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5 common mistakes Canadians make with their mortgages
5 common mistakes Canadians make with their mortgages Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve. During a time of extraordinary financial disruption, more than 551,000 properties sold last year a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the countrys gasping economy. Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the countrys sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan. Mistake 1: Not having your documents ready One of your mortgage brokers primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete andaccurate documentation, no reputable lender will be able to process your loan. But borrowers often dont have these documents on hand, says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. And even when they do provide these documents, they may not be the correct documentation required. Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include: Not including a name or other relevant details on key pieces of information. Providing old bank or pay statements instead of those dated within the last 30 days. Sending only a partial document package. If a lender asks for six pages to support your loan, dont send two. If youre asked for four months worth of bank statements, dont provide only one. Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them. If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months. Mistake 2: Blinded by the rate Ask any mortgage broker and theyll tell you that the question theyre asked most frequently is: Whats your lowest rate? The interest rate youll pay on your mortgage is a massive consideration, socomparing the rates lenders are offeringis a good habit once youve slipped on your house-hunter hat. Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want tolock a low rate now, so you can hold onto it for up to 120 days. But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost. I always ask my clients Do you want to get the best rate, or do you want to save the most money? because those two things are not always synonymous, Kolinski says. That opens a conversation about needs and wants. Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers a ton of money if they break their terms, Kolinski points out. Mistake 3: Not reading the fine print Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: Read the fine print. Understand what youre signing up for. Most borrowers dont expect theyll ever break their mortgages, but data collected byTD Bankshows that 7 in 10 homeowners move on from their properties earlier than they expect. Its critical to understand your loans prepayment privileges and the rules around an early departure. If you exit the mortgage, how much are you going to pay? Its really, really important, Barsoum says. She has seen too borrowers come to her hoping torefinance a mortgagethey received from a private or specialty lender, only to find that what they were attempting was impossible. Some of their products are actually fully closed. Even though its called a variable mortgage, its a fully closed product. Regardless of whether you want to pay the penalty or not, you cannot exit that loan, Barsoum says. Some agreements include provisions that dont allow borrowers to leave their mortgages until the property is sold to an unrelated third party. Mistake 4: Not seeing the bigger picture Your mortgage can be a ship that sails you into the pristine waters of financial security or an anchor that drags your familys finances underwater and turns them into shark food. Understanding the relationship between your mortgage and your overall economic situation is a key step in the mortgage process, and one that Fair Mortgage Solutions Graeme Moss says too many Canadians are willing to skip. When deciding which mortgage will fit their finances, Moss says borrowers often rely on a single calculation can I make my payments every month? without considering their overall financial picture. We measure their debt-to-income ratio both now and where it will be at various points in the life of the loan, Moss says. Having a similar strategic chat with your broker can help illustrate how a mortgage will interact with your other debts and financial commitments over the life of your loan, which can prevent you from overextending yourself. Its also a powerful tool for planning multiple exit strategies in case your personal situation changes unexpectedly before your mortgage term expires. Everyone has issues, Moss says, so you need to have a plan A, B or C. Mistake 5: Rushing in too quickly With Canadian real estate still on fire and setting more records in 2021, you can be forgiven for feeling pressured to find and finance your first or next home. Properties vanish from the MLS, or multiple listing service, within days of being listed, so time really is of the essence. But lets be real: No matter how sizzling the market gets, rushing into a mortgage is often a terrible idea. Your mortgage will dictate the strength of your personal finances for decades. The small details you skip overduring the mortgage processcan result in you paying way more for your mortgage than you need to, or missing out on a property you have your eye on. Lets prevent that. You may want to start bychecking your credit scoreto make sure its strong enough to secure a good rate. If not, you need to pay down some debt and take other steps to lift your score to where it needs to be. If youre a first-time homebuyer who just wants to get in and out of the market as quickly as possible, you may not think you need someone to lay out a long-term game plan for you. Moss disagrees: Getting an unbiased snapshot of what you can do is invaluable, he says. When youre looking for a broker, ask questions about how a mortgage will impact your overall financial health. That can be a way of sussing out whether a real estate professional is worthy of your trust. Source:https://financialpost.com/moneywise/5-common-mistakes-canadians-make-with-their-mortgages
Scotiabank Nowcast: Employment Gains Continued Prior to Omicron Spread, Q4-2021 GDP at 6.22%
This note is part of a series that will be published after important data releases, documenting mechanical updates of the nowcast for Canadian GDP coming from the Scotiabank nowcasting model. The evolution of this nowcast will inform Scotiabank Economics official macroeconomic outlook. The Canadian labour market continued to power ahead in December according to Statistics Canadas labour force survey (LFS), with the net gain of +55K jobs for the month that brought the unemployment rate down to 5.9%, just 0.2 ppts above the level of February 2020. This bodes well for the overall Canadian GDP growth in December and is in line with our Q4-2021 estimate of +6.22% Q/Q SAAR. The timing of the survey (December 5 to 11) means that it largely missed the beginning of the spread of the Omicron variant and the late-December tightening in public health measures that occurred in response to it. The flooding in BC, a source of downside risk to the short term outlook, occurred after the LFS was completed in November. In December, however, the LFS picked up the beginning of the reconstruction phase, according to StatCan. As a result, we are not likely to find out the true impact of this disaster on the labour market until the November survey of employment, payrolls and hours (SEPH) is released in late January. With these caveats, the underlying picture of the labour market in Canada is one of continuing recovery. The ratio of employment to population (61.5%), the labour force participation rate (65.3%), the unemployment rate (5.9%) are all within 0.2 0.3 ppts of their respective February 2020 levels, signalling a rapid diminishing of the labour market slack. Even the ranks of those unemployed for 52 weeks or longer, while still significantly elevated at 293K (Feb 2020: 179K), continued to fall rapidly in December. The tightness in the labour market spurred a recovery in wages, which grew 2.7% y/y in December, although this increase was much weaker than the rate of inflation over the same period. While the spread of the Omicron variant will likely lead to short term weakness in employment, in particular in the high-contact industries that are subject to public health restrictions, it is already exacerbating labour shortages in essential services as scores of employees self-isolate having tested positive for the virus. With inflation running significantly above the Bank of Canadas inflation-control target range, the labour market slack essentially gone and wages picking up, the short term impact of the Omicron spread is unlikely to alter the Bank of Canada on its path to higher rates in 2022. Source: Scotiabank Global Economics
OSFI maintains Qualifying rate at mortgage contract rate plus 2 percent or 5.25 percent
The Office of the Superintendent of Financial Institutions (OSFI) confirmed that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2 percent or 5.25 percent. In an environment characterized by increased household indebtedness and low interest rates, it is essential that lenders test their borrowers to ensure that mortgages can continue to be paid during more adverse conditions. This environment supports todays decision to maintain the current minimum qualifying rate. Mortgages are typically one of the largest exposures that banks carry on their balance sheets. Ensuring that borrowers can continue to repay their mortgage loans strongly contributes to the safety and soundness of Canadas financial system. OSFI reviews and communicates the minimum qualifying rate at least every December. Throughout the year, we will continue to monitor the appropriateness of the minimum qualifying rate and will make further adjustments, if conditions warrant.