As expected the Bank of Canada has, once again, moved to the sidelines when it comes to interest rate policy.  This time, though, the bankers appear to have unfolded their lawn chairs, taken a seat and put their feet up; settling-in for an extended period of inactivity.

The central bank’s benchmark policy rate was left unchanged at 1.75% during last week’s setting.  More significantly, the Bank made a small change in wording to its Monetary Policy Report that sends a big message.  It eliminated references to the need for future interest rate hikes, signalling it has shifted to a wait-and-see status.  Many market watchers do not expect any rate increases (or decreases) until early 2020.

So what would it take for the Bank of Canada to get back in the game?  It would have been something drastic, like a sudden jump in inflation or a rapid drop in employment.

Right now, though, the Bank finds itself somewhat boxed-in.  Inflation is showing some signs of increasing, but not enough to justify interest rate intervention.  Canadian household debt is climbing back into record territory and higher rates would only compound that problem.

The BoC has to pay attention to what the U.S. Federal Reserve is doing, and right now there is little political appetite for rate increases in the United States.  As well, the election cycle is heating up in both the U.S. and Canada and central banks are loath to make any moves that could be seen as giving advantage to any side in an election campaign.

Excellent insight to a question that I receive often from my colleague Geoff.

SHOULD YOU PAY DOWN YOUR MORTGAGE ASAP?

One of the top questions we get asked: Should I pay down my mortgage as fast as possible? In theory, this makes sense. The faster you pay it down, the faster you get out of debt, right? For many people that is the case and it does make sense often times to take this route. After all—your home is truly an asset and can be used as an investment piece itself!

However, in certain situations, there are some cases where paying off your mortgage right away doesn’t make sense. Every person’s circumstances are different, and, in many cases, it DOES make sense to pay down your mortgage when you have funds available.

We cannot emphasize enough that there are numerous factors to consider before paying down any sizable debt (your mortgage included). Each person must make the choice that is right for them and consult with professionals who can help them make the right choice based on their current circumstances. With that in mind, today, we are going to highlight some considerations as to why you may consider not paying down mortgage:

You have a super low mortgage rate
If you locked in at a great rate and have low interest on your mortgage, take advantage of it! Pay it back as you can but do not feel pressure to go above and beyond your monthly mortgage payment if it is not an option for you. We would advise in this instance, to speak with your financial planner or accountant to find out what your strategy is for debt repayment.

Having a solid plan can help set you up for future success and help you focus on paying down debts that have the highest interest amount first, thereby lowering the overall debt load you are carrying and paying out each month. We can definitely recommend some fantastic accountants and financial planners if you are on the lookout for one!

The Property is a rental or investment property or houses a home-based business
This may be a consideration for some people as a portion of the interest (on rental properties and homes with home offices) are tax deductibles. In these cases, aggressive payback could have a downside in relation to your tax right offs.

Again, this is an instance where an accountant’s guidance can direct you towards the best option. For some, the tax break is significant and for the circumstances, it makes sense to keep the payments as they are. For others, it would make more sense to increase the payment as the interest is minimal Talk to a professional to get the best advice on this particular area and consider all your options.

You have a better investment opportunity
If you have an opportunity that will give you a higher return on your investment, consider taking that avenue vs. paying down your mortgage. For example, if you put $100,000 into your 3.00% mortgage, you save $3,000 next year but if you made a 5% return on that $100,000 instead, you could put that $3,000 towards your mortgage next year and still have $2,000 left over.

With that said, there are many instances when an investment may seem excellent on paper, but in reality, is not ideal. Always seek advice from a professional first before making a financial decision.

These are just 3 examples of times it doesn’t make sense to pay down your mortgage right away. Ultimately though, you should consider what choice will be the right one for you. There are many instances where paying down your mortgage does make sense. As a Dominion Lending Centres mortgage broker, we are here to inform you of every option available to you and advise you on what we feel is the best course of action. We can work with you and your financial advisors/accountants to determine when and if paying down your mortgage is a good option for you—but at the end of the day, the decision is yours.

Could this be what we need to stimulate real estate sales this spring?

BANK OF CANADA REDUCES PROSPECTS OF A RATE HIKE

A greater-than-expected slowdown in global economic activity has triggered a slowdown in the pace of interest rate normalization by many central banks. In response to these central bank policy changes and perceived progress in U.S.-China trade talks, global financial conditions and stock market sentiment have improved, pushing up oil and other commodity prices.

Oil prices have risen since January in response to improved market sentiment, a greater-than-expected output cut in Saudi Arabia and risks of falling production in Iran, Venezuela and Libya. In its projection, the Bank assumes that the prices of Brent and WTI oil will remain close to their recent average levels. Uncertainty around the future path for global oil prices, however, remains elevated. The most important considerations relate to OPEC policy and geopolitical risks to production. As well, U.S. shale output could increase at a faster pace than expected.

In Canada, growth during the first half of 2019 is now expected to be slower than was anticipated in the January Monetary Policy Report (MPR). In another very dovish statement, the Bank of Canada acknowledged this morning that the slowdown in the Canadian economy has been more profound and more broadly based than it had expected earlier this year. The Bank had forecast weak exports and investment in the energy sector and a decline in consumer spending in the oil-producing provinces. However, as indicated by the mere 0.1% quarterly growth in GDP in the fourth quarter, the deceleration in activity was far more troubling. Investment and exports outside the energy sector have been negatively affected by trade policy uncertainty and the global slowdown. Weaker-than-anticipated housing and consumption also contributed to the downturn.

As was unanimously expected, the Bank maintained its target for the overnight rate at 1-3/4% for the fourth consecutive time. As well, the Bank dropped any reference to future rate hikes, bringing its policy in line with the Federal Reserve and other major industrial central banks.

“The Bank expects growth to pick up, starting in the second quarter of this year. Housing activity is expected to stabilize given continued population gains, the fading effects of past housing policy changes, and improved global financial conditions. Consumption will be underpinned by strong growth in employment income. Outside of the oil and gas sector, investment will be supported by high rates of capacity utilization and exports will expand with strengthening global demand. Meanwhile, the contribution to growth from government spending has been revised down in light of Ontario’s new budget.”

Overall, the Bank projects real GDP growth of 1.2% in 2019 and around 2% in 2020 and 2021. This forecast implies a modest widening of the output gap, which will be absorbed over the projection period. Inflation is close to the 2% central bank target.

The central bank clearly stated that given all of these economic conditions, an accommodative policy interest rate continues to be warranted. The policy statement added that the Governing Council “will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive. In particular, we are monitoring developments in household spending, oil markets, and global trade policy to gauge the extent to which the factors weighing on growth and the inflation outlook are dissipating”.

Bottom Line: The Bank of Canada has revised down its estimate of the neutral nominal policy rate. The neutral rate is defined as the sum of two components: i) the real rate that is consistent with output at its noninflationary potential level, and ii) 2% to account for the target inflation rate. The Bank now estimates the neutral rate to be about a quarter percentage point lower than assessed in April of last year, in a range of 2.25% to 3.25%. The midpoint of the range for potential output growth is now estimated to be slightly lower than in the April 2018 MPR, at 1.8% on average between 2019 and 2021 and at 1.9% in 2011. It is likely that these reassessments are consistent with unchanged policy interest rates for the remainder of this year.

Housing Market Details in the April Monetary Policy Report

While housing is expected to stabilize at the national level, the Bank is aware of the risks to the outlook, particularly in the Greater Vancouver Area. For instance, the effects on growth of the revised B-20 guideline are expected to dissipate in many markets, although they could persist longer in areas with high house prices and that have been subject to other changes to housing policies. The stabilization of expectations for house prices in British Columbia and Ontario may indicate a forthcoming stabilization and subsequent increase in resale activity (see Chart 13 below).

The changes to local and provincial policies to address speculation, combined with the B-20 revisions, are having more pronounced effects in the Greater Vancouver Area (GVA) than in the Greater Toronto Area. Thus, while stabilization of activity is expected this year in the base-case projection, there is a risk that it could be delayed in the GVA.

Meanwhile, ongoing challenges in the oil industry are expected to continue to weigh on the Alberta housing market. In contrast, a strong economy and investor interest are expected to boost the market in Montréal.

The First-Time Home Buyer Incentive introduced in the 2019 federal budget is expected to support housing demand and may also lead to improving sentiment in the housing market. However, delays in purchases by homebuyers who want to take advantage of the new measure could influence the timing of resale activity in 2019.

After declining for two years, residential investment is expected to expand modestly in 2020 and 2021. Given the trend reduction in housing affordability, construction of multi-unit residences is expected to resume its trend increase to meet demand for less-expensive homes.

Canada now has more millennial’s than baby boomers. Its official. There is now more first time buyers than ever before…so this is a great article to read from my DLC colleague, check it out

First Time Home Buyers

Your First Home. What a THRILLING thing that is to think about!! One of the best parts about our job is helping individuals purchase their first home. We know that the process can seem daunting at first, but we have an in-depth understanding and knowledge of what steps are required to make the process go smoothly. Follow these and you will be turning the key into your new home before you know it.

1. Find a Fantastic Mortgage Broker
Finding a mortgage broker who can help with your pre-approval process can allow you to determine the price point of home you can really afford. Finding a mortgage broker right off the bat can also give you an advantage over working with your bank:

• Mortgage Brokers work for you, not the bank or lender
• They have access to multiple lenders and are not limited to one single product
• They are an expert in the field. They focus on mortgages and mortgages alone!

2. Get Comfortable With The Numbers
There are two numbers that all first-time homebuyers should keep in mind: 39 and 44. These two numbers can help you budget and determine what you can truly afford when looking to purchase a home. Why 39 and 44? Here’s why:

• A maximum of 39% of your total income can go towards your housing costs. This will cover your mortgage payment, property tax payment, heating costs, and strata fees.
• A maximum of 44% of your total income can go towards your housing costs and total debt payments. This will include ALL housing costs and all debt repayments (credit cards, car loans, student loans, etc.)

Now, here are a few other key numbers that can help you in your house hunting:

3. Know What Your Down Payment Needs to Be
You know the numbers, now let’s look at what you need to know about the down payment itself. First, if you have less than 20% down payment your mortgage will be insured and have insurance premiums added to your mortgage. If you are considering putting the minimum down, that would be 5% if the property is worth $500,000 or less. A down payment of 10% is required for any amount over $500,000. Here’s a quick example of what this looks like:

Purchase Price of $600,000

5% of $500,000                                   $25,000

10% of $100,000                                             $10,000

Total Down Payment:                                   $35,000

4. Take Advantage of The RRSP Home Buyers Plan
The Canadian government’s Home Buyers’ Plan (HBP) allows for first time home buyers to borrow up to $25,000 from you RRSP for a d own payment, tax-free! You are able to combine this with your partner if you are both first time home buyers you can both access the $25,000 from your RRSP for a combined total of $50,000. Certain qualifications do apply for you to use this plan, we have laid them out here for you to review.

5. Don’t Forget About the Closing Costs!
This is one so many people overlook! Closing costs are something that can add up quickly when you are purchasing a home. Here is an approximate breakdown of the funds you will need:

• Legal Costs: $1000
• Title Insurance: $200
• Appraisal: $350
• Property Transfer Tax: Pending on purchase price

An additional few facts on property tax for you to consider:

This is an approximation of what your closing costs may be, but it is always good to budget for them beforehand.

6. Have your Documents Ready to Roll
Mortgages = paperwork! There are a number of documents that you will need to have to give to your mortgage broker. This will vary depending on your employment situation and where your down payment is coming from, but here is a general list you can follow:

• Most Recent paystub
• Letter of Employment
• NOA’s (2 years)
• T4’s (2 years)
• Down payment verification—up to 3 months of bank statements
• Contract of Purchase and Sale (Your realtor will provide this)
• Property Disclosure Statement (Realtor will provide)
• if you are self-employed you may also have to show:
  o T1 Generals
  o Articles of Incorporation
  o Financial Statements

7. Start Working on Your Credit Score
Yes, your credit score does directly impact your ability to get a mortgage. Lender’s want to see that you can responsibly manage credit and debt repayment before loaning you a large sum of money to purchase a home. Your credit score will be a determining factor in the terms and rate associated with your mortgage.

Just what impacts your credit score? Good question! Here are a few things:

• Late payments will lower your score
• Collections, judgements, consumer proposals, bankruptcy this will lower your score
• Exceeded limits on credit cards
• Ideally, you will be able to show a minimum of 2 active and current trade lines
• The longer your trade line is, the better increase in your score!
• Lenders also like to see a minimum of $2,000 limit on your credit cards.

Understanding and using this knowledge can help make your first home buying experience a great one! Once you have gone through the pre-approval process with a mortgage broker the fun part begins! Upon you receiving your preapproval, you can begin the house hunting. From there, you can put an offer on your dream home (yay!) Once your offer is accepted, we go through the mortgage process with you and then it’s moving day for you!

This is an exciting time for first time homebuyers—we enjoy getting to help our clients go from start to finish and helping them get the keys to their first ever home. If you have questions or are looking to find out just how much you will qualify for you can check out our mortgage calculator OR you can reach out to a Dominion Lending Centres mortgage professional directly!

If you are thinking of buying a home and are confused or want to make sure you don’t miss any important steps… check out this great blog from my colleague

7 Steps To Buying a Home

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment
The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).
• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you need 20% down payment.

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified
Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.
Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:
• prepayment options (10-20%)
• penalties
• portability
We also discuss what type of mortgage fits your current situation
• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget
Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.
Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor
Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.
Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:
· Finding a home
· Scheduling tours of homes
· Researching the market, neighbourhood and home itself
· Making and negotiating your offer to purchase, and counter-offers
· Providing expert advice on home buying
· Handling the offer, gathering documentation and closing paperwork
I recommend interviewing at least three realtors. You will quickly decide who has your best interests in mind. Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them? There are advantages to each – you need to decide what is the best fit for your situation.
Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval
Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.
If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)
Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys
On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.
Congratulations you’re done – you now own your home!!

Mortgages are complicated, but they don’t have to be… speak to a Dominion Lending Centres mortgage broker!