It PAYS to shop around.
Many Canadian homeowners pay too much for their homes because they are not getting the best mortgage financing available in the market.
The mortgage process can be intimidating for homeowners, and some financial institutions don't make the process any easier.
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Keep it Simple
Keep it simple when buying a houseSpring is here, which means increased activity in the real estate market. If you are thinking of buying a house, keep these simple tips in mind.Decide whether the time is right for you to buy – “If you currently own a house, you should buy and sell at the same time, which will help ensure you don’t sell low and buy high,” explains Chartered Professional Accountant Eli Palachi, a partner with Crowe Soberman LLP in Toronto. “If you are a first-time purchaser, try to buy when you can secure low mortgage rates so that your monthly cash outflow is lower.”Determine what you can afford – “Establish a budget that includes the cost of the new house and then try living with that budget for a while to make sure you won’t become financially strapped and end up house rich and cash poor,” advises Chartered Professional Accountant Albert Yu, a sales representative with RE/MAX Hallmark Realty Ltd. in Toronto. “Mortgage rates are at historically low levels these days. But keep in mind that every one-per-cent increase in interest rates means you can buy 10-per-cent less house.” Yu says your budget should also include other costs, including a rainy day fund that covers three to six months’ worth of expenses, retirement savings and a children’s education fund. Your Chartered Accountant can help you set up a realistic budget and help with decisions on how to finance a house purchase.Don’t forget to factor in the hidden costs – “In addition to the price of the house itself, your other costs include legal fees associated with closing the sale, adjustments for property tax and utilities, the land transfer tax, mortgage fees, house appraisal fees and moving,” says Palachi. “If you are buying a bigger house, you may also have higher insurance costs.”Shop around for the best mortgage rate – “Speak to several banks to see what their rates are,” says Palachi. “It doesn’t hurt to get an idea of what competitive rates are, and banks don’t charge a fee or commission for securing financing. Your CA can also introduce you to mortgage officials at the bank.” If you are going to shop around for rates, Yu cautions against signing several applications that would result in a credit check. “Your credit score will decrease if too many checks are done at once,” he explains.Make the biggest down payment you can afford – “You must pay at least 20 per cent of the purchase price down to avoid a high-ratio mortgage and paying one-time Canada Mortgage and Housing Corporation premiums,” explains Yu. A larger down payment will also lower your monthly payments.
Mortgage Deferral Agreements and Their Impact
CMHCs Fall 2020 Residential Mortgage Industry Dashboard discusses mortgage deferral agreements and their impact.
At the end of the second quarter, credit unions, mortgage finance companies (MFCs) and mortgage investment entities (MIEs) have allowed mortgage deferral agreements for about 6%, 7% and 7% of their respective residential mortgage portfolios.
Chartered banks have allowed 16% of mortgages to go into deferral since the beginning of the pandemic. Of these, close to 2 out of 3 borrowers had resumed payments on their mortgages at the end of the third quarter of 2020. In the coming months, we could see higher delinquency rates if some borrowers are unable to resume their payments; these mortgages will have to be booked as arrears.
These deferral agreements have affected financial institutions cash flows, with reductions of:
4% in scheduled mortgage payments
3% in non-scheduled payments (accelerated monthly payments and lump-sum payments)
While remaining at low levels, mortgages in arrears (90 or more days delinquent) have increased slightly between the first and second quarters of 2020 from:
0.24% to 0.26%, on average, for chartered banks
0.23% to 0.25%, on average, for non-bank mortgage lenders
We also observe an increase in early-stage delinquencies (31 to 59 days and 60 to 89 days), which suggests that arrears could continue on an upward trend.
Bank of Canada will maintain current level of policy rate until inflation objective is achieved, continues its quantitative easing program
The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of percent, with the Bank Rate at percent and the deposit rate at percent. The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.
The rebound in the global and Canadian economies has unfolded largely as the Bank had anticipated in its October Monetary Policy Report (MPR). More recently, news on the development of effective vaccines is providing reassurance that the pandemic will end and more normal activities will resume, although the pace and breadth of the global rollout of vaccinations remain uncertain. Near term, new waves of infections are expected to set back recoveries in many parts of the world. Accommodative policy and financial conditions are continuing to provide support across most regions. Stronger demand is pushing up prices for most commodities, including oil. A broad-based decline in the US exchange rate has contributed to a further appreciation of the Canadian dollar.