Mortgage Rates are going Higher

The Government of Canada wants to increase mortgage interest rates. The Government of Canada wants to decrease the value of your house, especially if you live in Toronto or Vancouver. Since 2008 the Government has been concerned about the rate of house value increases. Many mortgage related regulatory changes have been implemented. To name a few, shorter amortizations, tighter underwriting guidelines, utilizing higher qualifying rates. Up to now the changes were aimed at reducing demand.

The Bank of Canada has made the decision not to increase the Bank of Canada Rate, which impacts lending rates in the economy and is used to help the banks set their prime rates. Since this rate has remained flat and the Bond markets which impact longer term rates have had low yields, until the last week or so, the government has decided to use regulations to increase mortgage rates. It should be noted that banks can increase or decrease their prime lending rates at their discretion, and pass those costs or savings on to their customers, regardless of the actions of the Bank of Canada.

Whether these regulatory changes are prudent management of the housing market, or unnecessary meddling by ill-informed inexperienced bureaucrats, only time and the value of your house will tell. But these changes are coming. The new requirements are being deliberately implemented to impact lender costs, drive up interest rates and lower the value of houses.

The new requirements are forcing higher costs on lenders. One area of change is the so-called portfolio insurance provided lenders even if the loan to value is lower than 80%. The changes in this area will mean conventional mortgages, those with 20% equity or more, whether purchases or refinancing will have higher cost of funds. Also, lenders and insurers are being required to have higher capital reserve allocations for their mortgage portfolios. Another area, lenders will be required to share in the cost of mortgage insurance losses and costs. Also, funds for rental properties are being restricted.

It is difficult to understand or determine the exact impact of these new regulations. Some government spokesmen have stated they would like to see a 10% reduction in house values. May they be so precise. It is reasonable to make some assumptions at this point, let us speculate, changes in the source of funds will increase rates ¼%. Changes in the capital reserve requirements will increase rates by ½% to ¾%. Changes to the liability for mortgage insurance losses perhaps ¼%. Higher costs for the borrower. Exactly how the new rules for mortgage insurance losses will be dealt with is still being reviewed by the government and the lenders and the insurers.

We should expect a 1% to 1 ½% increase in mortgage rates over the next number of months as these government mandated changes and higher costs are passed on to the mortgage borrower. We usually do not try to speculate about mortgage rates or trends but this is different.

What to do? Complain to your MP. Probably pointless. Maybe Kent Hehr, he is a member of cabinet would like to hear from our industry,  403-244-1880.

What else to do?

If you are considering refinancing, consider it now.

If you are considering buying, get a pre-approval in place.

If you have a variable rate mortgage, strongly consider locking in for a fixed rate.

Thank you.

Croft Axsen

 

About the Author

Croft began his mortgage career in 1989 as a Mortgage Underwriter with Jencor Mortgage Corporation and has been a proud co-owner of Jencor since 1995, with his business partner Judy Benteau. As the Broker on Record, Croft personally reviews every mortgage file before submission to the Lenders. This extra step at the time of booking allows Croft...