Change 1:  You will have to qualify on the 5 year fixed rate regardless of the mortgage term. This will impact the clients who are stretching things tight, and that is not a bad thing, if clients can barely afford the purchase currently at the rates we have now, they will be in trouble when rates go up and they will go up. No one wants to be mortgage poor. When running numbers with clients I always make sure we look at options of what can happen in the future, we do “what if’s” – what if the rate is 6% in 5 years. This is where clients really need to make sure they have someone helping manage their mortgage, if you put some plans in place for the next 5 years when the mortgage renews there will be more options. The big question is what is the rate going to be – some of the lenders do not have a 5 year posted rate, so we will have to wait and see what the government is going to do – it maybe a mandated rate for example prime +2 across the board.

Change 2:  You can only refinance to 90% of the equity in your home. Again this is not a bad thing, to have to leave 10% equity inside the home is hedging your bets. When refinancing you have to look at why you are doing it and you have to have a plan. If you refinance for debt consolidation you must have a plan so you won’t be there again in a year, you need to budget and take control of what is going on. Every circumstance is different and you need to look at why you are where you are.

Change 3:  Non-owner occupied properties have to have 20% down. I understand that this has been put in place to stop the “Speculator” investor but this new rule will extremely impact all investors, not because of the 20% down payment, we have been telling clients that for years, but by the way CMHC is going to calculate the rental income. Currently we can us an 80% offset, this will be changed to a 50% add back – this refers to how lenders all rental income to be use and this will have a dramatic impact when qualify. My question, is this really necessary? Real Estate investor’s only represent roughly 4% of the market so is it really going to have an impact on the market – it may look like it but is it really?

More to come when we know more…..

You need a plan.

Get them organized and make a note of the payment dates.  You must make sure you pay the minimum payment on time.  If you do not this will effect your credit rating. Paying even 30 days late, or having your account sent to a collection agency has a very negative impact on your credit score. Making the minimun will keep you credit score consistent but it will not help you pay off the balance.

Try not to run your balances up to your credit limit.  Keeping your account balances below 75% of your available credit may also help your score.  If you are in the top 25% of the lending limit you need to try to get it down as soon as possible.

Prioritize the bills, using the snowball effect will help you pay them off faster.

This is also a really good time to look at refinancing and rolling all the debts into the mortgage but if you do this you must have a plan so you will not be doing it every year.

Don’t Bite!

You may use it but you want to make sure that you don’t go crazy and have it affect your credit score.

First, why is it important to have a good credit rating?

The obvious advantage is to make it easier to obtain mortgages, loans and leases.  Some of the less obvious is that landlords may run credit checks on prospective tenants. Employers may run credit checks on people apply for employment. Also utilities and cell phone provides my require credit checks to obtain the service or product.

Having a good credit rating can save you money on mortgages and loans and it means having access to a wider selection of financial services.

Next Week – What is in my credit report.

• “This (credit) crisis is over,” he said.
• The TED spread—which is a key indicator of credit market liquidity—is back to a healthy 25 basis points, after hitting 500 last fall.
• “This recession is over…period…but we will pay heavily for what the U.S. Fed is doing.” (Interest rates will rise and deficits will drag on Canada’s economy.)
• The next wave of U.S. mortgage rate “resets” will peak in late 2011. Fortunately, there should be much less of a rate shock this time around because:
  • Americans will reset into rates that are much closer to the “teaser” rates they’re paying now.
  • Fewer of these resetting loans are securitized than in the subprime crisis. Most of these mortgages sit on U.S. lenders’ balance sheets.
• “Deleveraging” will define the next 5 years. Consumers will slow their spending and borrowing.
• U.S. monetary policy is dictating Canadian policy. 
• The Bank of Canada “will have no choice” but to wait to raise rates until the U.S. does.  Otherwise, our dollar would rise and threaten Canada’s export economy.
• Ben predicts Canadian interest rates will not rise as much as in the U.S.

Regarding real estate prices, Tal said:

• “We should not be in a sellers’ market in the 9th inning of recession.”
• On the other hand, he says: “We don’t have the information to support (a real estate bubble).  It’s irresponsible to say we’re in a bubble.”
• But if prices go up 20% in the next two years, “then we will be in bubble.”
• Policy makers in “Ottawa are worried,” but they shouldn’t be completely alarmed just yet, suggests Tal.
• “People feel pressured to buy because of (low) interest rates, but that is fine,” he says, "because Canada’s real estate market reflects fundamentals and is in “equilibrium.”
• Housing performance confirms that monetary policy is “acting the way it should be.”
• More than ever, it is paramount that lenders underwrite “good mortgages.”
• In every past economic cycle, interest rates went up “much faster than they went down.”
• Expect a 2% to 3% increase in rates, starting no earlier than Q3 2010.  If you cannot handle the debt service at those higher rates, “buy a smaller house. It’s as simple as that.”

Tal also said Canada is in a much stronger place than our southern neighbour. His reasons:

• The duration of unemployment (which is “as important as unemployment rate”) is much lower in Canada.  That means Canadians can more easily get replacement jobs to pay their mortgage if they lose work.
• Canada has “three times more cash savings” than Americans per capita. This cash is waiting to be “redeployed.”
• “Income is rising twice as fast in Canada as in U.S.”  (Which is why Canadian consumer confidence is so much higher than in U.S.)
• “It’s all about (consumer) confidence,” Tal says.
• Canada will outperform all other G7 countries in GDP growth in 2010.

Let me tell you, don’t cheap out on insurance.I used Wanda Woods, an independent insurance broker to get me the best coverage and this week I am so glad I did.

On Remembrance Day we went to my in-laws for lunch and we came home to a turret of water pouring out of one of the pot lights in our kitchen. After running upstairs to see if there is a tap running, and there was nothing I realized we a pipe issue – I called Wanda and within an hour there was someone at the door to help.Since then they have been assessing damage, putting in drying equipment, packing up our kitchen and moving our living space. You think a small pipe cannot do a lot but water gets into everything and goes everywhere.

We are looking at some major repairs – kitchen ceiling, walls, floor and then downstairs more walls, ceiling and also floors.The reason I am writing about this is that I want everyone to pull out his or her home insurance; it does not matter if you have a house or condo and make sure the coverage is good. Saving a few dollars does not matter when you have something like this happen and the bill could be tens of thousands of dollars.

Call an Independent Mortgage Broker, if you need a good one call Wanda Woods, AC & D Insurance, 604 767 4707 or e-mail wwoods@acdinsurance.com. Tell her Gina sent you!

Mortgage Rates are still very low and it is a great time to get into the market or look at refinancing. With that said, you need to make sure you are using a professional since rates will be going up you need to make sure you can afford it now but also in the future. There is a chance that in 5 years the mortgage rate will be 2-2.5% higher.
CIBC economist, Benjamin Tal, says: “Even if you lock in a five-year mortgage rate, you have to realize that five years from now, they will be significantly higher…”
This needs to be a consideration when looking at taking on a mortgage.

Here’s an article about first-time homebuyers that shows the risks some people take with their mortgage: See Story Here