A lack of inventory is keeping real estate prices squarely in the sellers favour as buyers compete for the housing that is available in Montreal and Toronto.  Vacation properties are also seeing brisk activity as traditional summer travel plans are disrupted by ongoing pandemic.  Is this situation temporary?  Lauren Haw, CEO of Zoocasa talks with Financial Post’s Larysa Harapyn.

If the recent announcements by CMHC regarding mortgage insurance underwriting requirements has caused concern, Toronto Dominion has announced that TD Conventional Lending Policies as well as TD High Ratio Mortgage policies insured by Genworth Canada and Canada Guaranty remain unchanged.

What exactly does this mean and how does it affect you as a borrower? First off, it means that any applications that do not meet the CMHC’s new underwriting guidelines will automatically be routed to one of the other High Ratio Mortgage insurers. Both Canada Guaranty and Genworth Canada have made it quite clear that they are comfortable with their current underwriting policies. So, anyone who needs to have an insured mortgage and qualifies will find the required mortgage insurance.

To summarize, the borrower has nothing to do and the lender will take care of routing the application to the appropriate insurer – what they did anyhow as while brokers can request an insurer the choice of insurer is generally up to the lender. Most important of all, these changes will have no impact on application acceptance, amount that can be borrowed or the timing of a purchase.

It has been noted that by many in the industry that CMHC has a more pessimistic outlook on the economy than the majority of the financial industry and fortunately for borrowers Genworth Canada and Canada Guaranty do not share the same outlook.

Dave Larock has written an excellent post about the hidden costs sometimes found in the fine print of mortgages.  In mortgages, and life insurance, there is a price to any ”deal” that you find.

”There is an annual tradition in the Canadian mortgage market whereby a large bank grabs the headlines with an eye-catching rate as soon as our spring real-estate markets kick into high gear.”Read the post here.

Robert Kelly past chair of Canada Mortgage and Housing Corporation talks with BNN.  Housing prices will respond to the unemployment rate.

Many borrowers are focused purely on the rate they receive.  Not surprising, getting the best deal is important in our culture and nobody wants to overpay for anything.  In banking though, there is no free lunch which means there is a cost to everything.  So when you get that rate that is lower than what appears to be the best deal, you need to ask yourself what is the cost of this discount.

One of the hidden costs of that better than best rate can be a clause that prevents transfer of the mortgage.  Many borrowers do not keep their mortgage to the end of term and for whatever reason wish to transfer for a better rate elsewhere or refinance to consolidate debt or possibly carry out renovations.  Some lenders on their better than best rate products will include a clause that prevents you from transfering the mortgage – effectively locking you into the full term of the loan with that lender.  In the event of a sale, you will be able to pay the balance of the mortgage by paying the penalty but you will not be able to move that mortgage to another lender for other reasons.

Penalties are another pitfall in mortgages that give you the absolute best rate possible and also differentiate lenders.  As recent news reports have illustrated, some borrowers find unexpected surprises in the amount of the penalty payment in order to withdraw from their mortgage.  The Big Six Canadian banks and other lenders use a calculation called the Interest Rate Differential to calculate the penalty.  At face value this seems reasonable, the but in this equation it is not the actual mortgage rate that is used to calculate the penalty but the posted rates which are often significantly higher than the actual rate of the mortgage.   Many of the banks have penalty calculators online, but you need to use the right rates to get the right estimate and that ”posted rate” buried in your mortgage statement is the root cause of the often surprising penalties.

Their are lenders whose penalty calculation is less severe than others.  Are they the right lender for you?  Possibly, but you need to make sure that you understand the cost and possibility of withdrawing from your mortgage with a particular lender so unanticipated surprises do not present themselves.

This week, the Canada Mortgage and Housing Corporation announced changes to its underwriting criteria (https://bit.ly/2A8qPxY).  Evan Siddal’s, CMHC’s President and CEO, remarks suggest  a more pessimistic view of the housing market and the economy than perhaps the Bank of Canada or other economists are signalling.  As a result, the CMHC has revised its underwriting criteria in a manner that makes qualifying for a loan more difficult.

So what does this mean to the average borrower?  The majority of first mortgages are insured by either CMHC, Genworth Canada or Canada Guaranty, the later two have yet to follow suit so for now there are options for the lenders.  It is generally the lenders who choose the insurer when a loan is insured.

If your lender’s only option is CMHC as the insurer of your loan, then the impact is that a debt free borrower will see minimum income for a $300k loan rise to approximately $79,000, an increase of about $8,000.  A borrower with a car payment and some credit card debt will require income of about $96,000 to qualify for the  $300k loan.

For some, it will be the income increases that will put a CMHC insured loan out of reach, for others the increase of minimum credit score to 680 from 600 could put a loan out of reach.  Will this further cool the Canadian housing market?  Without a doubt.  By how much remains to be seen.

“The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent.

Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy. This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high. Massive policy responses in advanced economies have helped to replace lost income and cushion the effect of economic shutdowns. Financial conditions have improved, and commodity prices have risen in recent weeks after falling sharply earlier this year. Because different countries’ containment measures will be lifted at different times, the global recovery likely will be protracted and uneven.”

https://www.bankofcanada.ca/2020/06/fad-press-release-2020-06-03/