Little Comfort for the Bank of Canada in Today’s Jobs Report

Bank of Canada Peter Carstensen 2 Dec

Following the release of the labour force survey for the month of November, Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, has posted some thoughts on the report.

Below is Dr. Cooper’s summary:

Today’s Labour Force Survey for November will do little to assuage the Bank of Canada’s concern about inflation. While employment growth slowed to 10,100 net new jobs–down sharply from October’s reading–the report’s underlying details point to excess labour demand and rising wages. This is compounded by Monday’s data release showing that the Canadian economy grew by 2.9%, double the rate expected by the Bank of Canada. Everyone expects a slowdown in the current quarter and a modest contraction in the new year. However, excess demand is still running rampant in almost everything except housing.

Indicative of hiring strength, full-time employment was up a robust 50,700, and the private sector added 24,700 jobs. The jobless rate ticked down for the second consecutive month to 5.1%–well below the 5.7% rate posted immediately before the pandemic, which was considered full employment at that time. Total hours worked edged up, consistent with growth in the fourth quarter. And most notably, wage inflation came in at a year-over-year pace of 5.6% in November, the sixth consecutive month of greater than 5% wage inflation. Moreover, private and public sector unions demand even more significant wage gains as inflation remains close to 7%.

Businesses report difficulty filling jobs as job vacancies rose in the latest reading. The employment rate among core-aged women reached a new record high of 81.6% in November.

Employment rose in finance, insurance, real estate, rental and leasing, manufacturing, information, culture, and recreation. At the same time, it fell in several industries, including construction and wholesale and retail trade.

While employment increased in Quebec, it declined in five provinces, including Alberta and British Columbia.

Bottom Line

Today’s data are the last key input into the Bank of Canada’s December 7 interest rate decision. Overnight swap markets are fully pricing in a 25 basis-point hike next week, with traders putting about a one-third chance on a 50 basis-point move. Rising wages show no sign of cooling, and the economy posted much more robust growth in the third quarter than the Bank expected. 

The overnight policy rate target is currently at 3.75%. If I were on the Bank’s Governing Council, I would vote for a 50-bps rise to 4.25%. Returning to a more typical 25 bps rise is premature, given inflation is a long way above the Bank’s 2% target. Inflation will not slow, with consumers and businesses expecting continued high inflation. Wage-price spiralling is a real risk until inflationary psychology can be broken. 

In either case, additional rate hikes early next year are likely. Even when the central bank pauses, it will not pivot to rate cuts for an extended period. Market-driven longer-term interest rates have fallen significantly as market participants expect a recession in 2023. Fixed mortgage rates have fallen as well. The inverted yield curve will remain through much of 2023, with a housing recovery in 2024.

https://sherrycooper.com/articles/little-comfort-for-the-bank-of-canada-in-todays-jobs-report/

Canada Mortgage and Housing Corporation Releases Fall 2022 Edition of the Residential Mortgage Industry Report

General Peter Carstensen 1 Dec

Canada Mortgage and Housing Corporation (CMHC) just released the latest available data on trends in the residential mortgage industry. The latest report provides insights into the evolving mortgage industry landscape and market trends using data from Q2 and Q3 2022.

Here is a brief summary of CMHC’s findings:

Mortgage Market Trends
– Mortgage growth slowed down as interest rates hiked in the second quarter of 2022
-Since June, mortgage consumers are increasingly turning back to fix rates as interest rates rapidly increase and the discount on variable interest rates vanishes
-Declining ratios of mortgage loan approvals to applications in the first two quarters of 2022 show it is increasingly difficult for potential borrowers to get qualified for loans subject to the stress test.
-At the end of the second quarter, the share of Mortgages in arrears (i.e. delinquent for 90 days or more) continued to trend downwards across all types of lenders.

Housing Finance Research at-a-glance

-in the third quarter of 2022, consumers without a mortgage registered notable delinquency rate increases in auto loans and credit cards.
– Mortgage lending growth by alternate lenders outpaced conventional lenders in the second quarter of 2022. Their portfolio metrics indicated a decreasing risk profile.
– Based on data as of Q3 2022, mortgage borrowers in the alternative lending space are more likely to renew their loans as it becomes harder to qualify with traditional lenders.

CMHC’s full Residential Mortgage Industry Report – Fall 2022 edition can be found here:
https://www.cmhc-schl.gc.ca/en/professionals/housing-markets-data-and-research/housing-research/research-reports/housing-finance/residential-mortgage-industry-report

Homeowners with variable mortgages squeezed between rising rates and falling home prices

General Peter Carstensen 1 Dec

The Bank of Canada is widely expected to raise its benchmark rate yet again on Dec. 7

Mortgage brokers say homeowners with variable-rate mortgages will be squeezed even further next week, as the Bank of Canada is widely expected to raise the country’s key lending rate as part of its continued efforts to curb rapidly rising inflation.

The rate adjustment is scheduled for Dec. 7, and if it happens the way most are predicting, it will be the seventh such hike in the prime rate since March.

Variable rate mortgages, where payments are linked to the rise and fall of the country’s key lending rate, account for about a third of all mortgage debt in the country, according to the Bank of Canada.

They grew in popularity during the COVID-19 pandemic, as housing prices soared while interest rates were close to zero — keeping many buyers’ payments significantly lower than if they were to choose a fixed-rate mortgage.

Now that interest rates are rising, and home prices are falling, many homeowners who bought at the market’s peak have found themselves questioning whether they made the right choice and if it’s not too late to make a change.

‘Should I lock in?’ There’s no easy answer

“Should I lock in? That’s the million dollar question right now, and it’s a tough question to answer,” said Dani Hanna, a mortgage broker and owner of the Mortgage Firm in London, Ont.

“The reason the rates have been increasing so quickly is because of inflation. Inflation is through the roof. We could see that start to subside in the next couple of months, and if that starts to subside, could we see interest rates go down? Possibly,” he said.

It’s why some mortgage brokers are reticent to advise their clients to lock in now at a fixed rate.

If inflation starts to slow, the central bank could lower rates again, bringing payments down with them. If a homeowner were to switch to a fixed rate, they could be stuck paying significantly more than they would have if they just kept a variable rate, Hanna said.

“For me, I ask my clients, ‘is this keeping you up at night? Are you stressed out about the fact that your payment can increase again?’ If the answer is ‘yes,’ then I strongly recommend locking into the fixed rate,” he said.

“If you have the ability to maintain these higher payments for now — ride the wave. See what happens. The Bank of Canada has mentioned that it has started to slow down on the increases, which means your payment won’t go up”

Half of all variable rate mortgages hit trigger rate in October

Part of the reason is that many borrowers are reaching the point where the interest portion of their payment has become larger than the principal, called the trigger rate.

A recent analysis by the Bank of Canada estimated half of all variable rate mortgages in Canada hit their trigger rate last month.

The analysis said it is anticipated “variable mortgage rates will increase by another 50 basis points by mid-2023.” At that point, it’s believed the number of variable rate mortgages to hit their trigger point will be 65 per cent, or 17 per cent of all mortgages in Canada.

In London, Ont., the average price of a home has fallen for eight months to roughly $640,000 in October, down from the market’s peak of about $825,000 in February.

“It’s tough,” said Mark Mitchell, a London, Ont., mortgage broker with Real Mortgage Associates. “Rates have gone sky-high.”

Like many financial experts, Mitchell anticipates a hike of at least 50 basis points on Dec. 7, putting the Bank of Canada prime rate at 4.25 per cent. He believes there are more to come, putting homeowners who chose variable rate mortgages in an even more difficult position.

“The prime rate is 3.75 and the inflation rate is seven. Historically, the prime rate is supposed to be higher than inflation. Now I don’t think they’re going to go that far, but they still have a ways to go.

“All signs point to it’s going to get worse before it gets better.”

Mitchell said he’s advising borrowers with a variable rate mortgage to lock in now to avoid even more pain down the road, but if a client can’t afford to lock in because the payments are too high, he said it might be time to consider selling.

“I’m already seeing a lot of anticipatory selling because it’s too high for them to lock in,” he said. “There’s a lot of pain out there. It’s been a lot of tough conversations as of late, that’s for sure.”

Mitchell said many people who are considering selling a home they can’t keep are looking at renting, but they likely won’t see any relief there as rental rates also rose alongside real estate prices during the frenzy of the pandemic.

“The payments are just as high as you were paying, if not more, than when you owned your home, unfortunately.”

Source CBC.ca

Colin Butler

https://www.cbc.ca/news/canada/london/variable-rate-mortgage-interest-1.6667899

Why should Canadians care about inflation?

General Peter Carstensen 12 Oct

Inflation directly impacts your purchasing power.

Now more than ever, Canadians want to be financially empowered. At Dominion Lending Centres, we rely on insights from our Chief Economist, Dr. Sherry Cooper, a 30-year industry veteran, speaker, and author.

In the video link below, Dr. Cooper explains why Canadians should care about inflation.

https://www.youtube.com/watch?v=r5YGf7ccOcY

Canada’s real estate market is cooling. Here’s what to expect this fall

Latest News Peter Carstensen 30 Aug

If you are wondering what maybe coming in the fall, here’s a recent article from economist Sherry Cooper.

After fueling Canada’s economy through the COVID-19 pandemic, the real estate market is showing signs of weakness as home prices fall and bidding wars dissipate.

It’s welcome news for prospective buyers hoping for a better price. But as the busy fall season nears, realtors and economists are at odds over how long the pricing slide will last and how low it will go.

“The fall is going to be interesting because we’re going to see probably more buyers jumping into the market and you don’t need a ton more buyers to provide a little bit more stability to prices,” said John Pasalis, president of Realosophy Realty Inc. in Toronto.

“Just a little bit of a bump in demand could be the difference between homes selling in three, four weeks versus selling in two weeks or selling a lot faster.”

The average home price is still above pre-pandemic levels, but increasing mortgage rates and inflationary pressures are weighing on the market.

When pandemic lock-downs began in March 2020, the Toronto Regional Real Estate Board said the average home price in the area — one of Canada’s hottest — sat at $902,680. Last month, it was $1,074,754, a one per cent hike from July 2021, but a six per cent drop from June 2022.

The latest data from the Canadian Real Estate Association (CREA) showed prices hit $629,971 in July, down five per cent from $662,924 last July. On a seasonally adjusted basis, it amounted to $650,760, a three per cent drop from June. When pandemic lock-downs began in March 2020, the average national price was $543,920.

The association forecast the national average home price will rise by 10.8 per cent on an annual basis to $762,386 by the end of 2022 and hit $786,252 in 2023.

But some economists are anticipating an even greater price reduction.

In June, a trio of Desjardins economists said they expected the average national home price to fall by 15 per cent between its February high — $817,253 — and the end of 2023, but because “we’re almost there,” they adjusted their forecast in August to predict a drop between 20 and 25 per cent.

“Home prices continue to fall and have further to go before they find a bottom,” said Randall Bartlett, Hélène Bégin and Marc Desormeaux, in a report released July 11.

“That said, we still believe home prices will end 2023 above pre-pandemic levels nationally and in all 10 provinces.”

In anticipation of a drop in prices, agents have noticed prospective buyers sitting on the sidelines of the market in recent months, while sellers come to terms with the fact that their homes won’t fetch as much money as they would have at the start of the year.

Lori Fralic calls it a “stalemate.”

“We are seeing low-ball offers,” said the Vancouver agent with Keller Williams Realty VanCentral.

“There’s lots of bargain hunters out there who are throwing out offers but if they don’t have to sell, a lot of sellers are saying, ‘no, sorry, not taking it.”

It’s a change from the torrid pace of sales and frenzied bidding wars seen earlier in the year and late last year.

Much of the shift is attributable to mortgage rates, which mirror fluctuations in interests rates and can eat into buying power.

The Bank of Canada increased its key interest rate by one percentage point to 2.5 per cent in July in the largest hike the country has seen in 24 years.

Economists foresee the increases continuing and Fralic said they’re already encouraging people who don’t need to buy immediately to hold off.

She’s seen a drop in prices in B.C., but said it’s not as much of a decrease as many expected.

“If people are thinking (prices) are going to plummet, I don’t think that’s accurate,” she said.

“If you look at the 10-year average of Metro Vancouver, housing prices are way up and if they do dip, they might dip slightly and come back up. There’s always been sort of a steady incline with dips along the way.”

The Real Estate Board of Greater Vancouver said the composite benchmark price for the region — often Canada’s hottest — sat at more than $1.2 million in July, a roughly 10 per cent increase from July 2021 and a two per cent drop from June 2022.

“It’s anyone’s guess how much prices will fall,” Sherry Cooper, chief economist at Dominion Lending Centres, said.

Markets, she said, tend to be very localized and the surges or drops some see may not be mimicked in others.

For example, she said Alberta has not seen the slowdown many other Canadian markets have because its energy sector is much stronger than it was in the past.

But Cooper noted home sales activity have declined very sharply in the Greater Toronto Area, the Greater Golden Horseshoe Area and in parts of British Columbia around Vancouver.

“It’s the markets that experienced the 50 per cent increase in home prices that have seen the biggest correction, and that’s what you’d expect because those are the most expensive homes in Canada with the largest outstanding mortgages.”

Source: https://sherrycooper.com/category/articles/

Finally Some Good News On The Inflation Front

Interest Rates Peter Carstensen 10 Aug

Finally Some Good News On The Inflation Front

It was widely expected that US consumer price inflation would decelerate in July, reflecting the decline in energy prices that peaked in early June. The US CPI was unchanged last month following its 1.3% spike in June. This reduced the year-over-year inflation rate to 8.5% from a four-decade high of 9.1%. Oil prices have fallen to roughly US$90.00 a barrel, returning it to the level posted before the Russian invasion of Ukraine. This has taken gasoline prices down sharply, a decline that continued thus far in August. Key commodity prices have fallen sharply, shown in the chart below, although the recent decline in the agriculture spot index has not shown up yet on grocery store shelves. US food costs jumped 1.1% in July, taking the yearly rate to 10.9%, its highest level since 1979.

The biggest surprise was the decline in core inflation, which excludes food and energy prices. The shelter index continued to rise but did post a smaller increase than the prior month, increasing 0.5 percent in July compared to 0.6 percent in June. The rent index rose 0.7 percent in July, and the owners’ equivalent rent index rose 0.6 percent.

Travel-related prices declined last month. The index for airline fares fell sharply in July, decreasing 7.8%. Hotel prices continued to drop, falling 2.7% on the heels of a similar decrease in June. Rental car prices fell as well from historical highs earlier this cycle.

Bottom Line

The expectation is that the softening in inflation will give the Fed some breathing room. Fed officials have said they want to see months of evidence that prices are cooling, especially in the core gauge. They’ll have another round of monthly CPI and jobs reports before their next policy meeting on Sept. 20-21.

Treasury yields slid across the curve on the news this morning while the S&P 500 was higher and the US dollar plunged. Traders now see a 50-basis-point increase next month as more likely than 75. Next Tuesday, August 16, the July CPI will be released in Canada. If the data show a dip in Canadian inflation, as I expect, that could open the door for a 50 bps rise (rather than 75 bps) in the Bank of Canada rate when they meet again on September 7. That is particularly important because, with one more policy rate hike, we are on the precipice of hitting trigger points for fixed payment variable rate mortgages booked since March 2020, when the prime rate was only 2.45%. The lower the rate hike, the fewer the number of mortgages falling into that category.

The source of this article is from https://sherrycooper.com/articles/finally-some-good-news-on-the-inflation-front/

A Super-Sized Rate Hike, Signalling More To Come – Economic Insights with Dr. Sherry Cooper

Latest News Peter Carstensen 15 Jul

Bank of Canada Shocks With 100 bps Rate Hike.
A Super-Sized Rate Hike, Signalling More To Come

Published by Sherry Cooper

The Governing Council of the Bank of Canada raised its target for the overnight policy rate by a full percentage point to 2-1/2%. The Bank is also continuing its policy of quantitative tightening (QT), reducing its holdings of Government of Canada bonds, which puts additional upward pressure on longer-term interest rates.

In its press release this morning, the Bank said that “inflation in Canada is higher and more persistent than the Bank expected in its April Monetary Policy Report (MPR), and will likely remain around 8% in the next few months… While global factors such as the war in Ukraine and ongoing supply disruptions have been the biggest drivers, domestic price pressures from excess demand are becoming more prominent. More than half of the components that make up the CPI are now rising by more than 5%.”

The Bank is particularly concerned that inflation pressures will become entrenched. Consumer and business surveys have recently suggested that inflation expectations are rising and are expected to be higher for longer. Wage inflation has accelerated to 5.2% in the June labour Force Survey. The unemployment rate has fallen to a record-low 4.9%, with job vacancy rates hitting a record high in Ontario and Alberta.

Central banks worldwide are aggressively hiking interest rates, and growth is slowing. “In the United States, high inflation and rising interest rates contribute to a slowdown in domestic demand. China’s economy is being held back by waves of restrictive measures to contain COVID-19 outbreaks. Oil prices remain high and volatile. The Bank expects global economic growth to slow to about 3½% this year and 2% in 2023 before strengthening to 3% in 2024.”

Further excess demand is evident in the Canadian economy. “With strong demand, businesses are passing on higher input and labour costs by raising prices. Consumption is robust, led by a rebound in spending on hard-to-distance services. Business investment is solid, and exports are being boosted by elevated commodity prices. The Bank estimates that GDP grew by about 4% in the second quarter. Growth is expected to slow to about 2% in the third quarter as consumption growth moderates and housing market activity pulls back following unsustainable strength during the pandemic.”

In the July Monetary Policy Report, released today, the Bank published its forecasts for Canada’s economy to grow by 3.5% in 2022–in line with consensus expectations–1.75% in 2023 and 2.5% in 2024. Some economists are already forecasting weaker growth next year, in line with a moderate recession. The Bank has not gone that far yet.

According to the Bank of Canada, “economic activity will slow as global growth moderates, and tighter monetary policy works its way through the economy. This, combined with the resolution of supply disruptions, will bring demand and supply back into balance and alleviate inflationary pressures. Global energy prices are also projected to decline. The July outlook has inflation starting to come back down later this year, easing to about 3% by the end of next year and returning to the 2% target by the end of 2024.”

Bank of Canada Overnight Rate
Bottom Line
Today’s Bank of Canada reports confirmed that the Governing Council continues to judge that interest rates will need to rise further, and “the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.” Once again, the Bank asserted it is “resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”

At 2.5%, the policy rate is at the midpoint of its ‘neutral’ range. This is the level at which monetary policy is deemed to be neither expansionary nor restrictive. Governor Macklem said he expects the Bank to hike the target to 3% or slightly higher. Before today’s actions, markets had expected the year-end overnight rate at 3.5%.

https://dominionlending.ca/economic-insights/bank-of-canada-shocks-with-100-bps-rate-hike

Purchase Plus Improvements Mortgage

Mortgage Tips Peter Carstensen 30 Jun

When it comes to shopping for your perfect home, it can be hard to find the exact one ready to go! If you are looking into a home that requires improvements, there is a mortgage product known as Purchase Plus Improvements (PPI). This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

Depending on whether you have a conventional or high-ratio mortgage, if it is insured or uninsurable, and which insurer you use, the Purchase Plus Improvements (PPI) product can allow you to borrow between 10% and 20% of the initial property value for renovations. Additional insight on how the qualifying structure works can be found in the table below:

Type of Purchase Plus Mortgages and Their Requirements

Uninsurable: $40,000 or 10% of the “initial” value of the property, whichever is less
CMHC Insurable: Can exceed $40,000 but not 10% of the “as improved” value of the property
Sagen/Canada Guaranty Insurable: Can be 20% of the “initial” value of the property but the improvement amount cannot exceed $40,000

The main difference between a regular mortgage and a purchase plus home improvements program is the need for quotes. As part of the verification process, your mortgage professional and the lender will need to see a quote for the work that is planned for the improvements. The quotes will provide us with the cost and plan details required to secure the final approval.

Working with your realtor, your mortgage professional will help guide you through the final approval process, which works as follows:

1) Find a home
2) Apply and get approved for a Purchase Plus Improvements mortgage
3) Get firm quotes on the improvements
4) Get an appraisal for the estimated as-is and as-improved value of the property.

This will be ordered by your lender or broker and quotes are typically reviewed by the appraiser.
Note: If you are putting less than 20% down payment on the purchase, often only a final inspection is required to confirm the work on the quotes has, in fact, been done.

5) Close the purchase
6) Depending on your down payment, the lender may provide up to:

80% of the as-improved value, less the cost of improvements (if on an uninsured mortgage)
95% of the as-improved value, less the cost of improvements (if on a default-insured mortgage)

7) Start the improvements

The initial advance of funds will be up to 95% of the approved value of the property minus the improvements. You will usually have to pay a portion of the improvements upfront via savings, credit
card, personal line of credit, parental funds, etc.

8) Notify the lender when the project is complete

At this point, an inspector/appraiser will confirm the work has been completed to the specifications agreed by the lender
Once the lender verifies the inspection report, the balance of funds is advanced.

If you have questions about how a Purchase Plus Improvements Mortgage could work for you or are considering taking this route for your next home, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional for expert advice!

Source:
https://dominionlending.ca/mortgage-tips/purchase-plus-improvements-mortgage

9 Reasons People Break Their Mortgage

Mortgage Tips Peter Carstensen 25 May

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

Sale and Purchase of a New Home
If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

To Utilize Equity
Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

To Pay Off Debt
Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

Cohabitation, Marriage and/or Children
As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

Divorce or Separation
A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

Major Life Events
There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

Removing Someone From Title
Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

To Get a Lower Interest Rate
Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with your DLC mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

Pay Off The Mortgage
Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. Dominion Lending Centres have mortgage professionals across Canada wanting to be part of your journey and help you get the best mortgage for YOU.

https://dominionlending.ca/mortgage-tips/9-reasons-people-break-their-mortgage

Thinking about buying a second property? Here’s Three Ways to Finance It

General Peter Carstensen 3 May


Ways to finance a second property

Often the best option is to refinance your current mortgage.

Mortgage refinancing means getting a reevaluation of your home and then redoing your mortgage based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. When using some of your current equity, keep in mind, that it will increase the principal amount and the interest payments on your mortgage as the mortgage is refinanced at a higher amount.

There is a second option to unlock your home equity, which is through a line of credit or a HELOC, which stands for “Home Equity Line of Credit”. This option allows you to borrow money using the equity in your property, with the property as collateral.

A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. HELOC payments are unique as they are interest only payments versus regular mortgages, which have both Principal Interest and Tax added on. Another benefit to utilizing a HELOC is that you will only pay interest on the amount you actually use! This can provide financial breathing room, especially during tight months. That said, if you do choose to pay the interest as well as a portion towards the principle, it can help you pay off the loan much faster.

You can utilize a HELOC by tying it to your existing mortgage or applying for it separately.

In Canada, you are able to borrow up to 65% of your home’s value using this method. However, keep in mind, your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.

Co-ownership? It’s on the rise

Co-ownership is rising in popularity as budgets are stretched thin across the country. Co-buyers can include siblings, parents with children, unmarried partners, friends, and more.

Given rising home prices, some would-be home buyers have to get creative to make their homeownership dreams a reality. And co-ownership is becoming a viable option for many. However, there are a few things to consider:

1) Understand the process – you’ll want to know all parties involved in the purchasing process (lawyers, realtors, mortgage professionals who specialize in co-ownership scenarios), as well as the costs that will be incurred (such as legal and realtor fees). Know the existing rules and regulations of your province surrounding co-ownership. For example, Ontario and BC offer comprehensive guides on property co-ownership.

2) Establish trust and define the property’s purchase – Will the property be for long-term investment or rental, principal resident or a short-term investment or rental.

3) Iron out the details such as – how will legal, real estate and other costs be divided? What Happens if one party dies or decides to sell early?

Intent to Rent

If you are purchasing a secondary property – whether a vacation home or investment property – there are a few differences if the intention is to rent. Before you look at purchasing a rental property, there are a few things to consider:

1)The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.

2)Only a portion of the rental income can be used to qualify for and to determine how much of a mortgage you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.

3)Interest rates will usually have an added premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property.

Along with the added monthly cash flow, rental properties have the added benefit of being able to write off interest on ANY money used for the rental, even if it is pulled from your primary home’s equity. Also, if you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you determine potential write-offs and required tax payments if you do decide to sell in the future.

Before you jump into the purchase of secondary property, consult with a Dominion Lending Centres mortgage professional. They can help review your financial situation, current mortgage and equity, and help you make a plan. The keys to success are right around the corner with a little bit of expert advice!

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