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HELOCs to fall to 65% LTV

I heard that this rule will only take affect once you purchase, renew or refinance a mortgage?



This would mean if you have an existing HELOC limit to 80% LTV you should renew your term for another X amount of years to continue using your smith maneuver tax strategy.



Anyone know whether or not this would be true?
 
A LOC can be cancelled by a bank at any time, for any reason, unlike a mortgage ! Therefore, banks will analyze the rulings and act accordingly. If it is a guidelines, but not a rule, then they may allow you to keep your 80% LOC.



My opinion is that if you must have the money then you should refi at 80% with a variable or fixed rate around 3%.



Most unused LOCs cost banks money indirectly in that they have to have reserves in case many people decide to actually use the money. I think the Finance Minister and OFSI do they prudent thing here as rates will be low for years, so they use other means to curb excessive debt !



The number one reason investors and home owners get in trouble is excessive debt relative to asset value or income !
 
Don made an interesting point on Facebook, which was reiterated by my broker... Restricting the amount of secured debt given to borrowers will invariably increase the amount of unsecured debt people hold. This move if it is supposed to protect people, will likely do more harm than good.



Nik
 
not necessarily, as the debt coverage ratio was reduced also.



Governments should not be dictating people's life choices too much, though. If you decide to buy a new Audi with a 90% loan or an expensive lease that you really can't afford, and the leasing department approves the loan, .. a big if in many instances I might add ..then that should be your right ! if you decide to rack up expensive credit card debt for a vacation in Mexico or for a new motorcycle, then you should be allowed to do that and live with the consequences.



As stated elsewhere, the state (aka CMHC) should not be in the loan insurance business, i.e. reducing banks' risks, except help initial home buyers get their first modest home. It did that, and could go a lot further, such as restricting CMHC to first time buyers, or require 10% down, as opposed to 5%. The steps taken by Minister Jim Flaherty are good public policy with a very modest impact, but a step in the right direction.



We have seen in the US where too much government meddling in the mortgage business leads.
 
[quote user=ThomasBeyer]not necessarily, as the debt coverage ratio was reduced also.



Governments should not be dictating people's life choices too much, though. If you decide to buy a new Audi with a 90% loan or an expensive lease that you really can't afford, and the leasing department approves the loan, .. a big if in many instances I might add ..then that should be your right ! if you decide to rack up expensive credit card debt for a vacation in Mexico or for a new motorcycle, then you should be allowed to do that and live with the consequences.



As stated elsewhere, the state (aka CMHC) should not be in the loan insurance business, i.e. reducing banks' risks, except help initial home buyers get their first modest home. It did that, and could go a lot further, such as restricting CMHC to first time buyers, or require 10% down, as opposed to 5%. The steps taken by Minister Jim Flaherty are good public policy with a very modest impact, but a step in the right direction.



We have seen in the US where too much government meddling in the mortgage business leads.





Would you support CMHC no longer insuring multi-family residential mortgages?



Regards,



Michael
 
[quote user=bizaro86]

Would you support CMHC no longer insuring multi-family residential mortgages?
of course, as in essence they do not do that today over 65% LTV.



CMHC is a crown corporation that should be private. No need for it anymore.



In general I support smaller governments. The problem in Europe, Quebec, US and now Ontario (and possibly soon: BC) is entirely governments that are too big, i..e they spend too much for the revenue they generate, and the revenue is already at levels that cannot be increased as taxes are at the upper end, roughly 50% for high income earners plus CPP plus EI plus GST/VAT/HST of 12 to 27% (in Hungary). Canada is dangerously close to Europe, as seen in Quebec, recently in Ontario and likely soon in BC: higher taxes, bigger government, more regulations, stronger unions, higher debt, higher unemployment, falling real estate prices .. a chain of events in that order.



The welfare state designed over the last 50 years is imploding: taxes are too high, education systems take far too long, healthcare systems are strained, the state cannot be the be-all and end-all of all problems of society and bail out everyone for everything.



Insurance has always been private, in most instances, so why is mortgage insurance the governments business ? Surely regulations could be created so that private institutions (aka banks) can find a way that banks lend to first time home owners with less than 20% down, it does not have to be a crown corporation.
 
CMHC's mandate includes more then just mortgage insurance...programs that aren't profitable by themselves and therefore of no interest to a private company. Maybe they are in this sense part of the "welfare state" but in my view this is part of being Canadian.

With respect to their insurance role...they insure mortgages that again may not make sense for a private insurer but are needed in some markets & for some products. For example...would Genworth insure a mortgage in many rural centres/small towns? The CMHC CLIP product facilitates ownership of mobile homes...nothing Genworth has does this. These are both examples of markets that we need in Canada & it seems that CMHC insurance is the only real option.
 
[quote user=CurtisSvidal]Maybe they are in this sense part of the "welfare state" but in my view this is part of being Canadian.


Such as ?



[quote user=CurtisSvidal]



These are both examples of markets that we need in Canada & it seems that CMHC insurance is the only real option.
I beg to differ. This is a very small market, and with one big player (CMHC) there is no room for a second or third player.



Why not insure cars as well. Surely cars are a necessity in Canada ? Or vacations ? Everyone deserves one ! Why is trailer park insurance or energy efficient windows or construction loan insurance the government's business ?
 
Such as...in a broad sense helping those less fortunate.



A second major player, GE/Genworth, has been in the market since I believe 1996. They do what they think is profitable only.



I don't believe cars/vacations fall under the housing mandate although ICBC is around for that. Like it not the other examples you quote are part of what they do to help Canadians obtain housing which I think is a basic right.
 
[quote user=CurtisSvidal]in a broad sense helping those less fortunate.
I agree 120+% !



But are banks, real estate investors, developers or trailer owners really "less fortunate" ?
 
By less fortunate I was alluding to programs other then the mortgage insurance one....their website details some of these.



Banks, investors, developers, mobile home owners certainly don't fit the less fortunate category however they do benefit from CMHC's participation in the housing market. I don't think that there is a right or wrong answer for what their role should be, just opinions. I'm sure this debate is similar to the one in media circles surrounding the role of another crown corporation, the CBC.
 
[quote user=CurtisSvidal]For example...would Genworth insure a mortgage in many rural centres/small towns? The CMHC CLIP product facilitates ownership of mobile homes...nothing Genworth has does this. These are both examples of markets that we need in Canada & it seems that CMHC insurance is the only real option.What makes you think we "need" the government to create a market that isn't sustainable on its own? Do you really believe there is some higher public good that is being served by allowing people to buy mobile homes they otherwise couldn't afford? It's not like there aren't plenty of alternative forms of housing.
 
[quote user=CurtisSvidal]Banks, investors, developers, mobile home owners certainly don't fit the less fortunate category however they do benefit from CMHC's participation in the housing market.
Exactly .. but is it the role of government to artificially stimulate activities that would happen otherwise anyway, but perhaps slightly more muted .. or rather: to what degree should government meddle in the private sector besides setting regulations ?
 
JimWhitelaw

What makes you think we "need" the government to create a market that isn't sustainable on its own? Do you really believe there is some higher public good that is being served by allowing people to buy mobile homes they otherwise couldn't afford? It's not like there aren't plenty of alternative forms of housing.





What you feel is "creating a market that isn't sustainable on its own" is in my view a crown corporation making a business decision in furthering its mandate. Just a difference of opinion. I liken it to the CBC putting on programs that few watch.

As we are both Edmonton based I assume that we are referring to the same mobile home parks. Over the years I have assisted many clients in purchasing these units. For many they are an affordable option for home ownership and more attractive then a low end condo. These purchasers must have good employment/credit so clearly this isn't a form of social assistance.
 
ThomasBeyer

Exactly .. but is it the role of government to artificially stimulate activities that would happen otherwise anyway, but perhaps slightly more muted .. or rather: to what degree should government meddle in the private sector besides setting regulations ?







What you are questioning is Keynesian economics...the theories were first presented in 1936. Many have and will continue to debate this.
 
Hello Fellow REIN Members,



I haven't had a chance to read all the postings but being a licensed mortgage agent, I wanted to highlight something about the HELOC from the perspective of mortgage qualifying. As much as they are great for investment purposes via the Smith Maneouver, I often tell my clients to keep in mind of 3 things regarding HELOCs:

1. HELOCs show up on a person's credit report. With TDS/GDS ratios becoming more strict (right now with conventional mortgages you can go up to 44% TDS but who knows maybe lenders will reduce it to 39% TDS like they did with high-ratio), the more of a balance a client has on their HELOC, the more income will be required to meet the max 44% TDS. The better way, in my opinion, is to pull that money out instead.

2. Since HELOCs show up on a credit report, the higher balance you have on your HELOC, the lower it effects a person's score. As soon as someone's balance is 30% or more of their limit (this also applies to credit cards and unsecured lines of credits), their score starts to go down.

3. A lot of lenders frankly don't want to deal with a borrower that has more than 5 properties. When a person has a HELOC attached to a property, since it shows up on their credit report, it is hard for the lender to turn a blind eye to those extra properties. So if an investor has 7 properties, each with a HELOC, lenders may turn it away. Conversely, if an investor who has 7 properties but there are no HELOCs attached to them, nor showing up on their credit report, in black and white, lenders will be more inclined to entertain this borrower's application.

In my opinion, it is better to just pull the money out instead. If anyone has any questions on their financial picture, please don't hesitate to call me.



Regards,



Naushy Saeed

Mortgage Agent, FSCO Lic. M11002086

Direct: 416-566-5341

Email: naushy.saeed@migroup.ca



Mortgage Intelligence

5770 Hurontario Street, Suite #600

Mississauga, ON L5R 3G5

FSCO Lic. 10428
 
[quote user=CurtisSvidal]to what degree should government meddle in the private sector besides setting regulations ?
To a small to no degree.



Governments have proven to be inept in picking winners.



better to have smaller government and lower taxes and let citizens decide how to spend it.
 
Hi Naushy

I'm not sure if I'm mis-reading but couldn't there be potential issues in your strategy - specifically as it relates to interest savings and tax deduct ability - ?
 
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