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Most people tend to believe that the best time to buy a home is in the spring or summer, but that might not be entirely the case. Winter months could also be a great time to purchase a home for several reasons. There is usually a large number of homes on the market so there will be lots of options out there. Sellers tend to be more motivated and more willing to negotiate during the winter months and there is a good chance you will not find yourself in competing offers as there are usually less buyers and competition looking at the same home. 

In terms of interest rates, there still seems to be a lot of uncertainty as far as where they are heading. Some believe interest rates will continue to rise over the next few quarters, some suggest they have leveled off now, while others believe they have the potential to head lower. What remains crucial is to get a mortgage pre-approval and secure a rate guarantee. This way you’re protected if rates go up in the near future but also allows you to take advantage if rates actually do go down. 

It’s getting close to the busy time of the year for many families with holidays, family gatherings etc. Fortunately, it only takes a few minutes to get your rate locked in and be ready to head out shopping for your new home. 

Just call, text or email me and let’s get started on that pre-approval and rate guarantee.

Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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Home buyer demand remains below long-term historical averages in the Metro Vancouver housing market.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales totalled 1,608 in the region in November 2018, a 42.5 per cent decrease from the 2,795 sales recorded in November 2017, and an 18.2 per cent decrease compared to October 2018 when 1,966 homes sold.


Last month’s sales were 34.7 per cent below the 10-year November sales average and was the lowest sales for the month since 2008.


“Home buyers have been taking a wait-and-see approach for most of 2018. This has allowed the number of homes available for sale in the region to return to more typical historical levels,” Phil Moore, REBGV president said. “This activity is helping home prices edge down, across all property types, from the record highs we’ve experienced over the last year.”


There were 3,461 detached, attached and apartment homes newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in November 2018. This represents a 15.8 per cent decrease compared to the 4,109 homes listed in November 2017 and a 29 per cent decrease compared to October 2018 when 4,873 homes were listed.


The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 12,307, a 40.7 per cent increase compared to November 2017 (8,747) and a 5.2 per cent decrease compared to October 2018 (12,984).


For all property types, the sales-to-active listings ratio for November 2018 is 13.1 per cent. By property type, the ratio is 8.9 per cent for detached homes, 14.7 per cent for townhomes, and 17.6 per cent for apartments.


Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.


“Home prices have declined between four and seven per cent over the last six months depending on property type. We’ll watch conditions in the first quarter of 2019 to see if home buyer demand picks up ahead of the traditionally more active spring market,” Moore said.


The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,042,100. This represents a 1.4 per cent decrease over November 2017 and a 1.9 per cent decrease compared to October 2018.


Detached home sales in November 2018 reached 516, a 38.6 per cent decrease from the 841 detached sales recorded in November 2017. The benchmark price for detached homes is $1,500,100. This represents a 6.5 per cent decrease from November 2017 and a 1.6 per cent decrease compared to October 2018.


Apartment home sales reached 810 in November 2018, a 46.3 per cent decrease compared to the 1,508 sales in November 2017. The benchmark price of an apartment property is $667,800. This represents a 2.3 per cent increase from November 2017 and a 2.3 per cent decrease compared to October 2018.


Attached home sales in November 2018 totalled 282, a 36.8 per cent decrease compared to the 446 sales in November 2017. The benchmark price of an attached home is $818,500. This represents a 2.6 per cent increase from November 2017 and a 1.3 per cent decrease compared to October 2018.


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TD Bank quietly changed the rules on how payments are calculated on existing HELOC’s when applying for new financing. They join RBC and at least one other major financial institution but don’t be surprised if the rest of them follow their lead.


This new rule will really impact people’s borrowing capacity. In a nutshell the payment calculated will be done on the limit not the balance owing as previously.


See the full article below from Canadian Mortgage Trends for all the details and how it could possibly effect you:

As always if you have any questions please feel free to reach out to me.


"The word is out on a little-known policy used to qualify anyone with a HELOC who is applying for additional financing.


Several of the Big Six banks have already adopted the policy, which requires applicants to prove they can afford the theoretical monthly HELOC payment based on the limit of that HELOC, rather than the amount that has actually been used, according to RateSpy.com founder Rob McLister, who first reported the change.


TD Canada Trust, the largest provider of HELOCs in Canada, on Tuesday became the latest bank to quietly adopt the new qualification rule, joining RBC and at least one other major bank.


“Even though you might have a zero balance, the bank assumes you might use all of your available credit,” McLister wrote.


The change predominantly affects those seeking additional financing for a second home, a rental/investment property or a cottage.


For a typical borrower with a $200,000 HELOC limit, McLister says they will now need to prove they can afford a $1,202 monthly HELOC payment based on today’s rates. That, he adds, would drive a mortgage applicant’s Total Debt Service (TDS) ratio over 50%, well above the maximum HELOC TDS limit of 40–44%.”


The result: “A meaningful minority of Canada’s 3.1 million HELOC holders will no longer qualify for additional financing like they do today,” McLister told CMT. “That means many will have to restructure their HELOCs, incurring additional cost and losing financial flexibility. As always, tighter credit policies are great when the benefits—systemic risk reduction—are greater than the economic loss to consumers. The jury will be out on that for a while to come.”


Industry Reaction


James Laird, President of CanWise Financial, agrees that treating available credit as utilized credit is a “big deal.”


“Many of the rule changes over the past 10 years have made it really hard to buy a home beyond your primary residence,” he said. “This rule change is focused squarely on that. It has no effect on your owner-occupied residence, but will make it more difficult to purchase a second home or rental property. Many clients will be forced to choose between the security of having a credit facility should they require it, and purchasing that second property.”


Adding that while he does see logic in the policy, Laird says “this will be another hurdle for our industry.”


In its reply to the RateSpy story, TD explained that the debt service ratio change was made “to ensure prudent underwriting guidelines, and reflects concerns around consumers’ abilities to manage debt—particularly in a fluctuating rate environment.” It added, “…the impact (is) limited to a small number of customers that have an existing home equity line of credit and are applying for additional financing.”


Nick Douce, Vice President and Managing Broker of Paragon Mortgage Group, said they received an update from TD on Tuesday morning and that it was the first they had heard of the change.


“There is little industry consultation by the governing bodies on these rule-tightening issues today,” he said.

Douce added that while there is some sense to the change, he believes the impact will be more emotional than financial.


“Faced with ever-tightening regulation and controls by Big Brother (misguided or not) just discourages the population from even venturing into the idea of enriching their lives or financial position by borrowing to invest,” he said. “A few minor qualification tweaks along with the increase in rates over the past 18 months would have been enough to slow things down, especially as real estate is often cyclical in nature anyway.”


Dustan Woodhouse, a broker with DLC Mortgage Experts, added his voice to the feeling that increased regulation and policy changes have moved beyond what’s needed to adequately manage risk in the market.


“It’s overkill piled on top of overkill,” he said. “We are long past worrying about stability of the markets and deep into posturing to please regulators, pundits and politicians.”


The Growing Concern Over HELOCs


There had been signs that HELOCs were becoming the next financial product of concern for banks and regulators.


Speaking at the national mortgage conference in Montreal, Financial Consumer Agency of Canada (FCAC) Commissioner Lucie Tadesco raised concerns about increasingly risky consumer behaviour involving HELOCs.


She drew attention specifically to the fact that a quarter of HELOC holders in Canada are only paying the interest on their HELOCs most months.


“Interestingly, 62% of this group told us that they planned on paying off their HELOCs over five years. This seems overly optimistic, considering that the average HELOC balance is $70,000,” Tedesco said. “Typically, these consumers end up carrying debt for longer periods than they had initially anticipated. They might also slip into patterns of behaviour that trap them on a treadmill of debt”


Bank of Canada Governor Stephen Poloz had also raised concerns about HELOCs during a speech as early as December, when he said some Canadians are using them to dangerously stretch their borrowing limits.


Thanks to a combination of low interest rates, rising home prices and the aggressive marketing of secured lines of credit, HELOC balances reached $230 billion in 2017, up from just $35 billion in 2000 and $186 billion in 2010, according to OSFI figures.


Expect More Banks to Adopt this Policy


The consensus is that the remaining big banks, and others, will likely move to adopt this qualification policy over time.


“I think, by the end of this year or next year, given OSFI’s concern about HELOCs, I think we’re going to see most banks, if not all, do this, as well as lenders that get their funding from major banks,” McLister said.


Laird agreed, adding, “My experience with banks is they usually keep their policies fairly uniform, so I would expect Scotia and BMO to follow suit.”


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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You can take many steps to winterize your home and help ward against personal injury and financial disaster. As temperatures begin to dip, your home will require maintenance to keep it in optimum shape throughout the season. From the furnace to the gutters to the landscaping and many places in between, winterizing helps protect your investment while keeping you comfortable.


Furnace Inspection


Your first order of business is to call an HVAC professional to inspect your furnace and clean ducts. It's also a good idea to stock up on furnace filters and change them monthly. Consider switching out your thermostat for a programmable one. If you do, you'll want to make sure you purchase one you will use. Updating it accordingly will help you remain comfortable in your home and potentially slash your energy bill by a significant amount. Its benefit is that you can set this type of thermostat by season.

If your home is heated by a hot-water radiator, bleed the valves by opening them slightly and when water appears, close them. Remember to remove all flammable material from the area surrounding your furnace.


Get the Fireplace Ready


If your chimney hasn't been cleaned for a while, call a chimney sweep to remove soot and other undesirable accumulations, like creosote. It's best to cap or screen the top of the chimney to keep out rodents and birds. Buy firewood or chop your own. Whatever choice you make, store it in a dry place away from the exterior of your home. Inspect the fireplace damper for proper opening and closing. Also check the mortar between bricks and tuckpoint, if necessary.


Check the Exterior, Doors, and Windows


This step is critical for your health and safety. Inspect the exterior for crevice cracks and exposed entry points around pipes; seal them. Use weatherstripping around doors to prevent cold air from entering the home and caulk windows. Replace cracked glass in windows; if you end up replacing the entire window, prime and paint any exposed wood. If your home has a basement, consider protecting its window wells by covering them with plastic shields. Switch out summer screens with glass replacements from storage.

 

If you have storm windows, install them.


Inspect Roof, Gutters, and Downspouts


If your local temperature will fall below 32 degrees in the winter, adding extra insulation to the attic will prevent warm air from creeping to your roof and causing ice dams. Check flashing to ensure water can't enter your home. Consider replacing worn roof shingles or tiles. Clean out the gutters and use a hose to spray water down the downspouts to clear away debris. You may also want to install leaf guards on the gutters or extensions on the downspouts to direct water away from the home.


Service Weather-Specific Equipment


These measures help you keep tools ready when you will inevitably need them. Service or tune-up snow blowers. Replace worn rakes and snow shovels. Sharpen ice choppers and buy bags of ice-melt or sand. For equipment that you use in the other seasons, like a lawn mower, make sure to drain the gas to avoid rust. Clean, dry, and store summer gardening equipment.


Check Foundations


Rake away all debris and edible vegetation from the foundation. Seal up entry points or cracks to keep small animals from crawling under and into the house. Mice can slip through space as thin as a dime. Inspect sill plates for dry rot or pest infestation. Secure crawlspace entrances.


Install Smoke and Carbon Monoxide Detectors


Some cities require a smoke detector in every room. Buy extra smoke detector batteries and change them when Daylight Saving Time ends. Install a carbon monoxide detector near your furnace or water heater, or both. Make sure you test smoke and carbon monoxide detectors to ensure they are working properly. Buy a fire extinguisher or replace an extinguisher older than 10 years.


Prevent Plumbing Freezes


Locate your water main in the event you need to shut it off in an emergency. Drain all garden hoses. Insulate exposed plumbing pipes. Drain air conditioner pipes, and if your AC has a water shut-off valve, turn it off. If you go on vacation, leave the heat on, set to at least 55 degrees.


Prepare Landscaping and Outdoor Surfaces


winter storm can ravage the outdoors to such an extent that you can experience devastating effects in your surrounding area and while you're in your home. Trim trees if branches hang too close to the house or electrical wires. Ask a gardener when your trees should be pruned to prevent winter injury. Seal driveways, brick patios, and wood decks. This is more for the aesthetics if it's to your liking, but don't automatically remove dead vegetation from gardens as it sometimes provides attractive scenery in an otherwise dreary, snow-drenched yard.

 

And remember to move sensitive potted plants indoors or to a sheltered area. You can also plan ahead for spring. Plant spring flower bulbs and lift bulbs that cannot winter over, such as dahlias, in areas where the ground freezes.


Prepare an Emergency Kit


Buy indoor candles and matches or a lighter for use during a power outage. Find the phone numbers for your utility companies and put them in the Contacts section of your cell phone. Buy a battery backup to protect your computer and sensitive electronic equipment. Store extra bottled water and nonperishable food supplies (including pet food, if you have a pet), blankets, and a first-aid kit in a dry and easy-to-access location. Often overlooked, it's smart to prepare an evacuation plan in the event of an emergency.


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The time of year has arrived where face paint flies off the shelves and spooky DIY projects are well underway. From ghosts, goblins and witches to the latest pop-culture heroes and villains, this is the time of year where creativity hits an all time high as people far and wide celebrate the spookiest season of all, Halloween! While collecting candy and trying to get a scare out of your friends and family is all fun and games, worrying about the safety of your home and guests isn’t. See below for some Halloween home safety tips that will help you ensure the only thing scarier than your costume is the thought of your expanding waistline after consuming endless amounts of sugary treats!


Make a Clear Path for Guests


With costumes that include fancy wigs, complicated masks and endless accessories, eliminating obstacles is the main safety tip you need to keep in mind. Whether it’s clearing the walkway or eliminating debris from your lawn, a clear path to your front door will help you avoid any potential accidents and is one of our top Halloween home safety tips.


Avoid Accidents with Lighting


With the shorter days upon us, your guests will not be showing up until long after the sun goes down. Help them stay on course by lighting up the path to your door. Whether a couple pumpkins or some strategically placed string lights, a well-lit entryway will not only make it easier to choose your favourite costume, it will help keep everyone safe.


LED Candle vs. Real Candle


We just told you to ensure the pathway to your door is well lit, but that doesn’t necessarily mean a candle! LED tea lights are a great option for your outdoor décor that will look just as spooky as a candle, but will take away the fear of lighting a pumpkin on fire! These are also a good option for your indoor décor since you may not have the opportunity to keep a close watch on a candle burning inside your home throughout the night.


Keep Furry Friends Safe


Halloween is an exciting time, and our Halloween home safety tips aren’t only for you, but also your pets! To avoid them escaping, getting into the candy, or getting scared of your visitors, keeping them locked away in a safe room for the evening is advisable. Since they don’t get to enjoy all the fun, leaving them a Halloween treat will keep them happy until the activity has subsided.


Be a Smarty with the “Smarties”


If you are unable to come to the door when Trick-or-Treater’s arrive, or you will not be home to handout treats, leaving a bowl full of treats is not a good idea. Not only will it encourage people to come to your door when you aren’t there, it increases the risk of someone trying to tamper with the treats you have left out. A quick sign at the bottom of your driveway may be a good option and don’t forget to remind them you will see them next year!


We hope that everyone has a safe and happy Halloween!


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Some variable-rate mortgagors are feeling a bead of sweat after today’s Bank of Canada quarter-point rate hike. The bank’s communications today suggest it’s dead set on “normalizing” rates.


Translation: Today is not the last time prime increases in this rate cycle.

 

Shrewd borrowers have chosen variable-rate mortgages for years. After all, that’s what the research supports.


You don’t throw out a good strategy because of five rate hikes in 15 months. Variable rates have exceeded five-year fixed rates in the past, but over any historical five-year period they’ve won out “about 88 per cent of the time,” says Moshe Milevsky, author of Canada’s most cited mortgage research.


And my own simulations confirm it. The best variable rates have beaten the best five-year fixed rates throughout every rate spike since the dawn of modern monetary policy (1991). That’s not a definitive sample size, especially given that rates have been downtrending for decades. But you can’t dismiss it either.


That said, variables won’t always win. At some point, long-term fixed rates will outperform, and that someday may have already happened.


Had you snagged the lowest five-year fixed mortgage in August, 2017, (right after the bank of Canada’s first rate hike of this cycle when five-year fixed rates were about 2.59 per cent) you would now be ahead of someone choosing the cheapest variable at the time (1.99 per cent). That’s based on interest cost alone, not factoring in penalties or refinance costs if you broke your mortgage early.


Could this time be different for fixed rates? Maybe. Blindly expecting to win in a variable based on research is “like saying, ‘Historically, stocks beat the bonds,' ” Mr. Milevsky adds. “That doesn’t mean that every year it’s going to happen.”

STICKING TO THE PLAN, OR NOT

For those out mortgage shopping, today’s rate hike is not a game changer. If you can find a variable rate that’s at least 0.75 per cent below a fixed, and you’re well qualified and/or aggressively pay down your mortgage, variables are still worth betting on. “The probability of winning with a variable will likely never fall below 70 per cent," Mr. Milevsky says. “The odds will still be in your favour."


And the higher rates go, the more the probabilities favour variables. That’s largely a result of the tendency of variables to revert to their mean after rising for a while.


But here’s the key to maximizing success in a variable. You must be well qualified, and you must shop rates aggressively. Settling for an average rate can be the difference between winning or losing in any rate you pick. “The bigger the rate discount [on a five-year fixed] the lower the probability” of saving more interest in a variable, Mr. Milevsky says.


Apart from that, deciding on whether to float your rate depends heavily on three things, Mr. Milevsky concludes:


1) Are you renewing a mortgage or getting a new mortgage for the first time? (Mortgage experience matters, and the former can usually handle more risk.)


2) How much equity do you have? (If you’re highly leveraged with just 5 per cent to 10 per cent down, and “every dollar counts,” fixed is usually wiser.)


3) Do you have salary stability? (High unemployment risk, variable income, self-employment and/or income linked to real estate are all reasons to consider locking in, he says.)


Picking a mortgage term is like investing: there are no guarantees. Variable rates are ultimately a risk-return trade-off, Mr. Milevsky says, and every borrower must remember that going in. In the long run you’ll save more in a variable … unless perhaps you were lucky enough to lock in last year.


Full Article >


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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The fall market is in full swing. New home listing during the summer months tend to cool off but now that we are in the fall months more and more listings have sprung up. More homes listed for sale mean more opportunity for you to find your first or second dream home.


There are many options available when moving up to your second or third home, sometimes you can move to a larger or more expensive home without even increasing your mortgage payment. A few factors would come into play such as remaining amortization, current interest rates and mortgage product. I can review your current mortgage situation and calculate what the difference would be, if any, in purchasing your new home and all the costs associated with the move (realtor cost, legal etc).


If you or someone you know is currently renting, now might be the best time to consider buying a first home. Rental rates are soaring in many parts of Canada. Huffpost reported recently “rental rates soar by double digits in half of Canada’s largest cities” and the trend for higher rental rates seem inevitable and not just in the larger cities. With interest rates still at relatively low levels, it might make financial sense for both the short and even more importantly the long term to find out if now is the best time to go from a renter to a homeowner.


Making homeownership dreams come true is what I do best and I would love to help you, your family and your friends.


Contact me today.


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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The supply of homes for sale continued to increase across the Metro Vancouver housing market in September while home buyer demand remained below typical levels for this time of year.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in the region totalled 1,595 in September 2018, a 43.5 per cent decrease from the 2,821 sales recorded in September 2017, and a 17.3 per cent decrease compared to August 2018 when 1,929 homes sold.


Last month’s sales were 36.1 per cent below the 10-year September sales average.


“Fewer home sales are allowing listings to accumulate and prices to ease across the Metro Vancouver housing market,” Ashley Smith, REBGV president-elect said. “There’s more selection for home buyers to choose from today.


Since spring, home listing totals have risen to levels we haven’t seen in our market in four years.”


There were 5,279 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in September 2018. This represents a 1.8 per cent decrease compared to the 5,375 homes listed in September 2017 and a 36 per cent increase compared to August 2018 when 3,881 homes were listed.


The total number of properties currently listed for sale on the MLS® system in Metro Vancouver is 13,084, a 38.2 per cent increase compared to September 2017 (9,466) and a 10.7 per cent increase compared to August 2018 (11,824).


For all property types, the sales-to-active listings ratio for September 2018 is 12.2 per cent. By property type, the ratio is 7.8 per cent for detached homes, 14 per cent for townhomes, and 17.6 per cent for condominiums.


Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.


“Metro Vancouver’s housing market has changed pace compared to the last few years. Our townhome and apartment markets are sitting in balanced market territory and our detached home market remains in a clear buyers’ market,” Smith said. “It’s important for both home buyers and sellers to work with their Realtor to understand what these trends means to them.”


The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,070,600. This represents a 2.2 per cent increase over September 2017 and a 3.1 per cent decrease over the last three months.


Sales of detached properties in September 2018 reached 508, a 40.4 per cent decrease from the 852 detached sales recorded in September 2017. The benchmark price for detached properties is $1,540,900. This represents a 4.5 per cent decrease from September 2017 and a 3.4 per cent decrease over the last three months.


Sales of apartment properties reached 812 in September 2018, a 44 per cent decrease compared to the 1,451 sales in September 2017. The benchmark price of an apartment property is $687,300. This represents a 7.4 per cent increase from September 2017 and a 3.1 per cent decrease over the last three months.


Attached property sales in September 2018 totalled 275, a 46.9 per cent decrease compared to the 518 sales in September 2017. The benchmark price of an attached unit is $837,600. This represents a 6.4 per cent increase from September 2017 and a two per cent decrease over the last three months. 


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Is the B.C. real estate market already showing signs of bouncing back from its government intervention-induced downturn?


That’s the message from the B.C. Real Estate Association, which reported September 13 that MLS home sales across the province totalled 6,743 in August. That’s lower than the 7,055 transactions in July this year, and down 26.4 per cent from August 2017.


Despite the continued slide in home sales totals, the BCREA said that the market is already looking like it is recovering from the recent downturn, which it believes was largely caused by government intervention in the market, especially the federal mortgage stress test introduced in January.


Cameron Muir, BCREA’s chief economist, said in a phone interview that the actual sales totals do not take into account seasonal trends in home buying, and a much more accurate graph looks at the seasonally adjusted sales figure – a common measure of economic trends. According to the association’s calculations, the market has turned from its trough in June, and since then has seen a relative increase in activity of around 3.5 per cent, on a seasonally adjusted basis.


Muir said, “The BC housing market is evolving along the same path blazed by Ontario and Alberta, where the initial shock of the mortgage stress-test is already dissipating, leading to increasing home sales.” The Greater Toronto Area has seen a marked increase in home sales and prices over the past three months, following significant sales declines in spring, following the stress test’s launch.


The BCREA’s August figures also show there has been little to no improvement in affordability of B.C.’s home prices. Although price growth has decelerated from the past couple of years, all but one of the province’s 12 real estate boards registered an overall average sale price rise in August, compared with one year previously.


At $669,776, the province’s average August sale price was 1.2 per cent lower than one year previously. However, Muir said that this doesn’t mean that home prices are dropping. “It’s misleading, because it’s dependent on the mix of housing being sold, and the areas. As we’ve seen bigger sales declines in more expensive areas such as Vancouver, and an increase in apartments being sold compared with houses, the average prices get skewed.”


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A new study shows there are still benefits in home ownership despite the high prices. This is because the cost of renting keeps going up and up. The study shows several scenarios of rate changes/increases over time as well. I always say to myself and my clients; it always feels better to be paying my own mortgage rather than someone else’s, i.e. your landlords! And every payment you make you are building equity over the long term no matter what happens in the short term. 
 
Take a read of the full article below from Canadian Mortgage Trends for all the details:
 

Despite deteriorating housing affordability across the country, buying a home is still the more affordable option when compared to renting.


A new report from Mortgage Professionals Canada has determined that, despite the rapid rise in home price, those who are able to invest in a home would end up “significantly better off” in the long term compared to renting.


The report, authored by the mortgage broker association’s chief economist Will Dunning, found that while upfront monthly costs are in fact cheaper in most locations, the “net” cost of ownership is less than the equivalent cost of renting in a majority of cases, and becomes even more cost effective over time.


“The costs of owning and renting continue to rise across Canada,” Dunning noted. “However, rents continue to rise over time whereas the largest cost of homeownership–the mortgage payment–typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership.”


Additionally, the costs of ownership include considerable amounts of repayment of the mortgage principal. “When this saving is considered, the ‘net’ or ‘effective’ cost of homeownership is correspondingly reduced,” Dunning added.

On average, the monthly cost of owning exceeds the cost of renting by $541 per month. But when principal repayment is considered, the net cost of owning falls to $449 less than renting.


Interest Rate Scenarios


The analysis compared the cost of renting vs. owning both five and 10 years into the future, with higher interest rates factored into the equation. In all cases, owning comes out ahead:


Scenario #1: If interest rates remain the same (using an average of 3.25%), after 10 years the average net cost of owning is $1,014 less than the monthly cost of renting.


Scenario #2: If interest rates rise to 4.25% after five years, the average net cost of owning falls to $1,295 less than the monthly cost of renting.


Scenario #3: If interest rates rise to 5.25% after five years, the average net cost of owning is still $726 less than the monthly cost of renting.


“By the time the mortgage is fully repaid in 25 years (or less) the cost of owning will be vastly lower than the cost of renting,” the report adds, noting that the cost of owning, on average, would be $1,549 per month vs. $4,655 for an equivalent dwelling."



Canada Still a Country of Homeowners


Despite rising home prices and deteriorating affordability, Canada remains a nation of aspiring homeowners.

The study pointed to the continued strong resale activity as one indicator of this.


Resale activity in 2017 was still the third-highest year on record, at 516,500 sales, just off the peak of 541,2220 sales in 2016.


But other polls have also found a strong desire among younger generations that still dream of owning.


RBC’s Homeownership Poll found a seven-percentage-point increase in the percentage of overall Canadians who planned to buy a home within the next two years (32%), and a full 50% of millennials.


Similarly, a RE/MAX poll found more than half of “Generation Z” (those aged 18-24) also hope to own a home within the next few years.


Perhaps the biggest question is whether those aspiring homeowners will have the means to surpass the barriers to homeownership, namely larger down payments and the government’s new stress test.


“While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term,” Paul Taylor, President and CEO of Mortgage Professionals Canada said in a statement. “Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership.”


Despite its affordability benefit over renting, Dunning addresses some of the impediments of homeownership, namely the longer timeframe needed to save for the down payment. Despite higher home prices and larger down payments required, first-time buyers still made an average 20% down payment."


Additional Tidbits from the Report


Some additional data included in Dunning’s report include:


- Average house price rose 6.2% per year from $154,563 in 1997 to $510,090 in 2017

- Average weekly wage growth was up just 2.6% per year from 1997 to 2017

- The average minimum interest rate for the stress test during the study period: 5.26%

- The average annual rates of increase for the following housing costs:

                 - Property taxes: 2.8%

                 - Repairs: 1.9%

                 - Home insurance: 5.4%

                 - Utilities: 1.6%

                 - Rents: 2.4%


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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A recent article from the Globe and Mail gives some good detail on why a borrower may be offered a higher or lower interest rate on a mortgage. This happens for many reasons, as described in the attached article, however it’s happening even more now with all the government rule changes that have been imposed over the past few years.
 
A borrower needs to remember though that rate is just one part of overall total borrowing costs. There are a number of other things to look at; the biggest one being how are penalties calculated. Penalties are calculated differently and can result in thousands of dollars difference if and when ever faced with one. 
 
Take a read of the attached article from The Globe & Mail for all the details on what rate premium/discount you may receive depending on your borrowing needs:
 
 

How to determine when you’ll pay more for a mortgage

Nobody wants to pay more than necessary when getting a mortgage. But more than four out of five applicants have little chance at getting Canada’s true lowest rate.


Rock-bottom rates are reserved only for mortgages that present the least risk and cost for the lender. And relatively few mortgages fall into this bucket.


Mortgages have always been priced based on the risk you present to the lender. But after 10 years of government rule tightening, that’s true today more than ever.


At this very minute, the absolute lowest contractual mortgage rate in Canada is 2.4 per cent, as tracked by RateSpy.com. It’s a variable rate available solely to impeccable credit borrowers financing a primary-residence purchase and paying for default insurance. It’s got a bunch of other restrictions, too.


If you need more flexible financing, you’ve got to fork out more − no way around it.


How much more hangs on what kind of mortgage you need.


To help illustrate how your risk profile plays into the rate you can expect, I’ve put together the list you see below. It shows approximately how much extra you’ll pay for a given mortgage type, versus today’s lowest available mortgage rate of 2.4 per cent.


This rate premium in the right column is based on the cheapest mortgage available for the criteria in the left column, regardless of lender or term.


It shows you the very least you’d have to pay to get a given feature, as of this moment in time. For example, compared with Canada’s lowest rate (2.4 per cent), you’d have to pay almost 0.35 percentage points more (i.e., 2.75 per cent total) for the cheapest mortgage that allows a 30-year amortization.


If multiple criteria apply to you, you’ll often pay a combination of the below rate premiums.


In some cases, you’ll also pay more for:

  • A longer rate guarantee (e.g., 120 days instead of 30 or 60)
  • A smaller down payment (e.g., 20 per cent instead of 35 per cent)
  • A more favourable penalty policy (if you decide to break the mortgage early)
  • Semiannual compounding on variable rates (instead of more expensive monthly compounding)
  • A short remaining amortization (e.g., nine years)


The point of all this is to show how lenders think and price. They upcharge for almost anything that materially increases their costs and/or the risk that you won’t pay them back. While most things are negotiable in life, lenders generally don’t budge very much if your application presents a materially higher risk of default − that is, unless their starting rate is uncompetitive to begin with.


With competition and rule changes squeezing lenders’ profitability now more than ever, you really do get what you pay for in a mortgage.



Full Article >


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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The B.C. government is closing in on real estate tax evasion by requiring much more comprehensive information from anyone buying residential or commercial property through a company or trust, the Ministry of Finance announced July 25.


As of September 17, 2018, a new property transfer tax (PTT) return will ask those purchasing a property through a corporation or trust to disclose the same full slate of personal information that home buyers disclose on the regular PTT return.


This includes the individual buyer’s name, date of birth, citizenship information, contact details and tax identification numbers (such as a social insurance number)

 

Finance minister Carole James said in the announcement, “Our government has been clear that the days of skirting tax laws and hiding property ownership behind numbered companies and trusts are over. Not only is tax evasion in real estate fundamentally unfair, but it’s driving up the cost of housing for people who live and work in our communities.


These changes give authorities another tool to make sure people are paying the taxes they owe.”


The province said in a media release, “There will be exemptions for certain trusts, such as charitable trusts, and certain corporations, such as hospitals, schools and libraries.”


The move is part of the B.C. NDP government’s 30-point plan for housing, which also includes the annual speculation tax and the school tax on $3 million-plus homes.


Under the plan, the province also recently announced that it would set up a property ownership registry to bring “hidden owners” of B.C. real estate into the light. It also intends to track presale condo assignments to prevent tax evasion by buyers flipping a presale condo, and establish a working group on tax fraud and money laundering in B.C. real estate.


More information on the new PTT reporting requirements can be found here.


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A recent article by Canadian Mortgage Trends discusses this question as well as the benefits of going with either. Personally I just went variable and a lot of my clients have too. It’s not for everyone and if you like the security of a fixed rate then that might be best but with fixed rates rising and discounts getting better for variable rate it might be time to take a closer look at both options. 
 
See the full article below for all the details:
 

It’s the perennial question homebuyers ask themselves and one that’s getting a lot of attention these days: should I go fixed or variable?


And the answer may have just become a little more complicated now that the Bank of Canada (BoC) has raised its overnight target rate to 1.50%.


The rate increase, which affects variable rate mortgages and Home Equity Lines of Credit (HELOCs), as well as the BoC’s statement that suggests more rate hikes are on the way, are weighing on consumers trying to decide between fixed or variable mortgage rates.


First let’s take a look at what the Bank of Canada did this week:

- Raised its overnight target rate by 0.25% to 1.50% (this is the fourth rate hike in 12 months).

- Forecasted GDP growth of 2.4% this year, 2.2% in 2019 and 2.1% in 2020.

- Suggested more rate hikes are to come with the following line: “Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.”


The Forecast for Future Hikes


There’s little guesswork needed to know rates will continue to go higher as per the BoC’s desire to keep inflation “on target.” The big unknown is the timing of those increases given unpredictable geo-political and economic events (e.g., trade wars) that could delay or even end the rate hike cycle.


For now, at least, most observers expect paced rate hikes over the next couple of years.


“The bias to the overall set of communications was more hawkish than markets expected at the margin and it leaves the door open to considering two more rate hikes before year-end relative to our present forecast for one more hike,” Scotiabank economist Derek Holt wrote in a research note. He noted that will largely be dictated by economic data and trade policy risks. “…at this point it is feasible that the BoC goes again in September… It is also unclear whether expedited near-term hikes alter the longer-run end point or simply bring it forward.”


Variable Still a Smart Choice


Many financial experts have weighed in on the fixed-variable debate in recent days, and most seem to share the point of view that variables still nearly always win over their fixed rate counterparts in terms of interest savings.


And it seems many Canadian mortgage consumers are taking that advice. A recent CIBC survey found that despite 72% of Canadians believing interest rates will rise over the next 12 months, only half (54%) of those would currently choose a fixed rate. Of those remaining, 19% say they would select a variable and 26% are undecided.


In a blog post published prior to the BoC’s rate decision, mortgage planner Dave Larock noted that when considering a variable rate it’s important to take a long-term view since market fluctuations, “even severe ones,” get smoothed out over time.


“For variable-rate borrowers, that means looking beyond late-cycle surges in inflation and focusing instead on the more powerful longer-term deflationary trends that are driven by factors like demographics, technological advances and today’s elevated debt levels,” he wrote. “For my part, I continue to believe that every rate hike by the BoC brings us closer to our next policy-rate cut.”


He added variable-rate borrowers should consider that “there hasn’t been a single period over the last 28 years (which is as far back as the BoC data go) where variable rates didn’t decline at least once in any five-year period.”

Rob McLister, founder of RateSpy, has also been drawing attention to the benefits of a variable rate, despite this rising rate environment.


“The more rates increase, the more we could see informed borrowers choosing variable rates,” he wrote, adding that the risk of a variable rate is arguably declining the higher rates go. “Prime – 1.00% or better (if you can get it) gives you a big head start.”


The Safety of Fixed Rates


For those who can’t handle rate fluctuations or who simply want to sleep better at night knowing what their rate will be for the next several years, or even those who truly believe floating rates will skyrocket over the next couple of years, the roughly 1.00% premium on today’s 5-year fixed rates is the price of security.


James Laird, co-founder of RateHub and President of CanWise Financial, said this week’s BoC decision has spurred a number of his variable-rate clients to consider the safety of a fixed rate.


“After the rate hike all of our clients who currently have variable rates are reaching out to discuss whether they should lock into a fixed rate,” Laird told CMT. “For those clients who are paying their mortgage down rapidly, or who have a small balance outstanding, variable remains a good choice. But for those clients who have a mortgage that is close to their maximum affordability, locking in is probably a good idea to reduce risk.”


He notes that full-featured 4-year fixed rates below 3.00% are a popular option, while the most risk adverse could also consider a 7-year fixed at around 3.34%.


McLister agrees that the 4-year term is a good tradeoff for the security of a fixed for less than the premium of a 5-year term.


“You’ll save over 10-30 basis points versus most 5-year fixed mortgages, with more flexibility to refinance sooner without penalty,” he wrote. However, he added there are currently no competitive 4-year fixed rates for refinances, and that fixed-rate refi shoppers would do better to consider a 5-year fixed instead.


Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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With the increase in home prices over the years, more Canadians are taking advantage of the equity they’ve built in their homes and using it to renovate. This can make a lot of sense for families who still enjoy the neighborhood and community they live in but their homes are either showing signs of aging or they simply want to add that dream kitchen they’ve always wanted.


A recent survey done by CIBC states that 45% of Canadians plan to renovate this year as many are choosing to stay put and renovate instead of selling their current home and moving up to another. Home improvements can also help increase the house value and selling price in the event a homeowner decides to sell down the road.


There are several ways to fund renovations including using your own savings, accessing existing lines of credit you may have, or even using your credit cards. However, one of the most cost-effective ways in most cases would be to refinance your existing mortgage or pull some equity out of your home. You might even be able to borrow funds without significantly increasing your mortgage payments and affecting your current cash flow.


There are also programs that allow you to purchase a home and include additional financing to pay for needed renovations to make it your dream home.


Whether you’re planning to renovate this summer or looking to buy a home that needs improvements, send me a quick email or give me a call and let me show you what is possible.



Regards,


Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC


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With home sale activity dipping below long-term historical averages, the supply of homes for sale in Metro Vancouver reached a three-year high in June.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,425 in June 2018, a 37.7 per cent decline from the 3,893 sales recorded in June 2017, and a 14.4 per cent decrease compared to May 2018 when 2,833 homes sold.


Last month’s sales were 28.7 per cent below the 10-year June sales average.


“Buyers are less active today. This is allowing the supply of homes for sale to accumulate to levels we haven’t seen in the last few years,” Phil Moore, REBGV president said. “Rising interest rates, high prices and more restrictive mortgage requirements are among the factors dampening home buyer activity today.”


There were 5,279 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in June 2018. This represents a 7.7 per cent decrease compared to the 5,721 homes listed in June 2017 and a 17.2 per cent decrease compared to May 2018 when 6,375 homes were listed.


The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 11,947, a 40.3 per cent increase compared to June 2017 (8,515) and a 5.8 per cent increase compared to May 2018 (11,292). This is the highest this total has been since June 2015.


“With reduced demand, detached homes are entering a buyers’ market and price growth in our townhome and apartment markets is showing signs of decelerating.”


For all property types, the sales-to-active listings ratio for June 2018 is 20.3 per cent. By property type, the ratio is 11.7 per cent for detached homes, 24.9 per cent for townhomes, and 33.4 per cent for condominiums.


Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.


The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,093,600. This represents a 9.5 per cent increase over June 2017 and is virtually unchanged from May 2018.


Sales of detached homes in June 2018 reached 766, a 42 per cent decrease from the 1,320 detached sales recorded in June 2017. The benchmark price for a detached home is $1,598,200. This represents a 0.7 per cent increase from June 2017 and a 0.6 per cent decrease compared to May 2018.


Sales of apartment homes reached 1,240 in June 2018, a 34.9 per cent decrease compared to the 1,905 sales in June 2017. The benchmark price for an apartment is $704,200. This represents a 17.2 per cent increase from June 2017 and a 0.4 per cent increase compared to May 2018.


Attached home sales in June 2018 totalled 419, a 37.3 per cent decrease compared to the 668 sales in June 2017. The benchmark price of an attached home is $859,800. This represents a 15.3 per cent increase from June 2017 and is virtually unchanged from May 2018.


Full Stats Package>

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Real estate prices have stabilized across the country and even dropped in some areas of the larger markets.  The total amount of sales has also decreased. The Canadian Real Estate Association (CREA) reported that sales were down 13.9% year over year in April and blames the new mortgage stress test that came into effect in the beginning of this year for the drop.


If you are looking to buy your first, next, or rental property, you can use this cooling real estate market to your advantage. There is still a substantial selection of homes on the market without the stress of an overheated housing market like we’ve seen last year.


The first step would be to get a mortgage pre-qualification to find out how much you qualify for. I will explain the process and what you’ll require to get your mortgage approved including how much down payment or equity from your existing home you’ll need, your credit, legal and closing costs, etc. You’ll know exactly what it takes to get you into the next or first dream home.


This year’s spring market sees lenders competing on mortgage product- and interest rates offerings, particularly variable rate mortgages. With this competitive environment, now might be an opportune time to have a look at your own mortgage, especially if you have a variable rate mortgage. The discounts offered can be significantly greater than those offered a few years ago and could save you thousands.


I’m here to assist you. Call or email me.


Regards,

 

Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC


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A new report on Metro Vancouver’s sky-high real estate prices says speculators and foreign buyers aren’t driving the market.

 

Instead, the study from UBC’s Sauder School of Business points the finger at red tape, which it says is driving up construction costs.

 

Author James Tansey said he wrote the study, which is based on a review of existing government and academic studies, after becoming frustrated with the debate he was hearing on housing policy.

 

“The factors driving that are really much more tied to the success of the economy, to population growth and to high-interest rates, and have very little to do with foreign buyers and speculation,” Tansey told Global News.

 

He said the study found that of all Canadian regions, Metro Vancouver is the slowest to respond to low supply.

 

He said it can take up to two years to get a build approved, which can add hundreds of thousands of dollars to the final cost of a unit — something buyers, not builders pay.

 

Tansey says while there is clearly some speculation it is not the main culprit.

 

The report argues that the government is making a mistake by focusing too much on demand-side interventions such as increases in the property transfer tax and school tax and the implementation of a new speculation tax.

 

“We just need more supply, we need to reduce the cost of new development applications,” Tansey said.

 

Tansey’s study argues that if the province actually expected its new taxes to reduce housing demand, its budget numbers would show falling revenue from the measures in the coming years. B.C.’s 2018 budget estimated a steady stream of revenue from the taxes.

 

The study recommends supply-side policies that focus on reducing the time it takes to approve new developments, reducing costs, and simplifying the zoning process of higher density development in areas currently dominated by detached houses.

 

It also proposes reinstating the federal Business Investor Program (BIP) — formerly known as the Immigrant Investor Program — which allows foreign investors to get on the path to citizenship by lending $800,000 to the government. That money, the report suggests, could be used to fund affordable rental housing.

 

That program was scrapped in 2014, but a similar program in Quebec remains in place, and has been criticized for offering wealthy immigrants a back door into B.C.’s housing market.

 

In February, the B.C. government unveiled a 10-year, 30-point plan that includes money to give municipalities more autonomy and build more than 100,000 homes.

 

Vancouver’s red tape

 

Meanwhile, Vancouver is looking to cut through red tape with a new pilot program to fast track home construction.

 

“The Applicant Supported and Assisted Process” is expected to reduce wait time for experienced builders with a good track by seven months.

 

“Builders who have a good track record, there are certain things they do repeatedly that you don’t need to scrutinize in applications which will reduce the amount of time spent on inspections,” said Greater Vancouver Home Builders Association president Bob de Witt.

 

De Witt said both the builder and the city will have a single point of contact to help with efficiency.

 

He said Vancouver’s goal is to expedite single family and laneway homes not fast-tracking public consultations and rezoning applications.

 

Full Article>

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Spring sales in the Greater Vancouver area's luxury real estate market are down but prices continued to climb, according to a new report.

 

Sales activity in the region decreased in the first quarter of 2018: the sales of detached luxury homes decreased by 38.2 per cent compared to 2017 and the sales of luxury condominiums decreased by 26.5 per cent, the study by real estate company Royal LePage said.

 

Despite this decrease in sales, the report noted there were still price gains.

 

The median price of a detached luxury home in Greater Vancouver rose 5.2 per cent to $5,792,941 and the median price of a luxury condominium rose seven per cent to $2,503,873.

 

Phil Soper, president and CEO of Royal LePage, said prices have only remained high because of momentum carried over from 2017 and they will likely fall this year.

 

"In light of recently announced provincial tax policies to both foreign and domestic buyers purchasing homes in the Vancouver region, price appreciation in the luxury market is expected to decline in 2018 while sales volumes are expected to continue to be lower than recent norms."

 

Royal LePage classifies a luxury home in the Vancouver area as any listing above $4,630,147 for a detached home and above $1,926,084 for a condo. 

 

Full Story>

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Some may ask; what is a benchmark rate? This rate has always existed but more recently it’s what mortgage lenders & 3rd party insurers have to use to qualify a borrower for a mortgage. So it can also be called the qualifying rate. It went up from 5.14% to 5.34% Don’t let this rate be confused with the contract rate; which is the actual rate that you receive and pay interest on when you get a mortgage. The most popular rate/terms are a 5 year fixed and 5 year variable; best rates available for them are still 3.19% and 2.40% for the latter.
 
See the full article from MortgageBrokerNews.ca below for the reason why it pushed the rate up; it’s effect on borrowers who who else raised their benchmark rates as well:  
 

"The bar is now higher for homebuyers to qualify for mortgages in Canada after the central bank raised a key metric used in stress tests that determine borrowers' eligibility.

 

The Bank of Canada raised the conventional five-year mortgage rate from 5.14 per cent to 5.34 per cent after all Big Six banks raised their posted five-year fixed mortgage rates in recent weeks.

 

The central bank qualifying rate is separate from the actual mortgage rates offered by banks to borrowers, but is used to assess homebuyers who are seeking loans.

 

Homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank's benchmark five-year mortgage rate.

 

And as of Jan. 1, buyers who don't need mortgage insurance are required to prove they can handle payments at a qualifying rate of the greater of the central bank's five-year benchmark rate or two percentage points higher than the contractual mortgage rate.

 

``Mortgage borrowers will be qualifying for less than they were able to earlier this year,'' mortgage broker Samantha Brookes said in an email. ``With all the new rule changes, we've definitely noticed the effect on the market with home purchases, renewals and refinances.''

 

The higher rates come as an estimated 47 per cent of all existing mortgages will need to be refinanced in 2018, up from the 25 to 35 per cent range in a typical year, according to a recent CIBC Capital Markets report.

 

The increase is an unintended consequence of various rounds of regulatory changes in the past few years aimed at reducing risk coupled with rising house prices that made it harder for homebuyers to qualify.

 

Borrowers who find the bar too high for the home they want can make some adjustments in order to make a purchase, she said. Those options include purchasing a smaller home and taking on less mortgage, or purchasing where prices are lower, added Brookes, who is founder of Mortgages of Canada.

 

The jump in the mortgage qualifying rate comes after Canada's largest lenders raised their benchmark posted five-year fixed mortgage rates in recent weeks as the cost of borrowing rises.

 

In late April, TD Bank was the first of the Big Five lenders to raise the benchmark rate, increasing it from 5.14 per cent to 5.59 per cent, due to factors including the ``competitive landscape, the cost of lending and managing risk.'' Royal Bank of Canada, Canadian Imperial Bank of Commerce, National Bank of Canada, Bank of Montreal and the Bank of Nova Scotia followed suit, but with smaller increases.

 

The slew of bank moves was preceded by a rise in government bond yields. The yield on the Government of Canada benchmark five-year bond was 2.16 per cent on Tuesday, compared to 1.01 per cent a year earlier. Fixed-rate mortgages tend to move with government bond yields of a similar term, reflecting the change in borrowing costs."

 

The Canadian Press via MortgageBrokerNews.ca
 

Regards,

 

Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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Four of Canada’s Big Six banks have now raised their posted mortgage rates since last week, sparking concern by homebuyers and existing homeowners about the implications.

 

TD kicked off this round of rate increases last week by raising its various mortgage terms, including an astounding 45-bps increase to its 5-year fixed rate, which jumped from 5.14% to 5.59%. RBC, National Bank of Canada and CIBC have since followed suit, raising rates by 1030 bps.

 

The question on everyone’s mind is: why are the big banks hiking, and why now?

 

The answer is partially related to Canadian bond yields, which rose to a seven-year high of 2.19% last week, and are now hovering around 2.14%. This has driven up mortgage borrowing costs for the banks.

 

But that doesn’t fully explain the extent of these hikes, RateSpy.com founder Rob McLister wrote in a Maclean’s article over the weekend.

 

Funding costs have risen by less than half as much as TD’s increase on the five-year fixed mortgage. Something else would appear to be at play,” he noted. “It could be that TD is trying to influence rates higher to pad profit margins, or trying to coax more people into locking in. Or it could be trying to build reserves in a riskier housing market where national average home prices are down over 10 per cent in one year.”


Mortgage planner David Larock had another theory, which he wrote about on his blog, movesmartly.com.

Citing a recent CIBC survey that suggests up to 47% of all residential mortgages will come up for renewal in 2018, and the fact that mortgage renewers are now more inclined to shop around for more competitive rates, Larock wrote: “I think TD is losing an increasing share of its renewal business because the rates it is offering aren’t competitive, and instead of sharpening its pencil and lowering them (which would negatively impact profitability), the bank is using its posted rate to spike the MQR [Mortgage Qualifying Rate] and make it harder for their renewing borrowers to seek alternatives.”


For the bank’s part, TD spokesperson Julie Bellissimo said factors such as “competitive landscape, the cost of lending and managing risk” are taken into consideration when setting rates.

How New Homebuyers Are Affected

Despite the optics, the hikes are unlikely to affect the majority of new homebuyers, at least as far as their contract rate is concerned (i.e., the rate they are actually paying for their mortgage).

 

That’s because while the banks have raised their posted rates, their “special” and discretionary ratesthat is, the rates available to most well-qualified borrowersremain largely unchanged or just modestly higher.

 

But while a new homebuyer may still be able to secure a relatively competitive mortgage rate, the real challenge will be passing the new stress test, which is based on the benchmark qualifying rate, which in turn is based on the mode average of the Big Six banks’ 5-year posted rates (currently 5.14%). And that’s about to climb even higher on Thursday, although we won’t know by how much until the final two banks announce any additional rate hikes.

 

McLister noted that if the qualifying rate rises by 20 bps, it would lower a borrower’s maximum theoretical purchase price by roughly 1.5%.

How Existing Homeowners Are Affected

Existing homeowners could feel the effects of these rate hikes in two ways: a more difficult stress test to pass should they want to switch lenders at renewal time; and higher penalties should they wish to pay out their fixed mortgage early.

 

Concerning penalties, Larock summed up the financial implications of breaking a mortgage with TD with the following example:

“…let’s assume that TD lends you $300,000 today at a five-year fixed rate of 3.59% with a 25-year amortization. If you break that mortgage in three years’ time, and if rates have not changed, TD’s latest hike in their posted rate increases the penalty they will charge you from $10,228 to $12,715 (using some slight rounding). For comparison, a host of other non-Big Six lenders would charge you a penalty of $2,480 under the exact same circumstances.”

Variable Rates as an Alternative

With mortgage rates on the rise, consumers are taking a long, hard look at all of their options in search of ways to keep their costs down.

 

For certain borrowers, variable rates may be the answer. Some variable rates can still be found for as low as 2.21% for insured or 2.49% for uninsured, according to RateSpy.com

 

But that healthy discount compared to fixed rates could quickly evaporate following a few more Bank of Canada rate increases. And that looks likely, with markets still pricing in two more quarter-point hikes to the overnight target rate by the end of the year. That would increase monthly payments for those with adjustable-rate mortgages (ARM) and lines of credit.

 

As for the timing of the next hike, most analysts seem to agree that July is the most likely, though Derek Holt at Scotiabank says a May hike isn’t out of the question given that the BoC said at its last meeting it would monitor data very closely in the “weeks” ahead.

 

“To have attached such a firm and relatively short timeline measured in weeks to data dependency suggests that the risk of a May hike should not be ignored,” he wrote.

What Can You Do?

So what can you do in the face of rising mortgage rates?

 

McLister advises that homebuyers who are currently rate shopping would do well to get a pre-approval at today’s rates before they rise any further. He suggests they have the lender review their documents to ensure a full pre-approval as opposed to just a “rate hold.”

 

Those who already have a mortgage that’s coming up for renewal and who aren’t happy with the rate they’ve been offered by their current lender would be well-served by the expertise of a broker, McLister wrote. A broker can help compare the savings of breaking the mortgage early and locking in at a better rate elsewhere, or simply help negotiate a more competitive renewal rate.

 

“If you’re up for renewal and your bank is quoting a pitiful rate because it thinks you are less rate-sensitive, higher risk and/or can’t qualify elsewhere, phone a broker,” he noted. “There are a few different ways to avoid the stress test and brokers know the most tricks to do it.”

 

Regards,

 

Tony Marchigiano  

Mortgage Broker
310-328 West Hastings Street
Vancouver, BC
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