Realtor Bobby

Charging "entry fees" for pre-construction units

The Real Estate Council of Ontario (RECO) has become aware of a potentially unlawful practice regarding pre-construction real estate. It is being alleged that some registrants may be charging "entry fees" or "admission fees" to prospective buyers of pre-sale homes.

These fees supposedly give buyers access to purchase properties before they are available to the public or front-of-the-line status. Media reports have also stated that registrants have asked for cash payments and refused to issue receipts. They may also be sharing the proceeds with the developer's staff.

There are specific regulations regarding how registrants accept funds from consumers:

Full Disclosure - A document must be presented to potential buyers regarding any funds collected. The document must spell out:
what those funds are for;
how the funds are to be handled;
how the funds will be distributed, such as toward the deposit on a property; and
the conditions for the return of the funds if the consumer does not decide to make a purchase.
Under the Code of Ethics, you are obligated to treat every person you deal with in the course of a trade fairly, honestly and with integrity. And you must promote and protect the best interests of your clients. With that in mind, if a consumer pays an "entry fee" and does not purchase a unit, it is expected that the fee will be returned to the customer.

The buyer should also receive a receipt for any funds they provide.

Trust Accounts - All money provided by a buyer to a registrant must be forwarded to their brokerage. That money must be held in the brokerage's trust account until such time that it is to be disbursed appropriately.

Seller Permission - "Entry fees" can't be requested or accepted unless the registrant has received explicit consent of the seller of the property to do so.

It would be permissible to accept certain entry fees, only if the registrant complies with the rules listed above. If you are aware of a registrant breaching these rules, please file a complaint with RECO. If you suspect that employees of builders are improperly requesting or accepting fees without proper disclosure to buyers, you should inform Tarion, the regulator of home builders in the province.

Consumers have the right to know what they are paying for, and what will happen with their money. Transparency and upfront documentation are key to remaining in compliance with the regulations.

CMHC to Increase Mortgage Insurance Premiums

OTTAWA, January 17, 2017 — CMHC is increasing its homeowner mortgage loan insurance premiums effective March 17, 2017. For the average CMHC-insured homebuyer, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment.
“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI's new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.
During the first nine months of 2016:
· The average CMHC-insured loan was approximately $245,000.

· The average down payment was approximately 8%.

· The average gross debt service ratio (GDS) was 25.6%. To qualify for CMHC insurance, a homebuyer’s GDS should not exceed 32% of their total monthly household income.

Down payment between 5% and 9.99%
Loan Amount

$150,000

$250,000

$350,000

$450,000

$550,000

$850,000

Increase to Monthly Mortgage Payment

$2.82

$4.70

$6.59

$8.47

$10.35

$15.98

Based on a 5 year term @ 2.94% and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.
Premiums are calculated based on the loan-to-value ratio of the mortgage being insured. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and repaid over the life of the mortgage as part of regular mortgage payments. Additional details and scenarios are included in the backgrounder below.
CMHC regularly reviews its premiums and sets them at a level to cover related claims and expenses while also reflecting the regulatory capital requirements.
CMHC is Canada’s most experienced mortgage loan insurer. Our mortgage loan insurance enables Canadians to buy a home with a minimum down payment starting at 5%. As a Crown corporation, CMHC is the only mortgage insurer whose proceeds benefit all Canadians.
As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need and offers objective housing research and information to Canadian governments, consumers and the housing industry.
Backgrounder

· CMHC’s standard mortgage loan insurance premiums will be changing as follows:

Loan-to-Value Ratio
Standard Premium (Current)
Standard Premium (Effective March 17, 2017)
Up to and including 65%
0.60%
0.60%
Up to and including 75%
0.75%
1.70%
Up to and including 80%
1.25%
2.40%
Up to and including 85%
1.80%
2.80%
Up to and including 90%
2.40%
3.10%
Up to and including 95%
3.60%
4.00%
90.01% to 95% - Non-Traditional Down Payment
3.85%
4.50%
Down payment between 10% and 14.99%
Loan Amount

$150,000

$250,000

$350,000

$450,000

$550,000

$850,000

Increase to Monthly Mortgage Payment

$4.94

$8.23

$11.52

$14.81

$18.10

$27.98

Based on a 5 year term @ 2.94% and a 25 year amortization
Down payment between 15% and 19.99%
Loan Amount

$150,000

$250,000

$350,000

$450,000

$550,000

$850,000

Increase to Monthly Mortgage Payment

$7.06

$11.75

$16.46

$21.16

$25.86

$39.96

Based on a 5 year term @ 2.94% and a 25 year amortization
During the first nine months of 2016
Nearly 50% of CMHC’s transactional mortgage loan business were for loans of less than $300,000
Nearly 95% of CMHC’s transactional mortgage loan business were for loans of less than $600,000
Less than 1% of CMHC’s transactional mortgage loan business were for loans of more than $850,000
CMHC follows OSFI guidelines for federally regulated mortgage insurers in Canada.
Calculating the gross debt service ratio (GDS) allows potential homebuyers to estimate the maximum home-related expenses they can afford to pay each month.
GDS = Principal + Interest* + Property Tax + Heat
Monthly Income
*Interest is calculated using the qualifying rate
Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after March 17, 2017. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to this date, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
The changes do not impact mortgages currently insured by CMHC.