Breaking News for Homeowners

Latest News Trish Pigott 25 Sep

Canada’s Bank Regulator Kills the Stress Test for Straight Switch Mortgages

Shout out to Robert McLister Sep 25, 2024 5:49 PM ET for the details around today’s Breaking Mortgage News

In a significant win for consumers, the Office of the Superintendent of Financial Institutions (OSFI) has kicked the stress test to the curb for straight switches of uninsured mortgages.

Starting November 21, if you’ve got an uninsured mortgage, you can switch lenders without having to prove you can afford a rate that’s at least 200 bps higher.

Since 2018, the industry’s been nagging regulators for this change, and finally, the right people listened.

OSFI tells us:

“We can confirm that today in discussion with the Globe and Mail, the Superintendent of Financial Institutions, Peter Routledge indicated that OSFI intends to inform industry we will end our expectation that lenders apply the Minimum Qualifying Rate (MQR) to straight switches of uninsured mortgages at renewal.”

“Straight switches are uninsured mortgages that are renewed at a new lender under the mortgagor’s current amortization schedule and current loan amount under that amortization schedule,” a regulator spokesperson added.

“There are two primary reasons for this change. First, we are listening to what we have heard from industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal.”

“Second, when we look at the data over time, we have observed that the prudential risks that this was intended to address have not significantly materialized. As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”

“We are working with FRFIs to ensure they are prepared for this change and intend to formally communicate our intentions as part of our quarterly regulatory release pilot, the next date for which is November 21, 2024.”

What it means

Today, if you want to switch lenders for a better deal on the average $300,000 mortgage, you need to prove $81,300 of income.

Once this new policy takes effect, that drops to $71,000 of income, 12.7% less.

This sample scenario above assumes a 4.99% rate, no other debts, a 20-year remaining amortization, no condo-fees and typical property tax and heat assumptions.

Ballpark industry estimates have suggested that OSFI’s policy blocked at least 5% to 10% of switches, but that number grew as rates soared in the last hike cycle.

With this restriction lifted, borrowers might save anywhere from 5 to 25 bps on a prime renewal rate, maybe more. We’re talking $1,400 of savings over five years, assuming a 10 bps average rate improvement on a $300,000 switch.

 

In closing, we must say hats off to OSFI for re-looking at the data and making the right call for consumers here. It mustn’t have been easy, given their firm opposition to stress-test-free switches previously, but OSFI did the right thing. And that’s a credibility booster in industry circles.

Thank you Rob for such great insight as always!

Tips to Pay off Your Mortgage Faster

Mortgage Tips Trish Pigott 25 Sep

Paying off your mortgage faster in Canada can save you a significant amount in interest and help you become debt-free sooner. Here are the top 5 tips to achieve that:
 
1. Make Biweekly Payments
 
Instead of making one monthly payment, switch to biweekly payments. This results in 26 half-payments, which equals 13 full payments each year instead of 12. That extra payment can significantly reduce the interest over time.
 
2. Pay Extra Toward the Principal
 
Whenever you can, make extra payments that go directly toward the principal balance. Even small additional amounts such as $100 can have a huge impact, especially if done consistently over the life of the loan. Usually you can make lump sum payments up to 15-20% of your original mortgage amount without penalty.
 
3. Refinance to a Lower Interest Rate
 
Refinancing from a higher rate to a lower rate can significantly reduce the interest paid over time. Although you may have to pay a penalty to change the mortgage, often you will save and pay less interest in the long run.
 
4. Round Up Your Mortgage Payment
 
Round up your regular mortgage payment to the next $100. For instance, if your bi-weekly payment is $1321, round it up to $1400. Chances are you won’t even remember you did it a month later and that extra amount goes straight to principal.
 
5. Shorten the Amortization Period
 
When your mortgage renews, try to shorten the length of your amortization period (e.g., from 25 years to 23 or even 20 years) can dramatically lower the total interest paid and get you mortgage-free faster.
 
By following these strategies, you can minimize interest and accelerate the path to being mortgage free faster!

Bank of Canada Rate Cut – September 2024

General Trish Pigott 4 Sep

Excellent news as we wrap up summer, the Bank of Canada (BoC) has cut rates again this morning by another .25%.  This change affects Variable Rate Mortgage holders and anyone with loans attached to the banks Prime Rate.

Lots of news today.  Both in Canada and the US. Both the 5-year Gov’t of Canada bond yield and the 10-year US Treasury are down this morning on all this news (this affects the Fixed Rate Mortgage Market).  Good news on adjustable and variable rates in Canada and potentially (hopefully) fixed rates down the line.

Let’s start with Canada.  As expected, the Bank of Canada lowered to 4.25%, which translates into a 6.45% Prime.  Canada’s imports are down over $1 billion in July.  Less imports = less stuff, translates into less discretionary spending.  60% of Canada’s economy is the consumer and when they’re buying less, that translates into potential job losses down the line.

Monetary policy remains restrictive. While the target overnight rate is now 4.25%, core inflation is only roughly 2.4%. Real interest rates remain too high for the economy to reach its potential growth pace of about 2.5%. Weaker growth implies a continued rise in unemployment and excess supply in other sectors.

Now down south; the US released data showing that US job openings fell to their lowest level since January 2021, consistent with other signs of slowing demand for workers.  US job growth has been slowing, unemployment is rising, and job seekers are having greater difficulty finding work, fueling fears about a potential recession.  Federal Reserve policymakers have made it clear they don’t want to see further cooling in the labour market and are widely expected to start lowering interest rates at their next meeting in two weeks.

In other news, consistent with a global economic slowdown, oil prices have plunged to new 2024 lows. Weak oil prices are a sign of lower inflation, growth and mortgage rates.

Does this affect Fixed Rates?  Bonds rallied in the wake of the disappointing US data, taking the 5-year government of Canada bond yield down to a mere 2.89%, well below the 3.4% level posted when the Bank of Canada began cutting interest rates in June. This decline in market-driven interest rates reduces fixed-rate mortgage yields again resulting in lower fixed mortgage rates.

In summary, today’s cut in the overnight rate will be followed soon by a 25 basis point (.25%) reduction in the prime rate to 6.45%, reducing variable and adjustable mortgage rates as well.   This puts a Variable Rate Mortgage today somewhere around 5.65% to 5.45% depending on lender and product.

Looking forward…..The Bank of Canada has two more decision dates this year: October 23 and December 11. At those meetings, the Bank is widely expected to continue its quarter-point rate cuts, taking the overnight rate down to 4.0% at yearend and 2.75% next year.  This is welcoming news to all new and current mortgage holders.

And some more information for those that love this topic from our partners at First National Financial

We summarize the Bank’s rationale for this decision by summarizing its observations below, including its forward-looking comments for signs of what may happen next.

Canadian inflation

  • As expected, inflation slowed further to 2.5% in July
  • The Bank’s preferred measures of core inflation averaged around 2.5%
  • The “share of components” of the consumer price index are growing above 3%, roughly at their historical norm
  • High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services

Canadian economic performance and outlook

  • In Canada, the economy grew by 2.1% in the second quarter – led by government spending and business investment – and this rate was “slightly stronger” than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July
  • The Canadian labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity

Global economic performance and outlook

  • The global economy expanded by about 2.50% in the second quarter, consistent with projections in the Bank’s July Monetary Policy Report
  • In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed
  • Euro-area growth has been boosted by tourism and other services, while manufacturing has been soft
  • Inflation in both regions continues to moderate. In China, weak domestic demand weighed on economic growth
  • Global financial conditions have eased further since July, with declines in bond yields. The Canadian dollar has appreciated modestly, largely reflecting a lower US dollar. Oil prices are lower than assumed in July

Summary comments and outlook

In making today’s decision, the Bank noted that excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. As a result, Governing Council is “carefully assessing” these opposing forces on inflation. Monetary policy decisions will be guided, therefore, by incoming information and the Bank’s assessment of the implications for the inflation outlook.

And has it has been doing for some time, the Bank said it “remains resolute” in its commitment to restoring price stability for Canadians.”

Feel free to contact me anytime directly to chat about all things mortgages at 604-729-7940