March 18 New Mortgage Rules

What are the new mortgage loan insurance requirements?

Effective March 18, 2011:

• Reduce the maximum amortization period from 35 to 30 years for new insured mortgages with loan-to-value ratios of more than 80 per cent.
• Lower the maximum amount Canadians can borrow when refinancing  a 1 – 4 unit owner-occupied property from 90 to 85 per cent of the value of their homes.

Effective April 18, 2011:

• Mortgage loan insurance will no longer be available for non-amortizing secured home equity lines of credit, or HELOC.

I already have an insured mortgage. How will these changes affect me?
CMHC mortgage insurance is good for the life of the mortgage. Borrowers renewing an insured mortgage will not be affected by these changes. For example, if a borrower had a 40 year amortization and there are 37 years remaining on the mortgage, the mortgage can be renewed with a 37 year amortization, as long as no new funds are being added to the mortgage. 
What is required to qualify for an exception to the new parameters?

If the approved lender has documentation of a binding purchase and sale, financing or refinancing agreement and that agreement was dated before March 18, 2011, CMHC will not apply the new parameters, even if the application for insurance is received by CMHC on or after March 18, 2011.
Will a purchase and sale agreement dated prior to March 18, 2011 be considered binding if there are outstanding conditions that have not been fulfilled prior to March 18?

Yes, if the date on the purchase and sale agreement is earlier than March 18, the new parameters will not apply, even if the conditions of the agreement have not been waived.

Will the new refinancing rules allow a borrower with a mortgage above 85 per cent loan-to-value (LTV) to refinance by extending the amortization period?
No. Effective March 18, 2011, borrowers will not be permitted to refinance a mortgage above an  85% loan-to-value, unless the borrower has a binding refinance agreement dated prior to March 18, 2011.

I have a written mortgage pre-approval from a lender, dated before March 18, 2011 with a 35 year amortization. Will I still be eligible for a 35 year amortization if I don’t sign an agreement of purchase and sale until March 18 or later?
No, a mortgage pre-approval is not considered to be a “binding agreement”. You may have a 35 year amortization only if your agreement of purchase and sale is dated before March 18, 2011.

Will the new parameters apply to assignment (“switch” or transfer) of a previously-insured loan from one approved lender to another?
No. As long as the loan amount and amortization period are not increased, the new parameters will not apply to a switch/transfer/assignment of mortgage to a different approved lender.

If I sell my current home and buy another, will the new parameters apply if I transfer the outstanding balance of my CMHC-insured mortgage to the new home?
As long as the outstanding balance of the insured loan, the loan-to-value ratio and the remainder of the amortization period are not increased, the new parameters will not apply when the CMHC mortgage insurance is transferred from one home to another.

What if I need to increase the amount of my insured loan when I sell my current home and buy another?
In this situation the new parameters will apply for any insured loan. 
Is it only new Home Equity Lines of Credit (HELOCs) that are affected by the new parameters or existing HELOCs as well?

As of April 18, 2011, CMHC  will no longer offer mortgage loan insurance on non-amortizing lines of credit to approved lenders, such as HELOCs. However, if a HELOC is already CMHC insured then it remains insured for the  life of the mortgage.

HELOCs will no longer be insurable as of April 18, 2011. Is there any situation which would quality for an exception (e.g. binding agreement) to allow for these loans to be insured? 

No. As of April 18, 2011, non-amortizing lines of credit will not be eligible for mortgage loan insurance. Lenders can continue to offer non-amortizing HELOCs with a loan-to-value ratio up to 80 per cent on an uninsured basis. 

http://www.cmhc-schl.gc.ca/en/corp/faq/faq_008.cfm

When I meet potential clients who are inquiring about selling their homes, I always ask them about their current mortgage and whether or not it is a fixed or variable rate. Most often they are locked into a fixed rate mortgage. I always ask them to call their current lender to see how much the balance owing is and what the penalty is to discharge the mortgage.

Many are surprised when they are told that the penalty is thousands, not hundreds. Many consumers assume that the penalty is 3 months worth of interest when in fact it is 3 months interest or the Interest Rate Differential, whichever is greater. Most often unless you are near the end of the your term on your fixed rate mortgage it will be the IRD. The chart illustrates the potential costs in discharging your fixed rate mortgage early.

Current Mortgage Balance                     $300000
Original Interest Rate                                  5.5%
Current Interest Rate                                3.99%
Remaining Term on Mortgage
(in months)                                                    30
3 Months Interest Penalty                           4125
Interest Rate Differential                         $11325

What this could mean when it comes time to selling.

Market Value                                      $350000
Sold Price                                             340000
Penalty and Balance Owing                   311325
Misc Costs such as Realtor Fees,
Title Insurance, Property Taxes              160000
Balance                                                 $12675

Part of my duties and responsibilities as a realtor and mortgage broker is helping my clients make informed decisions on the costs involved in selling their home.

A Mortgage Pre-Approval – A Smart First Step When Looking for a Home

Getting a pre-approval for mortgage financing before you start to look for a home is a smart move.

A pre-approval assures you of a locked-in mortgage rate for a set period – so there is no risk of any interest rate increases while you are house hunting.  The great news for those who turn to a mortgage broker is that a broker may be able to obtain a longer pre-approval rate hold. Also, with a pre-approval, you’ll get a clear-cut sense of how much you are eligible to borrow. 

Keep in mind that the property you intend to purchase – along with your supporting information (such as income, down payment and employment history) – has to meet the financial institution's criteria to be approved for lending.  Also, a pre-approval is not a guarantee of financing, and does not eliminate the need to make a conditional offer. 

If you are planning on looking for a home this spring, call a Mortgage Intelligence broker today to get pre-approved.  He or she can get you an extremely competitive interest rate and length of rate hold – you’ll soon be on track to finding the home that’s ideal for you and your family.

Ways to Improve Your Credit Score

If you're in the market for a mortgage, a car loan, or looking to rent an apartment, it may be time to check your credit score.
A credit score is an ever changing three-digit number between 300 and 900. The higher your number, the more likely you are to be approved for a loan or to negotiate a preferred interest rate. If your credit score is low, you may pay higher rates or be denied credit based on the lender's criteria.
Your credit score is an important piece of financial information. It's used by lenders, insurers, and landlords to gauge your credit behaviour and determine if you're a good candidate for credit. If you've lost out on an apartment or been denied a loan recently, it may be your credit score that's holding you back.
But don't worry if your score is low, there are ways to improve it. Since your credit score is recalculated continuously to reflect your recent bill payments and debt levels, your score from a month ago is probably not the same score today. Here are seven ways to raise your credit score:
1. Check your credit score at BOTH credit reporting agencies. Your credit score can vary between Canada's two major credit reporting agencies, Equifax and TransUnion. Each agency uses different credit data as well as a slightly different credit scoring model to tally your number. If you're being denied credit, it may be that one agency is reporting differently. Checking your credit report and score at both agencies can also help you detect any fraudulent activity or possible instances of identity theft.
2. Report and correct any inaccuracies. Don't let your credit score suffer due to inaccurate information on your file. Be proactive and protect yourself by reviewing your credit files. If you find an inaccuracy, contact the creditor or the credit reporting agency to correct it immediately.
3. Pay all your bills on time. Lenders look for patterns and love to see a solid history of paying every bill on time. Any late credit card payments, collections, or bankruptcies can significantly lower your credit score -- so be punctual with each bill payment to raise your score.
4. Watch your debt. Don't run your credit balances close to your limit! Staying below half your available credit limit can help to improve your score sooner. For example, if you have a credit card with a $5,000 limit, try to keep the balance owed below $2,500.
5. Avoid applying for credit. When you apply for credit, a "hard query" may be made to your report by the lender to check your creditworthiness. Too many "hard queries" in a short period of time can lower your score, so stick to applying for credit only when you need it. Checking your own score won't lower your score since this is a "soft query". Applying for a lot of credit may be interpreted as a sign of financial difficulty, which can impact your score as well.
6. Give yourself some time. Time can improve your credit score, especially if you can establish a long history of paying bills on time and being responsible with credit. Negative factors such as bankruptcies, collections, or foreclosures drop off your report after a number of years, depending on your home province or territory.
7. Don't close old accounts. It may seem counterintuitive to us, but unused credit is a good thing in the eyes of a credit reporting agency and lowering the amount of money you can borrow relative to your debt can impact your score

Bank of Canada Keeps Rate Steady

Bank of Canada Keeps Rate Steady

The Bank of Canada announced this morning that it is holding its key policy rate steady, the fourth time in a row that it has kept the rate unchanged.  This comes despite news yesterday that the Canadian economy expanded by 3.3 percent in the last three months of 2010, a full point more than the Bank of Canada had predicted and ahead of the pace in the US. 

In its statement the Bank indicated the economic recovery in Canada is proceeding “slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand.”

The prime rate at most lenders will stay at 3.00%, which means those with variable-rate mortgages will still enjoy relatively low rates.  A new variable-rate mortgage can often be obtained by qualified borrowers at Prime minus 0.70%, or 2.30%.  Home equity lines of credit and variable-rate credit cards are also commonly linked to the prime rate.