Tuesday, 26 June 2012

New Mortgage Rules-What does it mean to you?

This week, we have a piece contributed by Gianina Kumar, a mortgage advisor with CIBC which I hope you will find helpful and informative. Happy reading!

Submitted by Gianina Kumar, CIBC Mortgage Advisor

"Have you heard the buzz about  mortgages recently? What does it mean for you?

The mortgage changes announced June 21st that are to take effect July 9th may appear on first sight to be sudden, but they certainly are not.

Almost 3 months ago, Finance Minister Jim Flaherty advised banks to tighten lending guidelines on their own. Now, it has been formally announced that he will be doing it for them.

First, let’s look at what these changes are:

  1. The max amortization is now 25 years (previously 30)
  2. The maximum mortgage amount on a currently owned property can only be refinanced to 80% of the value
  3. Any properties over $1 million require a minimum 20% down payment (ie. not CMHC insured)

Clients that I assist with mortgage financing are impacted in various ways depending on their role as a homebuyer/owner.

For those clients that are in the midst of purchasing a home, the reduced amortization is equivalent to paying almost 1% more on the mortgage rate. As an example, for a household earning $75,000/year and no debt, this reduces the maximum mortgage by $49,000 (ref: Canadian Mortgage Trends).  Its important to note that anyone currently holding a pre-approval can still get a 30 year amortization as long as an offer on a property is accepted before July 8, 2012. 

In the case of existing homeowners that are looking to consolidate high interest debts or renovation costs into their mortgage, the total mortgage cannot exceed 80% of the value of the home.  Currently, homeowners would be able to increase their mortgage to 85% of the value of their property if they agreed to pay a small CMHC premium.  Effective July 9th, however, no mortgage can be increased to over 80% of the value. Another way of putting this is that all existing mortgages cannot be increased to the point where they would require to be insured through CMHC (ie. > 80% loan to value).  This will create a larger subset of people that may turn to alternative banks (ie. B-lenders) that offer higher interest rates for the benefit of a larger mortgage.  Some industry experts speculate that refinancing with CASHBACK will become more popular as people look to stay with their A-lender bank (ie. major 5 banks like CIBC, BMO, TD etc..) for a favourable rate but with more equity take out options.

Lastly for the minority of the Canadian population (the majority of which resides in Toronto and Vancouver) that purchase for over $1 Million will now require at least 20% downpayment.  It may sound grand, but realistically a million dollar mortgage doesn’t buy very much in large urban centres like Toronto and Vancouver.  

Amidst all the industry buzz over these changes are whispers of more changes to come. What is expected is stricter lending guidelines for self employed individuals, and potentially having to re-qualify for mortgages at term maturity.  

Stay tuned…"

Gianina Kumar is a mortgage advisor with CIBC and can be reached as follows:

TEL:     1-888-414-4874
FAX:     1-877-404-3117

Monday, 4 June 2012

Sellers Providing Home Inspection Reports-A Tale of Caution

Part of the reason I started this blog was to inform others of mistakes past clients have made and educate my readers. In this week's blog, we deal with another potential issue in purchasing a resale property. As a result of high demand and low supply for resale residential real estate, the GTA housing market has come to understand multiple offer situations as commonplace. Often in a multiple offer situation, the Sellers encourage a potential buyer to submit an offer without conditions, what is otherwise known as a "clean offer". For the buyer, this means that all the normal steps that would be taken to investigate the property itself are dispensed with and no inspection of the property ever takes place. Of course, this is risky and dangerous as the buyer has no idea what problems await her after closing.

Sometimes, a shrewd listing agent will have an inspection report prepared and made available for a potential buyer to review prior to submitting an offer. Sounds pretty good, right? What if the inspector doesn't report all the problems in the report?

Using an inspection report prepared by the Seller's inspector is not a safe substitute for obtaining your own inspection report. For starters, you don't know if the inspector retained by the Seller is actually well qualified to prepare the report itself. More importantly, often these inspection reports have a disclaimer that it can not be relied upon by anyone other than the person who paid for it. If there are mistakes or errors in the report, it will be difficult to successfully sue the inspector since you never retained them.

If you do rely on an inspection report prepared for the Seller, you do so at your own risk.