New Year Resolutions for Your Home

General Kimberly Coutts 5 Jan

New Year Resolutions for Your Home.

Your finances aren’t the only thing that has room for new resolutions in 2023! Consider these great ideas to make your home feel brand new come January:

Purge Your Space

While most people think about purging when Spring comes around, the end of the year really is no better time. While cleaning your home is common around the holidays, purging takes that a step further. Make it part of your New Year’s resolution to purge your home of all the things you don’t need. It may seem daunting at first, but most of the decisions are already made. Look around your home and really catalogue those items you didn’t use in 2022 (or 2021!) and make it your resolution to finally get rid of them. Go room-by-room to ensure the purging remains manageable and you get the most out of the process!

Donate What You Can

Following up on purging your home, this is a great time to donate old items. While purging, make two piles – one for garbage and one for items to donate. During this time of year, those in need can use your help the most! So, while you’re purging, reconsider tossing out old items and instead donate them to someone who would benefit.

Make Sure You Are Safe & Sound

A clean house is only half the battle – you also need a safe one! While your home is going to look fresh and organized after you’ve finished purging old items from the year, now you will want to put some effort into ensuring safety. Check fire detectors and fireplaces, as well as investigate radon and carbon monoxide also (the hardware for these tests are not particularly expensive). This is a good time to check ventilation as well!

Shrink Your Bills (and Your Carbon Footprint)

Some people think the only way to “go green” these days is buying a hybrid car – but your home is a great place to cut energy too! Everything from switching off the lights when you leave a room, to dialing down your air conditioner and heating, to installing LED bulbs and energy-saving showerheads or toilets, can help you save in the long run and ensure your home is more energy efficient for the New Year!

Plan Out Home Improvement Projects

Heading into the New Year is a super fun time to plan out future home improvement projects! They don’t even have to be on the docket for 2023, but this is a great time to re-evaluate your home for any changes or additions you want to make in the coming years – and to start saving for them now.

If you would like to discuss financing options for home improvement project, let’s book a time for a discovery call!

Bank of Canada increases its benchmark interest rate to 3.75%

General Kimberly Coutts 26 Oct

Today, the Bank of Canada increased its overnight benchmark interest rate 50 basis point to 3.75% from 3.25% in September. This is the sixth time this year that the Bank has tightened money supply to quell inflation, so far with limited results.  One of my favorite lenders, First National, always does a fantastic summary which is shared below.

Some economists had assumed the increase this time around would be higher, but the BoC decided differently based on its expert economic analysis. We summarize the Bank’s observations below, including its all-important outlook:

Inflation at home and abroad

  • Inflation around the world remains high and broadly based reflecting the strength of the global recovery from the pandemic, a series of global supply disruptions, and elevated commodity prices
  • Energy prices particularly have inflated due to Russia’s attack on Ukraine
  • The strength of the US dollar is adding to inflationary pressures in many countries
  • In Canada, two-thirds of Consumer Price Index (CPI) components increased more than 5% over the past year
  • Near-term inflation expectations remain high, increasing the risk that elevated inflation becomes entrenched

Economic performance at home and abroad

  • Tighter monetary policies aimed at controlling inflation are weighing on economic activity around the world
  • In Canada, the economy continues to operate in excess demand and labour markets remain tight while Canadian demand for goods and services is “still running ahead of the economy’s ability to supply them,” putting upward pressure on domestic inflation
  • Canadian businesses continue to report widespread labour shortages and, with the full reopening of the economy, strong demand has led to a sharp rise in the price of services
  • Domestic economic growth is “expected to stall” through the end of this year and the first half of next year as the effects of higher interest rates spread through the economy
  • The Bank projects GDP growth will slow from 3.25% this year to just under 1% next year and 2% in 2024
  • In the United States, labour markets remain “very tight” even as restrictive financial conditions are slowing economic activity
  • The Bank projects no growth in the US economy “through most of next year”
  • In the euro area, the economy is forecast to contract in the quarters ahead, largely due to acute energy shortages
  • China’s economy appears to have picked up after the recent round of pandemic lockdowns, “although ongoing challenges related to its property market will continue to weigh on growth”
  • The Bank projects global economic growth will slow from 3% in 2022 to about 1.5% in 2023, and then pick back up to roughly 2.5% in 2024 – a slower pace than was projected in the Bank’s July Monetary Policy Report

Canadian housing market

  • The effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy including housing
  • Housing activity has “retreated sharply,” and spending by households and businesses is softening

Outlook

The Bank noted that its “preferred measures of core inflation” are not yet showing “meaningful evidence that underlying price pressures are easing.” It did however offer the observation that CPI inflation is projected to move down to about 3% by the end of 2023, and then return to its 2% target by the end of 2024. This presumably would be achieved as “higher interest rates help rebalance demand and supply, price pressures from global supply chain disruptions fade and the past effects of higher commodity prices dissipate.”

As a consequence of elevated inflation and current inflation expectations, as well as ongoing demand pressures in the economy, the Bank’s Governing Council said to expect that “the policy interest rate will need to rise further.”

The level of such future rate increases will be influenced by the Bank’s assessments of “how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding.”

In case there was any doubt, the Bank also reiterated its “resolute commitment” to restore price stability for Canadians and said it will continue to take action as required to achieve its 2% inflation target.

As noted by DLC’s Chief Economist, Dr. Sherry Cooper, don’t expect for mortgage interest rates to ever go back to 1.5% – 2% as these were brought on due to the emergency measures that were required by the pandemic.  Those rates are likely never to return, however perhaps in late 2023 or early 2024 we can see mortgage rates return to a more normal 3.5% – 4%.  For a history of the Bank of Canada Prime since 2004 see here.

December 7, 2022 is the BoC’s next scheduled policy interest rate announcement.

As always, feel free to book in a call should you have questions about your mortgage.

What does this morning’s Bank of Canada Interest Rate Hike Mean?

General Kimberly Coutts 13 Apr

Loving the headlines this morning.

Here’s just a couple of them:
Bank of Canada hikes rate by biggest amount in 20 years in push to tame red hot inflation
Bank of Canada announces .5% increase, the first oversized hike in decades

As we know the media loves a good headline however when you break it down we all knew we couldn’t borrow cheap money forever.  When the pandemic first started the Bank of Canada Prime rate had remained unchanged at 3.95% since October 2018. Then March 2020 and COVID happened and in that one month the Bank of Canada reduced the Prime Rate by 1.5% over the course of the month where it then sat unchanged for 2 years.

Now is not the time to lock into Fixed Rates or panic!  If you’re looking at the uninsured variable vs fixed interest rates there is approximately 1.5% difference and you would be giving this extra money straight to the bank.  Of course if you consult a banker, they’ll tell you to lock in however when you lock into a fixed rate that’s when the banks make money.  When interest rates are higher, banks make more money as they take advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing.

Let’s remember the math, for every .25% increase it increases your mortgage by $12/month for every $100,000.  See below for a table for an example of variable vs fixed rates and what the difference per month would be.

If you’re looking for a history of the Bank of Canada Prime Rate check out this easy table to review what the Prime Rate has been since 2004.

Take note as well that if you’re about to jump into the Spring Market with a purchase if you choose to go Fixed you may be reducing the amount of mortgage money that you qualify for as you’ll be forced to use the contracted rate +2% as the Stress Test rate vs 5.25%.  If you earn approximately $100,000 this would reduce your purchasing power from $474,058 to $446,088.  Check  out a video that I shared on LinkedIn.

As always, if you have any questions don’t hesitate to reach out to me and book in a call.

Happy Wednesday,
Kimberly

Get Better Credit with The 5 Cs

Mortgage Tips Kimberly Coutts 13 Oct

Our DLC Marketing team recently share the below article with us.  Figured it was great information to post on the Blog.

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your ability to manage credit. This is how lenders and credit agencies determine the interest rate you pay. A higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
There are several attributes that lenders consider before granting credit, and these are commonly referred to as the “Five C’s” and consist of: Character, Capacity, Capital, Collateral and Conditions. Let’s take a closer look at each:

Character: The first C focused on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. The determining factors for your credit character include the following:

  • Whether you habitually pay your bills on time
  • Whether you have any delinquent accounts
  • Your total outstanding debt
  • How you use your available credit:
    • Quick Tip: Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
    • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
    • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.

Capacity: The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

  • How long have you been with your current employer?
  • If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER has determined that you can afford depending on your debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

Capital: Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost. When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

Collateral: Collateral is what is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage. Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

Conditions: The conditions of the loan can also influence the lender’s desire to provide financing. Conditions can include: interest rate, terms, length of loan and amount of principle needed. Typically lenders are more likely to approve specific-loans, such as a car loan or home improvement loan or mortgage as these have a specific purpose, as opposed to a signature loan.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Five C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts to get a mortgage. If you are not sure or want more information, please don’t hesitate to reach out to me today to determine your current credit score and if there are areas for improvement to help you get a better interest rate and mortgage.

Let’s Talk Mortgage Payments

General Kimberly Coutts 6 Oct

So you’re all set and you’ve found your new home.  You’ve now received a commitment from your mortgage broker and lender however there’s an area on the commitment form that provides all these payment options and you’re unsure of what it all means and how it affects your mortgage then look no further for a quick and easy explanation.

In Canada when you take on a mortgage you typically have the option of five mortgage payment options:

  • Monthly
  • Bi-Weekly
  • Accelerated Bi-Weekly
  • Weekly
  • Accelerated Weekly

A monthly mortgage payment, which is typically the most common is when your mortgage payment is withdrawn from you bank account on the same day of every month (i.e. on the 1st).  You would make 12 payments per year in this scenario.

A bi-weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 26 pay periods in a year, thus making 26 payments per year.  You’re dividing up the payments in two per month however still paying the same amount as the monthly option.

An accelerated bi-weekly mortgage payment is when your monthly mortgage payment is divided by two and the amount is withdrawn from your bank account every two weeks.  With an accelerated bi-weekly mortgage payment, you still make 26 payments per year, but the payment amount is slightly more than the regular bi-weekly mortgage payment.

A weekly mortgage payment is when your monthly mortgage payment is multiplied by 12 months and divided by the 52 weeks in a year.  You would be making a payment every week however the total amount paid per year is still equivalent to the monthly payment option.

An accelerated weekly mortgage payment is when your monthly mortgage payment is divided by 4 and the amount is withdrawn from your bank account ever week.  It’s still 52 payments in a year, but the payment is slightly higher than that of a regular weekly mortgage payment.

Although the regular and accelerated payments sound very similar, with the accelerated you will end up making approximately one extra payment a year which helps save you thousands of interest and helps pay off your mortgage that much quicker a few years quicker than anticipated.

Should you have any questions about your current mortgage or obtaining a mortgage don’t hesitate to reach out for a complimentary discovery call.

Sugar Free & Dairy Free Fudgesicles – Too Good to Not Share

General Kimberly Coutts 24 Jun

Happy Thursday,

It’s going to be a hot one over the next week here in Vancouver and we’ll be sitting under a heat dome.  And while we typically don’t have them in our part of the world, we’ll be experiencing an intense high-pressure system.  We may be heading into the hottest period of time ever in Vancouver!  I’d recommend heading to the nearest Home Depot to purchase that AC unit you’ve been thinking of today or tomorrow.

Given the heat, thought this recipe that our marketing team shared with us was too good not to share!  For a sugar free & dairy free fudgesicle recipe look no further!  If you make them let me know how they turn out.

“These are so lusciously creamy, sinfully rich-tasting – the kind of thing you put in your mouth and kind of can’t believe what’s happening. Vegan, almost raw, and full of whole food ingredients, they are also downright filling! They make a fabulous mid-morning or afternoon pick-me-up, especially with the raw cacao component, a deliciously effective, energy-boosting food. Dress them up with your favourite add-ins, or keep it simple and enjoy them as the five-ingredient bliss bars that they are!”

See more on www.mynewroots.org

5-INGREDIENT VEGAN MAGICAL FUDGESICLES

Makes 4 cups / 1 Liter / 10 fudgesicles

INGREDIENTS:

  • 1/2 cup / 75g unroasted, unsalted cashews
  • 1 14-oz can / 400ml full-fat coconut milk
  • 1 large, ripe avocado
  • 1 cup / 250g pitted, packed soft dates
  • 1/2 cup / 55g raw cacao powder (cocoa powder will also work)

DIRECTIONS:

  1. Place cashews in lightly salted water and let soak for 4-8 hours (overnight is fine).
  2. Drain the cashews and rinse well. Add to a blender (a high-speed blender is highly recommended) with the remaining ingredients (and any flavourings, if using) and blend on high until as smooth as possible. Add water only if necessary – you want to mixture to remain quite thick.
  3. Spoon the mixture in popsicle molds. Firmly knock the molds on the counter a few times to remove any air bubbles. Insert a popsicle stick into each mold and place in the freezer until set – at least 6 hours. To remove popsicles, run the mold under hot water until you can easily pull a fudgesicle out.
  4. If you want to decorate your fudgesicles, dip or drizzle them with melted chocolate and sprinkle with desired toppings. Eat immediately, or place back in the freezer to set until ready to enjoy.

OPTIONAL ADD-INS

  • A pinch of Sea Salt
  • Vanilla (seeds from 1 pod, powder, or extract)
  • Food grade essential oils (a few drops of peppermint, orange, almond etc.)
  • A pinch Cayenne Pepper
  • Espresso powder
  • Finely chopped toasted nuts (cashews, hazelnuts, almonds, pistachios etc.)

OPTIONAL TOPPINGS (as seen in photo)

  • Melted Dark Chocolate
  • Cacao Nibs
  • Finely Chopped Toasted Nuts (Cashews, Hazelnuts, Almonds, Pistachios Etc.)
  • Dried Fruit
  • Citrus Zest (Lemon, Orange, Lime)
  • Hemp Seeds
  • Unsweetened Desiccated Coconut
  • Bee Pollen

​As you know my business is built on personal referrals or recommendations so if you hear of anyone chatting about mortgages and wanting to learn more about how to get into the real estate market and the steps that need to be taken feel free to connect me.  I can promise you I’ll be providing them with 5-Star service.

Stay healthy and cool,

Kimberly

25 Secrets Your Banker Doesn’t Want You to Know

Mortgage Tips Kimberly Coutts 29 May

Lots of times, I write my own articles but I’m also fortunate to have a fantastic Marketing team that supports us.  One of their  most recent articles was “25 Secrets Your Banker Doesn’t Want You to Know”.  There was too much good information here not to share.

Twenty-five or thirty years can sound like an impossibly long time to service a loan – and for many of us, it is. If you are looking to pay off your mortgage faster, here are some tried-and-true tactics to get you to financial freedom that much sooner!

  1. Make a Double Mortgage Payment: A double payment once a year can shave over four years off the total life of the mortgage! Better yet, if your mortgage allows for double-up payments, another option is paying an extra $100 into your mortgage – per month. This can save you over $26,000 in interest on a 5.5% fixed-rate, 25-year amortized mortgage.
  2. Increase Your Payment Frequency: Changing your mortgage from monthly to bi-weekly accelerated payments can shave over three years off your mortgage. At $2,000 a month, three years of no payments is worth $72,000 (not to mention the interest saved!).
  3. Increase Your Payment: Did you know? A one-time 10% increase can shave four years off the mortgage. That’s $96,000 in savings! Imagine if you bumped the payment 10% every year from the get-go. You would be mortgage-free in 13 years—start to finish! Can’t do it? How about 5% every year? You would be mortgage-free in 18 years! You can also consider increasing the payment by the amount of your annual raise.
  4. Lump Sum Payments: This is another option to become mortgage-free even faster! Even just one extra payment a year equivalent to one monthly payment will give you similar results as #2 above. Annual work bonuses or other extra-income is a great option for this.
  5. Renegotiate When Rates Drop: Revisiting your mortgage is a good idea when rates drop. However, it is always best to get expert advice from a mortgage broker to ensure it makes sense for you. If so, the benefits can be huge! For instance, a 1% reduction on a $300,000 mortgage will save $250 a month—times five years, that’s $15,000.
  6. Maintain a High Credit Rating: Even if you have already qualified for the mortgage you want, don’t let your credit rating slip. Pay your bills on time and keep balances low in relation to limits on credit cards, lines of credit, etc. Ideally, using 30% or less of your available credit will garner the highest results (assuming you pay the balances in full every month). Even if you’re filling your card to its credit limit max and paying it off in full each month, it will look like you are maxing out your credit limit and your credit score will drop accordingly.
  7. Increase Your Mortgage: Increasing your mortgage for the purpose of debt consolidation can be helpful for paying off credit card debt, line of credits, car loan and so on for a better rate and a set payment plan.
  8. Make an RRSP Contribution: By making an RRSP contribution, you can then use your income tax refund to pay down your mortgage!
  9. Switch to a Variable Rate: Switching your mortgage to variable-rate while keeping your payments the same as if on fixed can help you pay your mortgage faster. Since variable rates are typically lower, you will be paying more to your principal loan versus the interest.
    • Caution: Variable rates are not for everyone. Always be sure to seek my help to find out if variable-rates are the best choice for you.
  10. Take Your Mortgage With You: When you move, switch your old mortgage to the new property to avoid a penalty or higher rate on a new mortgage. This is called “porting”, however not all mortgages have this feature so be sure to ask! It is not widely known but could save you a ton of money.
  11. Set Up Automatic Savings: Even setting aside $10 per paycheck can help! When your extra savings reaches the amount of one mortgage payment, apply it to the mortgage! This concept goes nicely with #4.
  12. Unhook From The Money Drip: Stop paying with your fancy points credit or debit card. These make it way too easy to overspend. Go old school, go off the grid and pay cash. It works and can help you stay on track!
  13. Don’t Buy on Layaway: You know, those don’t-pay-for-six-month “deals”, well a lot can change in six-months and you’ll still be on the hook. If you cannot afford it now, don’t buy it. Wait until you are financially able to make the investment.
  14. Downsize Your House: Are you living in a 5-bedroom family home but your kids are grown up and moved out? Consider downsizing to a smaller house. It will save you money on your mortgage payments and maintenance fees in the long run!
  15. Rent Out the Basement: Not ready to move? Consider converting spare rooms to rental and use the income to pay down debt.
  16. Make Your Mortgage Tax-Deductible: If you are self-employed, own rental property or have investments, this is likely possible. Check with your Dominion Lending Centres mortgage broker to see if this option is right for you!
  17. Prioritize Your Payments: Define your various debts by category. This can help you see where you spend your money and also help you pay off your debt faster.
  18. Start With the Highest-Interest Rate: Pay off loans with the highest interest rates first, as these are the ones eating into your extra income!
  19. Leave Tax-Deductible Until Last: Pay the non-tax deductible loans first and fastest and leave tax-deductible debt to the end.
  20. Focus on Ugly Debt First: Debt such as credit card balances are the worst on your credit rating. Pay these off first.
  21. Pay Off Bad Debt Next: Debt for items that depreciate in value, such as car or boat loans, should be the next on your priority list.
  22. Clear Good Debt Last: Loans such as mortgages or investments for assets that should appreciate in value are the least harmful to your net worth and can be paid out last.
  23. Buy a New Car – Outright! Finance it if you have to but don’t lease, unless you are self-employed in which case leasing makes more sense.
  24. Use Your Secret Stash: If you have $20,000 in a bank account for a rainy-day or vacation and yet owe $20,000 on a line of credit, you need to reconsider. The bank account is paying you next to no interest (which is taxable income) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for a rainy day. Make it the secret line of credit that you have but never use.
  25. Give your Banker More Money: No, really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. Some banks charge a fee for transactions and nothing, zero, zilch, zip if you keep $2,500 in the account. Let’s see, $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No-brainer here. Oh yeah, if you need more than 25 transactions a month, see #12 above.

Let’s face it, your financial future will not get any brighter if you continue to run deficits forever. Unlike a bank or big company, you won’t get a bailout! Stop procrastinating and take charge of your own finances with the above tips!

BORROWER BEWARE:

It is always important to take things with a grain of salt. This is especially important when it comes to too-good-to-be-true, ultra-low-rate mortgages. These “no frills” mortgages are often loaded with restrictions such as pre-payment limitations, fully-closed terms, stripped-out features or unusual penalties. If you’re not looking at what you’re giving up, you may regret it in the future. These hidden terms alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

General Kimberly Coutts 22 Apr

Bank of Canada Holds Rates Steady, But Pares Bond-Buying Program.

By Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Bank of Canada Scales Back Bond Buying

Today, the Bank of Canada held its target for the overnight rate at the effective lower bound of ¼ percent. The Bank is also adjusting its bond-buying program from weekly net purchases of Government of Canada (GoC) bonds of $4 billion to $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.

Finally, the Bank now suggests that the remaining slack in the economy could be fully absorbed by the second have of 2022–rather than 2023, suggesting that they may begin raising overnight interest rates before the end of next year. The Bank went on to aver that this timing is more uncertain than usual, however, given the uncertainty around potential output and the highly uneven impacts of the pandemic.

The Bank of Canada now believes that first-quarter growth in Canada is considerably stronger than they were expecting back in the January Monetary Policy Report (MPR). This partly reflects a better global backdrop, particularly in the United States. The US recovery is supported by a rapid rollout of vaccines and substantial fiscal stimulus, bringing spillover benefits to Canada through higher demand for exports and stronger commodity prices.

“But the most important factor in the unexpected economic strength has been the resilience and adaptability of Canadian households and businesses. Lockdowns through the second wave had much less economic impact than they did through the first wave. The economy bounced back quickly with the eased restrictions posting substantial job gains in February and March. The third wave is a new setback, and we can expect some of these job gains to be reversed. But the performance of the economy in recent months has increased our confidence in the underlying strength in the recovery.”

The Bank went on to say, “With the vaccine rollout progressing, we are expecting strong consumption-led growth in the second half of this year. Fiscal stimulus from the federal and provincial governments will also make an important contribution to growth. Strong growth in foreign demand and higher commodity prices are expected to drive a solid rebound in exports and business investment, leading to a more broad-based recovery. Overall, we now project that the economy will expand by around 6½ percent this year, slowing to about 3¾ percent in 2022 and 3¼ percent in 2023.

Over the next few months, inflation is expected to rise temporarily to around the top of the 1-3 percent inflation-control range. This is largely the result of base-year effects—year-over-year CPI inflation is higher because prices of some goods and services fell sharply at the start of the pandemic. Also, the increase in oil prices since December has driven gasoline prices above their pre-pandemic levels. The Bank expects CPI inflation to ease back toward 2 percent over the second half of 2021 as these base-year effects diminish, and inflation is expected to ease further because of the ongoing drag from excess capacity. As slack is absorbed, inflation should return to 2 percent on a sustained basis sometime in the second half of 2022.

BANK OF CANADA “FORCED” TO TAPER

When the pandemic first hit, the BoC bought government securities, providing liquidity to assure the full functioning of the market. As liquidity conditions in the Government of Canada (GoC) bond market improved, the primary objective of central bank bond purchases shifted toward a focus on monetary stimulus. The quantitative easing (QE) purchases of bonds continue to put downward pressure on borrowing rates, supporting economic activity. QE also reinforces monetary stimulus provided by the Bank’s forward guidance. This guidance has committed to holding the policy interest rate (the overnight rate) at its effective lower bound until economic slack is absorbed, so the inflation target is sustainably achieved.

The Bank’s total ownership of GoC bonds outstanding has increased to about 42 percent. Since March 2020, the Bank has purchased more than 35 percent of total sovereign bonds outstanding, a higher percentage than other central banks (see chart below). Considering the size of Canada’s bond market and its economy, this means that the Bank has provided an extraordinary amount of stimulus. The Bank must continue to taper its purchases to ensure sufficient tradeable GoCs are available for longer-term institutional investors–such as insurance companies and pension funds–that must hold triple-A debt to offset their long-term liabilities.

BANK OF CANADA ASSESSMENT OF THE HOUSING MARKET

In today’s MPR, the Bank of Canada included an assessment of the drivers of the strength in Canadian housing:

  • Demand has been supported by relatively high disposable incomes and low mortgage rates.
  • While job losses have risen during the pandemic, they have been concentrated among low-wage earners who tend to rent their homes rather than buy them.
  • Remote work and more time spent at home have led to stronger demand for larger, single-family homes and housing in suburban and rural areas.
  • One implication of this shift in demand is a pickup in new housing construction in regions with fewer supply constraints, such as limited availability of land.
  • Over the past year, the pace of construction has been hampered by containment measures and shortages of materials and skilled workers. These factors are also putting upward pressure on construction costs.
  • Some potential sellers have been reluctant to show their homes during the pandemic.
  • Over time, supply is expected to adjust. A large number of building permits have been issued, with a growing share for single-family homes. Housing starts have also risen significantly in recent months, most notably in rural areas.

The Bank remains concerned about extrapolative expectations leading to overheated price increases and speculative activity (see chart below). They welcome the proposed changes to the Guideline B-20 by the Office of the Superintendent of Financial Institutions to help reduce these risks.

BOTTOM LINE

This was a significant BoC announcement, suggesting a turning point in their thinking. The worst of the pandemic is over, the economy has been remarkably resilient, and the Bank can now see the light at the end of the tunnel. That light is now expected in the second half of 2022, rather than 2023. Although the policy rate will remain at its effective lower bound until then, the central bank has already begun to pare back its GoC bond buying.

Some of the Bank’s optimism reflects the comparative strength of the US economy, which is way ahead of Canada’s vaccine distribution.* The spillover effects of that are meaningful in terms of Canadian exports. The fiscal stimulus evident in this week’s federal budget also provides a ballast for the economy. Although an estimated 425,000 people are still insufficiently employed and the third wave containment measures and vaccine rollout are unpredictable, the Bank is more confident now than any time in the past thirteen months that we will attain full-employment by late next year.

*As of April 20, nearly 25% of the US population has been fully vaccinated and 39% have received at least one vaccine. In comparison, as of April 20, only 2.5% of the Canadian population has been fully vaccinated and 25.4% have had one vaccine.

Subject Free Mortgages – When and When Not to Do It

General Kimberly Coutts 20 Apr

We are full into spring home-buying season after what was already an unusually busy 3 months, I thought I’d delve into the subject of subject free offers.

If you truly want to go in subject free because you believe it’ll be the only way to land your dream home, then please ensure that you take note of the below in addition to of course having conversations with your realtor and your mortgage broker (in this case me):

  • You have more than 20% down and I don’t mean 21%, I mean 25 – 35% down payment.
  • You have a really good understanding of what the worst-case scenario will be and that worst case scenario could be that you lose your deposit and a lawsuit ensues and you’re ok with that.
  • If you can’t get the financing through A lender, B lender or even Private Lender then perhaps you have the Bank of Mom & Dad who can give you the money to complete on the home.
  • You have at least 1.5 months till closing date so that if something does go wrong with the property then we have time to figure out a solution. It’s important to note that a lot of lenders require that all conditions be met 10 business days in advance of closing!
  • You have access to the home before you write up the offer and you order an appraisal AND an inspection which is completed in advance of you going in subject fee. Appraisals will cost anywhere from $300-$400 and look at any non-conforming issues, structural issues and economic life.  A lender won’t be lending on a property if the remaining economic life is less than 15 years.

As a broker the reason why, we stress so much that a client shouldn’t be going in subject free is most clients wouldn’t have the stomach or the means to deal with the above.  And lots of times it’s not that the lender doesn’t love you it’s cause they don’t love the property.

If you have less than 20% down don’t ever consider going subject free because really the biggest challenge is that you’ll require an insurer for your purchase and although we have lots of lenders there are only 3 insurers.  And if there’s something that they don’t like about the property and they can’t get on board you’ll be left to walk away from the contract and as mentioned above could lose your deposit or even be sued for breach of contract.

In the current environment many properties are going over asking and the insurer can ask for an appraisal and if that appraisal comes in under what the purchase price is, do you have the extra funds to make up that difference?  Most people that have less than 20% down payment have just enough to make the transaction happen not extra.

This is even more important for stratified homes such as condos/townhouses as most lenders will be reviewing the AGM Minutes and if there is a red flag that they feel uncomfortable with they won’t move forward.

Sometimes for a detached home where there are no minutes it’s what the lender sees in the inspection report or appraisal, is there old plumbing and electrical systems?  Does it conform to today’s requirements?  If not, the lender can say no to that property.  If you have the funds to get it up to spec they might say yes, they still might say no.

And please, please ensure that if you are going to still go ahead and make an offer subject free ensure that you are fully pre-approved, and your file has been underwritten.  What does that mean?  It means that your broker (in this case me) has reviewed your paystubs, your NOAs, your down payment, your credit etc.  It means being open and up front about everything in your file so that we can limit the surprises that may or may not come up once the lender reviews your file and the subject property.

If a bank has pre-approved you and it took less than 5 minutes, don’t count on it being an actual pre-approval especially if they’ve never asked you for a single document and all they asked was for your income and multiplied it by 5 or 6.  The piece of paper they gave you is a rate hold and even that isn’t a guarantee!

In short if you can avoid going subject free I would.

As always if you have any questions, I’m here for you and if you know of anyone who might benefit from this information, feel free to share it with them or have them reach out to me.

Stay safe and healthy,

Kimberly

What does the proposed increase to 5.25% stress test really mean?

General Kimberly Coutts 11 Apr

I wanted to reach out this weekend to talk about the proposed mortgage rules tightening up on June 1st given you might have a lot of questions.  As you know the media always likes to grab onto the latest soundbite and they most definitely love negative news more than the positive.

Canada’s top banking watchdog, The Office of the Superintendent of Financial Institutions (OSFI) is taking another shot at overhauling its stress test on residential mortgages by increasing the stress test to 5.25%.

If you don’t want to read the whole article but wondering if it will fix anything just read the below 3 questions:

  • Will the qualifying rate that the government is proposing fix runaway housing prices? No.
  • Will it slow down the multiple offers and condition free craziness on offers? No.
  • Will it create a smokescreen so that politicians and bureaucrats are doing something?  Maybe.

The proposed changes only target those clients putting more than 20% down on a purchase or refinancing a property.  The overall mortgage money that the borrower would have qualified before this proposed change happens will be approximately 5% less.  Thus, restricting borrowing slightly for the most well-qualified group of borrowers and buyers. To put it into perspective when the current stress test was first enacted on January 1st, 2018 it reduced borrowing power by 35%, so in comparison this change is marginal.

If you’re a first-time home buyer who’s purchasing a property under $1million then this change won’t affect you.   Just a reminder, the minimum down payment in Canada depends on the purchase price of the home:

  • If the purchase price is less than $500,000, the minimum down payment is 5%.
  • If the purchase price is between $500,0000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
  • If the purchase price is $1,000,000 or more, the minimum down payment is 20%.

This proposed change will not come into play for credit unions or many of the mortgage finance companies that I use as OSFI, really only hold sway primarily over the banks.  The impact of this proposed change will likely only affect those that have just enough down payment saved for their $1million+ property whose ratios are extremely tight.

Although just a theory, if you’re wondering why they’re only proposing one tweak it’s likely because the pandemic has stripped away the illusions of a housing market driven by foreign investment while the original stress test removed the illusion of over indebted Canadians who were borrowing more than they could afford.  All these distractions – foreign buyers, speculation taxes, vacant home taxes are used up and none of these have done a thing to slow down the appreciation of real estate in Canada.  Only one thing will slow it down…and that’s increased supply.

A word of caution if you’re in a pre-sale contract buying preconstruction where you barely qualify as changes like this can really jam things up 1 or 2 years down the road when it’s time to complete.

As little as this proposed change is and it’s almost certain to happen this adjustment could impact your own personal situation significantly.   But for the most part it’s a whole lotta news about nothing and will likely not slow down the madness.

On another note, I’d like to share with you all that aren’t on my social media that I have chosen to take part in the LOVE-19 campaign.  Real Estate leaders all over Canada have been challenged to purchase 19 gift cards within their local communities from those small businesses that have been affected by COVID to share with friends, family and clients.

My first LOVE-19 gift card is to Kaboodles Toy Store with 3 locations around Vancouver and given that you’re already part of my VIP Club you’ll all be entered in all 19 weekly draws.  The first GC winner will be announced next Saturday!

Enjoy the rest of the sunshine and look forward to connecting soon.

Stay safe and healthy,

Kimberly

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