Economic Insights from Dr. Sherry Cooper – May 2023

It has been just over a year since the Bank of Canada started hiking interest rates. While the economy has remained surprisingly resilient, the housing market has weakened sharply.

The Bank has remained on the sidelines for the past two Governing Council announcement dates, and home sales have edged upward in very tight markets.

There is a rapidly growing housing shortage. As population growth remains strong and immigration targets rise, new home construction cannot keep up with demand. Demand for rental properties is surging, and rents have risen sharply for new tenants.

Another factor that could slow the economy this year is the rise in monthly housing payments. For those with adjustable-rate mortgages, monthly payments have already risen sharply. Most of those with variable-rate loans with a fixed monthly cost has hit their trigger point, and the amount no longer covers any of the principle. Most banks have allowed negative amortization but will require borrowers to return to original 20-year amortizations upon renewal. This could be quite a shock to consumers over the next few years.

The Office for the Superintendent of Financial Institutions is very concerned about the risk associated with these loans. We will be hearing soon from OSFI regarding more restrictions on mortgage lending.

The great news is that inflation is falling quickly, down to only 4.3% in March. The central bank expects inflation to fall to about 3% by the end of this year. So, barring unforeseen inflation pressures, the Bank could pause for the rest of this year. Rate cuts, however, are unlikely until 2024.

The Canadian economy will likely slow as the year progresses. The most likely scenario is a mild recession later this year. As we move into 2024, interest rates will slowly decrease to about 2.5% for the overnight policy rate. The economy will rebound, and the Bank of Canada expects to hit its 2% target on inflation. That might be hard to achieve, given rapidly rising wages and continued inflation expectations.

Choosing Your Ideal Payment Frequency

Mortgage Tips Jag Dhamrait 26 Apr

Your payment schedule is the frequency that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly or even weekly payments.

Below is a quick overview of what each of these payment frequencies mean:

Monthly Payments: A monthly payment is simply a single large payment, paid once per month; this is the default that sets your amortization. A 25-year mortgage, paid monthly, will take 25 years to pay off but includes the added burden of one larger payment coming from one employment pay period. With this payment frequency, you make 12 payments per year.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a monthly payment of $4,156.19. No term savings; no amortization savings.

Bi-Weekly Payments: A bi-weekly mortgage payment is a total of 26 payments per year, calculated by multiplying your monthly mortgage payment by 12 months and divided by the 26 pay periods.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a bi-weekly payment of $1,915.98 with term savings of $177 and total amortization savings of $1,769.

Accelerated Bi-Weekly Payments: An accelerated bi-weekly mortgage payment is also 26 payments per year, but the payment amount is higher than a regular bi-weekly payment frequency. Opting for an accelerated bi-weekly payment will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. This frequency also allows the mortgage payment to be split up into smaller payments vs a single, larger payment per month. This is especially ideal for households who get paid every two weeks as the reduction in cash flow is more on track with incoming income.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have accelerated bi-weekly payments of $2,078.10 with term savings of $1,217 and total amortization savings of $145,184. Plus, you would save 4 years, 12 months of payments by reducing scheduled amortization.

Weekly Payments: Similar to monthly payments, your weekly mortgage payment frequency is calculated by multiplying your monthly mortgage payment by 12 months and dividing by 52 weeks in a year. In this case, you would make 52 payments a year on your mortgage.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have weekly payments of $957.50 with term savings of $253 and total amortization savings of $2,526. You can move to accelerated weekly payments to save even more!

Prepayment Privileges: In addition to fine-tuning your payment schedule, most mortgage products include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This can help reduce your amortization period (the length of your mortgage).

By exercising your prepayment privileges, you can take time off your mortgage. For instance:

Extra $50 bi-weekly is $32,883 total savings and an additional 1 year, 2 months time saved
Extra $100 bi-weekly is $62,100 in total savings and an additional 2 years, 3 months time saved on your mortgage
Extra $200 bi-weekly is $111,850 in total savings and an additional 4 years, 1 month of time saved on your mortgage.

Understanding the different payment frequencies can be key in managing your monthly cash flow. If you’re struggling to meet a large payment, breaking it up can be effective; while the same can be true of the opposite. Individuals struggling to make a weekly or bi-weekly payment, may benefit from one monthly sum where they have time to collect the funds.

Consider getting in touch with me today at: 647-883-7790 to determine what payment frequency is best for you OR you can download my app and calculate them for yourself!

Economic Insights from Dr. Sherry Cooper – April 2023

Mortgage Tips Jag Dhamrait 4 Apr

In March, the global economy was focused on systemic risk in the banking sector.

Following three bank failures in the U.S., markets were roiled again by the forced sale of Credit Suisse to UBS.

Interest rates have plummeted as demand for the haven of government bonds has increased sharply. Consequently, five-year fixed mortgage rates have fallen roughly 30 basis points as the Fed pondered its next move.

Inevitably, failed banks and fears of additional losses have led many financial institutions to tighten their provision of credit. Although interest rates have fallen worldwide, more cautious lending will slow economic activity, particularly in the U.S. and Europe, ground zero for bank failures.

For that reason, many expected the Fed to pause to assess the situation further. The Fed raised its overnight policy rate 25 bps to a range of 4.75% to 5.0%, now above the overnight rate in Canada.

Just over two weeks ago, Fed Chair Jerome Powell testified to Congress that inflation pressures warranted higher-than-expected interest rates. With the bank failures, the Fed suggests that the target level might be only one or two moves away. However, even with that, the U.S. central bank reasserted that interest rates determined by the Fed will not be reduced until next year.

Market-determined yields have fallen sharply, especially at the short end of the yield curve—increasing the inversion in the yield curve. An inverted yield curve portends a more aggressive economic slowdown, reflected in the fall in oil and gas prices.

Canada’s yield curve moved almost as much as in the U.S. Good news on the inflation front affirmed the Bank of Canada’s decision to pause. Consumer price inflation fell last month from 5.9% to 5.2%. The Bank will likely pause again at its next meeting in April.

Canadian bank stocks fell quite a bit, mirroring global trends. Our banks are in no danger of failing. Like the 2008 Financial Crisis, Canadian banks have proven to be very soundly regulated.

Lower mortgage rates are great news for the coming Spring season. While it won’t measure up to the 2021 boom, a rebound in sales and new listings will be great for the industry.

Spring Cleaning Tips

Home Tips Jag Dhamrait 2 Apr

As the sun starts coming back around, it is a great time to scrub those windows and deep clean your home!

Here are some tips for a successful Spring clean:

Create a Playlist: Everything is more fun with a great playlist! Not only is music great therapy but it can make the cleaning process go by quicker and make it more enjoyable.
Clean One Room at a Time: While we all like seeing our homes sparkly and fresh, it can sometimes be an overwhelming process to get to that point. To help minimize the stress, work one room at a time! Start with the smaller rooms, or those that need the least amount of cleaning, and work your way up to the larger, project rooms. Another option is to tackle one or two rooms each weekend for the month and by the time May comes, you’ll be ready!
Declutter as You Go: Spring cleaning isn’t just about shining up the brass on the door and dusting. It is just as important to declutter your space! Before you start cleaning the room, it is a good idea to pinpoint items that can be discarded, such as old magazines and papers, as well as to go through closets and cupboards for anything that you can donate (like that sweater you bought and never wore). This will clear up space for new clothing and items and will make you feel that much more accomplished!
Think Green: Spring cleaning allows us to start the season off on a fresh, clean note. Don’t muddy that up with harsh chemical cleaners. In today’s eco-friendly environment, there are many safe alternatives to regular cleaners. Vinegar is a great substitute in the bathroom or kitchen as well as combining vinegar, baking soda and water as a deep clean alternative. You can also opt for a steam cleaner to manage tile, hardwood floors, appliances and even outdoor areas as they only use hot water and vapor.
Work From Top to Bottom: Starting from the ceiling and working your way down just makes sense! This will force debris downward and save you having to re-clean your space. Dusting first will prevent a headache later too!
Don’t Forget The Fridge & Freezer: The best time to clean out your fridge and freezer is right before you do your grocery shop, so they will be at their most empty. Take everything out and dispose of anything that is past its expiration date and any almost-empty items you won’t use. Before you restock be sure to wipe down the interior of the fridge with disinfectant and a damp cloth. The same can be done for the freezer but you’ll have to defrost it first!
Clean Air Reduces Allergies: Replacing furnace and HVAC filters is one of the most overlooked parts of Spring cleaning. Going as far as replacing your standard filter with a more robust one with a higher rating will help keep you even healthier this year as they catch smaller particles to ensure your home is void of allergen triggers, chemicals and even odors.

Economic Insights from Dr. Sherry Cooper – February 2023

Economic News Jag Dhamrait 10 Feb

Image of Dr. Sheryl Cooper

Even bond traders and economists are stumped about what the next few years will bring. The repercussions of a global economy that stopped suddenly, shed millions of jobs and initially contracted 30% only to rebound in a flash on the back of free-money government programs are still being felt.

Predicting where the economy goes from here risks taking comfort in spurious accuracy. We’ve never experienced a similar set of circumstances. With hindsight, we now see that policymakers have made severe errors—taking interest rates to unprecedented lows and flooding the system with massive fiscal stimulus has precipitated global inflation; home prices in Canada surged 50% in the three years following the pandemic; variable-rate mortgages were much cheaper than fixed-rate loans as the central bank cut overnight rates to 25 basis points.

The volume of mortgage originations surged, with a record proportion, in VRMs. Now many borrowers have hit their trigger points. The banks allow the amortization of rising interest payments owed, easing the near-term pressure on borrowers. Those with adjustable-rate loans have seen their monthly payments rise seven consecutive times, with likely another rate hike next week. This, in addition to inflation, has reduced household purchasing power. Many are hoping that interest rates fall to pre-COVID levels soon.

Initially, the central banks argued that inflation was transitory. Many are betting that the old forces that worked to keep inflation under control for years would reassert themselves. The federal banking regulator is now proposing additional restrictions on mortgage lending to highly indebted households.

We hope for the best but must prepare for a slow return to 2% inflation. Home prices have fallen but are still up more than 35% from pre-pandemic levels. Labour markets are still robust, but a slowdown is inevitable. This will be a transition year with little likelihood of interest rate cuts. The Bank of Canada will pause soon to see if the lagged effects of higher rates further reduce inflation. Few believe the 2% target will be hit this year or next. The benchmark policy rate, now at 4.25% will not return to its pre-COVID level of 1.75%.

What to Know about Second Mortgages

Mortgage Tips Jag Dhamrait 8 Feb

Woman holding a model home and a pen in her hands

A second mortgage is a mortgage that is taken out against a property that already has a home loan (mortgage) on it. Generally, people take out second mortgages to satisfy short-term cash or liquidity requirements, have an investment opportunity or to pay off higher-interest debts (such as credit cards and student loans) that a second mortgage might offer.

If you are considering a second mortgage for any reason, here are a few key points to keep in mind:

Second Mortgages and Home Equity: Your second mortgage and what you can qualify for hinges on the equity that you have built up in your home. Second mortgages typically allow you to access up to a max of 80% of the home value; very few lenders will consider a second mortgage over 80% of the home value.

For example, if you are seeking an 80% Loan-to-Value loan (“LTV”):

House Value $850,000
80% LTV (maximum mortgage amount) $680,000
less: First Mortgage ($550,000)
Amount Available Through Second Mortgage $130,000

Second Mortgages and Interest Rates: When it comes to a second mortgage, these are typically higher risk loans for lenders. As a result, most second mortgages will have a higher interest rate than a typical home loan. There is also the option of working with alternative and private lenders depending on your situation and financial standing. Keep in mind, typically lenders who offer a second mortgage are private lender MICs (Mortgage Investment Companies) – in addition to some trust companies and credit unions. For major banking institutions, you would need to hold your first mortgage with them in order to be considered for a second mortgage.

Second Mortgage Payments: One advantage when it comes to a second mortgage is that they have attractive payment factors. For instance, you can opt for interest-only payments, or you can select to pay the interest plus the principal loan amount. Work with your mortgage broker to discuss options and what would work best for your situation.

Second Mortgage Additional Fees: A second mortgage often comes with additional fees that you should be aware of before going into the transaction. These fees can vary widely but often are a percentage of the mortgage. Other fees to consider include appraisal fees, legal fees to set up the second mortgage and any lender or broker administration fees (particularly with alternative or private lenders).

Second mortgages are a great option for many homeowners and, in some cases, may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, don’t hesitate to reach out to me today.

Understanding Reverse Mortgages

Mortgage Tips Jag Dhamrait 18 Jan

senior couple hugging and laughing at home

Did you know? Reverse mortgages are continuing to gain popularity for older homeowners in Canada! For many Canadians who are looking to retire but currently facing high debt load and ongoing expenses, as well as reduced income, it can be a challenge. This is where the reverse mortgage can help!

This product is also a great option for anyone wanting to assist their elderly parents. Instead of selling the home and moving them to a care home or assisted living, a reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for in-home and ongoing care costs.

The goal of the reverse mortgage is to allow Canadians over 55 years to tap into the equity of their home, which assists in comfortable financial living. With a reverse mortgage, however, borrowers are not required to make regular payments. This allows them a considerable inflow of cash, without having to pay off what they owe! The only time payment will be required is when you sell or move out of your home.

Reverse mortgages are designed to allow you to access up to 55% of your home’s equity, thereby allowing you to convert your home equity into cash. This can be done as either a one-time lump sum payment, or you can choose to structure it to receive monthly payouts.

Beyond being able to cash in on your home’s equity, a reverse mortgage also has:

No monthly mortgage payments
No income or credit qualifications
Very low / little paperwork required
Title and ownership of property remain in homeowner’s name
Flexible options to break term early if needed
Penalty waived in the event of death or care home placement to preserve the estate

If you are struggling financially, or want to have a little extra equity on hand to pay off existing debts, gift money to family, expand your quality of life or simply increase your investment portfolio, contact me today! I would be happy to discuss the possibility of a reverse mortgage in further detail with you and ensure it is the best product to suit your needs.

What to Know About Title Insurance

Mortgage Tips Jag Dhamrait 15 Jan

Image of a woman reading about title insurance

There are many insurance products when it comes to your home, but not all are created equal. One such insurance policy that potential homeowners may encounter is known as “title insurance”.

This particular insurance is designed to protect residential or commercial property owners and their lenders against losses relating to the property’s title or ownership. In fact, it is so important to lenders that every single lender in Canada requires you to purchase title insurance on their behalf. It is not a requirement to have coverage for yourself, but that doesn’t mean you should dismiss it outright.

While title insurance can protect you from existing liens on the property’s title, 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. The fraudster then gets a mortgage on your home and disappears with the money. As the old adage goes: “It’s better to be safe than sorry” and the same goes for insurance.

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. This insurance typically runs around $300 for the lender and $150 for the individual. It can be purchased through your lawyer or title insurance company, such as First Canadian Title (FCT).

If you are wanting to know more about title insurance, or confirm that you (and your home) are properly protected, don’t hesitate to reach out to me today for a mortgage review!

Post-Holiday Debt Consolidation

Mortgage Tips Jag Dhamrait 10 Jan

Couple sitting in kitchen looking at bills The holidays are a season of giving and often times, households can often find themselves carrying some extra debt as we enter the New Year.

If you happen to be someone currently struggling with some post-holiday debt, that’s okay! Whether you’ve accumulated multiple points of debt from credit cards or are dealing with other loans (such as car loans, personal loans, etc.), you are likely looking for a way to simplify your payments – and reduce them.

Rolling them into your mortgage could be the perfect solution. In fact, consolidating other forms of debt into your mortgage has multiple benefits, including:

Helping you pay off your loans over a longer period of time
Allowing for reduced interest rates when compared to a credit card
Being easier to track with one single payment per month
Reduce your total monthly outlay of debt repayments

If you’re still not sure if this is the right solution for you, here is an example… if you have $30,000 of credit card debt, you are probably paying approximately $600 per month and $500 per month of that is likely going directly to interest. If you let me help you to roll that debt into your home equity and monthly mortgage, your payment for this $30,000 portion would drop down around $175 per month, with interest charges closer to $140 per month. That is huge savings!

While debt consolidation through refinancing will increase your mortgage, the benefits can be well worth it when it comes to interest savings, time and stress. Keep in mind, you’ll need a minimum of 20 percent equity in your home to qualify for this adjustment.

If you are looking for a way to simplify (or get out of) debt, reach out to me today! I would be happy to take a look at your current mortgage and walk you through the debt consolidation process, or help you come up with an alternative option that may help suit your needs.

New to Canada Program: Getting a Mortgage When You’re New to Canada

Mortgage Tips Jag Dhamrait 28 Apr

Canada has seen a surge of international migration over the last few years. In 2019, we welcomed a total of 313,580 immigrants to the country! This is an increase of 40,000 individuals when compared to 2017 numbers.

According to planned immigration levels, it is estimated that Canada will receive 341,000 permanent residents in 2020. In 2021, we are expecting 351,000 and 361,000 in 2022. Federal Immigration Minister, Marco Mendicino, stated that by 2022, “the year’s new permanent residents in Canada will account for one per cent of the population”.

With all these new faces wanting to plant roots in this great country, we wanted to touch base on how new immigrants can qualify to be homeowners!

PERMANENT RESIDENTS

If you are already a Permanent Resident or have received confirmation of Permanent Resident Status, you are eligible for a typical mortgage with a 5% down payment – assuming you have good credit.

NOT YET PERMANENT RESIDENTS OR HAVE LIMITED CREDIT

For Permanent Residents with limited credit, or individuals who have not yet qualified for Permanent Residency, there are still options! In fact, there are several ‘New to Canada’ mortgage programs. These are offered by CMHC, Sagen and Canada Guaranty Mortgage Insurance, and cater to this group of homebuyers.

NEW TO CANADA PROGRAMS

To qualify for New to Canada programs, you must have immigrated or relocated to Canada within the last 60 months and have had three months minimum full-time employment in Canada.

Individuals looking for 90% credit, a letter of reference from a recognized financial institution. Or, you will be required to provide six (6) months of bank statements from a primary account.

If you are seeking credit of 90.01% to 95%, you will need to produce an international credit report (Equifax or Transunion) demonstrating a strong credit profile. Or you will need to provide two alternative sources of credit, which demonstrate timely payments for the past 12 months. The alternative sources must include rental payment history and another alternative. This could be hydro/utilities, telephone, cable, cell phone or auto insurance.

ALTERNATIVE LENDERS

Another option for New to Canada residents, depending on your residency status and credit history, are alternative lenders such as B-Lenders and MIC’s (Mortgage Investment Operation). If you do not qualify for the New to Canada programs, or a standard mortgage, I can help you navigate the alternative options!

New to Canada? Before submitting your mortgage application

Utilizing a mortgage professional like me will ensure you understand your options. I can also help determine the best program and mortgage choice for you. There are a few things you need to know when it comes to submitting an application – and getting approved – for your first mortgage in Canada:

SUPPORTING DOCUMENTS!

If you’re new to the country but have weak credit, supporting documents will be needed. These may include: proof of income, 12 months worth of rental payments or letter from landlord, documented savings, bank statements and/or letter of reference from recognized financial institution. These documents all paint the picture of whether you are a safe investment for a lender.

BUILD YOUR CREDIT RATING!

This is one of the most important aspects to getting a mortgage! Your credit rating determines your reliability as a borrower. In turn, this will determine your down payment rate. A great way to build your credit is by getting a credit card to use and pay off each month. Paying other bills such as utilities, cell phones and rent can also contribute to your credit score and reliability.

START SAVING!

One of the most expensive aspects of home ownership is the down payment, which is an upfront cost but is vital to securing your future. As mentioned, the down payment can either be 5% or 10% depending on your status. However, if the purchase price exceeds $500,000, the minimum down payment will be 5% for the first $500,000 and 10% of any amount over $500,000 – regardless of your residency status.

CHOOSE A MORTGAGE PROVIDER!

I can help you review your options and find the best mortgage product to suit your needs.

Buying a house is an exciting step for anyone, but especially for individuals who are new to the country. As daunting as it may seem, purchasing a home is completely possible with a little knowledge and preparation. If you are new to Canada and looking to get a mortgage, connect with me today for expert advice and options that best suit you!

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Jag Dhamrait, Reverse Mortgage Specialist

Mortgage Agent Level 2

Mortgage Tips