Mortgage Matters: Reaction to Lending Guidelines

Friday, February 19, 2010 03:45 AM

by Bob Quinlan

Earlier this week, Federal Finance Minister Jim Flaherty announced the following changes:
1.        First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term. "This will guard against higher rates in the future," Flaherty said.  (Many of the better banks are already doing this, or close to it)
2.        Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent. (Using the entire equity in your home to consolidate debts or fund investments, renovations, vehicle, vacations not only puts the borrower at risk but also the lender. And some lenders have already taken this step)
3.        And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment. (Good. Investors or speculator should have a greater stake in their investment to insure security in difficult times.)

I agree with these changes and the direction of the government whole-heartedly.  In times of lower revenues and returns on investments it is wiser to “lean up” your business, tie everything down on your cart that you can’t afford to lose and drive carefully over what might be a bumpy road. In the meantime as you feel the road getting a little smoother, you can pick up a little speed and maybe even grab a few opportunities on the way. Those who are less prepared for a bumpy road may not fare as well.   Those who can travel a little quicker with more in hand will reach various checkpoints a little sooner and safer.
Our Canadian economy is stable due primarily to an affordable and dynamic real estate market. Few people living on an abundance of resources with much land to develop and occupy. However, we still need to attract more people for growth and when they get here; they need to have secure employment/income.

By making sure that those who are wanting to get a cart, load it up and head down the road too are well equipped enough (good credit history, reliable and confirmed income, a reasonable stake/down payment and resources in case of hardship…like savings) to make the journey successfully…those of us already on the road won’t be delayed by failures around us.

This is important on the “road to recovery”.

Once the roadway is deemed truly safe again the traffic will open up accordingly. But, we must remember that we are now intertwined with roadways around the world (Global Economy) and our progress is also dependent on the success of others. Otherwise they may cause disruptions on our roads.

I like the idea of putting more people in homes, as well as better homes. However, the government that does its best to please all the people all the time (good idea, but not realistic), is doing its best to help people “stay” in their owned homes for as long as they want. Not just while the going seems to be good.

Another point that many seem to be missing is the fact of the market having a few people who are trying to get a little more than everyone else for their properties. Who me? Not a chance, I’m just looking for “fair market value.” Sure and we just want the Canadians to have a nice time playing alongside all the other winter Olympic athletes from around the world. Some are criticizing these moves accusing the government of manipulating the market. How quickly they forget that the market has already been manipulated by government intervention via “high ratio financing”. That means buying a home with less than 20% down.

How easily we get used to help and then call it the norm. Something we are “entitled to”, not earned.

For those who are more interested in carrying on down the road with their cart and belongings intact and ending up safe at the end with a few additional trinkets added to make life a little easier, I recommend:

1.        Stay clear of the whiners and complainers who want to blame their lack of success (failure) on others
2.        Respect your credit. It is your ticket to opportunity.
3.        Focus on a consistent reliable income.
4.        Save to increase your stake hold. Don’t rely on market conditions and speculation for your only success.
5.        Use low interest programs to pay your debt and plan for the future with the same

In the meantime, if you are looking for specific mortgage advice:
·         Variable rate for now. I believe that with the new measures taken, rates will remain low for the remainder of the year and only start increasing gradually in 2011. Set your payments at the fixed rate to take advantage of the interest saved applied directly to your principal and you won’t notice any change in payments when you lock in.

·         When you have reached your limit of tolerance, lock in for as long as you feel you need to protect against future increases

·         Consolidate higher interest, higher payment debt into longer term/lower interest debt (your mortgage) but have the option (and use it) to increase payments that are ultimately less than you are paying now on these debts (cash flow relief) but still on track to pay these debts and your home in the same time.

·         Tighten the reins on your horses that sometimes run out of control (credit cards) and prevent them from getting over tired, injured along the way or even having an accident like running off the road. Otherwise you will have to wait on the side of the road (bankruptcy) until you can get another cart and horse. And that won’t happen until you prove that you have learned your lesson (re-established credit) and can take good care of a new one (savings).

No matter what your situation is, if you think you would like to explore your options I suggest that you have a visit with your independent mortgage broker (oh, and who would he mean by that?).

Get some common sense advice to help you understand how these things must work to be mutually beneficial both you and the lender. With a good plan you will enjoy your journey and the result will be success.

Bob Quinlan is a Mortgage Broker with Mortgage Alliance Prince George, you can reach him by  or by calling the office at 250-564-9161

Best regards
Dean Birks

Royal LePage Prince George
Phone: 250-612-1709
Fax: 1-888-870-4132


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