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Mortgage stress test rules may change
May 12, 2022
8:18 pm
AllanB
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What does this mean they'll make it harder to get a mortgage if rates rise dramatically or they'll give mortgagors a break if they rise high?

"Mortgage stress test rules may change as interest rates climb and housing market cools, says regulator."

https://www.theglobeandmail.com/business/article-osfi-says-it-may-tweak-mortgage-stress-test-as-interest-rates-climb/

May 12, 2022
9:52 pm
Loonie
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I didn't read the article, but they could potentially lengthen the duration of the mortgage, thus reducing payments without changing income required to maintain it. I don't know what they are currently using as a yardstick; it used to be 25 years when I got mine, long time ago. I don't think the banking system cares very much about whether you ever pay it off, just as long as you keep paying and maintain the property.

May 12, 2022
11:21 pm
RetirEd
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It would make sense to make the stress test more stringent. The whole point is to protect against future rate increases. We have to hope that rising rates will kill off housing speculation before the economy collapses under tight money. Housing speculation (not construction) is a parasite sucking money out of more productive industries.

I understand that in the USA, they have a bizarre setup where mortgage INTEREST payments are tax-deductible, making it more attractive to NOT pay off the debt. Seems nuts to me... throwing money at the lenders...
RetirEd

May 13, 2022
7:51 am
AltaRed
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RetirEd said
I understand that in the USA, they have a bizarre setup where mortgage INTEREST payments are tax-deductible, making it more attractive to NOT pay off the debt. Seems nuts to me... throwing money at the lenders...
RetirEd  

It is more complex than that in the USA but it does provide an incentive to carry larger mortgage balances and to continually re-finance, provided of course that housing continues to appreciate. Ultimately though, there is cap gains tax on principal residences when one departs the roulette wheel and no longer is a homeowner. That is a whole different discussion.

May 13, 2022
8:26 am
AllanB
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Re-fi rate in US has plummeted. Here they are saying more are switching to variable as fixed rates rise. Speculators who use other peoples money won't quit till they go bust then they'll start again with alternative lenders.

I've asked a few bankers can mortgagors walk away from their loan without recourse if home prices plummet or they can't pay. The answer seems to be banks rarely sue to get mortgage funds owed if a property is foreclosed and there's a shortfall. It seems unfair those with savings have a tight lien on their other assets while a debtor can walk away scot-free.

May 13, 2022
9:33 am
Loonie
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Not scot free at all. They lose their investment in the house. Even the down payment is a substantial loss .

May 13, 2022
10:58 am
Norman1
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It is definitely not consequence free. Only Alberta commonly has non-recourse residential mortgages. Even there, it would be a default and entered into the borrower's credit record as a default.

Some uninformed Albertans thought it was consequence free and moved to another province to "start fresh". They found that was not the case when they tried to apply for another mortgage.

Banks rarely sue because there is rarely a shortfall that isn't addressed. There will be no lawsuit if the bank can seize other accounts or the borrower and the bank work out an arrangement. For example, one might find one's Oaken accounts and GIC's seized after defaulting on a Home Trust mortgage under the right to set-off in the agreement of those Oaken accounts.

May 13, 2022
5:25 pm
Bill
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Exactly, those leaving the keys on the table and walking away stories usually of Alberta origin, when booms went bust and many headed back to their home province.

May 14, 2022
4:58 am
RetirEd
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I seem to recall a period during the first Trudeau administration when an oil bust started a fashion of hammering one's house keys into the driveway when driving away from an "underwater" piece of real estate. Anyone remember more?
RetirEd

July 6, 2022
11:17 am
AllanB
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The typical resell home's physical structure is worth around 25% of total value land and home combined. Collateral is not up to par. How can a small piece of unproductive land be worth 75% of the properties value. Condos have less structure value and little land. Mortgage standards are way too low, heavily subsidized causing dislocation.

"Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes."

July 6, 2022
12:42 pm
COIN
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Not sure about now but some houses in my area were sold as "tear downs". Buyer would tear down the existing house and build a new one.

In other situations, houses were sold to be converted to rooming houses. Rooms were rented outed to mainly foreign students.Also, a form of "affordable housing" for those who couldn't afford the monthly $2,500-$3,000 rent on a condo.

July 6, 2022
1:37 pm
savemoresaveoften
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AllanB said
The typical resell home's physical structure is worth around 25% of total value land and home combined. Collateral is not up to par. How can a small piece of unproductive land be worth 75% of the properties value. Condos have less structure value and little land. Mortgage standards are way too low, heavily subsidized causing dislocation.

"Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes."  

If u narrowly define "typical" as a 70+ years old bungalow sitting in a big lot, then yeah... except the proper name for it is a tear down and nothing typical.

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