Weekend Reading: New Mortgage Rules Edition

The big news out of Ottawa this week saw the federal government taking steps to cool the housing market by introducing a financial stress test to all insured mortgages and closing a tax loophole for foreign real estate buyers.

Starting October 17th all home buyers must qualify at the bank’s posted rate, or the Bank of Canada’s posted rate (currently 4.64%), whichever is higher. This so-called stress test already applies to variable rate mortgages or mortgages with terms of less than five years.

First-time home buyers are expected to feel the biggest impact from these new mortgage rules as it will affect the maximum amount they can afford to spend on a home. Canadians with existing mortgages will not be affected by these changes when it comes time to renew their term.

Has Ottawa brought this country’s housing fantasy to its knees?

This Week’s Recap:

On Monday I wrote about making rational vs. behavioural driven financial decisions.

On Wednesday Marie explained why she has been a dividend investor since the early 1990s.

And on Friday I reviewed Scotia iTRADE U and its educational tools for self-directed investors.

Weekend Reading:

Rob Carrick has been touring college campuses in eastern Canada and found today’s youth to be slightly obsessed with their credit scores. Carrick says if you’re obsessive about your credit score, you’ve got it all wrong.

Jeff Rose says your new car payment is the one monthly payment that’s killing your wealth.

Mark Seed explains how to save (and splurge) on your family vacation.

Dear younger me: What money advice would you give to your younger self?

Tangerine is giving away a free copy of David Chilton’s The Wealthy Barber Returns eBook.

Kerry Taylor is On The Money with CBC and here she explains how to plan ahead and save for your child’s education:

Preet Banerjee explains the difference between three types of RESPs; the individual and family plans you can get from your bank or credit union, and the group plans sold by scholarship dealers.

Lessons from the Dragons: A look at how online comparison site RateHub attracted a flurry of offers from the Dragons. Here’s another take on why RateHub turned down $1M for a 7% stake in its business.

Is the latte factor really making people poor? Nelson Smith argues that it’s the big decisions – housing, cars, careers – that impact our finances the most.

This report focuses on finding solutions for food waste in Canada.

Why are we still using cash? The Freakonomics Radio podcast explores why the U.S. is printing more cash while other countries are doing away with it.

The mutual fund industry is blowing all kinds of smoke over proposed banning of trailer fees. Douglas Cumming, who co-authored a study that showed how trailer fees influence fund flows, shares the facts on why fees harm investors:

“At the risk of making an analogy to the cigarette industry and early denial of the harm caused by cigarettes, I hope we stop blowing smoke and make use of the information and data provided by the mutual fund industry that clearly show trailer fees harm Canadian investors.”

Thinking, fast and slow. Daniel Kahneman on brain tricks for better investing.

Michael James finally sold off the last of his individual stocks (shares in Berkshire-Hathaway) and can now say he’s a full-fledged indexer.

Researchers say we need to ‘retrain’ for retirement in order to be ready for life after work. Here are few other ways in which those in their 50s might look to prepare.

Finally, quitting Canada? Here’s how to retire in spring-like paradise in the autumn of your life.

Happy Thanksgiving, and have a great weekend!

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  1. Beth on October 9, 2016 at 7:23 am

    I always enjoy your weekend round ups 🙂

    I am curious though as to why the huge outcry about the new mortgage rules? As someone who is considering getting into the market, it seems kind of obvious that you’d think about still being able to afford your mortgage when rates go up. I think people need a reality check about how much home they can really afford.

    • Echo on October 9, 2016 at 10:24 am

      Hi Beth, I think most of the outcry has been from the industries that have the most to lose from rules that prevent homebuyers from getting in over their heads – lenders, real estate agents, and mortgage brokers.

      • John on October 9, 2016 at 6:24 pm

        I can’t imagine a mortgage lender wanting a client to get in over their head, as the costs associated with repossession and disposing of a property is expensive and time consuming.

        A mortgage broker’s reputation is affected by clients that fails, so they have a vested interest in seeing their clients succeed.

        Does it happen that clients get in over their head? Unfortunately yes and in many cases it was not the real estate transaction that triggered that situation. In my experience, it was the car loan or that investment loan a smooth talking financial planner convinced them was a sure winner or that once in a lifetime vacation. If these had existed before the mortgage was arranged, the debts would have been factored into the qualification and the borrower would not be allowed to get in over their head.

        So Beth, a fully qualified mortgage broker is committed to the long term success of their client, and will ensure their clients don’t get in over their head – we want them to pay off their mortgage as quickly as possible.

        • Beth on October 10, 2016 at 5:39 am

          If mortgage brokers really are looking out for the best interests of their clients, then I don’t see these new regulations having too much effect.

          I do see it hurting the banks though! Every time I say “This is how much I want to spend on a home” they try to talk me into more money. Why spend $250K on a townhouse when you can “afford” a single detached for $350K? Surely my salary will increase enough over the next five years to compensate for any rise in interest rates. (Seriously?)

          It doesn’t bother me in the least to see these folks set back a bit!

  2. Jeanette on October 9, 2016 at 7:25 am

    Now I can’t even redeem my Air Miles for hotels. I enter the name of the city and date I want and it just says that city on that date has nothing available. No list of cities or dates that might be available or any information that tells you whether that city ever has anything available.

  3. JSydneyH on October 9, 2016 at 8:07 am

    The move by the federal government had little to do with cooling the housing market. Throughout most of the country, the market is at best steady and occasionally in decline; only the GTA remains as a hot market.

    This move was taken by the government to limit taxpayer’s exposure to the real estate market by restricting the availability of securitization as a source for mortgage money. This work had been underway for several years now, and as more of the risk is given back to the lenders, we can expect to see higher rates and tighter qualifications.

    The biggest impact will be those who are renewing their mortgages i.e. those who are already out of the real estate market as they will need to be fully requalified at renewal. Count on the banks renewing at significantly higher rates over the next few years, especially when they know their customers are in a bind.

    It may have the secondary benefit of cooling the market but I don’t believe that was the intention.

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