What the CMHC Increase Really Means

This article recently appeared in Mark Weisleder’s newsletter, and also in the Toronto Star. It is good information for anyone looking to buy with less than 20% downpayment

 

CMHC announced that it is raising their rates on mortgage insurance effective May 1, 2014, by an average of 15 per cent. Although this is not good news for homebuyers, it does not mean that the sky is falling either. Here’s why:
If you are buying a home and have less than 20 per cent for the down payment, you need to obtain mortgage insurance, either through CMHC or a private insurance company such as Genworth Canada or Central Guaranty. The costs of the insurance are typically added to your mortgage and paid out over the 25 year amortized term.
The reason for mortgage insurance is that banks would likely not lend money to people who for example, only had saved 5 per cent for the down payment, unless the mortgage was insured. CMHC essentially guarantees the loan to the bank so that if the borrower defaults and the property is sold at a loss, CMHC pays the difference. CMHC claims that they need to raise the premiums so that they have more capital reserves in case more consumers default on their mortgages in the future.
For example, if you have a 5% down payment today and you wish to borrow $300,000, the cost for the mortgage insurance is 2.75% or $8,250. You do not pay for this up front. Instead, it gets added to your mortgage debt so you would borrow a total of $308,250 to net $300,000. Under the new rules, the rate would increase to 3.15%, or $9,410, so you would borrow a total of $309,410 to net the same $300,000.
If you took a 5 year mortgage at 3.49% interest today, your monthly payment would rise from $1,537 per month, to $1,543. This is an increase of $6 per month.
Some say that this could now make a home unaffordable for many first time buyers. I disagree. While no one likes any increase in costs, we are still in a historic period of extremely low interest rates. Compare this to 1990, when interest rates were 12 per cent. The same mortgage would cost you $3,193 per month. In 2008, when the interest rate was 7 per cent, the payment would have been $2,167 per month.

It seems that every day someone else comes out with a prediction on the future direction of house prices in Canada. For every bank economist who says that we will still see stable growth over the next few years, there are others who predict a soft landing, with perhaps a price correction of 2 to 3 per cent. And then others predict that we are headed for a major price crash of 20 per cent over the next 5 years. All I know is that we have seen a period of steady growth in the Canadian real estate market for the past 14 years, despite many earlier predictions of crashes. Canada remains one of the most stable places in the world to live and raise a family.
Buyers, the main message is that you do not have to rush out and buy a home to beat the May 1, 2014 date when the mortgage insurance rates go up. It is more important to just make sure you can afford the home you are interested in and that you properly inspect any home before you buy it.

if you would like more information about Mark Weisleder, or it you wish to contact him, visit his website at http://www.markweisleder.com

WHY SHOULD I HIRE A REAL ESTATE PROFESSIONAL?

Why should I hire a real estate professional? This is a question REALTORS® get asked all the time. There are numerous reasons to hire a real estate professional but today I am going to highlight some of the more important reasons.

Who looks after all the paperwork?

Over the years I’ve heard horror stories about buyers and sellers doing a transaction on their own and the paperwork goes bad. They don’t use the right forms for the right action, the paperwork is not forwarded to the lawyer on time, or they don’t adhere to the time limitations stated in the contract.

Who do you negotiate with?

Most buyers and sellers believe they are good negotiators. Most often they let their emotions take over and negotiations go sour. They also don’t realize they need to negotiate with upwards to 10 people during the course of the transaction, such as home inspectors, lawyers, contractors, etc.

What is the home really worth?

What is the home you’re buying or selling really worth? Many people rely on “experts” who don’t actually buy and sell houses as a profession to tell them what their house is worth. A buyer or seller needs to analyze what houses are actually selling for in their neighbourhood. They must also uncover other information that may affect the value of the home such as new schools or school closures, public transit, location of amenities, etc.

Do buyers and sellers really know what’s going on in the market?

We are bombarded every day with information on the housing market, interest rates (up or down), actual home sales statistics and so on. The real estate market is different from neighbourhood to neighbourhood. Buyers and sellers need to know what is happening in their backyard, not across town, provincially, or nationally.

These are just a few reasons to hire a real estate professional. After all, why would anyone make one of the most important financial decisions of their life without the help of professionals.

If you work with a Coldwell Banker® Pinnacle Real Estate professional, he or she will take care of all the details to ensure a successful transaction.

 

 

Should I Wait For The Spring Market?

With all the snow today, it’s hard to believe that Spring may be just around the corner.

Traditionally home owners have been advised to wait for the “spring market” to put their home up for sale. Spring markets often start long before we see the first blade of grass, much less, the spring flowers.

In the Hamilton/Burlington area, we have experienced a prolonged shortage of homes for sale, which has resulted in a number of disappointed buyers, either who have not found the home they wish to purchase, or who have lost out in competition while trying to buy the home they like.

If you are planning to put your home up for sale this spring, don’t wait. Take advantage of the lack of competition you will have for the buyers. Also, interest rates remain at all times lows, making homeownership affordable for more potential buyers. Also, some buyers are anxious to find a home before May 1st this year when CMHC mortgage insurance fees are set to increase.

There are more things to consider than just the nice weather if you are looking to sell your home. Take time to call one of our Coldwell Banker Pinnacle Real Estate professionals and discuss what is your best strategy to get the results you want.