Changes to Canadian Mortgages in January 2018

General Leslie Morris 4 Jan

There are some big changes to mortgage lending rules that have taken effect on January 1st, 2018. These rule changes impact both existing mortgage holders and those seeking mortgages. Here are some key points everyone should know.

What’s the big change?

New mortgage guidelines require lenders to vet applicants with down payments of 20 percent or more by subjecting them to a stress test. Applicants must prove if they can afford their mortgage payments if interest rates were raised two percentage points.

Stress tests are already mandatory for mortgages with less than 20 percent down payment. The rules, which are meant to ensure that Canadians don’t take on too much mortgage debt, effectively reduces the size of mortgages that borrowers can get by 20 percent.

How will this impact us Canadians?

  • New rules could disqualify up to 10 per cent of prospective home buyers who have down payments of 20 percent or more according to the Bank of Canada.
  • There should be a cooling down of home purchases country-wide, but particularly in real estate hot spots like Toronto and Vancouver.
  • Between now and the end of 2019, as many as 200,000 homeowners will fail the stress test at the time of their mortgage renewal.

Credit unions are not affected.

January’s new rules and stress tests do not apply to credit unions, which are regulated at the provincial level rather than federal level. By using a credit union in 2018, homebuyers can sidestep the stress test and get a larger mortgage.

I’m pre-approved for a mortgage in late 2017. What should I do?

Some lenders have confirmed they will grandfather existing preapprovals under the 2017 lending rules for up to 120 days. However many lenders will not – for them Jan. 1, 2018 is a hard stop on old lending rules. Some lenders have not announced their policy on the matter at all.

Your best bet is to pick up the phone and call your mortgage broker to ask them where your preapproval stands.

I already have a mortgage. How does this affect me?

Adding new money, or moving the mortgage to a new property will trigger a re-evaluation under the new rules, stress test and all. Don’t change your mortgage if you don’t have to!

Who is safe from the stress test?

You’re safe if you’re simply renewing your current balance. None of these changes will impact you if you are renewing your mortgage for the same amount with the same lender.

The new conventional mortgage ‘Stress Test’ unnecessary and harmful

General Leslie Morris 13 Oct

The new mortgage stress test is unnecessary and harmful.

With additional mortgage regulations on the horizon it is more important than ever to deal with a mortgage broker who understands the industry and can help you make the right financial decision for your mortgage needs.
If you are considering refinancing your mortgage to access equity for any purpose NOW is the time.

These new regulations could potentially have a considerable impact on your borrowing power.


Mortgage Broker

A new stress test for all uninsured mortgages is unnecessary and could increase costs for homebuyers, according to the latest report from the Fraser Institute.

Study author Neil Mohindra wrote the proposed stress test “will do more harm than good” by limiting access to mortgages for some homebuyers.

“The mandatory standard for stress testing could result in a less competitive and more concentrated mortgage market,” Mohindra stated, as quoted by The Canadian Press.

The study came amid news that the Office of the Superintendent of Financial Institutions is finalizing new lending guidelines.

Among the changes being considered is a requirement that homebuyers who have a down payment of 20% or more and do not require mortgage insurance still have to show they can make their payments if interest rates rise.

The head of OSFI has said that Canada’s banking regulator wants to reduce the risk of mortgage defaults because of high levels of household debt.

“We are not waiting to see those risks crystallize in rising arrears and defaults before we act,” OSFI head Jeremy Rudin said last week.

Canadian household debt compared with disposable income hit a record high in the second quarter. Statistics Canada reported last month that household credit market debt as a proportion of household disposable income increased to 167.8%, up from 166.6% in the first quarter.

However, Mohindra said that instead of a prescriptive test, OSFI could use its existing powers to fix what it believes are deficiencies in policies and procedures.

The Bank of Canada has raised its key interest rate target by a quarter of a percentage point twice this year.

The increases have pushed up the big bank prime lending rates which are used to determine rates for variable-rate mortgages and lines of credit.


How do Mortgage rates work?

General Leslie Morris 6 Sep

Ever wonder how your mortgage rate is determined? What factors make it jump from percentage to percentage? We are getting down to the nitty gritty today and giving you the facts on what impacts mortgage rates.

What affects a Mortgage Rate?

There are 10 factors that affect a mortgage rate:

1. Location
Depending on which province your home is located in, this will have an overall effect on your mortgage rate. Generally speaking, provinces with more competitive markets will have lower rates.

2. Rate Hold
A rate hold is a guarantee on a rate for 90-120 days. If your closing dates do not fall within this timeframe, then your hold will be re-assessed. If your rate hold is re-assessed and the lender’s rates at that time of re-assessment are higher than your initial rate, then your rates will go up accordingly. We always follow up with all of our clients on a regular basis to avoid this situation whenever possible!

3. Refinancing
Movement on your mortgage of any form can affect your rate typically when you are working with your existing lender. New buyers will have lower rates than refinances, but refinances will have lower rates than mortgage transfers. Mortgage Brokers can access multiple lenders to find the most suitable product for their client’s unique needs.

4. Home Type
Lender’s assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.

5. Income Property/ Vacation Home
As previously mentioned, lenders assess the risk on your property. If you are buying an income property or a vacation home than the lender can assess at a higher risk and a higher rate may apply. This is one of the major benefits to having a mortgage broker on your team! They have access to a variety of lenders that can offer you a rate lower than others as they can compare a large variety.

6. Credit Score
We have talked a lot about credit on our blog, and there is a reason for that. Your credit score is a large determining factor for your rate. Lenders want to see that you have a history of managing your credit well and that you will be able to pay back the lender overtime. For more information on fixing your credit, check out our free e-book, Credit Medic.

7. Insured or uninsured
With the changes that the federal government made back in October 2016 this has had a significant impact on mortgage rates if your mortgage is insured or not. Read our Change of Space guide to find out the full impact of these changes.

8. Fixed/Variable Rate
The type of rate you are wanting to get will also affect your rate. Fixed rates are based on the bond market and variable rates are based on the Bank of Canada (economy).

9. Loan to Value (LVT)
The higher the Loan to Value the higher the risk. You can have someone who has a $1 million mortgage but has $2 million in equity in that property and they would be viewed as a lower risk than someone who has a $200,000 mortgage and their property is only worth $220,000. To boot with the federal changes, the person with the higher risk mortgage (insured) is likely to get a more competitive interest rate than the client with $2 million in equity.

10. Income level
The final part in this rather large equation is your income level. Although this does not necessarily impact the rate itself, it does impact your purchasing power and the amount you are able to put down on a home. Essentially indirectly impacting the rate.

Each of these factors plays a factor in the rate you will be able to get through a lender. The easiest way to get the lowest rate is to work with a dedicated mortgage professional. They will put together a fail-proof plan to get you the sharpest rate. They also have access to a variety of lenders which saves you the time and trouble of shopping for your mortgage on your own. As a final point, mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success.

Bank of Canada increases the key lending rate to 1.00%

General Leslie Morris 6 Sep

The Bank of Canada forged ahead with another interest rate hike in a nod to the country’s

surging economy, while signaling its appetite for further tightening may be curbed by a rising Canadian dollar and sluggish inflation.

Policy makers raised their benchmark rate for a second time since July, by 25 basis points to 1 percent. At the same time, they cited risks including continued excess capacity, subdued wage and price pressures, geopolitics and the higher Canadian dollar, along with worries about the impact of rising interest rates on highly indebted households.

“Future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation,” the Bank of Canada said Wednesday in a statement from Ottawa.

Governor Stephen Poloz is trying to strike a balance between bringing interest rates back to more normal levels amid the strongest

growth spurt in more than a decade, and acknowledging the persistence oflow inflation and subdued wage pressures. He may also be attempting to restrain market expectations it will get too far ahead of the Federal Reserve.

Futures trading suggests investors were anticipating — before Wednesday’s rate decision — as many as three hikes from the Bank of Canada by the end of 2018, versus one more for the Federal Reserve. Only five of 26 economists surveyed by Bloomberg News expected the central bank to hike its benchmark rate. Futures trading was assigning about a 40 percent chance of an increase. Another rate increase is now almost fully priced in by December.

Market Reaction

Canada’s currency climbed as much as 1.8 percent after the decision, reaching C$1.2146 against its U.S. counterpart, the highest intraday level since June 2015, and extending the gain this year to 10 percent. Bonds yields surged, with the two-year note jumping eight basis points to 1.43 percent, the highest in more than five years.

The bank didn’t repeat language from previous statements about the current degree of stimulus being appropriate, which may suggest it will stay on its tightening path.

“What they are saying to me is they are leaving the door open to future
hikes,” said Derek Holt, head of capital markets economics at Bank of Nova
Scotia in Toronto. He changed his forecast last week to correctly predict the
rate increase.

Considerable Stimulus

The bank cited Canada’s stronger-than-expected economic performance for the hike, warranting a removal of some of the “considerable” stimulus in place. In effect, the Bank of Canada fully removed the two rate cuts from 2015, which were meant to counter the negative impact of falling commodity prices.

The Bank of Canada also cited recent better-than-expected data supports its view that growth is more “broadly-based and self-sustaining.” It also cited more “widespread strength” in business investment and exports, and “stronger-than- expected indicators of growth” globally.

Yet, there was an introduction of cautionary language in the statement, and new worries about financial market developments, that weren’t in the last rate decision and suggests the central bank isn’t quite ready to declare victory on whether the economy has totally eliminated its slack.

“There remains some excess capacity in Canada’s labor market, and wage and price pressures are still more subdued than historical relationship would suggest,” according to the statement.

The Bank of Canada said there remains “significant geopolitical risks and uncertainties” around international trade and fiscal policies that have weakened the U.S. dollar. The suggestion is the Canadian dollar gains aren’t totally reflective of growth. It was the first reference to the Canadian dollar in a rate statement since March.

The bank also said it will pay close attention to the “sensitivity” of the economy to higher interest rates given “elevated” household indebtedness, and added it will pay “particular focus” to the evolution of the economy’s potential growth rate, possibly a suggestion that the economy can run at a faster pace than the bank originally thought without triggering inflation.

— With assistance by Greg Quinn, and Erik Hertzberg

Copyright Bloomberg 2017

Rising Interest Rates in Canada and How That Affects Mortgage Payments

General Leslie Morris 2 Aug

Yikes!  Most of us will cringe at the idea of rising interest rates and their effect on our ability to afford the mortgage payments that some Canadians are already struggling to make.  Our homes are the single biggest financial investment that most of us will ever make.

For the first time since July 2015, the Bank of Canada has increased the interest rate from .5% up to .75%, but do you know what that means for your mortgage payment?   RateHub is making it easy to determine what your new payment will look like with a mortgage increase calculator that takes into account this interest rate hike.

In order to gain some insight you’ll need to gather some current mortgage information.  If you’re not sure what each piece of information means, we’ve outlined some helpful definitions below.

Amortization period: most mortgages in this country have a 25 year amortization period.  Basically your amortization amount is how many years it will take for you to pay off the full balance of your mortgage in its entirety.

Mortgage term: often confused with the amortization period, this is actually the term you’ve agreed with the bank to commit to a certain interest rate.  It also includes the particulars of your loan conditions. Usually homeowners set up a 5 year mortgage term, but you can also find mortgage term offers of 2 years, 2.5 years, 4 years, and more.

Payment frequency: this is the number of times that you make mortgage payments.  Although most homeowners set their payments to come out once a month from their account, there are a number of options.  Bi-weekly means that you make 26 payments a year (every two weeks).  Semi-monthly means that your payments come out twice a month, equalling up to a total of 24 payments a year, and “accelerated bi-weekly” means that you pay 26 times a year, but each payment is higher than it would be in a bi-weekly set up, meaning that your mortgage is paid off sooner rather than later.

Variable rate mortgage:  in this type of mortgage, your rate fluctuates with the interest rate, meaning that this calculator will be especially handy in helping you to prepare for your new debit amount.  Most often variable rate mortgage holders will be immediately affected by an increase in the interest rate.

Fixed rate mortgage: for this type of mortgage, your rate is “locked in” for a pre determined period of time. This means that you have that much grace period before your mortgage rate is affected by the interest rate hike.  Those with fixed rate mortgages can still benefit from using the calculator, especially if it means that you have time to prepare a nest egg to offset the increase in your debit amounts.

Once you’ve got all of your numbers, simply plug them into the calculator to see what your new debits are going to look like.

Are other Countries experiencing Housing Price Inflation?

General Leslie Morris 25 Jul

If you have yet to purchase your first home, or if you’ve considered selling your home and finding something new, taking a look at the market and finding something in your price range can be tricky.  Feeling overwhelmed?  You’re not alone.  Many cities all across Canada are experiencing the same thing – rising house prices without the accompanied increase in wages, making it seem impossible to either get into the housing market with your first purchase, or to trade up or down.  Many people are even opting to rent for longer periods of time; starting their families before moving into a place they can call their own. You may have even considered a move right outside the country in order to afford the house of your dreams, but you’ll be surprised to discover that Canada isn’t the only country experiencing large jumps in housing prices.  On the large scale, Canada sits at about number 4 in housing price increases.

Take Australia, for example.  In the last 4 years housing has seen an increase of 66% (compared to Canada’s 102% in the last 4 years).  Israel has seen a 61% increase, but 9% of that increase came in the last year (compared to Canada’s 10.5% in the past year).  New Zealand has surpassed us with a total of a whopping 132% increase in 4 years, and even Sweden is at a 115% increase.  Yikes!  If you were living in China you’d have noticed an increase of 44% and Britain trails at 30%.  The States have seen an increase too, although they’re sitting around 10% in the last 4 years with a 4.8% over the past 12 months.

Those aren’t even the biggest hikes over the last year; if you’d been living in Hong Kong you’d be looking at a huge jump of 14.4% and Iceland tops the list at a 17.8% increase.  Over 2 years housing prices in Hong Kong have reached an extraordinary 236% increase, with a tiny 161 square foot apartment commanding prices as high as $500,000 US.  Take a look at your standard 3 piece bathroom, and you’ve got an idea of how much space that is.  The apartments are dubbed “micro” for a reason!

Ireland, Estonia, Romania and Germany have also seen gains, although at a far lesser scale than Hong Kong, Iceland, New Zealand or Canada (between 7% and 11%).  In fact, 18 of 23 European housing markets have posted an increase over the last 2 years.

If you’re looking at a house in the country you’re more likely to find something reasonably priced.  Most of the gains have been exclusively found in large cities, so depending on how close you feel you need to live to amenities, your price is negotiable.  In China you’ll find the biggest price difference – homes in the cities are at an average of 55% more expensive than in the rural areas.  In Canada, that number hovers around a 13% difference between urban and rural.






Potential Bank of Canada Prime Rate increase on the horizon

General Leslie Morris 12 Jun

The Bank of Canada offered its strongest signal yet that it’s ready to raise interest rates as the economy gathers steam, in surprise comments that sent the Canadian dollar and bond yields soaring.

In a speech Monday, Senior Deputy Governor Carolyn Wilkins highlighted how the nation’s recovery is broadening across regions and sectors, giving policy makers “reason to be encouraged.” She downplayed worries about Toronto’s housing market and said policy makers need to keep their eye on the future evolution of growth, not only current economic conditions.

“As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” Wilkins said in Winnipeg, Manitoba. “At present, there is significant monetary policy stimulus in the system.”

Wilkins said policy makers will be focusing on the data and talking to “many people” ahead of the next interest-rate decision on July 12.

The remarks are an indication policy makers anticipate the next rate move will be higher as momentum has shifted after two years of pain from a slump in oil prices. It’s also effectively a rebuke of pessimists betting on a disorderly unwinding of Toronto’s housing bubble that has left the Canadian dollar one of the worst performing currencies this year.

The Canadian dollar extended gains after Wilkins’s comments, appreciating 0.9 percent to C$1.3350 per U.S. dollar at 2:04 p.m. in Toronto, the steepest increase since March and the biggest advance among Group-of-10 peers on Monday. The gain helped turn the loonie’s year-to-date loss against the greenback into a gain.

As early as January, Governor Stephen Poloz had been talking about the possibility of another rate cut, after lowering the key rate twice in 2015 to 0.5 percent.

Swaps trading suggests investors are placing an 11 percent probability of a rate increase next month, and a 56 percent chance by the end of this year. On Friday, those probabilities were 5 percent and 30 percent. The central bank hasn’t raised interest rates since 2010.

Bond Sell-Off
The comments also sparked a sell-off in Canada’s federal government bonds, pushing the yield on two-year notes up seven basis points, the steepest rise since December, to an almost three-month high of 0.81 percent. The rate on five-year securities rose above 1 percent for the first time in three weeks.

“Markets have barely priced in any real risk of a rate hike this year and will need to adjust,” said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. “This is quite a change in messaging on the face of it – and likely brings forward expectations for Bank of Canada tightening just at the time when the market is doubting how much more the Fed will move.”

Wilkins said encouraging signs included the fact that more than 70 percent of industries are growing, the labor market has improved and demand in energy-dependent provinces is strengthening. In fact, the drag from the oil price shock — the reason for two rate cuts in 2015 — is done, according to Wilkins.

“The adjustment to lower oil prices is now largely behind us, and we are looking for signs that the sources of growth are broadening across sectors and regions,” Wilkins said. “The signs are encouraging.”
As an analogy, Wilkins likened monetary policy to a car slowly braking before a traffic light.

“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly,” she said. “You do not want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”

Wilkins said it was too early to tell how measures by the Ontario government to cool Toronto’s housing market will impact activity and prices, citing the rebounding Vancouver market as an example. If Toronto’s market performs better than expected, that would be a boost for household spending and another driver of growth.

“Given we expect household spending to slow somewhat, it could surprise us and provide an unexpected boost to growth in the near term,” Wilkins said.

Other Details
Diversity of economic growth “helps support strong and sustained overall growth.” Risks to the economy include potential changes in U.S. policies, faster-than-expected household spending. Core inflation measures have “drifted down in recent quarters,” consistent with lagged effects of slack in the economy, she said. “Other indicators also point to ongoing spare capacity,” such as wage gains, Wilkins says.
First quarter growth rate of 3.7 percent was “pretty impressive.” Bank of Canada modeling shows broadening in provincial activity in 2017. Exports still remain a disappointment. Gains in employment spreading across the country.

Copyright Bloomberg 2017


How to pay off your Mortgage Faster

General Leslie Morris 30 May

Congratulations! You are now the proud owner of a new home! You also likely own a rather intimidating mortgage as well. That debt may seem like a daunting mountain you’ll be chipping away at for years, but you could actually pay it off faster than you realize. Here are five hot tips from mortgage-handling pros to get you in the free and clear fast.

Mortgage Broker Kitchener

Pay more than the minimum.
Let your mortgage servicer know ahead of time that you plan to pay vigorously. They will most likely help you put together a more aggressive payment schedule. If you plan to do all the calculating yourself, still make sure you let the servicer know to expect higher than usual payments. Some require a notation that extra money should be applied toward your loan. Always check your statement afterward to make sure the right funds were applied.

Pay more often.
If your mortgage lender offers a bi-weekly payment schedule, take it! Not only will this allow you to make a half-payment every other week, it also cuts down on the amount of interest you’ll be paying too. Check with your lender first to see if they offer bi-weekly payments, otherwise your payment may be held in escrow until you make the other half payment, which defeats the whole purpose.

If a bi-weekly payment schedule doesn’t work for you, consider making one extra payment per year instead. The best way to do this is save a twelfth of a regular payment every month. By the end of the year you will have a whole extra payment to put into your loan. It’s not as fast as more aggressive payments, but you will still save thousands in interest and still knock years off your term.

Set goals and stick to them.
Make your payoff goal challenging but reasonable; the easier the goal, the longer you will probably stay in debt. How fast you will pay off your mortgage depends on how many sacrifices you are willing to make. Some smart homeowners have managed to pay off a 15-year loan in as little as 2 years, but they also made a lot of cuts to their expenses. Which leads us to the next tip…

Be mindful of the “little things”.
Buying lunch every day may be convenient, but it also cuts into the cash you could be putting towards your payoff. In fact, taking a sack lunch from home could save you up to $1,000 a year! That’s $1,000 you could knock off your mortgage. Other big savings from small changes include making coffee at home or cutting down on new clothes shopping. More proactive payers put all of their extra income – from tax refunds, bonuses, or even second jobs – toward their loans.

Consider refinancing your mortgage.
If you have a 30-year or longer loan, consider refinancing it to a shorter term with a lower interest rate. This works particularly well if you already plan to make higher, more frequent payments. It’s important to look out for a good deal, at least one percent lower interest than you are already paying. If you aren’t already making higher payments, a shorter term will drive up the cost of your monthly payment, so make sure you can afford it. However, you could save thousands off interest in the long run.

5 Common Mistakes To Avoid When Shopping For a Mortgage

General Leslie Morris 15 Mar

5 Common Mistakes To Avoid When Shopping For a MortgageAvoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

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