Another way Americans get better deals: cheap, flexible, 30-year mortgages
By Chris Sorensen - Saturday, March 30, 2013 - 0 Comments
Canadians look south at home loan heaven
Photo illustration by Taylor Shute
Finance Minister Jim Flaherty has been scolding mortgage lenders who offer their customers five-year fixed rates below three per cent, lest they spark a flurry of home buying and further inflate Canada’s housing bubble. Meanwhile, south of the border, where the housing market is just beginning to claw its way back from its 2007 implosion, banks are wooing nervous consumers with rates that are just a touch higher—at 3.63 per cent—but can be locked in for 30 years. Not only is that a far better deal than Canada’s current 10-year fixed rates of 3.69 per cent, the maximum term most lenders will offer, but it’s a great way to guard against an inevitable rise in interest rates down the road.
On the surface, it seems like another case of Canadians getting a worse deal than their American counterparts—not unlike when they buy a hardcover book or a new car. Across the board, mortgages are now cheaper in the U.S., where interest rates are currently lower and competition much greater in general. The 30-year mortgages are also not, technically, fixed-rate, because they can easily be refinanced by borrowers who want to take advantage of lower rates. “The person borrowing can get out at any time by switching to another lender, or just by paying it off,” says Nicholas Rowe, an associate professor of economics at Ottawa’s Carleton University. “The rates can’t go up, but they might go down if you find a better deal.”
While a great deal for borrowers, Rowe cautions the U.S.-style 30-year mortgage still comes at a price. Since lenders face an increased risk if rates fall, they need to compensate by charging slightly higher interest rates. (In contrast, the most popular Canadian mortgages are “closed,” meaning they can’t be refinanced or paid off early without incurring a penalty, and are for significantly shorter terms—usually five years.) Patrick Lawler, the chief economist of the U.S. Federal Housing Finance Agency, said in a panel discussion two years ago that U.S. borrowers pay at least an extra 0.25 to 0.5 percentage point in rates in exchange for the option to prepay without penalty and sometimes “another percentage point or two” to have a long-term fixed rate, according to a report in the Wall Street Journal. Nevertheless, as many as 80 per cent of borrowers in America opt for 30-year mortgages, which are backed by housing finance giants Fannie Mae and Freddie Mac (another reason why U.S. rates are cheaper despite heightened risk).
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Crown corporation weighing in on NDP housing bill surprises critics
By The Canadian Press - Wednesday, February 27, 2013 at 11:26 PM - 0 Comments
OTTAWA – A Crown corporation’s decision to publicly comment on an NDP-backed bill is…
OTTAWA – A Crown corporation’s decision to publicly comment on an NDP-backed bill is raising questions about whether the Conservative government is using the public service for partisan aims — again.
The Canadian Mortgage and Housing Corp. claims on its website that the New Democrats’ proposal for a national housing strategy will cost “$5.5 billion per year in rental subsidies alone.”
The CHMC did not explain on their website how they arrived at the number nor was it explained by Conservative MPs and their party who used it all day Wednesday in their attacks on the bill.
The sudden emergence of a dollar value from a non-partisan Crown corporation left New Democrats and observers scratching their heads.
Bill C-400 doesn’t contain measures that come with a clear price tag — as an Opposition bill, it can’t call for any new spending.
Instead, it calls for all levels of government to sit down with the private and civil sector to draw up a plan to ensure all Canadians have access to housing, using a number of defined parameters.
“A number of times the government referred to a costing study on a New Democrat private members’ bill supporting, at last, affordable housing for Canadians,” Cullen said in the House of Commons on Wednesday.
“I ask the government to table this document, if it even in fact exists.”
Treasury Board President Tony Clement responded that the number comes from Human Resources and Skills Development Canada, the federal department that oversees the CHMC.
He said he’d be happy to provide the information.
Late Wednesday night, a spokeswoman for the corporation said they were doing their due diligence.
“The preparation and review of cost estimates on proposed opposition bills is necessary so that the government can make informed decisions. This is not partisan activity,” Kate Munroe said in an email.
She said the figure was derived by assessing what subsidies would be required in order to meet the bill’s demands that housing costs don’t compromise people’s abilities to meet other basic needs.
“The bill does not specify who would provide funding for the implementation of the Act, or the duration and limit of funding that would be required,” she said.
“This could expose the government to significant financial risk and could place additional financial pressure on provinces and territories through possible implications for health and social assistance programs.”
The bill was introduced over a year ago but was up for a vote Wednesday night. The CMHC’s backgrounder was posted as the Tories spent the day attacking the bill as being “a dangerous new NDP spending scheme.”
The bill was defeated.
The federal Conservatives have long resisted calls for anything that resembles a national housing strategy, though committees in both the Commons and the Senate have recommended such an approach.
The Harper government says its contributions since 2008 to combat homelessness, to support low-income households and existing affordable housing programs, have amounted to billions of dollars.
But much of the funding is set to expire next year.
Advocacy group Canada Without Poverty noted the NDP bill contains nothing beyond a promise to make a plan.
“It does not call for a new social housing program,” the group said in a statement.
“It is about the development of a national housing strategy in keeping with human rights law.”
The Canadian Housing and Renewal Association said without seeing an analysis or calculation, it does not know how CHMC would have put a dollar value on a strategy.
But the group’s director of policy and programs said what is clear is the need for one.
“As recently released main estimates show declining federal support for social and affordable housing, we think partners — all orders of government and non-government actors — need to come together more now than ever, just as this bill would enable,” Dallas Anderson said.
Public servants — including those at Crown corporations — are supposed to be the non-partisan army supporting the activities of government.
The government’s communications policy is also explicit about how far public servants can go in communications, noting they are expected “to provide information services in a non-partisan fashion consistent with the principles of parliamentary democracy and ministerial responsibility.”
So the New Democrats questioned why the CMHC was suddenly wading into this debate.
“If the government wants to debate bills, fine. Come into the House, let’s have a debate on a national housing strategy,” said New Democrat MP Charlie Angus.
“But just as it was with Mr. Fantino, it’s inappropriate for them to use government websites — which are supposed to be non-partisan — to launch partisan Conservative attacks. It’s a misuse of taxpayers’ resources.”
Late last year, two highly partisan letters appeared on the Canadian International Development Agency’s website, written by Julian Fantino, the minister responsible.
One was posted under the headline: “Dear NDP: CIDA Does Not Need Your Economic Advice.”
The other contrasted Liberal policies with those of the Tories.
Both were removed after being deemed inappropriate by the Prime Minister’s Office.
The Conservatives have long been accused of blurring the line between the work of political operatives and the public service, notably with their use of the “Harper government” as a branding slogan for departmental news releases.
A series of emails obtained under the access-to-information law by The Canadian Press revealed public servants felt use of the phrase breached the communications policy but were being forced to do it anyway.
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Why the federal budget said nothing about mortgages
By Erica Alini - Tuesday, April 3, 2012 at 2:06 PM - 0 Comments
Steve Helber/AP Photo
When it comes to the housing market, Jim Flaherty has made it clear that he would rather leave it all up to the proverbial invisible hand. A week before he introduced the federal budget last Thursday he poignantly told reporters he’d “quite frankly” like the market to “correct itself.”
No surprise, then, that the Harper government’s Economic Action Plan 2012 (yes, that’s what they like to call it) said precious little about mortgages–just a vague vow to increase oversight of the Canada Mortgage and Housing Corporation to promote “the stability of the financial system.” Hardly the tough clampdwon on ballooning mortgages that some in the housing industry initially feared the budget would contain.
Flaherty’s approach reinforces the impression that Canada’s housing market has become a hot potato no one wants to touch–and everyone would like someone else to cool off.
The big banks certainly don’t want to do anything about it–they say the government should. Most of them are offering record low 2.99-per-cent fixed-rate mortgages, and calling on Flaherty to cap government insurance on mortgages or shorten the maximum amortization rate from 30 years down to 25. Bank of Montreal chief Bill Downe and Toronto-Dominion Bank CEO Ed Clark have both been calling on the finance minister to–and I paraphrase here–”please stop us before we drive ourselves into the ground.” Their argument sounds somewhat like this: “We can’t help but continue to offer mind-boggling low rates to any Joe Blow who wants to buy a house he can’t really afford, or we’d lose out to the competition–unless the government steps in and tightens the rules of the game for everybody.”
