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Renovation Time in a Hot Market with Big Changes

Well, is it finally spring?  Let's hope so!  We certainly are experiencing a spring market in Calgary and area.  In this issue of The Connection, we will discuss improvement loans, what is causing the current market conditions, and new changes with CMHC.


Current mortgage regulations have made accessing equity a lot tougher than it used to be.  This causes some real issues with home improvements and renovations.  The idea that you can buy a home and renovate the kitchen next year by refinancing, is no longer a reality-so what is the solution?  A purchase or refinance plus improvement loan.  Let's start with a purchase and show you how it works.


You found a great house, but you would really like to replace the old shag carpet, paint and put up a garage.  By applying for a mortgage based on an as completed (or renovated value) you can.  The value of the renovation will be added to the total house value and then financing can be obtained based on this new higher amount-essentially giving you the money to get the upgrades completed.  This can work with as little as 5% down-so you can finance 95% of your renovation, as part of your mortgage!  It is much easier and cost effective to do this at the time of purchase, rather than a year, or two down the road.

If you already own a home, you are limited to 80% of the value from a refinance standpoint.  This math may not work to get 30,000 dollars to finish your basement. However, if the value is based on the basement being completed, there is a lot more room.  We would get an appraisal done based on an  "as complete" value and financing would be based on up to 80% of this new higher amount.

Mortgage Connection has also set up a plan that can help fund the renovations for you.  In addition, we know a lot of great trades and are happy to connect you with contractors for any job.  If you want to discuss your personal plans, please do not hesitate to contact us.


The same old story of supply and demand is in full force.  Multiple offers, sales over list price and homes selling as soon as they are listed.  It feels like we have been here before, just a few short years ago, and it is important we learn from past mistakes.  A real estate market like this is not sustainable long term, but the factors driving it are real.

1) Supply and Demand: There simply is a housing shortage. Inventories are down and demand is up. More buyers than homes available drives pricing up.  There is little in the forecast to indicate this will change any time soon.  With solid employment and job creation, and continual net migration into Alberta, housing demands are not going anywhere.

2) Cheap Money: There have been a lot of changes to mortgages (especially with qualifying over the past 4 years), but one thing that has remained constant is a low rate environment.  Yes, rates will go up at some point, but the horizon of that increase is becoming a lot like a horizon in Saskatchewan-going on and on.  Also, when rates do increase, the move is simply really cheap money to cheap money.  A full 1% jump in long term 5 year fixed rates is only taking pricing to 4%.

3) High Rental Rates: With the tight housing market, renters are equally impacted.  There is a real shortage of rental units and monthly rents have hit new record highs.  For many people, the cost of home ownership is less expensive than renting.  This has a domino effect, as it is pushing more new buyers into the market, again increasing the demand on housing.


May 1, 2014 marks the day on increases to default insurance premiums coming into effect.  Basically, the cost on premiums for insured mortgages (in most cases, mortgage with less than 20% down payment), is up by 15%.  This change applies to all three insurers in Canada (CMHC, Genworth and Canada Guaranty).  However, there is also a big announcement from CMHC that will see further product changes come into effect May 30, 2014.  These changes only apply to CMHC, and we await to see how their competitors will react.  The changes essentially eliminate some financing options to Canadian consumers:

1) Borrowers will no longer be able to buy a second home or vacation property through CMHC.  This will impact borrowers that want to buy a house for a child in school, a cabin or cottage, or an apartment in the city to avoid the commute.

2) Self employed borrowers, will need to provide a 2 year personal income history to qualify for a mortgage.  This will be confirmed via 2 years of notice of assessments.  Prior to the change, non-traditional means of income confirmation.

3) Borrowers will be restricted to one CMHC insured mortgage at any given time.  This will impact keeping an existing home and converting it into a rental property to then buy a new owner occupied home with less than 20% down.  It also will  have an impact on co-signing on a loan.  For example, if a parent co-signs on their son's mortgage that is CMHC insured, they would not be able to then co-sign on their daughter's.

Why CMHC has made these decisions is unclear, but clearly they want to step away from some of types of deals that are in their current portfolio.   It is important to note that no changes have been made to the other two insurers in Canada at this point, but we will have to wait and see how they react and what steps, if any, they take.