Coming: Higher Interest Rates, DownPayments & Shorter Amort.

[broken_legs]

Thank god. Some sanity in this insane world.

Canadians playing it safe with mortgages, report finds
Steve Ladurantaye
09:05 EST Thursday, Jan 14, 2010

Canadian home buyers are being cautious when taking out new mortgages, a report suggests.

The Canadian Association of Accredited Mortgage Professionals examined 40,000 loans issued in 2009, and found that 86 per cent of new mortgages issued were fixed-term. These are considered less risky than variable-rate terms, because the homeowner is locked in at one rate for a set amount of time, typically five years.

“The vast majority of Canadian mortgage borrowers are not taking on undue risks,” said Jim Murphy, the association's president. “They have factored rising interest rates in to their mortgage decisions.”

While variable rate loans have been available as low as 2.25 per cent (compared to 4 per cent for fixed rate mortgages), there is concern that interest rates will rise higher and make it difficult for many on variable plans to meet their rising costs.

But among the majority of borrowers who took out fixed terms, 70 per cent took terms of five years or longer. The majority of borrowers also took out mortgages below the maximum they'd be allowed under the gross debt service ratio – a figure generated by the bank that considers how much debt someone can reasonably take on.

Mr. Murphy said the longer terms and borrowing less than the maximum goes contrary to the perception that Canadians are taking on too much debt to take advantage of low interest rates.

But there are some new buyers who could find themselves in trouble, according to the survey. About 4,000 households appeared to take on maximum debt along with short-term rates, said the association's chief economist Will Dunning.

“Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase,” he said. “Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

The association undertook the study in response to concerns about a bubble forming in the market as Canadians take advantage of historically low interest rates to take on mortgage debt.

Canada's Finance Minister Jim Flaherty has said that an overheating housing market poses a threat to the economic recovery, with resale prices up 20 per cent in the last year as low interest rates fuel a boom.

He said the government may consider raising the minimum down payment from 5 per cent to “something higher” and shorten the amount of time a mortgage can be amortized.

“We want to make sure decision makers have data to work with before they start making changes,” Mr. Murphy said.

[sputnik]

Moving up interest rates makes no sense as it affects more than just real estate related inflation.

However increasing the down payments required and shortening ammortization rates makes sense as it still allows businesses to borrow (and grow) with cheaper lending and in turn boosting the economy.

I personally would love to see a minimum of 10-15% down required and a maximum of 25 year amortizations. People buying with zero down and 40 year amortizations are increasing the volatility in the housing market.

[quazimoto]

10% down is a huge stretch for the majority of first time buyers. My Fiance and I had issues with that as well. 10% of 450,000 is a lot of coin and when you consider things like student loans the average person would start buying their first actual home in their 30's and being paying for it nearly until retirement.

I do agree that ZERO down or cash back mortgages should be taken away as an option as they are what create the problem. At least having some sort of down payment. I also think right now most banks are only allowing you to push 30 years as the MAX. 35 and 40 year mortgages I believe are a thing of the past.

[Darkane]

Originally posted by quazimoto
10% down is a huge stretch for the majority of first time buyers. My Fiance and I had issues with that as well. 10% of 450,000 is a lot of coin and when you consider things like student loans the average person would start buying their first actual home in their 30's and being paying for it nearly until retirement.

I do agree that ZERO down or cash back mortgages should be taken away as an option as they are what create the problem. At least having some sort of down payment. I also think right now most banks are only allowing you to push 30 years as the MAX. 35 and 40 year mortgages I believe are a thing of the past.

450k for a first home? Steep no?

A first time home should be 'just that', not a 2000sq/ft 4 bedroom home.

[quazimoto]

In this day and age even the so called starter homes are going for 300k unless you want a pointe of view something.

My Fiance and I were being smart to go straight to an estate home in Langdon instead of going through the ropes of upgrading homes and constantly moving. The house fits out needs 100% perfect and we'll probably stay there easily 10-20 years or longer.

Even coming up with 20k-30k for a person isn't easy without borrowing it from somebody which technically you can't do.

[BigMass]

Well this is actually a smart way of doing it. This way they can curb the housing bubble through higher down payments and lower amortizations while leaving a low interest rate in tact. Economically the CBOC will not raise rates and strengthen our dollar without the Fed doing the same thing. The US won’t be able to raise its rates for the next thousand years pretty much ensuring Canada will not raise it’s rates either. At least to any meaningful level.

[broken_legs]

Originally posted by quazimoto
10% down is a huge stretch for the majority of first time buyers. My Fiance and I had issues with that as well. 10% of 450,000 is a lot of coin and when you consider things like student loans the average person would start buying their first actual home in their 30's and being paying for it nearly until retirement.

10% on a 500k house is too much. That's exactly why
HOUSE ARE OVERVALUED!!!!!!!!!!!!!!!!!!!

House prices were going up and no could afford them so they had to change the rules to get more people in the market.

Now they finally realize this was stupid and are taking it away.

Originally posted by BigMass
Well this is actually a smart way of doing it. This way they can curb the housing bubble through higher down payments and lower amortizations while leaving a low interest rate in tact. Economically the CBOC will not raise rates and strengthen our dollar without the Fed doing the same thing. The US won’t be able to raise its rates for the next thousand years pretty much ensuring Canada will not raise it’s rates either. At least to any meaningful level.

If you drop amortizations, and you increase the downpayment you instantly eliminate 90% of the market of new home buyers as 90% of them are doing 0-5% down at 35 years because its all they can afford.

House prices will go down
Tax payers will suffer
MBS will go down in value, Canada will continue to buy it
Banks will continue to make hue profits ont he backs of canadian tax payers.

[nickyh]

When we built our 2nd house, we had to provide a MINIMUM 25% down to discourage all the investors and we had to sign a declaration that we would be living in the house.

I don't mind the idea of raising the downpayment, but it also needs to be realistic otherwise people will never get into the housing market.
It's only because had the equity out of our first home that we could afford the 25% down.


I am taking out a 35 year amortization because I choose to, not because I have to. I could make the payments on the 25 year but why? I can take the difference in my monthly payment and make my money work for me by investing.

I don't think lowering the amort. term to 25 years would be good for the industry. It would slow any recovery and the hopes of average hard working people owing their own home.

my $0.02

[BigMass]

Originally posted by broken_legs


10% on a 500k house is too much. That's exactly why
HOUSE ARE OVERVALUED!!!!!!!!!!!!!!!!!!!

House prices were going up and no could afford them so they had to change the rules to get more people in the market.

Now they finally realize this was stupid and are taking it away.



If you drop amortizations, and you increase the downpayment you instantly eliminate 90% of the market of new home buyers as 90% of them are doing 0-5% down at 35 years because its all they can afford.

House prices will go down
Tax payers will suffer
MBS will go down in value, Canada will continue to buy it
Banks will continue to make hue profits ont he backs of canadian tax payers.

well yeah that is the apparent goal. Lower house prices without having to increase rates. I don’t see how this is a bad thing to lower consumer debt load. House prices are too high, they need to come down. It’s not like people will stop buying houses. There will be an adjustment period were houses become unaffordable, but eventually they will fall to a level where %10 down @25 years will make sense for the average buyer.

[sputnik]

Originally posted by quazimoto
10% down is a huge stretch for the majority of first time buyers. My Fiance and I had issues with that as well. 10% of 450,000 is a lot of coin and when you consider things like student loans the average person would start buying their first actual home in their 30's and being paying for it nearly until retirement.

First time homes shouldn't be $450,000 especially for people who can't come up with $45,000 in a couple of years.

How do you expect to pay you $400,000+ mortgage?

[BigMass]

Originally posted by nickyh
When we built our 2nd house, we had to provide a MINIMUM 25% down to discourage all the investors and we had to sign a declaration that we would be living in the house.

I don't mind the idea of raising the downpayment, but it also needs to be realistic otherwise people will never get into the housing market.
It's only because had the equity out of our first home that we could afford the 25% down.


I am taking out a 35 year amortization because I choose to, not because I have to. I could make the payments on the 25 year but why? I can take the difference in my monthly payment and make my money work for me by investing.

I don't think lowering the amort. term to 25 years would be good for the industry. It would slow any recovery and the hopes of average hard working people owing their own home.

my $0.02

The current low rates, low down payments and 35 year amortizations are preventing hard working people to own their own homes. All these people end up owning is debt and a monthly mortgage payment for the rest of their lives.

It’s a misnomer to think that lower rates create affordability. What they create is a speculative bubble. It’s like saying if student loans didn’t exist nobody would be going to university or college in the US because of the high cost. Well the cost is high BECAUSE of the ability of students to take out loans and bid up the price of schooling. It’s the same thing with housing

Yes it would slow the recovery, but that is what’s needed. We just went from one bubble to another, compounding our risk and the severity of the next collapse exponentially.

[Masked Bandit]

Originally posted by quazimoto
In this day and age even the so called starter homes are going for 300k unless you want a pointe of view something.

My Fiance and I were being smart to go straight to an estate home in Langdon instead of going through the ropes of upgrading homes and constantly moving. The house fits out needs 100% perfect and we'll probably stay there easily 10-20 years or longer.

Even coming up with 20k-30k for a person isn't easy without borrowing it from somebody which technically you can't do.

If a buyer can't come up with $20,000 or $30,000 cash then they have no business buying a house in the first place. I think too many people have gotten used to living paycheque to paycheque. If the members of a house can't save $1000 or $1500 a month for a couple of years, what they hell are they going to do when say the furnace packs in and you have an instant $3500 repair bill sitting in your lap? What about if someone gets hurt and can't work for a couple of months.

Owning a home is not a right.

[sputnik]

Originally posted by Masked Bandit


If a buyer can't come up with $20,000 or $30,000 cash then they have no business buying a house in the first place. I think too many people have gotten used to living paycheque to paycheque. If the members of a house can't save $1000 or $1500 a month for a couple of years, what they hell are they going to do when say the furnace pack in and you have an instant $3500 repair bill sitting in your lap? What about if someone gets hurt and can't work for a couple of months.

Owning a home is not a right.

QFT

When I bought my first house I had $25,000 saved in 18 months. I lived as cheaply as I could and socked away every spare dollar I had. My Christmas bonus went to the downpayment and so did my tax return.

These days people waste money like there is no tomorrow on crap they don't need to impress people that they don't like. If they really looked hard at their finances they would realize that they are either wasting money or honestly can't afford the house that they are thinking they need.

[sputnik]

Originally posted by quazimoto
In this day and age even the so called starter homes are going for 300k unless you want a pointe of view something.

My Fiance and I were being smart to go straight to an estate home in Langdon instead of going through the ropes of upgrading homes and constantly moving. The house fits out needs 100% perfect and we'll probably stay there easily 10-20 years or longer.

Even coming up with 20k-30k for a person isn't easy without borrowing it from somebody which technically you can't do.

Hope you drive cheap cars and that gas doesn't go to $1.50/L any time soon.

The commute alone will be an extra 50-60km each day. Nevermind when you want to go into the city and do some shopping.

[InRich]

I certainly dont want prices on houses to go down... I just bought a brand new construction from Cardel @ 460k...

[Jlude]

www.greaterfool.ca

That's all I'm going to contribute to this thread.

[max_boost]

Had a friend who wanted to build in Quarry Park but they required 20% down aka $100K. It might have been better that they couldn't come up with the money. I don't know if they even have $50K. It's a massive mortgage and would more than likely make them house poor. There's more to life than living in a big house.

Anyway, let's face it, it's hard to save up cash these days. Most of the people I know upgrading/switching homes are those who caught the wave of the boom and have equity. I don't know anyone who's actually saved up $50-$100K to for a down payment. That's just not realistic hence the longer amortization periods and low down payments scenarios we have been seeing.

[Xtrema]

Originally posted by sputnik
I personally would love to see a minimum of 10-15% down required and a maximum of 25 year amortizations. People buying with zero down and 40 year amortizations are increasing the volatility in the housing market.

2nd

Originally posted by quazimoto
10% down is a huge stretch for the majority of first time buyers. My Fiance and I had issues with that as well. 10% of 450,000 is a lot of coin and when you consider things like student loans the average person would start buying their first actual home in their 30's and being paying for it nearly until retirement.

Last I check, a single bedroom condo can be had as low as $170K.

Why the fuck do you need a $450K house?

People and their keeping up with Jones attitude makes me sick.

[broken_legs]

Spending $687,500 because your spouse wants a place to put the used snowmobile or your dogs needs a bigger backyard.

[rc2002]

Originally posted by max_boost
Anyway, let's face it, it's hard to save up cash these days. Most of the people I know upgrading/switching homes are those who caught the wave of the boom and have equity. I don't know anyone who's actually saved up $50-$100K to for a down payment. That's just not realistic hence the longer amortization periods and low down payments scenarios we have been seeing.

I actually know quite a lot of people who have been able to save up $100k-$300k.

I don't think higher downpayments and shorter ammortization periods will do anything in Calgary. There's just too much money in this city.