Breadcrumb trail links
Robert McLister: I've never seen so much change in such a short period of time, but policymakers didn't get everything right
Published on September 27, 2024 • Last updated 1 day ago • 5 minutes reading
You can save this article by registering for free here. Or log in if you have an account.
Single family homes under construction in Delta, BC Photo by Darryl Dyck/The Canadian Press Files
Article content
In all my years of covering the mortgage scene, I can't remember a month that has been so jam-packed with easing mortgage regulations.
Last week, federal regulators announced that starting December 15, they would increase the property value limit for default insurance to $1,499,999.99, increase the maximum payback for all insured first-time buyers to 30 years, and increase the maximum payback for all insured buyers New building for 30 years.
Advertising 2
This ad has not loaded yet, but your article continues below.
THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and more.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
- Daily puzzles including the New York Times Crossword.
SUBSCRIBE TO UNLOCK MORE ARTICLES
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and more.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
- Daily puzzles including the New York Times Crossword.
REGISTER / LOGIN TO UNLOCK MORE ARTICLES
Create an account or log in to continue your reading experience.
- Access articles from across Canada with one account.
- Share your thoughts and join the discussion in the comments.
- Enjoy additional articles per month.
- Get email updates from your favorite authors.
Log in or create an account
or
Article content
Yesterday, borrowers received another round of mortgage relief when the Office of the Superintendent of Financial Institutions announced it would eliminate the federal stress test for uninsured mortgage notes. This change is expected on November 21st.
For borrowers who need additional flexibility when applying for a mortgage, these developments offer many more options. They are also a goldmine for the lending business itself.
Here are six more things to know about this mortgage policy windfall.
It's a boost for the $1 million to $1.5 million home market
When the government announced its new policy, it forgot to clarify what the minimum down payment would be for default-insured purchases over $1 million. Oops. This week it was finally confirmed that the down payment would be five percent of the first $500,000 and ten percent of the balance. That's just $125,000 (8.33 percent) on a $1.5 million purchase, far less than the $300,000 currently required. Additionally, it is rumored that default insurance premiums for homes over $1 million could remain the same at 4.2 percent, assuming a 30-year payback and minimum down payment. That's a premium of up to $57,750 plus provincial tax (if applicable) for a property valued at $1.5 million. While expensive, these costs are offset by the 50+ basis point interest savings that insured borrowers receive and the ability to get to market faster and free up capital for other investments (assuming someone has the full standard $20 down payment Percent). lying around). If home prices eventually return to their historic pace, purchasing a year later could cost a buyer over five percent more: $50,000 to $75,000 or more for a home valued at $1.0 million to $1.5 million.
Top stories
Thank you for your registration!
Article content
Advertising 3
This ad has not loaded yet, but your article continues below.
Article content
This all adds to other bullish developments
More accessible credit will be associated with lower mortgage rates, lower property values and higher incomes. Additionally, the mortgage cost-to-income ratio for typical dual-income homebuyers has fallen to its lowest level in three years. These juicier fundamentals will (sooner or later) attract more house hunters to the real estate market.
OSFI's new switch rule will save people money
The government's mortgage stress test has for years discouraged a minority of borrowers from switching lenders for a better deal. By eliminating the stress test for uninsured borrowers looking to switch lenders, OSFI effectively reduces the amount of income someone needs to get approved elsewhere — in some cases by well over 10 percent. This will allow thousands of people with temporarily high debt-to-income ratios to switch lenders at renewal. Even a savings of 10 basis points over the average renewal rate of $300,000 could net a borrower over $1,400 over five years. This change should have happened years ago as there was never enough data to address it. Without push from politicians, industry, and a little public carping, OSFI may never have reconsidered this policy. Good thing they finally did it.
Advertising 4
This ad has not loaded yet, but your article continues below.
Article content
The new $1.5 million insurance limit has limits
The Treasury Department says the maximum insured value will only increase for buyers who make less than a 20 percent down payment. This means lenders who take out “portfolio insurance” to reduce financing costs on low loan-to-value mortgages cannot help buyers with 20 per cent equity. The government has completely dropped the ball here. If they're going to relax the rules for riskier borrowers, why wouldn't they also encourage those with more skin in the game – who, by the way, are 60 percent less likely to default, according to CMHC statistics? By eliminating portfolio insurance for properties up to $1.5 million, the Treasury Department is handcuffing smaller bank rivals from getting the insured funds they need to compete with the big guys and offer you better deals. The question arises as to whose interests these policymakers will really represent.
Protect the taxpayer
A little over a decade ago, the government began tightening the reins on government-backed mortgage default insurance, largely in the name of protecting us, the taxpayers, from potential losses. Today it seems as if the fear of the taxpayer was more of a ghost story than a documentary. This is borne out not only by these recent changes to insurance rules, but also by the fact that mortgage delinquencies are about half the long-term average, despite near-record levels of debt and the sharpest rate-hiking cycle since the early 1980s. Not to mention the fact that default insurers are significantly overcapitalized and government policy now all but forces banks to keep struggling borrowers in their homes.
Advertising 5
This ad has not loaded yet, but your article continues below.
Article content
Recommended by Editorial
-
The best mortgage rates in Canada today
-
There is a fixed price sale and the deals get better if you negotiate
Bottom line: Mortgage insurance is about as risky as taking a nap in a hammock. And regulators are constantly watching it under the microscope. These new rules will not result in greater risk to taxpayers, but they will increase the dividends CMHC pays taxpayers.
Buy mortgage companies
If you invest in mortgage companies, this month has put a smile on your face. This is clearly good news for publicly traded companies like First National Financial Corporation (FN.TO), MCAN Mortgage Corporation (MKP.TO) and the big banks. The catch is: Mortgage stocks tend to thrive when interest rates fall anyway – especially when the public realizes that an economic slowdown won't trigger a default apocalypse. And mass outages are not expected in this cycle.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
Would you like to learn more about the mortgage market? Read Robert McLister's new weekly column in the Financial Post for the latest trends and details on funding opportunities you won't want to miss.
Bookmark our website and support our journalism: Don't miss out on the business news you need to know – bookmark Financialpost.com and sign up for our newsletter here.
Mortgage interest rates
The interest rates shown below are updated at the end of each day and come from MortgageLogic.news' Canadian Mortgage Rate Survey. Postmedia and imagination. Online Inc., parent company of MortgageLogic.news, will be compensated by certain mortgage providers if you click on their links in the charts.
Article content
Share this article on your social network