What the B of C says about housing prices …
The Bank of Canada (BoC) and the Economist say that Canadian housing is over valued 10% – 20%
Just days after the BoC’s highly qualified pronouncements Moody’s Analytics – an organization that some people find less than credible than the BoC – said maybe current prices can be justified by ‘structural changes’ in the market.
Here’s the constant:
- The central bank continues to caution that high household debt to income ratios are the biggest domestic threat to the Canadian economy.
- The Bank also says that the danger of that risk becoming reality, due to a jump in interest rates or a sharp downturn in the economy, is low!
That is good news says Mark Herman, Calgary Alberta mortgage broker.
Tricky changes to the mortge rules
Here is one of the changes of the mortgage rules that is now in effect – called the B21 Rules.
It will be sure to cause surprise for some customers that have large Line of Credits – LOCs
How the banks are now calculating monthly payments for secured lines of credit:
- The outstanding balance (not the limit) will now be amortized over 25 years using the Bank of Canada 5-year benchmark rate to determine the monthly payment
What that means …
For the calculation of your QUALFYING INCOME – as in, the way the government says your mortgage math is done – your total balance on your LOC is now treated:
- as a mortgage
- with a 25 year amortization and
- the rate used to calculate the monthly payment is the government’s “benchmark rate” which is about 5%.
This number is now used as your payment, not what the payment actually is.
Worried about oil prices and the Calgary housing prices?
Have a look at this TD report about the price of oil and the Canadian economy.
Highlight: TD expects the Bank of Canada to keep rates the same until mid-2015.
Link to the TD report, outlining the various outcomes of the recent fall in the price of oil.
More on how Banks “get ya” with payout penalties
The beginning of a great article below goes more into the details on what the BANKS do to you when you get their low rates deals like the BMO 2.99% – which everyone now says is not a great deal as you must sell your home to get out of it – among other things. Ensure you always use a broker for your mortgage.
Low mortgage rates tempt, but penalties for breaking can be high!!
You want some of these record low rates on the market but you’re locked into a mortgage. Just break it, right?
Not so fast, there’s a key question you need to ask before you commit to break a mortgage: how much will it cost you? Actually, it’s a question you should be asking before you sign up in the first place.
Don Hurman, a 64-year-old from Okotoks, Alta., learned the hard way when he incurred a $10,000 penalty after selling his house halfway through a five-year mortgage term. Some mortgages let you port the loan to a new home but Mr. Hurman was forced to break his and pay what is called the interest rate differential.
http://business.financialpost.com/2014/04/12/be-careful-before-you-break-that-mortgage/