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The AC Lending Weekly

2019 Federal Budget Opinion Piece

For obvious reasons I’ll just be speaking to the portion of the budget that relates to mortgages.

Now that I’ve had a day to digest what was presented, I’m still at a loss as to what this will do overall to help Canadians.

Our tax money, or even worse the funds you pay towards the default mortgage insurance, will now be used to help bridge some Canadian’s down payment. I don’t know if you recall but in June 2017, CMHC was able to authorize a $4,000,000,000 (Yes that’s billion) payment to the federal government giving the impression that the government made more money than anticipated. This is clearly already a lucrative sideline for our government which all Canadians seeking home ownership with less than 20% down have no choice but to ante up for.

CMHC to pay $4-billion special dividend to Ottawa.

While we don’t know where specifically those previous funds went, the proposed funds will now be tied up as interest free liens on properties.  I am assuming the funding for the $1.25 billion is coming directly from the premiums Canadians currently pay.  In addition, there will be a whole new department created to manage this entirely new program which will cost even more money. Furthermore the details for this program have not even been finalized yet.  You would think it perhaps would have been prudent to have done the complete due diligence before rolling out a new national program, instead there are many more questions that have arisen. We will likely not know this finalized plan until closer to the fall assuming the current government is re-elected.  Its conceivable that the tax payer money gone into research and setting this up may all go to waste as well if they are not.

The wording of this is odd as well.  Any household income under $120,000 would qualify but your chances are better the less you make? I am all for helping my fellow Canadians but maybe they should have a plan with set criteria.  It seems like this could be a lotto system which you may or may not qualify for. Not to mention how does someone go shopping for a home if they don’t know their price point because they don’t know if they will qualify for this loan?

What if you are in a market with depreciating home values, as has happened in Alberta over the last few years, and you are forced to sell because of life circumstances? Do you still owe this entire amount?  Will CMHC kick you while you’re down and come after you? The questions are endless.  Let’s be very clear, you will have to pay this money back, it is not a ‘gift’ from a generous government.

Now let’s tackle the RSP contribution withdrawal limit being increased. While the idea is fine on paper, is it really helping? Canadians will save approx. $50/month on their mtg payment with the additional $10,000 down but that is directly offset by the requirement to pay back the first-time home buyers contribution.  This would cost them approx. $55/month over the 15 years. That is the maximum amount of time you must pay the first-time homebuyer’s RSP withdrawal for down payment back. Not to mention how many first-time homebuyers have that amount to withdraw?  Added to that, they are losing potential growth on these funds depending on their investment of choice.

I think there were easier, more cost effective and much more beneficial ways to help Canadians:

  1. Bring back 30-year amortizations for primary residence purchases.
  2. Reduce the stress test. We have had 5 rate increases in the past year which means Canadians are approving at prime plus 3.25% (if you include the increases that have already happened)
  3. Reduce the insurance premium being charged to Canadians. There is really no reason it needed to be increased recently to begin with. Using CMHC’s own stats the default rate on all mortgages within Canada in 2008 was 0.33% and in Q1 2018 0.24%. Yes, you are reading that right, less than 1% and its been decreasing. You are probably asking about Alberta and we must be the reason for the increase in premiums? Nope, wrong again. The default rate in 2008 0.42%-yes, we spiked in in the following 3 years to an average of .77% however by Q1 2018 0.45%. Still very low.

While people are looking at the impact of the monthly payment when premiums are increased, I’m looking at the actual equity Canadians have when they move into their property. With the premiums currently where they are at 4%, if someone is putting down 5%, the mathematical equity they have in their home is only 1.2%!!!

The day they take possession of their property they are in negative equity because if they had to sell, they would be on the hook for realtor/potential lender penalty to get out of the mortgage/lawyer/moving, etc. You can see by the default statistics above there is no need to sustain the premiums at the recently increased rates. CMHC Increased premiums for the 4th time in just 3 years in 2017! This is simply a cash grab hurting Canadians

CMHC hiking mortgage insurance premiums for third time in four years.

Either all or any of the above would have worked or could have been a possible better, easier, cheaper solution or maybe even leave things status quo instead of burning through more tax payer money? Just my thoughts…

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