Prices of existing commercial properties have already declined substantially from the peak in 2007 and will likely decline further. As job losses have accelerated, demand for commercial property has declined and vacancy rates have increased. The higher vacancy levels and significant decline in the value of existing properties have placed particularly heavy pressure on construction and development projects that do not generate income until after completion. Developers typically depend on the sales of completed projects to repay their outstanding loans, and with prices depressed amid sluggish sales, many developers are finding their ability to service existing construction loans strained.

As a result, Federal Reserve examiners are reporting a sharp deterioration in the credit performance of loans in banks’ portfolios and loans in commercial mortgage-backed securities (CMBS).  At the end of the second quarter of 2009, approximately $3.5 trillion of outstanding debt was associated with CRE, including loans for multifamily housing developments. Of this, $1.7 trillion was held on the books of banks and thrifts, and an additional $900 billion represented collateral for CMBS, with other investors holding the remaining balance of $900 billion. Also at the end of the second quarter, about 9 percent of CRE loans in bank portfolios were considered delinquent, almost double the level of a year earlier.³ Loan performance problems were the most striking for construction and development loans, especially for those that financed residential development. More than 16 percent of all construction and development loans were considered delinquent at the end of the second quarter.

Of particular concern, almost $500 billion of CRE loans will mature during each of the next few years. In addition to losses caused by declining property cash flows and deteriorating conditions for construction loans, losses will also be boosted by the depreciating collateral value underlying those maturing loans. The losses will place continued pressure on banks’ earnings, especially those of smaller regional and community banks that have high concentrations of CRE loans.

The current fundamental weakness in CRE markets is exacerbated by the fact that the CMBS market, which previously had financed about 30 percent of originations and completed construction projects, has remained closed since the start of the crisis. Delinquencies of mortgages backing CMBS have increased markedly in recent months. Market participants anticipate these rates will climb higher by the end of this year, driven not only by negative fundamentals but also by borrowers’ difficulty in rolling over maturing debt. In addition, the decline in CMBS prices has generated significant stresses on the balance sheets of financial institutions that must mark these securities to market, further limiting their appetite for taking on new CRE exposure.

Source: FRB November 2009

OTTAWA –  A recovery in economic activity is also under way in Canada. This resumption of growth is supported by monetary and fiscal stimulus, increased household wealth, improving financial conditions, higher commodity prices, and stronger business and consumer confidence. Volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures.  The Bank now expects that the output gap will be closed in the third quarter of 2011, one quarter later than it had projected in July. Correspondingly, inflation is also expected to return to the 2 per cent target in the third quarter of 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. http://www.bankofcanada.ca/en/notices_fmd/2009/notice_fad201009.pdf.

Accelerated mortgage payments have two significant benefits.

First, you will pay less in interest – you will save money! As the example above demonstrates – you will pay the equivalent of an extra monthly payment every year. The extra payment is taken directly off of the principal. This will save you money in interest. That saving in interest will then be applied directly to your principal. As you can see, this compound effect will save you thousands of dollars!

For example, with regular monthly payments on a $200,000 mortgage at a 5.00% fixed rate, you will have paid nearly $350,000 at the end of 25 years. However, if you use an accelerated bi=weekly payment plan, you will only pay around $325,000 and have it paid off in just over 22 years! You save a staggering $25,000 dollars and have the mortgage paid off 3 years earlier!

And that is the other great benefit of making accelerated payments on your mortgage – you will be mortgage free faster!

The difference between accelerated bi-weekly payments and accelerated weekly payments is very small (only a savings of about $500 over 25 years).

The difference between accelerated bi-weekly payments and bi-weekly payments is huge! While accelerated bi-weekly payments result in you paying the equivalent of an extra monthly payment, bi-weekly payments (not accelerated) does not! You can easily calculate whether you are making accelerated bi-weekly payments by simply dividing your monthly payment by two.

As an aside, bi-weekly payments are calculated by multiplying your monthly amount by 12 and then dividing it by 26. Using the same example as above ($1000 monthly payment), your bi-weekly payment would be $461.54. Making bi-weekly payments will only save you a very minimal amount – so when you tell your lender you want to make accelerated bi-weekly payments – make sure that is what they give you!

Source: TMG Backend

Basic Home Owner Grant (BC)

The basic grant can reduce your property tax by as much as $570. The minimum tax payable ($350) ensures that all homeowners (or eligible occupants, which includes an eligible occupant of an eligible apartment, housing unit, land cooperative or multi-dwelling leased parcel) contribute towards the funding of local services such as road maintenance and police protection.

For 2009, the basic grant will be reduced by $5 for each $1,000 of assessed value over $1,050,000, and is eliminated on homes assessed at $1,164,000 or more.

If your property’s assessed value is over $1,050,000 but has more than one residence on it, you may still qualify for the home owner grant on one residence. For further information, please call our office toll-free in British Columbia at 1-888-355-2700.

To be eligible for the grant, you must meet the following criteria:

	You are a Canadian citizen or landed immigrant and ordinarily reside in British Columbia.
	You are the registered owner or eligible occupant of the home. The home must be located within the province.
	The home is your principal residence -where you live and conduct your daily activities. The grant does not apply to summer cottages, second homes or rental properties.
	Spouses who live together, including those who are married or who live together in a marriage-like relationship, including same-gender partners, can qualify for a grant on only one residence in the province in a calendar year.
	Spouses who live apart can each claim a grant on their principal residence if they have a written separation agreement or a court order recognizing the separation.

Please see How to Apply for more information.  Application FORM click here.

If you are over 65, have a disability, or receive a war veteran’s allowance, you may be eligible for the additional grant.

新移民房貸服務 BC省政府認可

“新移民房貸” New Immigrant Program

l   已登陸報到 Landed Immigrant

l   或 持楓葉卡 Maple Card

l   或 居住於加拿大未滿5-10年 * (每家銀行條例不同)

加拿大買房置產, 取得最優惠利率
無收入及信用紀錄 即可申請

為何選擇 Christine Chien, 房屋貸款經理?

1. 政府認可 BC Licensed Mortgage Broker
2. 專業可靠 比較各類銀行貸款
3. 過程簡易 為您提供完善服務100% 滿意

Best Rate Best Mortgage – 新移民房贷服务 BC省政府认可

“新移民房贷” New Immigrant Program

l   已登陆报到Landed Immigrant

l   或 持枫叶卡Maple Card

l   或 居住于加拿大未满5-10年* (每家银行条例不同)

加拿大买房置产, 取得最优惠利率
无收入及信用纪录 即可申请

为何选择Christine Chien, 房屋贷款经理?

1. 政府认可BC Licensed Mortgage Broker
2. 专业可靠 比较各类银行贷款
3. 过程简易 为您提供完善服务 100% 满意

Property Purchase Tax – BC Summary Closing Costs

Property Purchase (Transfer)Tax

Property Purchase Tax – The British Columbia Provincial Government imposes a property purchase tax which must be paid before any property can be legally transferred to a new owner. The tax is 1% on the first $200,000 of the property value and 2% on any value over $200,000.  Certain exemptions for First Time Home Buyers apply.

Goods & Services Tax – For newly constructed home(s), the purchasers may be subject to 7% GST on the purchase price. However, if the home is under $350,000, a rebate will reduce the GST paid to 4.48% of the purchase price. If the price is over $350,000 the net GST to be paid increases gradually until it is a full 7% at amounts over $450,000.  Starting July 2010, Homonized Sales Tax (HST) will be imposed for all new home purchase. Contact me for further detail.

Property Tax – Property Taxes are adjusted between the vendor and the purchaser at the time of closing.  The vendor pays their portion of taxes due to the date of closing and the purchaser is responsible for the property taxes from closing date forward.  Often a credit adjustment is due on the Statement of Adjustments.

Appraisal Fee – The appraisal fee (which is normally always a requirment of the Lending Institution) is a cost of financing and the responsibility of the mortgagor(s).

Survey Fee – The lending institution usually require(s) a survey certificate. The purpose of the survey is to formally establish the boundaries of the property and to ensure that all buildings are within those boundaries. If the current owner cannot provide a recent survey certificate, it will be your responsibility to pay the surveyor’s fee. Your clients may also be able to purchase title insurance as an alternate to providing a Surevyor’s Certificate.

Mortgage Application Fee – Lending institutions may charge a mortgage application fee. This application fee may vary between lending institutions.

Mortgage Default Insurance – This type of insurance is required on all mortgage loans in excess of 80% of the appraised property value.  Mortgage Insurance is default insurance and protects the financial institutions from loss should the borrowers default on their promise to pay their mortgage payments. The insurance premium is paid to the lender and ranges from 1/2% to 3% of the loan value; however, in most cases this premium is added to the loan amount and paid over the term of the loan.

Life & Disability Mortgage Insurance – At borrowers option and upon qualification, they may purchase insurance which will protect their family upon death or disability.  TMG through our insurance partnership has programs in place to offer homeowners creditor insurance, disability insurance and critical illness insurance.   Importat note: If the insurance is purchased directly from banks (which is not recommended), the insurance policy is not portable if you change lender upon renewal and it often costs more.  Consult with insurance broker for this product.  Let us know if you need good recommendations.

Fire & Liability Insurance – The mortgage lender in all cases requires the borrowers to purchase an insurance policy which guarantees that, in the event of fire, the lender will receive the balance owing on the mortgage loan before you receive any insurance proceeds.  The policy must be loss payable firstly to the 1st mortgage holder.

Legal Fees – The transfer of property ownership from the seller to the buyer must be recorded in the Land Title Office in order to protect the new owner’s interests. Your clients in most cases will engage a lawyer or notary public to act on your behalf during the completion of their transaction. The legal fees for this service will include payment of a registration

Last fall, when the credit markets were in near-panic mode, the government threw lenders a lifeline called the IMPP (Insured Mortgage Purchase Program).

The IMPP allowed the government to buy up to $125 billion of insured mortgages.  The goal was to add liquidity to Canada’s mortgage market.  At the time, lenders (and borrowers) were suffering from unprecedented interest-rate premiums due to perceived mortgage default risk.

That IMPP program is set to expire this week. However, there were various media reports last week with word that the government will renew it.

For those unfamiliar, here’s how the program works:

1. Lenders lend mortgage money to homeowners
2. Those mortgages are pooled together and sold to investors
3. The government issues treasuries
4. CMHC (a crown-corporation) takes that money and buys set amounts of the above mortgage pools-using auctions
5. In those auctions, lenders tell CMHC what they’re willing to pay in interest
6. CMHC buys the pools from the lenders with the best bids

The IMPP is expected to generate $372 million in profit for Ottawa this year.  In doing so, the government has minimal risk of loss because the mortgages are high quality and already insured.

Reports say the government is earning a 0.86% spread on the fixed mortgages it’s bought so far.  Apparently the spread is fatter on variable-rate mortgages, at 1.02%.

The Finance Department says about $3 billion of the $64 billion of mortgage purchases have already been repaid, with no reported defaults.

Observers had lots to say about the IMPP in the news last week. Here’s a sampling:

• “The government can borrow on a lower rate than the rate it earns on mortgages and because these mortgages have already been insured by the government, for an additional fee, the government is taking on no additional risk,” – Avery Shenfeld, CIBC chief economist (Winnipeg Sun)
• “It still is useful, it makes a profit for the taxpayer, there is no or extremely low risk for the government, it lowers the cost of funding for the banks, and that in turn lowers costs of borrowing, so it’s hard to figure out what’s wrong with it.” – Don Drummond, TD chief economist
• “It would be premature to cancel it at this point until we really see that we’re out of the woods.”  – Nancy Hughes Anthony, CBA CEO (Bloomberg)
• “We’ve always said we’d make a profit, I don’t think we’ve put a number to it,” – Jack Aubry, Finance Dep’t spokesman (Winnipeg Sun)
• “While circumstances have changed for the better, the program remains valuable. It lowers the cost of funds for the banks. Yes, not as much as at one time, given that spreads have come in, but it still helps.” – Don Drummond, TD chief economist (Globe)
• “The program is not a focal point for anyone. “It is a placeholder of sorts.” – Eric Lascelles, TD strategist (FP)

As Lascelles implies, lender interest in the IMPP has waned over the last six months.  That’s because it’s now cheaper to get lending capital elsewhere in many cases (i.e.  in the private sector)-and that’s to be expected in a healthy credit market.

Source: TMG Backend

With Mortgage Rates Dropping, It’s Strategy Time

It was a little less than a year ago that the global financial crisis began to hit home, which is to say that mortgage rates spiked higher.  Now, the cost of mortgages is coming down. If you’re buying a home or renewing a mortgage, it’s time to review your options.

Fixed-rate mortgages declined a little last week, but the most dramatic changes can be seen in variable-rate mortgages. For the first time in almost a year, it’s possible to get a variable-rate mortgage at the prime rate used by most major financial institutions, which is currently 2.25 percent.

Pre-crisis, variable-rate mortgages came with discounts that ranged from 0.75 percentage points to as much as 0.9 points off prime. By late last fall, crisis conditions prompted lenders to start charging prime plus a full percentage point or more. Now, some lenders are starting to unwind their crisis-rate premiums.

An example of a variable rate mortgage at prime is ResMor Trust, a small player that deals through mortgage brokers, is offering four-year variable-rate mortgages at prime in all provinces except Quebec. The catch: You have to have your mortgage approved by Sept. 30 and close the purchase within 45 days.

Can variable-rate mortgages fall back to their pre-crisis lows any time soon?

“Definitely, 100 per cent, no,” said Robert McLister, author of the Canadian Mortgage Trends blog (canadianmortgagetrends.com). “Could they get a little below prime? Definitely.”

Okay, it’s strategy time. With prime at 2.25 per cent and fully discounted five-year fixed rate mortgages going for something in the area of 3.9 to 4.1 per cent, you’re got some thinking to do if you’re buying a home or renewing a mortgage.

The variable rate looks tempting. Sure, the prime is going to rise in the medium term, but it’s expected to stay put until next spring at least. Even when prime does move higher, it will have to increase by roughly 1.75 percentage points to get to where today’s five-year mortgages are.

Variable-rate mortgages allow you to lock into a fixed rate mortgage, so there’s no reason why you have to ride interest rates all the way up. Still, you have to recognize that fixed-rate mortgages could be significantly more expensive by the time you decide to lock in.

An academic study of rates between 1950 and 2007 found variable-rate mortgages were the money-saving choice over five-year fixed-rate mortgages 89 per cent of the time. If you’re willing to ride rates higher for a while in hopes of longer-term savings on interest costs, then consider a possible approach suggested by Mr. McLister.

Instead of arranging a variable-rate mortgage now, go for a one-year fixed-rate mortgage. Then, when you’re renewing in one year’s time, you’ll move into a variable rate mortgage that will ideally have a rate that is discounted below prime.  Fully discounted one-year closed mortgages today go for about 2.55 per cent, so you’re not paying much of a penalty at all compared with what variable-rate mortgages are pegged at right now.

Another suggestion is to consider a three year mortgage, which offers an attractive blend of low rates and security against interest rate surges. Three-year mortgage typically go for around 3.39 per cent on a fully discounted basis, but there is one small lender offering 2.9 per cent through the mortgage broker channel.

The case for going with a five-year fixed rate is that rates are very cheap by historical standards. Rates were a little bit lower last spring, but they’re not as high as they were a month or two ago thanks to a pullback in bond yields that has trickled down to fixed-rate mortgages.

* 15 Sep 2009  * The Globe and Mail  * Rob Carrick

HELOCs vs. Mortgages

“What is the difference between a HELOC (home equity line of credit) and a variable-rate mortgage? Why would someone want a HELOC instead of a mortgage?”