March 2025 Rate Cut from Bank of Canada

Latest News Trish Pigott 12 Mar

Bank of Canada Cuts Policy Rate By 25 BPs
The Bank of Canada (BoC) reduced the overnight rate by 25 basis points this morning, bringing the policy rate down to 2.75%, within the neutral range of 2.25%—2.75%. Tariff tremors have already led to a decline in consumer confidence and spending, a weakening labour market, and a decline in business investment. Compound that with falling population growth, and you see why the Governing Council took the overnight rate down again even though they state that monetary policy cannot offset the impacts of a trade war.

Trade wars lead to higher prices and slower growth. The rise in prices causes consumers to tighten their belts, concerned about the impact of tariffs on their income and investments. Today, there is a 25% tariff on steel and aluminum exports to the US. This impacts Canada the most as it supplies roughly 80% of US aluminum demand. The EU introduced retaliatory tariffs on US goods in response. Canada added to its retaliation. Recent data suggest the US economy is slowing.

Monetary policy remains restrictive as the real overnight rate (2.75% minus the headline inflation rate) is 85 bps, up from the historical average of 60 bps. Five-year Government of Canada bond yields increased on the news to 2.65% compared to 4.05% in the US. The Federal Reserve is not expected to cut rates when it meets again this month.

Despite relatively strong GDP growth in Canada in the second half of last year, home sales and hiring began to slow in late January due to tariff threats, and more tariffs are yet to come. On March 20, China is expected to impose 100% retaliatory tariffs on Canadian canola oil, while pork and seafood will face a 25% levy. The Chinese tariffs are a push-back against Canada for imposing a 100% levy on electric cars from China and  25% on steel and aluminum.

On April 2, the US announced it will impose reciprocal tariffs on nations that have levied tariffs on US goods. President Trump has also said he is considering imposing retaliatory tariffs on Canadian dairy and lumber.

“We’re now facing a new crisis. The economic impact could be severe depending on the extent and duration of new US tariffs,” Macklem said in his prepared remarks.

Macklem called the uncertainty of the tariff dispute “pervasive” and said that it was “already causing harm.” Officials said the “continuously changing” US tariff threat was hitting consumers’ spending intentions and limiting businesses’ plans to hire and invest.

At the same time, Macklem said the bank “will proceed carefully with any further changes” to borrowing costs, and officials would “need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.”
Bottom Line

These are uncertain times. The US is determined to impose worldwide tariffs, disproportionately hitting Canada, Mexico, and China, the US’s top trading partners. This is a misguided neo-Mercantilist policy. Mercantilism assumes that the global economic pie is fixed, so if one country prospers, another must fail. This idea of a zero-sum game was debunked in the 18th century by Adam Smith and others who showed that if countries have a competitive advantage in various products and services, all are better off by producing and trading those products with the rest of the world. It is not a zero-sum game. The economic pie grows with trade. This was the idea behind globalization and the USMCA free trade agreement.

Given Canada’s vulnerability to tariffs, the economy will suffer more than the US, which has a relatively closed economy (where exports are a small proportion of GDP). Prices will rise depending on the duration and size of the coming tariffs, but mitigating the inflation will be the weakness in economic activity. Stagflation, a buzz-word in the 1970s, is back in the lexicon. We expect the BoC to continue cutting the policy rate in 25-bps increments until it reaches 2.25% this June, triggering a rebound in home sales. Layoffs and spending cuts will dampen sentiment, but lower interest rates will bring buyers off the sidelines.

Tariffs and Your Mortgage

General Trish Pigott 6 Mar

UPDATE 3/6/25: Just as I was about to send this apparently Trump has paused the tariffs to Mexico and now Canada until April 2.  Good grief….how does anyone keep up with this…either way here are some tips below if he is back at it next month on how to handle your mortgage and potentially take advantage of falling rates.

On Tuesday, March 4, 2025 Trump has imposed tariffs of 25% on goods coming from Mexico and Canada, 10% on Canadian energy, and an additional 10% on goods from China and has since already scaled back on 3 automotive suppliers.  Canada has come back with retaliatory tariffs and now we end up in a trade war with the US. There is so much debacle with the entire Trump administration, it’s mind blowing that this is where we are in todays day and age.

Over the last few days we’ve seen a wild ride in the stock markets and as a result the bond market has fallen which directly affects fixed mortgage rates.  We have not seen the bond market this low since mid 2022.  We have also had multiple economists report yesterday and today that the Bank of Canada will respond with additional rate cuts to the overnight target rate (which affects the Prime rate) and now expected that we will see 4 more cuts by July of this year with the first one next week.

How does this affect mortgage holders; 

  • New Mortgage Borrowers:  This will allow you to qualify for slightly larger mortgages and give lower payments in either a Variable Rate Mortgage or Fixed Rate Mortgage as rates drop
  • Existing Variable Rate Mortgage Borrowers: This will lower your mortgage rate when Prime comes down and in some cases lower mortgage payments.
  • Existing Fixed Rate Mortgage Borrowers: Potential opportunity to reduce your current rate by either Refinancing your mortgage or Switching your mortgage to a new lender at a lower interest rate improving your cash flow.
  • Although lower mortgage rates are usually a positive thing for home owners, buyers and the real estate market in general, this is a very difficult time for our economy.  There are so many unknowns and we do not want to repeat what happened during the pandemic years with rock bottom rates and then a rate spike.
Reminders on moving forward: 
  • Although lower rates generally equal lower payments, this is a time to build up your savings and not to overspend
  • Even though home buyers may qualify for more, be very aware of not over extending to protect your financial future
  • If you are Refinancing or Switching to get a lower rate, try and leave your current payment the same so that you are paying your mortgage and interest down that much faster
  • Be reminded that during the pandemic, many people maxed out their budgets with low mortgage payments and had excessive cash which was used to overspend in many cases in housing and consumer spending in general.  Be very careful not to get caught in that trap.
  • This drove up inflation substantially which ultimately caused the Bank of Government to increase rates in a short period of time putting a massive strain on many households financially due to rising mortgage payments

So in summary, while we may see lower rates over the course of this year, be very diligent with your spending habits right now as we see how everything will unfold with our borders and overall economy.

Now more than ever is the time to get your finances in order to prepare and plan. To get started and put a plan in place, contact me directly at 604-729-7940.

We are watching this daily and I will have an update out next week with the Bank of Canada’s next rate announcement on March 12, 2025.

What Do Potential Tariff’s Mean to Mortgages

Latest News Trish Pigott 12 Feb

Wondering how you may be impacted by potential tariffs and the threat of an economic trade war?
We are definitely in an economic time that we haven’t seen before and just when we think mortgage rates and the real estate market are normalizing after the pandemic, we get the Trump tariff shake up.  In a nutshell what it means more than anything is that we are in new territory with an unpredictable administration down south and it’s unclear when and how it will impact our economy.

I have been on calls all week with different economists and analysts trying to see how exactly we will be affected and the best summary I have found so far comes from Rob McLister of Mortgage Logic News.  I love the way he explains things;

“Trump’s “30 day period to see whether or not a final Economic deal with Canada can be structured,” implies a lot more negotiating ahead. And bargaining with this administration resembles a reality show where contestants win by applauding the host’s haircut. Investors will keep this uncertainty priced into yields until the coast is clear with tariffs.

“The good news is that Trump’s threats will make Canada’s economy stronger. Whoever wins the next election will start setting the stage to ensure the U.S. never wields this much control over our economy again. Politicians will diversify trade partnerships, reduce interprovincial trade barriers, invest in manufacturing and tech, promote “Buy Canadian,” and improve energy transportation.”

Yesterdays report from MLN seems fairly confident that we will come through this strongly and the benefit to homeowners and home buyers will be lower rates as the Bank of Canada will respond quickly to ensure we are not pushed too far into a recession.  That said, if they drop rates too quickly and trigger too much household spending and inflation gets out of hand again, we know that they are not scared to hike rates just like they did in 2022 so it’s a bit of a balancing act.

Today’s report came in from former BoC governor Stephen Poloz and he fears that our economy will be less resilient if the tariffs are imposed and that our economy is much weaker than it appears. He feels that if the tariffs are enforced that it will have much more drastic negative measure on our economy than the pandemic did.

So it’s a bit of a wait and see…however if you are in the market today for a new mortgage or to refinance or renew, do a bit of a financial health check to see where you are at and get advice from a professional on your mortgage before locking into anything.

  • Look at your 3-5 year plan
  • Will you have secure income for the next 3-5 years?
  • Do you foresee a potential move for any reason within 3-5 years?
  • Will you have increased debt in the next 3-5 years?
  • Do you have equity in your home if you need to refinance in an emergency?
  • Do you have any savings or assets to fall back on to weather a financial storm?
  • What is your risk tolerance?   Can you handle rising payments if the Variable Rate goes up again?
Since Monday, the bond markets have fallen substantially which has already resulted in lower interest rates this week with expectations that we will continue to see them come down.  We will most likely see another cut at our next BoC meeting on March 12 which will be a bit sooner than what was initially thought last week.

So when in doubt, don’t hesitate to call or connect with me. We are watching this daily and will keep you updated so stand by.  CLICK HERE to book a call if you want to review and discuss your personal situation.

New Mortgage Rules in Effect Dec. 15, 2024

Latest News Trish Pigott 11 Dec

Things are getting easier for First Time Home Buyers (FTHB) to qualify and have more flexibility with payments when getting into the market.  Effective Dec. 15, 2024, FTHB can now purchase a home up to $1.5M with an insured mortgage.  This was previously capped at $1M and as home values in the Vancouver market have continued to go up drastically over the past 5 years, this has put a lot of properties out of reach for buyers that want to get into a detached home.  This now allows buyers to have less than 20% down payment.  Previous rules required home buyers to have 20% down or more when purchasing over $1M.

Another change effective next week is that FTHB can now get a 30 year amortization as well when taking an insured mortgage.  Previously the longest amortization buyers could get with an insured mortgage was 25 years.  This helps with affordability as well as qualification.  This change is also available to those purchasing new construction properties as their principal residence whether you are a first time buyer or not.  You can now take an insured mortgage up to $1.5M on a newly constructed home and get the 30 year amortization.

We have 3 insurers in Canada, CMHC, Sagen and Canada Guaranty (CG). Information is starting to come out from all banks and insurers on these policy changes.  Here’s a snapshot of the changes:

30yr amortizations:

  • All buyers of newly built properties can have a 30yr amortization on an insured mortgage
  • First time home buyers can take advantage of a 30yr amortization on an insured mortgage
  • Only one applicant on the file needs to be a FTHB to qualify for a 30yr amortization
  • What defines a FTHB? Read more HERE:

Down payment requirements are the same for insured mortgages, it is calculated as:

5% of the first $500,000, then 10% on the remaining amount.  Example on a purchase price of $1.1M

$25,000 (up to $500,000)

$60,000 (remaining $600,000)

$85,000 Minimum Down Payment

Total Minimum Down Payment on a purchase price of $1.1M is $85,000

For any purchase price over $1.5M, the minimum down payment is 20% of the purchase price.

For more information or to discuss a specific file, please reach out to our team at support@primexmortgages.com or 604-552-6190

Jumbo Rate Cut in December

Latest News Trish Pigott 11 Dec

Good news this morning for our Variable Rate Mortgage holders and anyone with a loan attached to the Prime rate.  Today it was cut by .50% effective tomorrow which in turn will lower mortgage and loan payments.  For those with static payments, such as mortgages with TD, RBC and others, you will now be paying more towards the principal and less to interest.  Below is the news release from DLC’s own economist, Dr. Sherry Cooper.

If you want help or advice for anything mortgage related or how these rate cuts affect you, please connect with us at the office and we would love to chat more with you about it.

The BoC slashed the overnight rate by 50 bps this morning, bringing the policy rate down to 3.25%. The market had priced in nearly 90% odds of a 50 bp move, where consensus coalesced. The combined slower-than-expected GDP growth and a sharp rise in the Canadian unemployment rate to 6.8% triggered the Bank’s second consecutive jumbo rate cut. Today’s move will take the prime rate down 50 bps to 5.45% effective tomorrow, reducing floating rate mortgage loan rates by a half point, easing the cost of borrowing and reducing the monthly payment increase for renewals. This should spark housing activity, which accelerated in October and November.

The policy rate is now at the top of the estimated neutral rate range, 2.25% to 3.25%, with more moderate rate cuts continuing into next year. However, monetary policy remains restrictive, as the 3.25% policy rate is still 125 basis points above inflation, which has declined to roughly 2%, the Bank’s inflation target.

Economists have suggested that the tone of the central bank’s press release is more hawkish than before, unsurprising following two consecutive jumbo rate cuts. The Bank continues to say that its future decisions are data-dependent and will be impacted by policy measures taken by the government. In particular, the Bank highlighted the coming GST cuts, dispersal of bonus checks and the significant reduction in immigration. These developments have offsetting implications for inflation.

Governor Macklem signaled that he anticipated “a more gradual approach to monetary policy” in his press conference. We are forecasting 25 bp rate cuts through at least the first half of next year. That would take the overnight rate down to 2.5% by early June, a huge boost to housing that will likely enjoy a strong spring season.

Bottom Line

Today’s action is great news for the Canadian economy and housing activity. The central bank said that planned immigration target reductions are the “most significant” factor for the 2025 outlook and suggest below-forecast GDP growth. However, the “effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply.” Lower immigration is one of the “factors” that caused the BoC to cut 50 bps and not 25, Macklem said.

During this cycle, the Bank of Canada has been the most aggressive central bank in cutting rates. Even so, the Canadian dollar edged higher following the Bank’s announcement, likely because markets now expect a more moderate pace of rate reduction next year.

Jumbo Rate Cut from Bank of Canada

Latest News Trish Pigott 23 Oct

As expected, the Bank of Canada cut the overnight target rate by .50%.  The largest cut we have seen since the pandemic and well deserved for our Variable Rate Mortgage holders (including me) who have continued to ride out the past two years. Inflation and all economic data supported this rate cut.

DLC’s own economist, Dr. Sherry Cooper is anticipating we could see a total of another 1.25% cuts to this rate by Spring of next year.  This morning’s .50% rate cut reinforces speculation of another .50% cut in December.  However, the Bank will likely need to see continued weak economic data and low inflation to prompt another big move.

Below is more detail that came from Sherry Cooper and her bottom line is that, we will see a more robust market with the recent mortgage rule changes, lower rates and so many people that have been sitting on the sidelines.

In Dr. Sherry Coopers report today, she outlines that lower rates will trigger a rebound in the housing market with the following details that the Bank of Canada pointed out;

“Resales and renovations are anticipated to recover as interest rates decline. Renovations should also be supported by a projected rise in house prices. Recent changes to government mortgage insurance rules are expected to bolster housing demand. Although population growth should ease, the level of demand is expected to remain robust and support new construction. Lower interest rates may also facilitate some increase in housing supply by easing financing costs. However, constraints on the amount of land available for new homes, zoning restrictions and a lack of skilled labour are expected to limit the pace of construction, particularly over the near term. As a result, growth in housing demand is expected to outpace increases in supply. Unlike other sectors of the economy that are experiencing excess supply, the housing market is projected to remain tight. House prices are expected to rise, but the pace of increases will likely be restrained because some home buyers will face affordability challenges”.

Today’s action is great news for the Canadian economy and housing activity. Market participants are now expecting home resales to pick up sharply in the first quarter of next year. The coming spring housing season should be robust, boosting sales and prices.  If you would like to read the full article CLICK HERE

 

Now is also a great time to look at your own mortgage if you have one and see if you have room to improve your rate.  Often times it makes sense to pay a penalty and break the term early as you may reduce your monthly payments and save in interest overall.  We can help with that, reach out and we will run different scenarios for you to see what makes sense.

Contact us at the office at 604-552-6190 or support@primexmortgages.com

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!

Housing Market Update from Dr. Sherry Cooper

General Trish Pigott 15 Feb

Canadian Home Sales Continued Their Upward Trend in January As Prices Fell Modestly
The Canadian Real Estate Association announced today that home sales over the last two months show signs of recovery. National sales were up 3.7% between December 2023 and January 2024, building on the 7.9% gain in December. The chart below shows that despite the two-month rise, sales remain 9% below their ten-year average. According to Shaun Cathcart, CREA’s Senior Economist, “Sales are up, market conditions have tightened quite a bit, and there has been anecdotal evidence of renewed competition among buyers; however, in areas where sales have shot up most over the last two months, prices are still trending lower. Taken together, these trends suggest a market that is starting to turn a corner but is still working through the weakness of the last two years.”

National gains were once again led by the Greater Toronto Area (GTA), Hamilton-Burlington, Montreal, Greater Vancouver and the Fraser Valley, Calgary, and most markets in Ontario’s Greater Golden Horseshoe and cottage country.

The actual (not seasonally adjusted) number of transactions was 22% above January 2023, the most significant year-over-year gain since May 2021. While that sounds like a resounding rise in activity, January 2023 posted the weakest transaction level in nearly twenty years.

There is pent-up demand for housing, and recent buyers are lured back into the market by the recent price decline and the fear that prices could rise significantly once the Bank of Canada starts cutting interest rates. 

New Listings

The number of newly listed homes increased 1.5% month-over-month in January, although it remains close to the lowest level since last June.

“The market has been showing some early signs of life over the last couple of months, probably no surprise given how much pent-up demand is out there,” said Larry Cerqua, Chair of CREA.

With sales up by more than new listings in January, the national sales-to-new listings ratio tightened further to 58.8% compared to under 50% just three months earlier. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

There were 3.7 months of inventory on a national basis at the end of January 2024, down from 3.8 months at the end of December and 4.1 months at the end of November. The long-term average is about five months of inventory.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) fell by 1.2% month-over-month in January 2024, adding to the 1.1% price decline in December.

Price descents of late have been predominantly in Ontario markets, particularly the Greater Golden Horseshoe and, to a lesser extent, British Columbia. Elsewhere in Canada, prices are mostly holding firm or, in some cases (Alberta and Newfoundland and Labrador), continuing to rise.

The Aggregate Composite MLS® HPI was up 0.4% year-over-year in January 2024, similar to readings over the past six months.

Bottom Line

Sales in December and January generally run at about half the peak spring season pace. That could be especially true this year, with interest rates likely to begin falling by mid-year. A strong housing rebound is coming. Housing markets have bottomed, buyer sentiment is improving and fixed mortgage rates have started declining.

Housing markets in Toronto, Vancouver and Montreal are relatively balanced again, and with the spring season, we will see a rise in new listings.

In other news, the inflation data released yesterday in the US were higher than expected, pushing rate-cut forecasts further out. With the strength in the US economy, the 5-year government of Canada bond yield has quietly risen more than 50 basis points this year.

Canada’s Housing Minister, Sean Fraser, said he expects the fall in interest rates this year to encourage builders to ramp up their activity, helping to alleviate some of the country’s crunched housing supply. At a news conference yesterday, the minister said, “My expectation is if we see a dip in interest rates over the course of this year, a lot of the developers that I’ve spoken to will start those projects that are marginal today.”

Sean Fraser, asked whether he’s concerned that Bank of Canada rate cuts will unleash pent-up demand and higher home prices, said lower borrowing costs should also lead to an increase in supply. Fraser said whatever happens with rates, the government’s course of action will remain the same. “We need to do everything we can as quickly as we can to build as many homes as we can. And that’s going to be true today and six months from now, regardless of what may happen in the interest rate environment that we’re dealing with.”

At a news conference last week, Bank of Canada Governor Tiff Macklem said that while he’s heard from developers who’ve indicated higher rates are delaying projects, lowering rates would have a more significant impact on demand.

“It’s very clear in the data that the effects of interest rates on demand are much bigger than those on supply,” he told reporters.

CLICK HERE to read the full report

$20K More in 2024 Contest!

General Trish Pigott 4 Oct

Exciting news for First national clients! 

Imagine beginning the new year with an extra $20,000 towards your mortgage – a substantial boost that can truly make a difference. With such financial momentum, the possibilities are endless, and dreams can become reality.

If you have your mortgage with First National, then you are a lucky one as they are thrilled to introduce the $20K more for 2024 contest, offering First National clients the opportunity to win a $20,000 mortgage prepayment. Entering is simple, and every First National mortgage is eligible for one entry into the contest.

Here are the key details:

  • Contest Period: October 1st – December 15th, 2023
  • Contest Prize: $20,000 mortgage prepayment, to be awarded in January 2024

Entering is a breeze: 

  • Log in to My Mortgage
  • Click on the contest entry image
  • Sign up for electronic Annual Statements

Already registered for electronic annual statements? You can still enter the contest! Click on the contest entry image and answer the contest question.

What would 20K more for 2024 allow you to do?  Feel free to call our office at 604-552-6190 if you would like more information or how to obtain a First National mortgage. Good luck! 

Trish & The Primex Team

Market Beware: Subject Free Offers

General Trish Pigott 9 Aug

When purchasing a home, most offers include conditions or subjects, which are requirements or criteria to be met before the sale can be finalized and the property is transferred. Some of the most common subjects include:

  • Financing approval
  • Home inspection
  • Fire/home insurance protection
  • Strata document review if appliable

The purpose of these subjects is to protect the buyer from making a poor investment and ensure no hidden surprises regarding financing, insurance, or the state of the property.

These conditions are written up in the purchase offer with a removal date. The seller agrees to this before the sale is finalized. The deal can go through, assuming the subjects are lifted by the removal date. If the subjects are not lifted (perhaps financing falls through or something is revealed during the home inspection), the buyer can waive the offer, and the purchase becomes void.

However, recently, especially in heightened housing markets, subject-free (or condition-free) offers have emerged. These are purchase offers that are submitted without any criteria required! Essentially, what you see is what you get.

Below we have outlined the impact of subject-free offers on both buyers and sellers to help you better understand the risks and outcomes:

Pros of Subject-Free Offers

  • Buyers: The main benefit of a subject-free offer for a buyer is the ability to “beat the competition” in a heated market. However, it is not without risks.
  • Sellers: Typically, a subject-free offer will include a competitive price, willingness to work with the dates the seller prefers, and evidence that the buyer has already done as much research as possible. If time is sensitive for the seller because they are trying to purchase another home or want to move as soon as possible, they may also choose your offer over subject offers to expedite the process.

Cons of Subject-Free Offers

  • Buyers: As a buyer submitting a subject-free offer, you are assuming a great deal of risk in several areas, including financing, inspection, and insurance:
    • Financing: While buyers may feel that they have a pre-approval, so they don’t require a subject to financing, it is crucial to recognize that a pre-approval is not a guarantee of funding. If you submit a subject-free purchase based on a pre-approval, buyer beware. The financing is subject to the lender approving the property and the sale, from the price and location to the property type or other variables the lender deems essential. By submitting a subject-free offer without a financing guarantee (or an inspection, title check, etc.), there is a risk that the deal can fall through. Even when you do not include subjects on the offer, you still are required to finance your purchase. In addition, as sales are typically submitted with a deposit, there is a risk that the buyer will lose their deposit if the subject-free offer falls through. This amount can vary in the thousands and is typically a percentage of the purchase price or down payment.
    • Inspection & Insurance: If a buyer is also opting to skip the home inspection and home insurance protection subjects to have the offer accepted, then they assume massive risk as they do not know what they are getting and whether or not the property is up to code for insurance.
    • Due Diligence: With subject-free offers, there is no opportunity for due diligence after the offer. This requires the buyer to do all their research before their initial bid. Because it is firm and binding, a buyer who decides to back out will likely be met with severe legal ramifications. Submitting an offer without subjects is not due diligence and is at the buyer’s behest.
  • For Sellers: When it comes to the individual selling the property, there is less risk with subject-free offers but not zero. While the benefit is essentially there is no wait to accept the offer on the seller’s side, they do not know for sure if financing will come through.

Financing Around Subject-Free Offers

When submitting a subject-free offer, it is up to the buyer to do as much due diligence as possible before submitting. They must identify what the lender seeks to ensure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their best to secure financing beforehand.

Contractual Obligations

Be mindful when it comes to purchasing offers versus purchase agreements. While your purchase offer is a written proposal to purchase, the purchase agreement is an entire contract between the buyer and seller. The purchase offer acts as a letter of intent, setting the terms you propose to buy the home. If financing falls through, for example, the contract is breached, where the buyer may lose the deposit.

It is also essential to be aware of a breach of contract if a seller chooses to take action. For example, if you submit a subject-free offer of $500,000 and cannot secure financing for that offer, and the seller turns around and is only able to get a $400,000 deal with another buyer, they could potentially sue the initial buyer for the difference due to breach of contract.

Preparing a Subject-Free Offer

If you have decided to go ahead with a subject-free offer, regardless of the risks, there are some things you can do to mitigate potential issues, including: 

  • Get Pre-Approved: Again, this is not a guarantee of financing when you make an offer, but it can help you determine whether you would be approved.
  • Financing Review: Identify what the lender seeks to ensure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their best to secure financing beforehand.
  • Do Your Due Diligence: Look into the property and determine if there have been significant renovations or a history of damage. This could come in the form of a Property Disclosure Statement. While this statement cannot substitute a proper inspection, it can help identify potential issues or areas of concern. If possible, conduct an inspection before submitting your bid/offer.
  • Get Legal Advice: This can help you determine your potential risk and ramifications of the offer, should it be accepted or otherwise.
  • Title Review: Be sure to review the title of the property.
  • Insurance: Confirm that you can purchase insurance for the home. Remember that an inspection may be required for this, but in some cases, you can substitute for a depreciation report if it is recent.
  • Strata Documents (if applicable): Thoroughly review strata meeting minutes and related documents to determine areas of concern.

While there are things that can be done to help with subject-free offers, it is still risky. Ultimately submitting an offer with subjects gives you the time and ability to gather information on the above and access to the property or home for inspections.

Before making any offers, get a Pre-Approval in place so you can make the best decision. If you are intent on submitting a subject-free offer, discuss it with your real estate agent, as they can determine if a subject-free offer is necessary or if a short closing window would suffice to seal the deal. A good realtor will also keep you informed of potential interest and other bids during the process. Their goal should be to maximize your opportunity and minimize your risk.

Getting ready to put an offer in on your dream home? Call us first, we have many strategies to help shorten the traditional subject period and make your offer more competitive without going subject free to protect yourself.

604-552-6190

support@primexmortgages.com

Trish & The Primex Team

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