Habitual refinancers may be forced to sell their homes
New mortgage rules that lowered the loan-to-value ceiling on refinances to 85 per cent from 90 have begun to cull the number of habitual refinancers. And that means the number of forced listings may soon follow, mortgage brokers predict.
Frustration is growing as cash-strapped borrowers watch their disposable income shrink and are forced to use more of their income to service higher-interest debt, rather than tap lower-cost mortgage money.
“Each transaction has added to their principal with an increased insurance premium, which has whittled away at their equity," broker Bob Smith told Mortgagebrokernews. “It means that with a forced listing, they will have little or no equity available to downsize after legal and selling expenses.”
“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation through no fault of their own out of their home,” maintains Prince George, B.C. broker Curtis Cannon.
He, and many like him, would have liked to see the government afford insurers some level of discretion, making exceptions to the rule in deserving cases such as spousal buyout and injury or death.
Have the new rules affected you or someone you know? Are you hoping to tap home equity to get your bottom line in better shape?
By Gordon Powers, MSN Money
* Follow Gordon on Twitter here.
Posted by: quarmby | Jun 13, 2021 12:31:36 PM
Just one more nail in the coffin of the "about to crash and burn", real estate market. The nitwitts in Ottawa isshould have forced responsible financial measures on all lenders and borrowers years ago, but unfortunately they instead allowed homeowners to become as financially inept and irresponsible as the government is. Time to pay the piper and the government will soon be at that same crossroad.
Posted by: Mike | Jun 13, 2021 1:34:58 PM
If the number of people who have maxed out their equity in their home by refinancing more than once, then unfortunately they probably shouldn't have been homeowners in the first place. Refinancing should be done as a last resort, because house price escalation does not go on forever. Any bank lender worth their salts will advise people of the pitfalls, however, they too are under pressure to deliver volume. So it is a bit of a catch 22 of what is morally and ethically correct. If the numbers are large enough to impact the market, then the wrong type of lending has been instituted.
By the way going back to 85% max., LTV is not new at all.
Posted by: Rod Thompson | Jun 13, 2021 2:53:57 PM
Unfortunately those commenting on this article are correct. The government can only put off the inevitable for so long and yes they should have addressed this more responsibly a long time ago. Sellers are at fault for using their most valuable asset as a ATM. Brokers are responsible for not caring and taking advantage of consumers, and governments are responsible for allowing this predatory activity to occur. In the end everyone gets hurt and it's a sad story that's yet to play itself out.
Posted by: Paranormal Freak | Jun 14, 2021 3:45:13 AM
Well, Im selling my home unfortunately. I don't make enough to cover my expenses and bills. I have an elderly to support, a wife who is a fulltime housewife and a 5 year old daughter. I have to sell my home and move back to my old country of origin in Asia where the cost of living is a lot lower and prices of homes are reasonable. High taxes, high cost of everything here from gas, to clothes, food, batteries, phones, cable, etc etc. Everything adds up and before you know it, you are already in big debt. I have to support a wife and daughter and I have to constantly send money every month back to the old country. Money for rent of an apt., clothes, dental bills, doctor bills, food, electricity, transportation money, etc etc. My salary definitely is not enough and I grossed $85,000 dollars last year and still that was not enough and on top of that I had to pay $500 dollars back to the government even though I had already claimed my wife and daughter as dependants. Luckily enough, the value of my condo is worth more than what I owe so I still have equity in it which can be saved and hopefully invested properly. I am able to get a three bedroom condo similar to the one I have now for $700 dollars a month in the old country fully furnished, 24 hour security, with amenities like childrens playground, gym, big swimming pool, lounge and even maid service (extra fee but cheap). I just have to pay the hydro or electrical bill. Still cheaper than my mortgage and monthly maintenance fee here in Canada. This is the reason why I'm moving and leaving Canada. I can just invest the money I have from the sale of my condo here and invest it there, I can live off the interest plus if I get a job and with my mother's CPP and OAS, we will be saving a lot more money. In order for me to stay here in Canada, I need to make at least $175,000 to $200,000 dollars for a middle class lifestyle and to maintain what I have without losing money and saving for retirement too. $85,000 dollars will not cut it with all the bills phone, cable, food, clothes, shoes, tuition fee for my daughter, dental bills, medication, insurance for vehicle and home, life insurance as well, etc etc. I need two $85,000 dollar jobs to actually be in the positive. Every month the interest on my loans eat up everything I pay for. If I stay here in Canada, I will eventually lose everything so I made this decision to move back to the old country. Good luck to everyone here. It's tough and a losing battle. Wait till another major crisis hits the world economy then you'll know what I'm talking about.
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Posted by: Rich | Jun 14, 2021 1:11:17 PM
To paranormal freak.
I cannot believe you are that bad with your finances that you cannot afford to live here. The GDP per capita is around 30k. People live off of that with families. What are you doing with your money? I had a friend who supported his whole family off 20k a year. How are you that bad with your finances? 175k-200k is being rich, not middle class.
Posted by: GG | Jun 14, 2021 3:53:13 PM
Dear Paranormal Freak.
I agree with Rich. I believe that you are living way beyond your means here in Canada which strips you of all of your available cash. I would recommend a basic budgeting course with a focus on trimming your spending. 85K annual income is more than enough!
Posted by: lightfoot | Jun 14, 2021 5:03:01 PM
We are on the fast track towards a correction, simillar to what or neighbours to the south and many other countries around the world suffered. Yes, definite "nitwitts in Ottawa". Paranormal Freak is precisely why some home owners are in debt up to there eye balls and then some( poor money managers). The grass was greener here in Canada, now i guess it's greener back home again (for now). 85k and no benefits ! you really should consider a basic budgeting course.
Posted by: Jay | Jun 16, 2021 3:16:46 PM
@Rich... excuse me, but making $175 - 200k is not being rich, not even close.
Posted by: Cria | Jun 16, 2021 9:13:28 PM
For the majority of people of this world, meaning this Planet, 175-200K per year is unthinkable, not to mention reachable or attainable. And it is not due to lack of hard work, education, but the system they grew up in and the other systems that take advantage big time of theirs. If you understand what we mean. For a dumb, arrogant ass like yours, entitled and greedy, it may not be a lot of money, but it is.
I feel sick to my stomach even when I waste time to read comments like yours. There are doctors in the country I live in who get paid 400 CAD per month. And a postal worker in Canada whines about not being paid much. An illiterate, uneducated and pathetic ass covered by a pathetic lazy Union.
Why do you even exist, I wonder?
Posted by: Western Guy | Jun 17, 2021 3:03:30 AM
175K - 200K isn't that much. In Canada a couple that is reasonably intelligent and reasonably hard working can get to this amount. I don't claim to be brilliant and I know lots of people that work harder but between my wife and I we crossed this mark last year and we are still in our twenties. I would hate to only have a family income of 85K as it would make saving a large amount for retirement difficult.
It all comes down to choices. From a young age if you are motivated to go for it and make the hard decisions it can come together for you quite quickly (much quicker than I thought when I was starting out). Many of my friends and coworkers are at or approaching the 100K of earnings (both male and female).
Now I know lots of people survive at the 30K income. All the power to you. I don't begrudge your situation and wish you the very best. What I find strange is that people (like Cria) seem upset by people that want and get more. Its something anybody in Canada can do (really the opportunities here are amazing).
Concerning the article I really doubt this will effect many people. To take a mortgage to 90% of the value of your home you pay a % of the total upfront as a CMHC fee. Makes this kind of lending fairly punative to individuals.
Posted by: viacom | Jun 17, 2021 5:07:40 PM
To Paranormal Freak,
Goodbye, have a nice trip. To many people come here for the benefits of our great nation and then whine if things don't turn out the way they expect. I am sick and tired of them coming here and bringing thier entire family to suck out the benefits we have worked for our whole lives. Good luck and make sure you don't skip out on the bills you have incured like so many other "visitors".