Merrill Lynch is warning that Canada could be headed for a housing and mortgage meltdown similar to the one that has devasted the United States economy.

A report issued Wednesday by Merrill Lynch Canada economists says many Canadian households are more financially overextended than their counterparts in the United States or Britain.

They say it’s only a matter of time before the “tipping point” is reached and the housing and credit markets crack in Canada.

The Merrill Lynch Canada report by economists David Wolf and Carolyn Kwan acknowledges that the analysis is more pessimistic than the prevailing view.

Many economists have been saying that Canada’s housing and banking sectors are much more stable than their American counterparts and will likely slow down but not crash.

But Merrill Lynch — whose U.S. parent is one of the biggest victims of a crisis in financial markets that is rooted in the American housing and mortgage meltdown — says Canadians should be wary.

Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007 — meaning they’re carrying more debt than households in the United Kingdom and not far off the peak U.S. shortfall in 2005 — just before the subprime mortgage crisis erupted.

“These data imply that the Canadian household sector is now overextending itself as much as the U.S. or U.K. ever did, challenging the consensus view that Canadian lenders and borrowers have been far more conservative through the cycle,” the Merrill report says.

It also says housing prices are now falling and inventories of unsold homes are rising sharply in Canada suggesting that this market turnaround will not be a transitory phenomenon.

However, the prevailing view is that Canada’s lenders have issued few of the type of subprime mortgages that sparked the U.S. crisis, which is continuing to ripple through the financial system.

In addition, many observers argue that Canadian residential properties are, by and large, not overvalued — considering the strength of regional economies in resource-rich provinces.

Imminent changes to residential mortgage rules in Canada will affect the majority of homebuyers, including those entering the market for the very first time, new Canadians and seasoned investors.

The federal government announced the changes at the beginning of August, with the new regulations going into effect October 15. The three most significant are: the end of the 40-year amortization; the requirement for borrowers to have a minimum credit score of 620; and the end of zero-down mortgages. “I think there are two reasons why we’re seeing these changes,” says Jim Murphy, president and CEO of the Canadian mortgage Association of Accredited Mortgage Professionals (CAAMP). “First, the federal government was looking at its exposure [to risk] and that of the Canadian taxpayer. Second, I think they were looking at what’s going on in the United States.”

When a homeowner defaults on a mortgage and the mortgage insurer is not able to cover the costs, the Government of Canada is left holding the bag. Says Murphy, “You have a lender – a bank or credit union. If you put less than 20% down, that lender has to have mortgage insurance. The government then provides a guarantee to the mortgage insurer.”

With these new regulations, the government is telling mortgage insurers that only mortgages meeting the above-mentioned new criteria will be backed.

Amortization

Although the 40-year amortization option is gone, 30- and 35-year amortizations are still available and growing in popularity. “These will probably become the norm,” Murphy says. “Between the fall of 2006 and the fall of 2007, 37% of all mortgages taken out had an amortization of more than 25 years. [This year] that number will be much higher.”

Murphy believes there are a variety of reasons for this. For first-time buyers, the issue is affordability. They are willing to pay more in interest over the term of the mortgage as long as it gets them into a bigger or better home than they could afford under more traditional 25-year amortizations. Paying back a mortgage over 35 years means paying less per month. This also allows first-timers the opportunity to get into the housing market sooner.

But just because you start with a 35-year mortgage, doesn’t mean you can’t make changes later on. “Most people will never be in that mortgage for the full 30 or 35 years,” Murphy says. “They may get a promotion or an inheritance and pay [it] down.”

Longer amortization periods are not just for first-time buyers. “We have people who have equity in their homes and for whatever reasons want a longer amortization,” Murphy says, “They may want to put money into investments or want to do other things with it.” If you have a down payment of 20% or more, no mortgage insurance is needed. Nonetheless, finding a lender who will offer a 40-year package won’t be easy now. “There’s nothing that prevents a lender from offering a 40-year amortization, but it will be likely difficult to find,” Murphy says.

Zero down - Taux Hypothécaire

The nothing-down mortgage (available for the past couple of years) is also gone. The new standard is the old standard – 5% down, minimum. “This change will have a bigger impact on the market, we believe," Murphy says, "particularly for first-time buyers and particularly in a place like the GTA, where housing costs are higher.” The good news is that the government will allow buyers to borrow that 5% from any lender or bank.

Credit score

Although a buyer’s credit score was always of concern to the lender, the government never got involved at this end of the transaction. That will change on October 15, when the government will require the buyer (or one of the buyers, if it’s a joint purchase) to have a minimum credit score of 620.

This new guideline may prove to be a problem for immigrants. “We have expressed some concern about this, especially when it comes to new Canadians, who may have a zero credit rating because they have no credit history,” Murphy says. “So how are they supposed to qualify?” Murphy says his association is currently discussing the minimum credit score issue with the government and hopes to see a change or amendment made to this rule.

Existing transactions

If you’ve recently purchase a home and are still awaiting closing, you might be wondering how the new rules will apply to loan commitments issued before October 15 and closing on or after that date. According to a memo issued by the government, “The existing rules will apply to loan commitments for which a mortgage insurance application has been received by the mortgage insurer on or before October 14, regardless of the closing date of the mortgage loan. This includes new construction in which the closing may not occur for more than a year after the initial loan commitment was issued.”

With the October 15 deadline looming, Murphy warns prospective buyers not to expect lenders to be eager to offer a mortgage under the old rules. “The government does not want lenders to be providing these products until midnight October 14,” he says. “Lenders have already announced that they are not offering these products anymore, and as we get closer to the deadline, they will be increasingly difficult to find.”

Get the necessary cash to transform your home into a cozy, elegant movie residence. Let your imagination grow wild, sit down with your wife and start designing the new aspect of your old home. Nobody will recognize it… and all thanks to a simple home improvement loan, that will be just what you need to make a new start when life was beginning to get boring.

Living A Comfortable Life At Last

Getting up early when you wanted to go on sleeping, taking the kids to school, going off to work, paying the bills, taking out the trash and Goodness knows what trouble you find during the day, deserve a prize. At the end of the day, you are welcomed by your dream house, soft music, the kids playing in their own room and your sweetie cooking something with a marvelous aroma.

Hey, It Is Not All Dreaming, Eh?

Nope, it is not ONLY about dreaming. Want to make it real? All you need is to take the decision to get it done. Well, start finding out about home improvement loans. There is one just right for you. When something has a determined name, it means that it is a specific product for a specific use. That is what makes it ideal for the purpose.

Is There More Than One Option?

Certainly. Depending on the amount needed for the improvement you want to make, you can take a home improvement loan or a mortgage loan. The mortgage Montreal loan will be great, because the amounts considered are greater, and will give you more than enough to get the job done.

The Downside Of The Mortgage Loan

That is the point… more than enough may be a little too much and what is more, the financing period, too long. Therefore, reducing the stakes a bit, we have a home improvement loan. You are not buying a new one, just improving your old one. Besides, what could be lighter on the family, than staying in the same neighborhood, with the same friends and knowing every single corner?

And Now, It Is The Lender’s Turn

Sift through the options on the Internet, and surely you will make a good deal. The thing here is to get an even better deal out of the lender you have chosen. Build up a folder with graphics in full detail. For this, you can get an architect, or do it yourself with a CAD program.

Next, make a list of the work that will be done, the materials you need and the final sum. Again, a reliable architect will be useful, but there are also little computer programs that do the numbers for you, if you are not willing to pay the fees. Then go to the lender and give them the impression of an organized guy, someone who gets what he wants.

A Good Deal Is More Than Just Being Able To Repay

You can also get insurance for your home, something that many people overlook. So there you have another negotiating factor. The broker you have chosen will surely be able to get you a favorable insurance policy, for your benefit and theirs. (They always have a share of whatever business they participate in)

Getting Started

Yes, you have to get started, put some action into all the thinking and dreaming and preparation. You have already done something by reading this article. Now it is time to start moving the pieces on the board. The best moment is now. You will be surprised with what you will get.

A mortgage is really like a specialized kind of loan that gets issued to individuals that qualify to purchase themselves a home. There are so many different mortgages available for one to choose from at the moment, that is has become very important that you check and compare mortgages before you just choose one.

There might be other ways in which you can borrow money for the finances of purchasing a house but a mortgage is definitely the easiest and most efficient way to finance a new home. You should have a look at a few different mortgages before making a final decision. At the moment because of the uncertainty in the market comparing fixed rate mortgage is certainly an option.

When you are looking at purchasing a house, you will have to look at different mortgages. It can also be rather confusing when you have to determine all the diverse kinds of mortgages and then decide which is best for you; because of this it is important that you compare them carefully.

It is not impossible to obtain a 100% mortgage, this means that you will get the loan for which you applied the full amount of and you will not have to give a deposit for it. This may seem fine at first, but you might be charged for the service by the lender. This amount is not always a very small one either. So in the end, it may not be as good as it seems and this is where you determine what will be best for you. It is so important when comparing mortgages to read the small print.

Sometimes you can even get your mortgage loan at 120% or even higher, this gives you the chance to use money for addition things once you have purchased the house. Like for example if you want to put money away for future references, you may do so. But remember that your houses value will in fact not be as much as the value of your mortgage will.

This is not always much of a solid basis when it comes to borrowing because the only thing you have to fall back on is your home and if something goes wrong, where is that additional 20% going to come from?

Just a few of the different mortgage types that can be considered are self certification, discount, fixed rate, first time buyer, buy to let, capped and there are many more. Most of these are rather easy to understand, but some might be very confusing to some people, especially if they are not very familiar with mortgages and their specifications. One thing for sure mortgage comparisons can save you plenty of your hard earn cash in the long term

If you are purchasing a home for the first time, you would go for the first time buyer's mortgage. This is an easy mortgage and that's why it is directed at first time buyers as it caters for problems that first time buyers might be faced with.

For example, these people are most likely young; therefore they might not have a major history of work behind their names. They also may not have a lot of money saved; this is why the first time buyer's mortgage is great, as it caters for people that aren't really sure of what must be done.

One thing for sure mortgage comparisons can save you plenty of your hard earn cash in the long term, my advice at the moment is to compare the current mortgage rate and then get the best fixed rate mortgage possible.

It will be difficult to choose the right mortgage strategy for your situation and that will save you the most money without understanding what influences interest rates in the first place (taux hypothecaire).

This is a very complicated subject, the topic of any number of books and business school dissertations. We’ll try to keep it basic here by discussing how the Bank of Canada’s fiscal and monetary policy along with the movements of the debt markets influence rates - pret hypothecaire.

Borrowers sometimes think that the banks make the decision to change rates. To a certain extent, this is correct, but they are doing it in reaction to other factors. In regard to mortgage rates, the variable rate mortgage is controlled by the prime rate and the fixed rate mortgage is controlled by the cost of money for the lenders. (hypotheque)

The base rate is the rate the bank of Canada charges banks, and it dictates the prime rate that the major banks of Canada will set and this in turn will determine the variable rate on mortgages.

Variable Rates:

A lot of people look only at the rate they are offered at the beginning of a variable rate loan. They are thrilled that their variable rate is 4.75% when the rate on a fixed rate loan is 5.4%. They do not see yet that their rate can increase every time the Bank of Canada raises the prime rate, which can happen eight times per year. This is because variable rate mortgages are really determined by the prime, so the rate we spoke about above is .75% below the prime. When the prime goes from 5.5% to 6%, the variable rate will go from 4.75% to 5.25%. (pret hypothecaire)

The Bank of Canada sets the prime rate eight times a year at certain set intervals. Depending on a number of factors, it may raise or lower the rate, or leave it unchanged. Then the it remains at this new rate until the next interval.

The prime rate is used by the Bank of Canada to manage growth and inflation. The consumer price index (CPI) and the gross domestic product (GDP) are the benchmarks that BOC uses to determine the prime rate. (taux hypothecaire)

If the CPI is increasing too quickly, the Bank of Canada will want to stifle inflation by increasing the prime rate to slow things down. The GDP indicates the growth of business activity in the country and if it is growing fast it too will have an influence on inflation.

If the economy is growing weakly and has low inflation, the Bank of Canada will tend to lower rates to encourage growth; if it is growing strongly and has high inflation, it will raise rates to slow things down - taux hypothecaire.

FIXED RATES:

Fixed rates are set by each lender and are also determined by many factors, the most critical of which are the lender’s portfolio earnings and its cost of funds.

Lenders such as banks and mortgage companies buy and sell the mortgages they originate on a secondary market. They do this routinely to balance their portfolios and try to get the best return for them.

These investors have a choice between bond portfolios and mortgage portfolios, so if the rate in the bond market goes up, lenders will have to have a higher rate on their mortgages to attract these investors. How do they get the higher rate? By raising mortgage rates. If the bond rates come down, the lenders can decrease their rates. The bond market rates are deeply influenced by the rates fixed by the Bank of Canada. - taux hypothecaire

So the interest rates that the man in the street is paying on his mortgage is determined by decisions made by banks and other lenders, investors in the bond market, the Bank of Canada, the CPI and the GDP. All of this sound complicated? It is. They are all linked together. (pret hypothecaire)

The only solution to complicated issue is to work with an accredited mortgage counselor who understands these factors and can use them to help you. A good mortgage counselor will find the right mortgage strategy for you and then will find the best lender to implement that strategy for you at the best rate available - hypotheque.

Nearly one-quarter of Canadians do not agree with the federal government's mortgage lending crackdown, a proportion that rises to nearly a third among non-homeowners, survey results done for a mortgage lending firm suggest.

And only 45 per cent agree with the tighter mortgage lending rules and that the federal government needs to protect Canadian homeowners, a level of support for the changes that falls even further to just one-quarter among non-homeowners, according to the online survey conducted by pollster Angus Reid for ResMor Trust Co.

In an effort to avoid a U.S.-style housing market meltdown, Finance Minister Jim Flaherty last month tightened up the rules governing mortgage lending practices in Canada, including limiting the amortization period for government insured mortgages to 35 years from 40 years, requiring a minimum down payment of five per cent for such mortgages, virtually eliminating zero-down mortgages, and requiring that anybody with an insured mortgage have a minimum credit score.

Those who disagree with the measures said they reduce options for people wanting to buy a home.

However, the results also indicate that 17 per cent do not understand the changes, including 25 per cent of non-homeowners.

Further, the findings suggest that the higher the level of understanding, the lower the level of opposition to the new rules.

"I was surprised that 23 per cent do not agree with the measures," Darren Thompson, vice-president of lending for ResMor Trust, said in an interview.

"This survey clearly demonstrates a need for industry professionals to educate Canadians about the new measures, specifically those entering the market for the first time," he said, adding that's something that the federally licensed trust company is doing.

"The measures are not seriously impacting the ability of consumers to get a mortgage," he said, citing as an example an industry finding that more than half of those who took out 40-year mortgages would have qualified for a 25-year mortgage. "It was just enabling them to get a lower monthly payment but at a much greater interest cost."

Thompson also disagreed with critics of the measures who have warned that the tighter rules will put an added chill on an already cooling housing market.

"There's still lots of financing out there," he said, adding that the measures protect the Canadian taxpayer from having to foot a large bailout if the market goes south as it has in the U.S.

The survey, meanwhile, also revealed a regional divide in the level of support for the tighter rules and the level of understanding of the rules.

Agreement with the new rules in the heated housing markets of the Western provinces and in Ontario is significantly higher than in the Eastern provinces and Quebec, the report said, noting support for the crackdown was 64 per cent in British Columbia, 56 per cent in Alberta, 47 per cent in Saskatchewan and Manitoba, 46 per cent in Ontario, but only 35 per cent in the Atlantic provinces and 34 per cent in Quebec.

The proportion indicating a lack of understanding of the new rules was highest in Quebec and Atlantic Canada, at 23 per cent in both markets, and lowest in British Columbia at only seven per cent, followed by 13 per cent in Manitoba and Saskatchewan, 18 per cent in Alberta, and 16 per cent in Ontario.

The online survey of at least 1,000 adults conducted last month following the release of the new rules is considered accurate within 3.1 percentage points 19 times out 20.

As home prices tumble down all over the country, many renters are looking longingly at the real estate listings and wishing that they'd paid more attention to their credit rating. After several years of real estate BOOM, the bubble seems to have burst – or at least started to deflate. In May, the median single family home price was an astounding 12% lower than just one year earlier, and that trend was reflected around the country. While that's bad news for anyone who bought their home a year ago with the expectation of turning a profit, the falling price of real estate is very good news for those who have been waiting for prices to come down.

If you've been weighing the difference in price between renting and buying, the market has shifted enough in favor of buyers that the time to buy is now. Interest prices are down as the Feds try to stimulate the economy and encourage people to buy. Home prices are down as sellers have their homes revalued for the realities of the current market and willingly accept far less than they would have last year at this time. When you combine the two, you'll find that the cost of a mortgage PLUS taxes is actually less than what you're paying in rent.

Unfortunately, there's another reality at work in the falling market prices as well. New regulations surrounding the sub-prime mortgage market and the recent rise in defaulted mortgages and foreclosures have made lenders more wary of handing out bad credit mortgages – and made it far harder for prospective home buyers to secure any mortgage at all. The meaning of "bad credit mortgage" has changed significantly in the new home buying market, with a 'bad credit rating' being considerably higher than it used to be.

Still, all is not lost for those whose credit scores disqualify them for a traditional mortgage from a bank. Many finance companies are still quite willing to make loans to people whose credit is less than stellar, and most will offer you advice on how to get your credit into better shape, or what you need to do in order to be accepted for one of their bad credit mortgages. If your mortgage application has been turned down by a bank or major home finance company, here are some suggestions that may help you quality for a bad credit mortgage.

1. Shop around beyond the banks.
Banks are traditionally "safe" lenders. They don't take chances with their money, and lower credit scores are risky. While they'd started taking chances as the housing market exploded, the sub-prime mortgage collapse has sent them skittering back to their safe little ledge.

There are exceptions, though. If you have a long-term relationship with your bank and maintain multiple accounts with them, by all means check with your banker first. You may get consideration based on your history with the bank despite other credit snafus. Most people, however, will do better with finance companies and mortgage companies.

2. Increase your available down payment.

Lenders may be willing to make a loan to someone with lesser credit if they are seeking a smaller loan. The best way to reduce the amount that you need to borrow is to provide a larger down payment amount. If you can put down 10-20% of the total house price as a down payment, most lenders will take you far more seriously.

One of the recommended strategies for raising the amount of your down payment is to borrow or get it as a gift from family or friends. Be aware that many lenders are now looking at how long you've had that down payment money when they do credit checks. Obviously, money that you've saved is evidence that you're able to manage money, and will be a persuasive argument to lenders that you're a better credit risk than your credit score suggests. On the other hand, a large enough down payment may bring you down to a monthly payment that the lender is comfortable offering.

3. Get multiple quotes for a bad credit mortgage.

Another part of shopping around is comparing interest rates and terms. The best way to do that is to get quotes from several different finance companies, but there is a danger in doing that – multiple requests for your credit report can put a ding in your credit rating and make it even harder to get a loan. When you contact a finance company to ask about a loan, make it clear to them that you are shopping for the best possible interest rate and ask them to do a quote credit check, which will show up differently on your credit report than a full credit check.

Don't get discouraged if you can't get even a bad credit mortgage right now. Talk to the Montreal Mortgage broker about how to improve your credit score in the eyes of their company. In many cases, you can follow their advice and reapply in as little as four months with better results.