with $22,894 after five years. That’s two-thirds of the way to a 5-per-cent down payment on a $600,000 Toronto house.

What does Mr. Fleming, the real estate agent, think about renting a condo? “As a Realtor, I’m supposed to sell people real estate, not rentals. But I don’t think it’s a bad move.”

Follow  on Twitter: @rcarrick

 

 

Bad weather can’t put a dent in Canadian housing sales – Ask a Vancouver Mortgage Broker

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canada_soldSpring came late for the Canadian residential real estate market but despite the delay the organization that represents the country’s realtors is still predicting a 1.2% jump in activity for 2014.

Calgary’s housing market making a dramatic comeback

Te Calgary housing market is so hot that an economist reported Tuesday that only 15 condominiums in the city remained built and unsold last month. Find out more

The Ottawa-based Canadian Real Estate Association is now saying there will be 463,400 sales this year in Canada, down slightly from the 463,700 in sales it was predicting in March.

“Extraordinarily bleak winter weather made for a slow start to 2014 national sales activity. As the first quarter ended, sales momentum heading into spring was constrained by a continuing shortage of listings in a number of local markets. The rise in newly listed properties in April and May supported an increase in sales activity,” CREA said in a release.

The group said it looks like interest rates will now rise until later in the year, which supports home ownership over the rest of 2014.

By next year sales will continue to climb, reaching 467,800 which amounts to a 0.9% and would be in line with the 10-year average for sales.

Prices will also continue to rise with the average sale price forecast at $404,300 for 2014, a 5.7% increase from a year earlier. By 2015, average sale prices are expected to rise 0.7% to $407,300.

Meanwhile May sales from CREA showed the strongest month over month increases in almost four years, rising 5.9% from April to May.

“The monthly increase in May activity was widespread among local housing markets, with some 80% of them reporting stronger sales compared to April,” said CREA president Beth Crosbie, in a statement. “Over the past 25 years, that widespread a monthly sales increase has been recorded only a handful of times.”

The actual national average price for homes sold in May 2014 was $416,584, up 7.1% from a year earlier.

Rising real estate prices and low interest rates keep Canadian households upbeat – Consult with a Vancouver Mortgage Broker

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Bloomberg News | May 20, 2014 | Last Updated: May 20 12:01 PM ET

real-estateThe share of Canadians who are predicting higher home prices in their neighborhood remained above 40% for a fifth week in the latest weekly polling by Bloomberg and Nanos Research. That’s kept consumer confidence levels at near the highest in four years, the data show.

Improving views on housing follow a recent acceleration in the real estate market in recent months that reflects a shift by policy makers at the Bank of Canada to dim expectations for rate increases as it plays down concerns over rising household debt to focus on stimulating the economy.

“The crux of it is the rates environment,” said David Tulk, chief macro strategist at TD Securities. “It’s that combined impact of seeing your own asset increase but also realizing that no one is going to take away the punch bowl.”

The Bloomberg Nanos Confidence Index measured 59.6 in the week ended May 16, little changed from the previous reading of 59.5. The survey-based index hit a four-year high of 60.1 on April 25. The index is calculated on scores derived from weekly polls on the outlook for real estate prices, personal finances, job security and the Canadian economy.

The proportion of survey respondents who believe home values in their neighborhood will rise over the next six months was at 40.7% last week. While down from 42.8% two weeks ago, the score has averaged 41.9% over the past five weeks, up from an average 37.3% over the past year. The share of Canadians who expect a decrease in real estate prices fell to 9.7% last week, the lowest since January.

The Nanos data are based on phone interviews with 1,000 people, using a four-week rolling average of 250 respondents. The results are accurate to within 3.1 percentage points.

Last week’s poll coincided with Canadian Real Estate Association data that showed home sales in April rose 2.7%, the fastest pace since August, largely on a surge in transactions in Vancouver and Toronto. April’s sales gain was the third consecutive increase after a four-month winter skid.

The national average price of a home sold in April was up 0.8% from March and 7.6% from a year earlier. There is also evidence construction is holding up better than expected; Canada’s housing agency reported this month work on new homes accelerated to 194,809 units at a adjusted annual pace in April, a 24% increase from the previous month.

Rate Bias

Over the past year, Bank of Canada Governor Stephen Poloz has turned the central bank’s focus away from rising housing debt toward concerns that inflation is persistently low amid excess economic capacity. Poloz removed the central bank’s rate- rise bias in October.

Canadian inflation hasn’t exceeded the central bank’s 2% target since February 2012. Statistics Canada will report April inflation data on May 23. Economists are forecasting a 2% pace for the first time in two years.

The impact of the Bank of Canada’s policy shift has prompted commercial banks to lower mortgage rates, even as the federal government and other financial regulators have tightened mortgage rules to shield households that would be most vulnerable to a home-price correction.

Canada Mortgage & Housing Agency this year restricted the availability of mortgage insurance for individuals purchasing a second home and increased premiums on its products. The federal government has recently shortened the maximum amortization period on mortgages.

The regulations “are not targeting the average homeowner, they are trying to limit the most vulnerable of borrowers of entering a fairly stretched market,” said Tulk.

Economists surveyed by Bloomberg News forecast the 1% overnight policy rate won’t rise before the middle of 2015 at the earliest. Poloz reiterated last month he is neutral on the direction of the next move.

Bloomberg Nanos’s confidence index has two sub-indexes: the Expectations Index, based on responses on the outlook for the economy and real-estate prices, and the Pocketbook Index, based on survey responses to questions about personal finances and job security. The Pocketbook Index rose to 60.2 last week from 59.2, while the Expectations Index fell to 59 from 59.7.

Both gauges are above their 12 month averages.

Bloomberg.com

Are shorter mortgage amortizations always better? No – Ask a Vancouver Mortgage Broker

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ROBERT MCLISTER- Special to The Globe and Mail

mortgage-street18rb1For years we’ve been taught that shorter mortgage amortizations are better. Most people in the mortgage business don’t challenge this premise and certain lenders preach it as gospel.

Consider this recent statement by a bank spokesperson: “Choosing a shorter amortization is the most responsible approach to home financing. It’s something we have been encouraging our customers to consider for years, as it means becoming debt-free sooner.”

How wise is that advice? Do longer mortgage repayment periods truly cost you more, all things considered?

In some cases the answer is unequivocally no. Longer amortizations, which spread your payments over 30 or 35 years instead of the traditional 25, can cost you significantly more in mortgage interest. But consider these four scenarios where “longer” is actually better.

1.) You have other high interest debt Extended amortizations – for example a 30-plus year repayment period – lower your mortgage payments, freeing up cash flow. That’s cash you can put to better uses.

Suppose you’re paying 3.5 per cent on a mortgage but have a car loan at 6 per cent or credit card debt at 18 per cent. Why on earth would you pay more than you had to on your mortgage?

2.) You have higher-yielding investments Even if you’re debt free, a longer amortization can still make sense. The trick is, you must earn an after-tax return on your investments that’s higher than your mortgage rate.

For example, if you’ve got a 3.5 per cent mortgage but can earn 4.5 to 5 per cent on tax-sheltered investments (like those in a tax free savings account), a financially secure homeowner is often better off lengthening their amortization and directing the mortgage payment savings to those investments.

There’s a caveat of course. Investment returns are more risky than pre-paying a mortgage, which is essentially a guaranteed return. Therefore, you must be able to withstand – or wait out –potential investment losses. Assuming you don’t need to cash in the investments for 10 years or more, the odds are very good, historically speaking, that you’ll generate positive returns.

“I can live with [the assumption of] an expected 5 per cent nominal return on balanced investments over the long run,” says Moshe Milevsky, a finance professor at York University’s Schulich School of Business. He says that even the conservative Canada Pension Plan targets almost 4 per cent annual returns, after inflation.

3.) You expect low long-term mortgage rates One of the most important concepts in finance is the “time value of money.” This is the idea that money in your hand today is worth more than the same amount of money in the future. That’s because you can invest money today to earn a return over time.

By definition, the time value of money holds that a 25-year amortized mortgage has the exact same present value (cost in today’s dollars) as one with a 35-year amortization, assuming equal interest rates.

Put another way, you’re no further ahead by choosing the shorter 25-year amortization, so long as:

a) You invest the payment savings of a longer amortization in something that earns you at least the same rate of return as the interest rate on the shorter amortized mortgage.

b) Your average mortgage rate in years 26 to 35 is roughly less than or equal to your average rate for the first 25 years. (Remember, with a 35-year amortization you’d still have 10 years of payments after year 25.)

4.) You think inflation will rise long-term Time value of money also comes into play here. The higher the rate of inflation, the less your money is worth in the future.

“If you believe that inflation now is artificially low; if you believe that inflation can only go up, you want to borrow money for longer,” Mr. Milevsky says. “Inflation benefits the borrower.”

“If inflation spikes tomorrow you’re better off with a longer amortization,” he adds, because you’d be repaying your mortgage loan with “devalued dollars.”

Put another way, the smaller the difference between your mortgage rate and the rate of inflation, the less sense it makes to pay off your mortgage quicker (and the greater the benefit of a longer amortization).

A word of warning A longer amortization means you pay less principal with every regular payment. In turn, you’ll have a bigger balance every time you renew the mortgage.

After 10 years, for example, a $200,000 mortgage at 3 per cent interest would leave you a:

  • $137,235 balance if you chose a 25-year amortization
  • $162,205 balance if you chose a 35-year amortization.

If today’s historically low rates rise by the time you renew, a longer amortization means you’ll pay more interest on a bigger balance. This is a key risk that your other investments would need to offset.

Where do you get a long amortization? The standard amortization in Canada is 25 years. But if you have at least 20 per cent home equity, most lenders will offer you 30 years. A handful of lenders (e.g., Alterna Savings, B2B Bank, Coast Capital Savings, First Ontario, RMG Mortgages, Vancity) even have 35 year amortizations.

The free option Shorter amortizations force homeowners to save more, which can aid the less disciplined among us.

But if you’re a well-qualified borrower, have a savings mentality and are eligible for a longer amortization, a 30– to 35-year amortization is one of the best free options you can get.

Remember that even with an extended amortization, you can easily make optional extra payments to replicate a shorter amortization. You can even automate those extra payments. Then, if an investment opportunity arises or you need extra cash for personal reasons, simply reduce your mortgage payments back to the minimum and divert the cash flow to a better use.

For the right borrower in the right circumstances, longer mortgage repayment periods can be a sound strategy.

“Borrowing money at cheap rates, to invest in long-term and more profitable projects makes perfect sense,” Mr. Milevsky says. “If it works for the biggest companies in the world, it can work for you…but beware of the risks.”

Robert McLister is a mortgage planner at intelliMortgage Inc. and founder ofRateSpy.com. You can follow him on Twitter at @RateSpy and@CdnMortgageNews.

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A Threat to Private Financing – Ask a Vancouver Mortgage Broker

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A Threat to Private Financing

Public Private FinanceWayne Strandlund, Special to CMT

Borrower choice and the success of mortgage brokers is tied to the availability of a wide variety of mortgage funds. Apart from conventional insured and uninsured mortgages, there are Alt-A and B, 1st and 2nd mortgages available through the private mortgage market.

For years, Mortgage Investment Corporation (MIC) lenders have provided billions of dollars of this private alternative mortgage financing. But under proposed regulations, this opportunity for borrowers and brokers will be severely curtailed, causing measurable economic harm.

Some background…

Have you ever heard of an Exempt Market Product? They’ve been growing in popularity, becoming an attractive alternatives to stocks, mutual funds and other publicly traded investments.

Exempt Market Products are basically investments that are not required to be offered to the public byProspectus. Instead, they can be offered by way of anOffering Memorandum, a disclosure document that is well-established and proven effective.

In Ontario, however, there is no Offering Memorandum option. Only wealthy individuals can make investments in Exempt Market Products, which is eminently unfair to the average — non-wealthy — investor.

Over the last few years Canada’s Federal government has been trying to create a national securities regulator. Ottawa’s goal has been to address inefficiencies that stem from 13 provinces and territories having their own securities commissions.

The federal government took the case all the way to the Supreme Court of Canada in 2011. While the Supreme Court ruled that securities regulation is a provincial responsibility, it also recognized that the Federal government has standing with the provinces.

Last fall the Federal government and the governments of British Columbia and Ontario announced that they were forming a new single Cooperative Capital Markets Regulator (CCMR), which hopes to attract other provinces to join. The goal is to commence operations by July 1, 2015.

The Ministries of Finance of British Columbia and Ontario are now drafting new securities legislation of their own that will transfer regulation and oversight to the CCMR. Harmonization of securities regulation and oversight between British Columbia and Ontario is the goal of the new regulator. While efforts to streamline capital markets is a positive step, concerns are mounting over this proposal in question.

What’s Proposed

The changes proposed will severely diminish investors’ rights to guide their own investment choices. They will also restrict the amount of capital that can be raised through the Exempt Market, thus limiting access by Canadian borrowers to private non-conventional, non-insured mortgage financing.

There are two worrisome changes in particular:

  1. Investors will be subject to drastically reduced investment limits (a maximum of either $30,000 or $10,000 per year for all Exempt Market investments combined, as determined by their income and “net investable assets classification”), and;
  2. Investors will be prohibited from dealing directlywith related issuers, and instead be required to make investments through a third party (stock broker, financial planner, investment advisor, EMD, etc.). This introduces news costs, inefficiencies and potential information barriers for Canadians who wish to participate in this growing investment class.

These changes will have severe repercussions on the amount of private mortgage financing available to Canadian borrowers.

Why is this issue important to investors?

Ontario has traditionally stood against the public’s ability to invest in Exempt Market Products, which include mortgage investments. In British Columbia and elsewhere, virtually anyone can make such investments.

In an effort to make Exempt Market Products more widely available in Ontario, the Ontario Securities Commission (OSC) recently published a proposal to create a new Offering Memorandum with guidelines for Exempt Markets. These proposals make substantive changes to both investor qualifications and dealer requirements.

Some changes are positive for the industry as they further enhance investor protection. As one example, investor decision-making will now be aided by improved investor suitability, oversight and enforcement. That said, these are already common standards for Offering Memoranda in provinces like British Columbia.

Under British Columbia’s long-standing Offering Memorandum exemption anyone can invest in an Exempt Market product in any amount they choose. They can do it through any dealer they choose, with no investor eligibility requirements or investment limits. They do, however, have to meet suitability requirements and then read and sign the traditional risk acknowledgement.

As a result, British Columbia investors presently have a clear advantage. It is this advantage that the proposed British Columbia-Ontario alignment will eliminate. We must therefore ask the question: Should investment rights be eliminated because Ontario, the larger of the partners, wishes to impose its will on British Columbians?

The Canadian Securities Administrators (CSA) — Alberta, Quebec, Saskatchewan and New Brunswick regulators — have proposed and published for comment similar, but more flexible, Offering Memorandum exemptions: National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). Like in B.C., under CSA’s Offering Memorandum exemption anyone can invest in an Exempt Market Product.

What you can do

To defeat this proposal, Canadians must voice strong opposition to it. It is regulatory policy that could severely limit private mortgage funds, increase borrowers’ costs and limit their choices. Governments and regulators need to understand that this hurts borrowers, investors and brokers.

To achieve this, you the consumer and/or broker need to provide your voice on the proposed regulations.

Provincial regulators are seeking feedback, and the deadline to provide input is just 10 days from today:June 18, 2014.
 
Where to send your response (Individual investors)

British Columbia — Click here for instructions.

Ontario — Click here for instructions.

Alberta, Saskatchewan, Quebec & New Brunswick — Click here for instructions.

Where to send your response (Mortgage brokers)

British Columbia & Ontario — Click here for instructions.

Alberta, Saskatchewan, Quebec & New Brunswick — Click here for instructions.

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