Canadian March Home Sales Posted Their Biggest Decline Since June

Statistics released today by the Canadian Real Estate Association (CREA) show that rising interest rates were already dampening housing activity well before the Bank of Canada’s jumbo spike in the key policy rate in mid-April. National home sales fell back by 5.4% on a month-over-month basis in March. The decline puts activity back in line with where it had been since last fall (see chart below).

New Listings

The number of newly listed homes fell back by 5.5% on a month-over-month basis in March, following a jump in February. The monthly decline was led by Greater Vancouver, the Fraser Valley, Calgary and the GTA.

With sales and new listings falling in equal measure in March, the sales-to-new listings ratio stayed at 75.3% compared to 75.2% in February. The long-term average for the national sales-to-new listings ratio is 55.1%.

About two-thirds of local markets were seller’s markets based on the sales-to-new listings ratio is more than one standard deviation above its long-term mean in March 2022. The other third of local markets were in balanced market territory.

There were 1.8 months of inventory on a national basis at the end of March 2022 — up from a record-low of just 1.6 months in the previous three months. The long-term average for this measure is more than five months.

The Aggregate Composite MLS® HPI was up 1% on a month-over-month basis in March 2022 – a marked slowdown from the record 3.5% increase in February.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up by 27.1% on a year-over-year basis in March. The actual (not seasonally adjusted) national average home price was $796,000 in March 2022, up 11.2% from last year’s same month.

Bottom Line

The March housing report is ancient history, as sharp increases in market-driven interest rates have changed the fundamentals. This report also precedes the 50 basis point hike in the overnight policy rate by the Bank of Canada. Anecdotal evidence thus far in April suggests that new listings have risen, and multiple bidding has nearly disappeared.

The rise in current fixed mortgage rates means that homebuyers must qualify for uninsured mortgages at the offered mortgage rate plus 200 bps–above the 5.25% qualifying rate in place since June 2021. This, no doubt will squeeze some buyers out of higher-priced markets.

The federal budget introduced some initiatives to help first-time homebuyers and encourage housing construction–but these measures are hitting roadblocks. Labour shortages are plaguing the construction industry, and the feds do not control zoning and planning restrictions but at the local government level. The ban on foreign resident purchases will likely have only a small impact, so the fundamental issue of a housing shortage remains the biggest impediment to more affordable housing in Canada.

This article is accredited to the Sherry Cooper Assoc.

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

The Bank of Canada will be raising interest rates on variable-rate mortgages by 0.5%. What this means is that your monthly payments will increase by $26 per $100,000 on your mortgage if you are on a variable rate mortgage. Here is the Bank of Canada statement.

This comes as no surprise as Canadian inflation has been at historic highs as of late. Fixed rates have been rising more rapidly than prime rates over the past few weeks, meaning that qualifying rates have increased, as well as reduced the overall access to mortgage funds as rates return to pre-pandemic levels.

The very best planning advice we can give you is to make your mortgage payment today as if it were a fixed rate, this will avoid potential future payment shock and help you pay your mortgage off faster.

To see some examples that may help you decide the right balance of payment for your budget download our app HERE.

To gain a little more perspective on the fixed vs variable here is a Global News segment we did last month and a blog post in anticipation of today.

Regardless of whether you are fixed or variable, this is the time to pay close attention to your mortgage plan as we continue to venture into unknown waters. Our team is here to answer any questions you may have regarding your mortgage, whether it be a renewal, consolidating debt, or considerations for an upcoming purchase!

The Angela Calla Mortgage Team

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Deputy Prime Minister and Minister of Finance the Honourable Chrystia Freeland tabled the Government’s Budget on April 7, 2022. Highlights of the 2022 Budget include:

• Initiatives to support housing affordability
• Tax incentives to support small businesses
• Measures to address tax avoidance and aggressive tax planning
• Various international and cross-border tax measures
• Additional tax on financial institutions

Join MNP’s Senior Vice President, Tax Services Am Lidder as she provides highlights from the Government’s 2022 Federal Budget Summary, and then read the detailed summary in the link below.

You can read the full report at MNP

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

The federal budget promises $10 billion to make housing more affordable. Measures include tax credits for a variety of items, but the big ones, at least to me are:

1. A two-year ban on foreign buyers
2. Sales taxes on assignment sales
3. No principal residence exemption for properties bought and sold within 12 months
4. Multigenerational Home Renovation Tax Credit

This is a refundable tax credit for Canadians who are taking home building into their own hands. Families who are constructing a secondary suite for a senior or adult with a disability would be able to claim 15 percent of up to $50,000 in eligible renovation and building costs, resulting in up to $7,500 worth of savings.

1. Tax-Free First Home Savings Account

Starting in 2023, first-time homebuyers would be able to save up to $40,000 in a new account. As with a registered retirement savings plan, contributions – in this case, up to a maximum of $8,000 a year – would be tax-deductible. And, as with a tax-free savings account, withdrawals would be tax-free. Investment growth inside the account would also be tax-free.

1. Doubling the First-Time Home Buyers’ Tax Credit: First-time buyers who’ve purchased a property on or after Jan. 1 would be able to claim $10,000 – up from the current $5,000 – which would double the maximum non-refundable tax rebate from $750 to $1,500.
2. Doubling the home accessibility tax credit: Seniors would be able to claim a maximum of $20,000 worth of expenses for upgrades such as walk-in bathtubs and wheelchair ramps that make their homes more accessible. The new ceiling would be double the current cap on eligible expenses and would result in a maximum tax credit of $3,000.

I should stress these are not effective yet, simply announced. No doubt this will result in a few changes in the real estate market, with more to come over the next few weeks. Expect to hear more on, the cooling-off period and increases for both variable, fixed, and qualifying interest rates.

Details of the budget are available online, but I found this article from the Globe and Mail to provide a good summary – Here’s how the 2022 federal budget affects home buyers and consumers – The Globe and Mail

If you or a loved one have a mortgage up for renewal, debt outside your mortgage to consolidate, a home renovation project or an upcoming home purchase coming up, please email callateam@countoncalla.ca to get started on reviewing your options.

Angela Calla

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Affordable Housing Is A Key Theme In Federal Budget 2022

Today’s budget announced a $10 billion package of proposals intended to reduce the cost of housing in Canada (see box below). The fundamental problem is insufficient supply to meet the demands of a rapidly growing population base. Thanks to the federal government’s policy to rapidly increase immigration since 2015, new household formation has risen far faster than housing completions, both for rent and purchase. This excess demand has markedly pushed home prices to levels beyond average-income Canadians’ means.

The measures announced in today’s budget to increase housing construction, though welcome, are underwhelming. The Feds can control the construction of lower-cost housing through CMHC. Still, most home building is under the auspices of the municipal governments, where the red tape, zoning restrictions and delays abound. The federal government increased funds to help local governments address these issues, but NIMBY thinking still prevents increased housing density in many neighbourhoods.

The headline policy announcement for a two-year ban on foreign residential property purchases may sound reasonable. Still, according to Phil Soper, chief executive of Royal LePage, “It will have a negligible impact on home prices. We know from the pandemic period, when home prices escalated with virtually no foreign money, that our problem is made-in-Canada.”

According to the Financial Post, Soper added that measures like the tax-free savings account for young Canadians would be encouraged to help them achieve their dreams of homeownership in a typical real estate market. However, in a low-supply environment with pandemic-fuelled price gains, these measures would only add more demand without addressing the supply issue. Only a few first-time buyers would be able to take advantage of it.

The Home Buyers’ Bill of Rights that would end blind bidding and assures the right to a home inspection and transparent historical sales prices on title searches is also long overdue.

The First-Time Home Buyer Incentive has been extended to March 2025. This program has been a bust. Buyers do not want to share the equity in their homes with CMHC. The Feds are taking another kick at the can, “exploring options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.” To date, the limits on the program have made them useless in high-priced markets such as the GTA and the GVA.

Budget 2022 Measures To Improve Housing Affordability

Tax-Free Home Savings Account

• Introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.

New Housing Accelerator Fund

• With the target of creating 100,000 net new housing units over five years, proposes to provide $4 billion over five years, starting in 2022-23, to launch a new Housing Accelerator Fund that is flexible to the needs and realities of cities and communities, while providing them support such as an annual per-door incentive or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development.

 New Affordable Housing

• To ensure that more affordable housing can be built quickly, Budget 2022 proposes to provide $1.5 billion over two years, starting in 2022-23, to extend the Rapid Housing Initiative. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25% of funding going towards women-focused housing projects.

An Extended and More Flexible First-Time Home Buyer Incentive

•  Extension of the First-Time Home Buyer Incentive–which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government–to March 31, 2025. Explore options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.

A Ban on Foreign Investment in Canadian Housing

•  Proposes restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a two-year period.

 Property Flippers Pay Their Fair Share

• Introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply to Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.

Rent-to-Own Projects

• Provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

Home Buyers’ Bill of Rights

• Bring forward a national plan to end blind bidding. Among other things, the Home Buyers’ Bill of Rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

Multigenerational Home Renovation Tax Credit

• Provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability, starting in 2023.

Doubling the First-Time Home Buyers’ Tax Credit 

• Double the First-Time Home Buyers’ Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers, applying to homes purchased on or after January 1, 2022.

Co-Operative Housing Development

• Reallocate funding of $500 million to a new Co-Operative Housing Development Program to expand co-op housing in Canada. Provide an additional $1 billion in loans to be reallocated from the Rental Construction Financing Initiative to support co-op housing projects.

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

When it comes to shopping for your perfect home, it can be hard to find the exact one ready to go! In fact, most homes come with flaws of a sort whether it is old paint or flooring, outdated fixtures or perhaps more extensive repairs are needed. While some buyers have no issues dealing with these deficiencies in a home or perhaps do not consider them dealbreakers, other house hunters might.

If you are looking into a home that requires improvements, there is a mortgage product known as Purchase Plus Improvements (PPI). This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

Depending on whether you have a conventional or high-ratio mortgage, if it is insured or uninsurable, and which insurer you use, the Purchase Plus Improvements (PPI) product can allow you to borrow between 10% and 20% of the initial property value for renovations.

The main difference between a regular mortgage and a purchase plus home improvements program is the need for quotes. As part of the verification process, your mortgage professional and the lender will need to see a quote for the work that is planned for the improvements. The quotes will provide us with the cost and plan details required to secure the final approval.

The lender will release the full funds directly to the lawyer with instructions to hold onto the portion for improvement costs until the renovations are completed. You would need to pay the contractor and then, once the renovations are complete, and the lender has approved and waived the holdback, the lender will allow the lawyer to release the additional funds.

To get started with this type of mortgage program, the first step is reaching out to myself to understand how this mortgage product would apply to your application and specific situation, as based on your existing mortgage. Understanding what you qualify for and the types of improvements that can be included in the financing will help you better understand which potential houses might work great for you and how much financial room you have for improvements.

(This article is courtesy of the April 2022 DLC Newsletter)

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Spring is a great time to consider doing an annual mortgage check-in!

Organizing a quick mortgage review each year can help provide peace of mind and ensure you’re on-track your future goals while still ensuring you’re able to manage the monthly payments

With interest rates on the rise, a mortgage check-up is a great opportunity to review your current situation and potential options, including taking a look at your current mortgage rates and terms. For instance, perhaps now is a good time to consider locking in your variable rate mortgage to a fixed term?

This is also a great time to look at your payment frequency for potential savings, such as moving to an accelerated bi-weekly plan versus monthly (or vice versa if you are finding it difficult to meet your current payments). On the other hand, if you have extra savings you want to put on your mortgage, this is a good time to review your pre-payment privileges to do an annual lump-sum payment of 15-20%, or increase your monthly payment amount to get your mortgage paid off more quickly!

Overall, your annual mortgage check-up is a great opportunity to touch base and discuss any life changes, your current situation and future goals to ensure that your mortgage continues to work for you and you have peace of mind all year long. Please don’t hesitate to reach out to me any time to book your check-up!

(This article is courtesy of the April 2022 DLC Newsletter)

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

As the housing market continues to stir up homebuyers in Canada, the ongoing debate between variable and fixed rate holders is more prevalent than ever. To highlight some of these aspects more prominently, we have put together a breakdown of the distinctions you should know.

When it comes to adjustable vs variable, it is invaluable to know when payments change and when just the amortization changes and the subsequent effects. After a rate increase of a quarter point/0.25%, expect your payment to go up by $13 dollars per 100k in the mortgage amount. Unless you are with a lender like CIBC or TD that only changes the amortization so you would manually have to change your payment higher unless you stretch out the amortization.

Locking into a fixed rate – what the rate is at that time is unknown. It’s not the rate that it could have been or the variable rate as a fixed but whatever the rate is currently. Typically, it is 1.0-1.5% higher, which is likely one of the major reasons you took the variable rate in the first place, to benefit from those savings. When you lock into a fixed rate, you assume those terms meaning there could be an Interest Rate Differential (IRD) penalty if you need to break the mortgage early.

Bank of Canada meets 8 times a year, rates can stay the same, move up, or down most commonly in .25% increments.

It is important to note that Bank Prime and The Bank of Canada Prime are two different things. The one that impacts you is Bank Prime. When there is a change remember, the banks are not obligated to opt-in. Most times they do, however, in large, unprecedented times, sometimes measures change. In regular times, if Bank Prime is 3% and your discount is prime minus one, your rate is 2%, if prime goes up to 0.25% then your rate goes up to 2.25% and the bank prime is now 3.25%

Prime can be different depending on the lender so borrowers should be aware of what that lender’s prime is (i.e., TD). Therefore, understanding lender history is so crucial. Banks can adjust their pricing, so it’s best you go into your mortgage decisions understanding the options available.

Lock-in options will be offered as 3, 4, or 5-year terms. Depending on how far into a mortgage you are. The bond market is much more volatile than the Bank of Canada rate changes so your lock-in options can change very fast, and the borrower is responsible for securing those options and responding directly to the lender, with us being here to advise. As the borrower, it is your responsibility to understand these options and act accordingly as time is usually of the essence in these scenarios. As always, we are here to provide the options for you to decide.

Here are some of the main reasons people consider a variable rate mortgage:

1. Flexibility not to front-load as much interest to the lender
2. Cashflow design
3. Qualifications and spread pending timing in economy/mortgage rate pricing
4. Low exit is so easy to modify to utilize the equity
5. Take advantage of lows in the market
6. If paid at a fixed rate, significantly reduces the principal and therefore time of the mortgage

Sometimes it can be a lot of information to digest, but our team is here to explain and walk you through the whole process. So, if you are considering a variable rate mortgage, or have any questions about your existing mortgage, feel free to reach out to our team for a free consultation!

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Good morning! In light of the upcoming April Bank of Canada announcement, we’ve been getting a lot of messages from those of you with Variable Rate Mortgages, asking if you should lock in ahead of April’s potential rate increase: Rates are rising. Is it time to lock in your mortgage rate?

In her keynote speech last week, Deputy Governor of the Bank of Canada, Sharon Kozicki, asserted that the Bank of Canada is “prepared to act forcefully” to bring inflation back down to 2% by using its monetary policy tools. However, she also confirmed that the Bank is cautious about tightening its monetary policy too quickly which could further promote inequality and hardships for some households.

“While we will watch developments with respect to households closely as we proceed, it’s important to be clear: Returning inflation to the 2% target is our primary focus and our unwavering commitment. We have taken action and will continue to do so to return inflation to target, and we’re prepared to act forcefully” –  Deputy Governor – Bank of Canada, Sharon Kozicki, March 25, 2022.

Many economists are now predicting that the Bank of Canada will announce a 0.50% increase to their key policy rate in their April 13th announcement.

So…is now a good time to panic? Should you lock into a Fixed Rate Mortgage? Fear of the unknown is a large driver in the mortgage market, and there is a reason why 3/4 of mortgages in Canada are Fixed Rate Mortgages. People find comfort in predictability…and so do the Banks. But it is also important to consider that 1/4 of Canadians with Variable Rate Mortgages have been the big winners and paid less overall interest for over a decade? Inevitably, rates will rise. The “emergency” low rates of the pandemic cannot last forever. We cannot predict the future. However, what we CAN do is explore the past and learn FOR our future.

Let’s look at some quick and easy numbers:

Let’s say you have a $500,000 balance with a 25-year amortization and a 5-year closed Variable Rate Mortgage at Prime Rate minus 0.80% right now. That 0.80% is called your “discount”, and you will have your discount for your entire 5-year Variable Rate term. With Prime Rate currently at 2.70%, this means that your current interest rate is 1.90% (2.70% – 0.80% = 1.90%), and your monthly payment is $2,095.01.

In contrast, current 5-year Fixed Rate Mortgages with many of the Big Banks have now risen from approximately 3.89% to 4.14%! With a $500,000 balance and a rate of 3.89%, these fixed-rate payments would be $2,600.37. Therefore, there is now an interest rate difference of nearly 2% between Fixed and Variable Rate Mortgages, and this amounts to a savings of $505.36 per month for Variable Rate Mortgage holders.

But let us imagine the Bank of Canada does act “forcefully”, as they say, and raises its key interest rate by a half percent in April (raising Prime Rate to 3.20%), this will drive your Variable Rate interest rate to 2.40%.

$500,000 at 2.40% = $2,217.99/month

$500,000 at 3.89% = $2,600.37/month

With a Variable Rate Mortgage, you would still be saving $382.38 per month.

Let’s say that the Bank of Canada acts even more aggressively and raises rates to “pre-pandemic” levels. After all, Prime Rate in October 2018 went as high as 3.95% and stayed that way until April 2020, when it dropped to 3.45% at the beginning of the pandemic. In this scenario, even if the Bank of Canada raised their key interest rate and Prime Rate rose to 3.95%, your rate would still only be 3.15% (3.95% – 0.80%).

$500,000 at 3.15% = $2,410.25/month

$500,000 at 3.89% = $2,600.37/month

With a Variable Rate Mortgage, you would still be saving $190.12 per month.

Let’s go back even further in time to our last recession from October 2008 to May 2009. Granted, the world has changed a lot since then, especially the real estate market! During this time period, Prime Rate rose to 4.50%. In this scenario, even if Prime Rate rose to this past-recession rate of 4.50%, your rate would be 3.70% (4.50% – 0.80%) …again, still lower than the current 5-year Fixed Rates right now.

$500,000 at 3.70% = $2,557.07/month

$500,000 at 3.89% = $2,600.37/month

With a Variable Rate Mortgage, you would still be saving $43.30 per month.

Don’t forget…what goes up must come down! If you look at historical Prime Rate changes over the last 14 years in the chart below, you will see that Prime Rate has fluctuated from as high as 4.50% to as low as 2.25%. With a Variable Rate Mortgage, remember that rates may rise and fall multiple times during the term of your mortgage. While rates may be high for a period of time during your mortgage term, you may actually pay less interest overall due to the period(s) of time where you saved interest (when the Prime Rate was low).

You can always mitigate the risk of rising rates by taking advantage of the savings NOW. We would recommend that you put aside the $505.36/month into a savings account or use it to pay down your principal balance faster. This way, if/when rates rise, you will be ready.

But if you still feel do not feel entirely comfortable with a variable-rate mortgage that is okay as well. The type of mortgage that you choose is entirely your decision and depends on your comfort level. A variable-rate mortgage is not for everyone. If you feel more comfortable with a fixed-rate mortgage, then you should go for it. However, before you do, it’s important to consider a few things:

Flexibility – Not all fixed-rate mortgages are built the same. Some fixed-rate mortgage penalties offer more forgiving penalty calculations if you ever need to get out of your fixed-rate mortgage contract. In general, many of the Big Banks and some Credit Unions include the “original discount” that you receive from their posted rates in their fixed-rate mortgage penalty calculations (called the IRD, or Interest Rate Differential), while others do not. Including the “original discount” into the IRD penalty calculation can increase the cost of the penalty.

If you are set on staying with a lender who includes the “original discount” in their IRD calculations, you may be better off considering the 3 and 4-year fixed-rate options because the difference between the 3 and 4-year contract vs posted rates tends to be smaller than those of the 5-year fixed rates. In contrast, the penalty to break a variable-rate mortgage is just 3 months of interest.

Qualification – Did you know that you now qualify for a larger mortgage if you take a variable-rate mortgage? The current government-mandated stress test stipulates that we must use “the higher of the contract rate + 2%, or the 5-year benchmark rate” for qualification. For fixed-rate mortgages, the rate used for qualification would be approximately 5.89% (3.89% contract rate plus 2%). For variable-rate mortgages that are still under 3.25%, the lenders can still use the qualifying rate of 5.25%.

Rate – Different classifications of mortgages have led to an array of interest rate offerings across the mortgage market. If your remaining amortization is below 25 years, if the original purchase price of your home was under $1,000,000, if you purchased your home with less than 20% down, and/or if you have a lot of equity in your home, there may be better rate options out there for you.

Final Thoughts:

So, is it time to lock into a Fixed Rate Mortgage, or should you continue to ride the wave? There is no crystal ball. Ultimately, the decision lies with you and your comfort level after arming yourself with the knowledge above. Will rates rise? Yes, rates will rise someday. Perhaps someday soon. Will rates fall? Also yes, rates will fall someday.

We believe that the Bank of Canada will likely raise their key interest rate aggressively and quickly this year to try to curb inflation. However, we do not foresee them maintaining high-interest rates for a long period of time and believe that we will see rates start to fall again next year. With current real estate prices, high amounts of indebtedness across the country, pandemic recovery, and many other global factors, we do not believe that a high-interest rate environment will be sustainable for our economy.

We’re likely in for a bit of a ride but, with the right knowledge, tools, and a little bit of courage, we are confident that you can and will make a sound mortgage decision.

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. 

In August of 2020, at the young age of 37, Angela surpassed $1 Billion dollars in funded personal mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

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