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  • Why are mortgages so expensive in Canada? – MoneySense

    Why are mortgages so expensive in Canada? – MoneySense

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    A total of three rate cuts passed down from the Bank of Canada since June have cumulatively lowered the cost of borrowing for Canadians by 75 basis points, from 5% to 4.25%, offering home buyers some much-needed relief in terms of affordability.

    This is according to the latest affordability report compiled by Ratehub.ca, which crunches the minimum annual income required to buy an average home in some of Canada’s major cities. (Ratehub Inc. owns both Ratehub.ca and MoneySense.) The report is based on September 2024 and August 2024 real estate data reported by the Canadian Real Estate Association (CREA). It illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home. 

    The September edition (updated monthly, so bookmark this page) shows the required income lowered in 11 of the 13 housing markets studied, as the average five-year fixed mortgage rate dropped to 5.04%, compared to 5.16% in August. As a result, the corresponding average mortgage stress test rate—which tacks on an additional 2% to a borrowers’ contract mortgage rate—fell to 7.04% from the previous 7.16%.

    Let’s take a look at how that’s impacted home buyers across Canada.

    The best places to buy real estate in Canada

    Housing affordability across Canada’s major cities

    Check out the chart below to see how affordability changed between August and September in Canada’s main housing markets, based on the income required to qualify for a mortgage.

    September 2024: How much do you need to earn to buy a home in Canada?

    City Average home price in August Average home price in September Change in home price  Income required in August Income required in September Change in income
    Vancouver $1,195,900 $1,179,700 -$16,200 $224,000 $219,000 -$5,000
    Toronto $1,082,200 $1,068,700 -$13,500 $204,100 $199,800 -$4,300
    Hamilton $840,300 $831,500 -$8,800 $161,800 $158,740 -$3,060
    Victoria $866,700 $864,400 -$2,300 $166,420 $164,450 -$1,970
    Halifax $543,700 $538,100 -$5,600 $109,940 $108,000 -$1,940
    Calgary $586,100 $582,100 -$4,000 $117,360 $115,600 -$1,760
    Ottawa $646,000 $642,800 -$3,200 $127,830 $126,100 -$1,730
    Edmonton $400,200 $399,400 -$800 $84,850 $83,990 -$860
    Winnipeg $361,800 $362,500 $700 $78,140 $77,600 -$540
    Fredericton $311,300 $312,000 $700 $69,310 $68,860 -$450
    Regina $319,700 $320,700 $1,000 $70,780 $70,360 -$420
    Montreal $535,700 $543,400 $7,700 $108,550 $108,900 $350
    St. John’s $354,600 $364,100 $9,500 $76,880 $77,880 $1,000
    Data in the chart is based on a mortgage with 20% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in September 2024 and August 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).

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    Canadian cities where affordability improved

    Where in Canada is owning a home becoming more affordable?

    Vancouver: A chilly start to the autumn market

    Vancouver topped the list of cities with most-improved affordability, largely due to the fact that the average home price absorbed a $16,200 drop from August. Make no mistake,—this is still Canada’s most expensive housing market with an average property price tag of $1,179,700. But demand has been quite cool coming out of the summer months. According to the Greater Vancouver Realtors, sales fell 3.8% year-over-year in September, while the supply of new listings rose 12.8%, leading to an easy buyers’ market. As a result, Vancouver home buyers need to earn $5,000 less than they did last month to qualify for a mortgage on the average-priced home, at an income of $219,000.

    Toronto: A month of flat sales

    The city of Toronto came in second, as home prices continue to fall within Ontario’s largest city; the average property sold for $1,068,700, $13,500 less than it did in August, according to the Toronto Regional Real Estate Board. This is largely due to the fact that sales were unchanged from the previous month (though things are improving on an annual basis, coming in 8.6% higher than in 2023). Meanwhile, fresh supply continues to flood the market with new listings, which surged 35.5% year-over-year. Combined with easing mortgage rates, the average Toronto home buyer saw their required income shrink by $4,300, to $199,800.

    Hamilton: Hovering below the historical average

    Rounding out the top three cities is Hamilton, which has long been a popular Southern Ontario real estate destination, without the million-dollar price tag that characterizes neighbouring Toronto. The average home price in Hamilton in September came to $831,500, a decrease of $8,800 from August. The Association of Hamilton-Burlington reports that while sales were brisk in September, they continue to lag 2023 levels by 4% year-to-date and remain 28% below the long-term average. Meanwhile, new listings and inventory levels continue to rise, now sitting at a cumulative five months. That’s all cooled home prices, and as a result, Hamilton home buyers need to earn $158,740 to buy a home, $3,060 less than they did in August.

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    Penelope Graham

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  • Variable mortgage rates regaining traction as Bank of Canada cuts rates – MoneySense

    Variable mortgage rates regaining traction as Bank of Canada cuts rates – MoneySense

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    Are more rate cuts likely?

    In announcing the rate cut Wednesday, Bank of Canada governor Tiff Macklem said if inflation continues to ease broadly in line with the bank’s July forecast, it is reasonable to expect further cuts in the policy rate. 

    Julie Leduc, a mortgage broker at Mortgage Brokers Ottawa, said clients with variable-rate loans were not happy when rates were rising, but the cycle is turning. 

    “We’ve lived the worst of it, we’re on our way out,” she said. 

    “So let’s look for the benefits and the benefit is, if they go variable and the rates go down, they’re going to live the benefit.”

    Right now, the rates offered to those looking for a new variable-rate mortgage or needing to renew are higher than those being offered for five-year fixed rate mortgages, something that Leduc called an anomaly.

    That’s because the expectations are that the Bank of Canada will continue to cut interest rates, lowering the amount charged to borrowers in the future. If something unexpected happens and the central bank doesn’t cut rates, then the rates charged on variable-rate mortgages won’t go down.

    What to expect if you’re mortgage holder

    But if things continue to roll out as expected, those choosing variable-rate loans will see the amount they are charged go down. Just how much and how quickly will depend on the central bank.

    Sojonky says the discounts lenders offer to the prime rate for variable-rate mortgages are also improving. 

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    The Canadian Press

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  • What is porting a mortgage in Canada—and when should you do it? – MoneySense

    What is porting a mortgage in Canada—and when should you do it? – MoneySense

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    But picking a fixed mortgage rate can be problematic if you decide to sell your house and are forced to break your mortgage contract in the middle of your term. The penalties associated with breaking a fixed-rate mortgage can be very costly. 

    Thankfully, many mortgage lenders allow you to avoid penalties by porting your mortgage, which means carrying your existing term and interest rate to your new property. 

    So, how does porting a mortgage work, and when does it make sense? 

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    What is porting a mortgage? 

    Porting a mortgage refers to taking your current mortgage and transferring it to a new property when you move. Your existing mortgage rate and term are transferred along with your current mortgage balance. 

    To qualify for a mortgage port, you must follow certain rules. For example, you must sell your home and purchase a new one at roughly the same time—usually within 30 to 120 days, depending on the lender. Also, you can’t port more than your current mortgage amount. If you need additional funds to purchase your next home, the new money will be subject to current interest rates and added to the mortgage balance—but more on that later. 

    Most Canadian mortgage lenders offer portability as an option, but not all do. That’s why it’s important to find out if a prospective lender offers this feature before you take out a new mortgage. After all, you never know when your plans might change and you need to sell your home before your mortgage term ends.

    When does it make sense to port a mortgage?

    There are two main reasons you would want to port your mortgage instead of breaking your contract and starting fresh. The first is to keep your existing interest rate if it’s lower than current mortgage rates. The second is to avoid breaking your mortgage early and incurring a costly penalty. 

    “Porting is typically a good idea if your existing fixed mortgage rate is lower than current rates and you’re moving before your mortgage maturity date,” explains Lyle Johnson, a Winnipeg-based mortgage broker. “By keeping your existing mortgage, you avoid the prepayment penalties that would apply if you break your mortgage before its maturity date, while keeping your low fixed rate.” 

    What about a variable-rate mortgage? Most variable mortgages do not offer a portability feature. (Note, however, that you may have the option to convert to a fixed rate first, and then port.) If you decide to sell your house before your term expires, you’ll likely need to break your contract and obtain a new mortgage for the new property. That said, the penalty for breaking a variable mortgage is usually equal to three months’ interest on your outstanding balance, which is often less than a fixed-rate mortgage penalty. 

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    Colin Graves

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  • The after-effect of market lows: a drop in fixed mortgage rates – MoneySense

    The after-effect of market lows: a drop in fixed mortgage rates – MoneySense

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    Bond yields have a “positive correlation” with fixed mortgage rates. That means when bond yields go up, so do fixed-rate mortgages, and vice versa. And since Canadian five-year government bond yields have dropped to 2.9%, as of Tuesday, mortgage rates are expected to come down, too. 

    What are bonds?

    Bonds are a form of debt security. Governments and corporations issue bonds to borrow money from investors. The amount borrowed is referred to as the bond’s face value or par value.

    Interest is paid on the face value to reward investors for lending their money. The rate may be fixed—constant over the duration of the bond—or variable, changing over time in response to changes in a benchmark interest rate such as the prime rate.

    Bonds are commonly referred to as fixed-income securities regardless of whether their interest rates are fixed or variable. 

    Read “What are bonds?” from the MoneySense Glossary.   

    The effect on bonds

    According to Ratehub.ca (Ratehub Inc. owns both Ratehub.ca and MoneySense), fixed mortgage rates are on their way down. 

    “Bond markets have dropped in response to yesterday’s massive stock sell-off, and are now at 2.97%, a low not seen since June 2023, and also marking a 20-basis point drop in the span of a week,” says mortgage expert Penelope Graham of Ratehub.ca. “That will certainly prompt additional discounts for fixed mortgage rates, on top of the lower rates we’ve seen hit the market in recent weeks.”

    The effect on mortgage rates

    Bond yields have been trickling down for a bit now. With the recent Bank of Canada (BoC) interest rate cuts on June 5 and July 24, yields have hovered around 3.3%, which hinted at a drop in fixed mortgage rates. And yesterday’s investor sell-off indicated lack of confidence from investors. So, where do mortgage rates sit?

    “Right now, the lowest insured five-year fixed mortgage rate is 4.29%, which is the lowest a five-year term has been since last May,” says Graham. “With further decreases expected, it’s a good idea for mortgage shoppers and renewers to look into their rate hold options, which would guarantee them today’s lows for up to 120 days.”

    Check this table to see how mortgage rates are reacting.

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    Will things be more affordable? Maybe, for now

    As for the market, some investors are relieved to see stock prices drop, namely those of technology companies, including the Magnificent 7, which have had a mixed bag of earnings this quarter. It’s not only made fixed mortgages, but also some sought-after stocks, more affordable.

    Read more about fixed mortgage rates:



    About Lisa Hannam


    About Lisa Hannam

    Lisa Hannam is the editor-in-chief at MoneySense.ca. She is an award-winning editor with over 20 years of experience in service journalism.

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    Lisa Hannam

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  • Should you get a 30-year mortgage?  – MoneySense

    Should you get a 30-year mortgage?  – MoneySense

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    What to see the difference in a 25-year versus 30 year mortgage? Tap the filter icon on the far right to expand the data fields. Change the amortization to 25-year or 30-year mortgage (second from the right, second row).

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    The pros and cons of a 30-year mortgage

    Signing up for a 30-year mortgage allows a buyer to stretch their mortgage payments over a longer period of time. “You’re spreading your debt over five extra years [compared to 25-year mortgages]. That usually gets you a higher purchase price or mortgage amount that’s needed in the big markets,” explains Verceles.

    On a home selling for $699,117 (the average Canadian home price as of May 2024), a buyer who puts 20% down and takes out a 30-year mortgage at a five-year fixed rate of 4.99% will pay $2,982 a month on their mortgage. (You can run the calculations yourself using a mortgage payment calculator.) Another buyer with the same down payment and mortgage terms but a 25-year amortization would shell out $3,250—that’s $268 more than the first buyer every month, or an extra $3,216 a year. 

    At first glance, the 30-year mortgage seems like the better choice—except that the buyer would end up paying a total of $514,068 in interest over the life of the mortgage, assuming rates did not change. The 25-year mortgage buyer, on the other hand, would pay $415,615 in total interest—a difference of $98,415 on the same mortgage principal. 

    In Canada, a 30-year mortgage is not insurable through the CMHC, meaning a minimum 20% down payment is required, unless it is for a new build as outlined above. Even with the new change around 30-year mortgages, this can make it more difficult to purchase the home that you want. A 15% down payment on a $748,450 house is $112,268. At 20%, the down payment jumps to $149,690—meaning you will need to access $37,422 more.

    Plus, Verceles says, mortgage lenders tend to give borrowers slightly better rates for mortgages covered through CMHC insurance, because the lender isn’t the one shouldering the risks of a default. Usually, those savings can amount to a quarter of a percent in interest, according to Verceles.

    Pros

    • Ability to stretch mortgage payments over a longer period of time
    • Access to a higher purchase price or mortgage amount

    Cons

    • More interest paid over the term of the mortgage compared to shorter terms
    • Not insurable through the CMHC, which could mean paying a higher interest rate
    • A minimum 20% down payment is required
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    Can you get a mortgage of more than 30 years?

    In some countries, such as Japan, mortgages with terms of 35, 40 and even 100 years are not unheard of. The long term mortgages are intended to be paid over multiple generations. Canada’s major lenders once offered 40-year mortgages, but that ended when the North American housing bubble burst in 2008. Shortly after that meltdown, Canada’s Department of Finance decreased the maximum amortization to 35 years, then later reduced it to 30 years.

    “They don’t want people to leverage themselves too far,” Verceles explains. (Some alternative lenders still offer 35- and even 40-year mortgages, albeit with steeper interest rates than a shorter mortgage from a bank.)

    Widespread concern about housing affordability in Canada have made the idea of longer amortization periods more attractive to homebuyers, but Verceles says he isn’t sure whether the Canadian government will loosen rules to allow 30-plus-year amortizations again. But given the importance of real estate to Canada’s economy, it’s possible that the federal government may to ease the financial burden of homebuyers by letting them spread out their payments over a longer period of time.

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    Brennan Doherty

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  • Rates are going down—is now a good time to buy a house in Canada? – MoneySense

    Rates are going down—is now a good time to buy a house in Canada? – MoneySense

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    The housing supply issue is improving

    It comes after some of Canada’s largest cities have seen ballooning home listings in recent months from droves of sellers listing their properties, despite demand from potential buyers not keeping up. That includes the Greater Toronto Area, where new listings last month jumped 21.1% year-over-year, with 18,612 properties put on the market. Calgary and Vancouver have seen similar trends, with new listings rising 18.7% and 12.6%, respectively, year-over-year in May. But home sales declined in all three cities. In Toronto, there were 21.7% fewer sales in May year-over-year, the Toronto Regional Real Estate Board reported Wednesday.

    The board said 7,013 homes changed hands in the month compared with 8,960 in May of last year, which coincided with a brief market resurgence. TRREB president Jennifer Pearce said homebuyers were waiting for “clear signs” of declining mortgage rates before going ahead with purchasing a property.

    “Typically when rates go down, prices go up.”

    The effects of the rate cut on the housing market in Canada

    “As borrowing costs decrease over the next 18 months, more buyers are expected to enter the market, including many first-time buyers,” she said in a press release. “This will open up much needed space in a relatively tight rental market.”

    Around 56% of Canadian adults who have been active in the housing market said they have been forced to postpone their property search since the Bank of Canada began raising its key lending rate from near zero in March 2022, according to a Leger survey earlier this year commissioned by Royal LePage. Among those waiting on the sidelines, just over half said they would resume their search if interest rates went down, including one-in-10 who indicated a 25-basis-point drop would be enough for them to jump back in.

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    Canadian home buyers waiting for cuts

    “There certainly is pent-up demand,” said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services, in an interview. “Typically when rates go down, prices go up. So this would be the time where people come off the sidelines, knowing and anticipating that prices are likely to rise.”

    In the Greater Toronto Area, the average selling price of a home was down 2.5% year-over-year to $1,165,691 last month. There were 2,701 sales in the City of Toronto, a 17.3% decrease from May 2023, while throughout the rest of the GTA, home sales fell 24.3% to 4,312.

    In general, buyers have been looking for some positive signs,” said Scott Ingram, a sales representative with Century 21 Regal Realty in Toronto. “The sentiment effect of this always punches above the actual dollar and cents. When people are looking for any bit of good news, they’ll take it.”

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    The Canadian Press

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  • Mortgage broker vs. bank—which will save you more money? – MoneySense

    Mortgage broker vs. bank—which will save you more money? – MoneySense

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    For most Canadians, using a broker is the wisest choice to save money, as they have access to a wider selection of products and should have more experience in going through the application process than you do. 

    However, not all brokers are made the same. Some specialize in mainstream lenders, others are more familiar with getting you a mortgage if you have impaired credit, while others tend to source mortgages for investment properties. Again, ask around, search online. Look at reviews and get referrals if you can.

    What to do before signing a mortgage contract

    Before signing your mortgage contract it’s worth reading the fine print, to make sure everything’s above board. Are you getting the interest rate you signed up for? What about the cost of any lender fees, like an arrangement or booking fee? 

    One important aspect is your “prepayment privilege,” which means how much you’re able to overpay your mortgage every month, shortening the time it takes to pay off the loan. It’s good to know where you stand, because by paying too much you can be charged a prepayment penalty, which makes paying it off faster not worth it.

    Buyers should view a survey of the property before signing the contract, as this can reveal if there are any issues with the home they’d need to deal with, and could even justify a renegotiation on the price. Surveys reveal the boundary of the home, so you have an idea of where you’re allowed to build on. In Canada most sellers take out the survey, known as real property reports (RPRs), and they should be scrutinized before you sign on the dotted line.

    If you’re buying a condominium—often the most affordable option in cities—you’ll want to review documents on how it’s run. Generally you join a condominium corporation where you have to pay fees which are used to manage common areas of the building, so it’s a good idea to know what you’re getting into.

    In the contract you should make sure any verbal agreements are in writing. For example if the seller informally agreed to leave some furniture as part of the purchase it’s best to make this official, just in case you get a nasty surprise when you move in.

    When getting a mortgage it’s important to make sure you don’t overburden yourself and have a backup plan if something goes wrong. Like, could you afford to repair a major leak if that happened? Do you have a plan of action on how you’ll be able to repay the mortgage if you lost your job? In some cases the latter issue can be mitigated by either taking out insurance, or using a guarantor when applying for a mortgage. 

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    Ryan Bembridge

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  • How much income do I need to qualify for a mortgage in Canada? – MoneySense

    How much income do I need to qualify for a mortgage in Canada? – MoneySense

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    Fredericton: Home prices poised to rise with rate cuts

    Fredericton marks the third and final city where the additional required income to purchase a home remains below $1,000. The average home price there rose $2,600 on a monthly basis to $292,900, which pushed the minimum income up by $430, to $68,170. According to CREA, Fredericton home sales declined 15.2% over the course of the month.

    This reflects real estate trends in New Brunswick as a whole, as home prices have steadily increased over the past three months. This is mainly due to shrinking supply, as new listings remain 12.1% below the five-year average for March. However, sales and supply could be poised to perk up should interest rate cuts materialize later this summer.

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    The least affordable places to buy in Canada

    Toronto, Hamilton and Vancouver sit at the bottom of the list.

    Toronto: The toughest place to buy a home in March

    It should come as no surprise that Toronto home buyers are the most financially squeezed; home prices there escalated sharply over the pandemic’s lockdown years, and remained elevated at an average of $1,113,600 in March, up $19,700 from February. That resulted in the average buyer needing an annual income $3,400 higher than they did in February, making it now $217,500.

    While home sales have chilled slightly at the start of the year, the Toronto Regional Real Estate Board (TRREB) says enough competition remains in the market to push prices higher, and that this will only tighten further as interest rates start to decline.

    Source: Ratehub

    Hamilton: Another challenging Golden Horseshoe market

    The City of Hamilton—which boomed in popularity in recent years as a real estate destination—came in second in terms of worsening affordability. The average home price does remain under the $1-million mark, making it a much more affordable option when compared to neighbouring Toronto. But that gap is narrowing sharply, up by $14,600 in March to an average of $850,500. In terms of income, a Hamilton buyer needs to earn $169,640 annually, an increase of $2,540.

    Vancouver: Softening sales, but demand still drives prices

    The City of Vancouver remains Canada’s most expensive housing market, with an average price of $1,196,800 in March, up $13,500 from the previous month. As a result, a buyer there must earn $232,620 in order to qualify for the required mortgage, an increase of $2,270 compared to February.

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    Penelope Graham

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  • Fixed or variable mortgage rate: Which should you choose in 2024? – MoneySense

    Fixed or variable mortgage rate: Which should you choose in 2024? – MoneySense

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    It’s been a tough time for home owners (and first-time home buyers), but the Bank of Canada (BoC) has held interest rates steady since July 2023, and the latest economic data is leading experts to suggest that interest rate cuts may be on the horizon. So, what can Canadians expect from interest rates in the months and years ahead, and what does that mean for fixed mortgage rates and variable mortgage rates? We spoke to an economist and a mortgage broker to get a better sense of what’s ahead, and whether a fixed or variable rate is your best option in 2024.

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    What happened with interest rates in 2022 and 2023?

    Rates went up significantly over the past two years, and a lot of it had to do with post-pandemic inflation.

    “Central banks had to react very aggressively to the spike in inflation, and they jacked up interest rates significantly—475 basis points since March 2022,” says Robert Hogue, assistant chief economist at RBC Economics. (One basis point is equal to one hundredth of a percentage point. And 475 BPS means 4.75%.) “This is easily the most aggressive monetary policy we’ve seen in at least a generation.”

    John-Andrew Newman, a mortgage broker in Oakville, Ont., notes that this aggression was essentially a side-effect of the economic impacts of the COVID-19 pandemic. “The COVID environment brought all rates down because the government influenced the interest rate marketplace in a way that was intended to help Canadians manage the effects of various lockdowns,” Newman explains. “They went extreme in one way, which led to inflationary factors peaking after [COVID], and then interest rates started to go up.” 

    Rates climbed quickly to help tame decades-high inflation. “There was almost a whiplash effect [after COVID] as rates went up to the other extreme—and that’s where we are today,” Newman says.

    Many mortgage holders with fixed-rate mortgages secured before the pandemic now face steep payment increases at renewal. Canadian mortgage holders with variable rates are also dealing with higher costs, though the impact has not been the same for everyone—some have seen their payments increase with every hike in the prime rate, while others haven’t. 

    With a variable mortgage with adjustable payments (sometimes referred to as an adjustable-rate mortgage), the mortgage payments fluctuate in response to changes in the lender’s prime rate. Borrowers with this type of mortgage watched their payments increase as interest rates began to rise. 

    However, many variable-rate holders have a mortgage with fixed payments. As interest rates rose, their mortgage payment stayed the same, but the amount of principal paid each month decreased as the amount of interest paid went up. Some of these borrowers have seen their amortizations stretched to point that their payments are almost interest only, Newman says. Some have reached their trigger rate—the point at which the mortgage payment no longer covers the mortgage interest costs.

    This is one of the reasons it’s important to know what type of variable mortgage you have—the former can have a far bigger impact on your budget and cash flow in the short term, and the latter can result in a sudden spike when renewing your mortgage. That increase may be challenging for many mortgage holders to navigate, particularly if they’ve gone into negative amortization (when the monthly mortgage payments aren’t high enough to cover the interest owed on the loan). 

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    Erin Pepler

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  • Second mortgages in Canada: What are the rules? – MoneySense

    Second mortgages in Canada: What are the rules? – MoneySense

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    • How you intend to use the property—i.e., for personal use (such as a second home or cottage) or as a rental or investment property. 
    • Whether or not the property will be owner-occupied—i.e., whether you will be living in the property (alone or with a tenant) or renting out all the units in the building. 

    If the second property is for personal use, such as a vacation property or cottage, you will likely have to meet the same down payment requirements as with your first home. For example, a second home purchased for $800,000 requires a down payment of 5% on the first $500,000, plus 10% on the portion above $500,000. 

    Rentals that are owner-occupied—maybe a home in which the owner lives on the main floor, and a tenant lives in the basement suite—generally are subject to the same rules, says Elan Weintraub, co-founder and mortgage broker with mortgageoutlet.ca. 

    However, if the property will not be occupied by the owner, meaning the entire property will be rented out, Weintraub says you should have a down payment of at least 20%, no matter the price of the home. He adds that certain lenders have different requirements.

    Lenders take the question of owner occupancy seriously, so always be honest about your plans, advises Weintraub. “If you say you will live in the property, then that’s the expectation, and depending on your lender and the mortgage type, you could be in default if you do not live there.” 

    Should you get a mortgage on a second property?

    Managing two mortgages is a big financial commitment, so it’s important to plan ahead and consider seeking expert advice if you’re unsure if you can afford it. 

    Weintraub says there are several key factors to consider before deciding to take on a second property mortgage. These include:

    • Your financial situation: Do you have extra savings in case, say, the roof collapses, the tenant stops paying rent, and so on? Buying a second property could be risky if you’re using your entire savings to make the purchase, leaving no room for unexpected expenses.
    • The time commitment: A second property (especially a cottage and/or rental property) could require a lot of maintenance and attention. Do you have the time to care for the property yourself, or extra money to pay for those services? If not, owning additional real estate may not be something you have time for. 
    • Your income stability: How secure is your job or your business? Are you certain you will have the income needed in the future to continue making payments on two mortgages? If you’re unsure about your ability to make payments in the future, you may not have the financial means of owning multiple properties.
    • Your time horizon: If you’re planning to sell the property in a few years, you may not recoup the costs of your initial investment. There are many upfront costs to account for when buying and selling real estate, including land transfer taxes, realtor fees and legal fees. 

    Second mortgage rates in Canada: What to expect

    Whether you go with the same lender or a different one for your second mortgage, the interest rate will likely be higher than for your first mortgage. That’s because your second mortgage takes second priority: If you foreclose on the home, the debt owed to your first lender must be repaid first. Therefore, your second mortgage provider takes on a greater risk and is compensated for this risk by charging you a higher mortgage rate.  

    Keep in mind that you’ll also have to pay the same administrative costs as with your first mortgage, including things like appraisal and legal fees. Furthermore, Weintraub emphasizes that cash flow should be another consideration. “You would need a strong income to acquire a second property, as you would have significant debt—a mortgage on your primary and secondary residence. A few years ago, rates were 1% to 3%, so it was much easier to borrow money. Today, the mortgage stress test essentially requires the mortgage to be tested at 8% or higher.”

    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    Is a second mortgage worth it?

    Getting a mortgage on a second property can help you purchase the perfect cottage hideaway, support your adult children’s housing needs, or become a landlord for the first time. However, second property mortgages aren’t for everyone. Before committing to a second property, understand your financial position and consider speaking to a financial advisor or mortgage broker. 

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    Sandra MacGregor

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  • Toronto housing bubble: Is it ready to pop? – MoneySense

    Toronto housing bubble: Is it ready to pop? – MoneySense

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    As an example, someone who considered themselves fortunate to secure a 5-year variable rate mortgage at 0.9% in early 2022 may have seen their interest rate soar to 5.4%, leading to a significantly higher required payment. For some, this situation is painful, and for others, it becomes unmanageable. In extreme cases, selling the home they purchased just a few years ago, because they can no longer afford it, may be their only recourse. 

    Source: Michael Pe, CFA

    Furthermore, demand from foreign buyers has also been curtailed by the Canadian government’s recent ban on non-Canadians purchasing property. Resident investors, who have significantly contributed to home price inflation, are also likely to be affected by higher interest rates and diminishing cash flow. 

    When will the Toronto real estate bubble burst? While pinpointing the exact timing of Toronto’s potential real estate correction remains challenging, signs of deflation may already be underway. The TRREB has its benchmark prices, designed to estimate the value of a typical home in the area without distortion from outliers. In October, the real estate board reported the benchmark at $1,103,600, indicating a 2.1% dip from September’s $1,127,000. 

    The prospect of a prolonged period of increased interest rates, driven by the Bank of Canada’s cautious stance amid inflation concerns, alongside reduced affordability, restrictions on foreign buyers, and decreased local investor activity due to higher interest rates, suggests the potential for further market deflation.

    When will housing prices hit bottom?

    Prices are dropping in Toronto, and in Canada as a whole. However, it’s uncertain whether prices will continue to decline or not. The Canada Mortgage and Housing Corporation (CMHC) forecasted home prices to increase in 2024. And according to recent stats from real estate firm Wahl’s 2023 GTA Housing Snapshot Report, underbidding has been rising over the past five months (81% in October). To me, the growth underbidding indicates there are less buyers and lower prices.

    Optimists may argue we’ve seen this environment before, with affordability as the ongoing issue. They may contend that the lack of housing supply and the resilience of the housing market will continue to drive up home values. However, certain conditions such as astronomical inflation and rapid interest rate increases have not been seen in decades. This present landscape contains a new set of headlines, setting the stage for potential falling home prices.

    While it’s impossible to definitively predict if and when the Toronto real estate market will experience a downturn, it’s evident that skyrocketing prices have created an affordability problem for many. 

    Simultaneously, though, it disproportionately benefited others, such as property investors. Despite current conditions suggesting diminishing housing demand, including that of investors, policy makers in Canada, including Toronto, must address and moderate this type of demand in the future. Even after interest rates come down. 

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    Michael Pe, CFA

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