In their post the website called the government of Canada arbitrary, hypocrites, and even hinted that they are capitalists, as though we live in some sort of Communist country. The remarks were harsh and we believe, far off base.

First, “the arbitrariness of it all,” as writes the website. The first argument given is in answer to Jim Flaherty’s comments that he spoke to banks about their “irresponsible lending” earlier in January and March when they were competing for rates, and told them he expected it to stop. Canadian Mortgage Trends argues that lowering mortgage discounts to 2.99% for a five-year fixed term isn’t really that much different from the 3.19% that’s being offered at most other, non-competing, banks.

That may be true and out of all the arguments the website gives, this one is certainly the soundest. But really, isn’t any attempt to try and stop the bleeding of Canadians’ dollars, and the Canadian house market, a good thing? It’s a very small, minute step, yes. But if your house was flooding, wouldn’t you take a small step to fix it – even if it was the only thing you could do? Jim Flaherty has admitted that he’s nearly run out of tricks to help stem the housing problem. This was obviously just one of the small ones that he had left and he used it. As he should have.

Secondly, “the hypocrisy of it all,” as states the website. This one can almost make you laugh, as Trends stated that our central bank is a hypocrite for keeping the overnight lending rate so low, while at the same time warning us not to take on excessive mortgage and second mortgage debt. While Trends states that rates are this low for the “purpose of fuelling consumption and lending,” this suggests that they may not actually know why rates are so low. In part it is to keep buyers on the market, but only so that construction crews and everyone else involved in the housing industry don’t go down the more house prices continue to soar.

The government has stated over and over again that rates are being kept so low because raising them would spell certain disaster for the rest of the economy. And experts and analysts have been talking for a year or more about how Jim Flaherty’s hand and Mark Carney’s hands are tied – they know it needs to be raised, but they can’t do it just quite yet. What is Canadian Mortgage Trends not understanding?

Lastly, the website stated “the anti-capitalism of it all,” asking, “are financial institutions supposed to lie down and accept government stepping in at its discretion to influence rates whenever it doesn’t like market pricing?”

Are they Communists? Jim Flaherty has been reiterating time and time again about how home prices are much too high, and how he hopes the “market will correct itself.” Yet he hasn’t stepped in since last year and made any huge changes to amortizations, interest rates, or anything else. The most recent change to CMHC was minor, and certainly doesn’t shout anit-capitalist beliefs. And why shouldn’t someone step in on Canadians’ behalf when people are trying to get us in over our head? Should the Canadian government tell us what to do, always shaking their finger at us? Of course not. But are they there to protect us? We all expect them to, don’t we?

Could our government be better? Well, no one’s perfect and there is always room for improvement. But are they really as terrible as Canadian Mortgage Trends would have you believe? We don’t think so.

This newest debate surrounds the Office of the Superintendent of Financial Institutions (OSFI,) the organization that is now overseeing the Canada Housing and Mortgage Company (CMHC.) The OSFI has already suggested that Canadian lenders take many different steps when approving mortgages including taking “reasonable steps” to verify a borrower’s income, that home equity lines of credit in Canada have amortization periods just like all other mortgages do, and that HELOCs also be reduced to only 65% of a homeowner’s equity rather than the current 80%.

So what’s all the fuss about?

Mortgage broker Robert McLister says that the fuss needs to be raised before the stricter guidelines cause a total housing collapse. “How many new lending ‘guidelines’ can the market bear before it breaks?” asked McLister. “OSFI had good intentions here, but some of this policy is certainly misguided.”

McLister believes that the new rules would “hurt housing prices” and that it would also stamp out the demand that’s currently going on in the marketplace.

But isn’t that just what Ottawa’s trying to do to get the current marketplace under control again?

Yes, it is. And after McLister’s remarks, Vlasios Melessanakis, manager of policy development at the OSFI, said so. “Canada is not immune,” Melessanakis wrote in a note to his colleagues in response to McLister’s remarks. “Just because nothing happened in Canada in 2008, does not mean that Canada is not vulnerable to a housing correction now.”

And in direct response to McLister’s comments Melessanakis said, “The market may break because the fundamentals are not sound, such as in the overvaluation of homes, not because of OSFI guidance.”

Melessanakis continued to talk about the housing market saying, “This can change fast. Are the banks equipped to handle a 40 per cent drop? Need to stress test to find out.” The drastic drop in home prices is what the Toronto area saw in the early 90s – a crisis everyone remembers all too well, and that no one wishes to repeat.

And while McLister may not think that tighter rules are needed on HELOCs either, saying that they would “portend a big slowdown in HELOCs,” Melessanakis responded that this was the exact intention.

“[HELOCs have] contributed significantly to growing overall household debt,” and that “this is not sustainable. If (or when) housing prices drop, households will be vulnerable.”

What do you think? Does Canada’s housing market call for further mortgage tightening to slow it down? Or would that only further hurt the economy?

The survey showed that of all Canadians that are thinking about buying their first home within the next two years, women top the results with 49% saying that now, or the near future, is the time for them. This in comparison with only 35% of men who said that they’d be buying their first home in the next two years shows that Canada might be filled with a little more girl power at the moment.

Marcia Moffat, head of home equity financing such as home equity loans and home equity lines of credit at RBC says, “We are seeing more single women entering into the housing market, as income levels, changing demographics, and lifestyle patterns shift purchasing habits. But women are being more cautious than men, weighing cost, affordability, and job security before buying a home.”

But it’s not just women that are concerned about how affordable a home is for them. The survey also showed that men said affordability was the biggest factor taken into consideration when buying a home; 47% of both men and women said that affordability was the biggest factor for them.

The survey also showed that 25% of women and 14% of men delayed the purchase of a home because they felt they were not ready or they weren’t interested; 23% of women and 15% of men said that they didn’t have enough job security to purchase a home right now; and 22% of women and 14% of men said that they wanted to save for a larger down payment before buying a home.

But aside from just when Canadians were going to purchase their first home, the survey also asked what kind of mortgages they were likely to take on for that home – and both men and women prefer fixed rates over variable. 16% of women said that they probably wouldn’t take out a variable mortgage, while 25% of men said that they most likely would not either. However, 40% of women and 44% of men said that they would feel comfortable taking out a fixed-rate mortgage – just one more sign that Canadians are taking advantage of historically low interest rates while they can.

The question is a good one, especially considering that the price for the four projects ranges from $1 – $28 million, and Toronto’s already at the centre of far too much bubble talk. What might be even more troubling than the cost of building is that not one of the buildings has sold out yet. Not only does that mean there are more Toronto condos sitting empty on the market, but the developers may have a harder time selling the empty units, as more purchased luxury condos start to appear on the resell market.

“I think any developer has concerns about that,” said Howard Tikka, director of marketing Talon International Development Inc., the company overseeing the development of the new Trump Tower going into downtown Toronto. “If you have units left to sell, and people are taking them to market to resell, there is just not a whole lot you can do about it.”

The Trump Tower was the first to start selling their units in 2004, and it’s already seen its fair share of hardships including bad press, construction delays, and buyers that are unhappy with either their unit or the time it’s taking to finish. Trump is also operating on a different financial plan than the others. Instead of just renting out hotel suites and selling off the condo suites, everything is up for sale in the Trump. People can either purchase the hotel room and then take a percentage of the profits brought in from renting it out to visitors, or they can simply by the hotel room as their own living space.

Why would this turn buyers off? Well, purchasing a hotel suite to use as your own residence means that it will be subject to high commercial property tax rates, and not the lower residential type, making it much more difficult for people to obtain financing for the units.

“I called every major lender regarding Trump,” says one Toronto mortgage broker, Jason Friesen. “The only one I could find that was willing to finance was HSBC. There were some units that had $20,000 annual property taxes for an $800,000 or 1,500 square foot unit, because it was zoned commercial. Lenders wouldn’t touch it.”

A Toronto real estate lawyer agrees that the hotel condos may not have been the right decision for Toronto right now, at least in regards to the Trump Tower. Bob Aaron represents many of the buyers that were eager to get into Trump Tower, and are now trying to find any loophole they can in which to walk out of. Many are even willing to walk away from their $250,000 down payment.

“The monthly costs are too high,” says Aaron. “Or they realized too late that they had overpaid, or can’t finance it, or didn’t realize they were getting into a business venture superimposed on property ownership. They had very smooth sophisticated marketing, and I think buyers were dazzled by being partners with Donald Trump.”

Unfortunately, they won’t be. While Donald Trump has allowed for his name to be used on the tower, he has no ownership interest in it, nor will he be a part of running the tower.

First, find out what your interest rate is and then call your credit card company. No one wants to do it, but if you want to lower your credit card debt, it’s a step you simply cannot avoid. Call them, explain that you’d like to pay your debt off as quickly as possible (they’ll be happy to hear it!) and then ask for a lower interest rate. Credit card companies can charge astronomical interest rates, as much as 23%, and that’s the sole reason why your debt keeps climbing even when you continue paying. Ask for a lower interest rate – it’s your first step to saving money and paying off that debt sooner.

They said “no” the first time? Ask to speak to their supervisor. If the supervisor says they can’t lower your interest rate, ask to speak to a manager. If the manager says “no,” call back the next day. And the next, and the next, if that’s what it takes. No, these companies are not going to jump at the chance to lower your debt and take a loss in profits. But they might just jump at the chance to get that annoying customer off their back that really just wants to pay their debt off faster.

If you have come across a large amount of money, such as from an inheritance or another windfall, but you still don’t have enough to pay off the debt entirely, call the credit card company and ask about a debt settlement. Debt settlements are an arrangement in which the company will agree to take less than the full amount you owe them, if you are able to make that large payment all at once. Why would companies jump at this offer? Well, they may not leap out of their chairs trying to catch the offer while it’s still in the air, but they will be happy that your debt will be paid off very, very soon, even if it’s not the full amount.

A couple words of caution about debt settlements. First, always ask that the agreement be drawn up in writing and sent to you; and do not make any payment until you have received this letter. Second, use debt settlement as your last option and if you really believe that you’ll never be able to repay the full amount on your own. These settlements can show up on your credit report in the form of “chose a settlement,” or “paid majority, but not full, balance.” That can hurt you in the future, as creditors can still be wary of loaning to you, thinking that they’ll never get the full amount back.

And really, the whole reason you’re paying off your credit card debt (aside from the fact that Canadians want to take responsibility for their debt) is so that you can clean up your credit and start being loan-worthy again!

It does. And one only has to look at the recent stats that BMO has released in order to believe it. The bank recently released a press release that show just how much customers have saved with their 25-amortization deals.

The bank, which has been famous for not only starting the mortgage wars this year, is also one that’s pushing the 25-year amortization. And it may be for good reason – BMO just announced that customers who have selected the product will collectively saved over $167 million by the time their mortgages are paid off in full.

“The response to this product has been overwhelming,” says Katie Archdekin, Head of Mortgage Products at BMO. “We’ve received a number of testimonials from across the country that tell us our customers are benefiting from a product that’s designed to help them own their home sooner and save thousands of dollars in the process.” She went on to say, “We know that our customers value products that allow them to achieve their financial goals in a way that’s affordable over the long term. Based on the most recent feedback, this product has addressed our customers’ wants and needs and we believe the savings tally will only grow with time.”

However, even though the shorter amortizations have been heaven-sent for some BMO customers, they don’t work for everyone. With a shorter amortization period, you’re going to have to pay much more on your mortgage every month; and this is not something that everyone can afford to do. However, that really is the only big drawback with a shorter amortization.

If you think that you would be able to afford slightly higher mortgage payments each month, and the thought of saving a bundle on interest sounds appealing to you, a shorter amortization, but you’ve already chosen a 30-year (or, gasp! 40-year) amortization, speak to your lender about shortening it. Just because those are the terms you have now doesn’t mean that you need to live with it forever. And even though refinancing has its own costs, with savings like these it could still be very worth it.

We often talk on this blog about how using a home equity loan or HELOC to make renovations on your home is a great way to add to your investment and increase the value of your home for a low cost. But, if you’re not careful and if you choose the wrong contractor, it could cost you far more – in time, money, and heartache – in the long run.

It only takes a quick look at shows such as Holmes on Homes, that outline just what financial ruin homeowners can suffer when they hire the wrong person to do the job. But, says Ross, “while stories of renovation headaches are frequent, there are thousands of reputable contractors out there. A little preparation beforehand will certainly ease the stress.”

Of course that preparation includes things such as interviewing contractors to somewhat extensive lengths, and making sure that they have all the permits and licenses that are required of them. Of course, get lots of references from any contractor and make sure that you can always see samples of their work. These are all common sense measures that homeowners need to take when hiring any contractor to complete work on their home, but one that homeowners often overlook is to make sure that they get insurance for the work to be done as well.

Ross says that your insurance broker must be contacted before any work is done, to ensure that you have the proper coverage in place should anything happen to workers while on your property; or if any damage should occur to your home throughout the process.

Home renovations can certainly add tens of thousands of dollars onto your home when they’re done properly. But selecting the right contractor is just the first step. Also make sure that you’ve got yourself covered in case anything should go wrong. So that even when it does, you’re prepared and your home renovation can still be the dream you thought it would be.

The concern, even for those who don’t think Toronto is in a bubble, is certainly there, and evidence does show that the housing market will need to eventually correct itself and return to normal levels. But why then, when condo industries are booming in other parts of the country, are people not as concerned? The current stats coming out of Calgary certainly beg the question.

The Canada Mortgage and Housing Corporation has just released stats that housing construction starts in Calgary climbed a whopping 207.2 per cent in April 2012 compared to April of 2011. While April of last year saw only 556 starts, this year there were 1,708 housing starts in the Calgary region, including outlying towns such as Cochrane and Airdrie.

A boost in construction is always good, but that’s a drastic boost and yet, no talk of a bubble in Calgary. And certainly not any talk of one bursting. In fact, most are excited and inspired by the number of starts.

“The latest statistics are good news for the Calgary housing market, which has been suffering from the downturn for several years,” says Carol Oxtoby, president of the Canadian Home Builder’s Association – Caglary Region.

Lai Sing Louie of CMHC gave a few reasons for the housing boom saying, “We felt the (growing economy,) job creation and in-migration would all benefit the housing market and these factors have been stronger than expected.”

And one home builder, Wendy Jabusch, vice-president of Brookfield Homes, echoed those sentiments saying, “Our purchasers are telling us they have confidence in the future. Combined with the low interest rates, they have been comfortable making a purchase decision.”

So sales are up, starts are up, and that’s a good thing. But still, why is there no hint of concern? Sure, there aren’t nearly as many starts in Calgary as there are in Toronto, and Calgary may have a long way to go before they can even touch Toronto’s stats. But given the reasons given by the experts in the field such as in-migration, which is people moving to Calgary from other parts of the country; job growth; and low interest rates – do these not all point towards continued growth? And while growth in any market is good, Toronto is one example of how it can also be cause for concern.

Calgary also has another similarity to Toronto in that most of their starts came from multi-family housing such as town houses, condos, and apartment buildings. That stat climbed to 1,151 starts this year, compared to just 138 last year. And for the first three months of 2012 compared to last year? Multi-family starts went from 705 in the first quarter of 2011 to 3,095 in the same period for 2012.

Homeowners out West may not need to worry about underwater Calgary mortgages just yet. But could this be the first signs of a bubble in Calgary? 207 per cent. If that pace continues, it could certainly seem so.

Jim Flaherty made a statement when he submitted his budget in March that he was concerned about the role of CMHC and mortgages in Ottawa; and he later announced that CMHC would now be placed under the governance of the Office of the Superintendent of Financial Institutions.

Chiesa agrees that the role needs to be looked at saying, “We didn’t go and price what we could sell CMHC for, but we certainly looked at the role of a national housing agency.” Chiesa too, pointed to the Australian example, and how the CMHC board reviewed the effectiveness of CMHC “at least six times,” during the seven years that Chiesa served on the Board.

Chiesa also said that while it was something that was seriously considered, especially as concerns continued to mount about Oakville mortgages and Canadian mortgages. However Chiesa says, the ultimate decision was that they would “stay the course for the next few years,” and that it’s best of the agency was kept “in one form or another, because of what it’s contributed.”

But it’s not a simple matter of finding a buyer and getting some paperwork together. In order to sell CMHC, the government would have to determine whether or not they’re going to increase the legal limit on private mortgage insurance, which is currently $250 billion. It could also be disastrous to Canadian banks, as any insured mortgages on their books are considered to be “riskless assets,” meaning that they only improve a bank’s business.

Having the final word on the subject back in late April when speaking with the National Post, Flaherty said, “In the longer term, there are a number of government enterprises we review to see whether or not they need to remain within the public sector.”

The study was performed by Leger Marketing, and it found that 74% of Canadians will be getting a tax refund this year. Last year the average tax income refund to be received was $1,506. That’s a big chunk of change and this year, Canadians are planning on being smart with it.

According to the survey, 37% of us are planning on using the extra cash to pay off Toronto mortgages, 2nd mortgages, credit card debt, and household hills. Another 16% are going to put it towards saving or investing; 8% are planning on using the money for travel and leisure; and 6% are planning on improving their home with their refund.

The news should be encouraging to everyone, and it certainly is to BMO execs. Head of the BMO Retirement Institute, Tina Di Vito, said when talking about the survey results, “It’s encouraging to see that more than one-third of Canadians are using their refunds this year to lower their overall debt load. It’s especially important for Canada’s Boomers to focus on reducing debt as they approach retirement. Although it may be tempting to splurge on items, paying off debt will be more beneficial in the long run.”

Meanwhile Serge Pepin, the Vice President of Investment Strategy at BMO Asset Management spoke to the second majority of Canadians that are planning in using their refunds for savings and investments. “Putting your money into your savings or dedicating an amount to your investment portfolio is a wise move because it helps set yourself up well for the future,” he said. “Whether it’s saving for your child’s education or investing for your retirement, putting money away will put you one step closer to reaching your financial goals.”

We’ve certainly been hearing for long enough that we have too much debt, and that it’s the “number one domestic risk to the economy,” as Mark Carney sees it. These numbers, combined with other recent stats to show that we’re bringing our debt down, certainly should bring some relief to Ottawa – and to those households.

Blame it on demographics. Or rather, attribute our nation’s unique demographics not to the housing bubble, but as the element that keeps our economy humming along – and keeps bubbles at bay.

Before panicking about a bubble situation, Canadians need to first look at what’s actually causing the housing bubble, says Jason Heath of the Financial Post. Especially in Canada’s biggest cities, where bidding wars are taking place over Toronto mortgages in some of the highest-end neighbourhoods there are. While prices on these homes go up, up, and up, the rest of the city remains relatively the same – out of a bubble, and relying on the pricier homes as one of the driving forces of one of the best housing markets in the world.

But those are high-end homes, probably with two or three floors and sprawling lots. So what about the condos? Isn’t that where the majority of the concern lies, anyway? Yes, it is. But there’s no reason to fear there either, and it’s because Canada’s demographics right now are made up largely of condo lovers.

Baby boomers, says Heath, are soon going to be moving out of their two-storey single-family homes and move into a condo that’s all the space they need, and that lets someone else take care of all the small issues. And Canada’s young? They’ll “do what’s been done in the likes of New York, London, and Tokyo for years – they’ll buy a condo,” says Heath. At least, if they want to live in any of Canada’s biggest cities and are looking to take on a Vancouver, Montreal, or Calgary mortgage.

And then there are the new immigrants. Canada is known for being a melting pot, a multicultural nation – and it’s a good thing, too. According to Heath, 70% of Canada’s new immigrants relocate to the “big three” – Vancouver, Toronto, or Montreal. And what type of housing are they looking at when they get there? Condos! Condos that are close to their jobs, close to their cultural centres, and close to different communities.

But if you don’t believe Heath over at the Post, take a look at what CMHC had to say in their recently released annual report. “Clear evidence of a bubble is lacking [and we] continue to monitor very closely housing prices and underlying factors such as demographic and economic fundamentals and financial conditions across all major urban centres, including condominium markets.”

It was Benjamin Talk who released a report on Wednesday showing that our debt is coming down and that instead of worrying so much about debt, we should take another look at what it’s actually doing. “We’re so concerned talking about the level of debt, we haven’t noticed that recently, it’s slowing down dramatically,” he wrote in his note. “It’s moving in the right direction.”

First, the bad kind of debt – consumer debt. Household credit, which includes things like personal loans, auto loans, and credit cards (but not Ottawa mortgages) is currently growing at an annual rate of about 2%, and it’s slightly lower than it was last year at this time. Compare that growth rate with the 10% it was just four years ago; and the fact that the 2% is the slowest Canada has seen since the early 90s, and it’s clear that we’re starting to do some things right.

Now onto the good kind of debt – including mortgages and second mortgages. That debt is growing at a current rate of 5%, and that’s also the lowest we’ve seen in years – since 2002, in fact.

These figures, says Tal, show that when interest rates do rise, Canadians will be able to handle the costs. He also pointed out that when that happens, he expects to see some changes in consumer spending, but does not think it will lead to a large increase in loan defaults or personal bankruptcies.

“The fact that we’re actually slowing the rate at which we’re accumulating debt, and in fact it’s possible even that we are starting to de-leverage, especially in credit cards, you’ll see a situation in which we’re more ready for the eventual increase in interest rates,” Tal said in his report.

While Tal’s report is a bit more optimistic, it does fall in line with what Francis Fong, TD Economist, said in a separate report this week. Fong agreed that “some preliminary signs that Canadians have begun to hunker down and/or protect themselves from interest rate increases.” However, Fong also pointed to the “significant minority of Canadian households [that] will be at risk when this occurs.”

This is the latest call of action to Finance Minister Jim Flaherty, and it’s something that he’s considered in the recent past. Flaherty definitely isn’t scared to make changes to mortgage rules; he’s done so three times in the past year including tightening the lending requirements on second mortgages such as HELOCs at the beginning of last year, as well as shortening amortization periods. Now he says, he’ll leave the minimum down payment alone for the time being.

The Globe believes that raising the minimum down payment would protect that last Toronto condo buyer that Mr. Flaherty expressed concern over just last week. The argument the paper gives is that by raising the down payment, Canadians who can’t afford their mortgage (and they would be weeded out with the slight 2% jump in down payment,) simply won’t be able to take them on. And then there will be no need to worry about that last buyer. According to the Globe, “Raising the minimum to say, 7 per cent, would seem to be a measured, prudent way for Ottawa to limit the number of naive new borrowers who could be left holding the bag for a lifetime because greedy condo builders couldn’t rein themselves in.”

But the Finance Minister won’t. If he’s so worried about that last Toronto condo buyer, why is that? While he did seem to seriously consider the option (and any others that could bring our housing market back under control,) it was advice from Canada’s group of mortgage brokers, the Canadian Association of Accredited Mortgage Professionals, as well as the Canadian Real Estate Association, that warned him against doing so. These two groups warned the Finance Minister that raising the down payment would force too many first-time buyers out of the market, and it could also cost the economy a number of jobs.

What do you think? Would raising the minimum for a down payment help Canadians, or hurt us?

When looking at the predictions that the Bank of Canada will raise interest rates by at least two percentage points, TD economist Francis Fong says that there is a “substantial minority that cannot” handle an increase of that much. Mr. Fong explains that his stance falls in line with the Canadian Association of Accredited Mortgage Professionals, who say that 21% of Canadian and Ottawa mortgage holders would be in trouble should mortgage rates rise; as well as the BoC’s own predictions that 7.5% of households in the country would also be in trouble once interest rates started to balance out to normal conditions.

But will those rates rise, putting so many of us at risk, like predicted?

Mr. Fong, who believes we’d be at risk if they rose, thinks that even if they do, it will be at a slow enough pace that it would give us time to make the necessary adjustments to our personal balance sheets. Because of instability in Europe and a slower recovery in the U.S., Mr. Fong agrees with many economists that the rates probably won’t move up by a full 2 percentage points until the end of 2015. That’s not to say that they won’t raise before then; just not to a level that we won’t be able to handle.

Mr. Fong also points to the fact that Canadians are starting to rely on consumer spending less and less, and the banks are showing signs that consumers are taking on less debt. He says, “The pace of growth in household credit is no longer a reason for the Bank of Canada to move from the sidelines any time soon.” However, Mr. Fong also knows that it’s not all a bowl of cherries, either.

He says that even though Canadians are starting to cut back on their consumer spending in the way of credit cards, our mortgage credit growth has held steady at nearly 8% for three years in a row. This, he says, is an indication that while Canadians may not be so ready to whip out the plastic, they are relying more on home equity lines of credit and other mortgage debt.

The stats show that the number of Canadians that are likely to default on debt has fallen to 3.04% – the lowest its been since September 2010. While the stats don’t take mortgage loans, including home equity loans and home equity lines of credit into consideration, it does show that Canadians are ready to tackle their debt and start paying it off. Hopefully before those interest rates start to climb.

So how are the stats even collected? And how is anyone supposed to know who is going to default on their debt in the future? When compiling the data, figures for the amount of Canadians who have missed three or more consecutive debt payments are looked at. It’s then estimated that about 40% – 50% of these individuals will default on their payments. With the current figure being down to 3.04%, that’s 738,526 Canadians who are likely to default on their non-mortgage loans.

For those who do find themselves in trouble and need to fix their credit, Wendy Dupuis of the Financial Fitness Centre in Windsor gave a few pointers, “Making sure that you’re making whatever payments you have on credit on time is absolutely key,” she says. “Try to live on cash and make sure that bad stuff falls off your record over time. The other thing you don’t want is to just go out and get a whole bunch of credit and run the danger of getting back into the same mess.”

Bad credit, brought on with the defaulting of payments, can be disastrous for anyone and can wreck their chances of more than just ever being approved for a mortgage. Property insurers will charge higher fees for those that have bad credit, and it can even keep Canadians from getting a home or a job, as more landlords and employers are starting to take credit history into consideration as well.

It’s a problem for many people, but it’s one that can be solved fairly easily and, Dupuis says, for many, bad credit is something that can be fixed in as little as six months to a year. Compare that with the seven years it takes to get a bankruptcy off your report, and rebuilding certainly seems worth the time and effort.

One of the first to speak up in this round of condo talks was Montreal developer Michael Dickey, who says that he sees the problems. “I’d be worried if I was in Vancouver and Toronto,” he said, “In Toronto you’re getting an oversupply.” An oversupply that means banks are not looking as kindly on Toronto mortgages for condos – especially for developers who want to add onto the already condo-laden landscape.

Mr. Dickey certainly isn’t the first one to weigh in on the issue, and he most likely won’t be the last, either. But some are getting frustrated by all the condo bubble speak, and say that if one is too look at all the statistics, they’d see that Canada’s condo market is at normal levels.

One of those people is Joe Vaccaro, president of Toronto’s Building Industry and Land Development Association. “The statistics are a lagging indicator to those sales of previous years,” he said, saying that people who bought condos two years ago are just now moving into them, while some haven’t made the move yet into their purchased condo – hence the reason for so many empty condos on the market. He continued on to say, “Household formations are different today. You’ve got baby boomers down-sizing, born-again singles, young couples who want an affordable first home, and 100,000 new people coming into the Greater Toronto Area every year.”

However, Bank of Montreal analyst Robert Kavcic doesn’t agree. He said that the new information released by CMHC closes out “any doubts that Canada’s housing market, at least in certain sectors and cities, is at risk of overheating. It’s starting to look like condo construction is running a bit ahead of household formation. It seems the level of building is definitely in overheating territory relative to underlying fundamentals.”

But while the new stats may have added fuel to an already large fire, there’s one area in which they shed some light and clamped down any case for argument – and that’s the case of foreign investors.

Recently, so many have called on the federal government again to make changes to mortgages in Ottawa, and restrict the occurrence of foreign investing that’s happening and, many think, is creating our bubble.

But that’s just not so.

The stats also showed that the minority of condos purchased over the first quarter were from local buyers.

Because CMHC is now being overseen by the Office of the Superintendent of Financial Institutions (OSFI,) the banks can no longer sell insured mortgages to the government in exchange for covered bonds; or at the very least, this practice is going to be lessened considerably. And while that may not be great for the banks, it’s going to be a huge plus for mortgage brokers. At least, according to Stephen Boland, an analyst at GMP Securities.

In a recent letter to his clients, Mr. Boland spoke about the new changes saying, “We believe that the increased lending restrictions on the use of CMHC will provide the alternative mortgage lenders with additional products which will help them continue to grow their loan books.”

That may very well be true. The fewer covered bonds the bank can use as collateral for short-term loans with the government, the less capital they show on their books. This means that they can’t give out as many loans, and they’ll become much pickier with those they choose to give a loan to. Homebuyers who are on the brink of not being approved for a mortgage, most likely will not be by the big banks. And that’s not only good news for brokers, but good news for homebuyers, too, who are seeking other options and want to get the best deal on their mortgage.

But it’s not just the fact that CMHC’s oversight has been changed. Mr. Boland also points to the fact that many of the big banks have withdrawn from the mortgage broker market and sub-prime market. As borrowers see that more doors are closing, they’re going to be even more eager to find ones that are not – such as those to a broker’s office.

In short, the new changes are good for just about everyone but the Big Six banks, says Mr. Boland. “We believe that certain borrowers may not qualify for lending at the large financial institutions due to new restrictive constraints and alternative mortgage businesses will likely benefit at the margin.”

First up for discussion was inflation and the bank’s goal to keep it at 2%. Mr. Murray explained that while this was mandate is low, it’s necessary to help with overall financial stability. The Deputy Governor pointed out while speaking on inflation that price stability and financial stability need to work hand and in hand and that it’s a myth that “focusing on price stability limits the Bank’s ability to pursue its other major objective, financial stability.” He continued on to say, “While at times there may appear to be tensions between these two objectives, the two are in fact inextricably linked; it is impossible to achieve one of them without maintaining the other.”

The Deputy Governor went on to say that price stability is the most important goal the Bank has in order to keep Canada’s economy afloat, but that by keeping inflation low, it helps the overall financial picture by allowing for more employment opportunities and helps give both consumers and businesses purchasing power while still being certain about their incomes and profitable futures.

The Deputy Governor also spoke on the increasing home prices, especially in Vancouver and Toronto, and the Bank’s reluctance to raise them. Mr. Murray, along with the Governor of Bank of Canada, Mark Carney, both believe that even though these areas are of concern, raising interest rates could hurt the economy as a whole, instead of improving it. However he warned, it’s very important that homeowners and brokers consider home equity loans very seriously before taking one on, or approving one.

“Although other policy levers, such as bank regulation and macroprudential tools, are typically the first lines of defense in ensuring financial stability, monetary policy can, in exceptional circumstances, play a complementary roles in achieving this end,” said Mr. Murray. “Fortunately, there is enough flexibility in the present monetary policy framework to do so while achieving our inflation target over the medium term. One is not sacrificed to benefit the other.”

He went on to speak about household debt and mortgage debt saying, “Home equity loans are good, but for some, potentially a little risky,” he answered in response to a question from the audience of brokers.

Mr. Murray had opened his remarks by comparing Canada’s situation with those outlined in the classic novel The Great Gatsby. He showed the parallels of the book, which depict the Roaring Twenties that preceded the Great Depression and the conditions of today when “we nearly repeated the experience of the 1930s.” But, we managed to avert it, and he finished off his comments on a positive note saying, “We already have a fair degree of financial stability in Canada. We’re very fortunate.”

The term is the length of a certain portion of the mortgage, not to be confused with the amortization period. The amortization period is the total length of loan or, how long it will take to pay the entire loan off. That amortization period is broken down into different terms and at the end of the term, the homeowner can then renew their mortgage and take the opportunity to make changes to their mortgage. But when homeowners break their mortgage by changing their mortgage or changing lenders before their term is over, severe penalties can be dealt and it can cost the homeowner greatly.

Before buyers can choose a term for their mortgage, it’s important to know the two different types of terms that are available. Long-term rates is the first type and these will be longer terms (anywhere from 4 to 10 typically) and they will come with fixed rates. Short-term rates on the other hand (anywhere from 1 to 3 years) are generally variable rates. Even though rates shouldn’t be compared when comparing terms, owners still need to take in the same considerations that they do when comparing interest rates. Namely those considerations are what their short and long-term financial futures look like, and what they want to do with their money during that time.

In short, if you’re short on cash and your financial picture would be under stress should your situation change or your payments increase in the near future, you should choose a longer term. Longer terms typically have lower payments, better interest rates (right now, when they’re at historical lows), and they can provide peace of mind because you’ll be paying the same amount each month, over a long period of time. This is also good if you’re at the beginning of your mortgage and know that you’re going to have the loan for a long time to come.

Short-term mortgages however, have their place, too. Not everyone wants to be, or needs to be, locked into their mortgage for the next 5 or 10 years, and this is when a shorter term can come in handy. A shorter term allows those with extra cash flow to pay off large amounts of their mortgage at one time, with no prepayment penalties because they’re not breaking the term. It also doesn’t make sense to have a long term if you’re near the end of your amortization period and aren’t going to need a very long term.

But aside from those who are affluent, shorter term mortgages can be appropriate for other situations, too. Shorter terms can be suitable when you need a sub-prime mortgage while you rebuild your credit. And if you know that you’re going to need to refinance in a few years to free up some cash flow for college tuition or home renovations, a shorter term will mean saving you money when it comes time to pay for those things.

Choosing between mortgage terms can be a tough decision. And while these are a few good pointers to begin with, there’s just as much involved in choosing your term as there is when choosing your interest rate – if not more. It’s important that you speak to a Toronto mortgage broker that can help you sort out which term is best for you.

It was in 1999 that Spain started seeing the same kind of boom that we’re seeing here in Canada, and that they saw across our Southern border. During this time Spaniards were gobbling up as many properties as they could – and foreign investors were in on the action too. People were flooding to this area to scoop up vacation homes and investment properties while in Spain, real estate was the investment to get a good return on – none other really could even compare. In fact, real estate was such a huge profit-making investment tool that many, many residents were buying second and third properties – simply because they were the best possible assets you could hold. During the height of the Spain housing market frenzy, a whopping 80% of Spanish household assets were held in real estate.

Then the other shoe dropped.

At the beginning of the global financial crisis in 2008, housing prices in Spain fell by an astonishing 21%, and it’s thought that they’re going to drop even further. By the time they bottom out, the average home price in Spain could be down 55% from its original purchase value. Add to this the fact that along with the crisis, Spain also felt other major economic repercussions such as their unemployment rate rising to a drastic 25%, and their youth unemployment rate at a huge 50%. This is due to the fact that Spain couldn’t lower the value of their currency anymore due to the Euro.

So what does this mean for us at home trying to get Toronto, Vancouver, and Edmonton mortgages? Well, it means that while our situation might currently be fragile, we’re probably not going to implode on ourselves like so many think. Compare the numbers, and you’ll see.

Our current assets that are held in real estate only equal 39%, less than half of what Spain’s was. Yes, that’s higher than it’s been in over two decades; but still not nearly as bad as we might think. And while all Canadians are worried about the current 10% overvaluation happening in most Canadian markets, it’s nowhere near the overvaluation that occurred in Spain or in the States, and so while our prices will drop, they’re likely to not be nearly as drastic.

Does this mean that we should wash our hands of responsibility and continue to ignore our housing market? Of course not. Canada has never done that, and there’s no doubt that our federal government is keeping a closer eye on our housing market than ever before. But it does show that while we may be in a bubble, and while there may be no denying that the bubble is going to pop, it’s still very likely true that what we’ll feel will be the “deflating” effect that so many have predicted. And not a burst that makes our entire economy collapse.

The problem is not when foreign investors take on a Toronto or Ottawa mortgage, rent the unit out, and then watch their money grow as the home appreciates in value (hopefully,) and they continue to make profit off of rent. This is what most people think of as the “typical” foreign investor situation, and it’s definitely the one that’s the most ideal. However, there’s a whole other practice going on, and it could be blowing up our bubble at a much faster rate than the rising prices on Vancouver or Calgary mortgages – just two areas where bubble concern is the greatest.

Foreign investors often buy condominium units, or 20 to 50 of them at a time, over single-family homes. Often this is done while the condo is still being built and in order to secure those units, the investor will put down a 5% down payment to gain the right to buy once the units are complete (or complete enough to the point to sell them.) While this “assignment” is usually only meant for the investor, some investors flip that assignment for a higher price than which they bought it once the price of the unit goes up.

The problem with this practice is the profit the investor is making – and then taking it out of Canada. While investors are free to make money here and then take it elsewhere, that money must be taxed so that our country can also make a tiny profit for allowing them to invest here. However, when rights to buy are bought and sold, the Canada Revenue Agency never hears about it, and there are never any T-5 slips issued or submitted showing that tax is due. That money, which could be hundreds of thousands of dollars, simply walks out of our country and hurts our economy by doing so.

This is undoubtedly one of the biggest problems with foreign investors. And while not all developers and foreign investors are contributing to the problem, many are and it could be enough to seriously hurt us here at home.

There’s been a lot of talk of foreign investing lately; and not that long ago we wrote a post promoting foreign investment and outlining how it can help our economy a great deal. But there’s no doubt that this kind of foreign investment needs to be stopped, to stem the bleeding that’s happening in many of our housing markets and to keep the bubble from bursting too fast and too soon.

That is the case of the Mondragon cooperative complex that’s located in Brampton. The complex has a Brampton mortgage on it, but engineering studies were done on it last year that showed extensive renovations and retrofit work needed to be done – and that work would be somewhere in the tune of $2.3 million.

Instead of taking out a second mortgage to afford the work that needed to be done, the Mondragon went to their lender in hopes of breaking their mortgage and finding a credit union that could give them a new mortgage. Their lender is currently the Canada Mortgage and Housing Corp (CMHC); and the Crown corporation is telling the co-op Board that in order to break their current mortgage there will be prepayment fees – and those fees will equal $140,000. Sound fair?

Not surprisingly, the Board doesn’t think so. Nadine Wisdome, president of that Board, says, “We are prepared to pay a reasonable prepayment penalty. We are asking Minister Diane Finley, our Member of Parliament Parm Gill and Brampton Mayor Susan Fennell to help us in our fight for fairness to reduce this bureaucratic roadblock in our pursuit to maintain financial independence and housing security for all of our members.”

CMHC though, doesn’t seem to be listening. They have already asked the Board twice for the prepayment penalties, saying that the mortgage is held under the corporation’s Direct Lending program; and that the interest is the amount of interest the loan would have accumulated over the course of its current five year term. That term has also recently just started.

In addition to the $2.3 million needed for the repair and renovation work, as well as the $140,000 in prepayment penalties that the CMHC wants, the Mondragon Board is also still responsible for the $1.8 million principal that’s still left owing on the mortgage.

What do you think? Is this fair practice, considering that homeowners would also be charged any prepayment penalties? Or do you think that the penalty is simply far too high, and should be lowered?

Nova Scotia has a lot of new rules coming down the line for the mortgage brokers. One is that every single practicing agent must be fully licensed within the province. As it stands now, only the main broker needs to be licensed, not those that are working under them. The changes also outline the standard educational and training requirements that brokers must now meet in the province – and those pesky changes to disclosing commissions is still being proposed. And it’s really only this latter one that there’s a problem with.

As Mark Coffin, Nova Scotia’s Deputy Register of Credit put it, “I’m not sure the rationale is there for it.” After all, other sales people who work on commissions aren’t required to disclose how much they get paid. And homebuyers aren’t even the ones paying the commission, so one does have to wonder how this would help. Not surprisingly, most mortgage professionals in Canada and in Nova Scotia have trouble with this new proposal.

Glen Ward, president of Mortgage Brokers Association of Atlantic Canada said in front of Nova Scotia’s Law of Amendments committee on Wednesday, “I asked the committee not to require brokers to disclose the amount of their commissions. Bank mortgage specialists are commission sales people as well and they are not required to disclose.”

That may be a good enough argument in and of itself. After all, the only reason to disclose pay amounts is so that the buyer can know fully that the broker is truly acting in their best interests – and not just for those that will pay them the most. But doesn’t the same apply to mortgage bankers? These professionals really are just selling a few of the bank’s products, and there’s no way if the homebuyer is to know whether that product is best for them.

Jim Murphy, president of Canadian Association of Accredited Mortgage Professionals also has a huge problem with the new proposed changes. He says that these kinds of rules have already been implemented in Canada, and then taken away because it simply didn’t work. “Disclosure of exact commission amounts is something that CAAMP has concern with. This was an issue in Saskatchewan where the regulation was actually changed due to our hard work.”

Manulife is largely known in Canada for its health benefits and insurance programs, often offered by employers. But, they are also one of the fastest growing businesses in Canada, now offering savings and chequings accounts, and yes, mortgages and HELOCs. Now though, that last product is in trouble as the Finance Minister and the Office of the Superintendent of Financial Institutions might be making major changes.

You’d expect the bank to be up in arms about taking a hit on one of their most popular products; but Manulife’s reaction is one that might surprise you. Manulife Financial’s CEO, Don Guloien, said in an interview this week that the Manulife One product, “might be, very slightly, collateral damage in that process. We’ll take a look at the strategic plan for the bank and probably slow down the growth of it a little bit.”

And unlike others, who are saying Jim Flaherty just wants to get the dirt off his hands for when the whole thing goes bust, Mr. Guloien sees the purpose of what the government is doing, and even agrees with it. “What the Canadian government is doing is very resposible,” he says. “It hurts us a little bit in the short term, but it’s the right thing to do. The Finance Minister is very concerned about the unprecedented rise in housing prices.”

Mr. Guloien also sees similarities happening between Canada’s current housing market, and that of which happened in the States just a few years ago. “A lot of it is backed by home equity, and that is asking for the very same issues that have been experienced by our friends south of the border, and we should learn from that experience rather than trying to repeat it.”

The CEO ended the interview by saying that even if the new rules hurt Manulife One a little, it’s still a very good product that can help homeowners pay down their mortgages faster than if they chose a strictly conventional mortgage; and for that reason, the bank will continue to offer it. “We have the ability to modify the product and do some things,” said Mr. Guloien. “We’re not going to back away from Manulife One, it’s a very successful product. But there is a theoretical risk with any home equity line of credit that people can run it up to the max in stressful times. And the government is concerned about people overleveraging themselves on real estate, and that’s a legitimate concern. I actually think it’s great that they’re dealing with it, but it’s affecting all banks.”

First, a look at what Dodge actually said. “I don’t think it’s in trouble,” he said when referring to consumer debt. He pointed to the fact that the areas in the country that have the highest household debt levels are in places such as Alberta, where Edmonton mortgages and Calgary mortgages make up a large portion of the average person’s debt loads. But, he also says that it is in these areas where housing and income levels are the strongest and highest, respectively, so we should not be concerned that these Canadians are drowning in debt they’ll never be able to repay. Dodge did say that in areas like Vancouver and Toronto, where housing prices are getting wildly out of control, it’s a different issue.

So what’s the problem? Apparently, the Globe and Mail doesn’t think it was Dodge’s place to speak out against his successor, and they said so in a post of their own titled “Dodge should not have undermined Carney’s Housing Message.” In that post they spoke about how Dodge’s criticism is not only unfounded and therefore probably incorrect, but also that Dodge has no place disagreeing with Mark Carney. What? Really? We often agree with Mark Carney on this very blog – but we have no problem with those that don’t.

Apparently, readers of the Globe saw the same problem. They too, agree that regardless of Dodge’s accuracy, he is a Canadian and therefore, he has every right to talk about his own opinion on policy matters. These were some of the comments the Globe received:

“The Globe and Mail is always trying to decide who is allowed to speak in Canada.” – Diane

“If he had agreed, they would be praising him. Bad Dodge, under Harper’s Canada, you do not have the right to a differing opinion. Bad, bad Dodge.” – Susy

“Mr. Dodge should have his own view of the world. Why would he be forced not to air his own opinion on important issues simply because he is the predecessor to Carney? I found this editorial disturbing.” – Ecmiss

However, there were a few that disagreed with those comments and agreed with the Globe that Dodge had no business butting in. These were what those comments showed:

“[Dodge's] judgement on this issue is indeed questionable but his judgement in speaking out as an ex-governor is not open to debate: it was the wrong thing to do.” – Epictitus

“A former CEO shall never question his successor. Once you retire, you are no longer fully informed of all the issues and intermingling effects.” – WinniMiss

“Good for Dodge. Carney’s had plenty of time to settle in his job. Dodge did him the courtesty of staying out of it for awhile, but that should not be a lifetime ban.” – Johnny

What do you think? Do you think Dodge or Carney is correct? And do you think Dodge had the right to speak his opinion?