The Canadian Mortgage and Housing Corporation (CMHC) is a corporation that most are semi-familiar with, but do not know what CMHC actually does.

CMHC is Canada’s authority on housing. They contribute to the stability of the housing market and the financial system. They also provide support for Canadians in housing need and offer objective housing research and advice to Canadian Governments, Consumers and the Housing Industry.

CMHC offers a variety of different services, all pertaining to Canadian Housing. These services include:

1. Policy and Research
One of CMHC’s cornerstone services is the provision of market analysis information, housing-related data and information, and key housing sector data and information. They are one of Canada’s leading sources of reliable and objective housing market analysis and information. Their research and activities support informed business decisions, policy development for governing bodies and housing program design and delivery.

2. Affordable Housing Measures
CMHC (on behalf of the Government of Canada) also is the primary funder for affordable housing endeavors across Canada. Each year, CMHC invests approximately 2 billion on behalf of the Canadian government to help provide safe, affordable, stable housing opportunities for each province and territory. CMHC oversees approximately 80% of the existing social portfolio administered by provinces and territories, and manages the remaining 20% independently to fund federally housing units such as housing cooperatives. They also work under the IAH (Investment in Affordable Housing) Act, which allows for cost-matching the federal investment to allow for new construction, renovation, homeowner assistance, rent supplements, shelter allowances, and more.

3. Consumer Assistance
The final key services that CMHC offers to Canadians is providing relevant, timely information that can be accessed and used by the public. On their website you can access detailed information on topics such as the:

CMHC green building and renovation practices
Homeowners How-To Guides
Housing Related Research
Homeowner grants and opportunities
4. Mortgage Loan Insurance
In addition to the above, CMHC is also the #1 provider of Mortgage Loan Insurance to Canadians. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* – with interest rates comparable to those with a 20% down payment. In addition to CMHC, there are also 2 other primary mortgage loan insurance providers, Genworth Canada and Canada Guaranty.

CMHC strives to promote mortgage literacy and provide home buyers with in depth knowledge and tools to help them prepare to purchase a home.

Essentially, CMHC is the Canadian Government’s organization that seeks to inform and educate Canadians on the housing and mortgage industry. It reports to the Parliament of Canada through a Minister, governed by the Board of Directors. CMHC makes recommendations based on it’s data and surveys to advise and assist the government of Canada in making decisions that directly impact the mortgage and housing industry. For instance, the date and information provided by CMHC provided information that led to:

February 2016:
Minimum down payment rules changed to:

Up to $500K – 5%
Up to $1MM – 5% for the first $500K and 10% up to $1MM
$1MM and greater requires 20% down (no mortgage insurance available)
Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of 750K or less.
July 2016
Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non-residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

October 17, 2016: STRESS TESTING
INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

January 1, 2018: B-20 GUIDELINE CHANGES
The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%

While CMHC does not implement or guide the mortgage/housing changes, they play an integral part in them. They provide the cornerstone of data that the provincial and federal governments use to determine updates, rules, and changes to help to regulate the industry. So, well we may not always like what the data indicates and implicates, it does serve to regulate and make the process of owning a home easier for Canadians. If you have any questions, feel free to contact your local Dominion Lending Centres mortgage professional.

COVID -19

I wanted to follow up on my previous email regarding COVID-19 and what banks and lenders are really offering. The media seems to just blanket headlines as “Banks deferring up to 6 months mortgage payments”. This is only partially true.

How things will work at this point, is banks and lenders alike are providing assistance ONLY to those who are financially impacted by the current COVID-19 state of emergency.
Please click my link to Learn more!

What does this mean? It means that this assistance is case by case to those who contact the bank for payment relief due to income loss. Also please keep in mind, this is not free or waived payments, this is strictly deferred payments to a later time.

The banks and lenders have asked us to clarify these details to our customers because they are receiving a large amount of calls from many people who are and are not impacted financially from this. If total calls and inquiries reduce to only those affected, it will allow for faster response time to those in need. If you are still working, and/or still receiving your full salary, you will not qualify for any sort of mortgage payment relief from any bank or lender at this time.

If you are working and had you hours reduced with reduced income, or have been taken off work and have lost income, you are eligible for having your mortgage payments deferred to a later date and should contact your bank or lender hotline (or email) to arrange assistance.
You can also keep up to date on all the changes and information going on at our national webpage https://dominionlending.ca/covid-19/

I will forward updated information to you as it is received.

I know this is a challenging time and we are all in this together. I am always available for any questions or concerns you may have and am happy to provide any information or assistance I can to help. Please reach out to me anytime.

Alan Nicholas
(519-694-9046)
Nicholas Financial

The Bank of Canada reduced the benchmark rate by .50bps (now 1.25%)

Start thinking ahead!
For those of you carrying extra debt you should be looking at refinancing soon.
Rates will be coming down.

Contact me today for details, don’t wait!

You may already know that certain behaviors – such as paying your bills on time, every time – can reflect positively on your credit scores. But it’s also important to know that not every action will directly impact your credit scores at all, either positively or negatively.

The following items may influence your finances, but they generally won’t have any effect on credit scores:

1. Paying with a debit card

Using a debit card, rather than a credit card, to pay for items typically won’t impact your credit history or credit scores. When you pay with a credit card, you’re essentially borrowing the funds to pay back later. With a debit card, you’re using money you already have in an account. No borrowing is involved.

The same is true for prepaid debit cards, which you can buy with a dollar amount already loaded onto the card. Prepaid debit card activity generally does not appear on credit reports from the three nationwide credit bureaus.

2. A drop in salary

A salary cut may affect your personal and financial life, but won’t directly affect your credit scores. While your income generally isn’t a factor used to calculate credit scores, it’s important to note that some lenders and creditors may consider your income when evaluating a request for credit. They may also check your debt-to-income ratio, or your amount of debt compared to your income.

Also, a drop in income can hurt your credit scores if it results in late or missed payments on your credit accounts. Payment history is typically used to calculate credit scores.

3. Getting married

Your marital status is not a factor used in calculating credit scores. If you get married, you’ll still have your own credit reports, and so will your spouse.

That said, if you and your spouse open joint credit accounts, they will appear on both of your credit reports. And late or missed payments on those accounts can negatively impact credit scores.

4. Getting divorced

Actually filing for divorce doesn’t directly impact credit scores, but if you have late or missed payments on accounts as a result, it may negatively impact credit scores. In community property states, property – and debts – acquired during the marriage are generally owned equally by both spouses. That means you and your spouse may both be responsible for any debt you incurred while you were married.

While a divorce decree may give your former spouse responsibility for a joint account, that doesn’t let you off the hook with lenders and creditors. If your name remains on an account, late or missed payments reported to credit bureaus may negatively impact credit scores.

5. Having a credit application denied

A denial of a credit application won’t affect credit scores. But the application itself may result in a hard inquiry, which may negatively impact credit scores. If you get rejected by several lenders, there may be common factors in your credit history that drives those decisions.

6. Having high account interest rates

Interest rates and annual percentage rates (APRs) on your credit accounts aren’t a factor used to calculate credit scores. But late or missed payments on those accounts can hurt your credit scores.

7. Getting help from a credit counselor

There are many credit scoring models, and they generally don’t consider whether you are participating in a credit counseling service. But actions you take as a result of the counseling can impact credit scores – for better or for worse.

For more information on your credit, determining your buying power or consolidating your debt, contact me today!

Market interest rates have fallen sharply since the coronavirus-led investor flight to the safety of government bonds. The 5-year government bond yield–a harbinger of conventional mortgage rates–now stands at 1.34%, down sharply from the 1.60+% range it was trading in before the virus became global news (see chart below).

This morning, one of the Big-Six banks finally reacted. TD cut its posted 5-year fixed rate to 4.99%. TD’s posted rate had previously been at 5.34%, making this a 36 basis point cut. Other banks had lowered their qualifying rate to 5.19% last July, leading the Bank of Canada to cut its 5-year conventional mortgage rate to 5.19%. This is the qualifying rate under the B-20 rule introduced on January 1, 2018.

Even the regulators have been questioning the efficacy and fairness of using the big-bank posted rate as a qualifying rate for mortgage stress testing.

On January 24, the Assistant Superintendent of OSFI’s Regulation Sector, Ben Gully, gave a speech at the C.D. Howe Institute suggesting that the B-20 qualifying mortgage rate historically would be no more than 200 basis points above contract rates. He said that OSFI chose the “best available rate at the time.”

He went on to say that for many years, the difference between the benchmark rate and the average contract rate was 200 bps. However, this gap “has been widening more recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed. We are reviewing this aspect of our qualifying rate, as the posted rate is not playing the role that we intended. As always, we will share our results with our federal partners. This will help to inform the advice OSFI might provide to the Minister, as requested in the mandate letter to him.”

By keeping posted rates too high, the Big-Six banks have inflated the qualifying rate, making it more difficult than necessary to pass the stress test to get a mortgage.

While TD’s rate cut is welcome news, its posted rate is still too high by historical standards. Given today’s average contract rates, the posted rate should be at least 20 bps lower still.

Banks have a strong incentive to inflate their posted mortgage rate. For one thing, they are the basis for the calculation of big-bank mortgage penalties. Also, they are the minimum qualifying rate.

The posted rate does not appropriately reflect the state of the mortgage market as few borrowers would pay this rate. Interestingly, banks often move this rate in lock-step, or close to it, reflecting their dominant oligopolistic position in the marketplace.

If a couple of the other big banks follow TD’s lead, the Bank of Canada benchmark rate will be below 5% for the first time since January 2018 when the new B-20 rules were adopted. Lowering the stress test rate by 20 bps from 5.19% to 4.99% would require roughly 1.8% less income to qualify for a mortgage on the average Canadian home price (assuming a 20% downpayment), increasing buying power by 2%. This doesn’t sound like much, but it can have a meaningful psychological impact on already improving housing markets. The latest CREA data shows that the national average home price surged 9.6% year-over-year in December. A lower stress test rate would make a busy spring housing market even more active.

If you’re credit challenged but want to get into the housing market, it can be a tough road. But improving your credit to a point where a lender will give you a chance, is very doable.

Basically, what you need to know is a score above 680 puts you in a good position to get financing, while below will make it tough and improvement is needed.

Your credit score tells lenders some basic stuff about your credit: How long you’ve had credit, your ability to pay back that credit and how much you owe. And so your credit score is affected by how much debt you’re carrying in regards to limit, how many cards or tradelines you have and your history of repayment. If you’re a young person and new to the world of credit, consider the 2-2-2 rule to help build up your credit. Lenders want to see two forms or revolving credit, like credit cards, with limits no less than $2,000 and a clean history of payment for two years. It’s also good to note, a great credit score will also include keeping a balance on all those cards at any given time below 30 per cent of the limit.

To ensure your score stays in playoff form, make sure to pay off any collections, like parking tickets, and correct any old or incorrect reporting on your credit score by contacting Equifax to have it removed.

Some people also forget their credit cards have an annual fee and fail to pay them off too. This cannot

be stressed enough, if you want to keep or attain a good credit score, you have to pay your credit cards or tradelines on time regardless of whether you owe $1 or $1 million.

Debt and credit often go hand-in-hand. There is also such a thing as good debt and of course bad debt. Good debt consists of things like a mortgage, investment property, and college/university tuition. Bad debt includes, retail store credit cards, cars, and vacations. There is a tendency when things get really bad to consider declaring bankruptcy or a consumer proposal. A consumer proposal is a formal, legally binding process to pay creditors a percentage of what is owed to them. You really want to avoid these two options. Instead, there are companies out there that will perform the same function and negotiate your debts, but it won’t impact your credit or carry the stigma of bankruptcy or a consumer proposal.

Lastly, if you already own a home and have some equity, but you’re still drowning in credit debt, consider refinancing your mortgage. Sure, you might not get the great rate you have now or you might get dinged for breaking your mortgage early, but using the equity in your home to get rid of high interest credit payments could keep more money in your pocket at the end of the day. To change your debt-to-income ratio, consider stopping all credit card activity and don’t rack up any additional borrowing.

It’s hard to look past what’s right in front of you. That can be said for a lot of things in life, including a mortgage.

So it should come as no surprise that roughly six-in-10 homeowners with the standard five-year fixed rate mortgage break their terms within three years. And as brokers, we’ve heard all of the reasons. Some are good and some are less fortunate. There are those who want to leverage recent large increased in property value for investment terms, or they want to get some equity out of their home to do some renovations. In other cases, it can be life events like divorce, new relationship, the kids going off to college, or just paying down some built up credit card or consumer debt. Some people are lucky enough to be in a position to pay off the mortgage early.

In fact, if you’re reading this and have had a mortgage long enough, one of the things listed above has probably come into your life. But they all come at a cost. So as you sit down to either renew or get a new mortgage, take some time to think about the future. Not five months ahead, but five, seven or even 10 years ahead.

If you’re really not sure what the future that far away is going to look like, you need to consider some options before you sign on the dotted line. It could save you money.

If you’re a fixed-rate person, it’s important to understand how your lender is going to calculate the penalty when you break the mortgage.

Big banks calculate penalties based on the discount they gave you off of their posted rates at the time you first got your mortgage. They take their new posted rate for the amount of time you have left in your mortgage (3-years, 4-years etc.), apply the same Discount they first gave you and then calculate how much interest they would lose as the difference between the two for the rest of the term calculated on your current balance. That is your penalty and it can be quite hefty.

But other lenders like credit unions will use the interest rate differential or three month interest penalty.

What can you do? You could sign on for a fixed-year rate for a shorter term, like three years. That just obviously shortens the length of the mortgage. Or you can also consider a variable rate since the penalties to break the term are much lower.

While it may be tempting to just stick with the big bank, you’ll want to talk to a mortgage broker first. Mortgage brokers have access to all kinds of lenders from credit unions to monolines (a monoline is considered a company specializing in a single type of financial service, like a mortgage) which can arrange better terms if you do need to cut your mortgage early.

Do you know what kind of prepayment privileges you currently have with your mortgage? Does your current lender allow you to make a 10% prepayment or a 20% prepayment on your principle amount? Can you double your monthly payment? Or can you even increase the amount you are paying monthly?

This is important information, and the following break down is going to show you why making a prepayment on your mortgage may just be the best holiday gift you can get yourself this season!

Mortgage Structure

Mortgage Amount: $400,000

Term: 60 months (5 years)

Interest rate: 3.19%

Payment: $1,932.19/month

After 5 years of monthly payments…

Interest paid: $59,068.97

Principal paid: $56,862.43

Balance outstanding: $343,137.57

Amortization remaining: 20 years

After 5 years of monthly payments with double-up payments twice yearly…

Interest paid: $57,621.44

Principal paid: $77,631.86

Balance outstanding: 322,368.14

Amortization remaining: 20 years

Effective amortization: 15 years 1 month

Interest saved over term: $1,447.53

Let us break this down. If you double your monthly payment of $1,932.19 twice a year, for the term of your mortgage (5 years in this case), you will save $1,447.53 in interest over those 5 years. Not too bad. But there is more…

If you did these double-ups twice a year for 5 years, and refinanced your mortgage after the 5 years but continued paying the higher payment of $1,932.19 instead of what the new monthly payments would be ($1,557.19), that extra $375 a month goes directly to the principal amount owing and takes 4 years and 11 months off of your amortization…

If that doesn’t excite you and you decided instead to continue making double-up payments for the remainder of the amortization, you would save $38,550.70 in interest…

So this holiday season, when you get your year-end bonus or are deciding how much to spend on loved ones, maybe first consider allowing yourself a mortgage prepayment or two because it could save you years of payments and potentially thousands of dollars in interest! If you have any questions, contact me today, for non biased advice!

First-time homebuyers are one of our favourite clients! It’s great to work alongside them and teach them the in’s and out’s about real estate, owning a home, and helping them cross “homeownership” off their bucket list. One thing that we find though, their expectations are often not aligned with reality. We are always honest with our clients about the reality of the situation, but we thought it would be helpful to clear up a few of those “expectations”.

1. Expectation: They have enough saved for their down payment

Reality: This seems to be the first “shocking” point to many first-timers. It’s also one of the most heartbreaking ones to explain to them too. Many times, they have saved for several years and come in with what they think is a sizable down payment…but, in reality, it’s less than what is needed. They will often have their sights set on a home that is well out of their price range. They have also potentially failed to account for stress-testing measures. As a general rule of thumb, 5% is the minimum on a property with a purchase price of less than $500,000. However, 20% or more is the ideal in order to avoid your mortgage being classified as a high-ratio mortgage and require mortgage insurance.

2. Expectation: Once you have the down payment you are all set!

Reality: There are many different costs associated with moving, buying a home, and other fees that many first-time buyers may not be aware of. A few fees to consider include:

• Legal Fees
• Property Transfer Fees
• Moving Costs (moving van, moving crew)
• Appraisal fee
• Searches and Title Insurance
These will total approximately 1.5-2% of purchase price.

3. Expectation: Costs will stay the same when going from renting to owning a home.

Reality: This is not true in most cases. Many people forget to account for the day-to-day and general upkeep associated with home ownership. These can include repairs on the home, insurance, property taxes, extra utility costs, etc. This is why we always encourage first-time buyers to sit down and look at their budget and “practice” the strains and additional costs. This allows you to see if you are truly ready financially for home ownership and also alleviates stress down the road.

4.Expectation: We qualified for (blank) amount of dollars—let’s use all of it.

Reality: This is rarely a recommended or smart decision. Pick a price range that you are comfortable house shopping for that would allow you to accommodate things like home renovations, upgrades, and updates. Looking at homes that still fit your needs but may just need a little more work can significantly decrease the amount you are borrowing. If you are open to different options when house-hunting, you can save money in the long run.

These are just four examples of how a first-time mortgage holders’ expectation are rarely the reality. However, there are other areas that we find they may have questions in or not be aware of. The mortgage industry is one that is forever changing, and it can be difficult to stay on top of all of the changes! If you have a question, concern, or just want to know about what to really expect when you are going through the mortgage process, consider giving me a call to discuss your options!

Any prospective homebuyer knows this situation well. You’re set up for a viewing but when you get there the condition is less than ideal. Maybe the toilets are dirty, or the cluttered kitchen is hiding its full potential. Immediately, you’re turned off and you’ve moved on to another property.

For the owner, that’s sale opportunity lost.

In a lot cases, buyers can’t really see beyond what’s in front of them. A messy place not only makes your home harder to see, it can cost you money.

Depending on who you talk to in the real estate industry, a messy home compared to a clean house could fetch up to a $20,000 swing.

That’s a lot of money for a weekend of washing walls, decluttering, taking the trash out, running the vacuum and putting some elbow grease.

There are few simple things during this time of year that can help make your home stand out above the rest.

1) While winter can be lovely, it can also get a little messy. Especially around the yard with all those snowy and muddy days. If you want to boost the curb appeal before prospective buyers step foot in your home, you’ll want to make sure you clean your walkways. Don’t be afraid to take advantage of a dry day to keep your garden looking presentable. A little maintenance goes a long way!

2) Winter is all about colour. It’s time to put away all those bright colours for the more earthy tones of

the season. If you’re not sure, those are browns, greys, orange and greens. Change your bed spreads, pillows and rugs to match the season. It doesn’t hurt to throw up a fresh coat of paint or an accent wall in an olive or burnt orange hue.

3) Winter also seems to have a smell. And you can recreate that in your home. The fresh scent of cinnamon or ginger are perfect for the season. You don’t want to go overboard, but nothing feels more welcoming then a home that smells of love and food. You can also decorate your home with the fruit of the season in a decorative bowl. It doesn’t even have to be in the kitchen. It can be right at the front entrance.

4) The change of season is a great time to make sure your maintenance is up to date. For the exterior, that means cleaning your gutters, windows and deck. If you have a pool, making sure it’s properly covered and tucked away for the winter. Inside, make sure the furnace and all your electrical components are working including your appliances. Nothing turns off a buyer more than looking at a home in disrepair.

5) The days are short and the weather tends to be a little unpredictable, so you’ll want to ensure your home is bright. If you’ve got some burned out lights both inside and out, replace them. And before a buyer comes in for showing, turn on all your lights. Keep your blinds and curtains open to let in as much light.

If you’re about to put your prized possession on the market, treat it like one and take pride in ownership.