Economic Insights from Dr. Sherry Cooper – September 2023

Economic News Jag Dhamrait 1 Sep

The Bank of Canada has a single mandate—to ensure that inflation returns to the 2% target. This means that the Bank will raise interest rates if inflation is too high and lower interest rates if inflation is too low.

The U.S. Federal Reserve, in contrast, has a dual mandate—to maximize employment given a 2% target for inflation.

That is a subtle but meaningful difference.

July inflation data showed that the headline CPI inflation rose to 3.3%, up from 2.8% in June. One challenge in understanding year-over-year inflation data is base effects. Base effects occur when the current year’s inflation is compared to the previous year’s inflation, called the base year. If the base year has unusually high inflation, then the current year’s inflation will appear lower than it is.

For example, inflation in Canada was very high in June 2022. This means that inflation in June 2023 appeared to be lower than it is, even if there is no change in the underlying level of inflation.

Gasoline prices peaked in June 2022 and trended downward for most of the year. That makes y/y comparisons look worse starting last month. If you are only focusing on the annual change in inflation, you will be misled.

Looking at monthly changes in the headline inflation data can also be misleading because so many components of headline inflation are highly volatile. For example, monthly consumer prices in July rose 0.6% compared to only 0.1% in June. The y/y increase was smaller for core inflation measures. And if you exclude food, energy and mortgage rates, y/y inflation was quite moderate.

The main point here is that it’s complicated. I am more sanguine about last month’s inflation data than most Bay Street economists. The overall Canadian economy has slowed. Following the strong first quarter growth of 3.1%, Q2 GDP growth will likely come in at around a much more muted 1.2%. Job vacancies have fallen for a year, and the unemployment rate has risen to 5.5%–still low by historical standards but up from the record low this cycle of 4.9%.

The single major economic release ahead of the September 6 Bank of Canada policy decision is Q2 GDP, released on September 1. The BoC is expecting growth of 1.5%.

The impact on the economy of higher interest rates has a long lag. The full effects of the tightening will not be evident for a few more years. Given that most Canadian mortgage borrowers renew their mortgages every five years, the largest impact is yet to come. Nevertheless, higher interest rates have slowed the most interest-sensitive sectors.

Canadian new home prices edged down 0.1% in July, deepening the year-over-year decrease to 0.9%. In the same month, the yearly decline in the benchmark price of an existing home (as measured by the MLS HPI) eased to 1.5%. While prices for existing homes are still rising modestly, the momentum looks to have slowed as the market returns roughly to balance following the Bank’s latest two rate hikes.

Barring a massive upside surprise in Q2 GDP, the central bank will leave the policy rate unchanged at 5.0%. Longer-term market rates, however, have been rising, boosting fixed-rate mortgage yields. This results from economic and political concerns in the U.S. There is a good chance that overnight rates in Canada have peaked. If the economy remains too strong, the Bank will keep the door open for further tightening as inflation exceeds the 2% target.

Converting Your Basement to an Income Suite

Home Tips Jag Dhamrait 20 Aug

Modern Luxury Kitchen, Master Bath and Basement Remodel

With the current interest rates and economic scenarios, many Canadians may be looking for ways to bring in some extra cash. One option for this is to put your home equity to work and consider renovating your basement into a legal income suite!

You can do this by using a secured credit line (home equity line of credit or HELOC) to help fund the upfront cash to make changes to your home.
A few things to consider before you invest in renovating to create an income suite include:

Zoning: Before looking into doing anything with an income suite, always double-check if you are zoned accordingly for a smooth renovation. If your zoning does not allow for secondary suites, see if you can rezone.

Local Regulations: Depending on your location, there may be particular regulations that you need to follow or be aware of regarding your suite.

A few examples of how the regulations can differ between provinces or cities include:

  • In Coquitlam, you cannot have a suite that is more than 40% of the main house floor plan. You are also required to offer a parking spot for tenants.
  • In Kelowna, you can only have one secondary suite and the home must have an “S” designation.
  • In Calgary, updated zoning legislation has now made it easier to add income suites.
  • Toronto has also proposed reforms that will make it easier to add suites.
  • In Montréal, anyone carrying out a project involving the addition of at least 1 dwelling and a residential area of ??more than 450 m² (equivalent to approximately 5 dwellings) must enter into an agreement with the City of Montréal in order to contribute to the supply of social, affordable and family housing. It can be a new building, an extension, or the conversion of a building.

Visit the official municipal websites or consult local building departments to obtain accurate and up-to-date information on the rules and requirements in your area BEFORE getting started.

Insurance & Legal Considerations: Before adding your secondary suite, ensure that you have proper insurance coverage or the ability to add additional coverage to protect both the primary residence and suite. In addition, you will want to consult a lawyer and draw up a tenant or rental agreement for any potential tenants. Ontario has a mandatory standard lease agreement that all landlords must use.

Unit Layout and Design: If the zoning and regulations in your area allow you to build an income suite, the next steps are to look at the suite layout and dimensions. Confirm any size restrictions or minimum ceiling height requirements as you are laying out the design for the unit.

The unit should have, at minimum the following:

  • A separate parking space for the renter.
  • A separate entrance, kitchen, bathroom, and living/sleeping areas.
  • Ventilation and soundproofing measures to enhance livability.
  • Consideration of natural light.
  • Interlink smoke detectors for primary and secondary residences.
  • Separate, independently-controlled ventilation and heating system.
  • Proper drainage, sewage connections, and utility separations.
  • Outlets, circuits, and lighting that meet electrical code requirements.

Ensure that however your income suite is designed, you are hiring the appropriate building, plumbing, and electrical experts to ensure your suite is up to code and avoid any potential disasters.

Building & Trade Permits: Once you have confirmed that you are properly zoned and able to add an income suite and understand all the regulations for your area, you will want to draft your blueprints and submit a permit application, along with the fee, before you get started. For instance, in B.C. you are required to have a Building Permit for any suite to be considered legal.

IMPORTANT: Even if you are not required to have a building permit, it is important to get these permits for other aspects including insurance coverage should anything happen. Having a building permit will help protect your investment.

In addition to your building permits, you will need to get permits for any plumbing, electrical, and gas renovations prior to beginning your work.

Inspections & License: Once you have your permits and have begun construction, make sure you understand what inspections are required throughout the process and you schedule them accordingly with local authorities to ensure compliance with building codes, fire safety standards, and health regulations.

If the work meets all requirements, your suite will be approved. The last step is determining if you need a business licence. This is not required if your family (parents, children, etc.) will be living in the suite. In Vancouver, for example, if you intend to rent out your suite long-term, you DO need a license. Be sure to check any rules on this in your area.

Beyond the ability to earn extra income per month, there are a few additional government incentive programs when it comes to suites including:

  • First Nations: If you live on a First Nations reserve, you may be eligible for federal funding that will provide up to $60,000 to help you build an inexpensive secondary suite rental linked to your principal home. If you live in a northern or remote area, this amount is increased 25%. This is a 100% forgivable loan that is not required to be paid back assuming all guidelines are followed.
  • Residential Rehabilitation Assistance Program (RRAP) – Secondary and Garden Suites: This program is open to all First Nations or individual First Nation members, particularly those who own a family home that can be converted to include a self-contained suite for a senior or adult with disability.
  • Multigenerational Home Renovation Tax Credit: A credit for a renovation that creates a secondary unit within the dwelling to be occupied by the qualifying individual or a qualifying relation. The value of the credit is 15% of the lesser of qualifying expenditures and $50,000.
  • British Columbia: Beginning in early 2024, BC homeowners will be able to access a forgivable loan of 50% of the cost of renovations, up to a maximum of $40,000 over five years, for income suites.
  • Ontario: There are multiple secondary suite programs throughout Ontario, depending on your region. These loans provide $25,000 to $50,000 in funding and are forgivable assuming continuous ownership for 15 years.

While it is important to look online and do your research. Your best resource will be visiting local authorities at the “City of” to confirm that you completely understand the considerations before moving forward with implementing an income suite.

Economic Insights from Dr. Sherry Cooper – August 2023

Economic News Jag Dhamrait 1 Aug

The Bank of Canada remains staunch in its battle against inflation, utilizing its primary weapon—the overnight policy rate—which has escalated from 25 basis points to 500 bps since March 2022.

This historically low overnight rate was a direct consequence of the COVID-19 pandemic and implementing measures to cushion the economic impact of the lockdowns. These initiatives included reducing the policy rate from 1.75% to 0.25%, postponing mortgage payments, providing financial support to businesses for workforce maintenance, and compensating individuals for home quarantine. These measures, amongst others, reignited the economy upon the widespread availability of the vaccine.

The Canadian economy bounced back robustly once commercial activities resumed. Employment rates rocketed, and unemployment plummeted to all-time lows. However, the recovery faced a setback when Russia invaded Ukraine in February 2021, which caused supply constraints, and substantially increased energy and food. Despite the soaring inflation, central banks were initially hesitant to take action.

In hindsight, we now know the necessity for initiating interest rate hikes by mid-2021. Instead, this action was postponed until March 2022.Furthermore, the Bank of Canada and other significant central banks inundated the financial system with surplus liquidity by purchasing government bonds. This quantitative easing tactic made capital not only more affordable but also readily available, sparking an unprecedented boom in the housing market.

Many exploited the record-low rates of 2020 and 2021 by opting for variable-rate loans due to their lower costs. At its zenith, variable-rate mortgages (VRMs) accounted for 57% of all loan originations. These loans are due for renewal in 2025 and 2026. However, most of these loans have reached their trigger points and are negatively amortizing, barring substantial lump-sum payments by borrowers.

For those who chose adjustable-rate loans, monthly payments increased with every Bank of Canada rate hike. Delinquency rates, for the time being, remain impressively low within the prime space, though they are beginning to rise among alternative lenders.

After reaching a zenith of 8.1% in June 2022, inflation has slowed to 2.8% in June of this year. Regardless, the Bank of Canada continued its trend of interest rate hikes following a brief hiatus in its last two meetings, with speculation of another hike in September. The Bank has provided a buffer period for itself by projecting a return to the 2% target inflation rate by mid-2025—a considerably more extended period than initially anticipated.

The recent rate hikes and moderated expectations appear prudent considering the Bank’s preference for mitigating inflation over preventing a recession. It is improbable that the Bank of Canada will reduce interest rates this year.

Although the policy rate is projected to decrease in the first half of 2024, it is not expected to return to the pre-COVID level of 1.75%. Negative real interest rates (the actual market rate minus the 2% inflation rate) are unlikely to occur, barring a global economic meltdown.

Homeowner Insurance 101

Mortgage Tips Jag Dhamrait 21 Jul

Man protecting a toy house with his hands from dominoes falling on top of it from either end.
 

Not all insurance products are created equal. It is important to understand all the different insurance products to ensure you have proper coverage.

Below are the main insurance product options you will encounter with homeownership, and what they mean:

Default Insurance: This insurance is mandatory for homes where the buyer puts less than 20% down. In fact, default insurance is the reason that lenders accept lower down payments, such as 5% minimum, and actually helps these buyers access comparable interest rates typically offered with larger down payments. This insurance typically requires a premium, which is based on the loan-to-value ratio (mortgage loan amount divided by the purchase price). This premium can be paid in a single lump sum, or it can be added to your mortgage and included in your monthly payments.

Home (Property & Fire) Insurance: Next, we have another mandatory insurance option, property and fire coverage (or, home insurance, as most people know it by). This MUST be in place before you close the mortgage! It is especially important to note that not all homes or properties are insurable, so you will want to review this sooner rather than later. Keep in mind, with this coverage you may not have protection in the event of a flood or earthquake. You may need to purchase additional coverage to be protected from a natural disaster, depending on your location.

Title Insurance: When it comes to lenders, this insurance is mandatory with every single lender in Canada requiring you to purchase title insurance on their behalf. In addition, you have the option of purchasing this for yourself as a homeowner. The benefit of title insurance is that it can protect you from existing liens on the property’s title, but the most common benefit is protection against title fraud. Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him or herself – without your knowledge. Similar to default insurance, title insurance is charged as a one-time fee or a premium with the cost based on the value of your property.

Strata Insurance: When it comes to a stratum, their insurance covers the building itself – meaning in the event of an incident (fire, flood, etc.) the building can be re-established. This however only covers common areas; it does not cover the contents of YOUR particular unit, which requires a homeowner’s insurance policy. Personal insurance can also help with the strata deductible. For example, in the event of a flood that originates from a unit, it will require fixes to the unit itself (under your personal policy) plus the building (covered by the strata policy). Depending on the type of claim or damage, owners are often relocated to a hotel while the unit is being repaired and the personal insurance would also cover being displaced.

To ensure that you remain up-to-date with your strata insurance policies, it is vital that homeowners living within a stratum to check with management for a copy of the most recent insurance policy. Always take your strata and individual policy to an insurance agent to ensure you are aware of your coverage and that your individual homeowner’s policy is working in your favor. Investment property owners especially need to check their existing deductible against the updated deductible and insurance policies to avoid any future issues.

Mortgage Protection Plan: This coverage is optional, but any mortgage professional will tell you is extremely important. The purpose of the mortgage protection plan is to protect you, and your family, should something happen. It acts as a disability and a life insurance policy in regards to your mortgage. Typically, when you get approval for a mortgage, it is based on family income. If one of the partners in the mortgage is no longer able to contribute due to disability or death, a mortgage protection plan gives you protection for your mortgage payments.

If you have any questions about mortgage insurance or what are the best options for you, please do not hesitate to reach out to me at 647-883-7790 or by email at jag@dlcchoice.ca!

I would be happy to take a look at your existing plan and discuss your needs to help you find the perfect coverage to suit you and your family.

Appraisal Tips for Success

Mortgage Tips Jag Dhamrait 14 Jul

A home appraiser standing in front of a home
 

Before banks or lending institutions can consider loaning money for a property, they need to know the current market value of that property.

The job of an appraiser is to check the general condition of your home and determine a comparable market value based on other homes in your area. This is required for any buy or sell situation.

To help make the appraisal as smooth as possible and ensure you are getting top market value, check out the tips below:

  1. Clean Up: The appraiser is basing the value of your property on how good it looks. A good rule of thumb is to treat the appraisal like an open house! Stage it as you would a home for sale, clean and declutter every room, vacuum, and scrub – even consider adding a fresh coat of paint – to ensure your home is as presentable and appealing as possible. Where applicable remove personal stigma items such as alcohol or drug paraphernalia, any controversial pictures or flags, etc.
  2. Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending some time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a world of difference. Cut grass, water plants, maybe add flowers or hanging baskets to make things feel inviting and stage the yard with some lawn furniture to make it look like its own space.
  3. Visibility: The appraiser must be able to see every room of the home, no exceptions. YES, ever singly room including outbuildings, garage, closets, basement… Refusal to allow an appraiser to see any room can cause issues and potentially kill your deal. If there are any issues with any spaces of your home, be sure to take care of them in advance to allow the appraiser full access. NOTE: If there are tenants in your home, ensure you give them appropriate amount of notice for access. YES, every single room, outbuilding, closet, garage needs access. Otherwise, the appraiser will have to return at added expense to you.
  4. Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical to new floors, new appliances, etc. This way they have a reference as to what has been updated and how recent or professional that work was done. Knowing the age of the roof and HVAC items like water tank is important. Also, ensure the breaker box is MIN 100amps as most lenders cannot finance a home with amps under 100; older homes from the 1930 area are generally only 60amps. The same goes for knob and tube versus breaker set-ups. Upgrading is important and will add value.
  5. Be Prudent About Upgrades: While the bathroom and kitchen are popular areas, they are not necessarily the be-all-end-all for getting a higher home value. These renovations can be quite costly so it is a good idea to be prudent about how you spend your money and instead, focus on easy changes such as new paint, new light fixtures or plumbing and updated flooring to avoid breaking the bank while still having your home look fresh. Removing clutter, adding a new coat of paint and doing a deep clean will help make these spaces shine.
  6. Know Your Neighbourhood: You already know where you live better than the appraiser. Taking a look at similar homes in your neighbourhood and noting what they sold for will give you a ballpark. If your appraisal comes in low, you will be prepared to discuss with the appraiser the examples from your area and why you believe you property is worth more. In addition, keep in mind that appraisal values are based on recent sales data; if there have been zero sales in the area recently and time allows it, hold off on getting an appraisal done until some sales have been evident to ensure you’re getting the most value.
  7. Be Polite: The appraiser is there to get in and get out so let them have the run of the house while they are there. Do not follow them around and avoid asking them too many questions or making too many comments and simply be prepared should they have questions. Once they have completed the review of your home, that is a good time to bring up any comments you might have. Remember, the actual onsite inspection usually is only 15 minutes through the house but typically, the bulk of work for appraisals is at the desk, reviewing sales and other forms of research to create the appraisal report.
  8. Get a Copy of the Report: Even though the consumer generally pays for the report, it typically belongs to your mortgage professional who ordered it – and it is addressed for a single lender. If the lender is changed after the appraisal, a new one will need to be done up for the new lender. The consumer is NOT allowed to get a copy of the actual report unless the actually appraiser consents to it; this is to avoid any alterations to the information. However, don’t be shy! Ask me to review the report with you!
  9. Know The Costs: Every appraiser charges differently. If the lender allows for ordering appraisals direct, then I can shop around and fetch you the best price.

Don’t forget to contact me at 647-883-7790 or at jag@dlcchoice.ca if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future!

If you are interested in completing a mortgage application, click here.

Economic Insights from Dr. Sherry Cooper – July 2023

Economic News Jag Dhamrait 4 Jul

 

The biggest surprise recently has been the unexpected interest rate hike by the Bank of Canada. While the April inflation headline did tick up, and Q1 GDP data came in at a stronger-than-expected 3.2%, the April labour force data showed some easing in the jobs market.

The ratio of unemployment-to-job vacancies is now rising. Rather than signalling a rate hike before the announcement on June 7, the Bank chose to pre-empt any additional economic indicators.

Ironically, the May jobs data, released later that week, showed a rise in the unemployment rate to 5.2%, the first increase since before rate hikes began in March of last year. The Bank of Canada was particularly disturbed by the resurgence in home sales and prices in April. They argued that interest rates needed to be higher if the most interest-sensitive of all spending was rising.

That move by the central bank spooked the housing market, causing many to question their decisions to purchase. Expectations of any declines in the overnight policy rate this year vanished, and markets now expect at least one more hike this year.

Consumer spending does remain robust, as evidenced by the solid retail sales data for April. Moreover, many households have turned to credit cards to finance their spending—bolstered by inflation—and delinquency rates have risen.

Wage inflation remains strong, core inflation ticked up in April, and food inflation, though down from double-digit levels, is still far higher than a 2% inflation target would warrant.

The bank watchdog, OSFI, warned that the rising level of remaining amortizations of variable rate mortgages is a warning sign of continued risk for households that went into VRMs in droves when interest rates plunged in the first two years of the pandemic. New originations over that period were at rock-bottom rates, and variable mortgage rates were far below fixed. The situation has reversed today, and 3-to-4-year fixed mortgages dominate new mortgage originations.

Many VRM borrowers have hit their trigger points, where their monthly payments are no longer covering their interest costs—hence the negative amortizations of these loans at some Big Six Banks. OSFI is warning banks to address this immediately as renewals will mean at least a 30% rise in monthly payments if mortgage terms revert to 25- or even 30 years. OSFI has also increased the mandatory level of Tier One common equity relative to risk-weighted assets by 50 basis points. Currently, all the large Canadian banks fulfill this requirement.

Another significant milestone last month dramatically impacted the Canadian housing market. International migration to Canada spiked in 2022, taking population growth to 2.7%, the highest in the developed world and the strongest since the top of the Baby Boom in 1957. As of mid-June, Statistics Canada announced that the population is 40 million. The housing shortage is mounting, and housing starts are falling. Despite higher interest rates, demand for housing for rent or purchase has never been more robust.

While the federal government announced last year that they want to double housing construction to improve affordability over the next decade, Trudeau’s goal appears unachievable. This will continue to put upward pressure on rents and home prices over the longer term.

10 Money Saving Tips!

Financial Tips Jag Dhamrait 10 Jun

a pink piggy bank with change all around.

When it comes to saving money, there are a lot of little things you can do that add up to make a big difference!

Here are 10 of my favourite money-saving tips to help get you started today:

  1. Automatic Savings are one of the most effective ways to save because you can’t spend what you can’t access! Instruct your employer to transfer a certain amount from your paycheck each pay period into an RRSP or savings account (or both) or set up automatic transfers in your banking account to coincide with your payday.
  2. Consolidating Debt will result in a single monthly payment and lower interest costs! Many people don’t realize just how much money they are wasting on interest each month, especially if you have multiple loans or credit cards. Consolidating debt can help you gain control and maximize spend on the principal amounts to pay off loans faster.
  3. Budget with Cash if you have trouble with overspending or find it too easy to use your card. After your bills are paid, take out the remaining cash (spending money) and only use that. Once the cash is gone, you’re out of money until next payday! Having physical cash in hand can also help you think twice when making purchases.
  4. Buying in Bulk is a great way to save a bit here and a bit there when doing your regular grocery shop or purchasing other items. Know you’ll need more? Stock up at once for bulk savings, which will help you in the long run!
  5. Before Buying there are two things you should always do. The first is to wait at least 24 hours and the second is to shop around! If you still want to buy something the next day, make sure you get the best price available!
  6. Plan Your Meals. Most of us don’t have time to make breakfast (let alone lunch!) before we fly out the door for work. But what if I told you that getting up an hour earlier could save you over $100 a week!? Just think about how much you spend going out for breakfast AND lunch each day? Groceries are a lot cheaper and you can even prep a few days worth of meals on Sunday while you get ready for the week.
  7. Think in Hours versus Dollars every time you are looking to make a purchase, especially large ones to help you understand the TIME value of money. A new $24 Blu-Ray = 1 hour of work. A brand-new mattress = 41.67 hours of work. Understanding the time that went into earning money for a purchase can help with reconsidering frivolous items, or encourage you to look for the best deal on necessary products.
  8. Utility Savings can help you save each month! Don’t blast your A/C with all the doors in your house open, don’t pump the heat without sealing cracks and consider things like installing water-saving toilets and running cold-water wash cycles to save energy (and money!) every day.
  9. Master DIY – While sometimes you can spend $120 to make a $20 item yourself, there are some things that do benefit from DIY, such installing dimmer switches, that can help save you money in the long run.
  10. Save Windfalls and Tax Refunds for a rainy day. A good rule of thumb is to put 50% of bonuses, tax refunds or other windfalls into your savings account and put the rest against loans owing. While you might want to go on a shopping spree or plan a vacation, paying off your debt NOW will free you up in the future.

Economic Insights from Dr. Sherry Cooper – June 2023

Economic News Jag Dhamrait 1 Jun

Image of Dr. Sherry Cooper from Dominion Lending Centres
 

Once again, the Canadian economy is running hotter than expected by the Bank of Canada. The economy continues to exhibit excess demand conditions. In particular, labour markets are very tight, the unemployment rate is near a record low, and wages are rising by more than 5%.

Consumer spending is still strong, and the housing market has bounced considerably. Home sales were up 11% in April, prices are rising again in many regions, especially the GTA and GVA, and new listings are so slim that it is now a sellers’ market. This should bring some potential sellers off the sidelines in May and June. However, demand is likely to remain well more than supply, given the influx of many immigrants and the constraints on the construction of new housing.

The April inflation data was stronger than expected at 4.4%, indicating that the mid-year forecast of 3% might well be overly optimistic. Some are already calling for a rate hike by the central bank this month or in July. While that might be premature, the Bank will consider at least one more increase in the overnight policy rate if the May data is robust.

This is at a time when homeowners are already feeling the pinch of the rapid rise in interest rates over the past year. Homeowners who bought in 2020 and 2022 and financed with variable-rate mortgages are already under pressure. And those with fixed-rate mortgages will refinance at substantially higher interest rates.

Already, many households have monthly payments that do not cover the interest on their loans, let alone the principal. Many lenders are allowing extended amortization. CMHC announced they would not extend the amortization of newly insured mortgages beyond 25 years.

One thing is sure. Do not expect monetary policy easing any time this year.

How to Pay Off Your Mortgage Faster

Mortgage Tips Jag Dhamrait 10 May

Male and female couple at home on their laptop reading mortgage tips
 

When it comes to homeownership, many of us dream of the day we will be mortgage-free.

While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage quicker!

  1. Review Your Payment Schedule: Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster, such as moving to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.
  2. Increase Your Mortgage Payments*: This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privledge that allows you to increase your payment amount without penalty. This payment increase allowance can range from 10% to 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without you feeling like you are having to change your spending habits.
  3. Make Extra Payments*: For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or an inheritance.
  4. Negotiate a Better Rate: Depending on whether you have a variable or a fixed mortgage, you may want to consider looking into getting a better rate to reduce your overall mortgage payments and money to interest. This is ideally done when your mortgage term is up for renewal and with rates starting to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR moving to a new lender who is offering a lower rate (known as a switch and transfer).
  5. Refinance to a Shorter Amortization Period: Lastly, consider the term of your mortgage. If you’re mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.

*These options are only available for some mortgage products. Check your mortgage package or reach out to me to ensure these options are available to you and avoid any potential penalties.

If you’re looking to pay your mortgage off quicker, don’t hesitate to reach out to me at 647-883-7790 or by email at jag@dlcchoice.ca! I can help review the above options and assist in choosing the most effective course of action for your situation.
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