Lately with the new underwriting regulations our financing requirements might not meeting the qualifying guidelines. Like a change job, the start of a new family, or a move to a new location. Those changes can make it more challenging to qualify under the usual bank guidelines.

How can a co-signer or guarantor help?

A co-signer is someone who signs your mortgage with you. In most cases, they have to have a reliable or proven steady income, good credit, limited debt, and some accumulated assets

In the event that  the borrower can’t make a regular payment and/or if the mortgage goes into arrears, the co-signer or guarantor is called upon by the bank to help make up missed mortgage payments.

How is a co-signer or guarantor different from a borrower and co-borrower?

A co-signer or guarantor is required to complete a mortgage application and provide employment/income confirmation for the approval process.

A co-signer is not on the title of the property! A borrower and co-borrower are both on the mortgage document and the title. Often a co-signer is only required for a short amount of time.

For example, if you are buying a home and need a co-signer because you are new on your job, you may be able to apply to carry the mortgage in just your name and  have the co-signer removed once you have at least 1 year with your new employer and are past the probation period. Or, if you are newly self-employed, you may be able to apply in just your name once you have a 2 or 3 year history of earnings in your business.

If you have any questions about financing or the co-signing process please contact us.

• As widely expected, the Bank of Canada (BoC) left its overnight interest rate unchanged at 1.00% for a third consecutive meeting.

• The communiqué accompanying its decision was meatier than its brief December edition. The economic outlook for this year in Canada was nudged up, mostly as a result of brighter near-term prospects in the United States , but also at the margin for Europe . Canadian real GDP is now expected to grow by 2.4% in 2011, a slight improvement over the 2.3% forecast of October. Economic growth for 2012 was also upgraded slightly, from 2.6% to 2.8%, which comes as more of a surprise given the temporary nature of the stateside boost obtained from the tax relief and QE2. With what is now judged to be more excess supply than thought in October, the BoC’s latest economic forecast remains consistent with the output gap closing at the end 2012, with inflation concurrently returning to its 2% target. A more detailed economic forecast will be available tomorrow with January’s edition of the BoC’s Monetary Policy Report.

• The BoC’s risk assessment has changed somewhat. While the December communiqué stated that “risks have increased [from October]”, today’s statement noted that “risks remain elevated”. The boilerplate statements that the current level of the overnight rate “leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada”, and that “[a]ny further reduction in monetary policy stimulus would need to be carefully considered.” were maintained.

Key Implications

• Even while slightly upgrading its economic outlook, the BoC appears to have gone to lengths not to sound hawkish – to avoid igniting another surge in a Canadian dollar already above parity with the U.S. currency. In a dovish tone, speaking to the particular importance of international trade’s contribution to Canadian growth going forward, the BoC stated that “the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada’s current account deficit to a 20-year high.”

• In the wake of this announcement, we maintain our call that the BoC is more likely to wait until July to raise the overnight rate. This would be shortly after the U.S. Federal Reserve is done implementing its second round of quantitative easing in June. The BoC’s next fixed announcement date is only six weeks away (March 1) and today’s communiqué did not signal a hike at this next meeting. Nonetheless, intrigue as to the specific timing of the next hike will still build in the months ahead. The March statement will be crucial to help determine whether markets should reasonably expect that to be as early as the spring or in the summer.

Pascal Gauthier, Senior Economist

Finance Minister Jim Flaherty announced Monday that new federal rules will reduce the maximum amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

The new measures:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Our Government’s ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

by Department of Finance Canada

Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed.

Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in the your possession before the application is sent in to CMHC for approval.

Mortgages with less than 25% down must have mortgage loan insurance provided by either CMHC or GE.

A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.

Second, calculate 42% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders’ usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. Extended amortizations may allow smaller payments for the same mortgage amount as previously under the 25-year amortization scenario. Make sure you don’t leave yourself house poor. Structure your payments so that you can still afford simple luxuries.

With bond yields* making 40-day highs, RBC has deemed it appropriate to lower its 5-year fixed rates by 10 basis points.

If other banks follow suit as usual, posted will drop to 5.19%.  That’s Canada’s lowest posted long-term mortgage rate since the 1950s.

This is the kind of contrary thinking we like, but hopefully it lasts.

Back in March, with bond yields running up 30 basis points, RBC did the same thing and surprised the market by cutting rates. (See: Opposite Day For BMO & RBC) A few weeks later it changed course and hiked rates the most since 1996. (See: RBC Lifts Fixed Rates. Big.)

RBC is the nation’s biggest mortgage lender and a frequent trend setter for rates. Today’s move lowers its “special offer” 5-year fixed rate to 3.79%. These changes take effect tomorrow.
* 5-year bond yields typically lead 5-year fixed mortgage rates.

•All rates are subject to change without notice

• Lender/Broker fees may be applicable but not without the prior written consent of the client