22 Aug

Stress Test Rate and Recent Decrease

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Posted by: Jordan Thomson

Currently, all borrowers in Canada need to qualify for a new mortgage at the current Bank of Canada Benchmark Qualifying Rate or at their approved mortgage interest rate plus 2.0%, whichever is higher.

For more than a year, this Bank of Canada Benchmark Qualifying Rate has been 5.34%. Now, for the first time in 3-years, the Bank of Canada has decreased that Qualifying Rate to 5.19%, a 0.15% decrease.

What does this mean?

Well, this Bank of Canada Qualifying Rate is essentially a bank’s Stress Test Rate. If a borrower has an annual gross income of $60,000, they can qualify for a $265,000 purchase price with a 10% down payment at a 5.34% qualifying rate.

Change that qualifying rate to 5.19%, that same borrower qualifies for a $269,000 purchase price at 10% down payment. This is a $3,700 increase in borrowing ability.

A borrower with $80,000 of gross annual income and a 20% down payment qualifies for a $455,000 purchase price at a 5.34% Bank of Canada Qualifying Rate. Change it to 5.19%, it increases to $462,000. A $5,600 increase in borrowing ability.

1.5%. That is the increase borrowers now have in their borrowing ability.

Ironic part of all these calculations, the stress test was implemented to protect consumers against rising interest rates. Their concern was that borrowers would not be able to cover their monthly payments when they came up for renewal.

Highest 5-year interest rate since January 2010? 3.79%.

Highest 5-year fixed interest rate in the past 5-years? 3.24%.

Last time someone had to pay an interest rate above 5%? For one month in 2009 and before that, summer of 2008.

Food for thought! If you have any other questions regarding the Bank of Canada and mortgage Stress Test rules, please reach out to me!

26 Jul

“State of the Rate”- Benchmark Rate DROPS

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Posted by: Jordan Thomson

Great News! The recent DROP in the Benchmark Rate, means you may qualify for up to an average of $10,000 more mortgage!
Take a look at how this rate drop impacts you if you are looking to qualify for a new mortgage.

As always, it’s important to speak with me to determine your actual qualification amount which you can do by emailing jordan@ciytwidemortgage.ca or calling 604.725.1607.

20 Jul

Benchmark Rate DROPS for the first time in 3 years!

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Posted by: Jordan Thomson

For the first time in just under 3 years, we see a DROP in the Benchmark rate to 5.19% from 5.34%!
What does this mean for homebuyers? How much extra mortgage could you qualify for?

Check out my #MortgageMinute where I give you all the details!

Click here to Watch my Video!

Feel free to call or email me if you have any questions at 604.725.1607 or jordan@citywidemortgage.ca!

21 Jan

BC’s Speculation Tax: What you need to know.

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Posted by: Jordan Thomson

#MortgageMinute this week. BC’s Speculation Tax: what you need to know!

It will be up to homeowners to apply for exemptions, with a deadline of March 31.

The government announced this past Tuesday that all homeowners in B.C.’s largest urban centres will need to apply for exemptions from the province’s new speculation tax or receive a bill, whether they are speculators or not.
Watch my #MortgageMinuteLIVE video here for all the details you need to know.

22 Nov

Mortgage Interest Rate Tiers

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Posted by: Jordan Thomson

Since we know that lenders can back-end insure our mortgages and that this specifically makes these mortgage investments more attractive to investors, what does this mean for borrowers like you and me?

To summarize, any mortgage that is inexpensive for a wholesale lender to get financing for, allows the lender to pass on savings to their clients, meaning mortgages that are insured get the best rates! An insured mortgage is where a borrower pays the mortgage default insurance because they have less than 20% down payment and is required on all mortgages where the down payment is less than 20%.

But, lenders can also pay for insurance for their client! An “insurable” mortgage is one where the clients puts 20% down (or more), and their mortgage is approved as though a client is paying for insurance, but the actual insurance is paid for by the lender.

Rates for insurable mortgages are generally very similar to insured mortgages.

An “uninsurable” mortgage on the other hand is one where mortgage insurance is not available.

The graph below outlines what type of mortgages are insured, insurable or uninsurable.

So what does this all mean for you, the borrower?

If your mortgage is insurable, you may be able to get the best rates. What is interesting to note is that if you have a mortgage that was previously uninsured, your current lender cannot insure your mortgage but your mortgage may be insurable if you transfer to a new lender – this is where your opportunity lies!

Also, if your mortgage was previously “insured,” and you paid for mortgage insurance, you will also be offered the best rates upon transfer or renewal.

So whatever your mortgage or financing needs, give me a call at 604.725.1607. I’m always here to help!

22 Nov

Waiting for a Rate Drop?

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Posted by: Jordan Thomson

So are a lot of other people.

So far, all we’ve gotten is a dozen large or mid-sized lenders hiking 5-year fixed rates over the past week or so.

Meanwhile, the 5-year swap yield (one of the best leading indicators for fixed mortgage rates) is back down to levels it saw six months ago.

5-year-Swap

Back then (in May), the best 5-year fixed rates at big banks were roughly 3.44%-3.49%.

Today we’re at 3.69%, give or take, despite yields having dropped almost 20 basis points in the last 10 days.

No Rush to Discount

Big banks, which directly or indirectly control over $4 out of $5 mortgage dollars in this country, are in no hurry to chop rates and match falling yields. (Falling yields generally lower their funding costs.)

They’ve watched their mortgage growth get pummelled to levels we haven’t seen since last century. They’ve also witnessed a whole new level of competition this year for deposits and mortgages. That’s pressured net interest margins in the worst way.

The biggest problem is that the pool of prime borrowers has shrunk like wool socks in a clothes dryer. That’s mainly courtesy of stricter mortgage rules and higher rates.

These changes have driven competitors to cut insured/insurable mortgage margins to the bone to keep their pipelines full. Banks, which fund many of these competitors, seem to be onto them. What we’re hearing is that banks are being somewhat less generous on fixed rate pricing for the non-bank companies they buy mortgages from.

On top of this, banks are also keeping their own discretionary bank rates elevated. Aren’t oligopolies grand?

None of this is astonishing. After all, we are in the first quarter. Q1 is a notoriously weak time for mortgage discounts as the banks keep their powder dry for the active spring mortgage market.

There’s also the never-ending headline-driven worry about the credit cycle deteriorating. If/when that happens, bank losses will tick higher. And banks being the shrewd operators they are often price for such possibilities ahead of time.

Summing it all up, mortgage rates will follow if yields drop further. But don’t expect the juicy fixed-rate discounts we saw earlier in the year—not until the banks recoup some of their spread.

via Rate Spy

6 Nov

Bank of Canada Raises Rates to 10 year high

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Posted by: Jordan Thomson

The Bank of Canada today delivered a widely expected quarter-point increase to the overnight target rate, raising borrowing costs for millions of Canadians.

Citing an economy that is operating “at capacity” and modest wage growth, the BoC noted in its statement that the “policy interest rate will need to rise to a neutral stance to achieve the inflation target.” That neutral range, it says, is between 2.50% and 3.50%, suggesting additional rate increases of 75-100 bps.

Removed from previous statements was the word “gradual” concerning future rate increases. The BoC said the pace of those hikes will depend on “how the economy is adjusting to higher interest rates, given the elevated level of household debt,” as well as global trade policy developments.

James Laird, co-founder of RateHub and President of CanWise Financial, said the BoC’s statement is a clear signal that additional rate hikes may come faster than expected.

“They haven’t been this explicit in the past one-and-a-half years, even though they moved the rate up five times,” he told CMT. “They are sending a strong signal that rates will continue to move up at a quick pace.”

Benjamin Reitzes of BMO Capital Markets wrote in a research note that “there’s clearly an appetite for a few more hikes from the Bank. BMO’s forecast for hikes in January, April and July is looking pretty good right now.”

What it means for mortgage holders

Hours after the BoC’s announcement, most of the country’s big banks raised their respective prime rates, which brings the country’s prime rate to 3.95%—a 125-bps increase since last summer.

Most adjustable-rate mortgage (ARM) holders and those with lines of credit will see their payments increase as of their next payment date. ARM mortgage holders can expect monthly payments to rise about $12 per $100,000 worth of mortgage.

Variable-rate holders won’t see their payments increase, but they will see the interest portion of their payments jump while their principal portion declines.

The average 5-year variable insured rate available from brokers, as tracked by Mortgage Dashboard, is now 2.88%, up from 2.31% a year ago.

That’s still a sizable discount off 5-year fixed rates, which have risen to an average of 3.43%, up from 2.95% a year ago thanks to the 5-year bond yield (which leads fixed mortgage rates) reaching a seven-year high.

With the current spread between fixed and variable rates, many mortgage shoppers are likely to find themselves asking the perennial question: do I go fixed or variable?

Laird says that in a rising rate environment consumers tend to gravitate towards the security of fixed rates.

“But anyone who plans to pay down their mortgage rapidly can still consider a variable rate mortgage,” he notes. “Even in a rising rate environment the variable is the better choice for those who will aggressively pay down their mortgage. For those who want certainty in their mortgage rate, a longer-term fixed (7- or 10-year) should be considered.”

Rob McLister, founder of RateSpy.com, says historical data doesn’t support ultra-long terms, like 10-year mortgages. But he agrees that variable rates can still be a good bet for new mortgages, if the borrower is financially stable and the rate discount is big enough. “A rate of prime – 1.00%, for example, changes your probability of success dramatically versus prime – 0.60%,” he said.

Over the long term, research shows “variable-rate mortgages win, and the higher rates go, the more they win,” he told BNN today. Still, he cautioned this isn’t always the case.

“Interestingly, in summer 2017 if you would have gotten a bargain 5-year fixed rate mortgage, you’d be way ahead of the game compared to a typical variable-rate mortgage holder today,” based on interest cost alone and assuming no changes to the mortgage since origination.

As for fixed rates, McLister says the hottest deals are in the insured market. That’s a boon for clients with less than a 20 percent down payment, or an already-insured switch. Insured rates remain as much as 35 basis points below the best uninsured rates, depending on the term.

Canadians Becoming Anxious

The five rate increases over the last 15 months, and the prospect of more to come, have more than half of Canadians concerned about managing their debt costs, according to a recent poll from debt consultancy firm MNP. More troubling was a 6% increase since June in the number of Canadians worried that higher interest rates may push them towards bankruptcy (33%).

This coincides with a CBC poll of 1,000 Canadian homeowners this month that found almost three quarters of those with debt on their home—primarily mortgages—say they’re worried about rate hikes.

“It’s now been a year since the first interest rate increase in nearly a decade,” said Grant Bazian, president of MNP’s personal insolvency practice. “As the effects have had time to soak in, more people are feeling the pinch. Of particular concern is there’s an entire generation of Canadians who never experienced a higher rate environment.”

17 Oct

Legalized Marijuana and the Canadian Housing Market

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Posted by: Jordan Thomson

October 17th will be an important day in Canada’s social history. It’s the day when we are going to have legalized marijuana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself? When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants, how will this affect their home purchase?

A few years ago, someone disclosed that their home had been a grow-op six years previously and their home insurance company cancelled their policy citing safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get in front of this potential problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet. Any changes will result in an official announcement to all mortgage brokers.

If you are thinking about smoking pot in your home or want to grow a few plants, contact me as your Dominion Lending Centres mortgage professional first to find out if this could affect your house value or sale in the future.

Thank you to DLC’s David Cooke for the info.

12 Oct

Cash Back and Decorating Allowances on New Build or Pre-Sale Purchases

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Posted by: Jordan Thomson

As the market shifts, developers will increase their incentives to buyers with cash back and decorating allowances on new build or pre-sale purchases. It is very important to review those options with your real estate agent representative and vital to consult with your Dominion Lending Centres mortgage broker. Although these offers may seem attractive, they can impact your financing and could cost you thousands of dollars.

Before you write a contract on a new build or pre-sale, ensure you have set up your team including a real estate agent and mortgage broker. Always consult with them to ensure you have sound advice. Do not rely solely on the developer’s sales representative.

What happens when you sign a contract on a pre-sale?

When you visit the sales centre for the pre-sale and decide to write a contract you have a rescission period where you can back out of the purchase. The contract you sign is drafted by the sales centre and once you remove any conditions, you are locked into the purchase. Therefore it is essential you have your real estate agent with you at the time of signing or at a minimum, they review the contract. It is in your best interest you fully understand the terms, the disclosure statement, what you are buying, schedule to build, GST, deposit schedule and any incentives.

Once you remove any conditions, the deposit is paid to the developer and a schedule set for all other deposits till the building is complete. Those total deposits are typically 20% of the purchase price. That is money you will not receive back if for any reason you are unable to proceed with the purchase. Some contracts allow assignment to another buyer, but those must be approved by the developer and may come with restrictions. Your realtor can guide you on these matters.

How Will Cash Back or Decorating Allowances Impact Your Purchase?

When the market slows, developers will use incentives such as cash back and decorating allowances on new build or pre-sale purchases as a strategy to increase sales. Regardless if this is a cash back or a rebate for decorating, it will have an impact on the purchase price for the lender on the financing. This is a common misconception among buyers and even realtors who do not understand the process from a financing perspective.

For example: A purchase price plus GST is $800,000. The developer is offering a $20,000 decorating allowance. The lender will automatically deduct the $20,000 from the purchase price. Your new purchase price will be $780,000 for financing purposes. This does not change the actual purchase price. You still have to pay the developer $800,000 for the home. The lender will lend on the $780,000 only. Therefore you must pay in cash at the time of funding the $20,000 difference.

The developer has sold you the idea you are receiving decorating upgrades of $20,000. You are receiving the value of that allowance BUT make no mistake you are paying for it.

If the incentive is a cash back amount in the above example, you will receive the cash back from the developer at the time of completion. However, the lender will still only offer financing on the lower value minus the cash back amount.

Thanks to DLC’s Pauline Tonkin for this info.