This is an interesting article, the tightening of the availability of insured mortgage loans in Canada, is sure to put downward pressure on the  Real Estate market and home prices in general despite our persistently low interest rates. Fiscal policy makers want the business sector to benefit from the low interest rates to spur growth, but an unwanted  side effect was Canadian households bulking up on cheap debt.  Read more »

The Bank of Montreal created a firestorm in the mortgage industry this week by announcing a groundbreaking special 2.99% fixed rate mortgage. This was important and gained an enormous amount of media attention because for the first time a Major Canadian Bank was making a “posted” five year fixed rate mortgage offer at unprecedented rates. Read more »

Vikram Barhat / January 09, 2012

The need for an improved cash flow in retirement is leading to record number of reverse mortgages in Canada, according to a HomEquity Bank study.

The report released by the only national provider of reverse mortgages in Canada notes its reverse mortgage originations were up 42% in the fourth quarter of 2011. On an annual basis, the company originated $239 million in reverse mortgages, a 16% year over year jump.

As at December 31, 2011, the bank’s portfolio of reverse mortgages of $1.2 billion was 17% higher than at the end of 2010.

“Since its inception 25 years ago, HOMEQ Corporation has analyzed the demographic wave of Canadian seniors and how our business can address these trends,” said Steven Ranson, president and CEO. 

“Now, the wave is here and we are meeting seniors’ needs for improved cash flow in retirement. This tremendous market demand is fuelling our strong growth in originations, while our disciplined approach to operating the business is resulting in healthy net income growth.”

Reverse mortgages are offered to Canadian homeowners 55 and older and have no income, credit or health qualifications. Unlike traditional loans, borrowers don’t have to service the interest or repay the principal for as long as they own their home and are living in it.

Experts like Bryan Yu, economist, Central 1 Credit Union, are watching this trend closely. “It really speaks to the overall economic environment, but also over the longer term we’re looking at the demographic that are involved with reverse mortgages.”

Over the next 20 to 25 years, the Canadians population over 55 years will reach 10 million, Yu says, predicting that retirement tools such as reverse mortgage are going to get more popular.

“Instead of making a downward move [selling property] they might want to stay within the own home and [a reverse mortgage] provides them another tool that allows them to stay in place, but also obtain an income flow from that asset without selling it.”

Great article, from the National Post …..

TSX -372.00 to 11,251.84. World Markets lower as Greek Failure to meet deficit target stirs fear of default  

• DOW –258.08 to 10,655.30
• Dollar -.0059 to .9448 USD Canadian dollar below 95¢ as euro fears jolt stocks, currencies
• Oil -2.41 to $75.20 USD per barrel   

·         Gold -7.50 to $1,650.20 per ounce  

• Canadian 5 yr bond yields markets -.0.021 to 1.29.  The spread (based on the  5 yr rate published rate of 3.49%) is above the comfort zone at 2.20 The uncertainty in the bond market is forcing a wider than normal margin until investors see some stability return http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en  The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. 1.75 and 1.95

The big chartered banks have introduced a plan over the past year to “build a fence” around their mortgage customers to some degree, by offering a “re-advance” clause by way of a collateral mortgage. This effectively pledges the rest of your equity to the bank (over and above your mortgage amount up to 125% of the value of your home).  Here’s what you need to know:

The Collateral Charge Option in Mortgage Documents

• The collateral charge option available in many mortgage documents now, is a feature whereby the bank registers a higher mortgage amount than what is presently needed by the borrower. 
• This is offered for the sole purpose of saving future mortgage re-registration costs in the event refinancing is desired at a later date.
• Registering the collateral charge for a higher amount (ie, up to 125% of the property value) is just an option that customers can take advantage of if they think their credit needs will change in the future and takes into account future appreciation of the property and the equity built up through payments over time.
• This is purely optional. You can say “no” to the option, and still have just the required mortgage amount registered against the property. 

This clause may have wide ranging drawbacks. For example, there is no guarantee that the bank will re-advance these funds, and if they do agree to do so there is not any predetermined rate or terms for this re-advance. Also if you are able to find a better option for a second mortgage elsewhere, the bank is not bound to release there security to your new lender, eventhough the amount you owe is much less than the amount they have advanced you.

If you are considering a collateral mortgage, I would recommend having the document reviewed by your lawyer prior to signing to ensure your have a complete understanding of the terms of this agreement.