Tag Archives: Government of Canada

Monday Mortgage Update: April 30, 2012

Posted on by
Reply

At the beginning of the month, we shed some light on the rise of 5-year Government of Canada (GoC) benchmark bond yields over the last few months. This time, we’ll highlight 3-year GoC benchmark bond yields which have also seen a steady incline since the beginning of the year. Tracking bond yields are important because they help drive fixed mortgage rates; in this case, 3-year GoC bond yields drive 3-year fixed mortgage rates.

From January 6th to April 30th, 3-year GoC bond yields have increased 55 basis points (bps). During the first three months of the year, two major Canadian lenders, Scotiabank and National Bank, offered a 3-year fixed rate at 2.79%. That interest rate was among the best mortgage rates in Canada until the end of March. By that time, the 3-yr GoC bond yield was up 31 basis points since the start of January. With that increase, Scotiabank felt the need to remove their big discount and increase the rate to 3.99%.  National Bank hung onto the 2.79% rate for a couple more weeks before hiking it to 3.95%. However, a 3-year fixed rate on Ratehub.ca can still be found for 2.89% through a couple of our esteemed mortgage partners.

CMHC news

According to the Financial Post, Jim Flaherty would consider removing the CMHC from the mortgage default business. One of his concerns was that a government financial institution was providing mortgage insurance. He goes on to say, “I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

Last week, we already saw two major announcements: there are no plans to increase CMHC’s $600-billion limit and the CMHC will now fall under the authority of OFSI, Canada’s banking regulator.
Continue reading →

Monday Mortgage Update: March 5th, 2012

Posted on by
Reply


Government of Canada (GoC) bond yields drive fixed mortgage rates, so when the bond yields go up, fixed rates typically follow. There wasn’t a whole lot of movement last week from 5-year GoC benchmark bond yields, which remained level at 1.42%. Similarly, there was minimal movement from lenders’ 5-year fixed rates. Currently, the best fixed 5-year rate is 3.19%. [1]

The Bank of Canada will release their ‘Interest Rate Announcement’ on March 8, 2012 and most experts are predicting the bank to keep the overnight rate at 1.00%; where it has been since September 2010. The Prime Rate, which is influenced by the Bank of Canada’s overnight rate, is an important driver for variable lending rates. TD Chief Economist, Craig Alexander believes the central bank will keep the rate unchanged until the second half of 2013, where he expects the rate to start creeping up. [2]

RBC also echoed this sentiment in their Financial Markets Report that the overnight rate should start increasing in 2013, although they did not give a specific time frame.
Continue reading →

New to Canada Mortgage

Posted on by
Reply

If you are new to Canada and need a mortgage to finance a home purchase, there are a number of decisions you will need to make and supporting documentation you may need to provide. As a newcomer, you will lack a Canadian credit history and, therefore, may find it more difficult to secure financing.

The first thing you should do is start building credit as early as possible. There are a number of ways to do this, but the first and foremost is to apply for a credit card. Using and paying off a credit card, or, even better, two credit cards, is the easiest and most effective means to build credit.

There are also a number of other recommended tactics as well:

  • Pay your bills in full and on time, including rent, utilities, and telecommunication services.
  • Apply for small loans from your bank and make regular payments.
  • Prove that you have a consistent source of income by staying with the same employer for a sufficient amount of time.

Supporting documentation for a New to Canada Mortgage

The good news is that you can obtain a New to Canada Mortgage with similar terms to a typical mortgage application, but you will need to ensure your chosen lender supports the Canada Mortgage and Housing Corporation (CMHC) New to Canada program. The CMHC is Canada’s leading mortgage insurance provider, and, thus, generally institutes Canadian mortgage requirements.

After you have verified that your lender supports the CMHC program, you should be prepared to provide documentation supporting your credit history and ability to pay. Two things you will definitely need to provide are income verification, via an employment contract and/or salary deposits, and a valid work permit or landed immigrant status. Depending on your individual situation and the lender, there is also an array of other credit proofs you may be required to supply as well.

These credit proofs may include, but are not limited to:

  • Rental payments for ‘X’ months and/or confirmation letter from landlord.
  • Regular payments towards utilities, telecommunications, insurance, etc, and/or confirmation letter from service provider(s).
  • Banking history.
  • Letter of reference from a recognized financial institution.
  • ‘X’ months bank statements.
  • Documented regular savings for ‘X’ months.
  • International credit report.

The remaining inputs for your mortgage application are typical to a traditional Canadian mortgage with only a couple noted exceptions.

Continue reading →

Mortgage regulation changes on the horizon

Posted on by
Reply

On the heels of recent reports that Canadian consumer debt is at an all-time high – surpassing US levels for the first time ever, and exceeding $1 trillion overall – financial regulators are warning tighter mortgage regulations are not far off.

Despite being more leveraged, Canadians did not experience the same scale of recession and housing collapse experienced in the US thanks, in part, to our stricter mortgage regulations. To start, mortgage interest is not tax deductible in Canada, which incentivized US consumers to take on more debt than could be comfortably maintained. This on top of the lax lending practices exercised by US financial institutions, otherwise referred to as NINJA lending, or No Income No Job No Assets. Lenders offered `teaser` rates to sub-prime borrowers with little-to-no documentation required to establish an ability to pay. Many sub-prime borrowers defaulted on their loans, which sat on the books of both US and international institutions, and the rest is history.

For a more detailed explanation of the credit crisis, see Jonathan Jarvis`s video, The Crisis of Credit.

Meanwhile in Canada, we have strict documentation requirements, a minimum down payment requirement of 5% and, at present, a maximum 35-year amortization pay off period. We also now have the benchmark qualifying rate set by the Canadian government, which requires borrowers interested in variable or fixed mortgage rates with terms of less than five years to qualify for a posted fixed 5-year fixed rate. As the posted fixed 5-year rate is higher, the qualifying rate ensures individuals will be able to afford their property if interest rates increase.

Continue reading →