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Tag: mortgage renewal

  • Renewing your mortgage? A guide for Canadians – MoneySense

    Renewing your mortgage? A guide for Canadians – MoneySense

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    For those in that position, as well as those whose mortgages expire in the next 12 months, it’s best to go into the renewal process armed with knowledge of the kind of terms you’ll face and your options. Knowing in advance what you’re in for can take some of the sting out of “rate shock.” Depending on what your current lender and others have to offer, it may even make sense to renew before your old mortgage expires.

    Calculating your mortgage renewal

    Use the MoneySense Mortgage Renewal Calculator to get a sense of what you’ll be paying once you renew. This tool allows you to play around with variables, such as the location, amount borrowed, mortgage term, amortization and payment frequency to help find loan terms that work for you. If your current lender has already extended proposed terms for renewal, you can determine whether they are competitive or whether you should consider shopping around. You can even add in related expenses such as property taxes and utility fees to calculate your total costs of home ownership going forward.

    Should you change your mortgage terms and conditions?

    Worried that you’ll get saddled with what ends up looking like a pricey mortgage for the next five years? If you’re confident rates will continue to decline, you can reduce the length of your mortgage term to three years, two—as little as six months. (Conversely, you may conclude you don’t want to go through this often stressful process again that soon.) Read our coverage to learn the ins and outs of altering your mortgage term.

    Or you could consider switching to a variable- or floating-rate mortgage. That way you’ll always be paying a competitive rate of interest, whether it comes with fixed or variable payments. Be aware, though, that even fixed payments can end up rising if they hit a preset trigger rate. We’ve boiled down the arguments for fixed- versus variable-rate loans from some of Canada’s most knowledgeable mortgage minds.

    The best places to buy real estate in Canada

    How to cope with higher payments

    Regardless of the form your new mortgage takes, you will almost certainly be paying more than the one you signed up for in 2019 or 2020. We’ve compiled a list of strategies for managing the higher cost of borrowing (and to not lose your home), from making prepayments when possible to extending your amortization period. You can’t ignore the rest of your financial picture, either; you may have to cut back on discretionary spending, consolidate your other debts or dip into savings and investments to get your household cash flow on a sustainable trajectory.

    Compare the current rates in the table below. Just change the first variable to ”renewing,” and the others as they fit your situation.

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    What if you hit a wall?

    For some homeowners, a lender won’t offer to renew their mortgage at any price. In a higher rate environment or after a troubled mortgage term, your bank may simply decline your mortgage renewal application. Know that that is far from the end of the road. This article about what to do when your renewal is declined also explains how you can try to find a new, willing lender before resorting to the ultimate solution to mortgage-renewal trauma: selling your home.

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    About Michael McCullough


    About Michael McCullough

    Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.

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    Michael McCullough

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  • I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

    I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

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    Speaking at Global Risk Institute summit on Wednesday, Routledge said he was worried that the requirement by lenders to run the “OSFI stress test” is making Canadians feel the regulator is too directly involved in their affairs.

    “If I were that person, I would feel regulated by OSFI. And that’s what we hear from Canadians. And I don’t think that was ever part of its intent.”

    The concern helped lead to OSFI’s announcement last week that starting Nov. 21, it would no longer require a stress test for uninsured mortgages when borrowers are making a straight switch between lenders, meaning they aren’t changing things like their amortization or borrowing amount.

    Only between 2% and 6% of borrowers make such a switch, so while it was something Routledge previously maintained was part of sound underwriting practices, the agency no longer saw it as worth the cost. 

    “It wasn’t a big enough prudential risk to justify that appearance of unfairness,” he said.

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    Why OSFI decided to change the stress test

    The removal of the stress test requirement comes as the regulator is also looking at a broader switch away from the B-20 stress test on individual borrowers, to a system that would regulate mortgage risk at a bank portfolio level.

    The regulator will next year be testing the alternative system, which sets limits on how much of a bank’s loan book can be taken up by borrowers with a high loan-to-income ratio. The regulator will then decide whether to add it to the current mortgage rules, or replace the existing stress test.

    While the new system would similarly limit concentration of risk, or even do a bit of a better job, it would also have the benefit of seeming to be less directly applied at the specific borrower level, said Routledge.

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    The Canadian Press

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  • Deloitte Canada predicts more economic growth, benchmark rate below 3% in 2025 – MoneySense

    Deloitte Canada predicts more economic growth, benchmark rate below 3% in 2025 – MoneySense

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    In the company’s fall economic outlook released Thursday, it forecasts the central bank’s interest rate will fall to 3.75% by the end of this year and a neutral rate of 2.75% by mid next year. 

    Meanwhile, it expects the economy to grow moderately as softer labour market conditions persist, especially as many home owners have yet to face higher rates when they refinance their loans.  

    “We do think that we’re going to be in for a decent year next year,” said Dawn Desjardins, chief economist at Deloitte Canada. 

    It appears Canada will successfully skirt a recession despite the impact of higher borrowing costs on the economy, said Desjardins. 

    “It’s hard to argue that the economy is just skating through this period of higher interest rates. But having said that, the overall numbers themselves continue to show the economy is expanding,” she said. 

    “Yes, the labour market has softened, but I don’t think we’re in any kind of crisis in the labour market at this time.”

    Higher interest rates impacting economic growth, labour market

    The Bank of Canada has cut its benchmark rate three times so far this year as inflation has eased, and signalled more cuts are coming. 

    Inflation in Canada hit the central bank’s 2% target in August, falling from 2.5 in July to reach its lowest level since February 2021. 

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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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  • Where to buy a home for under $1 million in Canada – MoneySense

    Where to buy a home for under $1 million in Canada – MoneySense

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    But if you have some flexibility around where to live, there are cities and neighbourhoods in Canada where homes can be had for less than seven figures—lots of them, in fact. All but five of the 45 cities and regions analyzed by our partner Zoocasa in this year’s Where to Buy Real Estate in Canada report had benchmark prices below $1 million (as of the end of 2023).

    See the list of Canadian cities and regions below, in order of most to least affordable (followed by neighbourhood data for Toronto and Vancouver). You can sort the data in each table by tapping on the column headers, or filter results using the last row. You can download the data to your device in Excel, CSV and PDF formats. 

    Canadian cities and regions with a benchmark price under $1 million

    Prohibitively high prices around Greater Toronto and B.C.’s Lower Mainland can obscure the fact that the national average home price was a tad under $735,000 in 2023, according to the benchmark Zoocasa used in its analysis.

    And even in the regions with benchmark prices above the $1-million threshold, the survey demonstrates there are more affordable neighbourhoods to be found. It should be noted our statistics do not differentiate between housing types, so don’t expect to find detached homes for these prices in these cities. But it’s still possible to get a toehold in the market with a condo or townhouse for less than $1 million, sometimes a lot less.

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    Where to get a home for less than $1 million in Toronto

    Our survey turned up no less than 106 neighbourhoods in the city of Toronto with benchmark prices below $1 million—the most affordable being Tandridge, with a benchmark price of just $484,269.

    Toronto neighbourhoods

    With prices like those, you might assume there’s something wrong with these neighbourhoods. Consider that a lot of them are coming up in the world. Tandridge, along with Rivalda Heights, Keelegate, Humbergate, Cook Village, Duncanwoods, Morningside, Woodbine Downs, South Steeles, Glenfield, Chapel Glen, Dorset Park, Glen Long and Mount Olive have all seen price appreciation of 50% or more over the past five years. Yorkwoods and University Village have both gone up more than 80%, and Beaumond Heights, an astonishing 113%!

    Beyond those in the city of Toronto, we count an additional 65 neighbourhoods across the Greater Toronto Area where the benchmark price was below $1 million at the end of 2023.

    Greater Toronto Area neighbourhoods

    How much would a typical home in Toronto’s Tandridge neighbourhood cost you in monthly mortgage payments? Using a mortgage payment calculator, we find that with the minimum down payment of $24,213 and a mortgage of 25 years, you’d be looking at a monthly payment of $2,685—based on the lowest available five-year fixed mortgage rate on June 13. Add in taxes, insurance and fees, and you’d need a total of $40,706 in cash to close the deal. With 20% down ($96,854), the monthly payment would be $2,240 on a 25-year amortization.

    Where to get a home for less than $1 million in Vancouver

    In the city of Vancouver, which represents less than one-quarter of the Metro Vancouver population, we counted just six enclaves with benchmark prices under $1 million.

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    Michael McCullough

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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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  • What does the new Canadian Mortgage Charter mean for home owners? – MoneySense

    What does the new Canadian Mortgage Charter mean for home owners? – MoneySense

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    How do interest rates relate to affordability?

    In an effort to subdue runaway inflation, the Bank of Canada (BoC) has raised the benchmark interest rate several times over the last 24 months. This rate affects the interest rates of other financial products. The interest offered on guaranteed investment certificates (GICs) is far higher than usual, for example. This is because the benchmark rate is higher.

    Unfortunately for home owners in Canada, the benchmark rate also affects mortgage interest rates. Home owners with variable-rate mortgages, whose interest rates fluctuate with the benchmark rate, have grappled with sharp increases to their mortgage payments over the past few years. But even those with fixed-rate mortgages must contend with higher interest rates when their mortgages come up for renewal.

    “In the face of a rapid global increase in interest rates, many Canadians are feeling the squeeze, particularly when it comes to affording a home to rent or own,” Deputy Prime Minister and Minister of Finance Chrystia Freeland said in a press release. The Canadian Mortgage Charter is one measure intended to provide relief.

    What is the Canadian Mortgage Charter?

    The Canadian Mortgage Charter is a document that lays out expectations for banks and other lending institutions about how they will behave in their relationships with “vulnerable borrowers.” The guidelines stem from a document published by the Financial Consumer Agency of Canada (FCAC) in July 2023, but the charter is a concise and public-facing document. It outlines six things Canadian borrowers can expect of their banks:

    1. Allowing temporary extensions of the amortization period for mortgage holders at risk
    2. Waiving fees and costs that would have otherwise been charged for relief measures
    3. Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal
    4. Contacting home owners four to six months in advance of their mortgage renewal to inform them of their renewal options
    5. Giving home owners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties
    6. Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization

    Of these guidelines, numbers three and four are actually new. The charter is the first time lending institutions have been asked not to require mortgage holders to requalify if switching lenders, and the first time they’ve been asked to reach out to borrowers in the months leading up to mortgage renewal.

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    What does this mean for Canadian mortgage holders?

    The Canadian Mortgage Charter is intended to encourage banks to identify at-risk borrowers and offer them mortgage relief measures so that fewer people experience extreme financial hardship or lose their homes.

    The Canadian Mortgage Charter is not a law. Rather, it’s a set of expectations, much like the changes to mortgages, bank account fees, junk fees and dispute resolution proposed by the government earlier this year. And just like with those measures, the only recourse for borrowers if a lender doesn’t heed the government’s request is to make a complaint on the FCAC website. It’s unclear what, if any, consequence there is for non-compliance.

    In additional to the new charter, the Fall Economic Statement announced billions of dollars in financing to accelerate housing construction, plus plans to crack down on short-term rentals “so that homes can be used for Canadians to live in.”

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    Keph Senett

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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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  • Tools to calculate your mortgage payments and costs in Canada – MoneySense

    Tools to calculate your mortgage payments and costs in Canada – MoneySense

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    Mortgage payment calculator

    Understanding the long-term financial implications of a home mortgage, particularly the cumulative impact of interest, can be complicated. A mortgage payment calculator is an essential tool to help you make informed home buying decisions. It helps you estimate your regular mortgage payments based on the home’s purchase price, down payment size, loan interest rate and amortization.

    A reliable mortgage payment calculator provides a comprehensive overview of your expected payments, including the total interest you’ll pay over the mortgage term. Additionally, many other housing expenses, such as property taxes, land transfer taxes, and the need for mortgage default insurance, are directly linked to the size of your mortgage and the home’s value. 

    The mortgage payment calculator on MoneySense helps you understand your mortgage payments, including the required closing cash and monthly carrying expenses you will need to buy the home you want. 

    Mortgage insurance calculator

    If you buy a home with less than a 20% down payment in Canada, you must get mortgage default insurance (sometimes, referred to as mortgage insurance). Unlike home insurance, which covers property damage, mortgage default insurance protects the lender if something happens and you can no longer make your mortgage payments. In Canada, this type of insurance is provided by three institutions: CMHC, Sagen and Canada Guaranty.

    The mortgage insurance calculator on MoneySense calculates how much you will pay for mortgage default insurance. Your premium is based on the loan-to-value ratio (LTV) of your home.

    Based on this ratio, the insurance premium falls between 2.8% and 4% for down payments below 20%. While a down payment higher than this may exempt you from purchasing mortgage insurance, the lender might still require it in certain situations. To use the tool, enter the asking price and down payment amount, and it will provide an estimate of your mortgage insurance premium. 

    Land transfer tax calculator

    A one-time fee called a land transfer tax (or land transfer fee) must be paid whenever a property changes hands. The charge is levied by the provincial and territorial governments and/or local municipalities. 

    Land transfer tax—which must be paid in cash—is in effect across all regions except Alberta, Saskatchewan and the three territories. In these areas, a much smaller land transfer fee is imposed instead. If you’re purchasing in Toronto or Montreal, you’ll pay municipal land transfer tax in addition to provincial land transfer tax. 

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    Angela Serednicki

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