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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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  • 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.

    Read more on mortgage finance:



    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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  • 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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  • 3-year versus 5-year mortgage: How to choose your term – MoneySense

    3-year versus 5-year mortgage: How to choose your term – MoneySense

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    Whether or not a variable-rate mortgage is a good option for you depends largely on market fluctuations. Rates for this type of mortgage are typically lower than those of fixed-rate mortgages, which is a win as long as the prime rate doesn’t go up too much. And historically, they’ve tended to average out to lower payments over time. But the past few years have reminded Canadians that huge increases are possible, and home owners who signed on for a variable-rate mortgage pre-2022 have been waving goodbye to an extra several hundreds or thousands dollars every month for the past year and a half. For some, though, these increases are unmanageable and can lead to a potentially dire financial situation.

    What is a 5-year mortgage?

    A five-year fixed mortgage allows you to lock into a specified interest rate for a full five years. Just like with a three-year term, you don’t have to worry about changing markets affecting your payments for the duration of the contract. This is very appealing to home owners with less tolerance for risk—it’s a nice, long period of predictability. It also means much longer stretches between dealing with the headache of renegotiating. 

    Being locked in for longer, however, puts you in a less flexible situation. If interest rates drop, you won’t be able to take advantage of those lower rates—unless you decide to break your mortgage early, a decision that comes with hefty penalty. Or if your financial situation changes or you want to sell your property sooner than anticipated, that five-year commitment is a bit of a roadblock. 

    With a five-year variable mortgage, your payments will change according to the whims of the market. Usually, variable mortgage rates are lower, but since currently they will likely give home owners greater savings over their mortgage term, they’re higher than fixed-rate mortgages.  

    Where are interest rates headed? 

    The soaring interest rates of the past couple of years have been a significant stressor on millions of home owners and would-be home owners across Canada. While early 2024 has seen inflation cool, the prime rate, which is currently at 6.95%, has come down only slightly from its recent high of 7.2%. Economists expect June’s BoC interest rate cut will be followed by gradual decreases over the next few years. Most predictions suggest we’ll reach a full 1% drop by the end of the year with rates stabilizing at 5.2% by the end of 2027. Check out the latest rates.

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    Deciding on a mortgage term

    So, what does this mean when it comes to choosing a mortgage? If the predictions are accurate, a variable-rate mortgage is a great way to take advantage of the downward trend and save some money. Just be sure there’s enough room in your budget to cover higher payments should there be any rate hikes. Five-year variable mortgages are currently being offered at lower rates than three-year variable loans, which could make them the winning choice. 

    However, if any level of risk is the kind of thing that keeps you up at night, a three-year fixed-rate mortgage could be a better option—there’s no unpredictability when it comes to that monthly payment, and interest rates will most likely have decreased quite a bit by the time you have to renew. A five-year fixed may not be the best choice right now, as you’ll get locked into higher payments at a time when interest rates are going down. 

    Rate decreases aside, the decision largely comes down to your future plans—are you holding on to your property for the long term or do you want to keep your options open?—and your appetite for risk. Find your comfort zone and a plan that works for you.

    Read more about mortgages in Canada:


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    Ciara Rickard

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