With mortgage rates still hovering at historic lows, chances are you’ve considered breaking your current mortgage and renewing now before rates begin to rise.

In June, Finance Minister Jim Flaherty unveiled major changes to the limits of what the Canada Mortgage and Housing Corporation is allowed to insure, effectively tapping the brakes on a housing industry that many experts worry has become too hot.

Starting Monday, lenders can only issue home equity loans up to a maximum of 80 per cent of a property’s value — down from 85 per cent. And anyone wanting to buy a home worth more than $1 million, for instance, must now have a downpayment of at least $200,000.

But the biggest change of all is the shortening of the maximum amortization period to 25 years from 30 years — forcing borrowers to pay back their debts sooner. That will reduce the amount of interest they’ll pay over the life of the loan, but make mortgage payments larger as more debt gets paid back with each payment.

The impact of those moves is expected to be significant, but a survey conducted by Pollara for Bank of Montreal found only about half of those surveyed were familiar with the changes brought in by the federal government. And yet two-thirds of respondents indicated they were familiar with the current mortgage rules in Canada.

Only 45 per cent of those surveyed June 29 to July 4 were aware that the maximum amortization period has been shortened by five years, the poll found.

Even among those who knew there are new rules, a full 26 per cent of poll respondents believe that the maximum amortization length is still 30 years.

The limits on Canada’s insured mortgage market are now back to where they were in 2006 before the Harper government started tinkering with the rules to allow more people to qualify.

The Pollara survey consisted of an online sampling of 1,000 Canadians between June 29 and July 4.

1. What’s the best rate I can get?

• Your      credit score plays a big part in the interest rate for which you will      qualify, as the riskier you appear as a borrower, the higher your rate      will be. Rate is definitely not the most important aspect of a mortgage,      however, as many rock-bottom rates often come from no frills mortgage      products. In other words, even if you qualify for the lowest rate, you      often have to give up other things such as prepayments and porting privileges      when opting for the lowest-rate product.

 2. What’s the maximum mortgage amount for which I can qualify?

• To      determine the amount for which you will qualify, there are two      calculations you’ll need to complete. The first is your Gross Debt Service      (GDS) ratio. GDS looks at your proposed new housing costs (mortgage      payments, taxes, heating costs and 50% of strata/condo fees, if      applicable). Generally speaking, this amount should be no more than 32% of      your gross monthly income. For example, if your gross monthly income is      $4,000, you should not be spending more than $1,280 in monthly housing      expenses. Second, you will need to calculate your Total Debt Service (TDS)      ratio. The TDS ratio measures your total debt obligations (including      housing costs, loans, car payments and credit card bills). Generally      speaking, your TDS ratio should be no more than 40% of your gross monthly      income. Keep in mind that these numbers are prescribed maximums and that      you should strive for lower ratios for a more affordable lifestyle. Before      falling in love with a potential new home, you may want to obtain a      pre-approved mortgage. This will help you stay within your price range and      spend your time looking at homes you can reasonably afford.

 3. How much money do I need for a down payment?

• The      minimum down payment required is 5% of the purchase price of the home. And      in order to avoid paying mortgage default insurance, you need to have at      least a 20% down payment.

 4. What happens if I don’t have the full down payment amount?

• There      are programs available that enable you to use other forms of down payment,      such as from your RRSPs, a cash-back product, or a gift.

5. What will a lender look at when qualifying me for a mortgage?

• Most      lenders look at five factors when determining whether you qualify for a      mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history;      and 5. Value of the Property you wish to purchase. One of the first things      a lender will consider is how much of your total income you’ll be spending      on housing. This helps the lender decide whether you can comfortably      afford a house. A lender will then look at your debts, which generally      include monthly house payments as well as payments on all loans, credit      cards, child support, etc. A history of steady employment, usually within      the same job for several years, helps you qualify. But a short history in      your current job shouldn’t prevent you from getting a mortgage, as long as      there have been no gaps in income over the past two years. Good credit is also      very important in qualifying for a mortgage. The lender will also want to      know that the house is worth the price you plan to pay.

 6. Should I go with a fixed- or variable-rate mortgage?

• The      answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that      you can comfortably spend on your mortgage, it’s smart to lock into a      fixed mortgage with predictable payments over a specific period of time.      If, however, your financial situation can handle the fluctuations of a      variable-rate mortgage, this may save you some money over the long run.      Another option is to opt for a variable rate, but make payments based on      what you would have paid if you selected a fixed rate. Finally, there are      also 50/50 mortgage options that enable you to split your mortgage into      both fixed and variable portions.

 7. What credit score do I need to qualify?

• Generally speaking, you’re a prime candidate      for a mortgage if your credit score is 680 and above. The higher you can      get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage,      but the key for those with lower credit scores is the      size of the down payment. If you      have a sufficient down payment, you      can reduce the risk to the lender providing you with the mortgage.      Statistics show that default rates on mortgages decline as the down      payment increases.

8. What happens if my credit score isn’t great?

• There  are several things you can do to boost your credit fairly quickly.      Following are five steps you can use to help attain a speedy credit score boost: 1) Pay down credit cards.   The number one way to increase your credit score is to pay      down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit      scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your      credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may      have paid the balance off the next month. 3) Check credit limits. If your lender is slower at      reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit      bureau is left to only use the balance that’s on hand. The problem is, if  you consistently charge the same amount each month – say $1,000 to $1,500   – it may appear to the credit-scoring agencies that you’re regularly      maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards.  Older credit is better credit. If you stop using older      credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use      these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute  any mistakes or situations that may harm your score. If, for instance, a  cell phone bill is incorrect and the company will not amend it, you can  dispute this by making the credit bureau aware of the situation.

9. How much will I have to pay for closing costs?

• As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximatel $350).

 10. How much will my mortgage payments be?

• Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your      specific mortgage payments: www.dominionlending.ca/mortgage-calculators

The upside in a global stock market rout may ironically be a healthier housing market – at least in the short term, say economists.

“The housing market has nine lives. Every time interest rates are supposed to go down, something happens and it helps to keep the market going,” said Benjamin Tal, senior economist at CIBC World Markets.

Interest rates were supposed to be headed up before the crisis of terrorist attacks in New York on 9/11, and the last crash in 2008. But that didn’t happen. And it looks like rates will be staying down for a while, says Tal.

The market is already betting that Bank of Canada Governor Mark Carney’s plans to hike interest rates as soon as September will have to be put off until the end of next year.

South of the border, the Federal Reserve said Tuesday that it expects “exceptionally low levels of the federal funds rate at least through mid-2013.”

And ironically, while the U.S. has experienced a downgrade in its credit rating from Standard & Poors, investors have continued to pile into the Treasuries market.

The U.S. dollar remains the global reserve currency as investors head for shelter as they find few safe haven options out there.

The demand for treasuries means that yields have gone even lower. Which means there is downward pressure on longer-term interest rates. Long-fixed term rates are affected by a variety of factors such as competition for funds in financial markets and to prices in the bond market. Short-term rates are more affected by the key overnight central bank rate.

“The interest rate environment will continue to be very attractive for homebuyers for both short term and longer term borrowing costs. With the safety of U.S. bonds that’s keeping longer term rates low,” said Scotiabank economist Adrienne Warren.

World markets breathed a huge sigh of relief on Monday after President Barack Obama said U.S. lawmakers agreed to a last-minute deal to raise the U.S. debt ceiling, preventing the world’s largest economy from defaulting.

Obama said Republican and Democratic leaders thrashed out the details of a deal that would cut more than $2 trillion of federal spending over the next decade and avoid a potentially devastating default.

The agreement has to be voted for by both houses in Congress, though no votes are anticipated Monday.

“It still has to be approved by Congress, so there is always the potential for a stumble here, but market reaction seems confident it will pass,” said David Jones, chief market strategist at IG Index.

Investors have watched the political brinkmanship over the past couple of weeks with increasing anxiety. A failure by U.S. lawmakers to agree an increase in the debt ceiling by Tuesday’s deadline raised the real prospect that the U.S. government would not be able to pay all its bills.

The spectre of a debt default had weighed on markets in recent weeks, sending stocks sharply lower. Obama’s announcement that a deal is near caused stocks to rally on Monday.

In Europe, the FTSE 100 index of leading British shares was up 1.3 per cent at 5,890, while Germany’s DAX rose 0.7 per cent to 7,208. The CAC-40 in France was 1.1 per cent higher at 3,712. Wall Street was poised for a solid open, too — Dow futures were up 1.2 per cent at 12,236 while the broader Standard & Poor’s 500 futures rose a similar rate to 1,304.

In contrast to the stock market gains, gold was trending lower after hitting an all-time high last week as investors searched out the precious metal through its widely-perceived as a safe haven. It was trading 0.8 per cent lower at $1,615 an ounce.

Though a debt default appears to have been avoided, worries over U.S. finances are likely to persist and a number of analysts think the credit rating agencies may still downgrade the country’s triple A rating.

Lee Hardman, a currency economist at The Bank of Tokyo-Mitsubishi UFJ, said the dollar is likely to “come under increasing selling pressures in the weeks ahead in anticipation of a downgrade.”

The dollar drifted lower against the euro on Monday following news of a deal. The euro was trading 0.4 per cent higher on the day at $1.4441.

Once a deal is signed, sealed and delivered, investors will likely start to focus on a raft of economic data this week, which culminates Friday with the closely watched monthly U.S. non-farm payrolls report. The consensus in the markets is that the U.S. economy only generated around 100,000 jobs during July, not enough to get the unemployment rate lower.

Figures last week showed that the U.S. economy grew by a much lower than expected annualized rate of 1.3 per cent in the second quarter of the year.

Later Monday, the main point of interest will the monthly U.S. manufacturing survey from the Institute for Supply Management. They come in the wake of weak manufacturing surveys for the eurozone, Britain and China.

A growing concern in the markets is that China, which has been a bright spot over the past few years, is slowing down sharply. That could have repercussions for other countries that are looking for it to continue shore up the global economy.

Chinese shares underperformed their counterparts in Asia after HSBC’s purchasing managers’ index fell to its lowest level in 16 months and showed manufacturing activity contracting. A survey by an industry group, the China Federation of Logistics and Purchasing, showed activity expanding but only slightly. China’s main index in Shanghai rose only 0.1 per cent to 2,703.78.

Elsewhere in Asia, Japan’s Nikkei 225 stock average closed up 1.3 per cent at 9,965.01 and South Korea’s Kospi gained 1.8 per cent to 2,172.31. Hong Kong’s Hang Seng added one per cent to 22,663.37 and China’s Shanghai Composite Index rose 0.1 per cent to 2,703.78. Oil prices spiked higher alongside equities. Benchmark oil for September delivery was up $1.34 to $97.04 a barrel in electronic trading on the New York Mercantile Exchange.

By The Associated Press, cbc.ca, Updated: August 1, 2011 7:08 AM

By The Canadian Press             

TORONTO – Moody’s Investor Services is renewing Canada’s debt rating at triple-A, the highest possible.

The firm said the AAA rating was warranted due to the country’s high degree of economic resiliency, efforts by Ottawa and the provinces to deal with their debt ratios over the coming years and other factors.

Moody’s says the state of Canada’s housing market and Quebec’s sovereignty issues do pose some risk, but the risks are low.

The housing market also poses some risk because many mortgages are insured by a federal Crown corporation.

But Moody’s says it considers a major downturn of the housing market as unlikely and, even in an extreme case, Ottawa’s extra costs would be relatively small.

Similarly, Quebec’s sovereignty movement doesn’t seem to pose a significant risk since the issue doesn’t appear high on the political agenda

OTTAWA— Home prices measured by a major national index surged for a sixth straight month to new highs in May but are expected to ease in the months ahead.

The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes in six metropolitan areas, rose 1.3% in the month, the second consecutive month in which it gained more than one per cent and the largest gain since July 2010.

The month-over-month gains were spread across all six cities covered, with all but Halifax reporting gains of 0.5% or more.

May gains were led by the Vancouver and Toronto markets, ahead 1.6% and 1.7%, respectively, and followed by Montreal (0.7%), Calgary (0.6%), Ottawa (0.5%) and Halifax (0.1%).

“The well-above-one-per-cent monthly rises of the composite index in April and May were fuelled by the Vancouver market,” said the report’s author, senior economist Marc Pinsonneault.

“Given the time lags between home sales and their entry in public land registries, it is possible that the large April and May rises of the composite index were due to front-loading of sales to beat the March effective date of an announced shortening of the maximum amortization period for insured mortgages.”

“This spike in activity is now behind us. Therefore, the recent large monthly rises in home prices in Canada should not be a lasting trend.”

On an annual basis, prices rose 4.4% in May, the same pace of advance as in May.

TABLE

Composite House Price Index for May

Metropolitan area / Index level /m/m change / y/y change Calgary / 153.72 / 0.6 % / -4.1 % Halifax / 134.26 / 0.1 % / 4.8 % Montreal / 141.36 / 0.7 % / 6.3 % Ottawa / 133.30 / 0.5 % / 5.6 % Toronto / 128.72 / 1.7 % / 4.6 % Vancouver / 164.92 / 1.6 % / 6.2 % National Composite / 142.27 / 1.3 % / 4.4 %

Source: Teranet-National Bank

Posted in: Economy, Real Estate Tags: home prices, Teranet-National Bank Composite House Price Index, Toronto, Vancouver

With the very real possibility of a rate hike in the near future, for many in the lending business, particular attention is going need to be directed towards due diligence and, for some clients, on the business of debt management. 

According to a new report released from BMO Economics, “interest rates are likely to increase in October and again in December, before pausing next summer. This will leave the Bank of Canada’s benchmark rate at 2.5 per cent by the end of 2012, meaning Canadians would benefit from looking for ways to reduce debt before rates go up. The latest numbers show consumers have started to do that, with Canadians’ debt growth slowing.”

So then, there is no time like the present to prepare for the future, and the same can certainly be said for debts and borrowing.

In the same report, BMO suggested that lenders take a proactive approach with their clients in tackling strategies that consider ways in which to make debts manageable as the cost of borrowing is about to rise.

With an eye to keeping affordability in view, they recommend several steps to advise clients on how to keep debt under control:

Have a budget and stick to it: The best way to manage debt is to identify spending patterns and determine what people can afford.  Also, budget setting must take into account possible rises in interest rates, and include things like an emergency cushion-so that the bounds of affordability are not stretched to the outside limits. Beyond setting out a budgetary plan, borrowers must live it daily. Now is a good time to test drive a budget, given the still low interest rate environment.  It is kind of like a dress rehearsal for the real thing.

Eliminate or curb credit card debt. Some of the real problems with debt management lie in high interest credit card debt- that is often easier to qualify for, and support many impulse purchases that threaten budgetary plans.

Really look at wants vs. needs.  With an interest rate hike on the horizon, it makes good sense to really examine want vs. need, and to make these hard decisions now. Obviously, needs come first- and wants are items that can be purchased over time, when the budget allows.

Become debt free as soon as is reasonably possible. Of course, people would love to immediately be debt free- but debt management takes a sustained effort over a period of time. Start with higher interest rate debt, and then work on mortgage debt by taking advantage of things like shorter amortization and prepayment options.

http://www.therecord.com/news/business/article/547758–td-bank-forecasts-low-interest-rates-this-year