4 REASONS WHY MORTGAGE BROKERS ARE BETTER THAN BANKS

General George Macris 6 Oct

I am often asked if it’s hard to compete with the banks. While they may offer competitive rates at times, right now we have much better rates than the banks. However, we have certain advantages which allow us to blow them out of the water most of the time.

More Choice – banks are limited to around 5 products that they can offer you. They will try to fit you into one of their products even if the financial institution next door has a better one for you. Brokers have access to banks, credit unions, trust and mortgage companies as well as private lenders.
Better Representation – Brokers are your champions bankers are employees. They put their employer first . They won’t offer you the best rates unless you are a good negotiator. Brokers are licenced by provincial organizations and have to follow a code of ethics which requires that we put the consumer first. We also negotiate the best rate, terms and conditions for you. If you need to break the mortgage before the end of the term, we can assist you with that and perhaps help you to avoid paying a penalty.
More Benefits – If you are moving into a home that is more than one year old, you probably do not have a home warranty. Brokers have 3 lenders who offer home warranties, which can cover repairs to the plumbing, heating and electrical systems with a small deductible. Two of the lenders even offer this as a complimentary service for the first year while the third lender offers it for the length of the mortgage. As Dominion Lending Centre brokers, we also have discounted rates for moving services and boxes from a large national moving company .
Better Protection – I saved the best for last. We offer portable mortgage life and disability insurance.
It may not sound like much but we have the same coverage as the banks offer with one important difference – portability. While we take care to place you with a good lender, circumstances change and lenders may not offer favourable terms on renewal. If you try to leave a bank after developing a condition like high blood pressure or having a heart attack, you will have to re-apply for insurance coverage and may be denied. There are hundreds if not thousands of unhappy bank clients who are stuck paying high interest rates because they are forced to stay with a lender. Broker insurance gives you the independence to move from lender to lender depending on who is willing to offer you the best rates and terms. This may not sound like much to you now but it’s a real game changer for anyone who knows someone who have had this happen to them.

Is it difficult to compete with the banks? No – we have them beat hands down.

By David Cooke

TOP 5 THINGS MILLENNIALS SHOULD KNOW WHEN BUYING REAL ESTATE

General George Macris 6 Oct

Top 5 Things Millennials Should Know When Buying Real Estate

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

  1. Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting.

Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year.

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans.  Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

  1. Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.

Top 5 Things Millennials Should Know When Buying Real Estate Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage.  This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

  1. This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.

You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money.

These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks.[2] A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

  1. Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.

Top 5 Things Millennials Should Know When Buying Real Estate The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment.

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment.

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars.

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

  1. Test drive your monthly housing payments to learn how much you can truly afford.

Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence.

The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income.

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs.[3] But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one.

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650.  A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment.  A doubling of rates may be unlikely, but it makes sense to know the implication.

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation:

  • Pay off some loans before you buy real estate.Top 5 Things Millennials Should Know When Buying Real Estate
  • Save for a larger down payment.
  • Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
  • Lower your home price — remember that your first home is not necessarily your dream home.

Footnotes:

[1] I would like to acknowledge and thank the many mortgage professionals of Dominion Lending Centres who made contributions to this report.

[2] People break mortgages because of job change, decision to upsize, change neighbourhoods, change in family status or refinancing. The last thing you want to discover is that discharging a $400,000 mortgage 3.5 years into a 5-year term is going to cost you $15,000.

[3] Lenders now also assess your qualification compliance if interest rates were to rise meaningfully, a likely scenario in this low interest rate environment.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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HOW TO SUPPORT YOUR FAMILY WITHOUT JEOPARDIZING YOUR RETIREMENT

General George Macris 6 Oct

According to a study by Finder.com, 67.7% of Canadian parents assist their adult children financially. This may include helping them with rent (29.3%), handing out cash (38%), or contributing to larger purchases such as a down payment on a house (21%). Another reason why you may be helping out family members right now is the financial strain brought on by the COVID-19 pandemic.

The pandemic has disproportionately affected millennials, with 76% feeling the squeeze due to a reduction in working hours or job losses. Despite the fact that you may be in a better financial situation than other family members, it’s important to consider your options when looking to financially help your family – so you won’t jeopardize your retirement in the process.

HOW CAN I FREE UP FUNDS WITHOUT PAYING A PRICE?

There are many avenues you may explore in order to access the cash you need to help out adult children or other family members.

Withdrawing from savings:

The easiest and most straight-forward option may be to withdraw from retirement savings. However, be aware that reducing your savings may have a negative impact on your future retirement income. There’s also the possibility that it’ll trigger capital gains and withdrawal tax, as well as OAS clawback.

Sell off assets:

Another option is to cash in on investments, although considering the economic upheaval of the pandemic, now may not be the best time to liquidate assets. Meanwhile, cashing in will eliminate investments from your portfolio unnecessarily, as well as triggering taxes and OAS clawback.

Draw on lines of credit:

An alternative is to turn to existing lines of credit such as home equity lines of credit (HELOCs) or credit cards in order to help out family members. If you’re able to get approval for a HELOC, it can be a strong option as the interest rate is lower than for most other loans. However, banks are currently approving far fewer than before in an attempt to protect themselves from the economic effects of the pandemic – retirees without a steady income are particularly susceptible to having their HELOCs denied. Something else to consider with most lines of credit is the need to make monthly loan repayments, which can put additional pressure on your retirement income. Credit cards are another loan option; however, these have among the highest interest rates of all and can quickly lead borrowers into a cycle of debt.

Explore a different option:

If none of these options are for you, there’s another option that’s often overlooked. The CHIP Reverse Mortgage from HomeEquity Bank allows you to borrow up to 55% of the value of your home while continuing to live there. The CHIP Reverse Mortgage is made specifically for Canadians 55+, with an approval process that doesn’t penalize you for being retired or approaching retirement.

Furthermore, you don’t have to pay what you owe until you no longer live in your home, meaning no stressful monthly repayments affecting your cashflow. And depending on what you need the money for, you can opt to have it in monthly payments or as a lump sum. Finally, some clients are concerned that they may end up owing more than their house is worth, however, with HomeEquity Bank’s No Negative Equity Guarantee, you’ll never owe more than your home is worth.

Financially assisting family members is something that generous Canadians have been doing for a long time. However, COVID-19 means that many people need to help out their loved ones more than ever. By carefully thinking through your options and deciding what’s right for you, you can give your family financial support without jeopardizing your retirement.

Contact your DLC Mortgage Professional today to find out more about how the CHIP Reverse Mortgage can help you support your family during this time.

By Agostino Tuzi

National Partnership Director, Mortgage Brokers at HomeEquity Bank.

Throne Speech: Canada’s Response to COVID-19

General George Macris 5 Oct

Throne Speech: Canada’s Response to COVID-19

Prorogation on August 18, following the resignation of Finance Minister Morneau, a new session of Parliament, and a new speech from the throne was meant to allow the government to hit the reset button. And for Prime Minister Justin Trudeau, to try and move past the summer of controversy involving WE Charity and the Canada Student Service Grant.

THE FISCAL PICTURE

There was little opposition earlier this year when the federal government backstopped nearly every economic sector through emergency benefits, wage subsidies, and other programs. But with the federal deficit approaching $400 billion, there are growing calls to temper new spending.

The new Finance Minister, Christia Freeland, has consulted with former prime minister Paul Martin, who erased deficits as finance minister more than 20 years ago. And she claimed this week to be “well aware” of concerns about federal spending and the fiscal balance but said getting more people back to work was a top priority, along with managing a second wave of COVID-19 infections.

“The single most important economic policy of our government and the best thing we can do for our economy is to keep coronavirus under control,” Freeland said. “I can’t emphasize that too much. Some people sometimes like to talk about a trade-off between good health policy and good economic policy. I could not disagree more strongly.”

Today’s throne speech is one of the most highly-anticipated throne speeches in recent memory–amid a slowing economic recovery and rising COVID case counts. Though not an economic blueprint, it lays out Ottawa’s vision for what policy supports it believes are needed to carry the country through the next phase of recovery.

Measures already floated include improved permanent support for the unemployed–building on exceptional levels of policy support delivered over the spring and summer. Estimates for how much all of that will cost will await a fall fiscal update and subsequent budget.

COVID-19 CASE COUNTS TICK HIGHER AS THE ECONOMIC RECOVERY SLOWS

A barrage of reports issued in the past week reinforced what will probably be a historically large, and yet still only partial, bounce-back in economic activity over the summer in Canada. Home resales surged again in August. Reports on retail, wholesale, and manufacturing trade for July left GDP still on track to rebound 40% (at an annualized rate) in the third quarter. But that would only retrace only about 57% of the decline over the first half of the year. And early data – including Royal Bank’s tracking of credit card purchases–continue to flag a slowing pace of recovery.

Meantime, virus case counts are being watched more closely again in Canada, given a faster uptick in recent weeks, particularly in Ontario, Quebec, British Columbia, and Alberta. This latest wave of infections has been more concentrated among less vulnerable age cohorts, meaning fewer hospitalizations. Still, easing in containment measures has already been paused, and in some spots, reversed. At a minimum, the increased spread is another reminder that there are limits to how much the economy will recover while the virus threat remains.

In today’s speech from the throne, the Governor General was expected to lay out the government’s vision for the pandemic recovery. It won’t be easy, with COVID-19 cases on the rise and investor confidence wobbling. While the economy has improved since April lows, the recovery continues to be fragile–especially in the face of a possible second wave. Where should the government focus its investments? And if it survives the confidence vote, what could we expect in its next budget?

Trudeau insisted that he does not want a campaign soon — but would be ready if necessary. “I think it’s irresponsible to say that an election would be irresponsible,” Trudeau told reporters. “Our country and our institutions are stronger than that, and if there has to be an election, we’ll figure it out.”

“I don’t think that’s what Canadians want. I don’t think that’s what opposition parties want, and it’s certainly not what the government wants.”

A MATTER OF CONFIDENCE

Regardless of how many specifics or dollar figures are in the speech from the throne, it will be a confidence test for the Trudeau government, 15 seats shy of a majority in the House of Commons.

Without support from one major opposition party, an election is likely. But it’s not clear if that’s the kind of reset button opposition leaders are ready to press.

NDP Leader Jagmeet Singh wants a pledge to extend the Canada Emergency Response Benefit while the Employment Insurance system is reformed. And he wants a clear pledge to extend access to paid sick leave.

Singh told CPAC he heard no specific commitments from Prime Minister Justin Trudeau when the two spoke last week. But he will be watching for signals from the government, not just in the speech itself, but in the debate and legislation that follows.

From new Conservative leader Erin O’Toole, recently given a positive COVID-19 diagnosis: “Let’s see the plan, and if it’s for the betterment of the country, we’ll support parts of that plan. If we don’t see it, we’ll put forward our own vision”.

The Bloc Quebecois, meanwhile, has threatened to try and force an election over the WE affair unless Trudeau steps down. And the party wants increased health care transfers to the provinces, more support for seniors, respect for Quebec jurisdictions, and support for supply-managed farmers.

But their leader will not be on Parliament Hill as the House of Commons resumes; Yves-François Blanchet has tested positive for COVID-19 and tweeted Tuesday that he and O’Toole would wait to give their formal replies to the speech until after their isolation periods had ended.

ACTUAL MEASURES IN THE THRONE SPEECH

Overcoming pandemic is the key theme of the speech. COVID-19 has been incredibly hard for parents, especially women, young people, older adults, and Black and racialized Canadians. Low wage earners have been hardest hit.

Fight the pandemic and save lives

Faster testing, short-term closure orders in high-case areas
Help businesses in those areas
Additional PPE funding
More funding to keep schools safe
Vaccine strategy
Immunity task force led by scientists
Supporting Canadians Through this Crisis

Emergency Wage Subsidy extended
Job loss supports
Government creates jobs, assists training, youth employment strategy,
CERB recipients now supported by EI system–broadened to include self-employed and gig workers
Action Plan for women–child care services, create a Canada-wide early childhood education system, after school programs, support for women entrepreneurs.
Aid to small businesses
Improve business credit, assistance to sectors hardest hit
Build back better to create a more resilient Canada

Stimulus for recovery that is done prudently
Reduce income inequality by raising taxes stock options and wealth
Increase taxes on the digital giants that do business in Canada
Defend the strength of the middle class
Fighting climate change and commitment to sustainable growth
Long-term care homes assistance, new standards for care
Increase Old Age Security at age 75
Primary care physicians for every region
Mental Health resources increased
National Universal Pharmacare
Telemedicine
Limiting firearms
National Action Plan on gender-based violence
Affordable housing growth
All Canadians have access to highspeed internet
Affordable regional air services
Eliminate chronic homelessness
Enhance First-time homebuyer incentive
Address food insecurity and enhance local food supply chains, protect food workers
Support farmers
Introduce the most extensive training and education and accreditation programs in Canadian history
Create good jobs in climate action sectors
Exceed Canada’s 2030 climate goals
More transit options, zero-emissions vehicles and batteries, electric charging stations
Cut corporate tax rate in half for clean technology companies
Support natural resource and oil companies as they move towards zero-emission and clean-energy goals
Ban single-use plastics next year
Clean water and irrigation plans
Stand up for who we are as Canadians–welcoming and fights discrimination

We take care of each other, welcome newcomers, embrace two official languages
Address systemic racism
Help Indigenous, First Nations, and Mate peoples
Take action on online hate, support employment of Blacks and racialized people
Reform criminal justice system and law enforcement
Encourage immigration and family unification
Invest more in developing economies
Support human rights, bring detained Canadians home
BOTTOM LINE

This is an ambitious agenda. Many of these proposals are sweeping commitments. Spending details will come later, likely in a fiscal update in November or December.

The speech did not extend the CERB, which the NDP said was a condition of support. Also, the NDP asked for paid sick leave, which was not mentioned.

Quickly following the speech, the Conservatives’ initial response was that they could not support this proposal. Among other things, they berated that there was no fiscal framework or anchor to prevent further downgrades of Canadian credit ratings. According to deputy leader Candice Bergen, Conservatives will not support a speech from the throne filled with “buzzwords” and “grand gestures” that ignores the ailing energy sector, farmers, the unemployed, and struggling small business owners.

The political posturing will continue.

In the next week, the speech will be debated, during which time, the government can make changes.

Prime Minister Justin Trudeau and other party leaders will address the nation at 6:30 pm ET/3:30 pm PT tonight.

Dr. Sherry Cooper
DR. SHERRY COOPER
Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

PRE-APPROVALS & PRE-QUALIFICATIONS

General George Macris 15 Sep

Throughout the mortgage and home buying process, there are many steps and many checkpoints a buyer will need to complete before they can move on to the next one. A buyer will not be able to close on a purchase if they do not have a lawyer. Financing conditions need to be lifted after confirmation from a mortgage broker that a file is broker complete. A buyer should never write an offer on a home until they have a realtor working for them. Most importantly, a buyer should never be looking at property they are considering buying until they have been pre-qualified and pre-approved.

Now, one thing we need to make clear- pre-qualified and pre-approved are two different things. Pre-qualified is when someone completes a mortgage application with a mortgage broker or a bank representative and is told how much they can afford. Pre-approved is when someone has written confirmation from a lender stating they are willing to lend based on what is stated in an application and the applicant’s current credit history.

The difference?

Pre-qualifications are based solely on the knowledge and experience (sometimes even opinion) of a broker or bank rep. A pre-approval on the other hand is backed by the lender actually willing to give you the money. When someone says they are pre-qualified, that means they have taken an application with a mortgage broker or bank and in broker or bank rep’s opinion, they can afford “x” amount on a home. A pre-approval is a written letter from a lender stating based on applicants current credit history, declared income on application and current assets, we will lend “x” amount pending confirmation everything stated in the application is verifiable and the property meets all lender requirements.

As you can probably tell, one can be more reliable than the other, especially if you are working with a mortgage broker or bank rep that is inexperienced in the industry. Pre-approvals also usually come with a rate hold. What a rate hold does is guarantee you the interest rates that lender is offering today for a certain amount of time (usually 120 days), and if you put an offer on a place within that time period, they will give you that previous rate even if they went up. If rates go down, they will allow you to access the lower interest rate as well.

You must always get yourself pre-qualified before you begin looking at homes so you know what you can afford. Once you have and you are actively looking, it is very important you try and get a pre-approval before you write an offer. It will give you that extra confirmation your application is acceptable, and protect you against interest rate increases while you look.

If you require a pre-qualification, pre-approval, or want to speak with someone about your current situation, please give a Dominion Lending Centres mortgage professional a call.

By Ryan Oake

BANK OF CANADA HOLDS RATES STEADY

General George Macris 5 Jun

Bank of Canada Takes A More Positive Tone

On the heels of a devastating decline in the Canadian economy, the Bank of Canada suggested today that the worst of the pandemic’s negative impact on the global economy is behind us, conceding, however, that uncertainty remains high. The Bank today maintained its target overnight rate at 0.25%. No additional rate cut was expected as the Bank has described the 0.25% level as the effective lower bound of the policy rate. Governor Poloz has all but ruled out negative interest rates unless the economy deteriorates dramatically further.

Today’s Governing Council meeting is Stephen Poloz’s swan song, as the new Governor, Tiff Macklem, takes the helm today. Macklem took part as an observer in the Governing Council’s deliberations and endorsed today’s rate decision and measures announced in the press release, thereby assuring continuity in monetary policy.

The Bank has taken very aggressive action to support liquidity and the full functioning of financial markets by buying short- and long-term securities. The central bank’s balance sheet holdings of securities have grown to about 20% of Canada’s GDP, up from 5% pre-crisis. That’s still well below the levels seen at the US Federal Reserve, the Bank of Japan, and the European Central Bank, which have conducted these quantitative easing operations since the financial crisis more than a decade ago. However, the Bank of Canada’s securities purchases have been extraordinary in relation to the size of our economy.

“Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery.” According to the central bank, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR).

The level of real GDP in Q1 was 2.1% below the level in the fourth quarter of 2019. The Bank of Canada is now predicting that real GDP in Q2 will likely post a further decline of 10%-to-20%, as continued shutdowns and sharply lower investment in the energy sector take an additional toll on output. That suggests a peak-to-trough decline of 12% to 22%, instead of the 15% to 30% scenario the central bank had previously been estimating. “The Canadian economy appears to have avoided the most severe scenario,” the Bank of Canada said.

Bottom Line: While the degree of uncertainty remains high, there is evidence that the worst of the economic downturn is behind us. Preliminary data for May suggests that home sales picked up on a month-over-month basis in May in the GTA and GVA, although home sales continued to be down significantly from levels one year ago.

Some people are concerned that the extraordinary stimulus in monetary and fiscal measures in recent months might, in time, be inflationary. Governor Poloz has made it clear that the dire results of the economic shutdown would have been highly deflationary had these actions not been taken. Deflation, coupled with high debt levels, would have triggered a depression. Economic models are ill-equipped to deal with the fallout of the pandemic. Policymakers need to be nimble in responding, and when the economy has recovered sufficiently, they will begin the unwinding of all of this stimulus, which will require an equally deft response on both the fiscal and monetary side.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

DETERMINE YOUR MONTHLY BUDGET

General George Macris 12 May

It’s easy to get overwhelmed when thinking about your finances, especially if you are saddled with debt. The best way to determine your monthly budget is to start by recording your total monthly income for the family and your total monthly expenses. To make these easier to review, it is ideal to break out your expenses into two categories: fixed and flexible.

Fixed Expenses: Fixed expenses are bills that stay relatively the same each month and will typically even come out on the same date. Some examples of fixed expenses, which are generally non-negotiable, include mortgage or rent payments, car/household insurance, car loans, other loan payments, credit card payments, cell phone bill, household utilities, child support (if applicable) and any medical bills such as medication, orthodontic payments, etc.

Flexible Expenses: Once you calculate your fixed expenses, you will want to take a look at your flexible expenses or payments. Flexible expenses may change from month to-month and are typically the things households look at when trying to reduce spending or free up monthly funds. These types of expenses include groceries, cable/streaming services, internet, gas, entertainment and dining out, etc.

The goal of determining your monthly budget is to see how much of your monthly income goes to bills, and what is leftover for spending and entertainment. It is important to check up on your expenses and spending habits on a regular basis to ensure that you are continuing to live within your means, and are not stretching your budget to the

point of extra debt. It can be easy to run up a credit card thinking “I’ll pay it off later”, but unless it is an emergency situation (vet bill, car repairs, etc.) it is best to avoid that mentality and only spend what you have on-hand.

If you do happen to find yourself struggling to make your bills each month, it might be time to look around for some places to save some extra money. Some great options for saving money include:

– Reducing or eliminating your cable package

– Lowering your energy usage (turn down that thermostat and bundle up in colder months!)

– Reducing water usage (taking shorter showers, doing less loads of laundry)

– Going out to eat less frequently or entirely. It is amazing how much you can save by skipping the drive thru and making your own coffee at home!

– Learn to say NO (to gift exchanges at work, nights out with friends, special events whenever possible, etc.)

– Attempt to negotiate lower bills with any company you deal with

– Reduce grocery spending (or get cash back when you do shop)

– Use coupons! Shop on sale, collect customer loyalty points to buy bigger ticket items

– Buy used when you can! There are great resources for buying used such as Facebook Marketplace, Craigslist or Kijiji. This is also a great place to make some money! Purge your house and sell anything you don’t love or need anymore.

Posted by: Mike Hattim
Mortgage Agent

MORTGAGES TO THE POWER OF 30 – HOW YOU CAN BE BETTER OFF WITH A HIGHER RATE

General George Macris 12 May

Every now and then markets remind us why some times cash is king. Setting up your mortgage with a 30 year amortization that reduces your monthly cash outflow is a powerful and beneficial financial strategy that can increase your overall wealth, despite often having a higher interest rate than a 25 year amortization. Yes this is contrary to many advisors that say you should pick a lower amortization period so you can pay off your mortgage as fast as possible, and it’s contrary to borrower sentiment to go after the lowest rate. But a 30 year amortization strategy can allow you to pay off your mortgage at the end of 25 years and have additional savings remaining where a 25 year amortization would not.

Let’s take a couple who are both 35 years old that have the option of a 25 year amortization at a rate of 3.5% for a mortgage of $500,000 or a 30 year amortization at a higher rate of 3.75%. The 25 year amortization will have a monthly payment of approximately $2,500 per month and the 30 year amortization will have a lower monthly mortgage payment of $2,315 which results in a cash flow savings of approximately $2,250 per year. If the cash flow savings are invested, by the end of 25 years this savings can allow the borrowers to pay off their 30 year mortgage and have approximately $12,000 of additional wealth remaining, assuming the savings are invested at annual return of 7%. By this time the couple is 60 years old and now have an additional $12,000 to put towards their retirement or other interests.

Of course, the results depend on the rate assumptions used for investments and mortgages over the life of the mortgage, so are the rates in this analysis reasonable? Well, the average annual return for the S&P500 stock market index over any 20 to 30 year period, as well as since inception, has been between 7% and 10%. As far as future mortgage rates go, variable mortgage rates have hovered between 2% and 2.75% over the last 10 years. Fixed rates tend to be correlated to government bond yields and at the time of writing the 5-year government bond yield is around 0.40%, and the 30-year government bond yield is around 1.15%, which doesn’t add much of a premium over the long term. In fact, you can lock in a 10-year fixed rate mortgage with a 30 year amortization period right now for 3.75%. In addition, the Bank of Canada Governor Stephen Poloz recently stated that he expects global interest rates to remain low for years to come.

Equally beneficial with the 30 year amortization strategy is the flexibility it offers by preserving cash flow to manage other financial obligations. The preservation of cash can help meet unexpected expenses or a temporary loss of income that can often arise at various times in life. At these times, many borrowers are often turning to higher interest credit lines or high interest credit cards, carrying along expensive balances which could otherwise be avoided or minimized by using the cash preserved from the 30 year amortization strategy.

Smart investors know how to use leverage to increase their wealth and better manage their finances and the 30 year amortization mortgage product plays right into that. It matters not that you have the knowledge, it’s what you do with the knowledge. If you would like a mortgage partner to help execute your financial strategies through smart mortgage structuring, contact me or your local DLC mortgage professional.

by Todd Skene

TOP 5 THINGS MILLENNIALS SHOULD KNOW WHEN BUYING REAL ESTATE

General George Macris 28 Apr

There are 9 million Millennials in Canada, representing more than 25 percent of the population. Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes. Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy. Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

Don’t rush into the housing market–do your homework: learn the basics of savings, credit and budgeting.
Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income. Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year.

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans. Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.
Top 5 Things Millennials Should Know When Buying Real Estate Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage. This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field. If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

Financial planning is key and it is dependent on your goals and expectations.

This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.
You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money.

These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.

There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer’s mind, it shouldn’t be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks.[2] A mortgage broker will help you find a mortgage with good prepayment privileges.

The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.
Top 5 Things Millennials Should Know When Buying Real Estate The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment.

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment.

The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars.

Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

Test drive your monthly housing payments to learn how much you can truly afford.
Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence.

The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income.

Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs.[3] But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one.

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650. A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment. A doubling of rates may be unlikely, but it makes sense to know the implication.

Do Your Calculations Look Discouraging?

If so, here are some things you can do to improve your situation:

Pay off some loans before you buy real estate.Top 5 Things Millennials Should Know When Buying Real Estate
Save for a larger down payment.
Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
Lower your home price — remember that your first home is not necessarily your dream home.
Footnotes:

[1] I would like to acknowledge and thank the many mortgage professionals of Dominion Lending Centres who made contributions to this report.

[2] People break mortgages because of job change, decision to upsize, change neighbourhoods, change in family status or refinancing. The last thing you want to discover is that discharging a $400,000 mortgage 3.5 years into a 5-year term is going to cost you $15,000.

[3] Lenders now also assess your qualification compliance if interest rates were to rise meaningfully, a likely scenario in this low interest rate environment.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

BANK OF CANADA PUTS THE ECONOMY ON LIFE SUPPORT

General George Macris 16 Apr

Bank of Canada Stands Ready To Do Whatever It Takes

On the heels of a devastating decline in the Canadian economy, the Bank of Canada is taking unprecedented actions. With record job losses, plunging confidence and a shutdown of most businesses, this month’s newly released Monetary Policy Report (MPR) is a portrait of extreme financial stress and a sharp and sudden contraction across the globe. COVID-19 and the collapse in oil prices are having a never-before-seen economic impact and policy response.

The Bank’s MPR says, “Until the outbreak is contained, a substantial proportion of economic activity will be affected. The suddenness of these effects has created shockwaves in financial markets, leading to a general flight to safety, a sharp repricing of risky assets and a breakdown in the functioning of many markets.” It goes on to state, “While the global and Canadian economies are expected to rebound once the medical emergency ends, the timing and strength of the recovery will depend heavily on how the pandemic unfolds and what measures are required to contain it. The recovery will also depend on how households and businesses behave in response. None of these can be forecast with any degree of confidence.”

“The Canadian economy was in a solid position ahead of the COVID-19 outbreak but has since been hit by widespread shutdowns and lower oil prices. One early measure of the extent of the damage was an unprecedented drop in employment in March, with more than one million jobs lost across Canada. Many more workers reported shorter hours, and by early April, some six million Canadians had applied for the Canada Emergency Response Benefit.”

“The sudden halt in global activity will be followed by regional recoveries at different times, depending on the duration and severity of the outbreak in each region. This means that the global economic recovery, when it comes, could be protracted and uneven.”

Today’s MPR breaks with tradition. It does not provide a detailed economic forecast. Such forecasts are useless given the degree of uncertainty and the lack of former relevant precedents. However, Bank analysis of alternative scenarios suggests the level of real activity was down 1%-to-3% in the first quarter of this year and will be 15%-to-30% lower in the second quarter than in Q4 of 2019. Inflation is forecast at 0%, mainly owing to the fall in gasoline prices.

“Fiscal programs, designed to expand according to the magnitude of the shock, will help individuals and businesses weather this shutdown phase of the pandemic, and support incomes and confidence leading into the recovery. These programs have been complemented by actions taken by other federal agencies and provincial governments.”

The Bank of Canada, along with all other central banks, have taken measures to support the functioning of core financial markets and provide liquidity to financial institutions, including making large-scale asset purchases and sharply lowering interest rates. The Bank reduced overnight interest rates in three steps last month by 150 basis points to 0.25%, which the Bank considers its “effective lower bound”. It did not cut this policy rate again today, as promised, believing that negative interest rates are not the appropriate policy response. The Bank has also conducted lending operations to financial institutions and asset purchases in core funding markets, amounting to around $200 billion.

“These actions have served to ease market dysfunction and help keep credit channels open, although they remain strained. The next challenge for markets will be managing increased demand for near-term financing by federal and provincial governments, and businesses and households. The situation calls for special actions by the central bank.”

The Bank of Canada, in its efforts to provide liquidity to all strained financial markets, has, in essence, become the buyer of last resort. Under its previously-announced program, the Bank will continue to purchase at least $5 billion in Government of Canada securities per week in the secondary market. It will increase the level of purchases as required to maintain the proper functioning of the government bond market. Also, the Bank is temporarily increasing the amount of Treasury Bills it acquires at auctions to up to 40%, effective immediately.

The Bank announced new measures to provide additional support for Canada’s financial system. It will commence a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment-grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

The Bank will support all Canadian financial markets, with the exception of the stock market, and it “stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.”

This is exactly what the central bank needs to do to instill confidence that Canadian financial markets will remain viable. These measures are a warranted offset to panic selling. Too many investors are prone to panic in times like these, which has a snowball effect that must be avoided. As long as people are confident that the Bank of Canada is a backstop, panic can be mitigated. The Bank of Canada deserves high marks for responding effectively to this crisis and remaining on guard. Governor Poloz and the Governing Council saw it early for what it is, a Black Swan of enormous proportions.

As a result, Canada will not only weather the pandemic storm better than many other countries, but we will come out of this economic and financial tsunami in better condition.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres