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Stressed About the Mortgage Stress Test?
*New Mortgage Qualification Guidelines* First of all, you might be asking yourself, What is a mortgage Stress Test and how does it affect me? A mortgage stress test was a measure put in place last October by the Federal Government, that would test a borrowers ability to make their mortgage payment at a higher interest rate - a five year fixe rate set by the Bank of Canada, which is referred to as the Canadian Benchmark Rate. the last several years, Canadians have experienced and become accustomed to record low interest rates. However, in anticipation that these low interest rates could not continue long term, the Government implemented a Mortgage Stress Test in order to protect a borrower from a future hike in interest rates. This was to prove that if interest rates were to increase, a borrower could still afford and maintain their household mortgage payment. Although this is no longer new news, the Stress Test is a topic that should be explored by anyone with a mortgage or planning to apply for one. One of the overall outcomes of last years implementation of the Stress Test was a decrease in the qualified borrowing limits for every consumer contributing less than 20% toward their down payment. This change affected all applications requiring mortgage insurance and reduced a buyers purchasing power by about 20%. For example, a buyer that was pre-approved and out shopping for a $450,000 home, now found that home was suddenly out of reach and a $360,000 purchase price maximum was their new reality. Over the course of this past year, we have seen some increase in interest rates but more importantly, stricter qualifying rules and less competition in the mortgage marketplace for many types of loans. With almost a year since the implementation of this initial Stress Test, the Canadian federal government being pleased with the result of this policy change, is now investigating the need for Stress Testing uninsured mortgage loans as well. Uninsured Mortgage Loans are mortgages with down payments greater than 20% of the purchase price. This expected announcement now means that even if you have 20%, 40% or more for a down payment, every mortgage will then have to qualify at the Benchmark Rate. This will change how mortgages will be qualified and approved and will again mean a reduction in purchasing power of approximately 20% for all the buying public, not just first-time home buyers. The Stress Test is used in qualifying for your mortgage before you buy, but what happens when your current mortgage comes to term.what options do you have? Do you have to renew with your current lender or are you able to move to a lower rate with another lender? Mortgage rates are currently climbing from our record lows in 2016, with Prime Rate already having increased by 0.75% this year; and an increase to fixed interest rates close to 1.00% over the last 60 days. Early planning for a new home purchase or a mortgage renewal could save you thousands of dollars in the future! It has never been a better time to work with an Accredited Mortgage Professional, our ability to provide choice, guidance, and support will help you make informed borrowing decisions.
Canadian home sales fall in April
Statistics released today by The Canadian Real Estate Association (CREA) show national home sales fell from March to April 2018. Highlights: National home sales fell 2.9% from March to April. Actual (not seasonally adjusted) activity was down 13.9% from April 2017. The number of newly listed homes declined 4.8% from March to April. The MLS Home Price Index (HPI) in April was up 1.5% year-over-year (y-o-y). The national average sale price declined by 11.3% y-o-y in April. National home sales via Canadian MLS Systems declined by 2.9% in April 2018 to the lowest level in more than five years (Chart A). About 60% of all local housing markets reported fewer sales, led by the Fraser Valley, Calgary, Ottawa and Montreal. Actual (not seasonally adjusted) activity was down 13.9% compared to April of last year and hit a seven-year low for the month. It also stood 6.9% below the 10-year average for the month. Activity was below year-ago levels in about 60% of all local markets, led overwhelmingly by the Lower Mainland of British Columbia and by markets in and around Ontarios Greater Golden Horseshoe (GGH) region. The stress-test that came into effect this year for homebuyers with more than a twenty percent down payment continued to cast its shadow over sales activity in April, said CREA President Barb Sukkau. Its impact on housing markets varies by region, she added. A professional REALTOR is your best source for information and guidance in negotiations to purchase or sell a home during these changing times, said Sukkau. This years new stress test has lowered sales activity and destabilized market balance for housing markets in Alberta, Saskatchewan and Newfoundland and Labrador Provinces, said Gregory Klump, CREAs Chief Economist. This is exactly the type of collateral damage that CREA warned the government about. As provinces whose economic prospects have faced difficulties because they are closely tied to those of natural resources, it is puzzling that the government would describe the effect of its new policy as intended consequences. https://www.crea.ca/news/canadian-home-sales-fall-in-april/
First quarter: The value of multi-family dwellings leads the rise
Canadian municipalities issued $24.9 billion worth of building permits in the first quarter of 2018, up 3.3% compared with the fourth quarter of 2017. Construction intentions for residential dwellings led the national increase, rising 6.9% from the fourth quarter of 2017 to $15.9 billion in the first quarter of 2018. The 18.4% increase of the multi-family component more than offset a 3.5% decline in the single-family component. On the other hand, the value of non-residential building permits fell 2.6% from the fourth quarter of 2017 to $9.0 billion in the first quarter of 2018. The drop was the result of lower activity in both the industrial and institutional components.