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Mortgage Update – St Patricks Day 2020

General Michael James 17 Mar

I have been waiting for things to stabilize before making any client facing communication but we aren’t there yet… firstly, these chaotic moments will pass. The mortgage rate market is sorting itself out as lenders figure out risk vs. hysteria. Prime Rate has come down a full 1% in March and further cuts expected. Bond yields are near or beyond historic lows – depending on the day of the week – and fixed rate pricings are changing due to liquidity reasons and risk assessments in the lending market. The economy is grinding to a halt as we face short-term lockdown/shut-in conditions and feel the global ramifications to this Covid 19 pandemic. This will pass. There will be some pain. The sun is going to shine again soon. We need to be resilient and weather the storm.
If you are in financial difficulty as a homeowner – please contact me directly to discuss.
If you wish to re-evaluate your mortgage position, there are some timely options to do so, depending on your financial profile.
Thinking big picture and long-term will help this difficult time pass.
Please contact me directly to help with any issues you may be facing.

Michael James


General Michael James 15 Jan

Rate Forecast 2019 – Is the train losing it’s steam?

General Michael James 6 Dec


Floating-rate mortgage holders who had feared the Bank of Canada’s recent full-steam-ahead view towards continued rate hikes can take a breather—at least for now.

The central bank adopted a more dovish stance at yesterday’s rate hold announcement, which confirmed a growing chorus of analysts who now expect the bank to take a slower pace on future rate hikes.

“Recent events aren’t likely to push the bank off of a tightening path, but they do remove any urgency in getting to a neutral policy rate,” wrote Brian DePratto, a senior economist with TD Bank. “We no longer expect the Bank of Canada to hike its policy interest rate in January. Spring 2019 now appears to be the more likely timing, allowing for the bank to ensure that the growth narrative is back on track.”

Just a month and a half earlier, when the BoC hiked rates for the fifth time in 15 months to 1.75%, it made clear its intention to bring rates to a “neutral range” it says is needed to keep inflation in check while not hindering the economy. It estimated that range to be between 2.50% and 3.50%.

The BoC reiterated this intention yesterday, but admitted it may now take longer to get there. “The appropriate pace of rate increases will depend on a number of factors,” the bank’s statement read.

And again this morning, during a speech in Toronto, Governor Stephen Poloz reiterated that the pace of increases will be “decidedly data dependent.”

“We will continue to gauge the impact of higher interest rates on consumption and housing, and monitor global trade policy developments,” he said. “The persistence of the oil price shock, the evolution of business investment and our assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy.”

Bond Market Skeptical About Future Rate Hikes

canada bond yield

Despite the Bank of Canada’s commitment to higher rates, the bond market is signalling it’s not so sure.

The Canadian 5-year bond yield, which leads fixed mortgage rates, has plummeted to a six-month low.

“The bond market has doubts about the Bank of Canada’s commitment to rate hikes in 2019,” Adam Button, Chief Currency Analyst at ForexLive, told CMT.

“Those doubts turned to outright defiance after [yesterday’s] statement,” he added. “The market is now pricing in fewer than two rate hikes in 2019. Before the BoC statement, the market was looking for a 65% chance of a hike at the January 9 meeting. That’s plunged to 25% and now a hike isn’t fully priced in before mid-year.”

What Does This Mean for Mortgage Rates?

Mortgage rate observers can be forgiven for expecting fixed rates to fall. With a decline in bond yields of this magnitude, that’s what you would normally see.

But Robert McLister, founder of rate-comparison website, explained that things are different this time.

“Normally we’d have seen at least one bank chop advertised fixed rates by now. But not this time. Banks are purposely padding margins,” he wrote. “On top of this, banks are increasingly building in small premiums to offset the policy/rate-driven slowdown in housing/mortgage growth, late-cycle housing/economic risk, and more stringent capital rules.”

Floating Rates Looking Attractive Again

With inflated fixed rates and the prospect of fewer Bank of Canada rate hikes over the next year, variable and adjustable-rate mortgages are looking more appealing to an increasing share of mortgage shoppers.

Nearly a third of CMHC-insured homebuyers (31%) chose a variable-rate mortgage over a fixed rate in the third quarter of 2018, the housing agency reported last week.

This is the highest share of high-ratio borrowers to choose variable rates since CMHC began tracking these figures. Typically no more than 20% go variable, according to the agency’s historical data.

McLister said the best variable rates for default-insured mortgages are currently around 2.80%, or 3.04% for those who are refinancing.

“That gives you at least a three-rate-hike head start over conventional 5-year fixed rates,” he noted.

Oct 24th – Bank of Canada raised rates again 5th time since 2017

General Michael James 24 Oct

RBC, TD, CIBC and BMO raise prime rates following Bank of Canada interest rate hike



As was universally expected, the Bank of Canada’s Governing Council hiked overnight rates this morning by 25 basis points taking the benchmark yield to 1-3/4%. This marked the fifth rate increase since the current tightening phase began in July 2017 (see chart below). The central bank stated it would return the overnight rate to a neutral stance, dropping the word ‘gradually’ that was used to describe the upward progression in yields since this process began. Market watchers will certainly note this omission. For the first time in years, the Bank has acknowledged it expects to remove monetary stimulus from the economy entirely.

So what is the neutral overnight rate? According to today’s Monetary Policy Report (MPR), “the neutral nominal policy rate is defined as the real rate consistent with output sustainably at its potential level and inflation equal to target, on an ongoing basis, plus 2% for the inflation target. It is a medium- to long-term equilibrium concept.” For Canada, the neutral rate is estimated to be between 2.5% and 3.5%, which implies that at a minimum, three more 25 basis point rate hikes are likely over the next year or so.

The Bank of Canada emphasized that the global economic outlook remains solid and that the U.S. economy is particularly robust, but is expected to moderate as U.S.-China trade tensions weigh on growth and commodity prices. The new U.S.-Mexico-Canada Agreement (USMCA) eliminated a good deal of uncertainty for Canadian exports, which will reignite business confidence and investment. Business investment and exports have been of concern in recent quarters, and the Bank is now looking towards a resurgence in these sectors, augmented by the recently-approved liquid natural gas project in British Columbia.

A continuing concern, however, is the decline in Canadian oil prices. Western Canada Select (WCS), a local blend that represents about half of Canada’s crude oil exports, has declined about 60% since July as global oil prices have risen (see chart below). WCS plunged below US$20 a barrel last week posting the biggest discount to West Texas Intermediate (WTI) on record in Bloomberg data back to 2008. WCS generally tracks heavy oil from Canada, which typically trades at a discount to WTI because of quality issues as well as the cost of transport from Alberta to the refineries in the U.S.

Canadian pipelines are already filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the U.S. or the Pacific Ocean is increasingly dragging down domestic oil prices. Oil-by-rail shipments to the U.S. are at an all-time high, but this is an expensive and potentially unsafe option and precludes Canadian oil exports to China and Japan.

An even broader concern is the impact of higher interest rates on debt-laden consumers. The Bank is well aware of the risks, as the MPR cited that “consumption is projected to grow at a healthy pace, although the pace of spending gradually slows in response to rising interest rates… Higher mortgage rates and the changes to mortgage guidelines are affecting the dynamics of housing activity. Housing resales responded quickly to the new mortgage guidelines, and the level of resale activity is expected to continue on a lower trajectory than before the changes. New home construction is shifting toward smaller units, although stronger population growth is estimated to raise fundamental demand for housing.”

Household credit growth has slowed, and the share of new mortgages with high loan-to-income ratios has fallen. The ratio of household debt to income has levelled off and is expected to edge downward (see chart below).

Low-ratio mortgage originations declined by about 15% in the second quarter of 2018 relative to the same quarter in 2017 (see charts below). The MPR shows that “while activity fell for all categories of borrowers, the drop was more pronounced for those with a loan-to-income ratio above 450%, leading to a decline in the number of new highly indebted households”.

Bottom Line: The Bank of Canada believes the economy will grow about 2% per year in 2018, 2019 and 2020, in line with their upwardly revised estimate of potential growth of 1.9%. The Bank asserts that mortgage tightening measures of the past two years have “reduced household vulnerabilities,” although the “sheer size of the outstanding debt means that vulnerability will persist for some time”. That is Bank of Canada doublespeak. What it means is expect three more rate hikes by the end of next year.



Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres


Global News- New Mortgage Rules 2018 – the new era

General Michael James 13 Dec

New mortgage rules 2018: A practical guide

WATCH: New mortgage rules mean you might have to buy a smaller home.

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Come Jan. 1, 2018, Canadians getting, renewing or refinancing a mortgage might have to prove that they would be able to cope with interest rates substantially higher than their contract rate.

New rules by Canada’s federal financial regulator announced in October mean that even borrowers with a down payment of 20 per cent or more will now face a stress test, as has been the case since January of 2017, for applicants with smaller down payments who require mortgage insurance.

Ottawa has already moved to tighten the rules around the mortgage market six times since July 2008, with a series of regulatory tweaks aimed at limiting the amount of debt that Canadians and financial institutions take on.

This is the seventh turn of the screw — and it could have a big impact.

Some 10 per cent of Canadians who got an uninsured mortgage between mid-2016 and mid-2017 would not have qualified under the new standards, a recent analysis by the Bank of Canada suggested.

LISTEN: Erica Alini joins Tasha Kheiriddin to discuss the new mortgage rules 

READ MORE: New mortgage rules could shut out 10% of low-ratio homebuyers: Bank of Canada

To put a number on it, the rules will likely affect about 100,000 homebuyers, who would qualify for a mortgage for their preferred house today but will likely fail the stress test for an equally large loan next year, according a report published by Mortgage Professionals Canada, an industry group.

Here’s how the new guidelines might affect you:

If you’re planning to buy a house with a downpayment of 20 per cent or more next year

The stress test means that financial institutions will vet your mortgage application by using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99 per cent) or their contractual rate plus two percentage points.

If you’re going be house-hunting next year, this may force you to settle for a less expensive home than you would be able to buy today. Or, you might have to wait and save up for a larger down payment.

READ MORE: Here’s how much house you’ll be able to buy with the new mortgage stress test

The rules might force Canadians to set their eyes on homes that are up to 20 per cent cheaper. But since few homebuyers are stretching their finances to the limit when applying for a mortgage, the average target price reduction will likely be smaller, $31,000, or 6.8 per cent, according to Will Dunning, chief economist at Mortgage Professionals Canada.

Of the 100,000 or so prospective home buyers that will hit a snag because of the stress test next year, Dunning estimates that about half will be able to make a different purchase than they had planned. The rest will give up on a home purchase.

READ MORE: New data shows how much it costs to rent a 2-bedroom unit across Canada

If you’re renewing your mortgage next year

Lenders don’t have to apply the stress test to clients renewing an existing mortgage.

This means that if you fail the stress test, you’ll probably get stuck renewing with your current financial institution, without being able to shop around for a better rate.

In some cases, “renewing borrowers may be forced to accept uncompetitive rates from their current lenders,” Dunning noted.

READ MORE: Failed the mortgage stress test? Alternative lenders await — at a price

If you’re refinancing your mortgage

If you’re planning on refinancing your mortgage, you’ll have to qualify according to the higher stress-state rates rather than your existing contractual mortgage rate, explained James Laird, president at Toronto-based CanWise Financial.

Say, for example, that you bought a $400,000 home and have a $100,000 mortgage balance left. You’d like to borrow $50,000 more for a renovation. You have a five year fixed-rate mortgage at 3.3 per cent.

Today, your lender would make sure that you can take on a $150,000 loan at 3.3 per cent, said Laird.

Starting next year, your financial institution would have to vet that $150,000 loan using a 5.3 per cent rate. If you’re close to the borrowing limit today, you might have to settle for a smaller loan.

READ MORE: Home renovations: The 4 big risks of borrowing against your house to pay for it

Four cases in which the rules likely won’t affect you

As they generally do, financial regulators have allowed for measures that will ease the transition, making sure the new rules don’t disrupt transactions that are underway by not yet completed in early 2018.

If you sign a purchase agreement on a new home before Jan. 1., lenders won’t have to apply the stress test even if you apply for a mortgage in the new year, said Laird.

This holds for pre-construction sale and purchase agreements, too, he added.

“Usually there’s eventually a cutoff,” said Laird, though in this case it’s not yet clear when that will be.

If you are pre-approved for a mortgage, some lenders will give you 120 days starting Jan. 1 to buy your new home without worrying about the new rules.

The same holds for mortgage refinancing. If you have a mortgage refinance commitment in place by Dec. 31, you have 120 days to follow suit, said Laird.

Of course, the stress test won’t have much of a concrete impact on you if you pass it. Borrowers with plenty of spare financial capacity will be able to go about their business.

WATCH: What you need to know about getting a mortgage

About credit unions

The Office of the Superintendent of Financial Institutions (OSFI) rules only apply to federally regulated financial institutions, meaning Canadians might be able to continue borrowing without a stress test if they turn to provincially-regulated credit unions.

READ MORE: As tougher federal mortgage rules loom, will Canadians turn to credit unions?

In the past, however, credit unions have voluntarily adopted new federal standards on mortgage rates “pretty quickly,” said Laird.

Still, adopting rules on a voluntary basis means they would be able to make some exceptions, he added.

The stress test measures only one of three risk metrics lenders look at, said Laird. Essentially, it ensures that borrowers’ housing expenses compared to their income remain below a certain threshold even if rates rise.

But when evaluating a borrower, financial institutions also look at the size of the loan compared to the price of the house, as well as credit scores.

A credit union that has voluntarily adopted the stress test, might make an exception for a family with very strong credit scores and a down payment considerably higher than 20 per cent, even if they fail to qualify under the new rules by a small margin, said Laird.

© 2017 Global News, a division of Corus Entertainment Inc.