The Bank of Canada met earlier this week to make a decision on their key lending rate. They decided to keep it where it is for now. This was widely expected by economists but how long will rates stay? In January they increased the rate by a 1/4 percent after 2 increases of the same last year. The forecast then was for 3 more increases this year. That has now changed. See what the change is by reading this in depth article by CanadianMortgageTrends:
"The Bank of Canada left interest rates where they were today, citing weaker-than-expected data in the first quarter.
In its Monetary Policy Report, which was also released today, the bank noted that the Governing Council considered recent economic data “very carefully” and concluded the softness was due mainly to two temporary factors: the new mortgage rules and an unexpected drop in exports.
The bank said the new stress test that came into effect on January 1 caused house sales to be pulled forward into the fourth quarter of 2017.
“Although we are still expecting the housing sector to moderate in 2018 compared with last year, we can expect a partial recovery of activity in the second quarter,” the bank noted.
In his press conference following the rate decision, Governor Stephen Poloz said the overall economic activity is expected to rebound later in the year, with GDP growth of 2.5% in Q2.
“The economy is projected to operate slightly above its potential over the next three years, with real GDP growth of about two per cent in both 2018 and 2019, and 1.8 per cent in 2020,” the bank said.
Future Hikes Still Possible
Many analysists weighed in following the decision, saying the bank’s comments and forecasts for later in the year leave rate hikes on the table for 2018.
“The tone of the statement was generally upbeat, suggesting the BoC remains on a slow but steady rate hike path,” noted Benjamin Reitzes of BMO Capital Markets. “We remain very comfortable with our call for the next hike to come in July.”
Reitzes noted that the bank’s hawkish forecast for the second half of the year suggests the BoC is “looking for some stability in housing over the coming months, at a minimum.”
OIS markets are still fully pricing in two additional rate hikes in 2018.
Economists at CIBC pointed out the dichotomy in the bank’s statement, which highlighted a pick-up in inflation and “little slack” remaining in the economy, while at the same time referencing “escalating” global risks and the continued need for “some monetary policy accommodation.”
“Sum it all up and you have a central bank happy to move interest rates higher still, but only very gradually, and we stick to our forecast for the next hike coming in July, followed by a hold for the balance of the year,” they wrote.
Good New for Homeowners…For Now
The rate hold was good news for adjustable rate mortgage holders, who, since July 2017, have already seen their monthly payments jump by about $35 a month per $100,000 of mortgage.
The BoC’s 75 bps of increases since last summer have already driven mortgage costs to four-year highs.
And that’s starting to have a psychological effect on homebuyers.
RBC’s latest Home Ownership Poll found that Canadians are growing increasingly concerned about rising rates, and are considering changing their homebuying plans as a result.
The survey found that 61% of Canadians now say they are “very” or “somewhat” concerned about rising interest rates (vs. 51% last year).
In response, 35% say they are thinking about making their home purchase sooner in order to take advantage of still relatively low interest rates, while 32% are considering an earlier purchase to get into the market ahead of potential future hikes.
The Bank of Canada’s next rate decision will be delivered on May 30."
310-328 West Hastings Street
Millennials are leading the charge among those who intend to buy a home in Canada in the next two years, largely due to lessened anxiety around employment and the economy, according to an RBC poll.
“The biggest finding is that people are not discouraged about home ownership, particularly as first-time home buyers,” said Nicole Wells, vice-president of home equity financing with RBC.
That’s a stark shift from housing market reports coming into the new year, which painted a rather dark picture of the affordability of owning a home in Canada. January was the first month in which the Canadian housing market had to deal with new federal mortgages rules, which saw sales drop by 14.5 per cent compared to December, while prices slipped 2.4 per cent, according to data released on Thursday by the Canadian Real Estate Association.
According to the poll, 84 per cent of millennials believe that purchasing a home is a good investment, which is up five percentage points from last year. Furthermore, of the 32 per cent of Canadians who are likely to purchase a home in the next two years, millennials make up half.
“Canadians continue to feel optimistic about getting into the housing market despite changes in government regulations. They’re taking a more informed journey to home ownership by starting with affordability,” said Wells.
As intentions to buy a home continues to climb in Canada, 35 per cent of those surveyed indicated that they’d be receiving financial assistance from family for the down payment. Wells explained that while this percentage applied to Canadians as a whole, millennials can find themselves particularly strapped in the midst of Canada’s rising interest rates and property prices.
To combat rising prices, Wells says Canadian millennials are proving “savvy” so far when it comes to getting where — and what — they buy.
“A lot of millennials are pretty smart and savvy. They’re going into condos and townhouses and finding creative ways to get into a home,” explained Wells.
“They’re growing up,” explained Wells. “They understand their finances more now than ever. They’re thinking about starting families and it’s hard to do that in your parent’s basement.”
How do I know if I can afford it?
Th poll went on to offer several tips to Canadians looking to jump into the housing market — the primary one being scenario planning.
“Scenario planning is a big one,” said Wells. “I don’t think people do this enough. Many people overestimate the cost of living and costs of having a home. People can actually overestimate their budgets by 20 to 30 per cent.”
To remedy this, Wells recommends that prospective homebuyers plan out a few scenarios to help them visualize where they’ll be in a few years and whether or not they’ll still be able to afford rising living costs.
“If you plan to have children in the future, buy a new car or own a business, make sure you have a few scenarios aligned with your dreams. Factor these scenarios into your home-buying aspirations,” reads the study.
RBC Home Ownership Poll conducted by Ipsos from Jan. 9 – Jan, 24, 2018 on behalf of the Royal Bank of Canada, through a national survey of 2,000 Canadians ages 18+ who completed their surveys online. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, had all Canadian adults been polled.
Buying a home to call your own a significant milestone in the journey of adulthood. For some, it represents more of an ingrained belief than a purely financial decision. For others, it’s a goal they’ve been working towards for a long time. So, if you’ve made the decision that purchasing a home is important both to your lifestyle and to your peace of mind, there are some crucial steps to consider before you begin house hunting.
1. Credit rating—If you own a credit card, you can likely check your credit rating and get a free credit report. If you find some dents and dings in your credit, the consequence is the potential of having to pay a higher interest rate. Make sure you have full documentation of any negative or disputed aspects of your report—the mortgage companies will weigh this very heavily in deciding whether to offer you financing. If your credit rating is less than favorable, gain a clear understanding of what it will take to shine it up before going full tilt into the buying process.
2. Budget analysis—Know your numbers. How much are you spending on your rent, debt and other fixed costs? It’s nice to believe you can swing the monthly mortgage, but it’s another thing to know that you can. Understand where your paycheck goes and how much might be “leaking” into unknown places—this is vital before you make that leap. There are so many potential unknowns.
3. Debt percentage—33/38 are the numbers to be concerned with. 33% of your monthly income can be devoted to housing costs, while 38% includes consumer debt. If you are outside of these limits, you might not qualify for the mortgage.
4. Down payment—Your mortgage company will look closely at the source of your down payment. It will look to your bank statements and scour them for money movement, such as sizeable deposits in and money transferred out. If you are receiving a gift or loan from your family, make sure it’s in place for a long period of time. The mortgage company will also want to make sure you not only have the required down payment funds available, it will make sure you have closing costs ready and available as well. Preplanning is critical.
5. Additional costs associated with ownership—In deciding to purchase, you are now signing on to commit to new costs that you might not have previously considered. While you have been paying rent month after month, you will now be taking on Real Estate taxes, maybe an Association Maintenance Fee, additional costs for utilities, homeowner’s insurance and maintenance and repair costs that have never been a part of your normal monthly outflow. For this reason, be sure you have plenty of wiggle room in your budget.
6. Interest rate environment and mortgage choices—On any mortgage website, you will be thrust into a barrage of choices that are sure to make your head spin. You will see mortgages that are fixed and variable rate, points (which are prepaid interest), length of time; 10-30 years, and more. Additionally, you will have to decide to lock in a rate or let it float with the mortgage. In order to make a good decision, you need to understand whether we are in a rate environment that is rising, static, or falling. Most importantly, understand the impact your choices have on your cash flow.
7. The housing market in your area—If there is anything you want to get a good handle on before you jump in, it is the nature of the housing market in your area. If homes are being bid up as a matter of course, be wary of diving in. Housing prices don’t move in only one direction. If you overpay for a home in a hot market, you might find yourself with negative equity for a long time until the market reignites.
Buying a home might be very important you and your family. Make sure you understand the numbers and the issues before your emotions take over.
Full Article >
56% of first time homebuyers realize the importance of using a professional mortgage broker. With all the mortgage rules changes and the fact that mortgage professionals have access to more mortgage options, including some that are only available to brokers, it just makes sense to use a mortgage broker.
Getting a mortgage that makes sense today and in the future just got a lot more important. You need to understand how your credit, type of income, and many other factors affect your ability to get a mortgage not only today but also how they might impact your mortgage at renewal. In the past, as long as your payments were made on time, lenders would just offer you a renewal. In today’s environment, lenders might not just simply renew your mortgage.
IFRS (International Financial Reporting Standards) require some lenders to hold additional reserves (money set aside) on a file should there be a substantial change in the client’s profile. The most opportune time for a lender to update a client’s profile is when the mortgage is due for renewal. They can check your credit to ensure nothing substantial has changed, they can confirm employment is still acceptable and income levels are stable and they can even check to see if the value of your home is still satisfactory. All these factors could determine if the lender is willing to renew your mortgage and at what rate and terms.
Let’s ensure you are well equipped to take any necessary steps well ahead of your renewal time. If you’re buying a home, you want to make sure you have the right mortgage from the start. If you have a current mortgage, now is a good time to review your mortgage and financial situation, even if your mortgage renewal is still a few years away.
Mortgages that make sense today and tomorrow is what I do.
310-328 West Hastings Street
We are well into 2018 and are starting to see the effect of the fully implemented mortgage rule changes that came in January of this year. As reported recently in the Financial Post, many borrowers who would have been approved at traditional bank lenders just last year are now being turned down. As a result, the mortgage broker channel has seen an increase of over 20% in new applications.
More and more Canadians, as per Canadian Mortgage and Housing Corporation’s (CMHC) latest survey, are using the services of mortgage brokers and are calling them first. CMHC stated that mortgage broker share is trending upwards and with 55% of first time buyers now relying on the advice of mortgage brokers.
This makes total sense given brokers have access to the Canadian mortgage market including many credit unions, mortgage investment companies (MIC’s) and other lenders that are not affected by the new regulations in the same manner as traditional bank lenders are.
Now is a great time to see what you can qualify for and get pre-approved for your first or next mortgage. Whether you’re buying, refinancing, or investing, let me provide you with all the relevant information and resources to help you achieve your dreams and financial goals.
Your best option is to simply talk to me first.
310-328 West Hastings Street
Home buyers and sellers were less active in Metro Vancouver* throughout the first quarter of 2018.
The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,517 in March 2018, a 29.7 per cent decrease from the 3,579 sales recorded in March 2017, and a 14 per cent increase compared to February 2018 when 2,207 homes sold.
Last month’s sales were 23 per cent below the 10-year March sales average.
There were 6,542 home sales on the Multiple Listing Service® (MLS®) in Metro Vancouver during the first quarter of 2018, a 13.1 per cent decrease from the 7,527 sales over the same period last year. This represents the region’s lowest first-quarter sales total since 2013.
“We saw less demand from buyers and fewer homes listed for sale in our region in the first quarter of the year,” Phil Moore, REBGV president said. “High prices, new tax announcements, rising interest rates, and stricter mortgage requirements are among the factors affecting home buyer and seller activity today.”
There were 4,450 detached, attached and apartment properties newly listed for sale in Metro Vancouver in March 2018. This represents a 6.6 per cent decrease compared to the 4,762 homes listed in March 2017 and a 5.4 per cent increase compared to February 2018 when 4,223 homes were listed.
There were 12,469 homes listed for sale in Metro Vancouver during the first quarter of 2018, a 0.8 per cent decrease from the 12,568 sales over the same period last year. This represents the region’s lowest first-quarter new listings total since 2013.
The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 8,380, a 10.5 per cent increase compared to March 2017 (7,586) and a 7.1 per cent increase compared to February 2018 (7,822).
“Even with lower demand, upward pressure on prices will continue as long as the supply of homes for sale remains low,” Moore said. “Last month was the quietest March for new home listings since 2009 and the total inventory, particularly in the condo and townhome segments, of homes for sale remains well below historical norms.”
For all property types, the sales-to-active listings ratio for March 2018 is 30 per cent. By property type, the ratio is 14.2 per cent for detached homes, 39.9 per cent for townhomes, and 61.6 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.
The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,084,000. This represents a 16.1 per cent increase over March 2017 and a 1.1 per cent increase compared to February 2018.
Sales of detached properties in March 2018 reached 722, a decrease of 37 per cent from the 1,150 detached sales recorded in March 2017. The benchmark price for detached properties is $1,608,500. This represents a 7.4 per cent increase from March 2017 and a 0.4 per cent increase compared to February 2018.
Sales of apartment properties reached 1,349 in March 2018, a decrease of 26.7 per cent compared to the 1,841 sales in March 2017. The benchmark price of an apartment property is $693,500. This represents a 26.2 per cent increase from March 2017 and a 1.6 per cent increase compared to February 2018.
Attached property sales in March 2018 totalled 446, a decrease of 24.1 per cent compared to the 588 sales in March 2017. The benchmark price of an attached unit is $835,300. This represents a 17.7 per cent increase from March 2017 and a two per cent increase compared to February 2018.
Full Stats Package>
The latest in Mortgage News as reported by Canadian Mortgage Trends discusses the many changes, not only to mortgage rules but housing policy as well. What are these changes and how did, and still is, affecting the mortgage and housing market? Read the full article below for all the details:
As a side note: there has been a lot of changes. For a one on one review of them, and to determine how your borrowing power would have been affected, please feel free to reach out to me.
The Latest in Mortgage News – Government Policy & Housing Data
With the arrival of the new year came the official start of OSFI’s new mortgage regulations.
And the latest national home sales data suggests a significant number of Canadian homebuyers snuck in just under the wire and purchased homes before the new stress test rules took effect.
This isn’t the only example of government policy affecting Canada’s housing market. Earlier this month the Toronto Real Estate Board suggested Ontario’s new housing rules (which include a foreign buyer’s tax) was largely responsible for a double-digit decline in annual home sales last year.
More on these and other recent news items below…
Bump in December Home Sales
The Canadian Real Estate Association’s December home sales data showed a 4.1% increase compared to a year earlier, while the average home price rose 5.7% to $496,500.
Many suspect the surge in sales was partly due to homebuyers rushing to make their purchase before OSFI’s new mortgage regulations took effect January 1, requiring uninsured mortgages to be stress tested.
“National home sales in December were likely boosted by seasonal adjustment factors and a potential pull-forward of demand before new mortgage regulations came into effect this year,” said Gregory Klump, CREA’s Chief Economist.
That likely means a slowdown in home purchases to start off 2018, according to some experts.
“The new OFSI measures and a shift to a rising-rate environment should prevent speculative froth from building again, and contain price growth to a reasonable pace for the remainder of the cycle,” wrote senior BMO economist Robert Kavcic.
Ontario Housing Rules Blamed for 18% Drop in GTA Sales
Earlier this month the Toronto Real Estate Board (TREB) blamed the Ontario Government for the 18% drop in home sales in 2017.
In April, the Ontario Government introduced 16 measures to cool the overheating real estate market in the Greater Toronto Area (GTA), including a 15% tax on home purchases made by non-residents.
“Much of the sales volatility in 2017 was brought about by government policy decisions,” TREB president Tim Syrianos said in a statement. “Research from TREB, the provincial government and Statistics Canada showed that foreign home buying was not a major driver of sales in the GTA. However, the Ontario Fair Housing Plan, which included a foreign buyer tax, had a marked psychological impact on the marketplace.”
TREB reported 92,394 home sales in the GTA last year, which was down from a peak of 113,040 in 2016. The board also reported a decline in prices for certain segments of the market. Detached home prices were down year-over-year by 2.5% to an average of $989,870, while condo prices were up 14.4%.
Canadians Concerned About Rate Hikes
Just ahead of last week’s Bank of Canada interest rate hike CIBC released a poll that found a majority of Canadians are concerned about the impact rising rates will have on their finances.
The poll found that while 77% of respondents were optimistic about their financial situation, 59% admitted they would feel “significantly less” confident if rates go up again.
“Given that household debt remains at record highs, it’s no surprise that Canadians are concerned about even the slightest change that might affect their finances,” said Jennifer Hubbard, CIBC’s Managing Director, Financial Planning and Advice.
With OIS markets still fully pricing in 50 bps of tightening by the end of the year, those worries likely won’t subside any time soon.
RateHub Secures $12M Investment
Mortgage rate comparison website RateHub announced last week that it had secured a $12-million investment from Elephant Partners LP, a venture capital firm based in Boston.
RateHub co-founder Alyssa Furtado, who put the company in the spotlight during her 2016 appearance on CBC’s Dragon’s Den, said Elephant’s investment “will be a tremendous asset in accelerating RateHub Inc.’s future growth.”
A RateHub spokesperson wouldn’t confirm what percentage of the company was purchased for the $12-million investment. However, in a comment to the Globe and Mail, Furtado stated this round of financing values the company at a level “many times” the $14 million Dragon’s Den deal she ultimately turned down.
The funds will be used to build a digital platform where homebuyers can complete the entire mortgage process online, while also expanding its other verticals, including credit cards, deposits and insurance, according to the company’s press release.
310-328 West Hastings Street
Does a three-bedroom laneway house sound good to you? It sounds good to Bryn Davidson of Lanefab, a company that builds laneway as well as custom, full-size homes. He would like to see Vancouver amend its laneway policy to make it easier to construct family-sized ones. At this point, it’s difficult to do so because of limits to allowable square footage.
Davidson includes the suggestion in a 10-point Twitter essay he posted Wednesday evening in response to the City of Vancouver’s call for feedback for its online survey about laneway homes. (Find the survey here.)
“Hint: 1200 to 1400sf would work great,” he tweeted.
“We get a lot of interest in three bedrooms. We’ve only ever done one three-bedroom laneway house just because 1,000 square feet is tight for doing three bedrooms. A little bit more space would let you do three bedrooms all over the city,” he told the Courier Thursday.
Other items on his wish-list for policy changes include allowing extra height and getting rid of the landscape review requirement.
“Historically, the landscape review has been one of the biggest barriers and time delays in the permitting process,” he said. “It tends to be one of the most arbitrary and it’s something the city really doesn’t need to be spending staff time on.”
The city’s laneway survey was posted Jan. 6 and is online until Jan. 29. Invitations to take the survey were also mailed to laneway owners and occupants in early January. The goal is to find out more about laneway homes, including who is living in them and what they’re like as homes. The survey is part of the city’s laneway housing review, which was approved in November 2017, as part of the city’s Housing Vancouver strategy and three-year action plan for 2018 to 2020. The overall housing plan aims to deliver 72,000 new homes in Vancouver in the next 10 years. The laneway review aims to improve efficiency and affordability of laneway housing options.
Currently, both one- and one-and-a-half storey (partial second floor) laneway houses are permitted. The maximum permitted floor area for a laneway house depends on the size of the lot it’s built on, but not counting allowable exclusions, they may not exceed 83.6 square metres (900 square feet), according to city staff. Davidson said laneway homes typically end up being between 700 and 1,000 square feet.
Based on city regulations, they can’t be separately stratified and sold independently from the main house on the property but must be used as a rental housing unit or as housing or accommodation for family members, friends or guests. Some owners may also use their laneway house as a home office or workspace.
They’re allowed on lots 32 feet or wider in any RS (one-family) zoning district. In January, city council approved changes to the RT-5 and RT-6 (two-family) zones in Mount Pleasant and Grandview Woodlands. The changes mean laneways are now permitted in those areas in conjunction with a single-family home, but not with a duplex.
Since the City of Vancouver first approved laneway homes in 2009, 3,000 have been built across the city. Over the years, efforts have been made to tweak regulations that govern their construction.
Davidson anticipates the latest review will see some of his policy-change suggestions realized, but not all.
“I think I have some broader ambitions that the city might be hesitant with, especially allowing strata everywhere. I know that’s been something they’ve been quite reluctant to do,” he said.
“We worked with the city in 2013 on that update and we were happy with how they listened to us and how they updated those ADU policies... Compared to most other cities in North America they’ve done a lot right. Now I’m hoping they can go even further.”
(ADU stands for accessory dwelling unit, which is a generic term that encompasses a range of different kinds of secondary units, including laneways.)
Davidson, meanwhile, wrote an article for CityLab a couple of months ago outlining what he believes the City of Vancouver has done right and what other cities have done wrong with their ADU policies, “so I think these updates are building on a solid foundation,” he said.
More than 450 people have responded to the laneway survey so far, according to the city. After the survey closes, staff will analyze the responses and summaries will be shared as part of the ongoing Laneway Housing Program review. The results will be important in helping inform any policy recommendations that are made through this work.
The City of Vancouver is looking for ways to reset a housing market in which its residents are battered by both high prices and a low availability, and putting local buyers at the front of the line for any new presale real estate opportunities is one of the policies it is considering.
But as some recent voluntary efforts by developers to prioritize local buyers show, it's easier to declare a "locals-first policy" than it is to verify and enforce that locals end up living in a newly constructed condo or townhouse.
Similar to the province's 15-per-cent foreign-buyer real-estate tax, the city policy is aimed at non-resident investors who have been shown to buy a disproportionate share of the city's high-end condos.
Andy Yan, director of the City Program at Simon Fraser University, broke down the foreign ownership numbers from Statistics Canada and the CMHC and found that condominiums valued higher than $1.5-million had a remarkably high share of foreign ownership, as high as 19 per cent in Vancouver. The city-wide percentage of foreign ownership of all home types was just 7.6 per cent and 4.8 per cent in Vancouver's metro area.
Before even having these numbers the city had already concluded that foreign buyers were distorting the market for new condos.
On Oct. 17, 2017, Vancouver's city council passed a motion to begin "a policy framework for new development applications that gives residents who live and work in Metro Vancouver the first opportunity to purchase new presale homes in Vancouver."
So far, such moves have been applied only to individual projects. One of the first came in 2016 when the West Vancouver district attached a locals' first presale period to the its approval of the six-building, 120-condo unit Sewell's Landing project.
Council's motion could eventually make locals-first the default in any new building application across the city.
That has prompted some developers to move now, and announce they are voluntarily adopting a locals-first policy.
Westbank Corp. opened up a locals-first buying period on Dec. 14 for its 57-floor, 331-unit, Butterfly building project for 969 Burrard St. in Vancouver, the company posted a long document explaining the policy on its website. The company also states it has done similar programs in the past, designed to give a 30-day exclusive buying period for literal locals (as in they lived in the neighbourhood of the development) and another 60 days for residents of Greater Vancouver.
"The sales team also verifies driver's licenses, utility bills and employment letters to insure the buyer included in the Local First program meets the criteria," the document says. "All buyers are asked to sign a declaration to confirm they meet the program's criteria."
The Butterfly document says that in addition to a 30-day window, at any time whenpresales are open if a foreign buyer and a local expressed interest in the same condo unit the tie would go to the local buyer.
"To be perfectly frank, it's a window-washing exercise," says Josh Gordon , assistant professor at the Simon Fraser University School of Public Policy. "This will have very little effect."
For example, what if a buyer was found to have falsified the declaration of " localness" they signed, would that cancel the sales contract? "We have never had to enforce a declaration before so we are unsure what legal consequences would be exactly if buyer does not live up to declaration," according to Michael Braun, director of sales and marketing for Westbank.
Even how the companies define and screen for locals is ripe for abuse, Mr. Gordon says. Locally registered shell corporations with foreign owners, for example, might slip by as "local." A recent civil case involving a $750,000 home purchase in PortCoquitlam, B.C., showed some Chinese overseas investors will go to extreme measures – such as having nine individuals each smuggle packets of $50,000 in cash across the border into Canada – in order to disguise the origin of real estate funds.
There's the more widely known practice of a foreign buyer transferring money to a relative or other agent in Canada to purchase the home on their behalf.
"We understand and acknowledge that a family member may be helping out another family member to purchase a home in Vancouver [a common reality in a high-priced housing market] and do not specially track that," Mr. Braun says.
Butterfly units start at $960,000.
Until policymakers are better able to establish residency of property owners – for example by tracking whether an owner declares income in the province – announcing a development will be locals' first "is more or less a meaningless pledge," Mr. Gordon says.
The Bank of Canada was widely expected to hike its benchmark interest rate for the third time in a year this morning and they did. They increased the rate by another .25%
After staying on the sidelines for the better part of a decade following the financial crisis, Canada's central bank raised its key interest rate twice last year, to one per cent. The bank's rate is important because it filters down to affect the rates that Canadians get from banks and other lenders for things like mortgages, GICs and savings accounts.
After a slew of data suggesting Canada's economy is growing solidly, and the job market is positively booming, experts say the central bank is likely to raise its key lending rate by 25 points to 1.25 per cent — a level not seen since 2009.
310-328 West Hastings Street
2017 has come to an end and we've welcomed the new year and the opportunities it may bring. It’s been a year of many mortgage rule changes, new regulations, mortgage stress test, foreign buyer tax and more.
The one thing that hasn’t changed is Canadians’ desire to own a family home or investment properties and this is sure to continue. Owning real estate especially for the long term simply makes financial sense. The low interest rate environment and the continued growth in the Canadian economy are great catalysts for continued demand for homes. According to the latest RBC Economic Outlook, the Canadian economy is ready to keep rolling in 2018 while on track to post the strongest performance in all the G-7 countries.
There are many ways to use a mortgage other than for buying your first home or investment property. You can use the equity in your home to access funds for things such as paying down debt, helping your children or other family members with the purchase of their first home or to help with tuition. You can even use the funds to buy additional properties and other investments that build your financial security.
I’m sure 2018 will be another interesting year in the Canadian mortgage and real estate world, hopefully not as eventful as this year was. I’ll be here to help you, your family and friends find the right mortgage solution and help make your homeownership and other financial dreams come true. I look forward to working with you, your friends and family.
Wishing you all the best in 2018.
310-328 West Hastings Street
After reaching record levels in 2015 and 2016, Metro Vancouver home sales returned to more historically normal levels in 2017. Home listings, on the other hand, came in several thousand units below typical activity.
The Real Estate Board of Greater Vancouver (REBGV) reports that sales of detached, attached and apartment properties reached 35,993 on the Multiple Listing Service® (MLS®) in 2017, a 9.9 per cent decrease from the 39,943 sales recorded in 2016, and a 15 per cent decrease over the 42,326 residential sales in 2015.
Last year’s sales total was, however, 9.7 per cent above the 10-year sales average.
“It was a steady year for home sales across the region, led by condominium and townhome activity, and a quieter year for home listings,” Jill Oudil, REBGV president said. “Metro Vancouver home sales were the third highest we’ve seen in the past ten years while the home listings total was the second lowest on record for the same period.”
Home listings in Metro Vancouver reached 54,655 in 2017. This is a 5.1 per cent decrease compared to the 57,596 homes listed in 2016 and a 4.5 per cent decrease compared to the 57,249 homes listed in 2015.
Last year’s listings total was 4.4 per cent below the 10-year listings average.
“Market activity differed considerably this year based on property type,” Oudil said. “Competition was intense in the condominium and townhome markets, with multiple offer situations becoming commonplace. The detached home market operated in a more balanced state, giving home buyers more selection to choose from and more time to make decisions.”
The MLS® HPI composite benchmark price for all residential properties in Metro Vancouver ends the year at $1,050,300. This is up 15.9 per cent compared to December 2016.
The benchmark price of condominiums increased 25.9 per cent in the region last year. Townhomes increased 18.5 per cent and detached homes increased 7.9 per cent.
“Strong economic growth, low interest rates, declining unemployment, increasing wages and a growing population all helped boost home buyer demand in our region last year,” Oudil said.
Sales of detached, attached, and apartment properties totalled 2,016 in the region in December 2017, a 17.6 per cent increase from the 1,714 sales recorded in December 2016 and a 27.9 per cent decrease compared to November 2017 when 2,795 homes sold.
Last month’s sales were 7.5 per cent above the 10-year sales average for the month.
“As we move into 2018, REALTORS® are working with their clients to help them understand how changing interest rates and the federal government’s new mortgage qualifications could affect their purchasing power,” Oudil said. “Only time will tell what impact these rules will have on the market.
“Home buyers today should get pre-approved before making an offer to ensure that your home buying goals align with your financial situation,” Oudil said.
There were 1,891 residential homes newly listed for sale in December 2017. This represents a 44.1 per cent increase compared to the 1,312 homes listed in December 2016 and a 54 per cent decrease compared to November 2017 when 4,109 properties were listed.
The total number of homes currently listed for sale on the MLS® in Metro Vancouver is 6,958, a 9.7 per cent increase compared to December 2016 (6,345) and a 20.5 per cent decrease compared to November 2017 (8,747).
The sales-to-active listings ratio for December 2017 is 29 per cent. By property type, the ratio is 14.4 per cent for detached homes, 38.8 per cent for townhomes, and 59.6 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.
Sales of detached properties in December 2017 reached 617, a 14 per cent increase from the 541 detached sales recorded in December 2016. The benchmark price for a detached home in the region is $1,605,800. This represents a 7.9 per cent increase compared to December 2016.
Sales of apartment homes reached 1,028 in December 2017, a 12.3 per cent increase compared to the 915 sales in December 2016.The benchmark price of an apartment in the region is $655,400. This represents a 25.9 per cent increase compared to December 2016.
Attached (or townhome) property sales in December 2017 totalled 371, a 43.8 per cent increase compared to the 258 sales in December 2016. The benchmark price of an attached home in the region is $803,700. This represents an 18.5 per cent increase compared to December 2016.
Full Stats Package >
It’s been an interesting year, to say the least, in the Canadian housing & mortgage market. Many policy changes have been imposed to try to reign in the very strong demand for housing in some Canadian markets.
The Globe & Mail does a good job of reviewing these changes and how they’ve impacted the market in the article below. Take a read and, as always, let me know if you have any questions at all.
Merry Christmas and Happy New Year Everyone!!!
Canada's housing sector has been whipsawed by policy changes over the past year as governments have tried to cool overheated markets in Vancouver and Toronto and stave off a consumer debt crisis.
In the year since the B.C. government introduced a foreign-buyers tax in the Vancouver housing market, federal and provincial governments have announced a variety of policy changes and proposals that have cumulatively turned residential real estate into one of the most actively regulated sectors in the economy.
The changes have included a combination of vacant homes taxes, breaks for first-time home buyers, tighter mortgage qualification rules and restrictions on foreigners buying homes.
Together the reforms have created a major national experiment in cooling off an industry sector in the face of overwhelming consumer demand. Here are highlights of some of the most significant reforms announced in the past 12 months, along with the market impacts.
The B.C. government surprised Vancouver residents last summer when it announced a new 15-per-cent tax on foreign home buyers effective Aug. 2, making Vancouver the first jurisdiction in Canada to require non-residents to pay a tax on home purchases.
The tax appeared to have an immediate impact, with house sales in the Vancouver region falling 26 per cent in August compared with a year earlier and average prices sliding through the fall.
However, many observers said the tax hit as the market was already softening, spurring an even greater response. Sales in the Vancouver region had climbed just 0.6 per cent in June, 2016, and fell 19 per cent in July compared with the same month a year earlier as many home buyers had already started to leave the market due to affordability concerns.
Coupled with the unexpected new tax, total sales fell steadily through the fall and winter, and the average price for all home types dipped to a low of $896,000 by January, 2017, down 4 per cent from the benchmark index high of $930,400 in July. Detached home prices fell 6.5 per cent from July to February.
But the price decline began to slowly reverse in February and prices hit new record highs by April and continued to grow, although the pace of new sales slowed. The benchmark index price for all types of homes in Vancouver was $998,700 in June, up 7 per cent from July last year before the tax was announced.
The result is that the Vancouver market appears to have largely shrugged off the tax, said Elton Ash, regional executive vice-president of Western Canada at realty firm Re/Max.
"The tax last year was introduced as a political move more than anything else, knowing there was a spring election around the corner," Mr. Ash said. "And ultimately it hasn't had any effect."
Mr. Ash said housing demand returned quickly, and he believes foreign buyers will begin to factor in the tax as a cost of doing business and will not be significantly deterred by the additional cost. Local residents meanwhile are slowly stepping back into the market after spending a few months on the sidelines assessing the impact.
"You really can't tax your way out of a housing problem," he said.
There are many places in Metro Vancouver to see sparkling Christmas lights, admire seasonal decorations and enjoy the festive winter holiday season.
There are gardens with amazing illumination displays, gingerbread house competitions, Christmas musical performances, holiday markets to explore, popular attractions all lit up and a whole lot more.
Top Holiday Season Activities
Below are the top 10 places in Metro Vancouver to see Christmas lights, holiday decorations and get into the festive spirit.
1. Bright Nights at Stanley Park
Vancouver’s Stanley Park hosts the most amazing presentation of Christmas lights and festive themed displays in the Lower Mainland, with over three million sparkling lights viewed by gazillions of people each year. Admission is by donation, with funds going to the BC Professional Fire Fighters’ Burn Fund.
The classic night train costs about $9-$12 and requires waiting in line due to its popularity, but it’s fun for the kids. Bright Nights offers exceptional value and is our top choice for Christmas lights for young children.
Click Bright Nights at Stanley Park for more information.
Bright Nights is open from November 28, 2017, until January 6, 2018.
2. Peak of Christmas at Grouse
Grouse Mountain in North Vancouver offers some of the best Christmas-time activities in the Lower Mainland. There are Christmas movies in their theatre, sleigh rides, Santa to visit and gingerbread houses all on display and included with admission. There is also ice skating, trails for snowshoeing, fine dining and of course the great ski slopes with their amazing views of Vancouver below.
At a cost of about $90 or so for a family, the Peak of Christmas isn’t cheap. Admission is included with a ski ticket or advance reservations for dinner at the Observatory Restaurant, however, which makes all the attractions suddenly become a pretty good deal.
Click Peak of Christmas at Grouse Mountain for more information.
The Peak of Christmas runs from November 27, 2017, until January 7, 2018.
3. Lights at Lafarge
Lights at Lafarge is a Christmas attraction that features holiday lights and illuminations around the lake at Town Centre Park in Coquitlam.
The decorations are beautiful, the walk around the lake is most pleasant, the scenery is wonderful and the attraction is completely free! The venue is also conveniently located near the Lafarge Lake-Douglas SkyTrain Station. If you live in the area or have never been, we highly recommend it.
For more information, click Lights at Lafarge.
In 2017 the attraction starts up on November 25th and it typically runs until around the third week in January.
4. Heritage Christmas in Burnaby
Burnaby Village’s Heritage Christmas is the best holiday festive deal in Metro Vancouver – not only is it a great place to get into the Christmas mood, but it’s also free! It doesn’t have the best or largest displays of Christmas lights and decorations, but for the price they charge it’s still impressive, plus you get interesting pieces of history thrown in to boot!
Click Heritage Christmas at Burnaby Village for more information.
In 2017 Heritage Christmas takes place from November 25th until January 5th.
5. Hyatt Gingerbread Lane
For the best display of gingerbread houses in Vancouver, check out Gingerbread Lane downtown at the Hyatt Regency on Burrard Street near Georgia. The hotel’s foyer becomes home to dozens of beautiful and delicious-looking gingerbread creations. It’s not necessarily a destination of its own, but if you are in the area it’s worth a visit.
For more information, click Gingerbread Lane at the Hyatt Regency.
Note: Vancouver’s other exceptional place to see Christmas gingerbread displays is at the top of Grouse Mountain (see #2 above).
Most years the gingerbread houses are on display from early December until the beginning of January.
6. VanDusen Festival of Lights
Interested in seeing amazing light displays in Vancouver’s finest botanical garden? This is a must see! Prices range from about $11.50 to $19 or so per person.
Click VanDusen Festival of Lights for more information.
In 2017 the Festival of Lights runs from December 1st to January 7th.
7. Canyon Lights at Capilano
Canyon Lights at the Capilano Suspension Bridge in North Vancouver are not inexpensive, but they are amazing. Their Christmas lights win top prize for being tastefully displayed, and the bridges and unique walkways make this a one-of-a-kind Christmas experience.
Click Canyon Lights at Capilano Suspension Bridge for more information.
Canyon Lights is open from November 23, 2017, until January 28, 2018.
Canyon Lights at Capilano Suspension Bridge
8. Holiday Hi-Light Festival
If you plan to be in North Vancouver and want to see some good free Christmas lights, then check out the displays at Park and Tilford mall. Admission is by donation.
The Holiday Hi-Light Festival illuminations aren’t as impressive as the lights at Stanley Park, or at more expensive places like VanDusen Garden or Capilano Suspension Bridge, but, considering they’re free, they are actually quite impressive and well worth checking out, especially during Family Nights which take place on Friday evenings in December.
Click Park and Tilford Holiday Hi-Light Festival for more information.
Open nightly in 2017 from December 1 until December 31.
9. Holidays Arts and Theatre
The Christmas season is a great time of year for music and the performing arts. There are choirs, orchestras and live plays taking place throughout the Lower Mainland. Some of the best music any time of the year is offered by the following musical groups:
Click Christmas Concerts 2017 for a list of specific performances and dates in the Lower Mainland.
10. Vancouver Christmas Market
Vancouver’s Christmas Market features numerous German and other European-themed stalls selling all kinds of Christmas-y items, from souvenirs to European festival food to a range of festive “adult” beverages to help with the holiday season celebrations.
Although there are carousel rides and kids ages 6 and under are free, the place is more for adults than children, but still good for everyone. Regular admission ranges from around $5-$10. If you are looking for an outdoor market with interesting knick-knacks to see while enjoying mulled wine or cider with friends, then this can be a great place to be.
Click Vancouver Christmas Market for more information.
Open daily from 11 am until 9 pm between November 22nd and December 24th.
For more ideas on things to do during the Christmas season, check out Vancouver’s Best Places’ December Calendar.
Other Christmas Activities
In addition to the above top 10 things to do at Christmas, below are other great holiday traditions.
Christmas Craft Fairs
November and December are the months for Christmas crafts fairs, and there are lots of them in Metro Vancouver. For a list of craft fairs click Lower Mainland Christmas Craft Fairs.
Christmas Plays & Theatre
The Christmas season is a great time to see a holiday show, including the following:
- The Day Before Christmas – a play about the perfect holiday disaster showing at the Goldcorp Stage at 162 West 1st Avenue (November 16 – December 24, 2017).
For more theatre options, click Vancouver December Theatre.
Christmas at Canada Place
If you plan to be in downtown Vancouver between mid-December and the end of the month, then check out The Canadian Trail along Canada Place‘s West Promenade. It’s just a few blocks from Waterfront Station, next door to the new Vancouver Convention Centre building, and only a few blocks from Gastown and the Vancouver Lookout at Harbour Centre.
Christmas at Canada Place takes place from late November until the end of December.
Christmas at Canada Place
Other Christmas Activities
- Christmas plays and theatre throughout town – see Vancouver’s Shows and Entertainment Calendar for details.
- Robson Square Ice Skating – free ice skating from the beginning of December until February from 9 am to 9 pm daily, and until 11 pm on Fridays and Saturday nights.
- Christmas at the Cannery – the historic site at Steveston Village in Richmond is decorated with Christmas trees from area businesses all month, making December a good time to visit the Gulf of Georgia Cannery.
- Dundarave Festival of Lights– decorated Christmas trees in West Vancouver throughout December in the Forest of Miracles, and free concerts on the three Saturdays leading up to Christmas. It’s not a big event, but good to combine with a walk along the seawall on a sunny day in the late afternoon.
- Yule Duel: Caroling for a Cause – A friendly competition between choirs from across Metro Vancouver for a night of holiday entertainment benefiting a Downtown Eastside hospice. Takes place in Gastown on the sidewalks of Water Street on the evening of December 7, 2017.
- Heritage Holiday at Fort Langley – Christmas-themed decorations and activities at the historic fort in the Fraser Valley (December 23-23 and 27-30 in 2017).
Full Article >
The City of Vancouver has approved a new housing strategy. That strategy includes 72,000 homes over the next decade for people who live and work in Vancouver. New co-ops, rental apartments and townhouses are also part of the plan.
NPA Councillor Melissa De Genova says the strategy is vague, adds bureaucracy and doesn’t actually address the problems within the market.
“Many of the individuals that we heard from who spoke in support of this, said that they didn’t truly support the policy, they just wanted to see some movement in affordable housing, so they would have supported anything.”
She says the city should focus on speeding up the approval process so builders can actually add housing to the city.
“Unfortunately, Gregor Robertson and Vision Vancouver would prefer to pretend they are doing something about it than actually roll up their sleeves and really start to make housing affordable.”
Robertson is much more optimistic about the plan.
“Our newly approved Housing Vancouver strategy is a bold, forward-thinking plan that was directly informed by what we heard from local residents: we need urgent action now to ramp up not just the supply of housing, but the right kind of supply,” says Robertson in a release.
“Housing Vancouver builds on measures the City is already taking that are the first of their kind in Canada-the empty homes tax, temporary modular housing for our most vulnerable residents, and regulating short-term rentals-and includes strategies that go after real estate speculation, offer more protection for renters and will transform single-family neighbourhoods across the city. This comprehensive approach will help us maintain Vancouver’s diversity and vibrancy, and create more affordable housing options for young people, growing families, seniors and our most vulnerable residents.”
De Genova maintains this only appears to be taking action to help.
“In this plan, we are talking about a tactical response team for housing. I found out that would cost $700,000 but they still can’t tell me what that team will do. This is a smoke screen.”
Here is the presentation that was given to Council.
Full Article >
The year is coming to an end and it appears the Government is done with significant regulatory changes that affect home ownership and mortgage lending in Canada. Their overall objective was to introduce measures intended to “cool” the housing market and introduce new “stress test” measures that ensure affordability in the future if rates do rise.
These new measures require you to qualify based on an interest rate that is higher than the rate you pay! They’re preparing for interest rate hikes, but are interest rates on their way up? Maybe not!
Inflation is the main catalyst for a rising rate environment. We appear to be in an age of no inflation. There are many factors for this but the primary one is that with the ever-increasing shift to globilization, the pressure for wage increases diminishes which has historically been the main driver for inflationary pressure.
Housing prices on the other hand have gone up over the last few years. Many would argue it has more to do with lack of supply of housing, especially in areas where people want to live as well as an increasing demand for housing.
However, regardless of whether real estate prices go up, stay the same, or even slightly go down in the short term, true stability and wealth will be created over time when you pay down your mortgage regardless of the value of your home at any given time. This is the ideal time for Canadians not only to buy their first, second, or investment property, but also for implementing strategies and options to pay down their mortgage faster and accelerate their wealth building potential.
Finding the right mortage that financially makes sense today and in the future is just as important as finding the right home. Call or message me today.
310-328 West Hastings Street
The City of Vancouver is expected to unveil its 10-year housing strategy shortly, following a major local announcement on the same issue coming from the federal government on Wednesday.
The federal Minister of Families, Children and Social Development, Jean-Yves Duclos, is scheduled to make a major housing policy announcement Wednesday morning in Vancouver.
It will be a joint event, with Prime Minister Justin Trudeau appearing in Toronto while Duclos is in Vancouver, the two cities facing the country’s most acute housing challenges.
CBC reported Tuesday that the national housing strategy set to be outlined Wednesday will include plans for the creation of up to 100,000 new affordable housing units across the country over 10 years.
Meanwhile, the City of Vancouver has already announced its own target of 72,000 new homes for renters, families, and vulnerable residents over the next decade.
Those previously announced housing targets are part of the city’s 10-year plan, which is set to be unveiled in full before next Tuesday’s council meeting, where it will be discussed.
The comprehensive housing strategy is expected to touch on everything from permit approvals and real estate speculation, to single-room occupancy hotels and temporary modular housing to combat homelessness. The plan will also attempt to increase the stock of rental housing in a city with a critically low vacancy rate.
The city began stakeholder consultation on the housing plan in fall 2016, and earlier this year introduced some changes meant to increase housing options for renters earning medium-level incomes. Those changes included opening up neighbourhoods dominated by single-family houses to different housing options including more laneway houses and duplexes. Some housing activists and academics said while the measures were a step in the right direction, the city needed to go farther in the density allowed in single-family areas, pushing to open up vast swaths of residential land for denser options like townhouses, duplexes, condos and apartment buildings.
How far the city will go in transforming those neighbourhoods currently zoned single-family — estimated to make up as much as 80 per cent of Vancouver’s residential land — will be, for many observers, one of the most keenly anticipated pieces in the final housing plan.
Full Article >
CMHC (Canadian Mortgage & Housing Corporation) has come out with it’s latest forecast on interest rates and the housing market for the next 2 years. Mortgage lender, First National has done a great job of summarizing the report.
See below for the details:
"Canada Mortgage and Housing has released its latest Housing Market Outlook. The HMO is released annually at the beginning of the fourth quarter and looks ahead over the next two years.
In general CMHC sees a stable, but slowing housing market.
Housing starts are expected to decline over the next two years as the economy strengthens and the Bank of Canada withdraws stimulus – that is, interest rates continue to rise.
CMHC is forecasting posted, 5-year mortgage rates of 4.9% to 5.7% next year and 5.2% to 6.2% in 2019. That is an increase of as much as 160 bps over the time horizon of the outlook.
Existing home sales are forecast to drop. This should be no surprise given the record setting pace of sales through 2016 and early 2017. As well, the pace of price increases is expected to slow down. CMHC predicts the national average price for a home should fall somewhere between $494,000 and $511,000 this year. In 2019 the range is expected to be between $499,000 and $524,500.
CMHC is also forecasting ongoing growth for GDP, employment and immigration. But the agency expects consumer spending to decline as interest rates increase."
310-328 West Hastings Street
The B.C. government has announced new rules it says will cut down on shady real estate deals in the province.
Superintendent of Real Estate Michael Noseworthy says the changes are set to take effect March 15.
They include better informing buyers about how much compensation realtors are entitled to, as well as restricting "dual agency," where when one agent acts on behalf of both buyer and seller on the same deal.
The changes stem from recommendations made last year by an independent advisory panel created by the former B.C. Liberal government.
The changes are the result of effort to curb practices like "shadow flipping," which first came to light in 2016.
Shadow flipping is the practice of selling a property several times by reassigning the sales contracts before their closing date. The price of the home goes up each time.
Changes limited in scope, agent says
Keith Roy, a real estate agent with REMAX Select, says the rules will likely increase consumer protection by raising awareness of the issues, but questioned whether they will actually be better protected from a legal standpoint.
"All we're doing in this case is limiting consumer choice of which professional they hire," Roy said.
"It's important because it's highlighting the issue, but it's not solving the problem that the government's saying it is."
Roy also said the new rules won't affect anyone's ability to flip houses on a speculative basis.
"These rules do nothing to change the impact of international money in the market [and they do] nothing to change the impact of people flipping houses [or] consumer protections around pricing," he said.
"All this does is limit the ability of a realtor to represent two people inside of the same transaction."
Full Story >
A recent article in the Globe & Mail brings to light what I’ve been educating my clients on for the last year; since the last round of mortgage rule changes put in place October 2016. That is you get a better rate if you put down less than 20% as the financing would be considering insured meaning less risk for the mortgage lender. In some cases the rate is quite a bit lower. I know, seems a bit crazy that someone with a higher down payment gets a crappier rate.
The article below discusses this in detail and shows an example of being ahead by putting less than 20% down, paying the one time insurance premium and actually paying less over the 5 year term than if you were to put a full 20% down payment.
See below for all the details and, as always, let me know if you have any questions.
"It's tough to feel financially prudent when buying a house these days.
That's why an increasing number of first-time buyers are saving a down payment of 20 per cent or more. In doing so, they avoid having to buy mortgage default insurance which, in the case of a house price of $487,095 (the national average) bought with a 10 per cent down payment, would be 3.1 per cent or $13,590. This premium is generally added to the mortgage, which means more interest to pay.
It certainly sounds financially prudent to make a 20-per-cent down payment where possible, but this isn't always the case. In fact, you may save money both now and in the future by making a slightly smaller down payment and taking on the cost of mortgage default insurance.
Listen up if you're concerned about the new mortgage lending rules that were announced last week and will take effect on Jan. 1. When making a down payment of 20 per cent or more, the new rules require that you be able to qualify for a mortgage at the greater of the five-year benchmark rate published by the Bank of Canada, or the original contractual rate plus two percentage points. An easier path to a mortgage may be to make a smaller down payment.
To even propose this seems bizarre. "The story has been that you're just throwing money away with mortgage insurance," said Mike Bricknell, a mortgage agent with CanWise Financial. What this thinking ignores is the way today's mortgage market discriminates against people who make down payments of 20 per cent or more. They may pay a fair bit more for a mortgage than someone with a high-ratio mortgage (down payment of less than 20 per cent) both now and on renewal.
A lender dealing with a client who has a sub-20 per cent down payment can take comfort from the fact that the loan is covered by government-backed insurance that is paid for by the borrower. A conventional mortgage (20 per cent or more) can be insured as well, but by the lender. All in all, a high-ratio mortgage is preferable from the lender's point of view and often results in a lower mortgage rate.
Mr. Bricknell has lately found that rates on five-year fixed rate mortgages are about 0.45 of a percentage point less for high ratio as opposed to conventional mortgages. Maybe your lender can do better than that. If not, consider this example of how a down payment less than 20 per cent can pay off.
We start with a $450,000 house and a buyer with a 20-per-cent down payment already saved. With a conventional mortgage amortized over 25 years, Mr. Bricknell figures this person could get a five-year fixed rate mortgage at 3.29 per cent. That means a monthly payment of $1,758.
Now, let's see what happens when this borrower makes a 19-per-cent down payment. A smaller down payment means borrowing a bit more, and thus more interest over the life of the mortgage. Also, mortgage insurance will be required at a cost of $10,206. All of this nets out to a monthly payment of $1,743, with the mortgage insurance premium included. How is this possible? Mr. Bricknell said it's because the high-ratio borrower gets a mortgage rate of 2.84 per cent.
There's a stress test for high-ratio mortgages as well, but it's marginally less onerous than it is for conventional mortgages because you only have to be able to handle the Bank of Canada benchmark rate, currently 4.89 per cent. Thus the high-ratio mortgage in Mr. Bricknell's example would have a qualifying rate of 4.89 per cent and the conventional mortgage would be at 5.29 per cent (the client's actual rate plus two percentage points).
The two mortgages outlined by Mr. Bricknell are pretty much a wash right now when compared on cost. Looking ahead, the high-ratio mortgage offers the potential for lower interest rates when it's time to renew your mortgage. This assumes that lenders will continue to look more favourably at high-ratio mortgages.
Mortgage industry data show that even as house prices increased from the early 2000s through the past few years, the percentage of people making down payments of less than 20 per cent has declined to 39 per cent from 54 per cent. If the rationale for this is to save money and be financially prudent, a rethink is required. Depending on the rates offered by your lender, a slightly smaller down payment could save you money in the long run."
310-328 West Hastings Street