Happy Spring everyone! Although it would be hard to tell is spring on the coast today!
I have lots to cover in this newsletter. First off the Bank of Canada did what everyone expected and kept the overnight lending rate at .25% so prime remains at 2.25%. The Bank of Canada said they may move rates up in June ahead of the deadline of July they had earlier predicted.
There are lots of factors affecting the Bank of Canada rate with inflation and the Canadian Dollar being two of the most relevant. Inflation puts pressure on the bank to raise the rate and the high dollar puts pressure on the bank to keep rates down.
Its going to be a bit of a see-saw fight over the next few years but we will see prime go up gradually. This is what everyone expected and there is no need to panic.
I thought it would be timely to
discuss the changes to mortgage qualification that came into effect yesterday. I'm amazed every day with the inaccuracy of some of the information
that clients are getting from so called "professionals" in the
industry. Whether it's a scare tactic, or just a strategy to force buyers into
the market over the last several weeks, most Canadians don't have to be alarmed
with the changes.
Here's a summary of what is
going to change:
There is a new minimum qualifying
rate that all banks in Canada will have to use. Any client taking a term
shorter than 5 years, whether that's a Variable or short term fixed has to qualify at the posted rate. If
you are taking a 5 year fixed, you still get to qualify at the contract
(discounted) rate. As of today, the qualifying rate is
5.85%.
In order to buy a rental property
in Canada, you must put 20% down. Further it was expected that the Total
Debt Service Calculations would be overhauled drastically. The fact is
that the net rental income used to qualify is quite similar to the
calculation today. What will change is the percentage of rental income
that will be used from an suite in the home. So it will be more difficult
to qualify, but in my opinion the changes were not as drastic as I
originally expected.
The amount of equity that a
client can get from their current residence has been reduced.
Previously, for clients with verifiable income you could refinance your
mortgage up to 95% of the property value. Now, the maximum you can get is
90%. For self employed (stated income) borrowers, the maximum equity
takeout has been reduced from 90% to 85%.
Some lenders will make further changes, so their
qualifying criteria could even been slightly more stringent than CMHC. That's
still left to be seen. The positive side of these changes is that our
government is taking further steps to strengthen the quality of the mortgage
industry in Canada. While our neighbours to the south are getting back to their
ways that caused all these problems during the economic crisis, I feel Canada
is moving in the other direction.
Please read about Kristin Ames below who is part of my business mentoring group and runs a great shop.
Posy's offerings include custom designed or grab
and go cut flower arrangements, plants and planters, and wide selection of
potted orchids. They also carry a
variety of giftware perfect for birthdays and hostess gifts. If you're in
the market to treat yourself try one of their decadent soaps or lotions. 
