Helping you get a headstart on homeownership!

With the challenges in the mortgage world over the last few years I’ve had a few people ask if I am still enjoying my work. Fair question as there are many days I’ve felt like I’m fighting an uphill battle. The truth of the matter is that I absolutely love what I do. I had a call with a young couple last week that reminded me why I enjoy helping people with their mortgage financing. I helped this couple buy their first home about nine years ago, then helped them again at their renewal. They booked an appointment to chat about their future plans and asked how best to set themselves up for success. After they brought me up to date with the renovations they’ve done to their home and the upcoming expansion of their young family, we spent an hour exploring different options and talking about which route would likely be the best for them. In their case we have decided to wait until their renewal next summer before we make any changes. I started my mortgage career with one of the big banks. We were always busy and tightly scheduled so my meetings were all business. I didn’t have much opportunity to get to know my clients. My schedule did not allow for much social chit chat. Interestingly these conversations are what I enjoy most about my work. Being able to spend time with my clients building a plan and creating a strategy around next steps is very rewarding. I often have calls from clients who are almost apologetic because they aren’t ready to buy right away and are concerned about wasting my time. I love these calls. Having the time to dive in and make sure clients are well organized to buy at some point down the road means we can outline concrete steps to help them get set up for success. If you are starting to think about purchasing a home down the road I encourage you to connect with a mortgage professional sooner rather than later. Taking some time to learn about your options and the requirements for obtaining mortgage approval can help save much stress down the road and give you a clear goal to work towards.

Mortgage rule changes seem to be coming at us fast and furious. This isn’t surprising given we are in an election year. Several weeks ago I wrote about the change to the ceiling for the purchase price of insured homes and the extended amortization that will be available. On October 8, 2024 the government announced a new program that will come into effect January 15, 2025. The new program will enable clients who already own their homes to refinance up to 90 per cent of the value of the home to use the available equity to create a secondary suite. Current rules only allow refinances up to 80 per cent of the value of the home, regardless of the purpose of the refinance. The parameters of this new program, taken directly from the CMHC website ( Mortgage Insurance Rule Changes to Enable Homeowners to Add Secondary Suites - Canada.ca ) are as follows: This measure will apply to all borrowers seeking to access mortgage insurance in Canada to add more units (secondary suites). These borrowers must satisfy the following requirements: Already own their properties; The borrower or a close relative are occupying one of the current units; Intend to construct additional units; and, The additional unit(s) must not be used as a short-term rental. Refinancing: Insured refinancing will be allowed for the purpose of building additional unit(s). Legal units: The new units must be fully self-contained units (e.g., basement suites with separate entrances, laneway homes) and meet municipal zoning requirements. Number of units: Maximum of four dwelling units including the existing unit. Maximum Property Value Limit: The “as improved” value of the eligible residential property against which the loan is secured must be less than $2 million. Maximum Loan-to-Value limit: Up to 90 per cent of the property value, including the value added by the secondary suite(s), in combination with any other outstanding loans secured by the property. Maximum amortization: 30 years. Additional financing must not exceed the project costs. We are still waiting on clarification from lenders as to their specific guidelines around this program so I will provide more information as it becomes available. With respect to what this means in dollars and cents, using a home valued at $800,000 we will now be able to refinance up to $720,000 for the purpose of adding an additional legal suite. Under previous guidelines we would only be able to refinance up to $640,000 so in this example clients will be able to access $80,000 more of the equity in their home. It will be interesting to see what the uptake is for this program. One particular group of clients I see this benefitting is clients who have only been in their home a few years that have seen a moderate growth in their equity after only having put down the minimum down payment when they purchased their home. With carrying a higher mortgage and the increased cost of living overall these clients may really benefit from access to funds to add a secondary suite to their home.

When I am working with clients on their mortgage approvals there are several decisions they need to make. The questions differ a bit based on whether we are working on a purchase, a refinance, or a straight renewal. We talk about amortization, term, and the specific mortgage product. These questions differ a bit based on what we are doing and the clients’ specific situation. Amortization refers to the total length of time required to pay your mortgage in full. Term refers to the length of time you choose to lock into a specific rate. Some of the decisions can be scripted if you are purchasing with less than twenty per cent down and your mortgage requires default insurance. These rules have recently changed (again situation specific) but length of term is up to the individual client. Historically many people choose five year terms because lenders offer lower rates for this term. Over the last two years I’ve had far more people opt to pay a slightly higher interest rate and choose a three year term, gambling that rates will be lower then. Over the last year specifically as home prices have risen at the same time as the cost of living has escalated I’ve had different conversations with clients about the amortization they choose. With the recent announcement of changes coming to maximum amortizations for new builds and first time home buyers it will be interesting to see how these discussions change over the next few months. For clients who were working on refinances or purchases with over twenty per cent down we had the option of extending to a thirty year amortization. Some clients are resistant to stretching out the length of their mortgage and for solid reasons. Our parents’ generation was all about getting their mortgages paid off as soon as possible. This is obviously the choice that made the most sense and was more achievable for them and has been ingrained in many of us. Our current reality is that home prices and cost of living have skyrocketed while wages have not kept pace. I’ve heard the argument that our parents were not enjoying a life style that included $6 coffees every day. Fair enough. However, I have clients that live very frugally and are still struggling. Life happens. Divorce or separation happen. Devastating accidents or illness happen. Childcare bills escalate. Jobs are lost. Stuff happens. Particularly when I am working with clients that are consolidating or buying at a significantly higher price point we have a thorough discussion comparing the difference in monthly payments for (usually) a twenty-five amortization versus a thirty year amortization. Signing for a shorter amortization makes better sense for your long-term financial plan. However, if the higher payment causes you stress month after month and you end up in the same boat again a few years down the road the long term benefit is not there. Every lender offers several ways to make extra payments against the principal of your mortgage. Interest rates will likely be different every time you renew your mortgage. Your income and bills change over time. I will always be an advocate for paying your mortgage off sooner but many of my conversations with clients are pretty raw about the reality of making your payments every month. The positive news is that rates have been trending down over the last month which will help provide a bit of relief. The better news is that by making thoughtful decisions around your choices for amortization and term you may help reduce your overall stress level.

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One of the questions I am most often asked is “should I take a fixed or a variable rate”? My answer to this question is different for each client. My answer to this question may change based on the interest rate environment. The last few years have been sobering to say the least. We were riding the high of historically low fixed interest rates and beginning to see them as the norm. Where interest rates are sitting now (mid four to five per cent) is closer to the average interest rate Canadians have paid over the last twenty years. This week I attended a learning event and the economist that presented to the group spoke the words we have all been waiting to hear. He did qualify his thoughts with the comment that no one has a crystal ball and we’ve all seen what can happen with Bank of Canada monetary policy. What he did say is that he feels we will see prime rate drop 1.25 to 1.5 per cent over the next year. What does that mean in dollars and cents? As an example, if your mortgage is $500,000 and your variable rate mortgage is priced at prime less 1.05 per cent, if prime drops one per cent this means your payment will be $283.28 per month lower. This math applies if your variable rate mortgage has a payment that changes every month. If your variable mortgage has a static payment (payment that does not change to follow changes in prime) your payment stays the same but more money goes towards the principal instead of interest. So it seems like variable is the obvious choice if you are finalizing your mortgage right now. But it may not be. Circling back to where I said each client has a unique set of circumstances, variable may not be the best option. Fixed rates for insured mortgages are hovering around 4.59 per cent (some lenders lower, some higher). For clients that are pushing to qualify for the maximum purchase price they can the one per cent difference between fixed and variable rates absolutely affects their borrowing power. Lets say we are working with a family earning $120,000 annually. When we calculate their maximum purchase price using the minimum down payment and assuming $3,000 a year for property taxes here is the difference: Using a fixed rate of 4.59 per cent we are looking at a purchase price of $525,000 Using a variable rate of prime less .95 per cent (5.49 per cent) we are looking at $475,000 Another consideration before choosing fixed or variable is individual risk tolerance. Do you have room in your budget if rates trend up instead of down that you will not be stressing if prime does increase? Exit strategy is yet another thing to consider. With variable mortgages the maximum penalty you will pay if you pay your mortgage in full early is three months’ interest whereas with a fixed rate mortgage you will pay the greater of three months’ interest or your lender’s interest rate differential calculation. There can be quite a spread between the two. If you are planning to pay off your mortgage in the next few years variable may be the route to go strictly for that reason. And if you opt to choose a variable rate mortgage then decide you are not comfortable with potential changes, or if a few years in the fixed rates are far more attractive you can convert from a variable to a fixed rate mortgage. Win-win. Deciding whether to go fixed or variable is absolutely an individual decision for all of the reasons above. When the economist was asked whether he would choose a fixed or a variable mortgage himself right now there was no hesitation whatsoever. “Variable all day long” was his answer.  It will be interesting to see where rates are a year from now.