When it comes to customizing your mortgage to fit your needs and goals, several aspects can be adjusted.

Interest Rate Type

The interest rate is a major component of your mortgage and can be fixed or variable.

A fixed-rate mortgage is ideal for those who are more comfortable with a stable monthly payment.

A variable-rate mortgage is ideal for individuals who have room in their budget for payment increases and who want to take advantage of potential interest rate drops should they occur.  Fixed-payment variable rate mortgages are also available but if rates rise considerably, the payment may increase with this type of variable rate mortgage as well.

Penalties to break fixed rate mortgages can at times be much higher than those of variable rate mortgages.

Amortization

Amortization refers to the number of years over which your mortgage payment is calculated to be repaid and is often set to 25 years.  Shorter amortization terms result in higher payments, but they allow you to pay less interest over the lifetime of your mortgage.  Longer amortization periods come with smaller monthly payments but higher interest costs.

Payment Schedule

Mortgage payments can be made monthly, bi-monthly, bi-weekly, or even weekly payments.  Paying every two to four weeks on a specific day of the week accelerates repayment by years in some cases and can save you considerably in interest.

Mortgage Term

A mortgage term refers to the length of time your rate and current mortgage terms are set.  When the term is up, you can renegotiate your mortgage and reset your rate type and term options without paying a penalty.  You can switch lenders at this time as well if you wish to secure a better rate and terms at that time.

Open vs. Closed

Open mortgages have a higher rate of interest but give you the option to repay the entire loan without a penalty. Closed mortgages come with lower rates and often allow for lump sum payments to reduce the loan amount without penalties.  However, repaying the entire loan before the term is up is not an option.

High Ratio vs. Conventional

High-ratio mortgages are insured in favour of the lender for borrowers with less than 20% down.  The borrower pays the mortgage insurance premium as part of the mortgage amount rather than paying for it up front.  Rates are lower on these loans, but the premium increases the overall cost.

Conventional mortgages are uninsured, saving the borrower the premium, but a 20% down payment is required.

For a closer comparison of options please don’t hesitate to reach out with your questions, I’m always happy to help.

Adapted from DLC Marketing

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Mortgage insurance protects a lender’s investment in certain types of loans, which typically come with lower rates but an insurance premium is charged.   Without mortgage insurance, borrowers can sometimes qualify for a larger loan, they can lower their monthly payments relative to the borrowed amount, and they can save on the cost of the insurance premium.

Mortgages are separated into three tiers, each of which have varying insurability:

1) Fully insured mortgages relate to purchases in which borrowers put less than 20% down, the purchase price is less than $1,000,000, and the amortization is set to 25 years or less.  These loans are insured through mortgage default insurance.

Canada has 3 mortgage insurers: CMHC, Sagen and Canada Guaranty.  Insured mortgage premiums are based on a percentage of the loan amount.  The borrower does not pay the premium in advance.  The insurance cost is added to the mortgage balance itself.  And because the loan is insured, and is therefore lower risk to the lender, the rate is typically lower.  Taking an insured mortgage lets you buy with less down and may allow you to purchase sooner than you might saving for a higher down payment.

2) Insurable mortgages relate to purchases where the down payment is over 20%, the purchase price is less than $1,000,000, and the amortization is set to 25 years or less.  Lenders who pay the mortgage premium on these loans still generally offer a lower rate of interest because insured mortgages are lower risk.  Insurable mortgages let you save on interest but the maximum amortization being set to 25 years may mean you will have a higher mortgage payment than you might have with an uninsured mortgage.

3) Lenders generally offer more flexibility on uninsurable mortgages. The amortization on uninsurable mortgages can be greater than 25 years, and the down payment must be more than 20%.  These mortgages can include refinances, longer amortizations, and property values greater than $1,000,000.

Without insurance coverage, lenders charge higher interest rates, though the borrower saves on paying mortgage insurance.  Lenders view these loans as higher risk as they are uninsured, though the borrower will have put more down than they would have on a purchase financed with an insured mortgage.  Taking an uninsured mortgage is sometimes the only option depending on the purchase price or amortization needed, but can often be beneficial in securing a lower payment or more leeway in qualifying.

Weighing the pros and cons across each of these loan types can be circuitous.  Please let me know if you have any questions about your mortgage or on an upcoming purchase, I’m always happy to help.

Adapted from DLC Marketing

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Porting your mortgage enables you to move your existing mortgage to another property without having to lose your existing interest rate for the remainder of the existing term. Porting may also save you money on the break fee for not seeing the current mortgage through to the end of the term.  If you can’t port the mortgage but secure a new one through the same lender within in a certain timeframe, some lenders will reimburse the fee.

Keep in mind though, breaking the mortgage, paying the break fee and moving to a new lender with a lower rate of interest can sometimes save you more and should be reviewed before deciding on your next steps.

When porting does make sense, did you know you actually have to re-qualify for that mortgage before it can be transferred?

Porting may allow you to transfer your rate for the remaining term without penalty, but it is not a right to transfer your original mortgage approval.

Your lender will have to approve of your current financial situation in addition to approving of the new property you’re purchasing as well.  Location and property type can factor into the approval and portability, so it’s best to plan in advance before selling.

Portability is typically offered on fixed rate mortgages. To arrive at a new rate when you need more funds to complete the purchase, lenders often use a “blended” system. A new rate is calculated using the existing interest rate on the current balance, and using current market rates on the new funds.  The two prorated rates are blended together to arrive at the new rate in that case.

A variable rate mortgage may be converted to a fixed rate before porting. Variable rate mortgage penalties are lower however, and are calculated based on three months’ of interest.  This is often a far lower penalty than on a fixed rate mortgage.

If your mortgage is portable, there are a few considerations to keep in mind:

1) Timeframe: Portability timeframes can range from the same day as the sale of the property, to up to three months after the sale.

2) Terms: Some lenders don’t allow a change in the term or may require you to take a longer term than the time remaining on your original term.

3) Penalty Reimbursements: Some lenders may reimburse your entire penalty, whether you are a fixed or variable borrower, if you simply secure a new mortgage with them. Additionally, some lenders will even allow you to move into a brand-new term of your choice and start fresh.

Regardless of whether your financial picture has changed or not, making sure you qualify before you agree to sell your current property or committing to a new purchase is key.

Before you take the steps to sell, make sure you know the ins and outs of porting your particular mortgage, or leaving your lender prior to the end of your mortgage term, as porting terms can vary.

For more information, don’t hesitate to reach out, I’m happy to assist.

Adapted from DLC Marketing

The British Columbia Financial Services Authority’s (BCFSA) report on improving consumer protection in the real estate market has brought about a new mandatory three-business-day Homebuyer Rescission Period.  It took effect on Tuesday, Jan. 3, 2023.  It’s aim is to provide buyers with time to consider their purchase and alleviate pressure to make quick decisions around purchasing certain types of residential real estate.  The rescission period begins the day after the offer is accepted and includes a cancellation fee.  The fee was included to prevent buyers from making offers frivolously.

The 0.25% fee is calculated on the property value.  This means $250 will be charged for every $100,000 of the purchase amount to cancel an agreement. For example, if someone cancels their offer to purchase a $1,000,000 property, $2,500 would be due if the they end the contract during the rescission period.

Properties subject to this rule include:

• Detached houses
• Semi-detached houses
• Townhouses Apartments in duplexes or other multi-unit dwellings
• Residential strata lots, as defined in Section 1(1) of the Strata Property Act
• Manufactured homes affixed to land Cooperative interests, as defined in Section 1 of the Real Estate Development Marketing Act, that include a right of use or occupation of a dwelling.

Exemptions include:

• Residential real property that is located on leased land
• A leasehold interest in residential real property;
• Residential real property that is sold at auction; and
• Residential real property that is sold under a court order or the supervision of a court.

B.C. is the first province to introduce this type of legislation.  Australia and France have similar rules around purchasing property.

For more information about the HBRP visit:

https://www.bcfsa.ca/public-resources/real-estate/consumer-resources/home-buyer-rescission-period-consumer-guide

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The Bank of Canada left the overnight policy rate at 4.5%, as expected, stating their view that inflation will hit 3% by mid-year and reach the 2% target by next year. They admit, however, that demand continues to exceed supply, wage gains are too high, and labour markets are still very tight. The Bank is also continuing its policy of quantitative tightening.

“Economic growth in the first quarter looks to be stronger than was projected in January, with a bounce in exports and solid consumption growth. While the Bank’s Business Outlook Survey suggests acute labour shortages are starting to ease, wage growth is still elevated relative to productivity growth. Strong population gains are adding to labour supply and supporting employment growth while also boosting aggregate consumption. Housing market activity remains subdued.”

The Bank expects consumption spending to moderate this year “as more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly.”

“Overall, GDP growth is projected to be weak through the remainder of this year before strengthening gradually next year. This implies the economy will move into excess supply in the second half of this year. The Bank now projects Canada’s economy to grow by 1.4% this year and 1.3% in 2024 before picking up to 2.5% in 2025”.

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In contrast, the Fed hiked the overnight fed funds rate by 25 bps on March 22 despite the banking crisis and the expectation that credit conditions would tighten. This morning, the US released its March CPI report showing inflation has fallen to 5% year-over-year. Next Tuesday, April 18, Canada will do the same. The base year effect has depressed y/y inflation. Canada’s CPI will likely have a four-handle.

Fed officials next meet in early May, and it is widely expected that the Fed will continue to raise the policy rate while the Bank will continue the pause.

Due to the differences in our mortgage markets and the higher debt-to-income level in Canada, our economy is much more interest-sensitive. Despite these disparate expectations, the Canadian dollar has held up relatively well.

Bottom Line

The Bank of Canada upgraded its growth projections for this year in a new forecast, suggesting the odds of a soft landing have increased. This may preclude interest rate cuts this year.

“Governing Council continues to assess whether monetary policy is sufficiently restrictive to relieve price pressures and remains prepared to raise the policy rate further if needed to return inflation to the 2% target,” the bank said.

The April Monetary Policy Report suggests strong Q1 growth resulted from substantial immigration. With the population proliferating, labour shortages should continue to decline, and inflation will fall to 3% later this year. The global growth backdrop is better than expected, though the Bank continues to look for a slowdown in the coming months, citing the lagged effects of rate hikes and the recent banking sector strains.

Governor Macklem said in the press conference that the economy needs cooler growth to corral inflation, although the Bank’s forecast does not include an outright recession.

The Bank will refrain from cutting rates this year. The Governor explicitly said at the press conference that market pricing of rate cuts later this year is not the most likely scenario.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Need an Appraisal? Tips for Success.

If you’re planning on selling property this spring, the following tips should help improve your outcome.

1) Hire an Experienced Realtor: Before preparing to sell during the spring market, be sure to hire an experienced realtor to guide you through getting your property ready to sell, then property showings, negotiations, and finalizing the eventual sale. Realtors assist with a host of items given the changing landscape of real estate regulations, ever-evolving safety protocols, virtual viewings, changes in technology, and so on.  A realtor’s expertise is invaluable in helping you navigate the sales process from end-to-end.

2) Prioritize Repairs and Improvements: Before listing, it is important to address any issues room by room.  Do take note of required paint touchups, nail holes in walls, broken fixtures, old appliances, and so on. Taking care of these minor issues will help your property look its best when buyers walk through.

3) Clean and Stage: After you have made the necessary minor repairs, you can start staging your property. Tidy up the yard and wash your windows.  Declutter and deep clean inside.  A professional cleaning service can come in handy for this. Your real estate agent can help stage your property to appear spacious and inviting as well.

4) Consider a Pre-Listing Inspection: Once you are ready to list for sale, consider a pre-listing inspection. An inspector can conduct a complete visual inspection of all interior and exterior elements of your property (including HVAC systems, wiring, ceiling, chimneys, gutters, etc.), which can help put prospective buyers at ease.

5) Organize The Paperwork: Having your documents organized for potential buyers will help speed up the process and allow you to address any questions before the sale is finalized. Permits, renovation or repair receipts, warranties, rental agreements, and copies of your utility bills are all good records to have on hand for potential buyers.

And please contact me if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future.  I’m always happy to help.

Adapted from DLC Marketing

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Appraisal services help to pinpoint the market value of real estate.  The appraiser checks the general condition of your home and determines a comparable market value based on the sale information of other homes in your area.

Planning in advance of an appraiser’s visit can help you secure the best possible valuation of your property by keeping a few things in mind:

1) Clean Up:  A good rule of thumb is to treat the appraisal like an open house. Clean and declutter every room, vacuum, and scrub to ensure your home is as presentable and appealing as possible.

2) Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a great difference.

3) Visibility: The appraiser must be able to see every room of the home. Take care of any issues with respect to accessing and being able to see everything in each area of your property to allow the appraiser full access.

4) Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical updates to new flooring and appliances etc.

5) Know Your Neighbourhood: Noting what similar homes in your neighbourhood have sold for will allow you to discuss examples from your area if you believe your property is worth more than the appraisal suggests.

Don’t hesitate to contact me if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future.  I’m always happy to help.

Adapted from DLC Marketing

Photo Credit: Andrea Davis on Unsplash

Buying a home is one of the largest investments you may ever make. In order to make your home hunting experience the best it can be, here are a few key items to keep in mind before you start your journey:

Get Pre-Qualified: One of the most important aspects of buying a home is the mortgage application and approval process. If you need a mortgage to complete the purchase, getting pre-qualified via a detailed review of your financial picture will determine the actual home price you can afford.

Set a Pre-Determined Budget and Planning: Setting, then following your pre-determined budget and staying within your means will set you up for success. Getting pre-qualified will help determine what you can afford, and will help you select the best mortgage options with your future goals in mind.

Hiring a Real Estate Agent: Realtors help negotiate the purchase price and other purchase terms such as timing and specific items included with your new home.  They can also occasionally provide access to properties that may not be listed publicly.  They understand the home buying process and guide you through from the first viewing to getting the keys to your new home in hand.

Property Features: Price and location should be higher priorities than aesthetic details such as paint color, flooring, or even outdated appliances or light fixtures, which can all be updated.  Sometimes homes may only need a bit of imagination and a few minor updates to become your perfect space.

Think Ahead: What you look for in a house today could be very different from what will suit you in the future. Planning for a growing family or helping aging parents may factor.  You can always sell your home later on if needed, but how that home may accommodate you later could increase a particular property’s appeal to you now.

If you are looking to purchase a new home, whether it be your first space, a step up, or you’re downsizing, I would be happy to help! Even if you’re in or nearing retirement, you may have an opportunity to leverage your home’s equity in the future tax free, which can preserve your investments and provide you savings on capital gains taxes.  Please don’t hesitate to reach out to set up a virtual appointment to find out more.  I am here to discuss your mortgage options, pre-qualifications and to help uncover what you need to know now before you make a move.

Adapted from DLC Marketing

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