Realty Glimpse 41

Billy Smith
Mortgage Specialist
CIBC

 

Mark – So this is all about a new announcement that just came up, and Billie Joe was very quick and emailed out to the realtors and said, “hey, just so you know, big change coming”, so here we are, we’re talking about this change, just in time, because it was announced, what, two days ago?

Billie – On Tuesday, yes.

Mark – Can you tell me, what’s this change.  It’s a stress test, right?  I’ve already heard that, haven’t we been through this already, there’s already been a stress test.

Billie – So the stress test that came into play last year was actually for high ratio mortgages, so anything with less than 20% down, we have a set interest rate that we have to approve clients at.

Mark – and that was to protect the CMHC’s and Genworth’s; the insurance companies, right?

Billie – so what they’re just looking for, they’re just looking to see that clients, in the even that interest rates go up, that they can afford the mortgages where they’re at.

Mark – and especially targeting those people who don’t have the full 20% down because they might feel they’re more at risk, right?

Billie – that’s right.

Mark – So that was kind of the philosophy behind it, but now the new announcement?

Billie – so the new announcement is a new stress test, that targets the clients that have 20% or more down.  What we call a conventional mortgage.  So they don’t need that CMHC insurance, but they still want to go ahead a do that stress test to make sure the clients can afford the mortgage at the higher interest rate if they do go up.

Mark – so before, if I had 20% down, I could think, oh good, I don’t have to worry about the stress test, I don’t have to be worried about having to be approved at a higher interest rate, what it’s that interest rate, say right now?

Billie – Right now on a five year fixed, we are approved clients at a 4.89%.

Mark – you have to be approved at that, it doesn’t mean that is what you’re going to pay, right?

Billie – absolutely, so right now, our CIBC rate is 3.44% on a five year fixed.

Mark – sometimes I might think, if I have 20% down, I’m going to have more favour with the banks, because I have so much more equity, but sometimes banks might want to have that insurance, right, where they have CMHC or Genworth ensuring the mortgage, is that the case, so sometimes I might be penalized if I have a bigger down payment, is that correct?

Billie – it just depends on the situation actually.  It depends on the property we’re ensuring and the client as well.  And if you do have to pay insurance, I believe it’s about 1.2%, is what you’d end up paying, if we had to go that route.

Mark – do you anticipate that the interest rates might go higher again in the future?  It seems that is what there is lots of talk of.

Billie – The increase has been going up since about the spring, we’ve probably gone up about 1% since then.  It’s honestly a tough game to say, I would like to see that we don’t go a whole lot higher because then we are getting into more risk, and I hope the government does see that, they’re the ones regulate the interest rates and tell us when to increase, so it’s tough to say.

Mark – Is this the big bad banks?  We were talking about this before, is this the banks all conspiring together to raise the interest rates, and you were telling me, how does that go?

Billie – So it’s actually what we call the Office of the Superintendent of Financial Institution, so it’s Government regulation, and they tell the big banks when they need to raise their interest rates and the stress test.  So it’s actually being passed down by the government, and what they did in this last situation is they met with all the big banks, I think there was seven people on the committee, and they reviewed all the risks and impacts to the clients, to Canada as a whole, and the housing market and what would happen with this new stress test, and then what we call OSFI, is what we call it for short, and they passed down their guidelines to the banks, and they monitor us and they do all our bank audits.

Mark – now the whole target of this, I think, as far as I can read and understand, I’d like to get your take on this, is interest rates are being raised, or have been raised so far, and it’s not even focused on Grande Prairie, they’re not even sitting in their office thinking, we got to slow down the economy in Grande Prairie, and yet we’re impacted.  So what is the consideration when they’re looking at raising interest rates for example.

Billie – They’re trying to slow down a lot of the markets in Toronto, Vancouver market places

Mark – so we’re just kind of the collateral damage along the way…

Billie – that’s right, yes.

Mark – so we have to play by the same game.  

Billie – We all do…