Little time to prepare as new guidelines take effect March 17
By Mark Schadenberg
CMHC fees were created to promote home ownership for Canadians.
I get that.
The idea of this insurance policy is for banks to have a lower risk against assisting a young couple to own a house with only 5% as a down payment.
I get that.
Banks earn profits in the millions upon millions each quarter when earnings are reported.
I know that.
We also see – certainly in Oxford County anyway – very few foreclosures or houses returned to the bank and sold under a system known as a ‘power of sale’.
In my mind, and as a sports fan, I hate to use the word collusion (Major League Baseball reference), but with the Canadian Mortgage and Housing Corporation increasing the fee percentages again (Effective March 17) and the 3rd time in about 4 years, the prospects of home ownership are dwindling.
The Woodstock – Ingersoll district area continues to be terrific for a first-time buyer, but let’s face facts, and realize an entry-level home which sold for $225,000 (as an example) in late 2015, is now going to have a market value or selling price in the range of $270,000. When you add in an additional insurance cost, buying a home does become more difficult.
Let’s set the stage further and remind you that to buy a home in early 2017 you must also qualify for the 5-year fixed interest rate on all mortgage qualifications, which is often referred to as a ‘stress test’. Therefore, you might be able to obtain a variable mortgage rate under 3%, but you must be pre-qualified and can’t spend more on a monthly payment than your TDS (Total Debt Service ratio) or GDS (Gross Debt Service ratio) will permit on the posted rate which is certainly higher than 4.5%. (CIBC site says 4.79 today)
To top it off – you must also keep in mind, banks and credit unions or other lenders should be pre-qualifying their clients under 7 stringent rules or guidelines – strong employment record, family combined salary, letter from employers to verify same, beacon credit score, and debts the buyer is already committed to (car loans or leases, furniture on time, student loan repayments and / or credit card and credit line debt). It’s not easy under any condition to qualify for a mortgage in 2017. Rules are in place and if there is no fraud, a buyer will be ready to buy and able to buy when they meet the criteria.
I use the company name of Royal LePage in my Twitter, Facebook and blog accounts so I attempt to be calm, cool and collected when writing about items I somewhat disagree with, and this topic is one that riles me up and lowers my level of cool as CMHC is collecting money as security (that’s their role) and is a profitable government agency (Third quarter report of 2016 is linked below).
The banks and credit unions are now protected (security) for their possible losses too much, in my opinion. I don’t possess all the stats and coast-to-coast TDS numbers, but I believe many of the folks who lose their home likely should not have been financed by a bank in the first place, but the banks (all lending institutions) have very little risk in doling out dollars, so they make a safe gamble.
I fully realize that CMHC turns down dozens of deals, and I’m not contradicting myself here as the home buyers with gleaming credit scores, excellent budgeting skills, and terrific jobs are compensating the banks for the mistakes that are made.
CMHC, therefore, in my opinion, should not be raising its rates (percentages). CMHC is a government agency and it is assisting the billion-dollar profit banks at this point to a larger degree instead of the consumers.
The pendulum has swung too far in favour of the lenders and their peace of mind. Soon, the lenders will have many fewer buyers and prospects to supply mortgages to due to strict rules and the fact that listings inventory are very low in most market (The store shelves are quite empty.).
As a reminder, I’m the same Realtor who often promotes a modest purchase for a first-time buyer because no one wants to be ‘mortgage poor’ and have no disposable cash for vacations, a new dishwasher when required, wedding plans, badminton club membership, new shoes for badminton, and of course children expenses and their inevitable college tuition fees.
Read the links below as posted from various newspapers. I like the Globe And Mail piece, which adds that:
It is interesting to note when employees of banks comment on such stories as is seen in the stories below, they are essentially keeping their own employer in mind and noting that the insurance (security) is to help the bank.
Yes, I realize the consumer may not have been able to purchase a home with a (example) 94% of the purchase price as a mortgage, but the flip side of that is after 25 years of making your 26 payments a year (650 payments) you own a home and the bank has made enormous profits, and has the ability to loan out the money they receive on these payments to more and more home buyers. Do I dare say it’s a win-win-win-win (small chance of loss) scenario for the lenders.
One of the earlier changes to CMHC fees in 2015 did not really affect our Woodstock area market as the CMHC insurance numbers were altered for an amount purchased in a home valued over $500,000. In other words, the CMHC fee was increased only for the sale value over $500,000 to 10%.
The change to 4.0% from 3.6% for mortgages ranging between 5 – 9.99 % down payment is effective March 17, so there also isn’t much notice to the house hunter either.
LINKS:
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Everything in this blog website is written
by myself and is therefore my opinion only
Mark Schadenberg, Sales Representative
Senior Real Estate Specialist (SRES designation)
Royal LePage Triland Realty
Independently Owned & Operated, Brokerage
757 Dundas St, Woodstock
(519) 537-1553, cell or text
Email: mschadenberg@rogers.com
Twitter: markroyallepage
Facebook: Mark Schadenberg, Royal LePage Triland
Discussion . . . Direction . . . Determination . . . Destination
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