Monthly Mortgage Update: June 2013
CMHC Amidst Major Changes
In March of this year, Finance Minister Jim Flaherty presented the idea of placing the Canada Mortgage and Housing Corporation (CMHC) under the auspices of the Office of the Superintendent of Financial Institutions (OSFI). This decision came as a result of the Crown Corporation selling too much bulk or portfolio insurance to banks, forcing Flaherty to decide it was time to reduce the federal government’s exposure to the Canadian housing market. And apparently this decision, on top of a number of mortgage rule changes made over the last two years, has given him the results he was hoping for.
In the first three months of this year, the total amount of CMHC insurance out in force dropped by $3.5 billion, to $562.6 billion. This number fluctuates when homeowners pay down their insured mortgages or when CMHC sells more insurance. Most of the decline this year is said to come from the bank’s inability to sell insurance in bulk now, but can also be attributed to changes in the mortgage lending rules. CMHC said that insurance needed on new mortgages dropped by 23 per cent, shortly after Flaherty decreased the maximum amortization period on high-ratio mortgages from 30 years to 25 years.
Unfortunately, for CMHC, these are not the only changes the Crown Corporation is experiencing. Starting at the top, CMHC CEO Karen Kinsley is stepping down after 25 years. Former Wall Street banker Robert P. Kelly is getting ready to start his new position as chairman of the board. And while a new CEO has yet to be revealed, it’s obvious the reporting structure at CMHC is about to experience a major overhaul. With CMHC under tighter scrutiny, lenders may be more cautious about lending to riskier borrowers like first-time homebuyers. If you’re thinking about buying a house, now might be the time to jump in – who knows what further mortgage changes are in store.
Canadians Taking Advantage of Low Rates
Despite the federal government’s concerns about household debt, it seems Canadians are taking advantage of low mortgage interest rates by paying down their mortgage debt quicker than ever. Canadians who paid off their mortgages between 2010 and 2013 did so in an average of just 11.7 years, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). While the new mortgage rules have made homeownership slightly less affordable for many first-time buyers, there are significant benefits to owning versus renting. And as soon as you repay your mortgage in full, you can accelerate your retirement savings and even rent out part or all of your property to generate cash flow.
Whether or not first-time buyers today could ever repay their mortgages in the same timeframe as those who bought in the early 2000s is yet to be seen, and highly unlikely considering the lack of affordable housing in many parts of the country. But it’s important for buyers to consider how much they can truly afford and get a mortgage rate and product to match their financial situation, before jumping into homeownership.
You can see more of what is happening in Canada’s mortgage market today here.
Bank of Canada Stands Pat on Interest Rates
In Mark Carney’s final interest rate announcement as Governor of the Bank of Canada (BoC), he left the overnight lending rate at 1 per cent. With economic growth stalling and the U.S. showing no signs of increasing their own interest rates anytime soon, Carney’s decision came as no surprise. With the BoC’s new governor, Stephen Poloz, set to make the next interest rate announcement on July 17th, anything is possible. The overnight lending rate has remained unchanged since September 2010, but most experts don’t see a rate increase coming until at least mid-2014.