This weeks top stories include how changes to the mortgage regulations have slowed mortgage refinancing in Canada, how U.S. consumer spending has risen from last months figures, why you should use a the services of a mortgage broker, how the risk of a housing correction in Vancouver has gone up drastically, how the Obama administration is working on new mortgage plans to help those in need and whether or not it’s time to lock in that mortgage rate.
According to the Canada Mortgage & Housing Corporation (CMHC), changes to mortgage rules and regulations by the federal government earlier this year helped reduce mortgage interest payments and helped consumers to build equity in their homes.
March of this year was when the federal government introduced new rules reducing the maximum amortization period of a mortgage from 35 years down to 30 years. This allowed Canadians to reduce mortgage interest payments by paying more on their mortgages with shorter amortization periods. The government also reduced the amount that Canadians can refinance mortgages for from 90% to 85% after already witnessing a decrease to 90% from 95% recently.
The changes saw refinance activity dropped by almost 40% with 10% less new purchasers utilizing mortgage insurance even with sales volumes being 5% lower. CMHC also stated that consumers are finding it easier to pay off mortgages as arrears levels improved when interest rates went down. This is probably due to the decrease in interest payments on variable rate mortgages and loans. How are you finding the low interest rate environment? Please comment below.
According to the latest government report from The Commerce Department, consumer spending saw a strong increase in the month of July and posted the largest increase on record in the past five months on the heels of a strong demand for motor vehicles.
This may show some strength for the economy in hopes that it will not fall back into a recession. The Commerce Department stated that consumer spending was up 0.8% after dropping 0.1% in the month of June. The figures beat expectations as economists expected spending to increase by only 0.5%. When adjusted for inflation, spending was up 0.5% last month after being flat in the month of June.
The data leads us to believe that the economy kick started in Q3 after witnessing stalled growth in the first half of the year. This also leads us to believe that output may continue to expand in the near future but there are still extensive risks of a new recession taking effect as a sharp drop in stock prices mixed with a decline in consumer sentiment has shaken confidence in the economy. What do you think? Please comment below.
For most people, buying a home is the most expensive purchase of their life. The odd part of this is that only 48% of first time home buyers choose to use a mortgage broker to assist them with the financial portion of obtaining a mortgage.
A mortgage broker is a liaison between the lenders and the borrowers to provide the best possible available rates and terms to the borrower. A mortgage broker does all the paperwork and legwork for you while working with many lenders to secure financing options for you. Our brokerage works with over 50 lenders on a day to day basis not including our vast array of private financiers. A mortgage broker’s job is to save you time and money. They can also make the process quite streamlined for the borrower, working through complicated documents and spelling out conditions in layman’s terms for the client.
When a client shops alone, going from bank to bank, they are not only wasting time but they are tarnishing their credit. Each bank will individually pull a credit report, which will cause your credit score to drop 4-6 points for each time it is pulled. A mortgage broker pulls the credit report once and shares it with all their lenders. A mortgage broker also educates the client as process goes along and works outside of bank hours, making it easy for clients to get a hold of them.
Another advantage to a mortgage broker is that in most cases their services are free. They are paid a finder’s fee from the lender for providing them with a good book of business. So with exceptional customer service, salvaging your credit score, educating you through the process and offering you the most competitive rates, you have nothing to lose except unwanted interest payments. Call me now to find out what a mortgage broker can do you for you.
With little inventory in the Vancouver housing market and a low interest rate environment that has been held for a little too long, Vancouver home prices have reached peaks that have never been witnessed before. The RBC stated on Monday this week that it will take 92% of average household pre-tax income to own a bungalow in the city of Vancouver when looking at current prices.
RBC chief economist Craig Wright commented, “Vancouver really stands alone in its extremes across all housing types. It is no doubt the most stressed market in Canada and the one facing the highest risk of a downturn. With the bar set so high, owning a home is a dream that only the area’s highest-earning households can contemplate. Despite the erosion so far this year, most local housing markets in Canada continue to be reasonably affordable at this juncture or, at worst, just slightly unaffordable. Affordability measures generally continue to stand near their respective long-term averages.”
RBC’s affordability index takes the proportion of pre-tax household income required to service the cost of owning different categories of homes at current market values. The standard measure used by them is a 1200 square foot bungalow including the carrying costs of mortgage payments as well as utilities and property taxes. It also uses a down payment of 25% with a 25 year mortgage using a 5 year fixed mortgage rate. The higher the reading is, the more it costs to own a home based on the current market values.
The U.S. government is working on plans to revive the struggling housing market that are set to be released next week. The plan is to reduce foreclosures and assist troubled borrowers with refinancing their current mortgage. President Obama has been working for weeks on a plan to implement a mortgage relief program and is set to make a statement during his job creation speech next week.
The refinancing program would allow qualified borrowers to refinance loans that are currently backed by the government through Freddie Mac, Fannie May or the Federal Housing Administration. This would allow more borrowers to take advantage of the low mortgage interest rates currently being offered. It would also allow borrowers to refinance regardless if they owe more than the property is worth. This would allow borrowers to refinance at low interest rates, which would decrease their monthly payments and free up cash for consumer spending to aide the economy.
The initial housing program initiatives that were launched in April 2009 did not meet its expectations. The program was labeled as the Home Affordable Refinance Program and was established to prevent 4 million to 5 million homeowners from taken into foreclosure proceedings. Until May of this year, it was recorded to have helped roughly 810 000 homeowners refinance their mortgages with lower mortgage interest rates according to the Federal Housing Finance Agency. I wonder what President Obama will come up with. What do you think? Please comment below.
Last week was a busy week in the mortgage industry as most major banks chose to reduce their discount variable rate mortgages. This, mixed with a gap between short term and long term interest rates shrinking, may be enough to sway anyone with a mortgage that it’s time to consider locking in with a fixed rate.
Clients are definitely starting to focus more on fixed rates as competition on four and five year fixed mortgage rates is fierce right now. There is a gap of as much as 200 basis points (Bps) between the banks posted rate 5 year fixed rate of 5.39% and our 5 year fixed rate of 3.39%. To spur competition utilizing other products, we are finding that the four year fixed rate is being priced just as aggressively as the 5 year with current 4 year fixed rates as low as 3.09%.
The discounting on the fixed is to offset recent increases to the variable rate that is causing the variable rate to be more expensive this week when compared to last week. Short term money has become more expensive in the bond market and this forces banks to reduce the discounts that they are offering. Banks normally adjust their Prime rate with fluctuations to the Bank of Canada’s prime rate. Unfortunately, there is no flexibility left on the Prime rate as existing customers with old mortgage deals are obtaining huge discounts on their variable rates and banks raise rates on new loans to make up the spread. Regardless, it’s still a close call between the variable and fixed rate mortgages. What do you think? Please comment below.
There will be no news next week but I will update you on the Bank of Canada’s overnight lending rate announcement. News to return September 23rd
Check out our great collection of Mortgage Tools. Calculators, Home Owners Checklists and more!
The most comprehensive Mortgage Glossary online bar none.