With the return of a buyer’s market, finally a reduction in the qualifying rates assists both people buying a home or people looking to access to their equity to take advantage of the situation.

1. If you are currently shopping for a home, review your pre-approval with your mortgage broker. On a $500,000 mortgage, the new rate increases your buying power on average by $10,000. This could be the difference in you winning the bid, getting that extra parking spot or slightly higher square footage.
2. Rates have been going down; that coupled with the recent qualifying rate reduction could improve your rate and cash flow as well.
3. If you have an existing mortgage with a rate more than 3.2 per cent, it’s worth a review to see if it’s beneficial to break it and get a new term. Everyone’s scenario will be different based on their existing equity, income, credit and their lender. A mortgage professional can guide you through it. Once those numbers are worked out, it will be easy to make a decision based on the numbers after penalty and costs.

In this ever changing mortgage market, it’s been incredibly exciting to see homebuyers entering the market after a few rough years and getting some relief! Looking forward to more changes to come with the Bank of Canada and how the federal government’s homebuying plan will roll out in upcoming months.

Stay tuned and here to help with any clarity.

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.

The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 stress test. The benchmark posted 5-year fixed rate has fallen from 5.34% to 5.19%. It’s the first change since May 9, 2018. And it’s the first decrease since Sept. 7, 2016, despite a 106-basis-point nosedive in Canada’s 5-year bond rate since November 8 (see chart below).

Five-Year Canadian Bond Yield

The benchmark qualifying mortgage rate is announced each week by the banks and “posted” by the Bank of Canada every Thursday as the “conventional 5-year mortgage rate.” The Bank of Canada surveys the six major banks’ posted 5-year fixed rates every Wednesday and uses a mode average of those rates to set the official benchmark. Over the past 18-months, since the revised B-20 stress test was implemented, posted rates have been almost 200 basis points above the rates banks are willing to offer, and the banks expect the borrower to negotiate the interest rate down. Less savvy homebuyers can find themselves paying mortgages rates well above the rates more experienced homebuyers do. Mortgage brokers do not use posted rates, instead offering the best rates from the start.
The benchmark rate (also known as, stress test rate or “mortgage qualifying rate”) is what federally regulated lenders use to calculate borrowers’ theoretical mortgage payments. A mortgage applicant must then prove they can afford such a payment. In other words, prove that amount doesn’t cause them to exceed the lender’s standard debt-ratio limits.

The rate is purposely inflated to ensure people can afford higher rates in the future.

The impact of the B-20 stress test has been very significant and continues to be felt in all corners of the housing market. As expected, the new mortgage rules distorted sales activity both before and after implementation. According to TD Bank economists in a recent report, “The B-20 has lowered Canadian home sales by about 40k between 2017Q4 and 2018Q4, with disproportionate impacts on the overvalued Toronto and Vancouver markets and first-time homebuyers…All else equal, if the B-20 regulation was removed immediately, home sales and prices could be 8% and 6% higher, respectively, by the end of 2020, compared to current projections.”

According to Rate Spy, for a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $2,800 (1.3%) more home
• Someone making $100,000 a year can afford $5,900 (1.3%) more home
  (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)

For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $4,000 (1.4%) more home
• Someone making $100,000 a year can afford $8,300 (1.4%) more home
  (Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

Bottom Line: Almost no one saw this coming due to the stress test rate’s obscure and arcane calculation method (see Note below). This 15 basis point drop in in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers. It should also counter, in some small part, what’s been the slowest lending growth in five years.

Note: Here’s the scoop on why the qualifying rate fell. According to the Bank of Canada:
“There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use its assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total currency.”

The BoC explains further:

“Prior to July 15th, we were using April’s asset data to determine the typical rate as that was what was published on OSFI’s website. On July 15th, OSFI published the asset data for May, and that is what we used yesterday to determine the 5-year mortgage rate. As a result, the rate changed from 5.34% to 5.19%.”

-Dr. Sherry Cooper

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.

Reverse mortgages are continuing to grow as a retirement solution for Canadians 55+. Homeowners 55+ are unlocking their home equity for tax-free funds that improve their cashflow and pay-off higher interest loans. Consider your own financial needs. Do any of these 5 common scenarios sound familiar?

1) You have missed a payment/made a late payment.
Credit card payments can become a vicious cycle; you make monthly interest payments and elongate the process of chipping away at that debt. Alleviate the stress of credit card debt by consolidating smaller loans with a reverse mortgage at a much lower interest rate. By consolidating your debt with a reverse mortgage, you can eliminate the stress of having to make monthly payments towards your loan and in turn, free up your monthly income.

2) You have asked to skip a payment or are accessing your investments earlier than you’d like.
If your debt has led to missing payments or touching your RRIF or retirement accounts, consider using a reverse mortgage to unlock up to 55% of your home equity. This way you can pay off debts while your investments keep working for you.

3) You want to start crossing things off your bucket list, yet can’t afford to.
Maybe your dream is to purchase a second home like a cottage, take a vacation, or even just dine out or attend the theatre regularly. A reverse mortgage can improve your retirement lifestyle by supplementing your monthly income without affecting your OAS and pension.

4) You want to financially assist your aging parents/kids/grandkids.
As the sandwich generation, you’re caring both for kids and aging parents. That can place huge financial stress on a household. A reverse mortgage can give both you and your aging parents financial independence and the ability to help your kids/grandkids pay for their education or even assist with a down payment for their home.

5) You are facing unexpected expenses.
Maybe it’s a leaky roof or a flood in your basement. Or you might have to renovate your home, allowing you to stay in your home long term. A reverse mortgage gives you quick access funds to pay for unplanned expenses without worrying about making any payments until you move or decide to sell your home.

If any of the above examples resonate with you, the CHIP Reverse Mortgage from HomeEquity Bank could be a great solution. Choose to receive funds as a lump sum or a monthly advance, depending on your needs. The Angela Calla Mortgage Team can tell you more!

-Eric Bisaillon

Buying a home is one of the most important financial decisions you will make.

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2. Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4. Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
   a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
   b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
10. Interest Rate – This is the monthly principal and interest payment rate.
11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14. Open / Closed Mortgage
    a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18. Title – The documented evidence that a person or organization has legal ownership of real property.
19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

-Kelly Hudson

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.

BCBusiness’s weekly snapshot of what’s selling around the province

Vancouver and Victoria had the priciest residential real estate sales last week. Both Vancouver properties sold quickly: a Point Grey townhouse went for $1.7 million in a single day, while a Yaletown condo fetched its asking price of $1,271,900 in three days.

The most-expensive single-family home was in Victoria’s Oak Bay. With more than 4,300 square feet of living space, including four bedrooms and five bathrooms, it was on the market for 21 days before selling for $4.63 million, just over 87 percent of list price.

At the other end of the scale, last week’s least-expensive sale was a $31,500 townhouse in the Kimberley/Alpine Resort area of the Kootenay. It was purchased for 70 percent of list price after 141 days on the market.

Details of these and other properties sold across the province last week are below: list and sold prices, days on market, size of home and property.

Read more: BCBusiness’s Weekly Snapshot

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.

The Bank of Canada held the target overnight rate at 1.75% for the sixth consecutive decision and showed little willingness to ease monetary policy, as stronger domestic growth offsets the risk of mounting global trade tensions. There has been ongoing speculation that the Bank of Canada would be pushed into cutting interest rates by the Fed. I do not believe the Bank will let the US dictate monetary policy when the Canadian economy is clearly on the mend. To be sure, trade tensions have slowed the global economic outlook, especially in curbing manufacturing activity, business investment, and lowering commodity prices. But the Bank as already incorporated these effects in previous Monetary Policy Reports (MPR) and today’s forecast has made further adjustments in light of weaker sentiment and activity in other major economies.

The Governing Council stated in today’s press release that central banks in the US and Europe have signaled their readiness to cut interest rates and further policy stimulus has been implemented in China. Thus, global financial conditions have eased substantially. The Bank now expects global GDP to grow by 3% in 2019 and to strengthen to 3.25% in 2020 and 2021, with the US slowing to a pace near its potential of around 2%. Escalation of trade tensions remains the most significant downside risk to the global and Canadian outlooks.

The Bank of Canada released the July MPR today, showing that following temporary weakness in late 2018 and early 2019, Canada’s economy is returning to growth around potential, as they have expected. Growth in the second quarter is stronger than earlier predicted, mostly due to some temporary factors, including the reversal of weather-related slowdowns in the first quarter and a surge in oil production. Consumption has strengthened, supported by a healthy labour market. At the national level, the housing market is stabilizing, although there remain significant adjustments underway in BC. A meaningful decline in longer-term mortgage rates is supporting housing activity. The Bank now expects real GDP growth to average 1.3% in 2019 and about 2% in 2020 and 2021.

Inflation remains at roughly the 2% target, with some upward pressure from higher food and auto prices. Core measures of inflation are also close to 2%. CPI inflation will likely dip this year because of the dynamics of gasoline prices and some other temporary factors. As slack in the economy is absorbed, and these temporary effects wane, inflation is expected to return sustainable to 2% by mid-2020.

Bottom Line: The Canadian economy is returning to potential growth. “As the Governing Council continues to monitor incoming data, it will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.” With this statement, Governor Poloz puts Canadian rates firmly on hold as Fed Chair Jerome Powell signals openness to a rate cut as uncertainty dims the US outlook.

The Canadian central bank is in no hurry to move interest rates in either direction and has signaled it will remain on hold indefinitely, barring an unexpected exogenous shock.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.

Andrew Carnagie was one of the richest men in America over 100 years ago. Today his wealth would be worth $4.6 billion dollars. He was a shrewd businessman. While he made most of his money in oil and iron, he understood the value and importance of real estate in building wealth.

Leveraging your money is the key. Leveraging is using someone else’s capital to make a larger purchase. Let’s say you have money to buy a house. You have 2 options:
1- You can use your $100,000 cash and buy a home for this amount free and clear.
2- You can use your $100,000 as a 20% down payment and borrow the rest and buy a $500,000 home.

A year later, if house values have gone up by 5%, a very reasonable amount for many Canadian cities and towns, what would you have?
If you took Option 1, you would have made $5,000 or a 5% return on your money. If you took Option 2 you would now have made $25,000 on your house purchase.
If you are like most Canadians, you don’t have $100,000. You can get into a home with only 5% down. Purchase a $300,000 home with a 5% down payment or $15,000. After a year, with property values going up by 5%, your house is now worth $315,000. You have made a 100% return on your money! Now you can see why people invest in real estate as soon as they can.

Are there any downsides to buying a home as an investment? Yes, if the main industry in your town is announcing layoffs, houses on the market could drop in price and wipe out your profit. But let’s face it, by buying a home you are making yourself your landlord. When you pay your mortgage balance down you are paying yourself. It’s like forced savings. You have to pay the mortgage, so you are forced to save for the future. If you were paying rent, you pay a similar amount of money what do you get in the end besides your damage deposit back? Nothing. We are not all going to become millionaires but we can become wealthier. It’s within the grasp of most Canadians to become homeowners.

If you are considering purchasing a home, be sure to speak to your favourite Dominion Lending Centres mortgage professional first to discuss what’s best for you.

-David Cooke

Angela Calla is a 15 year award-winning woman of influence mortgage expert. Alongside her team, passionately assisting mortgage holders get the best mortgage, and educating them on The Mortgage Show on CKNW for over a decade and through her best-selling book The Mortgage Code available on Amazon. To purchase the book click here: The Mortgage Code. Proceeds from a sales will help build a new emergency room at Eagle Ridge Hospital. Angela can be reached at callateam@dominionlending.ca or 604-802-3983.