Since the Bank of Canada dropped the overnight rate to 1/2 a percent on July 15th 2015, I have been receiving quite a few phone calls and emails from clients curious to know what this means to them.
So let start by defining what an overnight rate is: The Bank of Canada sets what is called the “overnight rate” which has more to do with how banks borrow money among themselves than it does have a direct impact on consumers. To make is short and simple: The prime rate is not the overnight rate.
The change to the overnight rate has no direct impact to mortgage rates. According to the Bank of Canada: “Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages.” In other words the overnight rate can influence the prime lending rate, but it doesn’t have to, and ultimately the banks are in charge of making that decision.
A drop in the overnight rate does not mean banks will pass this savings to us.
Although for the past several years the Banks have followed the prime rate drop, they didn’t do so on January 21st 2015, when the overnight rate fell by .25% while the banks only dropped by .15%. As we expected, the next time the overnight rate dropped in mid July, the same thing happened, overnight dropped by .25% while the banks lowered by only .15%....
As of September 28th, 2015, CMHC will be changing it’s borrowing rules to help facilitate more affordable housing in Canada.
Currently, home owners with legal rental units can use 50% of the rental income towards their total income which means that home buyers can borrow more money.
When the new rules come into affect, borrowers can count 100% of the rental income towards their total income.
Borrowers with less than 20% downpayment are required to buy mortgage default insurance which is available from CMHC, Genworth Canada and Canada Guaranty.
So if you have less than 20% and are interested in buying a home with a legal rental unit, CMHC will be the insurer for you.
But keep in mind that only legal units are eligible. Eligible 2-unit properties must be owner-occupied. The dwelling types are typically duplexes or single homes with a legal secondary suite. Some examples of typical secondary suites in 2-unit homes include self-contained basement rental suites, in-law apartments and garden suites (i.e. laneway homes).
If you are considering buying a rental property, get in touch with me at 647-893-2535 or Snezhana@MortgageCentreToronto.com
In Canada we have an extremely low foreclosure rate compared with other parts of the world. By most estimates we currently hover at around 0.30%. The US is closer to 1.2%, and Greece is hitting as high as 33%.
Credit our tightly regulated lending environment for that rate not rising past 0.40%, even during the 2009 economic crisis. At our loosest, Canada was still much tighter than most other nations.
Also Canadians do not easily give up on their homes.
This said, if shopping for a new home or an investment property, there are usually one or two foreclosure properties worth considering in your target market. It is true that foreclosures often sell at a discount from current market value, but typically not that significant of a discount.
Things to consider: Writing the initial offer you can insert 'subjects' such as appraisal, inspection, and financing and have a comfortable length of time to prepare a budget based on detailed quotes for any work that needs to be done to restore the property.
The offer will be written to the lender, not the original homeowner who is now just the occupant.
The former homeowner/current occupant may be able to occupy the property right up until the day you take possession. There is no guarantee that they will not take the appliances, furnace, lighting fixtures, or anything not nailed down when they leave. There is essentially a (perhaps bitter) third party occupying the home that you are buying in as-is condition. Not 'as-is' when viewed, as is standard in a transaction, but 'as-is' the day you are handed the keys. For this reason a vacant property is often preferable, as there is reduced risk of further damage to the property.
The alternative is preparing your financing in advance of writing an offer and showing up on the assigned day in court and making a competing sealed bid.
The judge will determine if the property is selling close enough to fair market value, which it must, and the homeowner has an opportunity to dispute any 'lowball' offers as being unreasonable. In Canada a lender cannot sell the property simply for what is owed. It is all about fair market value.
A lender has also likely been without payments for anywhere from 12 - 24 months, as the system is heavily biased towards Canadians not losing their homes. This means the property may have been occupied by somebody at no cost to them for nearly two full years. Count on very little maintenance or upkeep having been done during that time.
An excellent plan is to knock on doors and ask neighbours questions about the property and its history. Was it a rental property with a string of bad tenants? Were there illegal activities on site? All good things to know.
Determine the maximum purchase price in advance. Factor in the appraisal, the inspection, and the budget for repairs. And in the calm of your own office or home, well in advance of entering the heated atmosphere of the courtroom, settle on that maximum figure. Then stick to your maximum bid as planned.
The foreclosure process is a segment of law that truly allows socialist roots to shine through. It is based on giving every opportunity to homeowners to not only recover their property, but also to see it sell for a reasonable price.
It is not quite as lucrative an arena for investors as it is in the USA, but opportunities do exist. Be sure to enlist the services of your Mortgage Broker to assist you through the process. Having experienced professionals in your corner is vital in such transaction.
As always, feel free to get in touch with me direct at 647-893-2535 or Snezhana@MortgageCentreToronto.com
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