First-Time Home Buyer Incentive Now Available

Five months ago the Liberal government unveiled the First-Time Home Buyer Incentive, a new initiative aimed at easing affordability for first-time homebuyers.

The FTHBI  officially came into effect Monday and will start providing interest-free shared-equity loans to interested buyers in the form of down payment assistance.

To recap how the program works, participants must put down at least 5% of the home’s value with their own money, while the government (through the Canada Mortgage and Housing Corporation) would contribute an additional 5% of the down payment if the purchase is of an existing home, or 10% if it’s a new build.

The buyers don’t need to make any monthly payments, though the loan must be repaid after 25 years or when the home is sold.

The CMHC also sharesproportionately in any future gains or losses in home value.

Of course, there are certain restrictions:

• The mortgage must be default insured
• It’s only available to first-time buyers with a household income under $120,000
• Participants must have a minimum 5% down payment
• The mortgage amount plus incentive cannot be more than four times the participants’ annual household incomes (approx. $565,000)

Critics have pointed out that, based on the above math, buyers would qualify for less home than they could otherwise purchase by not participating in the program.

“By limiting borrowers to a purchase price of four times their income, the FTHBI program caps a first-time buyer’s maximum purchase price at about 10% less than they could otherwise afford,” mortgage expert Dave Larock wrote previously on his blog. “It seems strange to me that a program that was designed to help borrowers with affordability explicitly reduces it.”

Others have noted the program is likely to be of less value for buyers in the Greater Vancouver and Toronto regions, where finding a home for under $500,000 is a challenge, if not impossible.

“We think it’s definitely going to have very regional application,” Paul Taylor, President and CEO of Mortgage Professionals Canada, said previously. “In the two most expensive cities, where we would suggest first-time homebuyers need the most support, this solution is not really going to do that.”

CMHC President and CEO Evan Siddall has responded to criticism over the effectiveness of the program in these markets by saying: “No program is going to work as well in higher-priced markets. Using 2018 data, 2,300 homebuyers would have qualified in Toronto and 1,100 in Vancouver. Around 25% of home sales in Toronto in 2018 were for homes under $500K and 17% in Vancouver.”

The CMHC expects 100,000 homebuyers to participate in the program over the next three years.

Industry experts say it will be interesting to see the actual participation rate, given that a similar program launched by the B.C. government in 2016—the Home Owner Mortgage and Equity Partnership—was cancelled due to a low participation rate.

It was expected that 42,000 B.C. homebuyers would participate over three years, though the program received just 3,000 applications.

To learn more and apply for the First-Time Home Buyer Incentive, visit: www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive

–STEVE HUEBL

BANK OF CANADA HOLDS OVERNIGHT RATE STEADY AMID UNCERTAINTY

The Bank of Canada held the target overnight rate at steady at 1.75% for the seventh consecutive decision date but will monitor closely the impact of the US-China trade war on economic activity around the world and in Canada. The second-quarter growth–posted at 3.7%–exceeded the Bank’s forecast in the July Monetary Policy Report (MPR), but the Bank expects the economy to slow from that pace in the second half of the year.

Q2 was boosted by stronger energy production and robust export growth, both recovering from a weak Q1 performance. But evidence suggests that export growth slowed in July and could weaken further as the global economy slows. Canada bears the brunt of Chinese trade restrictions on Canadian agricultural imports. Housing activity also boosted the expansion in the second quarter as resales and housing starts picked up. Falling longer-term interest rates have driven down mortgage rates. The Bank asserted that “this could add to already-high household debt levels, although mortgage underwriting rules should help to contain the buildup of vulnerabilities.”

Wages picked up further last quarter, boosting labour income, yet consumption spending was unexpectedly soft. Canadian consumer confidence recorded its most significant monthly drop this year in August amid growing concerns about the global economic outlook. The setback reflects waning optimism about Canada’s economy and effectively reverses the pick-up in sentiment earlier this summer.

The deterioration in confidence coincides with the escalation of the U.S.-China trade war. Many Canadians increasingly worried they’ll soon feel a bigger impact. Consumers aren’t the only ones feeling the uncertainty as business investment weakened sharply in the second quarter. Trade tensions have hit farmers and manufacturers hardest. The U.S. implemented additional tariffs on China September 1 and have slated more on December 15. These include duties on clothing and electronics, will pinch US consumers where it hurts, in the pocketbooks. These moves will sideswipe Canada.

Despite all of this gloom, the central bank held off from signalling explicitly any immediate need to cut interest rates. While growth has been stronger than expected, inflation has remained on target.

“In sum, Canada’s economy is operating close to potential and inflation is on target. However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies,” the central bank said in its statement. “In this context, the current degree of monetary policy stimulus remains appropriate.”

Market Interest Rates Are Tumbling

The Bank prefers to wait for more concrete evidence that the economy is in need of additional stimulus. Despite this, market interest rates have fallen to record lows in Canada and elsewhere and the yield curve is inverted. Government of Canada 5-year yields have slid from 1.85% to 1.15% this year, an incredible 38% decline. Ten-year returns are down from 1.92% to 1.13% (lower than the 5-year yield), and the 30-year bond yield has plunged from 2.13% to 1.40%.

Short-term interest rates are higher than longer-term yields. The overnight rate, controlled by the Bank of Canada, is 1.75%–well above all of these long-term yields. The 3-month bill rate is at 1.62%, almost 50 basis points higher than the 5-year yield.

The posted mortgage rate is the qualifying rate for mortgage borrowers. It has barely moved this year, down only 15 basis points to 5.19%. Its stickiness at elevated levels has prevented many borrowers from taking advantage of today’s low contract mortgage rates.

Mortgage Rates Have Fallen Even More Than Bond Yields

According to Rate Spy, the best high-ratio 5-year fixed mortgage rate is at 2.25%, down 94 basis points from the 3.24% rate posted at the beginning of the year. Conventional high-ratio 5-year fixed mortgage rates are down 95 bps and refinance 5-year fixed rates have fallen 118 bps. Much of this phenomenon might be lenders playing catch-up as they were slow to cut fixed rates when interest rates began to fall at the end of last year.

–DR. SHERRY COOPER

NEED AN APPRAISAL – 7½ TIPS FOR SUCCESS

Do you need to get a current value of your property? Then you are going to need an appraisal.

Banks and other lending institutions want to know the “current” market value of your home before they consider loaning money on the property. An appraiser checks the general condition of your home and compares your home to other similar homes which have recently sold in order to define a comparable market value for your home.

Here are 7½ tips that can help you get top current market value.

Short version – Prepare your home as if it was going to be sold!!

Long version… If a picture is worth a thousand words, think what kind of story the pictures from your home are telling?

In the world of mortgages, lenders seldom set foot on the property before making a loan decision.

Instead, they rely on their trusted list of approved appraisers. All a lender usually gets is the appraiser’s pictures of your property and their comments about how your home was appraised.

Tip #1 – Clean up. The appraiser is basing the value of your property on how good it looks. Before the appraisal, prepare your home as if you’re selling it. Clean and declutter every room, vacuum, and scrub. Do whatever you can to make your home as presentable as possible.
Tip #2 – Pay attention to curb appeal. An appraisal is all about first impressions. And the very first one the appraiser gets is when they walk up to your property. Spend an hour or two making sure the outside of your house, townhouse or condo is warm and welcoming.

Tip #3 – The appraiser must be able to see every room of the home, no exceptions. Refusal to allow an appraiser to see any room will be noted in the appraisal can be a game stopper. There are times when it is not appropriate for the appraiser to take pictures of certain things and appraisers and lenders understand this, but refusal to grant access could kill your deal.

Tip #4 – Make a list of upgrades and features. It’s important that the appraiser is made aware of any updates you’ve made, especially those which are hidden, like new plumbing and electrical. If possible, give the appraiser this list. That way they have a reference as to what has been updated and how recent or professional that work was done.

Tip #5 – If you need to spend to update, be prudent. Many people think “bathrooms and kitchens” are the answer for getting high prices on home value. They aren’t. First, consider that kitchen and bathroom remodels can be some of the priciest reno costs. For that reason, it may be more prudent to spend a bit of money, for just a bit of updating. Paint, new flooring, new light or plumbing fixtures don’t break the bank, but can provide a dramatic impact and improve your home’s value.

Tip #6 – You know your neighbourhood better than your appraiser does. Find out what similar homes in your neighbourhood have sold for. Your property might look like one down the street, but if you believe the value of your property is worth more, let them know why.

Tip #7 – Lock up your pets. I’m sure most appraisers like pets, but some may be put off by your cat rubbing against their leg or the dog barking or following them around.

Tip #7½ – One last tip – don’t annoy the appraiser with questions and comments and follow them around. Instead, simply be prepared to answer any of their questions and, if you do have concerns or queries, wait until they’ve completed their viewing of the property, then ask.

Mortgages are complicated, but they don’t have to be… Engage a Dominion Lending Centres mortgage expert!

–KELLY HUDSON

MORTGAGE STRATEGIES: TAKE ME OUT TO THE BALL GAME!

While most people start off their mortgage search by going after the lowest rate, what they are really after is the mortgage with the lowest cost. Then again, the majority of borrowers in Canada end up with a mortgage that is not the lowest rate nor the lowest cost. Strike 1!

Whether borrowers realize it or not, what is often more important to them is a mortgage with the lowest risk. So they end up with 5-year fixed mortgage that has a constant payment, which is usually not the lowest risk mortgage at all. Strike 2! Time to bring in a mortgage broker like myself or your local Dominion Lending broker to be the pinch hitter and go to bat for you.

There are 4 and only 4 mortgage strategies, and everything fits within these 4 strategies: Lowest Cost, Lowest Risk, Maximum Flexibility, and Lowest Payment. Expert investors think about financial transactions in these terms, and you should think about your mortgage in these terms too. Consider them like the 4 bases of a baseball diamond, you need to touch on every one of them to complete a home run. A mortgage broker like me or your local Dominion Lending Centres broker can help you prioritize your mortgage strategy based on your current financial goals, life situation, and risk tolerance, and the potential for various scenarios that could affect you over the term of the mortgage. You can’t achieve all 4 mortgage strategies together, there are trade-offs, but through strategic mortgage planning we can help guide you through the strategic options, help you determine the best strategy for you, and find the best mortgage products that fit your strategy.

So next time you are planning your mortgage, make sure to cover all 4 bases by thinking about The 4 Mortgage Strategies: Lowest Cost, Lowest Risk, Maximum Flexibility, and Lowest Payment, and get a mortgage broker like myself or your local Dominion Lending Centres broker to help you. Now that’s a Grand Slam!

–TODD SKENE

STRESS TEST RATE & RECENT DECREASE

Currently, all borrowers in Canada need to qualify for a new mortgage at the current Bank of Canada Benchmark Qualifying Rate or at their approved mortgage interest rate plus 2.0%, whichever is higher.

For more than a year, this Bank of Canada Benchmark Qualifying Rate has been 5.34%. Now, for the first time in 3-years, the Bank of Canada has decreased that Qualifying Rate to 5.19%, a 0.15% decrease.

What does this mean?

Well, this Bank of Canada Qualifying Rate is essentially a bank’s Stress Test Rate. If a borrower has an annual gross income of $60,000, they can qualify for a $265,000 purchase price with a 10% down payment at a 5.34% qualifying rate.

Change that qualifying rate to 5.19%, that same borrower qualifies for a $269,000 purchase price at 10% down payment. This is a $3,700 increase in borrowing ability.

A borrower with $80,000 of gross annual income and a 20% down payment qualifies for a $455,000 purchase price at a 5.34% Bank of Canada Qualifying Rate. Change it to 5.19%, it increases to $462,000. A $5,600 increase in borrowing ability.

1.5%. That is the increase borrowers now have in their borrowing ability.

Ironic part of all these calculations, the stress test was implemented to protect consumers against rising interest rates. Their concern was that borrowers would not be able to cover their monthly payments when they came up for renewal.

Highest 5-year interest rate since January 2010? 3.79%.

Highest 5-year fixed interest rate in the past 5-years? 3.24%.

Last time someone had to pay an interest rate above 5%? For one month in 2009 and before that, summer of 2008.

Food for thought! If you have any other questions regarding the Bank of Canada and mortgage Stress Test rules, please reach out to Dominion Lending Centres mortgage professional today.

–RYAN OAKE

Mortgage Stress Test Sidelining Young Buyers

New data shows the country’s youngest buyers are being affected most by the government’s mortgage stress tests.

Mortgage originations were down 8.9% overall in Q2, while those among buyers between the ages of 18 and 25 were down 13.4% compared to last year, according to TransUnion’s latest Industry Insights Report.

This marks the fourth consecutive quarter that mortgage originations and balances were down on an annualized basis.

“The new mortgage regulations seem to be having the intended effect in cooling the overheated housing market and broadly preventing consumers from overextending themselves with mortgage debt,” said Matt Fabian, TransUnion’s director of financial services research and consulting in the release.

“However, there are signs of some potentially unintended consequences. We have started to see an uptick in co-borrowing as the means of getting a foothold on the property ladder, where multiple consumers make an application together—in effect combining the power of their salaries,” he added. “Although this is nothing new, it is now often with the help of a parent, other relative or a friend rather than just a partner or a spouse.”

Stress Test Harder on Younger Buyers

The youngest demographic of buyers is most affected by the new mortgage rules due to being at the early stages of their careers and, typically, receiving lower salaries compared to the other cohorts, making it harder to pass the stress tests.

Those with a down payment of 20% or more must qualify at the greater of the contract rate or the Bank of Canada’s benchmark rate (currently 5.19%), while uninsured mortgages are stress-tested at the greater of the benchmark rate or the contract rate plus 200 basis points.

“This limits both their ability to qualify under the mortgage stress test rules, as well as the size of mortgages they can obtain,” the report notes. “In many of the major Canadian housing markets, many younger consumers have now been effectively priced out of buying.”

Debt Levels Increasing

While mortgage debt is trending downward, overall debt held by Canadians rose 4.3% year-over-year to $1.88 trillion.

Again, millennials led the trend with their debt levels jumping 12.3% to $515.9 billion, reaching parity for the first time with the total debt held by Baby Boomers.

“This trend represents a fundamental shift in generational lending, as banks and other institutions continue to adapt and evolve their business models to provide more options and more tailored customer experience for Millennials and Gen Z,” the report noted.

Lenders Tightening Lending Limits

The report also revealed that lenders may be taking a cautious approach to new lending, given a decline in the size of new credit limits in the quarter.

The data shows a 3.6% decline in the average mortgage size (to $276,579) and a 19.7% drop in the average line of credit limit (to $42,004).

However, limits for auto loans and credit cards were higher, up 1.9% and 0.8%, respectively.

–STEVE HUEBL

RAISE YOUR CREDIT SCORE IN 3 MONTHS

While people often think of mortgage brokers when they are first time home buyers, we can help people in a variety of different ways.
Recently Garrett LaBarre of Calvert Home Mortgages in Calgary shared a success story with brokers. He had a client referred to him by a mortgage broker who had a conundrum. She was paying her credit card balances on time month after month, but couldn’t get them paid down due to the high interest rates. As a result, she had a 567 credit beacon score. Her bank would not refinance her mortgage or offer her a debt consolidation loan. She was stuck.
The solution was to use some of the equity in her home to pay off the credit card debt and lower the payments to a more manageable monthly. Even though her mortgage interest rate was higher than a regular lender, it was a lot lower than a credit card rate and it was amortized over 30 years.
The result was that within three months this client had her credit score jump from 567 to 769!
What an amazing result. Now there’s one more person who knows that mortgage brokers can do things that the banks can’t do.
If you have a challenging story, be sure to contact your local Dominion Lending Centres mortgage professional for help.

–DAVID COOKE

WHAT IS A MORTGAGE BROKER?

You may have noticed that there are many different terms for those of us who work in the mortgage industry besides “broker”.
Mortgage: specialist, expert, advisor, associate, officer, etc. I just want to clear up some potential confusion with all these monikers.
There are 2 main categories that these fall in to. Those that work for a bank to sell mortgage products available from that bank.
The other is for those like myself that work within a mortgage brokerage that has no direct affiliation with any one bank.
Each mortgage brokerage has agreements in place with multiple banks and mortgage lenders to be able to submit mortgage applications for consideration.
There are of course obvious differences between these but some may not be quite so apparent.

Mortgage Brokerage
All those working in the mortgage brokerage industry must be licensed by a provincial government agency, in Saskatchewan it’s called the Financial & Consumer Affairs Authority (FCAA).
While every province has their own set of guidelines, there are 3 different types of licenses offered by FCAA: mortgage associate, mortgage broker & principal broker.
The mortgage associate and broker are very similar as both advertise themselves to obtain clientele, work directly with the clients, mortgage lenders, mortgage insurers, realtors and lawyers in the service of their clients. The key difference is that an associate must work under a supervising mortgage broker to ensure they remain in compliance with FCAA regulations.
Each mortgage brokerage will have a principal broker (aka: broker of record) that oversees the operations of the brokerage as well as all the associates and brokers within the brokerage.
Most all those working in the mortgage broker industry are commission based. Our income is derived from the mortgage lenders that we submit mortgage applications to.

In order to apply for a license as a mortgage associate, applicants must complete an approved mortgage associate education course and provide a current criminal record check along with the required application documents.

Application for a license as a mortgage broker are the same as for an associate with the addition of a previous experience requirement.
The applicant must have been licensed as a mortgage associate for at least 24 of the previous 36 months.

In addition to annual applications for renewal, licensees must also:

• Purchase and remain in good standing with professional errors and omissions insurance
• Complete FCAA approved annual continuing education courses
• Provide FCAA auditors access to mortgage files for review whenever requested
• Advise FCAA of any changes to brokerage or contact information
• Immediately advise FCAA of any offences under the criminal code (other that traffic offenses)

Bank Branch Mortgage
Those that work in mortgage lending for a bank are normally paid by the hour or are salaried and may have a performance bonus structure.
Entry level positions do not require any education beyond high school. Training is provided on the job by the employer with supervision by the branch manager and more experienced staff.
There are no licensing requirements by any provincial or federal governing body and errors and omissions insurance is not required.
Many banks have mobile mortgage staff that may or may not conduct business within the branch and are often paid on a commission basis rather than hourly or salary.

If you have any questions, contact your Dominion Lending Centres Mortgage Broker near you.

–KEVIN CARLSON

JOBS STALL FOR SECOND MONTH IN A ROW, BUT WAGE GROWTH SURGES

The booming labour market in Canada seems to have vanished, at least for now, as employment declined and the unemployment rate rose again in July. Whether it is the summer doldrums, a trained worker shortage or the beginning of a slower second-half economy is yet to be seen. But the news is troubling in the wake of the accelerating trade tensions between China and the US. The US-Sino trade war has already sideswiped Canada, and President Xi Jinping does not face an election. He is not backing down, despite threats of a 10% additional tariff on all Chinese imports to the US. Trump’s response to denounce China as a currency manipulator has no teeth, raising doubts of the White House claim that trade wars are easy to win.

Agriculture and manufacturing in Canada, China, the US and the rest of the world have already been hard hit. Businesses spending on capital equipment and software has slowed dramatically in the face of so much uncertainty. The global economy has slowed, and bond yields around the world have fallen sharply as money is moving to the safe havens of government bonds and gold. Yield curves in Europe and the US are now inverted, which is often a sign of coming recession.

In Canada this week, the 10-year government bond yield fell to 1.22% compared to 1.58% one month ago and 2.33% one year ago. The 5-year bond yield is also at 1.22%, down a whopping 14 basis points in one week. The best 5-year fixed mortgage rate has now dropped to roughly 2.30%, although borrowers still have to qualify at the Bank of Canada posted rate of 5.19%.

Consumer spending has held up, and housing activity is strengthening in Canada and the US. But if the economy slows and job markets weaken further, it is only a matter of time before households tighten their belts.

Canada’s labour market lost 24,200 jobs in July according to Statistics Canada, versus expectations for a gain of 15,000. That follows a decline of 2,200 jobs in June. The unemployment rate rose to 5.7%, a second monthly increase after reaching a 40-year low of 5.4% in May. Hours worked on a year-over-year basis slowed sharply, and the number of people employed by private sector companies plunged by the most since the last recession.

One of the few positive signs was accelerating wages, with hourly pay up 4.5% in July from a year ago (see chart below). That’s the most robust annual pay rise in a decade. Another area of strength was the construction sector, which recorded a 25,000 gain in employment.

Bottom Line: The disappointing jobs report and the broadening trade tensions will likely spur the notion that a Bank of Canada rate cut is coming. Accelerating wages might delay such a move. But if the global economy continues to slow, the Bank might add its name to the very long list of central bank rate cuts, which now includes the Fed. What has changed from my view just last week that the BoC would be on hold for the rest of the year is the widening trade war and the back-to-back slowdown in our jobs market.

–DR. SHERRY COOPER

4 COSTS TO CONSIDER AS A FIRST-TIME HOMEBUYER

Oftentimes even the most organized and detail oriented first-time homebuyer can overlook some unexpected costs that come with the purchase of their new home. We are outlining 4 of the costs that we most commonly see overlooked by home buyers in hopes that we can better prepare you—and save you from a few surprises!

1. Closing Costs.

Congratulations! Your offer was just accepted on your new home, you’re one step closer to adding a major asset to your portfolio! We don’t want to shock or dampen the excitement of this moment. However, it’s important that you factor in closing costs right at the beginning of your purchase.

The best time to do this is before even applying for your pre-approval or making any offers on a home. Closing costs may include:
>insurance
>taxes (Land Transfer, Property, and others depending on what province you are in)
>legal/notary fees
>inspection/appraisal fees.

A general rule of thumb is to set aside 1.5% of the purchase price to account for the closing costs above. To plan ahead, consider speaking to a mortgage broker and your realtor. They can help you determine just how much you should set aside to accommodate those additional closing costs.

2. Utility Bills.
If you’ve gotten used to living in a small space, such as a condo or an apartment, you may be surprised how much more water, heat, and energy you consume in a larger space such as a detached home or a townhouse.

It’s important to prepare for these as you do not want to have a “surprise” when your bill arrives in the mail and it’s nearly double what you are used to spending!

Factoring in these bills is also crucial if you are going from renting to owning! Often times the landlord will cover a portion of your utility bills or your cable/internet depending on the contract you had with your landlord. Of course, once you are a homeowner, you are covering the entire cost! Ask family members, friends, even your mortgage broker or realtor what is a realistic cost for things such as cable and internet, water, heat, etc. You’d be surprised how fast they can add up!

3. Renovations and Updates.

Unless you bought a newly built, brand new home, there is undoubtedly going to be future renovations and updates that you will need to do on your home. They may not need to happen right when you move in, but sometimes the unexpected does happen and having money set aside can make a world of difference! When you have your home inspection completed, make a prioritized list of what will need to be fixed/updated first and set aside money each month for it.

In addition to the “must do” updates/renovations, new property owners may also want to make aesthetic improvements, whether they mean to reside there or not. Naturally, a homeowner wants to make the place feel more like their own, and investors want to add value their investment or make adjustments to make the asset more aesthetically pleasing.

4. Ongoing Maintenance
Home’s require maintenance—all the time! Ask any homeowner and they will tell you that there is always home maintenance in one form or another happening. A few common home maintenance costs may include:
• Gutter cleaning
• Roof repair/maintenance
• Drywall repair
• Furnace cleaning
• HVAC and Duct cleaning
• General plumbing and electrical fixes
Every home is different in regards to how much you should budget annually for regular maintenance. It will depend on the age of your home, square footage, climate in your region, and overall condition of your home.

In closing, property ownership shouldn’t be dampened by financial rules caused by lack of preparation. All of these costs, as well as additional other costs, are easy to plan ahead for and to ensure that you have budget set aside each and every single month to make sure that you stay on track. As a rule of thumb, the CMHC states that your housing costs including mortgage payment should not exceed 39% of your monthly income. Treat this number as a point of reference when you’re doing your budget and consider leaving room for the unexpected. It’ll give you peace of mind on the long run and allow you to actually enjoy your new home!

–GEOFF LEE