Rate Drops
Tracy Head • December 2, 2023
Usually when I write my column I seem to be sharing stories of what not to do with respect to your financing.
Today is a little different.
This week I have had the pleasure of working with a most lovely client. Her application is the cleanest and most straightforward file I have seen in several years.
We started her application and her home sold the next day. Several days later she found exactly the new home she was looking for. Everything proceeded according to plan.
The closing date on her purchase is about three months out because the home she’s buying is currently a rental so the tenants need adequate notice.
Part of our conversation as she was signing off her initial mortgage paperwork was around the choice of lenders. I sent her application to her current lender because she is happy with them and requested we use them again.
In other columns I’ve shared how not all lenders are created equal.
One of the reasons that I like this particular lender is that they will continue to reduce her rate should they drop their interest rates.
Lenders have different policies as to how they handle rate reductions.
For instance, one lender I work with will only allow one rate reduction and there are no backsies … meaning that if rates drop even further we need to be able to guess when the lowest rate they will offer between now and closing might be. If we ask too early we are stuck with a potentially higher rate than what is offered currently. If we wait too long and rates increase then we lose on a better rate.
Some lenders do a look-back at closing and automatically offer clients the lowest rate from when they approved the mortgage to when the mortgage finalizes.
Other lenders are open to multiple requests to reduce the rate.
Unless there is a compelling reason to use the lender that only allows one rate change, I work with other lenders that allow multiple rate changes.
I’m seeing fixed rates trending down right now and am cautiously optimistic we will see more of this in the spring.
If you are working on a purchase or have a renewal coming up, one of the questions to ask your mortgage person is around how your lender handles your rate should rates continue to trend down. This seems like a simple thing but working with the right lender (and mortgage person) may make quite a difference in your bottom line.
If there is one question I hear more than any other from Canadians looking to buy a home, it's this: "How much can I actually afford?" It's a great question, and frankly, it's one that deserves more attention than simply finding out the maximum mortgage amount a lender is willing to approve. While mortgage qualification guidelines provide a useful starting point, they don't always tell the whole story. The amount a lender says you can borrow and the amount you can comfortably afford are often two very different numbers. Let's start with what affects affordability. One of the biggest factors is the type and amount of income you earn. A salaried employee with a stable employment history will generally have a straightforward qualification process. However, self-employed individuals, commissioned salespeople, seasonal workers, and those with multiple income sources may qualify differently. Lenders carefully examine the stability and consistency of income when determining how much mortgage financing they are willing to provide. Consumer debt is another major factor. Credit card balances, lines of credit, car loans, personal loans, and other monthly obligations all reduce purchasing power. Every dollar committed to debt payments is a dollar that cannot be allocated toward a mortgage payment. It is not uncommon for borrowers to increase their purchasing power significantly simply by reducing or eliminating high monthly debt obligations before applying for a mortgage. The size of your down payment also plays an important role. A larger down payment reduces the amount you need to borrow and often improves your overall financial position. In some cases, a larger down payment can help borrowers qualify for homes that might otherwise be out of reach. It can also lower monthly payments and reduce the total amount of interest paid over the life of the mortgage. Of course, lenders use formulas and qualification ratios to determine affordability. These calculations consider mortgage payments, property taxes, heating costs, and other obligations. However, these formulas do not always account for the realities of everyday life. That's why I often encourage clients to think beyond what they can qualify for and focus on what they can comfortably live with. A mortgage should support your life, not control it. Many Canadians are surprised to discover that once they factor in groceries, fuel, insurance, utilities, childcare, activities for children, pet expenses, travel plans, and rising day-to-day living costs, there is less room in the monthly budget than they initially expected. Homeownership also comes with unexpected expenses. Furnaces fail. Appliances break down. Roofs need repairs. Vehicles require maintenance. Life happens. If your mortgage payment consumes every available dollar each month, even a relatively small unexpected expense can create financial stress. For this reason, I often recommend that homebuyers leave some breathing room in their budget whenever possible. Choosing a home that costs slightly less than the maximum amount you qualify for can provide flexibility and peace of mind. It allows you to continue saving for retirement, build an emergency fund, take a family vacation, or simply sleep better at night knowing you have a financial cushion. Before making an offer on a home, I encourage buyers to look at the complete monthly picture. Consider not only the mortgage payment but also property taxes, home insurance, utilities, maintenance costs, and any strata or condominium fees. Then compare those costs against your current spending habits and financial goals. The goal is not simply to buy a home. The goal is to own a home comfortably while maintaining the lifestyle and financial security that matter to you and your family. The most successful homeowners are often not the ones who borrow the most money. They're the ones who make thoughtful decisions, leave room in their budget for life's surprises, and build long-term financial stability along the way. So the next time you ask, "How much can I actually afford?" remember that the answer isn't just about what the bank will approve. It's about what allows you to enjoy your home while still enjoying your life.
One of the most common misconceptions I hear from clients who are self-employed is that getting a mortgage is either impossible or requires years of perfect financial statements. Fortunately, that's simply not true. Canada's workforce has changed dramatically over the past decade. More people than ever are running their own businesses, working as contractors, driving revenue through side hustles, consulting, freelancing, or operating incorporated companies. Lenders have adapted to recognize that self-employed borrowers often have strong incomes, even if their tax returns don't tell the whole story. The key is understanding that mortgage qualification for self-employed individuals is different—not necessarily harder. Why Self-Employed Income Can Be Challenging Most traditional mortgage lenders rely heavily on income reported to the Canada Revenue Agency. The challenge is that many business owners work with accountants to legitimately reduce taxable income through business deductions and write-offs. While this strategy can lower taxes, it can also create challenges when applying for a mortgage. For example, a business owner may generate $150,000 annually but only report $80,000 in taxable income after deductions. A lender reviewing only tax returns may see a very different financial picture than the reality of the business. Fortunately, lenders have developed several solutions specifically designed for entrepreneurs and business owners. Traditional Income Verification The first option is conventional financing. Many self-employed borrowers qualify through standard programs by providing two years of Notices of Assessment, T1 Generals, business financial statements, and supporting documentation. This route typically provides access to the lowest available interest rates and is often ideal for borrowers whose reported income accurately reflects their earnings. However, when taxable income doesn't fully represent actual cash flow, alternative solutions may be more appropriate. Insured Stated Income Programs One of the most valuable tools available to self-employed Canadians is the insured stated income mortgage program. These products are available through lenders that work with mortgage insurers such as Sagen and Canada Guaranty. Under these programs, eligible self-employed borrowers can qualify based on a reasonable stated income amount that aligns with their occupation, industry, business revenues, and overall financial profile. Lenders still perform due diligence. Borrowers must demonstrate that their stated income is reasonable and supported by the business. Documents such as business licenses, GST registrations, articles of incorporation, bank statements, and proof of business activity are commonly reviewed. This program can be a game-changer for successful entrepreneurs whose tax returns don't fully reflect their true earning capacity. Generally, borrowers must have been self-employed for at least two years, maintain good credit, and provide a minimum down payment that meets insurer requirements. Business-for-Self Programs Through Alternative Lenders For some borrowers, particularly those with shorter self-employment histories or more complex income situations, alternative lenders can offer additional flexibility. These lenders often take a more holistic approach, reviewing business bank statements, retained earnings, contracts, assets, and overall financial strength rather than focusing solely on taxable income. While rates and fees may be slightly higher than traditional financing, alternative lending can provide an excellent stepping stone toward future conventional financing. The Manulife Small Business Owner Program One niche solution that has generated significant interest among self-employed Canadians is the Manulife Bank Small Business Owner Program. This program is designed specifically for incorporated business owners and can provide an alternative method of income qualification by looking beyond traditional personal income reporting. In many cases, the program considers factors such as corporate financial performance, retained earnings, and the overall health of the business. This can be particularly beneficial for incorporated entrepreneurs who intentionally leave profits within their company for growth and tax planning purposes. Programs like this recognize a reality that many business owners face: what appears on a personal tax return may not accurately represent their true financial strength. Credit Still Matters Regardless of which mortgage program is being considered, credit remains one of the most important factors. Strong credit scores demonstrate responsible financial management and can significantly improve both approval odds and financing options. Before applying for a mortgage, self-employed borrowers should ensure that payments are current, credit card balances are managed responsibly, and any errors on their credit report are addressed. Preparation Makes All the Difference The most successful self-employed mortgage applications are usually the result of preparation. Having organized financial records, current tax filings, business banking information, and supporting documentation readily available can make the approval process significantly smoother. Working with a mortgage broker can also be particularly valuable because brokers have access to a wide range of lenders, including major banks, credit unions, monoline lenders, and specialized self-employed programs that may not be available directly through a branch. The Bottom Line Being self-employed should not prevent you from achieving homeownership. Today's mortgage marketplace offers more options than ever before for entrepreneurs, contractors, consultants, tradespeople, and small business owners. From traditional income verification to insured stated income solutions and specialized programs such as Manulife's Small Business Owner Program, there are pathways available for many different situations. If you're self-employed and considering a home purchase or refinance, don't assume the answer is no. Often, the challenge isn't qualifying for a mortgage—it's simply finding the lender and program that best understands how your business operates.
