Just when we thought there were enough headlines to fill our monthly update, the federal government made an announcement only minutes before the long weekend. Without giving too much away, there are a number of changes being made in the coming months, which will affect homebuyers with down payments of less than 10% and anyone buying in Alberta. Tack that onto the mortgage rates war the big banks tried to get into, and it was a busy month in the mortgage industry. Here’s what made the headlines:
In two month’s time, the Canada Mortgage and Housing Corporation (CMHC) will be increasing its mortgage default insurance premiums by 15% for anyone who puts down between 5 and 9.99% of the purchase price of their home. While that amount might sound dramatic, it is only expected to add on $5-7 to the average monthly mortgage payment. CMHC insurance, as it’s otherwise known, is mandatory on all homes purchased with less than a 20% down payment and is used to protect the lender should a borrower ever default on their loan. The decision to increase the premium is a result of the Crown Corporation being unable to meet its target capital requirements, and it is not expected to have an impact on the housing market.
On July 1, 2015, the Alberta government is going to increase two more fees that homebuyers have to pay: land title transfers + mortgage registrations. Alberta’s land transfer tax, as it’s more commonly known in other provinces, is charged to any buyer who takes possession of a piece of property; the title on the land is literally transferred into the buyer’s name. While the tax is typically thousands of dollars in other provinces, Alberta has instead always levied a much smaller fee – and that’s about to change. Currently, the two fees on a $500,000 home purchased with $100,000 down and requiring a $400,000 mortgage would add up to $290 ($150 land title transfer + $140 mortgage registration). Under the new system, the fees will add up to $1,230 – and remember, this is a closing cost that needs to be paid for with cash before you can pick up the keys to your home. While we’re surprised the fees weren’t increased sooner, it does seem to be cruel to announce it when the province’s economy and housing market aren’t doing so well.
We know this – and if you read our blog regularly, you know it too – but a number of articles were published this month that really drove the point home: when a bank offers you a low mortgage rate, it doesn’t necessarily mean it’s a good mortgage product. In typical spring fashion, BMO dropped its 5-year fixed mortgage product from 2.99% down to a record low 2.79%, before all the other banks. TD quickly followed suit, RBC said they could match it on request and CIBC came out with its first teaser rate of just 1.99% for the first 9 months. So, BMO’s actions caused a short mortgage war, but it was still a war to gain new customers nonetheless. As we wrote last year, though, BMO’s low 5-year rate product comes with some serious restrictions – among them, limited 10%/10% prepayment privileges. If you’re someone who plans to pay their mortgage down early, this would quickly outweigh the short-term benefits of getting a low mortgage rate. As all our mortgage advice goes: do your homework and read the fine print, before you sign the dotted line.
In personal finance news this month, Statistics Canada released new numbers showing that Canada’s household debt-to-income ratio had risen from 162.6 per cent in Q3 2014 to a record high of 163.3 per cent in Q4 2014. In other words, for every $1.00 of income earned, Canadian households owed $1.63. The “debt”, in this case, includes mortgage loans, non-mortgage loans and all consumer credit debt, such as credit cards. The total household debt rang it at $1.8 trillion at the end of December 2014, which is an increase of 1.1% from where it was in September. “The new household debt numbers are a big concern,” said Scott Hannah, President and CEO of the Credit Counselling Society told Yahoo! Finance. “It shows the majority of Canadians are still relying on credit to manage their monthly expenses.” The average non-mortgage debt also increased by 2.9% to $20,967. If you want to get serious about paying down your debt this year, considering moving some of your debt over to a balance transfer credit card and paying it off within the grace period; zero interest could get you to debt zero that much sooner.