It's been a busy few weeks in the financial markets, with constant attention to mortgages and credit. With strong economic environment in Alberta it can be hard to grasp or see the impact that these changes will have on the average home buyer or seller.
- Zero down is gone. This was announced to be phased out many weeks ago but the deadline is here. The description on the CMHC web site description "The product is available only for those borrowers who have a proven track record of managing their debt" The credit score of these buyers was impeccable (Recommended minimum Beacon score 680). Buyers had a history of making payments and not filling up there credit cards.
- 5% down payment options are still available (a recommended minimum 610 Beacon), buyers will have to not only be smart with credit by save their down payment. The RSP home buyers plan is also still available.
- 5% Cash back mortgages. Need to do improvements or buy appliances then this may be an option for you. Buyer have to demonstrate that they have the down payment.
- 40 Year Mortgages, not an option. 40 year amortizations reduced monthly payments for buyers and was an answer to"affordable housing"
- 35, 30, and 25 Year mortgages are still available.
What does that all mean to you and I? 5% from zero down has the biggest impact on buyers that need that as an option. Overall it is better for everyone the more down payment you have. An inconvenience to some today, but overall a good thing. The difference is $5,000 for every $100,000 of purchase price.
40 Year versus 35 year mortgages or 30 or 25? What's the difference? If your buying in your 20's or 30's sure you'll probably be owning a home for well over 40 years. However, the interest paid versus principle is such that if you need to sell short term you could be in for a shock on how little you have paid down the principle.
Payment wise 40 vs. 30 etc...
$300,000 on a 40 year amortization at 5.5%, would come with a $1,534.68 payment.
$300,000 on a 35 year amortization at 5.5%, would come with a $1,598.89 payment.
$300,000 on a 30 year amortization at 5.5%, would come with a $1,691.72 payment.
$300,000 on a 25 year amortization at 5.5%, would come with a $1,831.17 payment.
Find out how much you can afford and calculate your mortgage payment.
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The banks dropped interest rates "25 basis points" on Wednesday and then again on Friday a further "25 points" or "15 basis points". So what does a drop in interest rates mean to you and I?
It means more affordable borrowing:
For every 25 basis points the average person will save $15 on a $100,000 mortgage while a full 50 points decrease on $300,000 mortgage will yield a savings of $86.36/month.
That's great how do we know that there will be money available to borrow?
Canada Mortgage and Housing Corporation (CMHC) will purchase up to $25 billion in insured mortgage pools as part of the Government of Canada's plan, announced today, to maintain the availability of longer-term credit in Canada.
If these mortgages are already backed by CMHC and are reported to be "high" quality why are they buying them?
"The Bank of Canada has also been injecting large amounts of liquidity into money markets in recent weeks, but credit flows have remained gummed up, here as elsewhere in the world. The Canadian government move is meant to supplement the central bank's moves..." From BNN
So changes have been made to ensure we do not follow our friends in the US economically. Some are long term and short term changes. The best thing we can do is manage our credit. There are still plenty of options and opportunities to buy real estate and get out of renting. Managing your credit will be extremely beneficial going forward. Better credit equates to lower risk for lending.
** Individuals can access their scores and credit reports from the following credit reporting agencies:
EQUIFAX: https://www.econsumer.equifax.ca/ca/main, EXPERIAN: http://www.experian.ca/, TRANSUNION: http://www.transunion.ca/
Your Friend in Real Estate,