Canadian Mortgage Trends
February housing starts increased 14% from January: Canada Mortgage and Housing Corp - Mortgage Rates & Mortgage Broker News in Canada
Bloom unveils new home equity prepaid Mastercard as novel way for seniors to fund retirement - Mortgage Rates & Mortgage Broker News in Canada
A first-of-its-kind product by Toronto-based Bloom Finance Company is offering an innovative solution for seniors struggling to fund their retirement in the face of rising costs.
According to a study conducted by the fintech provider and Angus Reid, 67% of Canadian homeowners over the age of 55 are concerned that their savings won’t sustain their quality of life through retirement, and 46% are considering taking on part-time work to close the gap.
Though Bloom already offers a reverse mortgage
... moreA first-of-its-kind product by Toronto-based Bloom Finance Company is offering an innovative solution for seniors struggling to fund their retirement in the face of rising costs.
According to a study conducted by the fintech provider and Angus Reid, 67% of Canadian homeowners over the age of 55 are concerned that their savings won’t sustain their quality of life through retirement, and 46% are considering taking on part-time work to close the gap.
Though Bloom already offers a reverse mortgage product, founder and CEO Ben McCabe says lump-sum payments or refinancing options don’t always offer a sustainable solution for seniors struggling to manage everyday expenses.
That’s what inspired the company to introduce its Home Equity Prepaid Mastercard, which gives Canadians 55 and over the opportunity to access some of the equity in their home in monthly increments at mortgage interest rates.
“It’s a payment card that really allows customers to tap into their home,” he told CMT. “By spending on the card, a client will be very gradually and slowly building up a mortgage balance — in all likelihood alongside home price appreciation — and then that mortgage balance is due only when they pass away or they sell their home.”
How it works
By leaning on their home equity, Bloom’s new solution offers customers a way to access funds for everyday expenses. Unlike the other cards in their wallet, however, they won’t receive a bill monthly. Instead, the funds are added to their mortgage balance.
McCabe says the company works with clients to establish an authorization limit based on their home’s value, unique features, and the state of their mortgage. Like a reverse mortgage, a total authorization limit is determined, but rather than receiving a lump sum, customers get a prepaid card with a monthly spending limit.
“Say somebody had a $700,000 home, and we could authorize $240,000, we would suggest to the client that if we set a $2,000 limit on the card, that will last you for 10 years,” he says. “Whatever they spend on the card gets added to their [mortgage] balance, and that’s what interest would accrue against over time.”
McCabe adds that customers can use the prepaid card the same way they would any other Mastercard, but without the monthly bill. He explains that only the funds they use are added to their mortgage balance, and that the card is topped up monthly.
“A core thesis of Bloom is that the ability to access equity in their home in micro amounts is a bridge between whatever their income is, and whatever their income needs to be to deliver the type of retirement that they hope to live,” he says. “That’s why we introduced the card, and where we see the industry going long term.”
Eligibility and application process
Bloom currently offers its Home Equity Prepaid Mastercard, as well as its reverse mortgage product, to customers based in Ontario, Alberta and British Columbia. McCabe says the company is eyeing further expansion, with the goal of eventually becoming a national provider.
For the meantime, Canadian homeowners over the age of 55 with sufficient equity in those provinces can apply on the company’s website, at which point they will be assigned an account executive that will help them through the process.
“We need to be in first position, so if a client for example has some residual HELOC [home equity line of credit] debt or something, we can pay that out first and issue the card, but we need to be the first mortgage,” McCabe explains. “You have to have a sufficient amount of equity in the home for it to work — if somebody has an 80% mortgage against their house it’s not going to work — but most 55-plus Canadians have paid their mortgage balance down enough to work with.”
McCabe adds that customers aren’t necessarily limited to their monthly allotment, explaining that the company will also help them tap into additional equity for unexpected expenses.
“Clients can call us about accessing additional funds if required, whether it’s on the card or deposited to their bank account,” he says. “If the client needed $10,000 to fix some sort of appliances in their house or something like that, that could be made available, subject to a credit review.”
Bloom confirms that the application process for the prepaid Mastercard is treated the same as a reverse mortgage, meaning all standard fees apply.
This includes a $1,650 processing fee, an independent legal advice (ILA) certificate at roughly $300, and a $350 appraisal fee. Bloom covers the appraisal fee upfront and the client is only charged upon closing.
An “overwhelming” reception
After months of testing with a select group of customers, the Bloom Home Equity Prepaid Mastercard officially launched earlier this month and McCabe says the interest has been “overwhelming.”
He explains that Bloom launched in 2019 with the explicit goal of developing innovative FinTech solutions for Canada’s elderly population, and believes the company’s latest offering could eventually catch on worldwide.
“We’re not aware of any other products like this; we’re pretty sure it’s the first of its kind in the world,” he says. “The need for equity release solutions where the cost of living is accelerating and the challenges that seniors are facing is enormous, and far exceeds market penetration of equity release solutions today.”
This article was updated on March 15, 2024
lessRenters have harder time accumulating wealth than homeowners: RBC economist - Mortgage Rates & Mortgage Broker News in Canada
Renters face daunting barriers in their attempts to build wealth as they’re forced to devote an increasing share of their income to keeping a roof over their head, said an RBC report out Thursday.
The report by economist Carrie Freestone adds to a growing body of research painting a stark picture of the wealth divide between renters and homeowners.
Homeowners have seen their net worth grow from nine times household disposable income to 13 times since 2010, while for renters, net wealth grew
... moreRenters face daunting barriers in their attempts to build wealth as they’re forced to devote an increasing share of their income to keeping a roof over their head, said an RBC report out Thursday.
The report by economist Carrie Freestone adds to a growing body of research painting a stark picture of the wealth divide between renters and homeowners.
Homeowners have seen their net worth grow from nine times household disposable income to 13 times since 2010, while for renters, net wealth grew from three to 3.5 times over the same period.
And while in 1999, renters devoted about 25% of take-home pay to housing costs compared with 23% for homeowners, in 2022 renters spent 29% on housing compared with 21% for homeowners.
The gap has widened even though renters’ incomes have risen at the same pace as homeowners, said Freestone. Meanwhile, homeowners are also accumulating home equity with their housing payments.
Last year was even worse for renters, who went from higher savings rates during the pandemic to not having enough to cover the bills, according to RBC.
Renters collectively spent nearly nine per cent more than they earned in disposable income in 2023, while homeowners saved seven per cent of their take-home pay, the report said.
“The third quarter of 2023 was the turning point when both homeowners and renters saw declines in net wealth. But renters have undoubtedly been hit the hardest,” said Freestone.
The tightening squeeze makes it harder to save for a down payment, she added.
“Canadian renters are getting squeezed more than homeowners, making home ownership an even more distant dream. This threatens renters’ path to accumulating wealth — which could exacerbate inequality over the longer term.”
The report follows one from TD last October that also highlighted the stark divide in wealth accumulation between renters and homeowners.
The TD report led by Beata Caranci found the average net worth of homeowners born between 1955 and 1964 had reached more than $1.4 million, 6.3 times higher than the wealth of non-homeowners born during the same time.
The $1.2 million wealth gap between the two had grown from a gap of just under $500,000 in 2005.
“Wealth inequality is really a narrative that differentiates Canadians who are homeowners versus those who are not,” said Caranci in the report.
The divergent paths of baby boomers who were homeowners versus renters is likely to play out worse for young people today, she said.
“The current generation of young Canadians is likely to not just repeat, but accentuate the narrative of wealth inequality across housing lines with affordability now at its worst level in decades.”
She said that there are many long-standing policies that disproportionately benefit homeowners, including the capital gains exemption, partial GST rebate on new homeownership, the first-time homebuyers tax credit, renovation tax credits and others.
“The savings and investing landscape is so heavily skewed toward housing because the housing system itself is designed to perpetuate inequality between homeowners and non-owners, from zoning that prioritizes single-family homes to tax policies that subsidize ownership.”
This report by The Canadian Press was first published March 14, 2024.
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OSFI urges lenders to be vigilant amid "heightened risk" in the mortgage market - Mortgage Rates & Mortgage Broker News in Canada
In response to increased risks in the mortgage market, Canada’s banking regulator has issued a reminder to lenders about their risk management responsibilities.
The Office of the Superintendent of Financial Institutions (OSFI) this week released a regulatory notice reminding federally regulated lenders of their obligations pertaining to mortgage risk management and underwriting guidelines.
The measures range from being proactive with vulnerable accounts, including “early and proactive engagement
... moreIn response to increased risks in the mortgage market, Canada’s banking regulator has issued a reminder to lenders about their risk management responsibilities.
The Office of the Superintendent of Financial Institutions (OSFI) this week released a regulatory notice reminding federally regulated lenders of their obligations pertaining to mortgage risk management and underwriting guidelines.
The measures range from being proactive with vulnerable accounts, including “early and proactive engagement with vulnerable borrowers,” to credit loss provisioning and “sound” mortgage underwriting.
“None of the measures outlined in our latest regulatory notice are new,” a spokesperson from OSFI told CMT.
OSFI says the notice is meant to complement its Guideline B-20, while specifically drawing attention to and reinforcing the regulator’s expectations for lenders in the current economic and interest rate environment.
“The notice responds to the heightened risk environment related to existing mortgage accounts and lender portfolios,” OSFI said. “These risks include potential payment shocks and renewal and refinancing risks, particularly for borrowers with higher-risk mortgage products like variable-rate mortgages with fixed payments.”
OSFI confirmed that the notice isn’t in response to a particular lender or their mortgage risk management practices, but instead “reinforces to all lenders the importance of sound mortgage risk management practices through the full lifecycle of the loan.”
As a principles-based regulator, OSFI said it communicates its expectations and tries to avoid being “prescriptive” as much as possible. “…we assess risks to ensure alignment with our expectations and take corrective action when necessary.”
Risks include elevated household debt and high interest rates
OSFI says risks have increased due to a combination of elevated household indebtedness, high interest rates and continued elevated inflation.
As a result, many borrowers are already facing higher mortgage payments, with many more expected to face payment shock upon renewal or in their effort to return to their contracted amortization obligations.
“These risks can lead to more defaults and are particularly acute for borrowers with higher risk mortgage products, such as variable-rate mortgages with fixed payments,” OSFI says.
Canada’s mortgage market is facing a surge in renewals in the coming years, with research from RBC Economics estimating that that $900 billion worth of mortgages—almost 60% of all outstanding mortgages at chartered banks—are due to renew between 2024 and 2026.
Based on current interest rate forecasts over that horizon, a report from CIBC says borrowers will face an average payment shock of about 15% per year.
OSFI has previously communicated its concerns about rising risks in the market in its 2023-24 Annual Risk Outlook that was released last April. At that time, OSFI cited a housing market downturn as one of nine key risks it was monitoring.
“The steep increase in interest rates has eroded debt affordability [and] this is a growing concern from a prudential perspective,” it said.
In response, OSFI unveiled changes to its Capital Adequacy Requirement in December for lenders and insurers with negatively amortizing mortgages with loan-to-values (LTVs) above 65%. Those requirements came into effect early this year.
Concerns surrounding variable-rate mortgages
OSFI’s latest notice reiterates concerns over the risks associated with fixed-payment variable-rate mortgages.
Fixed-payment variable-rate mortgages keep monthly payments stable despite rate increases, leading to higher interest costs and reduced principal repayments. Banks like RBC, TD, BMO, and CIBC offer these mortgages.
Default risks are “particularly acute for borrowers with [these] higher-risk mortgage products,” the regulator said.
OSFI head Peter Routledge has gone as far as referring to them as a “dangerous product.”
lessMortgage industry veteran channels decades of experience into new lead conversion tool - Mortgage Rates & Mortgage Broker News in Canada
Russ Morrison spent 25 years as a mortgage broker honing his lead conversion strategy, and the last three and a half building a software program that can do the same for others.
Now his creation, Tactical Mortgage Solutions, is available to brokers across Canada. The digital tool helps brokers present clients with the full spectrum of borrowing options, offers a road map for all client interactions and strategy sessions, and organizes it all into a robust client management platform.
“This
... moreRuss Morrison spent 25 years as a mortgage broker honing his lead conversion strategy, and the last three and a half building a software program that can do the same for others.
Now his creation, Tactical Mortgage Solutions, is available to brokers across Canada. The digital tool helps brokers present clients with the full spectrum of borrowing options, offers a road map for all client interactions and strategy sessions, and organizes it all into a robust client management platform.
“This is a calculator, yes, but mostly it’s a process, and what it does is it increases the chance that a broker will be successful,” says Morrison, who is also the owner, founder, and senior mortgage broker of the Morrison Mortgage Team.
“The platform is unique and personalized to every subscriber; the dashboard consists of five strategies, which are all related to why consumers seek advice from mortgage brokers.,” he added.
Those strategy sessions include home purchase, home sale and purchase, home refinance, mortgage renewal/transfer, and rental property purchase. “Each one creates a strategic plan for Canadian consumers to make sure they’re making the right choice,” Morrison says.
Within each subheading is a series of session outlines to guide conversations with clients, provide key data based on their unique needs, and offer side-by-side comparisons of various financing options, along with other key information.
Brokers can now sign up for a free trial and Strategy Sessions are currently available to users in British Columbia, Alberta and Ontario. Morrison says the software will be updated to include tax and regulatory scenarios for all remaining provinces before the end of the quarter.
Growing through strategic partnerships
Tactical Mortgage Solutions has also established a licensing agreement with TMG The Mortgage Group — via its technology provider, Unison Software — which will soon provide a version of the software through its Hurricane platform.
“It creates a record of the discussions that you would have had through the various scenarios, so that you could get the client to a point that made financial sense to them with a plan before you started the application,” says Paul Taylor, the President and CEO of Unison Software, which owns and operates TMG’s Hurricane platform.
Taylor says that when Unison purchased Hurricane from TMG and leased it back to the broker network in 2022, the organization surveyed TMG’s members to explore the kinds of functionality they wanted to see in the future. The number one request, according to Taylor, was a scenario builder.
“When I started talking to Russ, it was pretty apparent that the product that he has managed all of that, and even did a few other things,” he says. “It was a tremendous time saver and just a really good tool to assist broker and client communications — and the life journey of the transaction — because it puts everybody on the same page right out of the gate.”
Tactical Mortgage Solutions will be fully integrated into the Hurricane platform as soon as it is ready to manage client scenarios from coast to coast, which Taylor anticipates is imminent.
At that point brokers in the TMG network will be able to utilize its functionality as part of the Hurricane platform, rather than a standalone tool.
Morrison adds that he’s hoping to partner with other broker networks in the future but emphasizes that anyone can access the tool on their own.
His hope is that Tactical Mortgage Solutions ultimately enables Canada’s broker community to better compete with the big banks.
“If we can align ourselves with our clients and create a deep and professional experience we can grow our market share; that’s my goal,” he said. “I love educating, I love coaching, and this is something I hope and feel strongly will help brokers be more successful, because it has worked for me.”
lessValue of Canadian farmland rises 11.5% in 2023: report - Mortgage Rates & Mortgage Broker News in Canada
The value of Canadian farmland rose 11.5% in 2023, a new report by agriculture lending firm Farm Credit Canada has found.
Chief economist J.P. Gervais said while that’s a slight slowdown from the growth in 2022, it’s still a rapid pace given cooling economic conditions overall.
“Farmland prices have continued to increase at a rapid pace over the last couple of years, even when economic conditions suggested the growth should slow,” said Gervais in a release.
“A limited supply
... moreThe value of Canadian farmland rose 11.5% in 2023, a new report by agriculture lending firm Farm Credit Canada has found.
Chief economist J.P. Gervais said while that’s a slight slowdown from the growth in 2022, it’s still a rapid pace given cooling economic conditions overall.
“Farmland prices have continued to increase at a rapid pace over the last couple of years, even when economic conditions suggested the growth should slow,” said Gervais in a release.
“A limited supply of available farmland combined with a robust demand from farm operations is driving that growth.”
The lender’s latest report on farmland values found that they increased in every province tracked except for British Columbia.
That province saw an average decline of 3.1%, but it still has the highest average farmland values in the country.
The number of farmland transactions is estimated to have declined slightly last year.
Farmers are currently being cautious when it comes to investing in their operations, the report said, with expected weaker revenues and elevated borrowing and input costs.
“Purchasing land in the year ahead will come with careful consideration of the price and timing. Some operations will prefer to wait and see where land values will settle while others may move more quickly should adjacent land become available, or simply because it fits their strategic business plans,” Gervais said.
Young producers face a challenging environment as farmland becomes less and less affordable, said Gervais. This may expose some farm operations to more risk amid higher rental rates and input costs, he said.
The highest increases in average farmland value last year were in Saskatchewan, Quebec, Manitoba and Ontario.
This report by The Canadian Press was first published March 12, 2024.
lessEquitable Bank's mortgage arrears rate triples amid surge in renewals - Mortgage Rates & Mortgage Broker News in Canada
Average asking rent prices reach $2,193 in February, up 10.5% from 2023 - Mortgage Rates & Mortgage Broker News in Canada
A new report says the average asking price for a rental unit in Canada was $2,193 per month in February, marking a 10.5 per cent jump year-over-year and the fastest annual growth since September 2023.
The data released Monday by Rentals.ca and Urbanation, which analyzes monthly listings from the former’s network, shows the average monthly cost of a one-bedroom unit in February was $1,920, up 12.9 per cent from the same month in 2023.
The average asking price for a two-bedroom was $2,293, up
... moreA new report says the average asking price for a rental unit in Canada was $2,193 per month in February, marking a 10.5 per cent jump year-over-year and the fastest annual growth since September 2023.
The data released Monday by Rentals.ca and Urbanation, which analyzes monthly listings from the former’s network, shows the average monthly cost of a one-bedroom unit in February was $1,920, up 12.9 per cent from the same month in 2023.
The average asking price for a two-bedroom was $2,293, up 11.3 per cent annually.
The report says asking rents in Canada have increased overall by a total of 21 per cent, or an average of $384 per month, from two years ago, just before the start of interest rate hikes by the Bank of Canada.
Alberta maintained its status as the province with the fastest-growing rents, with total average asking prices up 20 per cent annually last month to reach $1,708.
British Columbia and Ontario posted the slowest growth in February, with annual increases of 1.3 per cent and one per cent, respectively. But the provinces remain Canada’s most expensive for renters, with total average asking rents of $2,481 in B.C. and $2,431 in Ontario.
On a municipal basis, the largest cities in those two provinces also remain the most expensive major cities to live in Canada for renters. The average asking price for a one-bedroom unit in Vancouver last month was $2,653, down 1.1 per cent from a month earlier, though still 0.5 per cent higher than February 2023.
In Toronto, landlords were listing one-bedroom units for $2,495 on average, down 0.6 per cent on a month-over-month basis and 0.2 per cent from a year ago.
Traditional purpose-built rental apartments posted the fastest year-over-year price growth in February with a 14.4 per cent increase, as rents averaged $2,110. Condominium rentals, with an average rent of $2,372, and apartments in houses, at $2,347, had slower annual growth of five per cent and 5.3 per cent, respectively.
The report also highlighted a surge in roommate listings last month.
It says the number of listings for shared accommodations tracked in Canada’s four largest provinces grew 72 per cent in February compared with a year ago.
The average asking rents for shared accommodations increased 12 per cent to $1,010, led by 13 per cent annual growth in B.C. to $1,186 and 12 per cent in Alberta to $873.
In Ontario, average roommate rents increased nine per cent to $1,099 and in Quebec by five per cent to $920.
This report by The Canadian Press was first published March 11, 2024.
lessRemembering Frances Blau: a trailblazer for women in Canada’s mortgage industry - Mortgage Rates & Mortgage Broker News in Canada
First National saw revenue rise 29% in 2023 despite drop in residential mortgage volumes - Mortgage Rates & Mortgage Broker News in Canada
Scotiabank "intentionally slowing" its mortgage portfolio - Mortgage Rates & Mortgage Broker News in Canada
Nearly three quarters of CIBC's variable-rate clients have reached their trigger rate - Mortgage Rates & Mortgage Broker News in Canada
Reverse mortgages: A financial solution made for today - Mortgage Rates & Mortgage Broker News in Canada
Fixed mortgage rates back on the rise - Mortgage Rates & Mortgage Broker News in Canada
Fixed mortgage rates back on the rise - Mortgage Rates & Mortgage Broker News in Canada
Home prices to decline another 5-7% this year, but remain above pre-pandemic levels due to demand: Fitch - Mortgage Rates & Mortgage Broker News in Canada
Equitable Bank raises loan loss provisions, but says borrowers remain resilient - Mortgage Rates & Mortgage Broker News in Canada
Despite moderately raising its loan loss provisions, Equitable Bank says borrowers have so far been resilient in the face of rising interest rates.
In its fourth-quarter earnings release, Canada’s seventh-largest independent bank reported a 40% year-over-year increase in net income.
The bank also saw continued strong growth of its reverse mortgage portfolio, which climbed 249% to $860 million as of Q4. Reverse mortgage assets are up 68% since Q3 alone, thanks in part to expanding market share,
... moreDespite moderately raising its loan loss provisions, Equitable Bank says borrowers have so far been resilient in the face of rising interest rates.
In its fourth-quarter earnings release, Canada’s seventh-largest independent bank reported a 40% year-over-year increase in net income.
The bank also saw continued strong growth of its reverse mortgage portfolio, which climbed 249% to $860 million as of Q4. Reverse mortgage assets are up 68% since Q3 alone, thanks in part to expanding market share, Equitable Bank said.
The lender also raised its provisions for credit losses by an adjusted $7.8 million in the quarter, up moderately from $5.3 million in the third quarter. Separately, there was a one-time provision for credit losses of $19 million related to the bank’s acquisition of Concentra Bank.
“While delinquencies are stable, there is broad deterioration in macroeconomic variable forecasts compared to forecasts at the end of Q3, including unemployment, GDP, HPI [home price index] and the commercial price index,” said Chief Financial Officer Chad Westlake.
The annualized realized loss rate for Q4 was 3 bps of total loan assets, or $3.2 million, up slightly from 2 bps a year ago, or $1.8 million.
“What EQB demonstrated in Q4 is solid margin expansion year-over-year and very low realized loan losses,” said President and CEO Andrew Moor. “Based on our consistent and effective risk management processes and practices, we should emerge from this period of central bank tightening without unusual credit losses.”
The executive team explained that provisions are in part being pushed higher by loans that may have a total debt service ratio above 50%, despite offsetting factors such as a high Beacon score, modest loan-to-value or a strong payment history.
Moor added that Total Debt Service and Gross Debt Service ratios don’t factor in assets outside of the home, such as money in an RSP savings account, for example.
“I think many of the ways we think about these metrics don’t reflect the complexity of what really happens when people take a mortgage,” he elaborated. That includes a variety of family support channels, including teenagers going out and finding part-time work to contribute to the mortgage, he said.
“These are family enterprises to maintain the family and home, right? So that’s certainly how we think about it and that’s what we observed in our loan book.”
But Moor said that’s not to say the “almost unexpected” increase in rates seen over the past year hasn’t put stress on the bank’s borrowers.
“We have lots of empathy for our customers, obviously…but many of them have the intellectual resources to sort of figure out how to work their way through this,” he said.
Highlights from the Q4 earnings report
Notables from its call
CEO Andrew Moor commented on the following topics during the company’s earnings call:
Chief Risk Officer Ron Tratch also commented in more detail about Equitable’s loan loss provisions:
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
lessA dive into the latest inflation results...too soon to celebrate? - Mortgage Rates & Mortgage Broker News in Canada
On the surface, the Consumer Price Index figures for January seem to confirm that inflation has finally been defeated. But soaring food prices and mortgage interest costs are continuing to take a bite out of household finances.
The annual rate of growth for the Consumer Price Index came in at 5.9%—the first time it has been under 6% since last February—and core measures of inflation are continuing to ease.
But observers point to persistent price pressures on several fronts, driven largely
... moreOn the surface, the Consumer Price Index figures for January seem to confirm that inflation has finally been defeated. But soaring food prices and mortgage interest costs are continuing to take a bite out of household finances.
The annual rate of growth for the Consumer Price Index came in at 5.9%—the first time it has been under 6% since last February—and core measures of inflation are continuing to ease.
But observers point to persistent price pressures on several fronts, driven largely by food prices and high mortgage rates, that will need to be monitored in the months ahead.
Mortgage costs up, while shelter prices decline
Mortgage interest costs continued to rise given the current high-rate environment. The mortgage interest cost index was up 21.2% year-over-year, up from a pace of 18% in December. This was the largest increase since September 1982, Statistics Canada noted.
However, overall shelter prices rose at a slower pace in January, at an annual rate of 6.6% compared to 7% in December.
This was thanks to slower growth in homeowners’ replacement cost (+4.3%), which is related to the cost of new homes, and other owned accommodation expenses (+1.1%), which includes real estate commissions.
Why the release isn’t as dovish as at first glance
Markets reacted to evidence of weaker inflation, namely a softer-than-expected month-over-month CPI growth rate, as well as decelerating year-over-year gauges.
But Scotiabank economist Derek Holt explained in a research note why he believes the January inflation report is less dovish than some think.
“First off, ignore year-over-year readings as they offer little, if anything useful, given how influenced they are by year-ago base effects. For instance, [one] year ago saw Russia prepare to invade Ukraine and then do so, which drove multiple commodity prices higher,” he wrote.
“Secondly, trimmed mean and weighted median CPI measures of core inflation held firm at 3.7% m/m SAAR [seasonally adjusted annual rate] and 3.6% m/m SAAR respectively in January, thereby matching the December readings,” he added. “They are faster readings than in November when they both dipped toward 3%, but not by much and they are still cooler than early last year when the rates were running at double that and more.”
The bottom line is that these rates of core inflation at the margin are “cooler, but not cool,” Holt underlined.
Others, like Marc Desormeaux, Principal Economist at Desjardins, pointed out that while inflation indicators are moving in the right direction, with January’s reading being “one of the most optimistic since the start of our current inflationary predicament,” inflation is still “a country mile away from the 2% target.”
“We’re encouraged by the continued easing of multiple measures of core inflation, although it’s far too early to declare victory,” he noted.
What it means for the next Bank of Canada decision
The Bank of Canada’s next rate decision on March 8 will take into consideration the latest inflation figures, along with employment figures released last week.
“The Bank of Canada has now received two very different signals from the month of January,” Desormeaux noted.
He said that on the one hand, robust employment suggests “more work may be needed” by the Bank of Canada. On the other hand, the January inflation data, along with signs of easing wage gains, imply the “painful medicine of sharply higher interest rates is having its desired impact.”
“The Bank has stressed that to ditch the current plans to pause rate hikes, it needs an ‘accumulation of evidence’ that inflation isn’t cooperating,” he added. “[Yesterday]’s print suggests it just might be able to avoid any further rate increases.”
But as Bank of Canada Governor Tiff Macklem confirmed in testimony to parliament last week, the Bank stands ready to abandon a rate-hike pause should inflation prove sticky and fail to return to the 2% target.
“That process of normalization is one of the key things we’re watching to evaluate whether we raised interest rates enough to get inflation back down to target,” Macklem testified.
“And if we don’t see it continue to normalize, we will need to do more.”
less‘Business for self’ clients are on the rise. How do you secure a mortgage for one? - Mortgage Rates & Mortgage Broker News in Canada
Millions of Canadians now work for themselves, in everything from construction subcontracting to corporate law. Roughly 2.9 million Canadians were self-employed in 2018, according to Statistics Canada, and many of them are keen to buy a home.
Unfortunately, many of the practices around proving income for a mortgage were developed for potential homeowners with secure, stable, T4-documented day jobs. Can an entrepreneur who runs their own payroll department – or may be a sole proprietor of just one
... moreMillions of Canadians now work for themselves, in everything from construction subcontracting to corporate law. Roughly 2.9 million Canadians were self-employed in 2018, according to Statistics Canada, and many of them are keen to buy a home.
Unfortunately, many of the practices around proving income for a mortgage were developed for potential homeowners with secure, stable, T4-documented day jobs. Can an entrepreneur who runs their own payroll department – or may be a sole proprietor of just one – prove they make enough income to handle a mortgage?
Quite simply, the answer is yes. The process for mortgage brokers is a little longer, but it is by no means impossible to secure a loan. Here is a step-by-step process breaking down everything you, as a broker, need to do to land a mortgage for a self-employed client:
Know your customer
As with any client, self-employed or on the payroll, KYC is a critical step in any mortgage broker’s job. Victor Tran, a mobile mortgage broker at True North Mortgage, says the client will need to provide at least a two-year history of filed income tax returns as a ‘business for self’, or articles of incorporation and financial statements for incorporated businesses.
Some clients might be able to get away with submitting their tax forms to a broker later on in the mortgage transaction process. But Tran says self-employed clients should come to their first meeting prepared.
“If I come across anyone that’s seeking a mortgage who’s self-employed, whether it’s a purchase, transaction renewal, refinancing, or pre-approval, I prefer to collect documents up front,” Tran says, “so I have a better idea of how healthy their business is and how much they actually pay themselves.”
Prakesh Bector, director of residential sales at Equitable Bank, says brokers should ask their clients a series of high-level questions to better understand how they earn a living. To start, what type of business do they operate? Is it a digital marketing agency? A day trading service? An independent barbershop?
The broker should also be able to determine whether the business is incorporated or not (and if so, how and when it was incorporated), and whether the client owns the entire business, or shares ownership with other partners. Among one of the most important questions for a broker to ask is how a client generates revenue. Is it through advertising campaigns, a management fee, or straight-razor shaves?
Understand your client’s business structure
Next, brokers should take a magnifying glass to a client’s business. “This is a deeper review of the business the client operates so you can get an idea of how it works,” Bector says in an email. Many of the questions are follow-ups to the KYC process described earlier.
Who does a client’s business serve? How do they source clients? Is that barbershop mainly bringing in customers through a sophisticated online marketing campaign, or through word-of-mouth among a core group of devoted customers? Are those customers mainly coming in through specific seasons (such as just after major earnings reports) or is there a steady flow of customers into the business? What expenses does it incur year round?
Finally, after a client has answered all of these questions, brokers should look for documents like business bank statements, T1 General tax returns, or contracts. Any issues in the viability of a client to carry a mortgage should become quite apparent at this point, one of the reasons it is so critical for mortgages to take a critical eye to any application.
“You can save a lot of time and frustration if you determine early in the process that a client has no way to prove income being claimed,” Bector says.
Review your client’s income
Then, once the questions are done, brokers should turn to the numbers before them in a client’s documentation. “Lenders would want to see the financial statements in a healthy state,” Tran explains, “meaning you’re not showing a deficit or a loss in income every year.”
Exactly what qualifies as a good income situation, in the eyes of a lender, really depends. “There’s really no ideal scenario,” Tran says. “There are so many different types of self-employed individuals over there.”
In his own business, Tran deals with plenty of IT contractors who get their commission checks from whichever major company employs them wired directly into their corporation. Lawyers, doctors, and mortgage brokers themselves deal with many individual clients, but typically earn healthy annual revenues. But a self-employed business could be a mom-and-pop convenience store with modest annual incomes and a handful of hardworking employees.
Regardless of a client’s line of work, brokers should be able to line up the story their financial documents tell with the profile of their business. Bector says brokers should consider whether all of the revenue generated by a business is captured on the documents provided, whether financials are audited and completed by a third party, and whether any listed expenses are reasonable for a business.
By the end of this step, Bector says, a broker should understand enough about the client to know what type of lender they need for their mortgage.
Find the best lenders for your client
After a broker is confident their client could receive a mortgage, they need to call around and find the best deal possible. Exactly which lender is best will depend on a number of factors, chief among them the stability and reliability of a client’s income.
While private and alternative lenders are known for giving mortgages to clients otherwise ignored by A lenders, including self-employed clients, Tran says the three biggest lenders he works with – TD, Scotiabank, and Think Financial – all have self-employed programs.
“Most of my business is A lending,” Tran says. “The rates I offer my clients that are paid full-time salaries will be the same as those offered for self-employed individuals.”
For clients unable to adequately prove their income to the satisfaction of an A lender, there are a variety of other programs available to get them signed up for a mortgage. One is a stated income program. Trans says these programs allow a client to simply state their business income, rather than hand over financials, and go off their last two years of income tax returns.
But there are downsides. Tran says borrowing limits are lower and the client may have to put as much as 35% down. Alternatively, a B lender might be a better road for a client if an A lender’s self-employed program is too much of a hassle for them.
Once a lender has agreed to take on a client, the process is more or less the same as someone who isn’t self-employed. But Tran says there is one key difference. Many self-employed people have some outstanding taxes to the CRA. Nearly all lenders will want those taxes to be paid and up to date before closing the deal.
All in all, self-employed clients are more than able to qualify for a mortgage.Lenders might require a bit of extra paperwork and time – an extra day or two at most, Tran says – but are more than happy to work with self-employed clients across a variety of circumstances.
lessCanadian home sales January totals at lowest since 2009: CREA - Mortgage Rates & Mortgage Broker News in Canada
Canadian home sales figures in January dropped to their lowest level since 2009, a year when the after effects of the Great Recession were roiling economies around the world.
According to the latest data from the Canadian Real Estate Association, national home sales declined 3% month-over-month in January. While Canadian sales had seen tiny bumps throughout the final months of 2022, CREA noted this decline effectively erased all of December’s gains.
Spring is traditionally the busiest season
... moreCanadian home sales figures in January dropped to their lowest level since 2009, a year when the after effects of the Great Recession were roiling economies around the world.
According to the latest data from the Canadian Real Estate Association, national home sales declined 3% month-over-month in January. While Canadian sales had seen tiny bumps throughout the final months of 2022, CREA noted this decline effectively erased all of December’s gains.
Spring is traditionally the busiest season for homebuyers, but there remains a lot of uncertainty in the health of Canada’s real estate market. While interest rates remain high, the Bank of Canada has cautiously suggested that inflation might finally be slowing down. If that trend continues, BoC governor Tiff Macklem says, another rate hike might not be needed.
“Early 2023 feels a lot like 2019, where after a year in which it became harder to qualify for a mortgage, everyone was wondering if the market would pick up in the spring,” said Shaun Cathcart, CREA’s senior economist, in a statement. “In 2019, the market started off slow, as there wasn’t much to buy. It took off once spring listings start to come out.”
The average national home price, however, remains sluggish at $612,204. CREA’s latest figures found the average national sales price, when not adjusted for seasonal price fluctuations, dropped by 18.3% between January 2022 and January 2023.
Across much of Ontario and parts of B.C., prices are well below peak levels, while some major markets – including Calgary, Saskatoon, and St. John’s – have barely dropped below their peak at all.
Analysts also weren’t surprised by January’s numbers given all the pressure put on Canada’s housing market, including a ban on foreigners buying Canadian homes and a tax to discourage Canadian homeowners from flipping their properties. The Bank of Canada also hiked interest rates by three-quarters of a percentage point in December and January.
“As such, falling sales and prices last month are not much of a surprise,” wrote TD economist Rishi Sondhi following the release of the CREA data.
Cross-country roundup of home prices
Here’s a look at select provincial and municipal average house prices as of January. Declines can be found across the board, with the most notable in Ontario (especially the Greater Toronto Area) as well as Barrie, but there are some notable increases. The Halifax-Dartmouth area, which has seen a surge of investor and homeowner activity throughout the pandemic, is carrying on its upward climb, along with Calgary and St. John’s.
Location | Average Price | Annual price change |
Quebec | $445,396 | -4.4% |
B.C. | $867,012 | -16.6% |
Ontario | $798,835 | -20.1% |
Alberta | $420,152 | -4.9% |
Halifax-Dartmouth | $490,700 | +5.4% |
Barrie & District | $778,200 | -17.7% |
Greater Toronto | $1,078,900 | -14.2% |
Victoria | $866,700 | -1.3% |
Greater Vancouver | $1,111,400 | -6.6% |
Greater Montreal | $498,000 | -5.5% |
Calgary | $509,900 | +6.1% |
Ottawa | $603,900 | -10.7% |
Winnipeg | $323,600 | -8.5% |
St. John’s | $316,300 | +5.4% |
Saskatoon | $366,000 | +1.7% |
Edmonton | $362,200 | -3.6% |
*Some of the movements in the table above may be somewhat misleading since average prices simply take the total dollar value of sales in a month and divide it by the total number of units sold. The MLS Home Price Index, on the other hand, accounts for differences in house type and size.
When will Canada’s housing market turn around?
Homeowners, investors, and experts alike are still trying to see how the chaotic and sometimes contradictory economic winds of 2022 will blow over the coming year. Unfortunately, even though spring selling season is a few months away, no one has a lot of clarity at the moment.
“We may have to wait another month or two to see what buyers are planning this year since new listings are currently trickling out at near record-low levels,” said Jill Oudil, CREA’s chair, “but this should change as the weather warms.”
TD expects housing activity could bottom out sometime before the summer of 2023 thanks to a combination of very high job growth, population growth, and lower yields. That said, Sondhi wrote, tighter lending standards on federally regulated financial institutions might scuttle this prediction.
“Moreover, the level of new listings remains low, offering no signal (yet) that forced selling is meaningfully pushing up supply,” TD says. According to CREA, Canada’s national inventory is sitting at 4.3 months – close to where it was just before the first COVID-19 pandemic lockdowns, and around a month below the long-term average of five months.
That trend may not improve. Douglas Border, chief economist of BMO Financial Group, estimated that there will be 230,000 new starts in 2023 alone, down from just over 260,000 last year, a trend he called “historically solid” in a note to clients. That said, he did acknowledge a large pullback in housing starts in January.
Unfortunately, there is one other potential roadblock facing Canadian homeowners – the possibility of more interest rate hikes. It’s true that the Bank of Canada has taken a pause, but it also left the door open for more potential hikes if inflation didn’t cool off – and investors are betting on at least one more rate hike in 2023.
“Hope springs eternal that housing activity may be close to a bottom, but we suspect that the market is still digesting the incredibly aggressive rate hikes of the past year,” Porter wrote.
Cover Photo: Lance McMillan/Toronto Star via Getty Images.
lessNational Bank is cautiously optimistic that interest rates will hold steady — and eventually drop — in 2023. - Mortgage Rates & Mortgage Broker News in Canada
The big question on mortgage borrowers' minds: fixed or variable? - Mortgage Rates & Mortgage Broker News in Canada
With variable mortgage rates potentially at a peak and fixed rates having recently retreated, borrowers are asking themselves the age old mortgage question: should you go fixed or variable?
It’s a decision being faced by anyone in the market to purchase and those with upcoming renewals. And there are two schools of thought given where rates are and the current market dynamics.
Some will argue that a variable rate makes the most sense for borrowers who aren’t risk-averse, since they’re
... moreWith variable mortgage rates potentially at a peak and fixed rates having recently retreated, borrowers are asking themselves the age old mortgage question: should you go fixed or variable?
It’s a decision being faced by anyone in the market to purchase and those with upcoming renewals. And there are two schools of thought given where rates are and the current market dynamics.
Some will argue that a variable rate makes the most sense for borrowers who aren’t risk-averse, since they’re potentially at or near their peak for this rate-hike cycle. Discussion has shifted from future rate cuts to the timing of potential Bank of Canada rate cuts, which are expected early next year or even late 2023.
Variable-rate mortgages generally also entail a lower three-months’ interest prepayment penalty should the borrower break the mortgage early.
On the other hand, variable-rate mortgages are currently priced well above their fixed-rate counterparts with a spread of more than a full percentage point.
“Usually with variable rates, you get a discount for taking on the risk that your payment could rise in future. And, you are typically rewarded for taking on that risk,” mortgage broker Dave Larock of Integrated Mortgage Planners told CMT in an interview.
He said people often cite research by Moshe Milevsky, a professor of Finance at York University, which found variable rates have historically outperformed fixed rates 88% of the time.
“The challenge now is that rates have shot up. We’ve seen the sharpest series of rate increases in the postwar era,” Larock said. “And the question then becomes, is it worth it to pay a premium today on the bet that your variable rates are going to come down over the next five years?”
Larock notes the current consensus recommends most borrowers to get a fixed rate, “And I would advise most people to do that.”
Ron Butler of Butler Mortgage agrees. He recently commented on the fixed vs. variable discussion in a Twitter thread under the heading: “Why nobody should take a variable rate that is higher than a short-term fixed rate.”
He said the post was in response to calls by some to take a higher variable rate today on the presumption that they will surely fall within the next year or two.
However, he argued that variable rates need to be lower than comparable fixed rates in order to justify the added risk the borrower is taking on.
“Variables need to be [at] a clear discount to fixed, typically a 1% to 1.25%-lower rate than short-term 1- to 5-yr fixeds,” he wrote.
He also reminded followers that if the Bank of Canada raises its benchmark rate any further, anyone getting a higher-priced variable rate today will potentially be paying even more in interest than had they taken a fixed rate, with no guarantee as to the timing that rates will begin to fall.
“It is crazy to pay extra for additional risk,” he noted.
If you do choose fixed…
For well-qualified borrowers considering a fixed-rate mortgage, most are likely better off committing to a shorter, more flexible term, says Rob McLister, editor of MortgageLogic.news.
“The Bank of Canada implies a higher probability that its next move will be a cut than a hike and market pricing supports that,” he told CMT. “That’s far from a given, however. Rate hikes are not completely off the table and it may take several quarters for prime to fall. At this point in the rate cycle, however, history suggests that a short term is nonetheless a risk worth taking…for those who can afford to be wrong.”
McLister said he doesn’t advise locking in for five years unless the borrower is extremely uncomfortable with rate volatility and/or unequipped to handle any additional rate increases.
lessThree ways mortgage brokers can reassure concerned borrowers - Mortgage Rates & Mortgage Broker News in Canada
Many mortgage brokers are fielding calls from clients concerned about rising interest rates and an uncertain economic outlook.
With the Bank of Canada’s eight consecutive rate hikes, along with inflationary pressures and the very real possibility of a recession this year, it is easy for clients to assume the sky is falling just as they’re about to sign a deal for the biggest purchase of their lives. This, in turn, affects the business mortgage brokers are seeing right now.
“Brokers are
... moreMany mortgage brokers are fielding calls from clients concerned about rising interest rates and an uncertain economic outlook.
With the Bank of Canada’s eight consecutive rate hikes, along with inflationary pressures and the very real possibility of a recession this year, it is easy for clients to assume the sky is falling just as they’re about to sign a deal for the biggest purchase of their lives. This, in turn, affects the business mortgage brokers are seeing right now.
“Brokers are saying their business to date is probably down anywhere from 20% to the extreme of 60%,” Frances Hinojosa, CEO of Tribe Financial Group, said during the Mortgage Professionals Canada webinar, Cultivating Consumer Confidence through Candid Conversations. “We’re all in the same boat.”
So, what can mortgage brokers do to help alleviate some of the concerns their clients are experiencing?
1. Be your client’s market expert
Given Canada’s somewhat tumultuous economy, clients are understandably nervous about their chances of buying the home of their dreams. One of the best ways for mortgage brokers to keep clients cool and collected is to let them know exactly what is going on in the market today.
“You have to make sure, at this point, you’re really educated,” said Tracy Valko, founder of Valko Financial. “You’re educated on where the market is, where inflation is, what you’ve done with a particular client, why you’ve put them in the mortgage that you did — and where they’re at today with their finances.”
With that knowledge, brokers may want to call up clients when the Bank of Canada comes out with a new interest rate. Valko says brokers should be sending out monthly emails to their client database telling them exactly what’s going on in the Canadian market. And when changes do happen, Valko says, brokers should expect to be the trusted point of contact for their clients.
2. Be your client’s (real estate) therapist
More important than understanding the current real estate market conditions and trends, however, is understanding your client. They are almost certainly not a market expert, and likely won’t become one overnight even with an expert broker to guide them.
Brian Hogben, owner and principal broker at Mission35, said brokers should start by asking really, really simple questions of their clients: “How much can you afford? What’s going on in your situation right now? I know you don’t like that payments have gone up—can you afford them?”
Bringing the conversation back to your client, and what they need and want, can take the stress off of market conditions that no broker (or client) has any hope of influencing. It can also make you, as a broker, more relatable. Instead of being a cog in the real estate market machine, you become a friendly face determined to guide a client through their journey.
“When you talk to people, and you validate them, and you show relatability to their story or their situation, then you’re going to be able to have a connection with people,” Valko says. “And that connection will result in you being able to help them work out whatever financial solution they need.”
3. Be honest about what you don’t know
As tempting as it may be to sound like an oracle for mortgages and real estate, no one, not even the Bank of Canada, can say with absolute certainty what the future holds.
“The reality is that none of us know,” said Ryan Boughen, a Regina-based mortgage broker with TMG The Mortgage Group. “That’s why we’re having this conversation…because of the surprise that happened in the last year when we started to get hints that we were going to be seeing high inflation.”
While your clients may desperately want certainty about their mortgage, rate hikes, and the overall housing market, being fully transparent about what you don’t know can be just as important to building consumer confidence as what you do know, Boughen added.
lessBank of Canada unclear how higher interest rates may impact Canada’s housing market - Mortgage Rates & Mortgage Broker News in Canada
The Bank of Canada’s leadership appears to be torn over whether Canada’s housing market will brush off or be further impacted by the higher interest rates, according to the central bank’s first ever summary of its internal policy deliberations.
Until now, the Bank of Canada’s senior leadership debated whether or not to change the country’s monetary policy behind closed doors. The release of the Bank of Canada’s deliberations for its January 25 decision to hike interest rates by another
... moreThe Bank of Canada’s leadership appears to be torn over whether Canada’s housing market will brush off or be further impacted by the higher interest rates, according to the central bank’s first ever summary of its internal policy deliberations.
Until now, the Bank of Canada’s senior leadership debated whether or not to change the country’s monetary policy behind closed doors. The release of the Bank of Canada’s deliberations for its January 25 decision to hike interest rates by another quarter percentage point gives a window into how the central bank thinks about the health of the housing market.
“With respect to the housing market, there was concern that the effects of tighter monetary policy could be larger than expected,” read the Bank of Canada’s summary of its governing council deliberations. “This could arise if the decline in housing prices were to accelerate.”
In spite of last year’s price erosion, the average Canadian home today is priced higher than it was before the COVID-19 pandemic began. This dynamic is largely expected to continue, according to the Canadian Real Estate Association (CREA). It expected the national average home price to decline nearly 6% in 2023.
That said, CREA’s latest housing market forecast in January doesn’t seem to suggest a quickening decline in housing prices. Over the course of 2023, CREA says the price of an average Canadian home is expected to recover by about 3.5%, to $685,056 – or back on par with 2021 levels.
“National home sales have been more or less stable since the summer,” CREA’s January report says, “suggesting the downward adjustment to sales activity from rising interest rates and high uncertainty may be in the rear-view mirror.”
CREA doesn’t call the 2023 situation a recovery, “but the start of a turnaround,” thanks to the overall adjustment of Canadians to higher interest rates, as well as the relative uncertainty of future housing growth. Last December marked one of the lowest new supply levels ever.
However, the Bank of Canada seems to think continued strong immigration rates to Canada, along with “household formation,” would support the housing market’s continued growth. Over the next three years, the Canadian government plans to attract nearly 1.5 million permanent residents – and they all have to live somewhere.
Christopher Alexander, the president of RE/MAX, told the Financial Post he expects home buyers won’t stay renting forever thanks to rising rents.
“Despite higher mortgage rates, the monthly payments versus renting are more attractive so I think we’re gonna see a shift from renting to buying somewhere towards the end of the spring this year,” he told the newspaper.
There is also the possibility that buyers who’ve remained on the sidelines due to rate hikes decide to jump into the housing market in the hope the Bank of Canada takes a pause, or even cuts rates.
Bank of Canada governor Tiff Macklem made it clear on Feb. 7, the day before the deliberation summary was released, that the bank would only be pausing rate hikes to see whether its monetary policy was working.
“We will be assessing economic developments relative to the forecast,” Macklem said in his speech, referring to the bank’s assessment of the Canadian economy in January. “If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further.”
In its January policy deliberations, the Bank of Canada decided to hike interest rates by a quarter percentage point due to continued strong job, wage and gross domestic product growth over the third quarter of 2022. All of these factors can contribute to inflation.
“In other words, data on both the labour market and economic activity suggested that there was more excess demand in the economy in the fourth quarter of 2022 than previously forecast,” the Bank of Canada’s deliberation summary read.
Overall inflation did drop to 6.3% year-over-year in December, according to the bank, from a high of 8.1% in the summer of 2022. But much of that drop is due to falling gasoline prices. Food and shelter costs remain high, but the bank felt Canada is turning a corner on inflation.
“While Governing Council was acutely aware of ongoing uncertainty,” the Bank of Canada’s deliberation summary read, “they concluded that data since the October (monetary policy report) had largely reinforced their confidence that inflation would come down through 2023.”
Feature Image by Renaud Philippe/Bloomberg via Getty Images
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Fixed mortgage rates are falling - Mortgage Rates & Mortgage Broker News in Canada
Fixed mortgage rates are falling - Mortgage Rates & Mortgage Broker News in Canada
While rates have been steadily climbing for variable mortgages, fixed mortgage rates have been moving in the opposite direction.
Certain lenders and national brokerages have been gradually dropping rates for select terms since the start of the month. Average nationally-available deep-discount 5-year fixed mortgage rates are now about 20 basis points lower compared to earlier in the month, according to data from MortgageLogic.news.
The move follows the recent decline in the 5-year Government
... moreWhile rates have been steadily climbing for variable mortgages, fixed mortgage rates have been moving in the opposite direction.
Certain lenders and national brokerages have been gradually dropping rates for select terms since the start of the month. Average nationally-available deep-discount 5-year fixed mortgage rates are now about 20 basis points lower compared to earlier in the month, according to data from MortgageLogic.news.
The move follows the recent decline in the 5-year Government of Canada bond yield, which typically leads fixed mortgage rates.
The 5-year bond yield closed at 3.05% on Monday, bouncing back slightly from a 5-month low of 2.80% reached last week. Still, yields are down from about 3.40% four weeks ago and the 14-year high of 3.89% reached in October.
Could this be a peak for fixed rates?
While this isn’t the first time fixed mortgage rates have dipped in recent months, some suggest that with expectations of a recession on the horizon and with the worst of inflation seemingly behind us, rates could continue to ease some more.
“It certainly looks to me like we’re starting to bump up against some resistance on fixed mortgage rates,” Ben Rabidoux of Edge Realty Analytics said during a webinar for clients on Monday. “I think there is a very good chance that we’ve seen the peak in fixed mortgage rates and they’re now beginning to decline.”
He pointed to the “highly unusual” fact that fixed rates are now priced about 120 basis points (or 1.2 percentage points) below variable rates.
“That’s an indication that the rates market is projecting Bank of Canada rate cuts later this year,” he said. “This helps explain why fixed rates are lower than variable because the fixed rates are priced off the bond market…[and] the bond market is clearly signalling that the worst of the inflation scare is behind us.”
If the current trend continues, Rabidoux said that there’s a “very good chance” that 5-year fixed rates fall back to the “low fours” by the spring homebuying season.
“If [yields] continue to tick down a little, the possibility that we end up with mortgages in the high threes is not outside the realm of possibility at this point,” he added. “A lot can change, but as it stands right now, I think the direction of travel for interest rates is clearly down and that’s good news.”
Short-term fixed rates growing in popularity
Many borrowers are clearly anticipating lower rates again in the coming years, which explains the rising popularity of short-term fixed rates.
Data from the Bank of Canada shows a clear trend of borrowers shifting away from variable rates and towards short-term fixed rates.
Nearly a third (31%) of all new mortgage originations as of November had a fixed-rate term of under three years.
It’s a trend Rabidoux said he expects to continue, so long as expectations are for rates to come down in the near term.
“It makes sense. If I were taking out a mortgage today, I would be inclined to look at 1- or 2-year fixed because I think there’s a decent chance that, a year or two from now, [rates are] going to be substantially cheaper at renewal,” he said.
Meanwhile, after making up nearly 60% of new mortgage originations last year, variable-rate products are back to making up a more historically average share of new mortgages, according to the Bank of Canada data. In November, 22% of new originations had a variable-rate mortgage.
lessReverse mortgages are booming amid Canada’s turbulent rate environment - Mortgage Rates & Mortgage Broker News in Canada
High rates haven’t stopped Canadians from tapping their home equity by way of reverse mortgages.
HomeEquity Bank, the country’s largest reverse mortgage provider through its CHIP product, says demand was up 30% in 2022 compared to the previous year. It saw total reverse mortgage originations top $1 billion for the second year in a row, adding that a “key strength” of its strategy has been its broker distribution network.
Reverse mortgages allow senior homeowners 55 and older to extract
... moreHigh rates haven’t stopped Canadians from tapping their home equity by way of reverse mortgages.
HomeEquity Bank, the country’s largest reverse mortgage provider through its CHIP product, says demand was up 30% in 2022 compared to the previous year. It saw total reverse mortgage originations top $1 billion for the second year in a row, adding that a “key strength” of its strategy has been its broker distribution network.
Reverse mortgages allow senior homeowners 55 and older to extract the equity they’ve built up in their home, either by way of tax-free lump-sum or monthly payments.
HomeEquity Bank says Canadians are looking at their homes as a way to pay for retirement without the need to sell.
“Canadians have traditionally focused on the dollar value of their home, but now I believe people are starting to see the value their home provides as they look to manage their finances in retirement,” Steven Ranson, President and CEO of HomeEquity Bank, said in a statement.
Equitable Bank, the country’s other mainstream provider of reverse mortgages through its Flex product suite, is also seeing a surge in demand, confirms Jackie Uy Ham Lee, Vice President of Growth Businesses and Personal Banking Lending.
“Our best estimate is 25% to 30% growth in the market year-over-year,” she told CMT. “There is really substantial interest in the product, and uptake of the product, and we hope that will continue.”
Unlike a traditional mortgage, a reverse mortgage allows senior homeowners to borrow money against the value of their home. They are structured so that seniors can never owe more than their home is worth, and the debt is typically repaid once the house is sold or the homeowner passes away.
This type of mortgage isn’t an option for anyone who doesn’t already have significant equity already since they’re typically limited to a maximum of 55% of the home’s value. But for homeowners who do, a reverse mortgage can bridge the gap between fixed income benefits like the Canada Pension Plan or Old Age Security and the rising cost of living.
“That gap is meaningful,” Uy Ham Lee says. “They’re going to have to figure out how to close that gap, which may include downsizing their home, looking for alternative financial solutions, or changing their lifestyle. So, the reverse mortgage product is a great one for seniors, and we think that is part of what’s driving its popularity.”
Lingering concerns about reverse mortgages
But reverse mortgages aren’t necessarily for everyone, especially with average reverse mortgage interest rates averaging between 7% and 9% currently. In the absence of home price appreciation, that can quickly deplete a portion of equity in the property.
Uy Ham Lee says some still remain wary of reverse mortgages, but notes Canadian reverse mortgage borrowers enjoy many more protections compared to south of the border.
One of those protections is the negative equity guarantee, a rule that means a borrower will never owe more than the value of their home when it was assessed. This is standard for Canadian reverse mortgages. Another difference, Uy Ham Lee says, is that Canadian loan-to-value ratios tend to be lower than American ones, which better preserves equity.
“I think that the Canadian product is unique and has these customer protections built in,” Uy Ham Lee says. “When potential borrowers learn more about the nuances of the Canadian product, they start to understand that it is different than in the U.S. and is a really viable solution that they should know more about.”
It is also worth noting that interest rates on reverse mortgages are higher than traditional mortgages by about 1.5 to 2 percentage points. However, payments are never required until the homeowner moves or passes away. The borrower simply has to keep paying their property taxes and maintain the property.
“A lot of room for growth”
While reverse mortgages aren’t for everyone, they can be a crucial financial solution for many seniors who are increasingly turning to them.
Ben McCabe, founder and CEO of Bloom Financial, a Toronto-based reverse mortgage provider that launched in 2021, says these products are less rate-sensitive than their traditional counterparts.
They also cater specifically to seniors, the fastest-growing population demographic in Canada at the moment, and one that is placing a high degree of importance on the ability to age in place.
According to a study conducted last year by HomeEquity Bank, 9 in 10 Canadians said they want to be able to live out their retirement years in the comfort of their home.
“I think there’s a lot of room for growth,” McCabe says of the reverse mortgage market, “as more and more Canadians realize this is a potential solution for them.”
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