Many people incorrectly believe that all of the bad news about homeowners defaulting on their mortgages mostly relates to the United States. Although there are obviously a lot of people who are losing their homes in the US, other countries are not immune to similar problems. The United Kingdom for one, is looking a number of house repossessions (as we Brits call it) and possibly even a longer recession period than the US. Problems in the UK have been partially exacerbated by scary mortgages like the Northern Rock’s ‘together’ mortgage where you can borrow 125% of your home’s value.
Here in Canada we have been lucky that our banks and mortgage lenders have been more conservative. However, this does not mean that here in Canada we are immune to these problems. Although foreclosure rates are much lower, the country as a whole is experiencing higher unemployment, which means that many, through no fault of their own, are losing their homes.
In the Globe and Mail this week, it was announced that Canada Mortgage and Housing Corporation, in partnership with a number of major Canadian banks, will be bringing forward measures to help homeowners BEFORE they get into trouble or behind on payments. Banks will be calling, mailing, and emailing customers to let them know about various ways that they can help them manage their mortgages better. These include:
·Converting a variable rate mortgage to a fixed rate one, so to avoid sudden interest rate increases
·Offering a temporary short-term deferment of payments
·Offering payment flexibility
·Extended the term or amortization period of the loan. While the 40 year loan was gotten rid of months ago, there is still an option to have 30 or 35 years, and if you have a 25 year mortgage, that’s quite the monthly savings (although much more expensive in the long run…)
·Negotiating special payment options on a client to client basis
·Adding any missed payments to the balance of the mortgage
I think this is a fabulous idea. All of the riskier 5% or less down loans (and I use the term risky loosely, because plenty of young, first time buyers could only afford to put 5% down , and pay their mortgage perfectly well – myself included) are insured and backed by CMHC, and so the fact that they are taking action to prevent the terrible situations that we have seen in the US is great. However, will most homeowners be able to admit that they are in trouble? Your mortgage should only be approximately 30%/35% of your gross income, so if you are having an issue keeping your mortgage, insurance, heating and hydro bills in check, then you might want to talk to your mortgage advisor. If you work in a high risk industry like auto or construction, and finding it hard to make payments due to a decrease in work, this might be a good time to refinance or extend amortization just in case.
What do you think? Is this too little too late? Or is this something that may help Canadians from losing their homes?