Category Archives: first time buyer benefits

In 2018, these homes will sell the fastest

With reduced buying power next year, expect house hunters to scoop up everything under $500,000.

Paul D’Abruzzo, an investment advisor with Rockstar Real Estate, says that while most people will qualify for less money on their mortgages, they won’t be completely shut out of the market. They will simply adjust their demands.

“If somebody was preapproved for $500,000, their new approval will be $400-450,000, so they will lose 10-20% of their preapproval amount,” he told CREW. “It won’t shut people out, it will just move them lower. If some were on the brink of getting approved, you’ll lose some there, but lower-priced properties will do very, very well.”

In Toronto, that will put single-family detached homes even further out of the reach than they are now, but the popularity of condos will keep soaring.

“In Toronto, with everybody’s sightline coming down, condos will be the most popular,” said D’Abruzzo. “In the GTA, like Mississauga or Vaughan, it will be condos and maybe townhouses.”

Single-family detached homes will become difficult, but not impossible, to afford. The Greater Toronto Area’s fringes still have moderately priced detached houses for sale, and even with the new mortgage rules, that won’t change.

“In Hamilton, Kitchener and St. Catharines, $400,000 gets you a detached home,” he said, “so you’ll see a continued trend of population spreading out into the horseshoe.”

According to D’Abruzzo, 2018 will not be kind to sellers—at least not through the first few months—but he recommends being patient.

“Right now, people are trying to get their places sold before the mortgage rules kick in,” he said. “Next year, inventory will be crap in January and February. If anyone is scared or fearful and waiting to sell their house, patience is the solution right now. Just wait and see, because nobody knows for sure what it will be like.”

Akshay Dev, a sales agent with REMAX Realty One, echoed that wait-and-see approach. While nobody will miss out because of too much time on the sidelines, Dev says Toronto’s chronic housing shortage will continue working in sellers’ favour next year.

“Whatever correction was needed is done, and in the spring we should see the market picking up and being strong,” he said. “In the Toronto area, there’s a huge shortage of housing, so it’s still going to be a seller’s market, but I don’t expect crazy bidding wars. Sellers will still get the prices they’re expecting.”

Contrary to popular belief, first-time buyers won’t have trouble purchasing starter homes, especially because cheaper abodes will be in high demand. However, they might live in those homes longer than the historical average.

“Historically, we’ve seen that when people graduate from their first buying experience, it takes anywhere from three to five years to move into the next level of housing, but it may become five to seven years with new rules,” said Dev.

Source: Canada Real Estate Magazine – by Neil Sharma 8 Dec 2017
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What the new mortgage rules mean for homebuyers

mortgage math

Today, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).

The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. “The main effect will be felt by first-time buyers,” says James Laird, co-founder of Ratehub.ca. “No matter how much money they put down as a down payment, they will have to pass the stress test.” The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.

MoneySense asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family’s bottom line. Here’s what they found:

SCENARIO 1: Bank of Canada five-year benchmark qualifying rate

In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89%
They can now afford $570,970
A difference of $155,969 (less 21.45%)

SCENARIO 2: 200 basis points above contractual rate

In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.

Under new rules, they need to qualify at 5.09%
They can now afford $559,896
A difference of $146,796 (less 20.77%)

If a first-time homebuyer doesn’t pass the new stress test, they have three options, says Laird. “They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,” says Laird. The stress test will be done at the time of refinancing as well, with one exception. “If on renewal you stay with your existing lender, then you don’t have to pass the stress test again,” says Laird. “However, if you change lenders at mortgage renewal time, you may have to pass the stress test but it’s not crystal clear now if this will be the case for those switching mortgage lenders.”

So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.

But whatever you do, if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. “This shouldn’t be something that shocks you partway through the home-buying process,” says Laird.

And finally, do your own research and run the numbers on your own family’s income numbers. You can use Ratehub.ca’s free online mortgage affordability calculator to calculate the impact of the mortgage stress test on your home affordability.

Source; MoneySense.ca – by   

 

 

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Ten ways the new mortgage rules will shake up the lending market

THE CANADIAN PRESS

 

Source: The Globe and Mail – SPECIAL TO THE GLOBE AND MAIL

T-minus 76 days and counting until Canada’s banking regulator launches its controversial mortgage stress test. It’ll be squarely aimed at people with heavier debt loads and at least 20 per cent equity – and it will be a tide turner.

Given where Canada’s home prices and debt levels are at, this is easily the most potent mortgage rule change of all time. Here are 10 ways it’s going to shake up Canada’s mortgage market for years to come:

1. It’s like a two-point rate hike: Uninsured borrowers can qualify for a mortgage today at five-year fixed rates as low as 2.97 per cent. In a few months that hurdle will soar to almost 5 per cent. If you’re affected by this, you could need upward of 20 per cent more income to get the same old bank mortgage that you could get today.

2. Quantifying the impact: An OSFI spokesperson refused to say how many borrowers might be affected, calling that data “supervisory information” that is “confidential.” But at least one in six uninsured borrowers could feel the blow based on the Bank of Canada estimates of “riskier borrowers” and predictions from industry economists like Will Dunning. Scores of borrowers will be forced to defer buying, pay higher rates, find a co-borrower and/or put more money down to qualify for a mortgage.

3. Why OSFI did it: Forcing people to prove they can afford much higher rates will substantially increase the quality of borrowers at Canada’s banks. OSFI argues that this will insulate our banking system from economic shocks, and to the extent it’s correct – that’s good news.

4. A leap in non-prime borrowing costs: Many home buyers with above-average debt, relative to income, will resort to much higher-cost lenders who allow more flexible debt ratio limits. At the very least, more will choose longer amortizations (i.e., 30 years instead of 25 years) and take longer to pay down their mortgage. Non-prime lenders will also become pickier. Why? Because they’ll see a flood of formerly “bankable” borrowers getting declined by the Big Six. That could force hundreds of thousands of borrowers into the arms of lenders with the highest rates. If you have a higher debt load, weak credit and/or less provable income, get ready to pay the piper.

5. A safer market or riskier market? The shift to expensive non-prime lenders could boost mortgage carrying costs and overburden many higher-risk borrowers, exacerbating debt and default risk in the non-prime space. “We’re very aware of the potential migration risk [from banks to less regulated lenders],” Banking superintendent Jeremy Rudin told BNN on Tuesday. “It’s not something that would be a positive development.” If rates keep rising, non-prime default rates could spike over time. Albeit, keep in mind, we’re talking a single-digit percentage of borrowers here. The question people will ask is: Does growing debt risk in the non-prime mortgage market, combined with home price risk and a potential drop in employment and consumer spending truly lower banks’ risk?

6. Provincially regulated lenders win: Unless provincial regulators follow OSFI’s lead (if history is a guide, they won’t), it’ll be a bonanza for some credit unions. Many credit unions will still let you get a mortgage based on your actual (contract) rate, instead of the much higher stress-test rate. That means you’ll qualify for a bigger loan – if you want one. We could also see a few non-prime lenders charge lower rates to help people qualify for bigger mortgages, while tacking on a fee to mortgage for that privilege.

7. Trapped renewers: Lenders are thrilled about one thing: customer retention. As many as one in six people renewing their mortgage could be trapped at their existing bank because they can’t pass the stress test at another lender. And if a bank knows you can’t leave, you can bet your boots they’ll use that as leverage to serve up subpar renewal rates.

8. A short-term spurt: Expect a rush of buying in the near term from people who fear they won’t qualify after Jan. 1. The question is, how much of that short-term demand will be offset by people selling, as a result of the rule change’s perceived negative impact. In the medium term – other things equal – this is bearish for Canadian home prices. Period. That said, borrowers will likely adapt within two to five years. And prices will ultimately resume higher.

9. The stress test could change…someday: While few credible sources expect OSFI’s announcement to trigger a housing crash, the higher rates go, the more this will slow housing. Financial markets expect another rate hike by January, with potentially two to four – or more – to come. Mr. Rudin says OSFI may “revisit” the restrictiveness of the stress test if rates surge, but will the regulator act in time to prevent diving home values? That’s the trillion-dollar question. The good news is that rates generally rise with a strengthening economy, which is bullish for housing – for at least a little while.

10. Questions abound: Tuesday’s news will undoubtedly spark contentious debate over whether this was all necessary, given already slowing home prices, provincial rule tightening, rising rates and the fact that uninsured default rates are considerably lower than for people with less than 20 per cent equity.

OSFI says its responsibility is to keep banks safe and sound. Overly concerning itself with the side effects of its mortgage stress test is not its mandate, it claims. Well, in a few years we might be either congratulating OSFI, or asking if that mandate needs to change.

THE CANADIAN PRESS

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Liberal budget released: These are the housing related promises

Liberal budget released: These are the housing related promises

Cities and affordable housing providers will find themselves with $11.2 billion more to spend on new and existing units over the coming decade, as part of the federal government’s multi-pronged push to help people find homes.

Of that money, which comes from the government’s social infrastructure fund, $5 billion will be allotted to encourage housing providers to pool resources with private partners and to allow the Canada Mortgage and Housing Corp., to provide more direct loans to cities.

The funding falls short of the $12.6 billion the mayors of Canada’s biggest cities requested last year and Wednesday’s federal budget shows that the majority of the $11.2 billion isn’t slated to be spent until after 2022.

Over the next 11 years, the Liberals pledged $202 million to free up more federal land for affordable housing projects, $300 million for housing in the North and $225 million to support programs that provide units to indigenous peoples off reserve.

The money, coupled with $2.1 billion for homelessness initiatives over the next 11 years, sets the financial backbone for the Liberals’ promised national housing strategy that will be released in the coming months. The document will outline how the government plans to help people find affordable housing that meets their needs, and ensure a robust emergency shelter and transitional housing system for those who need it.

Finance Minister Bill Morneau told reporters the spending will make a difference for those who rely on social housing. He said the Liberals want to ensure cities can access funds as quickly as possible to make necessary investments in the country’s stock of aging affordable housing.

Liberal budget released: These are the housing related promises

The details are among many laid out in the budget, which outlines how the government plans to spend the $81 billion it is making available between now and 2028 to address future infrastructure needs and, the government hopes, boost the economy to create new jobs and government revenues.

It also gives $39.9 million over five years for Statistics Canada to create a national database of every property in Canada. This will include up-to-date information on sales, the degree of foreign ownership and homeowner demographics and finances to answer lingering questions about the skyrocketing cost of housing that may squeeze middle-class buyers out of the market.

The Liberals clearly see a need to attract private investors to help pay for infrastructure projects, including affordable housing, given the federal government’s tight fiscal position.

At the centre of that push is a proposed new infrastructure bank that would use public dollars to leverage private investment in three key areas: trade corridors, green infrastructure and public transit.

The government is setting aside $15 billion in cash for the bank, split evenly between each of the aforementioned funding streams, with spending set to start as early as the next fiscal year on projects based on budget projections.

Morneau said that the government wants to have the bank up and running this year, including having some projects that will be identified for investors.

But the budget document again projects that the majority of the bank’s spending won’t happen until after 2022. And in the case of trade corridor infrastructure, spending isn’t expected to start until 2020, even though some experts argue this stream would give the country the biggest economic bump.

The Liberals are also tweaking how much of the bill it will cover for municipal projects under the second phase of its infrastructure plan in order to nudge provinces to pony up more money for work and to prod cities to consider using the bank for projects that could generate revenue, like transit systems.

The government will cover up to 40 per cent of municipal projects under the upcoming phase of its infrastructure plan, 50 per cent for provincial projects and 75 per cent for indigenous projects.

Source:  The Canadian Press 22 Mar 2017

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Commentary: CMHC hike a much-needed first step in moderating price growth

Commentary: CMHC hike a much-needed first step in moderating price growth

While real estate professionals have expressed worry that the CMHC’s mortgage insurance premium hike will make purchasing more difficult for hopeful home owners, a long-time industry analyst stated that the decision is an important first step towards ensuring better affordability.

Last week, the CMHC increased the premiums on the mortgage default insurance that home buyers have to service if they put in less than 20 per cent for down payment.

In a recent column for The Globe and Mail, markets observer Rob Carrick described the housing industry’s response to the move as an attempt to score brownie points with the first-time buyer demographic.

“Expect this increase to be added to the grievance list of people who work in the real estate-industrial complex – agents and mortgage brokers, plus others who make a living from home sales. They are working hard to portray first-time buyers as martyrs to government policies designed to cool down the housing market,” Carrick wrote.

Carrick argued that the government, and not the industry’s self-interest, is better situated to effectively deal with the long-running affordability crisis.

“The wrong approach is to offer cosmetic, politically expedient help to young buyers that fails to address the reality that it’s way more of a burden to own a house than it is to buy one.”

cmhctable

“[These] measures are not just necessary – they may also help to make houses more affordable by containing price increases or causing them to fall,” he added. “CMHC is increasing premiums to boost funds available in case there’s an economic shock of some sort and mortgage defaults soar. High house prices increase this risk because people must stretch their finances to get into the market and then afford the full array of costs as a homeowner.”

Carrick castigated provincial governments for engaging in misguided—and ultimately, harmful—policy responses.

“Ontario is offering a limited break on land-transfer tax, while the B.C. government is offering loans to first-time buyers to help them put together a down payment on homes costing up to $750,000,” Carrick explained.

“Measures like these incrementally support more home buying, which in turns pushes prices higher. Worse, we end up helping people get into the market while ignoring the much more important question of how they’ll be able to afford their mortgage over the long term.”

Source: MortgageBrokerNews.ca – by Ephraim Vecina | 23 Jan 2017
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New program will help first-time homebuyers in BC, but is it a good idea?

first-time buyers bc

 

New program will help first-time homebuyers in BC, but is it a good idea?

It looks like Christmas has come early, at least for some BC house hunters. The BC government has revealed plans to launch a new program for first-time buyers, and it’s expected to help as many as 42,000 households in the province enter the market.

Announced December 15th, the BC Home Owner Mortgage and Equity Partnership program will see the BC government match the amount of money first-time buyers put toward their down payment, to a maximum of $37,500. Loans will be interest free for five years, and recipients won’t have to start paying the money back during that time. Once five years have passed, they will be expected to begin making monthly payments at current interest rates.

“We believe every British Columbian deserves a place to call home,” Premier Christy Clark said in a press release. “We’ve invested in affordable rental housing, we’ve invested in transitional and emergency housing, and now we’re partnering with first-time buyers to make the purchase of their first home more affordable.”

The news came the same day that the BC Real Estate Association released its latest data on residential real estate sales and prices. While it shows that in November the average MLS price for a home in the province fell 6.4 per cent year-over-year to reach $625,871, that’s still out of reach for many first-time buyers.

First-time buyers hoping to participate in the program will have to meet a number of requirements in order to be eligible. For starters, applicants must be planning to buy a home for $750,000 or less and have total annual household income of $150,000 or less; they must also be preapproved for a high-ratio insured mortgage. Other requirements include being a Canadian citizen or permanent resident for at least five years, and living in BC for at least one year.

Reactions to the program have been mixed. While some have taken to Twitterto voice optimism about it, many people, including several key BC housing market commentators, have expressed concerns.

Speaking to The Times Colonist, Tom Davidoff of UBC’s Sauder School of Economics said that making it easier for people to buy homes when the province’s ability to increase housing supply is limited may drive up home prices. “I just think it’s lousy economics,” he said. NDP housing critic David Eby also pointed out that if interest rates are higher in five years, those who participate in the program will be at an increased risk of defaulting on their mortgages.

The program will start accepting applications on January 16th, 2017, and the BC government plans to invest about $703 million in it over the next three years. As there is no cap on the initiative it could eventually be expanded.

Sources: BuzzBuzzHome 

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What’s the best mortgage for the first-time home buyer?

Image courtesy of ddpavumba / FreeDigitalPhotos.net

Q: I’m buying my first home—a starter home—that I plan to live in for the next five to seven years. How do I know which mortgage is right for me?

— Housing Newbie, Toronto 


Answer from Robert McLister, mortgage planner with Ratespy:  There are endless mortgages to choose from so get one-one-one advice when you can. In the meantime, here are four quick tips:

#1.  If you plan to live in the home for five-plus years, then portability (i.e., being able to move the mortgage to a new property without penalty) is less important. But people’s plans change so don’t ignore porting features altogether. The best portability options afford you:

→ The lender’s best rates if you need to add money to the mortgage (helpful if you upgrade to a more expensive home)

→ More time to close your new mortgage after your old home sells (look for 60 days minimum).

#2.  If you don’t foresee moving, refinancing or making big prepayments in the next five years, consider low-frills mortgages. You’ll get a cheaper rate in exchange for smaller prepayment privileges, bigger prepayment charges (aka, penalties) and/or a restriction on refinancing with other lenders before your renewal date.

#3.  Most first-timer buyers choose a 5-year fixed rate because their finances don’t allow for much interest risk. But if you’re financially stable, have great credit and save at least 5% of your income each month, consider shorter fixed terms and variable rates. In our low-rate environment, they’ll give you extra savings.

→ If you do go variable, look for one that keeps your payment the same regardless of interest rate fluctuations. It’s easier for budgeting and gives you peace of mind if rates start climbing.

→  If you can’t decide between fixed or variable, check out a hybrid mortgage. Hybirds let you split your mortgage into two different rates (e.g., half fixed and half variable). They’re a great way to take advantage of lower rates while still protecting yourself if rates climb.

For more tips, have a peek at this mortgage checklist.


Source: MoneySense.ca by March 28th, 2016 

Image courtesy of ddpavumba / FreeDigitalPhotos.net

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