Mortgage Rule Transformations Since 2008

Embarking on the pathway to homeownership has always been a significant life milestone and, for Canadians, navigating the twists and turns of the mortgage landscape is an integral part of this 

journey. Over the years, the rules and regulations governing mortgages have undergone a profound transformation, responding to the shifting tides of economic landscapes and financial stability. As we delve into this intricate timeline, our goal is to unravel the evolution of Canadian mortgages, making sense of the changes that have shaped the way we buy and finance our homes. 

Before 2008: Easy Mortgage Times

Back in the days before 2008, getting a mortgage in Canada was pretty easy. People had lots of options:

• You could get 100% financing (that means no down payment).
• Mortgages could last for 40 years.
• Some mortgages even gave you cashback after closing.
• Refinancing let you borrow up to 95% of your home’s value.
• You needed just a 5% down payment for rental properties.
• Getting a mortgage had no stress test, and if you had good credit, there were no limits on how much you could borrow

July 2008: First Round of Changes

After the financial crisis in 2008, the government made the first set of changes. The maximum time to pay off an insured mortgage (amortization) was reduced from 40 to 35 years.

February 2010: Responding to Borrowing Concerns

People were borrowing a lot against their homes, so the government made more changes. The maximum refinancing amount was lowered to 90% of a home’s value, down from 95%. They also said you needed a 20% down payment for certain types of property investments.

January 2011: Tightening the Rules

Things got even tighter. The longest time to pay off a mortgage was now 30 years, and the maximum refinancing amount was further lowered to 85% of a home’s value.

June 2012: Third Round of Tightening

The maximum amortization period was further reduced to 25 years for high-ratio insured mortgages.Refinancing rules faced their third tightening, setting a new maximum loan of 80% of a property’s value. Additionally, another significant change limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1 million. The government also implemented a cap on both the gross debt service (GDS) ratio, limited to 39%, and the total debt service (TDS) ratio, capped at 44%. These measures collectively sought to curtail the risk associated with high-ratio mortgages and promote responsible borrowing practices.

December 2015: Liberal Government Steps In

The government introduced a tiered down payment approach for homes over $500,000. Under this system, if you purchased a $750,000 home, you’d put 5% down on the first $500,000 ($25,000) and 10% on the remaining $250,000 ($25,000), making the total down payment $50,000. This change increased the minimum down payment by $12,500 from the previous flat 5% rate, for this specific scenario.

October 2016: Stress Test Expands

In 2016, significant changes occurred. Mortgages with less than 20% down required a “Stress Test,” where your application was reviewed based on a new “Qualifying Rate,” not your actual mortgage rate. The Qualifying Rate was set at 5.25% or your mortgage rate + 2.0%, whichever was higher. This change aimed to ensure Canadians could handle potential rate increases, reducing payment shock.

Additionally, those with 20% or more down had to follow the same rules as insured mortgages. Even without paying for default insurance, borrowers aiming for better rates were placed in Portfolio-Insured mortgages. However, this meant adhering to rules like a 25-year amortization, a purchase price under $1,000,000, and owner-occupied status (excluding rentals).

January 2018: Stress Test Applies To All

In January 2018, the stress test was expanded to include all mortgages, irrespective of the down payment size. Homebuyers with a down payment of 20% or more, along with those refinancing properties with at least 20% equity, faced more rigorous qualifying criteria.

2023: New Changes

OSFI, the guideline overseer, now lets you skip the stress test when renewing your mortgage and switching lenders for a better rate. If you’re in financial hardship due to rising interest rates, they might allow you to extend your mortgage to 40 years. The Canadian Mortgage Charter suggests lenders offer relief, like extending payment periods, waiving fees, and allowing lump sum payments or selling homes without penalties. It’s crucial for homeowners facing challenges due to rapid rate increases. However, note that the Charter is currently just rules, not yet the law.

Conclusion: Mortgages Keep Changing

Reflecting on the journey, it’s evident that Canadian mortgages have undergone significant transformations. Each adjustment seeks equilibrium between housing market stability and ensuring accessibility for homebuyers. As we look ahead, it’s crucial for you to consider the implications of these changes on your homeownership aspirations in Canada. What are your thoughts on these shifts, and how do you envision the future as rules continue to evolve? Your perspective is key in navigating the ever-changing landscape of Canadian mortgages.

Low Rates, High Stakes: Understanding the Why Behind Massive Penalties in Your Future.

In today’s ever-changing economic landscape, the environment for mortgage rates is akin to a roller coaster ride. The recent dip in bond yields has led to a decrease in fixed rates, making it an interesting time for those navigating the real estate market. However; predicting the direction of these rates has become increasingly challenging, especially considering the past year’s excessive increases in both fixed and variable rates.

In anticipation of 2024, economists predict a slight decline in fixed rates, with a projected 0.50% decrease in the Prime rate. This information is vital for recent fixed-rate mortgage commitments. During the pandemic-induced rate crash, rates significantly dropped, creating a substantial gap between individuals’ contract rates and the available rates. This led to a scenario where many sought to break their existing contracts to capitalize on the low market rates. Consequently, penalties for breaking such contracts skyrocketed, reaching $20,000 or more in some cases. This history serves as a stark reminder for those in the market or seeking pre-approval to carefully consider their short and long-term strategies.

If you’re in the market for the best mortgage rate, the 5-year fixed rates might catch your eye, but be cautious – choosing them could mean hefty penalties if you decide to make changes within that time. Mortgages are essentially contracts, and breaking them comes with a significant cost. As your guide through the mortgage journey, it’s crucial to emphasize that while variable rates might be slightly higher now, they often come with lower penalties, making them a sensible choice if your financial future is uncertain over the next five years. Ultimately, as a homeowner, the best rate is the one you’re comfortable with. My role is to inform you about what that looks like both now and in the future, especially in today’s rate environment, where opting for a low fixed rate now could potentially lead to higher penalties later on.

Understanding Mortgage Prepayment Penalties

A mortgage prepayment penalty is a rule set by your lender to stop you from paying back your mortgage too soon or quicker than you both agreed, usually for a certain term such as 5 years. When you get a mortgage, you and the lender make a commitment, and they expect to earn a certain amount of interest during that time – that’s how they run their business and make money. Breaking this commitment early can lead to extra charges known as prepayment penalties.

The cost of these penalties varies across lenders and is influenced by factors such as the prepayment amount, interest rates, and the remaining term of the mortgage. Fixed-rate closed mortgages often incur penalties that are the greater of three months’ interest payments or an interest rate differential (IRD). On the other hand, variable rate closed mortgages usually result in a penalty equivalent to three months’ interest payments. Since these calculations vary, it’s best to ask your lender or broker directly for a quote before making decisions like selling your home, switching lenders, or refinancing.

Factors Influencing Prepayment Penalty Costs

The type of mortgage significantly influences the prepayment penalties charged. Big banks tend to impose higher prepayment fees on fixed mortgages compared to monoline mortgage lenders. Monoline lenders, known for their flexibility, generally charge fairer penalties.

Different mortgage types also impact prepayment penalties. Open mortgages provide more flexibility, allowing borrowers to make lump-sum payments without penalties. However, this flexibility comes at the cost of higher interest rates. Closed mortgages, while offering lower interest rates, restrict prepayment options, often resulting in higher penalties.

Mortgage Prepayment Privilege

Some lenders provide prepayment privileges, allowing borrowers to boost their mortgage payments by a certain percentage or make lump-sum payments on their original mortgage amount, commonly around 15%. For instance, if your regular mortgage payment is $1000 per month, you could increase it by 15%, making your new monthly payment $1150. Similarly, for lump-sum prepayments, if your original mortgage amount was $100,000, you could make an annual lump sum (which can be spread across multiple payments) of $15,000. Combining these privileges, where allowed, can significantly reduce the interest you pay over time and accelerate your mortgage payoff. However, it’s essential to be aware of the specific terms and limits set by each lender to avoid triggering any prepayment penalties. Exceeding this limit may trigger a prepayment penalty.

Conclusion: Navigating Mortgage Prepayments

Before committing to a mortgage contract, it’s essential to review prepayment penalty clauses, mortgage rates, and terms. A thorough understanding of a lender’s flexibility can prevent costly surprises down the line. 

In the dynamic landscape of today’s mortgage rates, the best rate is the one that aligns with your comfort level – whether fixed or variable. My role is to equip you with the knowledge needed to make informed decisions, and that includes understanding the potential impact of prepayment penalties on your mortgage journey.

Mortgage Applications: How Lenders Review and Calculate Your Income

Navigating the complex world of mortgage applications can be an intimidating journey for anyone. Whether you are a first-time homebuyer, renewing your mortgage, or exploring options for investments or refinancing, understanding how lenders assess and calculate your income is pivotal. As a Mortgage Broker with access to a diverse range of lenders, each with its unique guidelines and criteria, I can leverage this knowledge to provide you with the best mortgage products and solutions tailored to your specific financial situation.

When applying for a mortgage, one of the key factors lenders examine closely is your income. Your income serves as a crucial indicator of your ability to repay the loan. In this blog, we’ll dive into the common types of income that lenders typically consider:

1. Standard Income from an Employer:

For employees, lenders usually require your most recent pay stub and a Letter of Employment. These documents serve to validate your employment status, including your position, your employer’s name and contact information, your start date, and your hourly or salary wage. Lenders will allow your base wage for qualification provided you are not on probation. If you are an hourly employee, we will need to verify whether you are working full time or part time. Part time employment is acceptable, but only your minimum hours worked per week can be used otherwise a two year average is required. It is important to ensure that your pay stub shows that you are working either full time hours or the minimum hours as per your letter of employment if you are part time.

2. Variable Income:

This category encompasses bonuses, overtime, commissions, seasonal work, contract jobs, and other forms of income that lack guaranteed hours or salaries. To qualify for a mortgage using variable income, you typically need to demonstrate a minimum 2-year history of such earnings. For instance, if you are a nurse who consistently works overtime, the lender would rely on a 2-year average based on your most recent tax slips (T4s).

While it might seem frustrating, especially when a significant portion of your income is variable, lenders prioritize income consistency over multiple years to mitigate risk. A year-over-year increase in your variable income is preferable as it indicates reliability, whereas a declining trend could raise concerns for lenders.

3. Self-Employed Income:

Proving income can be more intricate for self-employed individuals, and the requirements vary based on your business structure.

Sole Proprietor: Lenders typically request the most recent two years of your T1 General and the T2125, also known as the Statement of Business Activities. These documents provide a comprehensive overview of your business’s financial health and income. Lenders focus on your net income after expenses and may consider a 2-year average of this figure. In some cases, we can inflate your income by 15% to enhance your mortgage eligibility. Many self-employed individuals aim to minimize their taxable income, which can create challenges in qualifying for a mortgage. We can always explore solutions like the Stated Income Program, which allows the use of a reasonable income figure between your gross and net income.

Incorporated Business: The rules are similar to sole proprietors, but the documentation requirements differ slightly. You’ll need to provide T1 Generals, indicating whether you pay yourself through T4 or Dividends, and Business Financials prepared by a professional accountant. Business financials reveal essential information about your sales, expenses, payroll, and retained earnings, offering insight into your business’s performance over the last two years. Typically, lenders prefer a two-year increasing average, unless you explore alternative lending solutions or the stated income program. Some lenders have Business for Self programs where we can add back some business income to your file to assist with qualification. 

When self-employed, it is important that your documentation is as up to date as possible and readily available. Additional documents such as one year business bank statements and your incorporation certificate may also be required.

In Closing

The process of assessing and calculating income for mortgage applications can be complex and can vary depending on your employment type. As a Mortgage Broker, my expertise lies in understanding these nuances and helping you navigate the complexities of the mortgage application process.

It’s essential to be prepared to provide a wide range of documents, as lenders have the right to request additional information before granting a mortgage. The mortgage application is a thorough process, as lenders want to review everything meticulously before granting a mortgage. By working closely with my team and I, you can increase your chances of securing the mortgage that best suits your needs.

Is Investing in 2023 a Risk Worth Taking?

The real estate market in 2023 has undergone significant changes, primarily due to the rapid surge in interest rates. Just a few years ago, we were quoting insured rates as low as 1.30%, but today, interest rates are hovering around 5.54% or even higher, depending on lenders and type of purchase. This sharp increase in rates has created turbulence in the housing market, leading to price declines in some areas. While the current environment may raise concerns for property investors, particularly those considering rental properties, it’s important to explore the potential landscape for 2024 and beyond, with the assumption that rates will eventually return to a pre-pandemic norm of under 5%.

Finding Optimism Amidst Challenges:

While the prospect of high interest rates may appear intimidating, there are reasons to be optimistic. Economic dynamics are in a constant state of evolution, and there is a prevailing belief that variable rates will eventually decrease, especially as the economy stabilizes, and inflation comes under control.

2023: A Risk Worth Considering?

For individuals contemplating investment property purchases in 2023, the current situation offers a blend of challenges and opportunities. While higher interest rates today might deter some investors, the allure of acquiring properties at comparatively lower prices is enticing. Adopting a long-term perspective becomes crucial in this context.

The Key Consideration: Cash Flow

While fixed rates may currently appear appealing due to their lower levels compared to variable rates and the sense of financial security they provide, it’s essential to consider the possibility that you might be locking into a long-term contract at a higher rate, particularly if we are at the peak of fixed and variable rate mortgages at the moment. This decision hinges on various factors, including your financial goals, risk tolerance, and your outlook on interest rate trends. Careful consideration and consultation with a financial expert can help you determine which type of mortgage best suits your needs and circumstances.

Fixed Rates: These offer payment consistency but may entail higher costs and limited flexibility if rates decline during your term. This option provides stability but may involve a higher initial payment.

Variable Rates: Although initially demanding, variable-rate mortgages can yield significant benefits as interest rates trend downwards. However, they are subject to fluctuations, and the initial payments may be higher.

The key is to take advantage of lower initial interest rates and anticipate a possible decline in rates in the future.

Here’s a simplified breakdown of how this strategy might work:

1. Start with a variable rate mortgage with lower initial rates.
2. As rates may decrease over the next few years, your mortgage interest expenses could also decrease, leading to potential savings.
3. In 2026, if rates indeed reach a low point, as predicted, you might have the opportunity to switch to a new 5-year fixed-rate mortgage at a significantly lower rate.
4. By locking into this lower fixed rate for an extended term, you can enjoy stability and potentially reduce your overall interest costs over the remainder of your mortgage.

However, it’s crucial to note that this strategy involves some level of interest rate speculation, as predicting future rates is challenging. To mitigate risks, you should consider your financial situation, risk tolerance, and the potential impact of rising rates on your budget. Consulting with a financial advisor or mortgage expert can help you make an informed decision based on your specific circumstances and market conditions.

The Future Outlook: Patience vs. Action

As we look ahead to 2024 and beyond, it’s important to remember that the real estate market operates in cycles. The challenges posed by rising interest rates today are likely to evolve as economic conditions change. While some investors may consider selling due to reduced cash flow, those who persevere may find themselves in a more favorable position when rates eventually decrease.

Why Consider Variable Rates Now?

A question that arises is why opt for variable rates now when you could wait for rates to lower in the future? The answer lies in seizing the opportunity when property prices are low. Waiting for rates to drop may seem like a prudent move, but it’s worth noting that property prices have seen a significant decrease over the past year. By purchasing at a lower price today, you may lock in a lower interest rate in the future. Additionally, you won’t have to compete with a rush of buyers in 2-3 years when rates are lower, but property prices are high.

In Conclusion: The Dynamic Real Estate Game

In summary, the decision to invest in real estate in 2023 involves a careful evaluation of current conditions, risk tolerance, and long-term financial goals. While the environment may seem challenging, with proper planning, a forward-looking perspective, and the ability to adapt to market conditions, investors can navigate the 2023 housing market and position themselves for success in the years to come. Despite the uncertainties of 2023, the world of real estate remains dynamic, offering potential rewards on the horizon.

Source: wowa.ca/mortgage-interest-rates-forecast-2024

June’s CPI (Consumer Price Index) report is out and inflation is headed in the right direction!

First, the GOOD news:

• Headline inflation came in at 2.8%, lower than the expected 3%

Now for the not so good news:

• Energy prices are moving higher this month
• The 3 month core inflation (watched closely by the Bank of Canada) accelerated slightly. Back in May, this had dropped. Bringing inflation down to 2% or less is not expected to be a straight line; however, no one likes to see any inflation measure move back up after the year we have had so far.
• For the remainder of this year, the year over year comparables are more challenging. This makes it more difficult for inflation to slow down and we may see it tick back up.

Not surprisingly, mortgage interest costs rose by a whopping 30.1% year over year. If these costs are taken out of the equation, CPI is at 2%. Does this mean that the Bank of Canada is done hiking rates? Unfortunately not. With core inflation appearing sticky, there is a chance that inflation can go back above 3% and another Bank of Canada rate hike is not off the table. Keep in mind that the BoC has said that it may take until 2025 to get inflation back to target – a blip here and there is not unexpected.

INTEREST RATES

As of this writing, the 5 year Canadian Bond Yield has decreased on the news of lower headline inflation. If this continues, we may see lower fixed rate offerings from lenders. Currently, fixed rates are at 20 year highs. 

Last week, the BoC decided to further increase the prime rate by 0.25%, leaving it at 7.20%. I do not expect to see any rate decreases for variable mortgage holders until mid 2024.

TRIGGER RATES

For those of you with a true variable rate mortgage (where your payments remain the same, but the interest is adjusted vs the amount that goes to principal), you may have received a trigger rate notice from your lender. This is to inform Borrowers of when the payment is no longer covering the interest on your mortgage. Banks will give you three options:

1. Make a lump sum payment to bring amortization back in line
2. Increase your principal and interest payments
3. Convert your mortgage to a fixed rate term equal to or greater than the remainder of your existing mortgage term.

Feel free to contact me if you would like to discuss your options if you have received a trigger rate letter. If you are in an adjustable rate mortgage (where your payments change with each increase or decrease to the prime rate), you do not have to worry about trigger rates. You can still absolutely lock in to a fixed rate at any time though – as long as the new locked in term is equal to or greater than your existing term.

If you know someone who would like to be added to my market update mail list, have them reach out to jenni.jackson@dlcme.ca and I will add them. No spam, I promise!

INFLATION RELIEF?

A Summary of the June 27, 2023 Report

The most recent Consumer Price Index (CPI) report came out today (June 27). This report is important as the Bank of Canada is closely monitoring the rate of inflation and uses, in part, these figures when determining whether to increase or hold their overnight lending rate.

Here are some key takeaways:

1. Inflation slowed overall to 3.4% year over year, compared to last month’s 4.4%. The Bank of Canada uses several core measures of inflation. Their preferred method is the 3-month core measure (vs the year over year mentioned above). The 3-month core measure has also dropped and is now sitting at 3.6%. While this is good news, there is more work to be done to bring inflation back to the Bank’s target of 2%.

2. Energy prices are the primary factor for the overall reduced inflation. Year over year, energy prices have declined by 12.4%. Prices spiked last spring and summer due to Russia’s invasion of Ukraine – we are now beginning to see prices stabilize.
   
   
3. Despite positive updates, there were areas of concern:
   – Food Prices have risen 9%. This is not shocking as it is something that we are all experiencing at the grocery store. Interestingly, the Competition Bureau has just released a report stating that Canada needs more grocery businesses and that the lack of competitiveness is a driving factor behind high prices. This report highlights policies that it recommends to boost competition. Unfortunately, this will take time and will not be an immediate change for consumers
   – The Mortgage Cost Index shows that housing inflation is increasing at a rapid pace. A 29.9% increase year over year is eye watering for many of us. Mortgage interest costs are the main culprit for this and I know that I am not the only one who feels this pain. Also adding to housing costs are increased rental payments.

Fixed Rate Update

Canadian Bond Yields have been increasing as of late. This does impact fixed rate offerings from lenders. As the yield spikes, so too do the rates that lenders will offer. At this time of this writing, bond yields have nearly caught up to the peak that we saw in the fall of 2022.

The next important report due is the Labour Force Survey which comes out July 07. If unemployment levels increase, there is a chance that the bond yields will not pass the previous high of last fall. 

Will the Prime Rate Increase?

The big question on everyone’s minds is whether or not the Bank of Canada will increase its overnight lending rate at its next meeting (July 12). As it stands, economists are saying that there is a 57% chance of an increase. Short answer is that no one truly knows and these decisions are heavily based on the economic reports as they come out.

If you know someone who would like to be added to my market update mail list, have them reach out to jenni.jackson@dlcme.ca and I will add them. No spam, I promise!

June 07, 2023

Bank of Canada – Will They Continue to Raise Rates?

All Canadian mortgage holders have been holding our collective breaths during each of the Bank of Canada’s interest rate announcements. The BOC has made it clear today that we are not out of the woods yet. With a 0.25% increase to its overnight lending rate, we will see the Prime Rate move up to 6.95%. The last time that we have seen rates at this level was in 2007.

This rate hike today affects variable or adjustable rate mortgages, as well as secured or unsecured lines of credit. 

Will the BOC continue to raise rates? This is a toss-up and there is no clear answer. The main reason for the BOC’s decision today is the surprising strength and resilience in the Canadian housing market. The most recent data shows that the housing market is gaining strength despite the rise in rates. In the BOC’s eyes, if the most rate-vulnerable sector is still growing, more rate hikes are needed. Last month showed a slight uptick in overall inflation and there are hints that the 2nd quarter of Canada’s economy may also be in excess. That being said, many Economists do not believe that the way back to 2% inflation will be a steady drop – some upticks were expected. 

Canadian households are much more interest rate sensitive in comparison to our neighbors in the US. With our shorter term mortgages, households with renewals coming up in the next 2-3 years will most likely see increased rates. With this rate increase today, the Canadian Government 5 year bond yields have increased sharply – we are expecting all lenders to issue increases to their fixed rate offerings in the next day or so.

IMPORTANT DATES COMING UP:

June 09 – Canadian Employment Data

June 13 – US CPI Data for May 2023

June 14 – US Federal Rate Announcement

June 27 – Canadian CPI Data for May 2023

Click below to read the most recent announcement straight from the Bank of Canada:

June 07 2023 Rate Announcement

I will leave you with an excerpt from the BOC Announcement:

“The Bank continues to expect CPI inflation to ease to around 3% in the summer…However, with three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.”

Only time will tell, but Canadians are more than ready for inflation and higher rates to ease.

Another month has FLOWN by – time for another mortgage market update!

April 06: The Employment Report for the previous month was released. Employment remained strong and (most troubling to the Bank of Canada), was that wage inflation also remained strong. Keep in mind that the jobs market is a lagging indicator and so the central bank will be watching the next few reports very closely.

April 12: Another Bank of Canada meeting was held to determine whether or not to change their overnight lending rate. Good news for all of us with variable rate mortgages: there will be no change to the prime rate. As of today, the prime rate remains at 6.70%. The next meeting is scheduled for June 07, 2023.

The Bank of Canada is so far expected to hold off on rate hikes in the near future, although rest assured that the rates will not be dropping until late 2023 or even possibly not until 2024. The Governor of the Bank of Canada has reiterated that rates must remain restrictive in order for inflation to continue the downward trend and return to target.

April 18: The last time that I touched base with you, headline inflation was sitting at 5.2%. The March CPI (Consumer Price Index) report was recently released and inflation has fallen to 4.3%. This is encouraging news after a tough 2022 with rising inflation. Having said that, all Canadians are still feeling the effects of high consumer goods pricing; particularly at the grocery store. The prices on food have increased once again year over year; however, the increase is at a slower pace – let’s hope that this continues!

New Program Launched for First-Time Home Buyers:

The Government of Canada has another program that gives First-time Home Buyers more tax breaks to build a down payment. This is called the First Home Savings Account. Rob McLister, with MortgageLogic News, has broken it down for us simply:

• You must be a first-time home buyer as per the federal definition (let me know if you have questions regarding the definition and whether you fit in this category)
• You can save up to $8,000 per year ($40,000 per lifetime)
• Contributions are tax-deductible, much like an RRSP
• Gains AND withdrawals are tax-free if used to purchase a qualifying principal residence.
• The funds do NOT have to be repaid; this separates the FHSA from the existing Home Buyers’ Plan using your RRSPs.

Looking for more information on this? Click the link here: CRA – FHSA

Note: This is general information that’s subject to change. It’s provided as-is and is not meant to be advice, including but not limited to tax, legal or investing advice. Caveats apply to some of the points mentioned. Readers should consult a tax professional for guidance applicable to their circumstances.

Canadian Bond Market:
The bond yields have been an absolute roller coaster ride this year so far. Bond yields have an effect on fixed mortgage rates and what lenders offer at any given time. Late March and early April saw yields decline. With those declines, some lenders (not all) began to slowly reduce fixed rate offerings. Those lower rates may not be here to stay as the bond yields continue to creep back up (see the 3-month chart below). When you are researching rates online, there are several important points to keep in mind:

• Insured rates (higher than 80% loan-to-value) will always be lower.
• Make sure the rate offering is not for a mortgage product with limitations
• Shorter terms (1-4 years) are higher – sometimes much higher – than a 5 year fixed rate option
• Refinance rates are higher than the rates offered for a purchase, in most cases.

As always, I will keep you up to date on the mortgage market each month. Do not hesitate to reach out with any questions, I am happy to help.

Happy Spring to you all

The Life of a Deposit – From Realtor to Closing

Buying a property can be overwhelming. Knowing who does what, where your money goes and all the ins and outs will provide you with some peace of mind when it comes to your deposit. Typically, when purchasing you are required to put a deposit down. This would be handled by your Realtor or directly through your lawyer if you are purchasing privately. Your deposit counts towards your overall down payment & closing costs on the property.

As the buyer, when an Agreement of Purchase and Sale is made, your deposit serves the main purpose of providing security to the seller. This reassures the seller that you are serious about your offer and not as likely to back out of the transaction once things are finalized. 

There is no predetermined amount required by law, however, ‘acceptable’ varies depending on location. Typically your deposit is due within 24 hours of the Agreement of Purchase and Sale being accepted.

“When you are serious about buying, 

it is important to have your deposit funds readily available.”

So you’ve found a property, you have an accepted Agreement of Purchase and Sale, and you are ready to provide your deposit, but where does it go?

Deposit to Realtor

Your deposit will start at the listing brokerage, held in trust. (Not to worry, these accounts are regulated and audited!). 

If you made an offer with a condition of financing and you are unable to secure financing, your deposit would be returned to you in full, without any penalties. **As long as your Agreement of Purchase and Sale does not state otherwise, read everything before signing!

You have now given your deposit, where will it go next?

Deposit to Lawyer

Once all conditions of the sale are met and you are getting everything in order to close your property, your deposit will be transferred and held by your lawyer. 

The deposit is applied to the final purchase price on closing day and becomes part of your down payment (your total down payment amount is determined by you and your mortgage broker). Your lawyer will prepare a statement of adjustments, to let you know how much is owed upon closing OR if no financing was required, your closing costs would come out of the deposit and the difference would be given back to you by your lawyer.

Your lawyer will contact you prior to closing to review and sign all final documentation and you will be shown how your deposit is applied.

Final Thoughts

A deposit is part of your down payment and is made in good faith to show sellers you are a serious buyer. The money is then held in trust (not given to the seller) until the mutually agreed upon closing date. When speaking with your mortgage broker, ensure you provide proof of deposit so they can factor this in and add it to your down payment.

5 Tips to Get Pre-Approved for a Higher Loan Amount

Getting pre-approved is a crucial first step when buying a home. It tells you how much you can spend on a home between your down payment and the approved loan amount. Sometimes, though, the pre-approval amount is lower than what you expect, throwing a wrench in your plans. 

Here are five ways to increase your pre-approval amount if this happens to you.

Lower your Debts

Your debt-to-income ratio measures your outstanding debts to your monthly income. If the percentage of your committed income is too high, you might not qualify for the mortgage amount you want.

Before applying for a mortgage, try paying your high-interest consumer debts down or off if you can. This will likely increase how much you can afford in a mortgage, giving you a higher pre-approval amount.

Increase your Credit Score

Lenders dive deep into your credit score & repayment history when pre-approving you for a loan. Therefore, you might not qualify for as much as you hoped if you don’t have a fair or good credit score.

Before applying for a loan, check your credit and determine where to make changes to increase your score. It is important to bring any late payments current and lowering your outstanding credit card debt to decrease your credit utilization rate.

Change your Mortgage Terms

Sometimes, the mortgage terms make your pre-approval loan amount lower than you’d like. For example, variable rates are currently higher than fixed rates. With the Stress Test, you would currently qualify for less if choosing a variable rate. Work with your Mortgage Broker to see which loan offers the best options for your situation.

Make a Larger Down Payment

If you have more capital saved, consider putting it down on the home. A larger down payment means you need to borrow less from the lender, and they may be able to approve you for a higher purchase price.

If you don’t have the money saved, consider a gifted down payment from family or a government assistance program, such as the First-Time Home Buyer Incentive.

Find a Co-Signer

If you have close friends or family with great credit, consider asking them to co-sign your mortgage. It’s best to ask someone with a high income and low debt who can add to your capability, but use caution. When someone co-signs your loan, they are as financially responsible as you for the payments.

Final Thoughts

Getting pre-approved for a higher amount is possible; it just may take a little work and time. However, before requesting a higher amount, ensure you can afford the higher payment. The more you borrow, the higher your mortgage payment will be. Even if you’re approved for your max amount, it’s a good idea to complete an in-depth budget sheet to ensure you can afford the expenses outside of your new home. 

Think about how much you can afford and if your pre-approval doesn’t match that amount, figure out what you can fix to get the desired amount. It may take a little more time or effort but it is worth it!