June 24, 2008
Canada’s housing market still strong: central bank.
Conditions in the Canadian housing market remain “favourable”, with overall prices rising and few signs of excess supply, Sheryl Kennedy, deputy governor of the Bank of Canada, said today.
“The moderation in activity and price increases that we have seen in recent months is both expected and welcome,” Kennedy told an investment industry conference in Banff, Alberta.
House prices play a big role in the nation’s economy, she said: they can directly affect inflation, consumption, and decision-making in “the real economy” if a bubble inflates or pops. Policy makers at the Bank of Canada consider those implications when setting interest rates, Kennedy said. The central bank surprised financial market watchers earlier this month when it refrained from cutting interest rates, citing a higher risk of inflation from rising energy prices.
A major, widespread reversal in house prices is “unlikely” in the near term because the proportion of unoccupied, newly built dwellings in most Canadian cities is below historical average, Kennedy said.
The recent deceleration in house prices has been most noticeable in certain markets, such as the energy-rich province of Alberta, which had racked up “very steep” price increases in the past two years, she said.
Earlier this month, Statistics Canada said the annual rise in new housing prices slowed to 5.2 percent, its weakest pace since September 2005, as prices in the Western Canadian cities of Edmonton and Calgary slowed.
A declining trend in building permits also suggests that supply is adjusting to softening demand, while “the Canadian mortgage market is in reasonably good shape,” Kennedy said.
February 8, 2008
Common Mortgage Terms
Amortization Period
The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 40 years.
Appraisal
The process of determining the value of property, usually for lending purposes. This value may or may not be the same as the purchase price of the home.
Assumable Mortgage
A type of financing arrangement in which the outstanding mortgage and its terms can be transfered from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid having to obtain his or her own mortgage.
Blended Payments
Payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.
Canadian Mortgage and Housing Corporation – CMHC
A division of the Government of Canada that acts as Canada’s national housing agency. The CMHC’s mandate is to help Canadians access a variety of affordable housing options. It also researches housing and real estate trends in Canada and around the world, providing research to consumers, businesses and other government divisions. The major activity of the CMHC, and the one for which it is best known, is mortgage loan insurance, which insures approved lenders (such as Canada’s chartered banks) against borrower default. Mortgage loan insurance provides approved borrowers access to low-cost mortgage rates. CMHC approved buyers may purchase property with as little as 5% down payment.
Certificate of Search or Abstract of Title
A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.
Closed Mortgage
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
Collateral
Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default.
Conventional Mortgage
A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.
Debt-Service Ratio
The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs and condominium fees.
High Ratio Mortgage
If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.
Interest Rate Ceiling
The absolute maximum rate of interest that a financial institution can charge for an adjustable rate mortgage or loan.
Mortgage
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front.
Mortgages are also known as liens against property, or claims on property.
Mortgage Banker
A company, individual or institution that originates, sells and services mortgage loans.
Mortgage Broker
The matchmaker between a home buyer and a lender whose goal is to originate a mortgage loan. The broker draws from a pool of various lenders to find the right match.
Mortgage
An entity that lends money to a borrower for the purpose of purchasing a piece of real property. By accepting a mortgage on the real property, the lender creates security in the full repayment of the loan in the future.
Mortgagor
An individual or company who borrows money to purchase a piece of real property. By granting the lender an interest in the property, which allows it to lend the funds with an accurate assessment of risk, the mortgagor provides the lender with a guarantee for the full repayment of the loan. Also known as a “chargor”.
Total Debt Service (TDS) Ratio
The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 40% of gross monthly income.