This is great news and sounds exactly like what I have been hearing from other sources. It is also consistent with Evan Siddall leaving CMHC and it reduces the power of the banks that set the posted rate and keep it excessively above contract rates.
MPC Pres & CEO Paul Taylor was at C.D. Howe today, listening to a speech by OSFI’s Ben Gully. It became more of a big deal for our mortgage brokering community than would have been expected. The Globe and Mail just reported on it this hours. Not sure if the story is paywalled, so here it is for BTBB:
Banking regulator reviewing key component of mortgage stress test
JAMES BRADSHAW – Globe and Mail
Canada’s banking regulator says it is reviewing a key component of its stress test for mortgages for the first time, but continues to defend its core tenets as good policy for the housing market.
The hotly debated stress test, introduced in 2018 by the Office of the Superintendent of Financial Institutions (OSFI), has been applied to uninsured mortgages – those with a down payment of at least 20 per cent of the purchase price – since 2018. It forces lenders to make sure borrowers could handle an increase of at least two percentage points in their mortgage interest rate.
To set the test’s threshold for each borrower, mortgage providers must either add two percentage points to the loan’s actual rate, or use the Bank of Canada’s five-year benchmark mortgage rate – whichever is higher. But OSFI is now considering whether the central bank’s benchmark should still be part of the calculation.
OSFI has staunchly defended the stress test, insisting it was necessary to clamp down on loose mortgage underwriting standards that posed a risk to lenders, and to the broader financial system. But the rule change has drawn criticism from mortgage professionals and would-be homeowners, who see the stress test as too onerous and inflexible. Some have suggested it was primarily a response to hot housing markets in Toronto and Vancouver, applied bluntly to all Canadian mortgages, though OSFI says it wants consistent underwriting across the country.
Federal Finance Minister Bill Morneau was tasked with considering ways to make the mortgage stress test “more dynamic” in his mandate letter from Prime Minister Justin Trudeau, and will review recommendations from financial agencies.
Introducing the stress test “was not a popular decision,” said Ben Gully, assistant superintendent for OSFI’s regulation division, in a speech to the C.D. Howe Institute in Toronto. “This certainly tested our mettle.”
He defended the stress test again, saying “the qualifying rate is working.” But he also said that the Bank of Canada rate used to set it may need to be changed. At current levels, that benchmark rate is making it even tougher to qualify for an uninsured mortgage.
When the regulator chose to use the Bank of Canada’s benchmark, it was “the best available rate at the time,” Mr. Gully said, but it “is not playing the role that we intended.” That’s because the gap between that rate, now at 5.19 per cent, and the average mortgage rate has widened to roughly 2.3 percentage points, making it “less responsive to market changes than when it was first proposed,” Mr. Gully said.
OSFI is now reviewing whether it should still use the benchmark as part of the stress test, and the findings “will help to inform the advice OSFI might provide to the Minister, as requested in the mandate letter to him,” Mr. Gully said.
But OSFI maintains that a threshold of two percentage points – or 200 basis points – is a reasonable buffer to ensure borrowers can manage unforeseen shocks such as a job loss or a rise in interest rates. “This will therefore remain a key part of OSFI’s guideline B-20,” the regulation that outlines the stress test, he said.
Mr. Gully took over OSFI’s regulation division last April after his predecessor Carolyn Rogers, a key architect of the stress test, was appointed as the first Canadian secretary- general of the Basel Committee on Banking Supervision, a standard-setter for global banking regulation.
Spring has arrived and we’re starting to get a better sense of the real estate market in Canada this year. Sales and listings have been on the decline, but we’re still seeing small price increases in parts of the country. This isn’t a huge surprise since sales are typically slow during the winter so we may see some movement in the near future.
Recognizing that affordability is still an issue for many first-time home buyers, the federal government proposed a $1.25-billion incentive program that would help finance five to ten per cent of a prospective buyer’s mortgage as part of a shared equity program as long as they have a minimum down payment for the home purchase. They also plan to increase the amount that first-time buyers can withdraw from their RRSPs, from $25,000 to $35,000, per individual.
This news may help new buyers, but there are many other factors that all potential buyers need to consider when they start looking for a home.
Fixed vs Variable rate mortgages
Studies going back to 1950 show that, in general, borrowers tend to save money when they choose a variable rate mortgage instead of a fixed rate mortgage. A five-year fixed rate mortgage – by far the most common mortgage term in Canada – typically comes with a higher interest rate than variable rate mortgages or shorter term fixed rate mortgages.
Fixed rate borrowers pay a premium for predictability, knowing their mortgage payments won’t be upset when the Bank of Canada hikes interest rates.
Variable or floating rate borrowers, on the other hand, will see their rates rise and fall whenever the prime rate moves. These borrowers are betting that interest rates won’t rise above the current fixed rate, or that rates rise much later in the mortgage term when they’ve already made significant savings on the spread.
The variable mortgage argument has been less compelling lately as the spread between fixed and variable rates narrows.
Take current 5-year adjustable rate mortgage of 2.95% versus its 5-year fixed mortgage rate of 3.14%. The spread is just 19 basis points and so all it takes is the Bank of Canada to increase rates by 1/4 of a percent for variable rate borrowers to see their rate surpass the fixed rate.
A good rule of thumb to follow is when the spread between fixed and variable rates is less than 50 basis points, go ahead and lock-in the fixed rate. When the spread is closer to 75 or 100 basis points, the variable rate is more attractive.
Despite the historical data which many of your clients may be aware of, now is a good time to educate them about the current interest rate environment and how it affects them so they can pick a mortgage that fits their lifestyle.
Why a Credit Score is important for home ownership
Home buyers need a strong credit profile to access the best mortgage rates and terms. That starts with a solid credit score. Typically, a borrower with a credit score above 700 will qualify for the best mortgage options. It starts to get more difficult to qualify for the best rates and terms once your score dips below 680.
Lenders don’t focus solely on the credit score, however, as they’ll also examine payment history, outstanding debts, total debt load, number of open accounts, and the age of accounts.
Some of your clients might consider cancelling open credit cards or reducing credit limits, but that could be a mistake and can actually lower their credit score. Reducing the amount of credit you have access to lowers your credit utilization – a key component that makes up 30% of your credit score. Cancelling a credit card – especially an older card – reduces the average age of your accounts, and the credit bureaus prefer to see accounts with a long established history of credit use.
If your clients want to increase their credit score before buying a home, they could check their credit report for any errors, keep all credit accounts open, increase the credit limit on any existing accounts (to lower their overall utilization), pay off bills on time, and keep their credit balances at no more than 30% of available credit. They’ll also want to avoid applying for new credit, as an inquiry can lower their score temporarily by 10 points or so.
Picking a mortgage that works for your client in decreasing rate environment
Interest rates have been on the rise with five rate hikes between mid-2017 and last fall. But now, Bank of Canada Governor Stephen Poloz is signalling a slow downand has even left the door open for stimulative rate cuts.
Picking a mortgage in a decreasing rate environment can be equally as tricky as selecting one while rates are rising. Borrowers don’t want to leave money on the table by locking in to a higher rate, only to watch rates fall in the near term.
That’s where a shorter term mortgage can come in handy. While as many as two-thirds of borrowers choose a five-year fixed rate mortgage term, Canadians do have the option to select a one or two year mortgage term.
Possible advantages to selecting a short term fixed rate mortgage include that short term mortgage rates are typically lower than longer term rates. A short term also preserves the borrowers negotiating power rather than locking it in for five years. In a decreasing rate environment, the more opportunities one has to negotiate their rate, the more money they’ll typically save over the long term.
Imagine locking into a 1-year fixed rate mortgage at 2.99% when the 5-year rate is at 3.14%. If rates have fallen when it’s time to renew the following year, you may have the option to lock-in for five years at a lower rate, or continue to go with a shorter term as they ride the rate curve down even further.
Your Interest is My Only Interest
Author : Joe Flor
Under the home buyers’ plan, a participant and his or her spouse or common- law partner is allowed to withdraw up to $35,000 from his or her RRSP to buy a home. Before 1999, only the first- time home buyers are permitted to buy a home under this plan. Now a person can take an advantage of HBP plan more than once, two, three, four or more times as long as the participant in this plan fulfills all other conditions. The house can be existing or can be built.
Are you a first – time home buyer?
You are considered a first-time home buyer if, in the four year period, you did not occupy a home that you or your current spouse or common-law partner owned. The four-year period begins on January 1st of the fourth year before the year you withdraw funds and ends 31 days before the date you withdraw the funds.
For example, if you withdraw funds on March 31, 2013, the four-year period begins on January 1, 2014 and ends on February 28, 2018.
If you have previously participated in the HBP, you may be able to do so again if your repayable HBP balance on January 1st of the year of the withdrawal is zero and you meet all the other HBP eligibility conditions.
Qualifying home – a qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possess, and gives you an equity interest in a housing unit located in Canada, also qualifies under strict conditions.
Repayment of withdrawal amount into RRSP
Generally, you have up to 15 years to repay to your RRSP, the amounts you withdrew from your RRSP(s) under the HBP. However, you can repay the full amount into your RRSP(s)
Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers’ Plan (HBP) statement of account, with your notice of assessment or notice of reassessment.
The statement will include:
• the amount you have repaid so far (including any additional payments and amounts you included on your income tax and benefit return because they were not repaid);
• your remaining HBP balance; and
• the amount you have to contribute to your RRSP and designate as a repayment for the following year.
If you have any questions contact
Your Interest is my Only Interest
Transfer/Switches are when you opt to transfer your mortgage to a new lender in order to take advantage of a lower rate. A transfer/switch does not include additional money to the existing mortgage balance owing, your mortgage amount will remain the same, however lenders will allow you to increase the mortgage up to $3,000 to cover legal costs, possible appraisal fees and if applicable, penalty fees – more on that below.
*Note: If you do require new money or funds (more than $3,000.00) this would then be considered a refinance.
There are two scenarios where you would utilize a Transfer Switch:
1. When your mortgage term is up, and the mortgage is renewing with your existing lender. If you choose to transfer/switch your mortgage at renewal you will not have to pay a penalty. You will still need to qualify and there may be legal and appraisal costs associated with the transfer/switch, just as you would with a new mortgage. However, many lenders offer you the option to include the legal and appraisal fees into you new mortgage and some lenders may cover these costs for you.
2. The second scenario you may choose to do a transfer/switch is when you are in the middle of the term of your mortgage. The only reason you would do this is to take advantage of a lower rate which means a lower monthly payment. This would have to make sense financially for you to do as you will have a penalty associated with breaking the current mortgage.
If your mortgage is up for renewal, or if you are considering a transfer/switch in light of recent rate changes, a mortgage broker can assist you in making the right decision. Similar to when you first financed your mortgage, having a broker assist you gives you:
A DEDICATED INDIVIDUAL SHOPPING FOR YOU:
Reputable brokers have your best interest in mind first!
Your mortgage professional will shop the market to find the best overall cost of borrowing for the client. Broker’s will look at all angles of the product to ensure that the client is getting one that will suit their unique and specific needs. Not once will the client be expected to shop their mortgage around or to speak to the lender.
ACCESS TO THE BEST RATES & PRODUCTS
A mortgage professional has access to:
• Tier 1 banks in Canada
• Credit Unions
• Monoline Lenders
• Alternative Lenders
• Private Lenders
This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product is also aligned with the client’s needs.
Now, a few details that you should know before you transfer/switch your mortgage:
YOU WILL HAVE TO SUPPLY DOCUMENTS
Just like when you went through the process the first time, you will have to supply documents to the new lender in order to transfer/switch.
YOU MAY HAVE TO PAY OUT CERTAIN COSTS
As mentioned above, there costs associated with your transfer/switch. If your mortgage is up for renewal and you are opting to transfer/switch these may include admin and legal fees. If you are opting to transfer mid-term to take advantage of a lower rate with a different lender, these may include your penalty and legal/admin fees. However, many lenders will offer up to $3,000 financed into your mortgage to assist in covering these if applicable
YOU WILL HAVE TO QUALIFY UNDER CURRENT REGULATIONS
With a transfer/switch, you are required to pass any and all regulations and stress testing measures may be applicable, however If you are looking at a transfer/switch and your previous mortgage funded prior to November 30, 2016 old mortgage rules apply (no stress test is required). This means
• You are grandfathered in previous under mortgage rules
• You can qualify at the contract rate rather than the stress test of contract rate plus 2% or the benchmark rate (currently at 5.34%)
• In simple terms: no stress testing required.
Before you consider moving, you should run through the numbers with a broker and ensure you qualify. To find out more about stress testing measure, click here.
UNDERSTANDING YOUR PENALTY
If you are switching/transferring mid-term a penalty will apply to your mortgage. If you are up for renewal and are looking to transfer, you will not have to pay a penalty and may or may not have the aforementioned fees associated with setting up the new mortgage with a new lender.
Remember, a broker is there to work with you to determine if a transfer/switch is right for you and to help you establish which lender will give you not only the best rate, but the most suitable mortgage product too!
Your Interest is my Only Interest
Throughout the mortgage and home buying process, there are many steps and many checkpoints a buyer will need to complete before they can move on to the next one. A buyer will not be able to close on a purchase if they do not have a lawyer. Financing conditions need to be lifted after confirmation from a mortgage broker that a file is broker complete. A buyer should never write an offer on a home until they have a realtor working for them. Most importantly, a buyer should never be looking at property they are considering buying until they have been pre-qualified and pre-approved.
Now, one thing we need to make clear- pre-qualified and pre-approved are two different things. Pre-qualified is when someone completes a mortgage application with a mortgage broker or a bank representative and is told how much they can afford. Pre-approved is when someone has written confirmation from a lender stating they are willing to lend based on what is stated in an application and the applicant’s current credit history.
Pre-qualifications are based solely on the knowledge and experience (sometimes even opinion) of a broker or bank rep. A pre-approval on the other hand is backed by the lender actually willing to give you the money. When someone says they are pre-qualified, that means they have taken an application with a mortgage broker or bank and in broker or bank rep’s opinion, they can afford “x” amount on a home. A pre-approval is a written letter from a lender stating based on applicants current credit history, declared income on application and current assets, we will lend “x” amount pending confirmation everything stated in the application is verifiable and the property meets all lender requirements.
As you can probably tell, one can be more reliable than the other, especially if you are working with a mortgage broker or bank rep that is inexperienced in the industry. Pre-approvals also usually come with a rate hold. What a rate hold does is guarantee you the interest rates that lender is offering today for a certain amount of time (usually 120 days), and if you put an offer on a place within that time period, they will give you that previous rate even if they went up. If rates go down, they will allow you to access the lower interest rate as well.
You must always get yourself pre-qualified before you begin looking at homes so you know what you can afford. Once you have and you are actively looking, it is very important you try and get a pre-approval before you write an offer. It will give you that extra confirmation your application is acceptable, and protect you against interest rate increases while you look.
If you require a pre-qualification, pre-approval, or want to speak with someone about your current situation, please call:
Iko M. @ 647-200-0723
Yours Interest is my Only Interest
You’ve decided that you want to buy a home and you call up a realtor to show you a listing and the first question they ask is “ How much are you pre-approved for?” Many realtors will refuse to book home viewings until they can confirm that you are pre-approved. Why?
1- It shows that you are seriously committed to a home purchase. I have been told stories by realtors of people booking a series of homes to see and then being dropped off at McDonald’s to be picked up by another realtor to see some more homes.
2.- People have an idea of how much home they can afford. Sometimes this amount is way off. Lines of credit, installment plans, alimony or child support payments or high condo fees can make the amount of house you can afford a lot less than you would expect.
3- Surprises on your credit report. Many times home buyers haven’t checked their credit report before house hunting. An unpaid bill or a dispute with a contractor may result in a lien or collection showing on your credit. There may even be something from a person with a similar name. It’s important to make sure your credit is clean and that it is yours and not someone else’s.
4 –Income issues. A lot of people run out to get a new home when they receive a promotion at work. If the promotion includes a pay hike, is it salary or are they relying on overtime? Mortgage rules demand a two-year history for communion, overtime or self-employed income. This also can curtail how much you qualify for.
5.A – Credibility of the realtor. When a realtor makes an offer on a home for you, they are not only investing their time and the listing agent’s time but their reputation. Making offers that will not result in a firm sale hurts their reputation in the industry. Trustworthiness and reputation are very important to realtors as they are guiding you in the largest purchase you make in your lifetime.
5.B- Negotiating Strength. In a situation where there are competing offers on a property, the sellers agent will encourage the sells to take the offer that is backed by a pre-approval over another offer that does not have a pre-approval to support it. Your chances of getting your dream home are greatly increased with it.
My one recommendation is that you take the time to contact your favorite Dominion Lending Centres mortgage broker and get pre-approved. It will save everyone time and help avoid disappointment for everyone.
Your Interest is my Only Interest
Toronto real estate is set for another boom in the near future.
Thanks to the city’s flourishing tech sector, Ron Sally believes the city’s condo market is going to catch fire.
“Our tech industry in Toronto is about to explode,” said broker of record and owner of REMAX Millennium Real Estate. “It’s been slowly climbing up the ranks; it hasn’t reached its peak yet but it’s about to come out into the open. It’s currently ranked number two in North America and number four in the world.”
That Toronto’s financial sector is ranked third in North America could also provide a glimpse into what is to come.
“As of 2017, the ranking is number 11 globally for the financial sector,” he continued. “What this means is that in the world, Toronto is the eighth-most livable city and our job sector is going to grow, as well, in the next few years. Toronto’s condo market is undervalued, so whoever can get a piece of Toronto real estate should do it while it’s still available.
“Our transportation system is being improved—the city is changing implementation,” said Sally. “A lot of changes are going to turn this into a global city. Right now everyone knows where Toronto is. We had 28,900 new tech jobs created in Toronto, and that’s more than the San Francisco Bay Area, Seattle and Washington D.C. combined.”
Major players in the tech industry are setting up shop in the city, including Microsoft, Uber, Shopify, Airbnb, and Google Sidewalk Labs. Moreover, a slew of new jobs in the sector will be created and Sally believes that will have an impact on condo valuations, believes Sally.
Coupled with the fact that new tech sector jobs will be created in the years ahead, and the fact that supply already lags well behind demand, Toronto condo valuations are on pace to surge.
“Downtown on King St., condos are selling for $1,500 to $1,600 per square foot; Pemberton is also selling one at $1,200 per square foot,” said Sally. “Things are slowly changing and those who see the big jump coming in the next two or three years understand it’s the same jump we had in 2014 and 2016. We have one million immigrants entering Canada in the next three years.”
Toronto-based Daniel Johanis, a Rock Capital Investments broker, has noticed the influx of tech talent into the city and says it will be good for the city.
“I’ve got three clients right now working in tech, one of whom is in bitcoin, and they found me online. All three are young, under 30, and ready to jump into the market. They’re in the market in the city for the long haul. If we see an influx of people here because jobs are here and they’re looking to settle down, that’s great for the prosperity of the city.”
Your Interest is my Only Interest
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 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.
Your Interest Is my Only Interest