Missed payments and 3 other mortgage trends to witness in 2016

Mortgage rates were not supposed to bite the dust in 2015, not if you asked the Bank of Canada or economics around two years back. But you know what, they did! And notwithstanding the entire chatter regarding US’s first hike since 2006, Canadian rates may well show us a repeat telecast of what happened in 2015.

However, interest rates are not likely to change much in the next 12 months or so. Here’re 4 major trends expected in the mortgage sphere this year.

More missed payments
The Government bombards the mortgage market will new rules almost every year, making the housing market safer while lending gets tighter and tighter.

But then, Ottawa can’t really take charge of the world economics. The global growth is slowing down significantly regardless of manufacturing profits from cheap loonie. That and plummeting oil implies that more and more Canadians may soon run out of job, and jobless people mean more missed mortgage payments. At present, just 27 of every 10,000 mortgage borrowers are running 90 plus days behind their payments. It may not be real sustainable to have an arrears rate of 0.27 per cent, though higher unemployment won’t really inspire a classic mortgage default hike in 2016.

Lower rates offset higher rates
Except for an astonishing economic rebound, the rates are likely to hit an all-time low in 2016. But still, they won’t plunge as low as they perhaps could’ve been since Ottawa is increasing the government guarantee fee, making banks keep more capital in the event of mortgages going bad. To go with it, investors are eying more returns in an attempt to compensate for the supposed risk.

And it’s likely to make it more and more expensive for Canadian lenders to hold mortgages on balance sheets or sell them to investors. However, banks won’t actually eat out this entire cost and will pass it over to Joe Borrower who will pay one-tenth of percentage point more for mortgage. That is CAD 1,400 more interest over 5 years on a mortgage of CAD300, 000.

Persistent hot and cold housing markets
The national average ‘home price’ just crashed into yet another record, but take British Columbia and Ontario out of the equation and prices were a sour 4.7 per cent down as compared to the last year. Conditional to geography, Canada is a two-temperature market. The white-hot Vancouver and Toronto are expected to feel barely a blow by higher down payment requirements, while the weaker markets will surely witness a significant drop in high-end home-sales. If you’re looking to refinance these weaker markets, be ready for more conservative appraisals this year, particularly on homes worth more than $500,000.

A mini private lending resurgence
Banks have now gone choosy on who they lend to, thanks to significant mortgage tightening and it has emerged as a massive blessing for lenders specializing in riskier borrowers. And therefore, private lenders do stand a chance to make it big this year. Most remarkably, they will be having more money to lend since new regulations have made it simpler for private mortgage investment firms to generate capital. This clearly reflects increased competition for borrowers who can’t meet the Bank criteria, thereby pushing down private rates and raising the amount that will be lent by private lenders, proportionate to home values. It’ll also hearten more bundling.

And that’s the stance where you receive a usual mortgage of 75 – 80 percent of your home value and add a secondary mortgage of up to 90%, with no default insurance (something normally required in case your equity is less than 20 percent). This supposed “shadow lending” activity will be the bull’s eye target for concerned policymakers this year.