Amortization Options

Mortgage Tips Jag Dhamrait 6 Feb

 

Your mortgage amortization period is the number of years it will take you to pay off your mortgage. Depending on your choice of amortization period, it will affect how quickly you become mortgage-free as well as how much interest you pay over the lifetime of your mortgage (a longer lifetime equals more interest, whereas a shorter lifetime equals less interest but also bigger payments).

Amortization BenchmarksLet’s start by looking at the mortgage industry benchmark amortization period. This is typically a 25-year period and is the standard that is used by the majority of lenders when it comes to discussing mortgage products. It is also typically the basis for standard mortgage calculators. While this is the standard, it is not the only option when it comes to your mortgage amortization. Mortgage amortizations can be as short as 5 years and as long as 35 years!Benefits of a Shorter AmortizationOpting for a shorter amortization period will result in paying less interest overall during the life of your mortgage. Choosing this amortization schedule means you will also become mortgage-free faster and have access to your home equity sooner! However, if you choose to pay off your mortgage over a shorter time frame, you will have higher payments per month. If your income is irregular, you are at the maximum end of your monthly budget or this is your first home, you may not benefit from a shorter amortization and having more cash flow tied up in your monthly mortgage payments.Benefits of a Longer AmortizationWhen it comes to choosing a longer amortization period, there are still advantages. The first is that you have smaller monthly mortgage payments, which can make home ownership less daunting for first-time buyers as well as free up additional monthly cash flow for other bills or endeavors. A longer amortization also has its advantages when it comes to buying a home as choosing a longer amortization period can often get you into your dream home sooner, due to utilizing standard mortgage payments versus accelerated. In some cases, with your payments happening over a larger period, you may also qualify for a slightly higher value mortgage than a shorter amortization depending on your situation.Let’s Chat!I am happy to help with the decision for the amortization that best suits your unique requirements and ensures you have adequate cash flow. However, it is important to mention that you are not stuck with the amortization schedule you choose at the time you get your mortgage. You can shorten or lengthen your amortization, as well as consider making extra payments on your mortgage (if you set up pre-payment options), at a later date.Ideally, you are re-evaluating your mortgage at renewal time (every 3, 5, or 10 years depending on your mortgage product). During renewal is a great time to review your amortization and payment schedules or make changes if they are no longer working for you.If you have any questions or are looking to get started on purchasing a home, don’t hesitate to reach out to me today!

Economic Insights from Dr. Sherry Cooper – February 2024

Economic News Jag Dhamrait 6 Feb

 

In January, the Canadian bond market took quite a beating as interest rates rose roughly 30 basis points from their recent lows. The December housing data revealed a surge in sales, while inflation data showed just how difficult it may be to return to the 2% inflation target.

Core inflation remains above 3.5% despite flat economic activity in the fourth quarter.

While overall growth declined by 1.1% in Q3, we expect the final quarter of 2023 and Q1 of this year to post roughly zero growth. Nevertheless, labour markets remain relatively strong, and wage rates rise well above 5% year-over-year.

Since mid-year, the Bank of Canada has focused on the supply/demand balance, inflation expectations, wage growth and corporate pricing behaviour. Last week’s Business Outlook Survey showed little to no improvement in those metrics, with corporate pricing behaviour somewhat encouraging on the path to normalization but still not there.

There is a way to go before we see sub-3% inflation sustainably. Until then, the bank will hold the overnight policy rate at 5%. The Bank of Canada made its first announcement of the year on January 24th, resulting in no change in the overnight rate for the fourth consecutive meeting.

While markets are anxiously looking forward to a series of interest rate cuts, it is too early for the Bank of Canada to take a more dovish tone. This week, they will issue their full economic forecast in the Monetary Policy Report.

Inflation remains critical to the outlook. The latest CPI report was not encouraging. Progress has been made in bringing inflation down, but plenty of work remains to get back to 2%. Rate cuts are coming this year, but the Bank of Canada will patiently await a further drop in inflation and inflation expectations. In the meantime, a continued rebound in housing markets will anticipate the future easing in mortgage rates.

Estate Planning: Are You Covered?

Personal Finance Jag Dhamrait 27 Jan

 

“New Year, new you” may be a cliché but it is for a reason! The New Year always has us thinking about where we are now, and where we want to end up. When it comes to your personal goals, a review of your finances and estate should be at the top of your list.

Proper estate planning can ensure that you have a stress-free year knowing you are covered!

Is your will up-to-date?

The purpose of a will is to outline your assets and determine how they will be distributed, as well as who will be in charge of managing affairs. Some key components to include in this document are:

  • Up-to-date list of your significant assets; note the location if outside your province or outside Canada.
  • Who will inherit your assets? And which?
  • Outline of where you want assets to pass outside your estate to avoid probate fees (e.g., an insurance policy, an RRSP)? Do this via beneficiary designation.
    • If they are minors, do you have a trust or other provisions in place?
  • Is the list of beneficiaries in your will up to date? Have there been recent births, deaths or marriages in your family?
  • Have you included alternates in case your named beneficiaries predecease you?
  • Do you want to give to charities or other organizations?
  • If you have children, have you indicated a guardian and spoken to them?
    • Did you include an alternate in case the guardian you chose is unable to commit?
    • Have you reviewed your choice of guardian as your child grows older?
  • Your executor who will carry out your wishes after you die. You can name one executor or two or more co-executors. Be sure to name one or more alternates as well.

Have you assigned a power of attorney?

Another important (and often overlooked!) aspect of estate planning involves naming a power of attorney. This individual is someone you trust to make decisions for you should you become unable to do so due to injury or illness, whether temporary or otherwise.  Power of attorney documents are created for you by a wills and estates lawyer (or notary in Quebec) as part of your estate plan.

Do you have mortgage protection insurance?

Through Manulife Mortgage Protection Plan (MPP), you have the opportunity to add a portable insurance policy to your mortgage that helps protect your loved ones and your home should something unexpected happen to you.  Unlike bank insurance, MPP is a portable life and disability product that you can take with you, from lender to lender and property to property.  This gives you the utmost future flexibility and is unlike bank insurance products which tie you down exclusively to them.  To ensure you get the best rate at renewal, you must have invested in an insurance product like MPP that will give you the freedom to move!

Mortgage life insurance will protect your family’s future by paying out your mortgage should the mortgage holder pass away. Manulife will also make your mortgage payments while your claim is being adjudicated, so there is no added stress for a loved one at an already difficult time.  Mortgage disability insurance will take care of your mortgage payments plus property taxes if you become disabled.  Disabilities from sickness and accidents are relatively common and will affect 1 in 3 borrowers throughout their mortgage amortization.  Manulife provides budget-friendly payment options, the ability to top-up your coverage and so much more.

These are all important aspects to consider to ensure your estate and family will be provided for should something happen. While never a fun topic, it is an important one and the better prepared you are, the better off your loved ones will be.

I would be happy to discuss coverage with you to ensure peace of mind for your family and their future.

Economic Insights from Dr. Sherry Cooper – January 2024

Economic News Jag Dhamrait 3 Jan

 

With the release of the November inflation data, some were disappointed that inflation remained at 3.4% year-over-year—the same as in October.

However, without the base effects of year-ago energy price declines, inflation would have been less than 3%.

December’s inflation data will be similarly skewed higher. Still, there is ample reason to suggest that interest rates have peaked, and the Bank of Canada will begin to ease monetary policy next year.

The economy has slowed significantly, and the unemployment rate is rising. Consumer spending will continue to slow as monthly mortgage payments rise at renewal. Excess demand is now gone, and housing markets have slowed considerably. Although the road to 2% inflation will be bumpy, the central bank now believes that the overnight policy rate is high enough to return inflation to its target.

Core inflation has been sticky, and wages continue to rise, playing catch-up to past inflation, but events are trending in the right direction. While not even the Governing Council knows when they will begin to cut interest rates or how quickly the process will proceed, policymakers and regulators are worried about the dampening effects of significant increases in monthly mortgage payments for the 60% of loans that will be renewed or refinanced in the next three years.

Just as overstaying their aggressive easing of monetary policy caused inflation, on the flip side, keeping monetary policy this tight for too long could damage the livelihoods of many Canadians, triggering potential financial instability and significant layoffs. These concerns have precipitated a dramatic decline in market-driven interest rates worldwide.

There are many reasons to believe the Bank of Canada will begin to ease monetary policy in 2024. Bond and money markets are building in this expectation.

Economic Insights from Dr. Sherry Cooper – December 2023

Economic News Jag Dhamrait 5 Dec

Economic Insights from Dr. Sherry Cooper – December 2023

As we move into year-end, we have every reason to believe that the economy has slowed and inflation, while still above target, has dropped significantly. But slower inflation does not mean falling prices in most markets. Yes, gasoline prices are down, and food inflation has slowed, but the purchasing power of households has not improved.

Consumer confidence is down as many households fear their mortgage renewals, where rising monthly payments will dig even deeper into their discretionary income.

Mortgage arrears are still at historical lows, but credit card and auto loan delinquencies are rising. Housing markets have slowed considerably, even as lenders cut their fixed mortgage loan rates. Declines in variable-rate loans generally await an easing in monetary policy by the Bank of Canada, which is still likely at least six months away.

The good news is that interest rates have likely peaked. So far, the economy is on a glide path for a ‘softish’ landing. I doubt we will see two consecutive quarters of negative growth. And, if we do, the central bank will respond sooner with rate cuts.

The fiscal authorities’ hands are tied. Many accuse Ottawa of increasing budgetary red ink too quickly over the past eight years, especially during the pandemic. Now that market-determined interest rates have risen sharply, the debt financing costs are spiking. The Liberals’ popularity is waning, and while business is calling for investment tax credits and everyone wants more affordable housing, the feds can only marginally affect these issues, given budgetary and political constraints.

The latest gimmick is to reduce short-term rentals by restricting Airbnb properties in some ways, but that will again have a meagre impact. Encouraging construction with GST elimination and cheaper credit is helpful. Still, even if they do lead to 30,000 new rental properties, that’s a drop in the bucket when planned permanent immigration is slated for 500,000 people per year.

The real rebound in economic activity is coming when the BoC signals it will cut the overnight policy rate. In the meantime, it is now a buyers’ market in many localities as home prices decline. The spring housing market could show a meaningful pickup in anticipation of lower rates and more housing supply. Motivated sellers will be out there, and buyers can pre-approve and take their time finding the right fit. The multiple-bidding wars are over. The housing market will lead the economy upward next year.

Mortgage Renewal Benefits

Mortgage Tips Jag Dhamrait 20 Nov

Is your mortgage coming up for renewal? Do you know about all the incredible options renewing your mortgage can afford you?

If not, I have all the details here on how to make your mortgage renewal work for you as we start to think about 2024.

Get a Better Rate
Are you aware that when you receive notice that your mortgage is coming up for renewal, this is the best time to shop around for a more favourable interest rate? At renewal time, it is easy to shop around or switch lenders for a preferable interest rate as it doesn’t break your mortgage. With interest rates expected to come down as we move into the New Year, taking some time to reach out to me and shopping the market could help save you money!

Consolidate Debt
Renewal time is also a great time to take a look at your existing debt and determine whether or not you want to consolidate it onto your mortgage. For some, this means consolidating your holiday credit card debt into your mortgage, for others it could be car loans, education, etc. Regardless of the type of debt, consolidating into your mortgage allows for one easy payment instead of juggling multiple loans. Plus, in most cases, the interest rate on your mortgage is less than you would be charged with credit card companies.

Start on that Reno
Do you have projects around the house you’ve been dying to get started on? Renewal time is a great opportunity for you to look at utilizing some of your home equity to help with home renovations so you can finally have that dream kitchen, updated bathroom, OR you can even utilize it to purchase a vacation property!

Change Your Mortgage Product
Are you not happy with your existing mortgage product? Perhaps you’re finding that your variable-rate or adjustable-rate mortgages are fluctuating too much and you want to lock in! Alternatively, maybe you want to switch to variable as interest rates start to level out. You can also utilize your renewal time to take advantage of a different payment or amortization schedule to help pay off your mortgage faster!

Change Your Lender
Not happy with your current lender? Perhaps a different bank has a lower rate or a mortgage product with terms that better suit your needs. A mortgage renewal is a great time to switch to a different bank or credit union to ensure that you are getting the value you want out of your mortgage if you are finding that your needs are not currently being met.

Regardless of how you feel about your current mortgage and what changes you may want to make, if your mortgage is coming up for renewal or is ready for renewal, please don’t hesitate to reach out to me! I’d be happy to discuss your situation and review any changes that would be beneficial for you to reach your goals; from shopping for new rates or utilizing that equity! I can help you find the best option for where you are at in your life now and help you to ensure future financial success.

Economic Insights from Dr. Sherry Cooper – November 2023

Economic News Jag Dhamrait 1 Nov

The Canadian economy is showing continued signs of slowing as inflation decelerates. This opens the door for a continued pause in rate hikes. Indeed, with any luck, the Bank might have finished its tightening cycle.

One more rate hike is possible, especially if continued Middle East tensions lead to a sustained oil price increase, but the odds are against it.

This does not suggest, however, that interest rates will decline anytime soon. Headline inflation in September was posted at a 3.8% year-over-year pace, well above the Bank’s 2% target. Wage inflation remains at roughly 5%, and inflation expectations remain high.

However, the economy is slowing, and excess demand in labour markets is waning. Third-quarter economic growth is likely to be less than 0.5%, and leading economic indicators are pointing to a further slowdown in the final quarter of this year and the first quarter of 2024.

Canadian consumers, weighed down by record debt loads and high prices, are tightening their purse strings. Savings rates have fallen, and retail sales per capita have slowed markedly. Sales were down in six subsectors: car dealers, furniture, electronics, and appliance retailers.

Canadians are quickly rolling back their purchases of goods as more households face mortgage payment renewals. The Bank of Canada consumer survey suggested that families expect more adverse effects ahead as an increasing volume of mortgages come due for renewal or refinancing.

Businesses are also tightening their belts as the recent Bank of Canada Business Outlook survey showed considerable weakness. The Bank is counting on softening demand to translate into a slower inflation rate in the coming months.

I expect the central bank to cut interest rates in mid-2024, gradually taking the overnight policy rate down. In the meantime, housing markets will continue seeing a surge in new listings and more favourable buying opportunities.

Fall Market Forecast

Economic News Jag Dhamrait 1 Oct

As we round the corner into October, now is a great time to touch base about what to expect in the marketplace this Fall!

As you may have heard, The Bank of Canada opted to maintain its policy rate at 5% as of September. The recent rate hikes over the spring and summer have slowed the housing and mortgage markets as potential buyers were unsurprisingly spooked by the rise in mortgage rates.

More recently, fixed-rate loans have become more expensive because of the rise in longer-term interest rates. As a result, housing affordability became a bigger hurdle and led to a slight decrease in home prices by 6% in major markets over the summer.

With The Bank of Canada currently maintaining the 5% policy rate, many hope this will be the peak in overnight rate changes. If so, homeowners and potential buyers will be granted some breathing room. We will find out more with their upcoming announcement on October 25th.

As we turn the corner into Fall and start looking ahead to the coming year, analysts are forecasting stronger housing markets. The expectation is that The Bank of Canada will gradually cut interest rates by mid-year, allowing potential buyers to better navigate their affordability.

As the housing supply shortage continues, new listings are likely to rise and provide much-needed new inventory. As we move into 2024 and start to see interest rates decrease, motivated sellers will move off the sidelines and housing demand is expected to be resilient.

For anyone who is thinking about purchasing this season, it is important to get pre-approved to guarantee your interest rate for 90-120 days while you shop the market. This way, you will avoid being impacted by potential rate changes and can properly estimate your budget for mortgage costs. Plus, pre-approval will indicate to the seller that you will not have issues obtaining financing (assuming nothing changes between now and the purchase with your job, savings, etc.), which is key during the current economic landscape.

To help you make the best decision possible, download the My Mortgage Toolbox app to determine what you can afford, and what your mortgage would look like at various interest rate levels.

I am also here to provide expert, unbiased advice to anyone with concerns, questions or wanting to get started on their pre-approval today!

Back to School: Teaching Kids About Money

Personal Finance Jag Dhamrait 20 Sep

Financial independence is a critical skill for future success that your children will not learn anywhere else.

Not only does financial literacy help your children have more success in life, but it allows them to move out sooner and it avoids delaying your retirement with additional expenses to support them.

So, how do you teach your children about money?

  1. Review Your Attitude Towards Money: The first and most important thing is to examine your own attitude towards money. Are you a penny pincher? Frivolous spender? Do you buy on impulse, or take a long time to make a purchase? How much debt do you have? Your financial habits will shape your children. To ensure that you are setting them up for their best financial future, parents need to consider what messages they are sending with their own money habits.
  2. Give Your Children an Allowance: Providing an allowance to your children (especially one in exchange for chores) is an age-old way of teaching your kids about money. A good guideline is $1.00 per year of your child’s age. For a 10-year-old, this would be $10 per week.
  3. Teach Your Child to Save: If you are giving your child $10 per week in allowance for chores, encourage them to put even just $1 per week into a piggy bank. In six months, show them how much money they have saved and talk to them about why it is important, and what they can do with that larger amount now.
  4. Encourage Kids to Think Before They Buy: While it’s hard to get a 10-year-old excited about an RRSP, there are other ways to help them plan ahead. One is to encourage them to think about their purchases before they commit. They saw a toy on TV and they have to have it – teach them about how advertisements are designed to make you want something. Ask them to wait a week. Do they still want it?
  5. Involve Your Children in the Family Finances: It is more valuable than you might think to let your kids see and hear you discuss financial planning; let them be part of opening and paying bills or planning vacations. Explain why and how much you pay for certain things and discuss affordable choices. This helps them be part of the conversation and will work to instill a sense of financial responsibility as they grow up.

Remember, you are the best example to your children about money. Don’t be afraid to share the ups and downs with them. Be patient with your kids, but don’t give up! The best thing you can do as a parent is to promote financial security and independence.

Market Beware: Condition-Free Offers

Mortgage Tips Jag Dhamrait 10 Sep

When it comes to purchasing a home, most offers include “conditions” (or “subjects” if you are in the provinces of British Columbia or Manitoba), which are requirements or criteria to be met before the sale can be finalized and the property is transferred.

Some of the most common conditions include:

  • Financing approval
  • Home inspection
  • Fire/home insurance protection
  • Strata document review if applicable

The purpose of these conditions is to protect the buyer from making a poor investment and ensure that there are no hidden surprises when it comes to financing, insurance, or the state of the property.

These conditions are written up in the purchase offer with a date of removal. This is agreed to by the seller before the sale is finalized. Assuming the conditions are lifted by the date of removal, the sale can go through. If the conditions are not lifted (perhaps financing falls through or something is revealed during the home inspection), the buyer can waive the offer and the purchase becomes void.

In some cases, homebuyers choose to approach an offer without conditions.  Below we have outlined the impact of what this means for buyers and sellers to help you better understand the risks and outcomes:

Pros of Condition-free Offers

  • Buyers: The main benefit of a condition-free offer for a buyer is the ability to “beat the competition” in a heated market. However, it is not without risks.
  • Sellers: Typically, a condition-free offer will include a competitive price, willingness to work with the dates the seller prefers, and evidence that the buyer has already done as much research as possible. If time is sensitive for the seller because they are trying to purchase another home or want to move as soon as possible, they may also choose your offer over conditions offers to expedite the process.

Cons of Condition-free Offers

  • Buyers: As a buyer submitting a condition-free offer, you are assuming a great deal of risk in several areas including financing, inspection, and insurance:
    • Financing: While buyers may feel that they have a pre-approval and so they don’t require a condition to financing, it is important to recognize that a pre-approval is not a guarantee of financing. If you are submitting a condition-free purchase based on a pre-approval, buyer beware. The financing is subject to the lender approving the property and the sale; from the price and location to type of property or other variables the lender deems important. By submitting a condition-free offer without a financing guarantee (or an inspection, title check, etc.), there is a risk that the deal can fall through. Even when you do not include conditions on the offer, you still are required to finance your purchase. In addition, as deals are submitted typically with a deposit, there is a risk that if the condition-free offer falls through the buyer will lose their deposit. This amount can range vary in the thousands and is typically a percentage of the purchase price or down payment.
    • Inspection & Insurance: If a buyer is also opting to skip the home inspection and home insurance protection conditions to have the offer accepted, then they assume huge risk as they do not know what they are getting and whether or not the property is up to code for insurance.
    • Due Diligence: With condition-free offers, there is no opportunity for due diligence after the offer has been made. This requires the buyer to do all their research before their initial bid. Because it is firm and binding, a buyer who decides to back out will likely be met with serious legal ramifications. Submitting an offer without conditions is not due diligence and it is at the buyer’s behest.
  • For Sellers: When it comes to the individual selling the property, there is less risk with condition-free offers but not zero. While the benefit is essentially there is no wait to accept the offer on the seller’s side, they do not know for sure if financing will come through.

Financing Around Condition-free Offers

When submitting a condition-free offer, it is essentially up to the buyer to do as much due diligence as possible before submitting. They will need to identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a condition-free offer should do their very best to secure financing beforehand.

Contractual Obligations

Be mindful when it comes to purchasing offers versus purchase agreements. While your purchase offer is a written proposal to purchase, the purchase agreement is a full contract between the buyer and seller. The purchase offer acts as a letter of intent, setting the terms you propose to buy the home. If financing falls through, for example, then the contract is breached and this is where the buyer may lose the deposit.

It is also important to be aware of a breach of contract in the event that a seller chooses to take action. For example, if you submit a condition-free offer of $500,000 and cannot secure financing for that offer and the seller turns around and is only able to get a $400,000 deal with another buyer, they could potentially sue the initial buyer for the difference due to breach of contract.

Preparing a Condition-Free Offer

If you have decided to go ahead with a condition-free offer, regardless of the risks, there are some things you can do to mitigate potential issues, including:

  • Get Pre-Approved: Again, this is not a guarantee of financing when you do make an offer, but it can help you determine whether you would be approved or not.
  • Financing Review: Identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a condition-free offer should do their very best to secure financing beforehand.
  • Do Your Due Diligence: Look into the property and determine if there have been major renovations or a history of damage. This could come in the form of a Property Disclosure Statement. While this statement cannot substitute a proper inspection, it can help identify potential issues or areas of concern. If possible, conduct an inspection before submitting your bid/offer.
  • Get Legal Advice: This can help you determine your potential risk and ramifications of the offer should it be accepted, or otherwise.
  • Title Review: Be sure to review the title of the property.
  • Insurance: Confirm that you are able to purchase insurance for the home. Keep in mind, an inspection may be required for this but in some cases, you can substitute for a depreciation report if it is recent.
  • Strata Documents (if applicable): Thoroughly review strata meeting minutes and any related documents to determine areas of concern.

While there are things that can be done to help with condition-free offers, it is still risky. Ultimately submitting an offer with conditions gives you the time and ability to gather information on the above, as well as access to the property or home for inspections.

If you are intent on submitting a condition-free offer, be sure to discuss it with your real estate agent as they can determine if a condition-free offer is necessary, or if perhaps a short closing window would suffice to seal the deal. A good realtor will keep you informed of potential interest and other bids during the process as well. Their goal should be to maximize your opportunity and minimize your risk. In addition, before making any offers, be sure to contact me to discuss your mortgage and financing so you can make the best decision.

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