Changes to Mortgage Financing Rules

Today Canada's Ministry of Finance, Jim Flaherty, announced three new changes to the rules regarding mortgage financing:

1. All borrowers must qualify at the 5 year fixed mortgage rate regardless of whether or not they are taking a lower term or rate;
2. For refinancing, the maximum on owner-occupied homes that can be advanced is 90% versus 95% previously;
3. Minimum downpayment for speculative (non-owner occupied) financing is now 20% for all government backed insured mortgages (e.g. CMHC).

These changes have come about as a means to slow growth in the housing market.  With the current low mortgage rate environment there is some concern that prices and debt levels have increased too fast.  With the threat of increasing rates in the 3rd quarter, consumers may not be able to afford the increase in their mortgage payments (variable rates in particular).  By tightening the requirements for mortgage borrowing, there is hope that Canadians will use their house as a savings vehicle and not a speculative investment.

These changes take place on April 19, 2010.

As an ex-banker, I can only applaud these changes.  I think making individuals have more at stake in their investments (homes) leads to a more stable environment.  On the plus side, should house prices  continue to increase in value, individuals will have more equity (savings).  While on the negative side, should house values decrease, individuals have a 10% cushion before they owe more than the house is worth.  It is much harder to walk away from your home if you have put your own savings into it than if you have borrowed it all. 

The first house we bought was in 1989 during a real estate bubble and 2 years later we walked away with $50K less than what we had paid.  A very hard lesson to learn, but even more costly had we put 5% down because we would have been more than $60K in the hole by the time the dust settled.

Online Tax Preparation

Million Dollar Journey has a new contest that is giving away 10 free copies of  Ufile online tax preparation.  The usual cost is $15.95 but by entering the contest at Million Dollar Journey either by signing up for his newsletter or leaving a comment on his blog you are automatically entered in the contest. 

Contest closes at 5 pm on February 20, 2010 so don't delay in signing up.

Online tax preparation is one of the fastest ways to complete your income taxes especially if you are expecting a refund.

Happy Accounting

3.15% Interest Rate

The quest for deposits and new customers is on.  Canadian Tire Financial Services  is now offering a 3.15% interest rate on their Tax Free Savings Account.  While one of the highest rates around, this is the posted rate on their TFSA account and is subject to change at any time.

The account information states that there are no monthly fees, but does not state whether or not there are fees to withdraw or transfer the funds.  One of the fundamental rules of investing is to investigate all of the fees and expenses applicable to any investment before you make the commitment.

Watching The Latte Factor

Occasionally one does want to treat themselves and purchase that Latte.  On a recent trip, I stopped at my favourite coffee shop and ordered a Grande Tea Misto (half steamed milk and half hot water with favourite tea).  Since my last stop in the Fall, the cost of the Tea Misto had increased by 72%.  A Grande Tea Misto used to cost $2.35 but do to a change in their computer system, the same product two months later now costs $4.05.  The Tea Misto button no longer exists so you are charged as if you received a Latte.

Upon questioning the servers I was informed that it is a full fusion tea bag and hence warranted the extra cost.  I don't know about you, but when the cost of an item increases by 72% because of a change in their cash register system I am not about to frequent my favourite coffee shop any longer.

Maybe it is time to test the waters of Canada's favourite and have a "Double, Double".