CHMC insurance versus HELOC loan

When I bought my house in 2002, I only had a minimal amount to put towards a down payment. As such, I was obliged to get CMHC Mortgage Loan Insurance for the mortgage in order to protect the original lender against default. No appraisal, inspection or site visit were required. Just a credit check and a recent pay stub were sufficient to get the mortgage in less than two days. Three years later in 2005, after being offered a less-than-favourable mortgage renewal rate – I moved the mortgage to a different lender. At that time, a “drive-by” assessment was done (never setting foot in the house), which was paid for by the new mortgage lender. Another credit check and a recent pay stub were sufficient to transfer the mortgage, with no fees.

It was a completely different experience when last month – with less than two months of mortgage payments remaining –  I applied for a $50K HELOC in order to finance replacement of the roof and other upgrades. With the same lender, I had to pay for a full site inspection from an appraiser, lawyer fees, legals fees, etc. – at total of $1200. Pays stubs were a start, but multiple letters from supervisors assuring past and future employment were required. Verification of house insurance, current liabilities, my credit history, and verification of assets (investments) was an arduous task. After two weeks, the HELOC loan was finally approved.

It seems like when the lenders have a little “skin in the game” – as with a HELOC, they practice due diligence. When CHMC is underwriting the loan, it is a completely different story.

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68 thoughts on “CHMC insurance versus HELOC loan

  1. “Last time we have over 900 sales in May was 2007!”

    But Greater Victoria single family home median prices are down 2.2% to $557,520 from $570,00. Shouldn’t they be going the other way with record type volumes ? Maybe this is a sign that the top is in with such lousy choices in the single family homes.

  2. When it comes to traffic in the City and how the different municipalities deal with the problem Greater Victoria is an epic failure.

    But one has to realize that this grid lock is most likely intentional. The city planners are trying to get us out of cars and onto public transit and bi-cycles and to live and work in our community. There is no plan to fix the problem of grid lock.

    We can see the result of this grand plan already just by counting the number of empty store fronts downtown. I suppose that’s a city planners version of sustainability.

    Roads are the arteries of a city. Clog them up and you get a city dying from coronary thrombosis.

  3. Because they think prices will soon be higher, some people are reluctant to sell now. For the same reason, some people are anxious to buy now. Thus we seem to have the conditions for a bubble.

  4. Thanks very much for the info on my situation, justajack. I really appreciate it! i think that that confirms that I’ll start thinking a little more seriously about buying come fall (for a variety of reasons I can’t buy before then). I’ve been out of the market for 4 years and might finally be ready to get back in it. But I had really hoped that homes would be cheaper by now…

  5. It looks like the highest prediction was for 7500 sales. That should be blown out of the water. Impressive U-turn that 2015 could now break 2007’s record. Does anybody have 2007 annual sales count?

  6. It’s perplexing to me as well. Why are not more people listing their homes?

    Some of the couples whom I’ve spoken with have expressed that they’ll not list their homes until they find one to buy.

    That’s true in every market but has it become more prevalent in this market?
    Would this “pent-up” supply be ready to come back onto the market when inventory begins to creep up? Or will the core lose its momentum as buyers give up on buying in certain hoods?

    Real estate is like any other commodity. If you don’t have enough selection in your store (neighborhood) – people will go to another store.

  7. 20% lower than 2010-2012….I would say new listings are fairly low. Last time we had 900 sales in May there were also 1,600 new listings.

    You would have to go back to 2005 to match this many sales with this few new listings.

  8. May would be the 26th month in a row where inventory has declined year over year. New listings aren’t actually that low… But no surge thats for sure.

  9. Michael I think between 2002-2007 cmhc allowed unlimited insurance on any homes including over a million dollars. Also there was a period where people could add 15 years of payments and stretch out their mortgages for 40 years. Plus zero down mortgages approved by cmhc.

    So even if interest rates went up, access to cheap and easy credit might have offset the increase.

  10. The sales numbers don’t surprise me but the lack of new listings is interesting….my assumption (now wrong) was always that if the market improved sellers that were not able to sell 2010-2014 would bring properties to market, I guess not.

    Mon Jun 1, 2015 8:20am:

    May May
    2015 2014
    Net Unconditional Sales: 905 714
    New Listings: 1,485 1,509
    Active Listings: 4,043 4,672

    Please Note
    Left Column: stats for the entire month from this year
    Right Column: stats for the entire month from last year
    This information comes from the latest ‘Monthly Comparative Activity By Property Type’ Report

  11. Stranger yet when you consider as bank rates went from 2% to 4.5% between Feb 2002 to late 2007 that prices doubled. That’s a temple scratcher…

  12. Actually, it looks like interest rates started rising in February 2002.

    Kind of odd how Victoria prices look to have climbed about 25% (from previous chart) during the time frame that the bank of Canada raised rates 5 times or 125 basis points starting in Feb 2002.

  13. If memory serves correctly, interest rates started dropping fast in February 2002. Prices started climbing fast about 6 months later. Those “monthly payments” determined by the prevailing interest rates likely affected the prices more than the MOI. I was fortunate enough to buy in May 2002…

  14. My thought with my comment was traffic is so much worse in other places (i.e. getting to and from western communities) that Fairfield and Oak Bay will continue to have great appeal.

  15. I find it interesting how much lag time there can be between a dropping M.O.I. and rising prices.
    Even as M.O.I. fell off cliff for instance in early ‘01, prices didn’t go ballistic until late 02. I wonder why the lag?

  16. Agreed Marko, been driving the Oak Bay/Fairfield area a lot the last eight months and it’s mind boggling how much traffic congestion there is, especially on Oak Bay Ave. It’s like where are they coming from, with a ton of truck traffic too for the so-called sleepy village.

    Those areas will always be in high demand even on a correction though some may not find the congestion and slug drivers desirable.

  17. Not sure what is going on with traffic this year, even driving around today on a Sunday showing properties traffic was a massive pain, can’t see Oak Bay/Fairfield becoming less desirable anytime soon.

    My guess is if price do go up a bit this year Oak Bay and Fairfield will be sticky in terms of any downward potential pressure.

    Even as the city/population grow inventory of homes in Oak Bay and Fairfield remains static.

  18. It’s not my chart, but I’m sure payments have fallen a lot since early 2011 where that chart ends. I’m sure we would be very close to the same affordability as 2002. Possibly less.

  19. Oopsies, my comment didn’t go where it was supposed to. I think I was replying to a handsome marmot character who said the 80s and 90s were much more affordable.

    As far as compared to other places in Canada, I think most would agree you have always had to have slightly higher income or wealth to live here, same as you need to have above average wealth or income to live in the nicest places of other countries.

  20. Victoria is actually back into the most affordable range of our adult lifetimes (low 30% range), although I expect as retiring B-boomers and affluent immigrants flood in for the next ten years, for it to yet again to rise into the 50-60% range.

  21. Happy renter as I read it, what you’re asking about are properties having between 1,400 to 2,400 finished square feet on a non view lots ranging in size between 4,000 to 8,000 square feet in either Fairfield or South Oak Bay. And given the hoods and your price range that would mean a home built before 1970.

    The median sale price for this type of property over the last 12 months was $652,500 or about $330 per finished square foot. Which is slightly down from the year before when these properties were selling in the low $680K range. A 4 percent difference isn’t very telling of how prices have changed given the small sample size and I would still characterize prices for properties like this as being stable.

    There are currently only 15 properties listed for sale with asking prices ranging from a low of $500,000 for a 1,650 square foot home on a small 4,100 square foot lot that sides along a busy residential collector road to a high of just under a million for a home that has been remodeled in the last decade or two in a premium quiet residential South Oak Bay hood.

    On average for the last three months, five properties with these characteristics have sold each month with a median exposure to the market of just 15 days. During the same time period another 22 same characteristic properties were listed.

    That’s 3 Months of Inventory, a sales to listings ratio of 68% and a DOM of 15 days.

    Typically 5 to 7 months of inventory, a sales to new listings rate between 40 to 60 percent and a DOM between 30 to 90 days indicates a balanced market between buyer and seller with stable prices.

    At 3 MOI, SNL% at 68% and a DOM of 15 days the market for properties, like the above, is a strong sellers or bull market with vendors making little in the way of concession or price to effect a sale. Historically, a strong bull market has put pressure on prices to rise, yet that is not indicated by the changes in the median year over year or the current 90 day median relative to this time last year.

    There does seem to be a disconnect between the physical character of the properties, which were originally built for middle income families, and today with the price range indicating upper middle to upper income households. -You don’t always get what you pay for.

  22. justajack: Are you still willing to look at the details of the kind of house that I’d like and tell me if it’s in my favour to buy in the next 90 days? If so, here’s the info:

    -3 bedroom, 2 bath house of at least 1400 sq ft
    -typical size lot in Fairfield or South Oak Bay
    -no suite
    -no view
    -$700,000 max

    (In all likelihood I wouldn’t buy until the late fall or next spring, but as I mentioned before I’m trying to figure out the likelihood of there being a drop in prices over the next 1-2 years before I get back into the market.)

  23. Victoria “has been tough for a first timer or average earner” only for the past ten years. The twenty years preceding that (1985 through 2005), real estate here was much more affordable. As this is a similar pattern to many other parts of Canada, I think that the last ten years of relative unaffordability has nothing to do with the desirability of Victoria (and surrounding areas) and has everything to do with interest rates.

  24. I don’t forecast anything, that’s for weathermen, I calculate risk. If the main blog subject is wether to roll the dice on buying a house in Victoria (as it clearly sounds like you have), then I look at the risk levels based on global macro events potential which can smoke the credit market overnight. Such as Greece, US margin players exiting the markets, plus other tell tale signs just as it did back in 2007 at this time of year before the markets fell off a cliff in the fall when everyone was in love with their house.

    As all the major US bank CEO’s have recently stated, there will be another crash, we just don’t know when, nor what the catalyst will be, but it will happen and governments won’t be there to slush fund the masses like Harper did with CMHC. To me, those are serious worries wether to gamble on owning a house at this particular time of the cycle. BC’s GDP forecast will be an afterthought if the credit markets explode.

  25. I guess that’s possible, although it’s been 6 months since the oil crash… even Calgary and Edmonton prices look to have bottomed in March along with oil prices and are now heading higher according to the Teranet Index.

    My forecast is for BC to post a 3% or better gdp for the whole of 2015, Canada around 2.0%. Are you actually forecasting a Canadian recession?

  26. Financial markets tank when the market is over-leveraged….thus making investors feel poorer in a hurry and credit lending tightens like a vice. Credit is what makes the world go around. No matter what the interest rate is, if you can’t borrow easy, then real estate like financial markets go south or stagnate at best.

    The last five years have had easy credit pumped into it like free candy and eventually that cycle comes to end. It may take the next six months or more to play out but the margin charts don’t lie.

  27. HELOC’s were non-existent back in the 80’s. We haven’t seen the full effects of the oil crash yet, takes months play out.

  28. Here’s the long view of quarterly GDP back to 1980.
    Surprisingly we’re performing better than the 1986 oil crash.

  29. True, Victoria has been tough for a first timer or average earner for a long time, and I would think our little paradise will remain so. Too much demand, not enough land! 🙂
    The ones I know who grew up in Victoria, had to first leave for the heartland to climb their corporate ladders. When some of them return they often don’t require a mortgage. The luckiest one I knew bought a modest house in North Vancouver. Now they are looking at some of the nicest homes Victoria has to offer.

  30. The rebound in Victoria housing prices starting in the mid-1980’s was due to a big drop in housing prices (close to 20%) and a big drop in interest rates (17% to 9%). It was a perfect buyers market that grew into a sellers market. I remember in 1986 that (if I had the money for a down payment) I could have bought a nice starter home for about 80K.

    I think that current prices in Calgary have not fully reacted to the “new reality” of oil prices. In a year from now, we’ll have a better idea of where things are heading…

  31. “Market is not showing any signs of letting up…on pace right now for the best unit sales since 2007 and sales volume for the year will likely finish the second highest ever.”

    Wasn’t that back before the financial crash when there was nothing blue sky forever ? Sounds familiar. There’s a reason for the low interest rates folks….worst GDP since 2009 ? As Jack said, the margin players control the markets and they are at record highs in the US right now.

  32. Let’s put those CHMC numbers to the test … With the average family income in Victoria being about $82,000/year – 26% of it would work out to $1777/month ($21,320/year).

    A 5-year fixed rate mortgage for $345,000 at 3.79% interest with an amortization period of 25 years monthly is … $1,775.71. This would be a typical monthly payment for a house purchased 10 years ago, or for a modest townhouse bought this year. It in no way represents a typical mortgage for a current first time buyer of a single family home in Victoria.

  33. Still, 26% of monthly income and only a 0.34% default rate is a nice place to be, particularly after considering one of our countries largest industries (oil) went through such an immense crash last year.

  34. Well said. The part that surprises me is how the oil crash affects housing. My initial guess for such an important commodity to Canada is that it would have negatively impacted a good chunk of the country, and yet BC prices shot higher after the late ‘85 oil crash too.
    As you can see, even Calgary house prices did well for years after the late ‘85 oil crash with oil remaining roughly half price until 1990.

    Calgary seems to be fairing well this time too. Teranet month over month are now rising again in both Calgary and Edmonton as of April.

  35. Those statistics are from CMHC records on mortgages that they funded. They won’t insure mortgages when the debt service is over 32%. So it’s a nice fluff article to appease the public. It’s written to make you think everything is hunky dory.

    Instead of looking at what they say, look at what they are doing.

    Most of the directors of CMHC have changed in the last year. Google the new director’s biographies. And you’ll see a new Board of Directors of bean counters experienced in housing recessions and bank failures.

    No one is worried that the average Canadian can’t pay their bills today. It’s those at the margin that can topple a market. 0.34% default rate isn’t bad at all. Not all of those will end up in foreclosure. The banks will cut a deal, extend or blend the mortgage, add the missed payments to the amortization period, etc.

    Not a big deal – when it’s easy to get credit or move to a different lender.

    I don’t think we have ever had a default rate over 0.80% even in the worst economic recession.

    Having a 0.8 foreclosure rate would topple our market. That would be 8,000 listings for every 100,000 mortgages. In a town where we only sell 275 houses a month.

  36. Thirty years ago, a lot of what Canadian society consumed was made “right here” in Canada. We now live in a completely different world where historically cheap oil has greased the wheels of globalization. Although governments like to think otherwise, in a globalized world: business cycles, commodities and manufacturing are beyond government control. Even our monetary policy cannot be manipulated in a vacuum.

    I see the “oil crash” of both the 1980’s and now as symptomatic of a failing market economy. (Conspiracy theorists would blame the US and Saudi’s.) Will the drop affect housing in 2015? It did back in the 1980’s …

  37. I agree. I would start to get concerned if the average mortgage holder was spending much above 30% of their income on housing costs.

    May29 – CMHC mortgage holders spend 26% of income on housing
    The gross debt service ratio for Canadian homeowners – the percentage of housing costs to gross monthly income – sits at 26 per cent for the three months ended March 31.

  38. It’s tough on buyers these days. Limited selection and high prices. Committing more than 30 percent of your income on one asset isn’t a wise decision when property taxes, maintenance and living costs are rising.

    You could put more money down but then you’d lose earnings from your investments.

    In poker this would be the “all in” moment.

  39. Year over year house sales are up 20% in the core districts, And the months of inventory is close to 2. You need between 5 to 7 months of inventory to have enough selection to keep prices stable. Otherwise you’ll get multiple bids on the better properties. That drives both the median and the average price indicators up. The median last year was around $600,000 and for the last 30 days the median shows $635,000 (6% increase) with median exposure down to 18 days-on-the-market.

    This puts extraordinary pressure on home prices to rise. I would have thought we would be showing a double digit increase in median prices by now.

    Perhaps the Westshore is keeping prices in the core from going ballistic as they did in the past when the core had short supply like today’s market.

    Year over year sales are up 55% in the Western Communities with the median price increasing from $440,000 to $477,500 (9%) with the current DOM at 45 days and the MOI at 3.75.

    It’s hard on buyers these days. No condition offers and 48 hour clauses. A rational person would just walk away from this market.

    These numbers are general market indicators for housing. The type, style, age, size and condition of your home will effect how your home’s market value has changed.

  40. Yep. With a reduced amount of listings, there is less choice… making it more of a “sellers” market. It seems like the 0.15% reduction in the overnight rate by the BOC last January is having the desired effect…

  41. The great thing about buying 2010-2014, other than slightly lower prices, was the ability to take time to find the right property without feeling pressured. For example, in 2014 out of my 47 sold listings only two went over asking and both only by $100 over. Out of 38 buyers I represented in 2014 only 3 paid over asking. This year so far, 24 sold listings and 7 have gone over asking and many substantially over asking.

  42. Market is not showing any signs of letting up…on pace right now for the best unit sales since 2007 and sales volume for the year will likely finish the second highest ever.

  43. Nice to hear from you again! Who knows, maybe someday you’ll be wanting to move back and hunt for a house in Victoria. ☺

  44. Just popping by quickly to say thanks to everyone and congrats on HHV 2.0! It’s encouraging to see the community still thriving. I’ll probably post a final goodbye post at the old place, for my own closure if nothing else.

  45. Thanks for the offer, JaJ! I’m interested in a 3 bedroom, 2 bath house of at least 1400 sq ft on a typical size lot in Fairfield or South Oak Bay. No suite. No view. Something tells me that I’d find myself in a multiple offer situation right now…

  46. Happyrenter, all that I can monitor is upward or downward price trends and if the market favors buyers or sellers. The best I can predict is for the next 90 days. The farther ahead the greater the inaccuracy.

    But, I would need to know what type of property you are looking to buy, the neighborhoods and a general physical description

    Such as…

    A basement entry home in Gordon Head with a suite having around 2,100 finished square feet on a typical sized lot without any view amenity.

    Then I can tell you when it’s in your favor to buy and if you’re likely to be the only bidder or in a multiple offer situation.

  47. Thanks to everyone who offered opinions and advice on my question about predicting the market over the next year or so!

    The kind of house that I’d like to buy costs about 4 times my annual household income before taxes and I have a 15% down payment. I know that I can make the monthly payments on such a house even if interest rates rise by a fair amount and I plan on staying in the house for at least 15 years, but I really don’t want to buy something only to have it drop substantially in value a relatively short time later. That’s the risk of making an investment, I know, but I’m obviously trying to avoid a buying-at-the-peak situation. But then so are most people, I’m sure…

  48. My original mortgage was with Bank of Nova Scotia (BNS), but I transferred to ING Direct in 2005. ING was bought by BNS a few years ago, and rebranded as Tangerine. My mortgage and HELOC are both with Tangerine.

    I wonder if the level of scrutiny for a HELOC corresponds with the interest rate charged (with the idea that more scrutiny lowers risk). Tangerine offers a HELOC at prime plus 0.65% = 3.50%.

  49. That seems very odd. I recently walked into our bank (not the one that holds the mortgage) for some unrelated stuff and they hooked me up with a $15k HELOC with no credit check or appraisals or anything. Figured I’ll use that as an emergency fund to avoid too much idle cash.

    Maybe for you they figured a guy with a paid off house is probably up to something illegal.

  50. I still have plenty of time for my .5% prediction to come true… I’m getting close to my 1.99% fixed rate mortgages coming true! 3-YR – 2.14% @

  51. The new OSFI regulations only apply to CMHC mortgages. I know that some lenders are more stringent on all mortgages. One of the larger credit unions in town now requires full appraisals on every mortgage – no matter how small the loan.

    Your questions made me take a look at the new Directors of CMHC and most have recently been replaced from owners of construction companies and retail outlets like Home Depot to more conservative directors having backgrounds in banking, finance and distress markets.

    Things that make you go hmmmmm

  52. I neglected to mention in my original post that when I applied for the HELOC, there were only two months or mortgage payments left. As of June 3rd, the asset (house) covered by the HELOC loan would no longer be covered by CHMC insurance. (I’ll update my original post to clarify this.)

    I have negligible debt servicing and last time I checked, my credit score was 870+. I agree that responses from someone in the industry would be very interesting!

  53. It looks like the Bank of Canada is keeping its benchmark lending rate at 0.75 per cent.

    The central bank says it’s standing pat because inflation has been in line with projections and consumption has held up relatively well — even amid the net negative effects of lower oil prices. Source: CBC News

  54. I’m not sure about the CMHC insurance conclusion.

    When I got a HELOC in 2005 it was easy – no requirement for a property assessment or onerous proof of income/assets – credit check required. Probably had a lot to do with the rising market and the fact that the US housing market had not yet blown up?

    The rules may have changed in response to the changing market and the US RE drop. Or perhaps your institution has different requirements which might be linked to overall debt servicing ratios and credit checks.

    It would be interesting to hear a response from someone in the industry.

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