Buying with less than 20% down payment? You will pay more for your insurance now.

Canada Mortgage and Housing Corporation (CMHC) announced an increase to their default insurance rates recently. Anyone purchasing their home with less than a 20% down payment is required to have their mortgage insured against default. 

The premium charged for owner occupied 1 – 4 unit mortgage will increase by approximately 15%, on average, for all loan-to-value ranges.

Loan-to-Value Ratio	Standard Premium (Current)	Standard Premium (Effective May 1st, 2014)
Up to and including 65%	0.50%	0.60%
Up to and including 75%	0.65%	0.75%
Up to and including 80%	1.00%	1.25%
Up to and including 85%	1.75%	1.80%
Up to and including 90%	2.00%	2.40%
Up to and including 95%	2.75%	3.15%
90.01% to 95% – Non-Traditional Down Payment	2.90%	3.35%

What this means is that on a $450,000 mortgage, the fee CMHC charges up front and often tacked onto the mortgage, would rise from $12,375 to $14,175 which will increase in your monthly mortgage payment.

CMHC controls about 70% of the mortgage default insurance market in Canada with private players Genworth Canada and Canada Guaranty holding the rest.

Genworth announced it too would raise premiums across the board by an average of 15%. Its increases will take effect May 1 too.
The good news is that this doesn't come into effect until May 1, 2014. As long as you arrange your mortgage prior to May 1, 2014 (closing date can be after May 1, 2014) you won’t be subject to this increase. 

The Foreclosure Process in Ontario

Have you ever held first or second mortgage? Or maybe you considered offering vendor take back on a property you are selling? If that's the case, you should consider what will happen if new owner stops paying.

In Ontario, the foreclosure process is very fast, as the proceedings are typically laid out in the mortgage documents. Power of sale was initially developed in Ontario by lenders who wanted a faster way to dispose of defaulted property and recover debt. As a result, they began to include power of sale as provisions in their mortgages and mortgage contracts . Under this the lender would allow them to dispose of property under the borrower's default and without having to resort to the courts. Power of sale is now part of the current Ontario Mortgages Act.

In the Mortgages Act there are two types of power of sale: Contractual and statutory. The first, contractual power of sale is when the mortgage documents have included power of sale provisions in their mortgage contract. The latter is when the mortgage documents have not included power of sale provisions. Statutory powers of sale are very rare because the lender will commonly have the provisions. However in the case of statutory power of sale the lender can still exercise power of sale as long as the borrower has defaulted for three months or more.

Both types of power of sale are started by the lender giving the defaulter a notice after 15 days of non-payment. The notice is given to all parties having a vested interest in the property. This includes subsequent encumbrances, statutory lien holders, or people who have advised the lender in writing, that they have an interest in the property.

The notice is attached to the Mortgages Act, and is called a Notice of Sale Under Mortgage. It advises of the lender's intention to exercise the power of sale, and includes details of the mortgage, such as:

The date in which the mortgage was made. The parties in the mortgage and the property mortgaged. The amount owing. A warning that if the amount owing is not paid by a specified date, the lender will exercise the sale of the property.

If this is a power of sale that is contractual, the borrower will have 35 days to pay, unless otherwise stated in the mortgage agreement. If this is a power of sale that is statutory, the borrower will have 45 days to make payment. The lender cannot do anything further within this redemption period, but by paying the amounts owing, the borrower can redeem the mortgage and save their home from foreclosure.

If the redemption period has passed without the borrower making the payment then the lender is legally allowed to foreclose on the property. Under power of sale, the bank has the right to sell the property by auction, private contract, or tender. Usually the property is listed with a real estate agent and placed on the market for sale. This is because the bank has noticed that they can get more for the home at the lowest cost to the bank.

Once the property is sold and if there is any surplus, the lender must account to the borrower or borrowers, and other parties with vested interests. In the Mortgage Act it  requires that the proceeds of the sale first be applied to the cost of conducting the sale, then to interest and cost owing under the mortgage, then to principal money owing under the mortgage, next to pay any amounts due to outside parties, and finally to pay tenants' security deposits.

Prime rate - no change expected till 2015

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday March 5th, 2014 the Bank of Canada again continued to maintain their overnight rate.   What this means to you is that once again the prime rate on your mortgage, line of credit or student loan will not change and remains at 3.00%.  This is fabulous news but don’t forget to make the most of the low payments you still have, as the rate will increase in the future.  If you haven’t done so already, give me a call and we can chat about helping you get set up with a great GIC, Tax Free Savings Account, or Retirement Savings Plan as your payments continue to remain low.   

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision today:

“Inflation in Canada has moved further belowPrime rate the 2% target, owing largely to significant excess supply in the economy and heightened competition in the retail sector.  Global growth is expected to strengthen over the next two years with the US leading this acceleration, aided by diminishing fiscal drag, accommodative monetary policy and stronger household balance sheets. The improving U.S. outlook is affecting global bond, equity, and currency markets. Growth in other regions is evolving largely as projected.  In Canada, growth improved in the second half of 2013. However, there have been few signs of the anticipated rebalancing towards exports and business investment. Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment”.

Based on this news, the Bank still does not expect to increase their rate in the foreseeable future with any change most likely to occur late 2014 or even not until 2015!   Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates dropped just slightly since the last announcement to around 3.19% to 3.39% for a five year fixed term.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next announcement on any change to the prime rate is April 16th, 2014 at which time I’ll be in touch again.