Clarifications on Canada Mortgage Changes

Clarifications on Canada Mortgage Changes

Finally!  Here are some clarifications on mortgage changes The Bank of Canada announced almost a month ago!

Effective April 19th, all terms less than 5 years that are high ratio insured mortgages (anything less than 80% Loan to Value) will be qualified using the greater of the chartered bank 5-year posted rate (5.39% currently), or the term rate (some banks have fixed rates on 5 – 10 year terms that are higher than 5.39%).  Currently most banks are qualifying right around 4% on variables and will only qualify higher on fixed terms less than 3 years.  So what does this mean?  Until CMHC changes its mind again, 5 year fixed rates are the only rates that you won’t have to qualify on the highest rate.    

The posted qualifying rate will be published by the Bank of Canada each Monday.  Here’s the link:  Posted Mortgage Rate  (Look for series V121764.)

More not-so-good news for Canadians – Fixed rates look like they will be going up right away!  How do we know?  Because Canada’s 5 year government bond jumped up 18 points last week, the most in almost five months.  (Bond yields guide fixed-rate mortgage pricing.)  Yes, you may have heard that the Bank of Canada has kept the prime rate the same, but variable rates and fixed rates are usually influenced by different factors. 

Some reasons why fixed rates may be rising very shortly:

·         stronger-than-forecasted U.S. employment data

·         new June maturity as the 5-year benchmark, asset rotation into stocks

·         20% increase in debt issuance announced in last week’s budget

·         Increased consumer confidence

·         More people spending money

A reason why rates might hold off a bit:

·         Canadian employment data that usually comes out the same day as U.S. data has been held off until this week.  If jobs are up, then we’ll be seeing interest rates jump up once again. 

Here are some more changes happening in the industry because of the 2010 Federal Budget.

  • Pre-payment Penalties: The Government will attempt to “bring forward regulations” to standardize the calculation and disclosure of mortgage pre-payment penalties. (This applies to federally regulated lenders.)  This is mainly to help inform the average Canadian about clauses in their mortgages papers like Interest Rate Differential (IRD) penalties. 
  • Credit Unions:  The Canadian government will begin “legislative framework to enable credit unions to incorporate and continue federally.”  This could help Credit Unions have more of a chance to compete with big banks so that they could do other provinces then just the ones they are located in. 
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