Source: www.canadianmortgagetrends.com

The average Canadian’s debt-to-income ratio is now 145%—an all-time high (largely due to greater mortgage costs).

Home prices are now five times the average persons’ after-tax income (the long-term average has been 3x).

The above are taken from this Vanier Institute report.

The report also said mortgage arrears are up 50% year-over-year. Some of the media has picked up on this, suggesting that defaults are soaring.

Not exactly.

The arrears statistics Vanier quotes have been out for a while. October arrears (upon which Vanier’s findings are based) were announced a few months ago, so this isn’t the breaking news some have made it out to be.

More importantly, while a 50% arrears increase may sound large (it’s actually 44% based on the latest data), the absolute number of arrears is still ultra-low by international standards.

Less than 5 out of 1,000 Canadian mortgagors is in arrears (i.e., late on payments by 90 days or more).

Compared to a year ago, 5,699 more borrowers were in arrears (based on the October 2009 data used in the report).

On the other hand, there were 91,986 more mortgages in that same one-year time period.

In all, Canadian Bankers Association (CBA) data includes almost four million mortgages in total.

So again, on an absolute basis, arrears have not been abnormally high, and Canada does not have an arrears problem.

As for a consumer debt problem, well, that’s another matter.

Source: mortgagebrokernews.ca

Federal Finance Minister Jim Flaherty announced three new rule changes connected to government-backed insured mortgages Tuesday morning, saying the government is “taking proactive, prudent and cautious steps” to prevent a housing bubble.

The biggest change is the requirement that all borrowers be qualified at a five-year fixed mortgage rate even if they choose a shorter-term, lower-interest product.

The government also lowered the maximum amount Canadians can withdraw in refinancing their mortgages from 95 to 90 per cent, and introduced a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased “for speculation.”

George Hugh, vice-president of lending sales at ING Direct, said the rule changes won’t be a big adjustment for ING because it already qualifies borrowers at three-year terms even if they’re taking out a mortgage with a shorter term.

“I think it’s proactive behaviour – the changes will have more impact on some lenders compared to others, but I think overall they’re very good for the market,” said Hugh.

Don Bayer, president of the Toronto-based independent brokerage Monster Mortgage, said he expected the rule changes to be tougher, adding he would have liked to see a more across-the-board rate for mortgage qualifications.

“Some banks have posted rates and some don’t, so what they should’ve done is put a prescribed rate out there so that the whole industry had to follow one rate – for example if the variable rate is two per cent they have to qualify borrowers at five per cent,” said Bayer, who also questioned the motive behind banks requesting the rule changes.

“What I find a little ironic is that it’s the banks that wanted the government to intervene, yet it’s the banks that control 90 per cent of the mortgage market – so is this being done to eliminate third parties from originating mortgages in Canada? I don’t know. The majority of the banks are our customers as well, so I don’t know why the banks are suddenly so concerned over this.”

The rule changes are set to come into effect on April 19.

Under the RRSP First Time Home Buyers Plan (HBP) first-time home buyers are able to withdraw up to $25,000 from their RRSP to use as a down payment towards their first home absolutely TAX FREE.

It gets better! If you are a first-time home buyer and you are purchasing a home with your spouse (and your spouse is a first-time home buyer as well), you both can withdraw $25,000 each from your accounts to a maximum total of $50,000 tax free to use as a down payment.

You may be asking what the terms are for repayment. Well, you will have up to 15 years to pay back your RRSP from the second year after the year of your withdrawal with the requirement that 1/15 of the borrowed amount be paid back per year.

You might ask why you would choose to forego the growth in RRSP’s by withdrawing this for a down payment and the simple answer is, this could be a great way for those individuals wishing to purchase a home but do not have the necessary savings for a down payment. In terms of losing out on the growth of the RRSP’s, one can also think that most properties appreciate in value and the  appreciation in the property purchased more than makes up for the loss in RRSP earnings.

THINGS TO REMEMBER IF YOU WISH TO PURSUE THIS:

• You MUST be a first time home buyer and a resident of Canada at the time of withdrawal.
• You MUST purchase/build your home before October 1st after the year of withdrawal
• RRSP contributions up to 90 days before the withdrawal date can be used towards this plan
• If you do not repay 1/15 of the borrowed amount in any given year, you will have to claim this as income for that year.

To access your RRSP’s through the Home Buyers Plan, you must fill out form T1036 at your financial institution for the withdrawal, and file an income tax return for the year of withdrawal, along with each consecutive year until the withdrawn RRSP funds is fully repaid.

If you would like to learn more about this program, please visit the CRA site: Home Buyers’ Plan (HBP)

Source: The Toronto Sun

Canadians are playing it safe when it comes to mortgages, according to a new survey on lenders and borrowers released Thursday.

The Canadian Association of Accredited Mortgage Professionals found the overwhelming majority, 86% to be exact, of homebuyers in this country chose a fixed-rate mortgage in 2009. However that proportion did fall late in the year as variable rates became more attractive thanks to all-time low interest rates.

Fixed-rate loans are considered less risky than variable-rate terms since payments are set for a specific number of years.

First-time homeowners were among the most prudent, borrowing less than they could afford, as their gross debt service ratio came in below allowable limits.

“This new research shows that Canadians are assessing their abilities and vulnerabilities,” said Jim Murphy, AMP, president and chief executive of CAAMP.

“They are being prudent and the vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions.”

The report stands in contrast to Bank of Canada findings late last year, which suggest Canadians are more indebted than ever.

Concern lies with interest rates, which are expected to rise from historical lows later this year. Variable-rate borrowers won’t be able to keep up, the theory goes.

Will Dunning, CAAMP chief economist, did acknowledge the small minority of people who may find themselves teetering on the brink.

Each year, about 2.5 to 3% of Canadian households make a first-time home purchase, he said.

“Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

Although average mortgage payments are likely to rise for most borrowers, so too will their incomes, offsetting any potential risks.

“All in all, the degree of risk from rising mortgage rates appears to be small and manageable,” Dunning said.

CAAMP’s report surveyed 40,000 mortgage loans issued in 2009, totalling $10 billion and representing approximately one-sixth of mortgage activity in the country.

Source: The Spagnuolo Group of Real Estate Firms

There has been a shortage of rental units for years in British Columbia. In order to address this, the Provincial Government recently passed legislation dealing with the rental provisions of the Strata Property Act (”SPA”).

Under the old section 143 of the SPA, a rental restriction bylaw passed by a Strata Corporation did not apply to that strata lot until the strata lot was conveyed by the first owner after the developer or until the date that the rental period disclosed in the RDS expired, whichever was earlier. Essentially the first owner was always able to rent out the strata unit until the expiration of the rental period disclosed in the RDS, but not subsequent owners.

Pursuant to the amended Section 143 of the SPA, for a new RDS filed after December 31, 2009, a rental restriction bylaw will not apply to that strata lot until the date that the rental period disclosed in the RDS expires. This expiration is usually a long time away: perhaps 99 years or even indefinite.

Therefore, practically speaking, starting January 1, 2010, a new RDS will benefit every subsequent owner of that strata lot rather than just the first owner after the developer. All future owners will be able to rent the strata lot without being subject to any rental restriction bylaw for as long as the rental period disclosed in the new RDS allows them to.

This does not apply to strata buildings where the RDS was filed prior to Dec. 31, 2009.