Trivia question: What is the interest rate you’re paying on your various debts?

Interest rates seem vitally important in a week in which the Bank of Canada raised its benchmark lending rate for the first time in seven years, but they’re not what you should be focusing on as you prepare for the possibility of borrowing costs ahead.

“People get all excited about rates,” said Stephanie Holmes-Winton, CEO of a firm called the Money Finder, which trains financial planners and advisers to better help clients manage their household cash flow. “But rates don’t have a lot of impact until you add amortization and principal.”

Amortization refers to the period of time over which you’ll gradually repay what you owe, and principal is the amount you borrowed. Both, obviously, get at least a bit of attention when you set up a mortgage, line of credit or loan. But it’s the interest rate that we obsessively research, negotiate, then brag about.

“We’ve been taught to chase the shiny thing,” Ms. Holmes-Winton says of our fixation with rates. “It’s so easy to say 3 per cent is less than four. What we’re not looking at is the question: How much does my debt cost me?”

Want to protect yourself against the risk of higher rates? Pay down your principal and shorten your amortization. The more effective you are at reducing your total household debt load, the less vulnerable you are if borrowing costs gradually move higher in the months and years ahead.

Even in today’s low-rate world, the cost of debt is substantial. Someone who buys a $500,000 house with a 10-per-cent down payment would pay $165,374 in interest if we assume today’s discounted five-year fixed mortgage rate of 2.6 per cent lasts throughout a 25-year amortization. If the economy sustains current growth levels or improves, expect both rates and interest costs to be higher. With a constant 3.6-per-cent mortgage rate, total interest costs over 25 years rise to $236,707.

Let’s say you have the average $70,000 balance carried by people with home equity lines of credit (HELOCs). Over a year, your minimum monthly payments (interest only) would add up to about $2,415 at current rates. Your principal remains at $70,000 if you just pay the interest on the average HELOC balance, and interest costs pile up endlessly. Higher rates aren’t your problem if you’re in this position; the bigger issue is the need to grind down your principal and get your debt paid off. Reducing your balance even to $50,000 cuts your annual interest bill to $1,725.

According to a recent study from the Financial Consumer Agency of Canada, some lenders find that a large majority of HELOCs are not fully repaid until the borrower sells his or her home. This kind of financial procrastination is possible only when interest rates are as low as they have been.

With a mortgage, the simplest way to reduce principal and amortization is to make payments on an accelerated biweekly basis rather than monthly. You’re essentially making a 13th monthly payment each year if you do this. The benefit for people just starting a mortgage is an automatic reduction in amortization by roughly two years – 23 instead of the usual 25 – and a lower overall interest cost.

Paying down the mortgage principal is another tactic – one that we’re pretty good at already. Data presented late last year by Mortgage Professionals Canada (they represent mortgage brokers) shows that 35 per cent of homeowners with mortgages used one or more of these measures in the past year to get their mortgage paid off faster: Increasing their payment, making a lump-sum payment or increasing the frequency of their payments. In cities where people are forced to take on big mortgages to buy a house, it would be great to see half or two-thirds of home buyers take at least one of these steps.

According to Ms. Holmes-Winton, the sad part of our rate obsession is that we often underestimate what we’re really paying. She’s found that people’s average rate across all their borrowings – loans, mortgages, credit cards and more – is 8 per cent. Problem is, people seem to mistake much lower mortgage rates for their overall cost of borrowing. “People are paying way more average interest than they realize.”

Read the article from the Globe & Mail here

Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca and 604-802-3983.

New record: $2,090 a month is average cost of one-bedroom rental in Vancouver

For more than a year, Vancouver has taken top spot for the most expensive city to rent in Canada and now the city of glass has broken another record.

In July, the average price of rent for a one-bedroom apartment in Vancouver hit $2,090 a month; which is the first time this type of property has cracked the $2,000 mark since Padmapper started tracking rental data. Padmapper collects rental data from 25 of Canada’s biggest cities based on population.

In June the average price for renting a one-bedroom was $1,950. That’s a 2.5 per cent jump in cost from June to July and year-over-year price of a one-bedroom in Vancouver has increased by 15.5 per cent.

Similarly, rent for a two-bedroom grew by 2.5 per cent in July to $3,230 a month.

While Vancouver stays poised at the top of the list, Toronto comes in second consistently with rents increasing only slightly (0.9 per cent) to $1,800 a month for a one-bedroom and $2,430 for a two-bedroom.

Affordability for both renters and homeowners continues to be a hot topic in Metro Vancouver.

In March, tenants on Vancouver’s west side fought against a 35 per cent rent increase. The landlord of the building, located in the 1000-block of West 13th Avenue wants to raise the rent above this year’s legally-capped limit of 3.7 per cent under a clause of the Residential Tenancy Regulation.

The province currently caps annual rent increases at 3.7 per cent, but landlords can apply for exceptions if the rent they are currently charging is significantly lower than what is being charged for similar suites nearby.

The City of Vancouver conducted a survey of 10,000 residents, which resoundingly said affordability is their top priority and the city’s new housing strategy should prioritize housing based on what local residents can afford.

The survey also found that many residents believe investment pressure is a primary contributor to rising prices and that the majority of renters are concerned about their future in Vancouver — with affordability being a main reason why they might choose to leave. City staff will be reporting to council on July 25 with the results of the public consultation, housing targets in the next 10 years and actions to achieve those targets.

Victoria also remained in the top five even though rent fell by 5.1 per cent for one-bedroom units ($1,120/month) and slightly increased by 0.7 per cent for two-bedroom apartments ($1,410/month).

Click Here to Read the Article

Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca and 604-802-3983.

Last week Bank of Canada (BoC) Governor Poloz eliminated any doubt about the BoC’s near-term plans. During an interview on CNBC he said that the two 0.25% overnight-rate cuts that the Bank made in 2015 in response to the oil-price shock have “done their job” and he expressed confidence that our economy’s “surprisingly” strong first-quarter growth rebound would continue.

The market’s reaction was swift.

The futures market raised the odds of a BoC rate rise at its July meeting to better than 50% and the Loonie soared against the Greenback, reaching a nine-month high. Government of Canada (GoC) bond yields surged higher and mortgage lenders wasted no time, quickly raising their fixed rates, which are priced on GoC bond yields, in response.

This marks a rare moment for many of our variable-rate borrowers because the BoC hasn’t raised its overnight rate in more than seven years, which means there are many among this group who have never experienced a rate rise (this is the part where the older generations shake their heads).
Suddenly these borrowers have just been told by the BoC that their rates are going to go up and at the same time, they are nervously eyeing fixed mortgage rates, otherwise known as their conversion parachutes, moving higher.

In today’s post, I’ll explain why the BoC is planning to raise its overnight rate soon, offer my take on the impacts that this will have on our economy, and most urgently, offer my two cents on whether variable-rate borrowers should now convert to a fixed-rate mortgage.
The Canadian economy has performed much better of late. Our GDP rose by 3.7% on an annualized basis in the first quarter of this year (which led the G7 economies), our job growth has consistently exceeded consensus forecasts, and even our beleaguered export-manufacturing sector is showing signs of life.

That last point is key for the BoC because it has long said that any healthy economic recovery scenarios must be export led and underpinned by a strong and stable rise in business investment in our manufacturing sector. The health of this sector is vital because manufacturing jobs have a multiplier effect that stimulates job creation across our broader economy.

This newfound economic strength adds another worry to the Bank’s list because if our current economic momentum marks the beginning of a sustainable recovery, it must now try to stay in front of inflationary pressures. BoC Deputy Governor Carolyn Wilkens recently alluded to this when she said that “If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly … You don’t want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.” 

The BoC has lots of other reasons for wanting to begin raising its overnight rate. Our extended period of ultra-low interest rates has created potentially destabilizing risks that include:

-Rising household debt levels.

-The potential for asset bubbles.

-The deterioration of overall credit quality as investors reach for higher yields.

-Increasing long-term liability shortfalls from pension funds and insurance companies because they can’t earn the returns they need to cover their long-term
obligations.

-Limited future monetary-policy flexibility when the overnight rate is so close to 0% (it stands at 0.50% today).  

If the BoC wants to make the case for raising rates in the here and now, the two emergency rate cuts that it made in response to the oil-price shock in 2015 are a good place to start. The Bank believes that our economy has now largely adjusted to lower oil prices, so if that economic emergency has been dealt with, why not remove the emergency rate cuts that accompanied it?

If the answer seems simple, it’s not.

When the BoC pulls its interest-rate lever it creates impacts that are far-reaching across our economy, and that cuts both ways. Here are some examples of the negative impacts that will accompany the BoC’s coming rate rise:

The Loonie will rise – The rising Loonie impacts our economy in many of the same ways as monetary-policy tightening. For example, it raises the costs of our exports, and the Loonie’s exchange-rate value has already been a headwind for our exporters. While it has fallen against the Greenback over the past several years, other currencies, like the Mexican Peso, have weakened more, making our exports relatively more expensive than the competition. The BoC has repeatedly expressed concern over these “competitiveness challenges” and it knows that higher rates will exacerbate them. That has to make raising now a tough call. We have been waiting a long time for our export sector to show signs of life and a BoC rate hike will increase the strength of the currency headwind that is acting against it.

Our government deficits will increase – Rate rises will increase the cost of government debt, and since our federal government and most of our provincial governments are already running deficits, higher borrowing costs will increase those shortfalls. As the cost of servicing our overall government debt load rises over time, there will be less money available for more productive long-term investments in things like infrastructure, education and research.

The risk of deflation will increase – The BoC’s primary mandate is to use its monetary policy to maintain price stability, and in layman’s terms, that basically means that they need to help keep inflation under control. Our current inflation levels are as low as they have been in almost a decade, at about 1.3%, and if rate rises slow our hard-won economic momentum, what little inflation we have could disappear. If that happens and we experience outright deflation instead, the BoC will regret having pumped its brakes, especially since its monetary-policy tools are far less well suited to reigning in deflationary forces.

The BoC might argue that now is the time to raise rates because the U.S. Federal Reserve has already raised its policy rate three times and is planning to raise it again in the near future (and the Bank of England and the European Central bank are suddenly sounding more hawkish as well).

For my part, I think the Fed is over-tightening based on current U.S. economic momentum and that its actions may well lead to a U.S. recession sometime within the next twelve months (for reasons that are beyond the scope of this post). While that view might be controversial, consider that past Fed tightening cycles have triggered a

U.S. recession about 80% of the time (according to research done by economist David Rosenberg).
If the U.S. economy enters a recession, the Fed will likely cut its policy rate back, and if that happens, the BoC would be expected to follow. But even if I’m wrong and the U.S. avoids recession, I don’t believe that history will mark this as the definitive moment when variable-rate borrowers should have locked in.

Here are five reasons why I hold this view:

Central bankers influence, but do not control interest rates – Interest rates have been pushed steadily lower by a variety of long-term factors such as aging demographics, slowing economic growth rates and long periods of low inflation in most developed countries. These factors will continue to exert downward pressure on our interest rates for many years to come. That doesn’t mean that rates won’t go up a little in response to monetary-policy changes, but it does make it very unlikely that we’re headed for a repeat of 1980s rates in the 18%+ range (as some borrowers fear).

Rates don’t need to rise by much to slow our economy – The BoC has repeatedly said that with our current debt levels, our economy will require less monetary-policy tightening to ease inflationary pressures and it has been consistently lowering its neutral-rate forecast to reflect this (as a reminder, the neutral rate is the rate “that is neither stimulative nor contractionary when an economy is operating at full capacity”). That means that if the BoC does raise rates it will be able to do more with less.

The cost of labour isn’t feeding inflationary pressures – The cost of labour is a pervasive driver of overall inflation, and while our economy’s employment momentum has been impressive, our average wages are barely rising. It’s true that labour costs are a lagging indicator, meaning that they tend to rise after overall inflation trends higher, but by any historical measure they should have increased by much more at this point in our economic recovery. And the fact that they haven’t suggests that other longer-term factors are at play, such as increased levels of automation. Flat labour costs will go a long way toward keeping inflation down.

Rates aren’t likely to go up in a straight line – It wasn’t too long ago that market watchers were speculating about the possibility of a BoC rate cut. If the BoC raises, the odds of a future rate cut will also increase, so don’t expect the BoC overnight rate to follow a straight upward line just because we see one or two rate hikes. The higher the overnight rate goes, the more flexibility the BoC has to lower it back again if needed (and which I think will happen if the U.S. economy lands in recession).

The bond market’s initial reaction may well prove to have been an over-reaction – Investors tend to shoot first and ask questions later, and the market’s reaction to the BoC’s hawkish guidance assumes that at least two overnight-rate increases are imminent. While that’s certainly possible, I think there is still a good chance that the second increase could either be delayed or may not even happen, and if that proves the case, bond yields will move back down as rumour and speculation turn to fact.

Our history says that variable-rate borrowers who convert tend to pay more over time than if they had stayed the course. While past is not necessarily prologue, in his famous fifty-year study that compared fixed and variable mortgage rates, Dr. Moshe Milevsky found that variable-rate borrowers who convert mid-term typically paid more than variable-rate borrowers who stuck it out. In other words, converting your variable rate today will give you peace of mind, but history says that you will probably be locking in additional cost over the long run.

Five-year GoC bond yields surged higher by twenty-eight basis points last week, closing at 1.40% on Friday. Five-year fixed-rate mortgages are still available at rates as low as 2.34% for high-ratio buyers (but not for much longer), and at rates as low as 2.59% for low-ratio buyers, depending on the size of their down payment and the purchase price of the property. Meanwhile, borrowers who are looking to refinance should be able to find five-year fixed rates in the 2.79% to 2.89% range.

Five-year variable-rate mortgages are largely unchanged so far and are still available at rates as low as prime minus 0.80% (1.90% today) for high-ratio buyers, and at rates as low as prime minus 0.50% (2.20% today) for low-ratio buyers, again depending on the size of their down payment and the purchase price of the property. Borrowers who are looking to refinance should be able to find five-year variable rates around the prime minus 0.40% to 0.45% range, which works out to between 2.20% and 2.25% using today’s prime rate of 2.70%.

The Bottom Line: If you’re a fixed-rate borrower, the worst of the rate hikes is likely behind you for the time being because lenders have already adjusted their pricing in response to rapidly rising GoC bond yields. If you’re a variable-rate borrower, my view is that staying the course instead of converting, at least for now, will still prove the better option. While your variable rate may be headed higher soon, for the reasons outlined above, I don’t think the rise will be dramatic, as many now suddenly fear.

Click Here to Read the Article!

The best mortgage plan is one that is developed by assessing your goals and life stage. The Angela Calla Mortgage Team will help you personally call us at 604-802-3983 or email callateam@dominionlending.ca. To contact Angela Calla directly call 604-802-3983 or visit www.angelacalla.ca

The Bank of Canada is raising its target for the overnight rate to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. Recent data have bolstered the Bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy. The Bank acknowledges recent softness in inflation but judges this to be temporary. Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time.

The global economy continues to strengthen and growth is broadening across countries and regions. The US economy was tepid in the first quarter of 2017 but is now growing at a solid pace, underpinned by a robust labour market and stronger investment. Above-potential growth is becoming more widespread in the euro area. However, elevated geopolitical uncertainty still clouds the global outlook, particularly for trade and investment. Meanwhile, world oil prices have softened as markets work toward a new supply/demand balance.

Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed. The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential. Growth is broadening across industries and regions and therefore becoming more sustainable. As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding. Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon.  At the same time, exports should make an increasing contribution to GDP growth. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey. 

The Bank estimates real GDP growth will moderate further over the projection horizon, from 2.8 per cent in 2017 to 2.0 per cent in 2018 and 1.6 per cent in 2019. The output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).

CPI inflation has eased in recent months and the Bank’s three measures of core inflation all remain below 2 per cent. The factors behind soft inflation appear to be mostly temporary, including heightened food price competition, electricity rebates in Ontario, and changes in automobile pricing. As the effects of these relative price movements fade and excess capacity is absorbed, the Bank expects inflation to return to close to 2 per cent by the middle of 2018. The Bank will continue to analyze short-term inflation fluctuations to determine the extent to which it remains appropriate to look through them.  

Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy. Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities.

Information note

The next scheduled date for announcing the overnight rate target is September 6, 2017. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on October 25, 2017.  

Click Here to Read the Article.

Questions on the best mortgage for you? Contact The Angela Calla Mortgage Team to help you personally 604-802-3983 callateam@dominionlending.ca

For Immediate release
July 12, 2017

Vancouver, B.C. – For the first time in seven years, the Bank of Canada announced today that it was hiking its key overnight rate by a quarter percentage point (25 basis points) bringing it to 0.75 percent, as the economy has staged a broadly based economic expansion this year. In a break from tradition, the Bank has taken this action even though inflation remains well below its target rate of 2 percent. Indeed, inflation has hit its lowest level since 1999. The consumer price index (CPI), released in late June, rose only 1.3 percent in May from a year ago, down from an annual pace of 1.6 percent in April. Both Governor Poloz and Senior Deputy Governor Wilkins have emphasized that the Bank must begin to hike rates pre-emptively due to the lagged effect of monetary tightening.

Measures of annual core inflation, a key indicator tracked by the Bank of Canada, which excludes volatile components such as food and energy, fell to its lowest in almost two decades. The average of the central bank’s three core measures declined to 1.3 percent, its lowest level since March 1999. The Bank has recently played down sluggish inflation numbers, suggesting they reflect the lagged effects of past excess capacity. Incoming inflation figures have been well below the Bank’s forecasts and will likely remain low for some time, as oil prices are wobbling downward and wage inflation is a mere 1.3 percent–just keeping up with core inflation.

Last Friday’s continued strong employment report for June cinched the rate-hike. Employment rose a hefty 45,300, lifting the 12-month gain to a whopping 350,000 and trimming the jobless rate to match the cycle low of 6.5%. What’s more, total hours worked surged in the second quarter at the fastest rate since 2003. GDP climbed an impressive 3.3% year-over-year in April, while record levels of exports and imports suggest activity stayed on track in May, and further record highs for auto sales suggest consumers kept right on spending in June. Spending strength is yet another sign that after two years of lagging behind, Canada’s overall growth rate has come bouncing back in the past year to surpass the U.S. pace. The Bank now expects the output gap to close around year-end.

Markets have been expecting this move for some time, as monetary policymakers have publicly stated that the 2015 interest-rate cuts appear to have done their job. Governor Stephen Poloz has said that the Canadian economy enjoyed “surprisingly” strong growth in the first three months of this year and that he expects the growth pace to remain above potential (estimated at 1-3/4 percent), setting the stage for this rate hike. In response, Canadian bond yields have moved higher, the Canadian dollar has surged anew, and the big Canadian banks raised mortgage rates by roughly 20 basis points last week in anticipation of this move. The 5-year Government of Canada bond yield has surged nearly 50 basis points in the past month. Indeed, 10-year government yields are up to roughly 1.9 percent, their highest yield in more than two years. The Canadian dollar surged to above 77.5 cents, the strongest level in 10 months, up more than 6 percent from the lows in early May. Stalling oil prices may reverse some of the loonie’s recent gain.

The big banks will also raise their prime rates, driving up the cost of variable rate mortgages, other loans and lines of credit tied to the benchmark rate. While the banks shaved their response to the interest rate cuts to less than the 25 basis points decline when monetary policy was easing, it is likely now that banks will adjust lending rates to close to the full 25 basis point increase. This asymmetric response is consistent with the desire of regulators to slow the growth in household debt.

Housing is one crucial component of the Canadian economy, and it has slowed meaningfully at the national level, in line with the central bank’s expectations.

Prices and sales have declined in the Greater Toronto Area and surrounding municipalities since the Ontario Fair Housing Plan announcement in late April. However, housing activity has gained momentum in Montreal and Ottawa, while Alberta stabilizes and Vancouver posted a modest bounce back from the swoon following its August 2016 imposition of a foreign buyers’ tax.

The underlying strength in many housing markets is the reason why policymakers are proposing new rules to tighten mortgage lending. This time OSFI–the regulator of financial institutions–is proposing that banks stress test non-insured borrowers at two percentage points above the contract rate- this despite the fact that non-insured borrowers are putting at least 20 percent down on their home purchase. A small BoC rate hike would reinforce the multi-faceted steps to calm the broader housing market.

The Bank has repeatedly stated that “macro-prudential and other policy measures have contributed to more sustainable debt profiles,” even though household debt-to-income levels have hit a record high (see chart).

Uncertainties, of course, persist–particularly on the trade side as NAFTA is renegotiated in fewer than 90 days. The U.S. has already imposed duties on softwood lumber, and President Trump’s rhetoric remains hostile, threatening U.S. import duties on steel and other products. These uncertainties notwithstanding, At this time most expect another Bank of Canada rate hike in the fourth quarter. The Federal Reserve will also likely increase rates in Q4. Look for a slow crawl upward in interest rates from both central banks in 2018.

For Variable rate holders, I would still wait and see, I haven’t locked my mortgage in yet!

Questions on your mortgage? Contact us directly 604-802-3983 or callateam@dominionlending.ca

Angela Calla
Dominion Lending Centres

Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006.

The average person if stopped on the street and asked; Are today’s low interest rates driving up house prices? Would likely say ‘yes’. They would be wrong. We can let their lack of understanding pass, after all we can agree that math mostly sucks.

However to ask a Realtor, Banker, or your Mortgage Broker this question and get the same answer is another story, for them to say ‘yes’ to this question is a large red flag.

Following are some basic numbers that might surprise you, unless you are a Mortgage Broker.

2007

A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~4.99% and amortizations were capped at 40 years
Maximum mortgage amount?
~$630,000

Moving along…

2016

A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~2.49% and amortizations were capped at 25 years
Maximum mortgage amount?
~$630,000

But then something happened, in response to rising prices and an apparent lack of understanding as to basic math, our Federal Government changed the rules.
And our average person on the street that answered that first question, they were totally cool with things being tightened down, until they went to apply for a mortgage themselves…and found this new reality:

2017

A buyer with 10% Down and a $100,000 annual gross income.
With rates still ~2.99% and amortizations still capped at 25 years.
Maximum mortgage amount?
~$508,500

The exact same household with 100,000 annual income, impeccable credit, a 10% down payment was told, in this very competitive market with a 0.27% arrears rate, a group of households that made it through the 2008/9 meltdown just fine, that now, in 2017, they needed to have their purchasing power cut back by ~$121,500.
And now if you have a higher down payment- that might not help you either, as this same stress test will be applied if OSFI’s plans go through as planned, as previously the stress test was based on the rate the borrower received for a conventional mortgage.

This is what your Federal Government has done for you lately. If you are unhappy about this take 3 minutes and take action by clicking here now to send a message to your MP.

Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca 604-802-3983

OSFI Proposes Tighter Mortgage Underwriting Standards

Exactly one year after OSFI said it would review its B-20 guidelines and scrutinize underwriting standards further, the banking regulator made good on that promise.

The Office of the Superintendent of Financial Institutions (OSFI) released various proposals on Thursday to further tighten mortgage underwriting standards at federally regulated lenders.

The biggest change is the implementation of a stress test for all uninsured mortgages (those with a down payment of more than 20%). Under current banking rules, only insured mortgages, variable rates and fixed mortgages less than five years must be qualified at a higher rate. That rate, of course, is the Bank of Canada’s posted rate (currently 4.64%, a few points higher than typical contract rates). Going forward, it will be replaced by a 200-basis-point buffer above the borrower’s contract rate.

The other proposed changes include:

Requiring that loan-to-value measurements remain dynamic and adjust for local conditions when used to qualify borrowers; and
Prohibiting bundled mortgages that are meant to circumvent regulatory requirements. The practice of bundling a second mortgage with a regulated lender’s first mortgage is often used to get around the 80%+ loan-to-value limit on uninsured mortgages.

Industry experts, however, say this change would impact less than one percent of all mortgages in Canada.
The extension of stress testing to all uninsured mortgages would have a far greater impact. It would shut many borrowers out of the market, drive them into less suitable housing, or send them into the arms of credit unions or sub-prime lenders that are not federally regulated.

Mortgage Professionals Canada, for its part, has expressed objections to the proposed regulations.“We have initial concerns with the impact the 2% stress test will have on Canadian consumers and questions around the uncertainty that the dynamic Loan-to-Value (LTV) measurements may have in the marketplace,” it said in an email to members.

OSFI said its proposed changes will be available for public input until August 17, 2017.

The updated B-20 guidelines for mortgage underwriting will be issued in the fall and come into effect shortly thereafter, OSFI said.

“The draft changes to Guideline B-20 released today are consistent with messages that OSFI has been delivering through public statements and in direct conversations with federally regulated financial institutions through our supervisory work,” said Carolyn Rogers, Assistant Superintendent, Regulation Sector.

The proposals are just the latest in a long line of changes to how mortgages are written in Canada. The government began its regulatory tightening campaign nearly nine years ago to “reduce the risk of a U.S.-style housing bubble developing in Canada.” (Those were the words of the Department of Finance in 2008.)

Here’s a brief history of some of those key mortgage rule changes:

January 1, 2017: OSFI imposed onerous capital requirements on default insurers, thus disadvantaging many bank competitors (and consumers) by jacking up rates substantially on low-ratio insured mortgages.

November 30, 2016: New stress test regulations were extended to include insured mortgages with 20% equity or more. It also banned certain mortgage types from being insured, including refinances, extended amortizations and single-unit rentals.

October 17, 2016: The federal government introduced a stress test to be used in approving all high-ratio insured mortgages with terms of five years or more. It required such borrowers to prove they can handle payments at the Bank of Canada’s posted 5-year rate (currently 4.64%).

February, 2016: The Department of Finance announced it was increasing the minimum down payment from 5% to 10% on the portion of a home’s price that’s above $500,000.

November, 2014: OSFI releases its B-21 guidelines, which set out insurer restrictions on everything from debt-ratio calculations and self-employment evaluation to borrowed down payments and cash-back mortgages.

July 9, 2012: The government reduced the maximum amortization period to 25 years for high-ratio insured mortgages, limited the gross debt service and total debt service ratios permitted to 39% and 44%, respectively, banned mortgage insurance on properties over $1 million and implemented a maximum 80% LTV for refinances.

March 18, 2011: Regulators introduced a 30-year maximum amortization on insured mortgages over 80% LTV, an 85% loan-to-value limit on insured refinances and eliminated government insurance on secured lines of credit (e.g., HELOCs).

April 19, 2010: The government introduced stress testing for insured mortgages using the Bank of Canada’s 5-year posted rate. Other key changes included a 90% LTV max. on refinances (down from 95%), and an 80% LTV maximum for rental financing.

October 15, 2008: The first mortgage rule changes announced by the government eliminated 40-year amortizations (dropping them to 35), raised the minimum insured credit score, added a new maximum total debt service ratio of 45% and additional loan documentation standards.

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Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006.

Questions on the best mortgage for you? Contact The Angela Calla Mortgage Team to help you personally 604-802-3983 callateam@dominionlending.ca

Click Here to Hear Angela Calla speak on the impending interest rate hike

A Vancouver mortgage broker is advising homeowners to anticipate a change in their monthly payments in the wake of a possible Bank of Canada interest rate hike next week.

Angela Calla said the average Canadian will have to pay about $50 more per month.

“So having a variable rate mortgage is a luxury, and if you do lock into a fixed-rate mortgage, you are locking into a mortgage that does have higher exit costs and you will pay more interest.”

But Calla said while interest rates are likely to begin climbing, she expects the growth to be gradual and said there’s no reason for homeowners to panic.

That’s because the federal government has told Canadians to prepare for the increase, which should soften any financial blow.

“Even if you have a million-dollar mortgage you can expect that payment to go up $150 a month. We’ve been talking about interest rate hikes for seven years. So psychologically this will have more of an impact than it will monetarily,” she said.

Calla also says those who are already paying a higher than minimum payment are in a better position.

But other experts say the expected hike could mean trouble for some Canadians.

“I think there will be some very difficult situations out there,” said Licensed Insolvency Trustee with Sands and Associates Blair Mantin.

“You can imagine if rates go up a quarter point or a half point that’s a massive increase in a folk’s monthly mortgage payment.”

Mantin said the best advice is to look at your budget now rather than later.

“Really taking a hard look at what’s the stress test capacity that’s available there”

He also suggested setting up an emergency fund to withstand any rate increase.

© 2017 Global News, a division of Corus Entertainment Inc.

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Angela Calla, AMP, is host of The Mortgage Show on Saturdays at 7 pm on CKNW, one of Canada’s Top Mortgage Professionals, a Woman of Influence  and a CMP ‘Young Gun’. She has been helping Canadians avoid costly mistakes with mortgages and taking the fear out of financing for over 13 years. She can be reached at 604-802-3983 or callateam@dominionlending.ca

Things to consider prior to making a prepayment

Paying down your mortgage is a smart step that’s always encouraged.
We recommend you first consider the following for your financial well-being as making a lump-sum pre-payment on a mortgage is one sided. Once you’ve made the payment, there are only two ways to get the money back out. Sell or pay an exit fee to refinance.

This is what you should consider prior to a lump-sum payment:

1- Do you have any debts at an interest rate higher than your mortgage you can use the money for instead to stop paying unnecessary interest?

2- Do you have six months of living expenses set aside so you don’t have to acquire debt if something comes up?

3- Have you topped up your RRSPs or RESP if applicable to take advantage of any government matching programs or tax advantages that can result in an income tax refund?

4- Are you looking at doing any home renovations, new vehicle purchase or job changes in the next while?

5. Are you considering making another property purchase in the next while (as you will need a deposit handy in cash)

If all the above are covered, that’s awesome and congratulations in having this capital to pay down your largest debt! All lenders have different pre-payment terms and timing in which they allow. The goal is to get the most flexible mortgage initially, and we can help. This is the reason when The Angela Calla Mortgage Team sets up a mortgage initially, we start with the minimum payment, while other increases are happening separately once we have a strategy in place. If you decide to execute a pay down strategy with periodic payments, we can cancel that at any time with no costs. There is always a reason behind “why” we ask what we ask and “why” we set things up as we do initially with the end result being the lowest cost of borrowing and best wealth strategy being the result. Remember- check your statements. Even with confirmation a task has been complete, we are not the ones physically processing the payments and technology is not perfect. The borrower is ultimately responsible to ensure there strategies are carried out!

Please reach out to us directly with any questions. We are always here to help you and thos you care most about.

Five points to consider before you list your home.

There are several things to consider before you take the plunge and put your home up for sale. This might sound obvious, but the first step is to call your mortgage broker, not your lender directly or your realtor. You don’t have to look long for an unfortunate story of someone who didn’t understand their portability, penalty or transfer costs. Here’s how you avoid this scenario.

1.The anniversary date of your mortgage will depend on your penalty. If you are in a variable rate you usually will pay 3 month’s interest payment. In a fixed rate, it can be up to one to 4.5% of the outstanding mortgage balance. Remember we can estimate things, the only guarantee you will have of your penalty is when the lawyer requests the payout statement.

2.Just because a mortgage says its portable doesn’t mean you don’t have to completely re-qualify. Changing properties means complete re-qualification of everything; credit, income and property. Less than one per cent of mortgages actually get ported due to the changes in the market, or your circumstances.

3.If you have accumulated outside debt, you may not even qualify to purchase for more due to recent rule changes. You’ll need clarity on what the approximate net will be after anything that is required to be paid out to improve qualification.

4.If you list your property and want to buy first or need money for a deposit, you may need to change your mortgage first which you won’t qualify for if your property is already listed. This happens frequently when people who are downsizing are selling their home.

5.Making a purchase requires a deposit that later forms part of the down payment, so understanding this before you go out shopping helps you plan for it

A little preparation helps the process go more smoothly, and we are here to help.

The best mortgage plan is one that is developed by assessing your goals and life stage. The Angela Calla Mortgage Team will help you personally call us at 604-802-3983 or email callateam@dominionlending.ca to contact Angela Calla directly call 604-802-3983 or visit www.angelacalla.ca.