How New Mortgage Lending In Canada affects you

This past month, our most popular post on social media was the share of an article entitled “New Mortgage Lending In Canada Sees Dollar Growth Boom”, which was full of useful information for those looking to secure a new mortgage. But for a lot of us lamen folk, it left us with a lot of questions as well. We reached out to one of our preferred mortgage brokers, Danielle Di Marco, Senior Mortgage Planner at MortgageLine to help us demystify some of the terms and phrases in the article, as well as better articulate how this news affects our local Calgary real estate market. 


  1. What does this news mean for Calgarians and our real estate market?  The article is focused on Canada’s mortgage lending, less specifically Calgary so when we read this articles in context with CREB’s Q3 results, a rise in Calgary’s mortgage lending is likely more due to the fact that housing prices have shifted downwards.  Due to this downward shift affordability has increased, as a result much of Calgary’s market growth is more due to a shift in supply adjustments. More supply in a lower price point encourages homeowners to purchase. If you compare the type of home and features of a home you could have purchased in the boom, versus the type of home you can purchase now in today’s market you’re getting a lot more “bank for your buck” so this is encouraging homebuyers to pull the trigger and buy.

  2. What does this mean for people who are currently looking for a new home?  There are lots of properties out there, a large supply so this typically means that homeowners can be more picky.  Having said that, buyers are smart and more educated now, so when a great property comes on the market there is a lot of activity surrounding that property.  Homeowners need to be ready to act quickly if they find a property they love. With mortgage rates being low right now, combined with a high supply of homes at more affordable prices I believe we’re going to continue to see a trend in an increase of purchases, as the article suggests.

  3. What's the difference between an insured mortgage and an uninsured mortgage?  An insured mortgage is one where the homebuyer typically puts down less than 20% for their down payment, and is purchasing a home under a 1 million dollar price and one of the 3 insurers (CMHC, Canada Guarantee, or Genworth) insures the mortgage.  The bank charges an insurance premium that gets added to the mortgage and amortized over the length of their mortgage. In the event that a homeowner defaults on their mortgage payments and a lender must go into foreclosure this Insurance Premium that was charged helps the lender recover their losses.  So it’s an insurance premium you as a homebuyer incur to protect the bank. But the benefit of this premium is that homebuyers don’t have to save up a 20% down payment while trying to combat inflation costs, so it allows homebuyers to get into the market with as little as a 5% down payment. An uninsured mortgages requires a 20% down payment or higher, and is a mortgage between the bank and the homebuyer, there is no insurer involved so there is no insurance premium added into the mortgage. 

  4. What is a "simple moving average" for new mortgages?  In this article, the author I believe is trying to establish a trend pattern of increasing mortgage lending.  However, as mentioned previously are buyers really borrowing more, or are banks/insurers dropping rates to entice borrowers and is there such a supply available that sellers are lowering their prices to entice buyers?  The SMA is a backward looking analytical tool that uses the average of (in this case) 12 months of borrowing (total mortgage loans), to see if the trend is up or down. They are saying it is trending up for a couple months, but it’s still not clear if in fact this is a trend that is going to continue, or if this is simply a blip in time as a result of the lower rates and higher supply.  If you look at the year in its entirety instead of just August you’ll notice that it was still a weaker year in 2019; however again there was an increase over the month of August but to take one month of the year and try to determine if there is a trend would be impossible. So while there is an increase, and a high one at that, historically it would seem this isn’t a “trend” but rather a “moment in time”.  We’ll have to continue to watch the SMA and the market heading into the last quarter of the year to determine if this increase in August is turning into a trend.

 


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