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Latest in Mortgage News June 2020

DLC Canadian Mortgage Experts • Jun 01, 2020

2.5 years for home prices to make new highs says CMHC

Canada’s housing sector indicators, including prices, sales and home starts, aren’t expected to return to pre-COVID levels until at least the end of 2022, according to CMHC’s latest Spring Housing Outlook.

“Following large declines in 2020, housing starts, sales and prices are expected to start to recover by mid-2021 as pandemic containment measures are lifted and economic conditions improve,” said the housing agency’s chief economist, Bob Dugan.

“Sales and prices are likely to remain below their pre-COVID19 levels by the end of our forecast horizon in 2022,” Dugan added, while admitting the “precise timing and speed of the recovery is highly uncertain.”

The report reiterated the agency’s forecast that house prices could decline anywhere from 9-18%, adding that oil-producing regions could see declines up to 25%.

Sales, meanwhile, are expected to fall 19-29% this year from pre-COVID levels due to job losses.

“Our forecast is a little on the pessimistic side…it is just a very tough time for the economy,” Dugan told BNN Bloomberg.

Meanwhile, many banks have forecast home price declines of closer to 10%, including CIBC economists who said earlier this month they expect prices to fall between 5% and 10% before starting to recover.

In a recent report , CIBC economists Benjamin Tal and Katherine Judge noted there are “clear early signs that the market is starting to wake up,” with activity in the first two weeks of May “notably stronger” compared to the first two weeks of April.

Delinquencies Expected to Rise


Speaking of forecasts, TransUnion Canada has revised its 2020 Credit Forecast to account for the impact of COVID-19.

The credit monitoring agency now expects the national mortgage delinquency rate (those who fall 90+ days behind on their mortgage payments) to rise to 0.9% by the end of the year. That’s triple the delinquency rate of 0.3% reported in both Q4 2019 and the first quarter of 2020.

Non-mortgage delinquencies, such as credit cards, auto loans and other personal loans, are expected to top 6.3% by year end, a moderate increase from 5.6% in Q4 2019 and 5.8% in Q1 2020.

“The various government relief benefits, combined with deferral programs provided by lenders, can act to offset some of the COVID-related delinquency,” Matt Fabian, director of financial services research and consulting at TransUnion, said in a release. “However, each of these measures may contribute to long-term risk at a future time, as consumers will generally still be responsible for paying these deferred obligations at some point in the future.”

Reverse Mortgage Rates Hit a New Low

Seniors in the market for a reverse mortgage can now find a 5-year fixed term for under 4.00% for the first time.

Last week, Equitable Bank — one of just two reverse mortgage providers in Canada — lowered its reverse mortgage rates across the board by 15 bps, including its 5-year “lump sum” rate to 3.99%.

As the name implies, to take advantage of this lower rate, the borrower must withdraw the desired funds all at once, as opposed to borrowing in smaller amounts over time, which reduces interest costs. The rate for the standard 5-year fixed reverse mortgage is now 4.69%, down from 5.74% just one year ago.

Bank of Canada Expected to Leave Rates on Hold

The Bank of Canada meets this week (June 3) for the first time with Tiff Macklem as Governor. Markets and economists are in agreement that the Bank will leave its key lending rate unchanged at 0.25%.

“With the overnight rate already at 0.25% and the Bank of Canada’s recent guidance that it considers that the effective lower bound, a change in interest rates is unlikely,” said Alicia Macdonald, Associate director of Economic Forecasting at the Conference Board of Canada.

“Negative interest rates are back in the spotlight. Markets are pricing them in in the U.S., although not yet in Canada where the policy rate is still higher,” added Capital Economics senior economist Stephen Brown. “Overall, we do not think the Bank will pull its policy rate negative soon, even with a new Governor taking the helm.”

Overnight Index Swap markets are pricing in a 15% chance of an additional rate cut by the end of the year.

This article was written by Steve Huebl and originally published on the Canadian Mortgage TrendsMay 31st 2020.

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RRSP As A Downpayment

By DLC Canadian Mortgage Experts • 28 Dec, 2022
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.

Is There A Difference Between A Deposit And Downpayment

By DLC Canadian Mortgage Experts • 21 Dec, 2022
If you’re new to the home buying process, it’s easy to get confused by some of the terms used. The purpose of this article is to clear up any confusion between the deposit and downpayment. What is a deposit? The deposit is the money included with a purchase contract as a sign of good faith when you offer to purchase a property. It’s the “consideration” that helps make up the contract and binds you to the agreement. Typically, you include a certified cheque or a bank draft that your real estate brokerage holds while negotiations are finalized when you offer to purchase a property. If your offer is accepted, your deposit is held in your Realtor’s trust account. If your offer is accepted and you commit to buying the property, your deposit is transferred to the lawyer’s trust account and included in your downpayment. If you aren’t able to reach an agreement, the deposit is refunded to you. However, if you commit to buying the property and don’t complete the transaction, your deposit could be forfeit to the seller. Your deposit goes ahead of the downpayment but makes up part of the downpayment. The amount you put forward as a deposit when negotiating the terms of a purchase contract is arbitrary, meaning there is no predefined or standard amount. Instead, it’s best to discuss this with your real estate professional as your deposit can be a negotiating factor in and of itself. A larger deposit may give you a better chance of having your offer accepted in a competitive situation. It also puts you on the hook for more if something changes down the line and you cannot complete the purchase. What is a downpayment? Your downpayment refers to the initial payment you make when buying a property through mortgage financing. In Canada, the minimum downpayment amount is 5%, as lenders can only lend up to 95% of the property’s value. Securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. You can source your downpayment from your resources, the sale of a property, an RRSP, a gift from a family member, or borrowed funds. Example scenario Let’s say that you are looking to purchase a property worth $400k. You’re planning on making a downpayment of 10% or $40k. When you make the initial offer to buy the property, you put forward $10k as a deposit your real estate brokerage holds in their trust account. If everything checks out with the home inspection and you’re satisfied with financing, you can remove all conditions. Your $10k deposit is transferred to the lawyer’s trust account, where will add the remaining $30k for the downpayment. With your $40k downpayment made, once you sign the mortgage documents and cover the legal and closing costs, the lender will forward the remaining 90% in the form of a mortgage registered to your title, and you have officially purchased the property! If you have any questions about the difference between the deposit and the downpayment or any other mortgage terms, please connect anytime. It would be a pleasure to work with you.
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