It’s a common held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that your lender is somehow obligated to renew your mortgage. This is simply not the case. The truth is, a lender is never under any obligation to renew your mortgage. The initial mortgage contract was drawn up for a defined time, when that term comes to an end, the lender has every right to call the loan.
Now, granted, most lenders are happy to renew your mortgage if you have made all your payments on time but there are several factors that can come into play that could prevent this from happening. If the lender becomes aware that you have recently gone through a divorce, a bankruptcy, or a job loss, they might be hesitant to renew your mortgage. Although more frequently seen in commercial mortgages, banks will often decide not to renew a mortgage if they don’t like the economic climate or certain geographical area.
So how do you protect yourself? Well, the first plan of action is to speak with your mortgage professional about your options at renewal at least 90-120 days before your term is set to expire. This will ensure you have enough time to look at all your options. It might make sense to switch to another lender, or it might make sense to stay put. However, by dealing with an independent mortgage professional (as opposed to directly with the lender), you have someone working for you, on your team, instead of someone working for the lender, trying to make money for the lender.
The best plan of action is to be prepared, and to have a plan in place. If you would like to talk about your financial situation, please contact us anytime, we would love to work with you.
The Bank of Canada today maintained its target for the overnight rate at 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent.
Global growth remains solid and broad-based. In the United States, new government spending and previously-announced tax cuts are anticipated to boost growth in 2018 and 2019. However, trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.
In Canada, the national accounts data show that the economy grew by 3 per cent in 2017, bringing the level of real GDP in line with the projection in the Bank’s January MonetaryPolicy Report (MPR). In the fourth quarter, GDP growth was slower than expected, largely due to higher imports, while exports made only a partial recovery from their third-quarter decline. The gain in imports mainly reflected stronger business investment, which adds to the economy’s capacity.
Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand ahead of new mortgage guidelines and other policy measures. It will take some time to fully assess the impact of these, as well as recently announced provincial measures, on housing demand and prices. More broadly, the Bank continues to monitor the economy’s sensitivity to higher interest rates. Notably, household credit growth has decelerated for three consecutive months. The implications of the recent federal budget for the outlook for growth and inflation will be incorporated in the Bank’s April projection.
Inflation is running close to the 2 per cent target and the Bank’s core measures of inflation have edged up, consistent with an economy operating near capacity. Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack. Inflation is fluctuating because of temporary factors related to gasoline, electricity, and minimum wages.
In this context, Governing Council maintained the target for the overnight rate at 1 1/4 per cent. While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
This was the second announcement in 2018, here are the announcements dates set out for the remainder of 2018.
- April 18th 2018*
- May 30th 2018
- July 11th 2018*
- September 5th 2018
- October 24th 2018*
- December 5th 2018
*Monetary Policy Report published
2017 is in the rear view mirror and the road to 2018 is directly in front of us! As starting a new year is a great time to gain some perspective, let’s reflect on some of the changes brought about this last year in the Canadian housing and mortgage market, and maybe speculate a little bit about what’s to come. Mortgage writer Steve Huebl from Canadian Mortgage Trends keeps on top of things quite nicely, here are a couple of his latest articles. Let’s look forward, first, then backwards!
The Latest in Mortgage News – 2018 Forecasts
It can be a chore to stay on top of the latest mortgage news these days, particularly given the barrage of forecasts and predictions for housing markets in 2018.
Unsurprisingly, the majority of forecasts for the year ahead have focused on OSFI’s new mortgage rules, including the mortgage stress test for all uninsured mortgages, which officially come into effect on January 1, 2018.
Here’s a sampling of some of the latest forecasts on where home sales and prices are headed in the new year and beyond, and the impact that the new B-20 mortgage rules are likely to have.
CREA Forecasts Drop in Home Sales
The Canadian Real Estate Association (CREA) came out with its latest home sales forecast for 2018, and now expects a 5.3% drop in national sales to 486,000 as a result of OSFI’s new mortgage regulations.
That’s about 8,500 sales lower from its previous forecast. The Association also expects home prices to drop 1.4% in 2018 to $503,100.
“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ‘pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement.
“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”
Reuters Poll Points to Smaller Home Price Gains
A recent Reuters poll of analysts that found home prices are expected to grow just 1.9% in 2018 (vs. the 8.5% gain seen in 2017) due to the tougher mortgage rules and an expectation for further interest rate increases.
Toronto home prices are expected to cool to 2% in 2018 and rise to 3% in 2019, while Vancouver year-over-year price gains are still expected to hit 6% in 2018 before cooling to 4.6% in 2019.
A majority of the analysts surveyed said the new mortgage rules will have a “significant” impact on housing activity, though most noted that higher interest rates pose the biggest risk.
RE/MAX Outlook Points to Growth in the Suburbs
The 2018 Housing Market Outlook published by RE/MAX noted two distinct trends in 2017 that are expected to continue into 2018: the shift towards condo ownership in Canada’s highest-priced markets, Toronto and Vancouver, as well as a race to the suburbs for prospective homebuyers looking for better affordability.
In 2017, demand for condos in both Toronto and Vancouver continued to outpace supply, with prices increasing 16% and 22% year-over-year, respectively.
RE/MAX forecasts an overall 2.5% increase in residential sale prices in 2018 “as the desire for home ownership remains strong, particularly among Canadian millennials.”
CMHC Sees Moderating Home Price Increases
The Canada Mortgage and Housing Corporation (CMHC) is forecasting continued growth in home prices in its Housing Market Outlook, but at a more moderate pace.
It expects MLS average home prices to increase from a range of $493,900-$511,300 in 2017, to a range of $499,400-$524,500 by 2019.
CMHC also provided its forecast on expected interest rate increases over the near-term horizon: “In our baseline scenario, the posted 5-year mortgage rate is expected to lie within the 4.9%-5.7% range in 2018 and within the 5.2%-6.2% range in 2019.”
The Contrarian View
The folks over at CIBC don’t foresee OSFI’s new regulations having much material impact on the housing markets in both Vancouver and Toronto, at least not over the long run.
In case you missed the research note from CIBC’s deputy chief economist Ben Tal, he wrotethat government efforts to cool the Toronto and Vancouver housing markets will do little more than soften Canada’s two most expensive housing markets.
“On the surface [the stress test for uninsured mortgages] reduces the purchasing power of typical buyers by close to 20%, and we estimate that no less than 10-15% of mortgage originations will be impacted by that move. However, the actual reduction in demand is likely to be much less significant,” Tal wrote. “We suggest that the combination of the creative imagination of borrowers, some exceptions to the rule and increased activity among alternative lenders will soften the blow to the market as a whole with actual demand slowing by only 5-7% in the coming year.”
Tal also cites supply constraints for new housing development, particularly in Toronto, along with long-term housing demand in Toronto and Vancouver from new immigrants and non-permanent residents as increasing price pressure over the long run.
2017 – A Year in Review
As we count down the final days of 2017, we look back on a year that presented fresh challenges for the mortgage industry with the announcement of yet more mortgage rule changes.
While OSFI’s B-20 changes dominated headlines during the later part of the year, here are some of the other top mortgage newsmakers for 2017:
After two years with the overnight target rate stuck at 0.50%, the Bank of Canada began a new rate hike cycle with quarter-point increases in July and September, with more hikes widely expected in 2018.
The most important benchmark for fixed-rate pricing is the 5-year government bond and in 2017 we were reminded of how fast 5-year yields can climb.
Finally, here’s a look at the performance of Canada’s big banks along with the public companies that make the majority of their revenue in the mortgage business.
1 Discounted mortgage rates reflect estimates taken from the most competitive lenders’ rate sheets, as of December 31.
2 RBC’s 5-year non-redeemable GIC with monthly interest is used as a proxy for GIC rates. In reality, some lenders have to pay notably more on their GICs than RBC.
OSFI’s forthcoming stress test for all uninsured mortgages after January 1 will have far-reaching effects across the mortgage industry, potentially removing up to 50,000 buyers from the real estate market each year.
That’s one of many key findings from Mortgage Professionals Canada’s Annual State of the Residential Mortgage Market survey, released this week by the association’s chief economist Will Dunning.
“The market is already slowing under the weight of increased interest rates, and policies aimed at suppressing the market further might be adding to economic risks,” he said.
Like in years past, this report dishes up a healthy serving of relevant and insightful industry statistics. We’ve combed them over and have included some of the most pertinent below. (Data points of special interest appear in blue.)
New OSFI Regulations
- 18%: The percentage of prospective homebuyers who require a mortgage and who otherwise would have had reasonable prospects of completing their desired transactions, that are expected to fail the stress test and therefore not be able to make their anticipated purchase
- 91%: The percentage of new mortgages, across all channels, that will be subject to some form of stress testing
- 6.8% (or $31,000): The amount that potential homebuyers will need to reduce their target price in order to pass the stress test
- 20%: The percentage of buyers who will have to adjust their target price by less than 2.5%
- 40-50%: The percentage of buyers who will fail the stress test, that are expected to be unable to find an alternative for which they can qualify
- 100,000: The number of prospective buyers who previously could have qualified for financing, who will now be disqualified
- 50,000-60,000: The number of buyers who will still be able to make a purchase, though one that is “less attractive to them”
- 40,000-50,000: The number of prospective buyers who will be removed from home ownership entirely
- 50,000-100,000: The potential number of renewers each year who “may find themselves unnecessarily vulnerable” in their mortgage renewals as they will be unable to negotiate with other federally regulated lenders
- “In some cases, these renewing borrowers may be forced to accept uncompetitive rates from their current lenders,” Dunning notes
Mortgage Types and Amortization Periods
- 68%: Percentage of mortgage in Canada that have fixed interest rates (72% for mortgages on homes purchased during 2016 or 2017)
- 28%: Percentage of mortgages that have variable or adjustable rates (24% for mortgages taken out in 2016/2017)
- 4%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages
- 86%: Percentage of mortgages with and amortization period of 25 years or less (81% for home purchased between 2014 and 2017)
- 14%: Percentage with extended amortizations of more than 25 years (19% for recent purchases between 2014 and 2017)
Actions that Accelerate Repayment
- ~33%: Percentage of overall mortgage holders who voluntarily take action to shorten their amortization periods (vs. 38% of recent buyers)
- For buyers who purchased a home between 2014 and 2017:
- 18% made a lump-sum payment (the average payment was $19,500)
- 16% increased the amount of their payment (the average amount was $440 more a month)
- 10% increased payment frequency
- 46%: Percentage of borrowers who took out a new mortgage during 2016 or 2017 who obtained the mortgage from a Canadian bank (vs. 61% of total mortgages)
- 39%: Percentage of recent mortgages that were arranged by a mortgage broker (vs. 27% of overall mortgages)
- 12%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 8% of all mortgages)
- 2.96%: The average mortgage interest rate in Canada
- A small drop from the 3.02% average recorded last year, though down substantially from the 3.50% average rate in 2013
- 2.90%: The average interest rate for mortgages on homes purchased during 2017
- 2.68%: The average rate for mortgages renewed in 2017
- 51%: Of those who renewed in 2017, percentage who saw their interest rate drop
- Among all borrowers who renewed in 2017, their rates dropped an average of 0.19%
- 2.72%: The average actual rate for a 5-year fixed mortgage in 2017, about two percentage points lower than the posted rates, which averaged 4.72%
- 0.24% (1 in 401 borrowers): The current mortgage arrears rate in Canada (as of August 2017)
- $1,486: The average monthly mortgage payment ($1,568 for recent purchases made from 2014 to 2017)
- 62%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
- 58%: The average equity ratio for owners with both a mortgage and a HELOC
- 81%: The equity ratio for those without a mortgage but with a HELOC
- 91%: Percentage of homeowners who have 25% or more equity in their homes
- 53%: Among recent buyers who bought their home from 2014 to 2017, the percentage with 25% or more equity in their homes
- 9% (860,000): Percentage of homeowners who took equity out of their home in the past year
- $54,500: The average amount of equity taken out
- $47 billion: The total equity takeout over the past year
- $28 billion was via mortgages and $17 billion was via HELOCs
- Most common uses for the funds include:
- 26% (10.7 billion): For purchases (including education)
- 22% ($9 billion): For home renovation and repair
- 21% ($8.7 billion): For debt consolidation and repayment
- 21% ($8.4 billion): For investments
- 10% ($4.2 billion): For “other” purposes
- Equity takeout was most common among homeowners who purchased their home during 2000 to 2009
Sources of Down payments
- 26%: The average down payment made by first-time buyers from 2014 to 2017, as a percentage of home price
- This is a significant increase from previous surveys, where the average down payment was consistently around 20%. Dunning writes that most of these buyers appear to have increased their down payments to avoid the need for mortgage insurance
- The top sources of these down payment funds for homes bought from 2014 to 2017 were:
- 92%: Personal savings
- 43%: Gifts from parents or other family members (vs. 23% from 2010-2013)
- 19%: Loan from parents or other family members (vs. 12% from 2010-2013)
- 27%: Loan from a financial institution
- 29%: Withdrawal from RRSP
- 105 weeks: The amount of working time at the average wage needed to amass a 20% down payment on an average-priced home
- This is up from 93 weeks in 2014 and 53 weeks two decades ago
Homeownership as “Forced Saving”
- 50%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
- 10 years ago this share was about 25%
- Dunning notes that rapid repayment of principal means that, “once the mortgage loan is made, risk diminishes rapidly”
- He added that most affordability analyses use the posted rate, “which gives a distorted impression of the current level of affordability, and of how current affordability compares to the past”
A Falling Homeownership Rate
- 67.8%: The homeownership rate in Canada in 2016
- Ownership rates fell for the three youngest age groups of buyers (first-time buyers) by more than 4%
- Dunning attributes this “disappointing” change to:
- The increased difficulty of saving down payments
- The elevated rate of “forced saving”
- Five sets of mortgage insurance policy changes by the federal government that have made it more difficult to buy
- 7.15: The average score (on a scale of 1 to 10 where 1 indicated complete disagreement) with the following statement: “Low interest rates have meant that a lot of Canadians became homeowners over the past few years who probably should not be homeowners.” (Up from an average score of 6.98 in previous surveys)
- 7.15: Average score in response to the statement that “real estate in Canada is a good long-term investment” (down from the previous average of 7.28)
- 90%: The percentage of homeowners who are happy with their decision to buy a home
- 7%: Of those who regret their decision to buy, the regret pertains to the particular property purchased
- Just 4% regret their decision to buy in general
Consumers’ Comfort with Technology
- 65%: Percentage of mortgage consumers who are “moderately” or “quite” comfortable with texting or instant messaging their mortgage professional with questions or concerns (77% of those aged 18-24)
- 47%: Percentage who are moderately or quite comfortable with being served by an online digital mortgage advisor (i.e., a chatbot) when applying for a mortgage (vs. 58% of those aged 18-24)
- 40% are “uncomfortable” while 27% are “moderately uncomfortable”
- 50%: Percentage who are moderately or quite comfortable with applying for a mortgage through an app on their mobile device (vs. 73% for those aged 18-24)
- 36% are uncomfortable while 26% are moderately uncomfortable
- Dunning notes that comfort levels are greatest for the youngest age groups, but surprisingly also among those aged 65 and older
Outlook for the Mortgage Market
- Data on housing starts suggests housing completions in 2018 will increase slightly compared to 2017. “This factor, therefore, will tend to increase the growth rate for mortgage credit,” Dunning writes.
- “Another significant factor is that low interest rates mean that consumers pay less for interest and, therefore, are able to pay off principal more rapidly,” he noted. “Current low interest rates have, therefore, tended to reduce the growth rate for mortgage debt.”
- 5.9%: The current year-over-year rate of mortgage growth (as of August)
- Vs. an average rate of 7.3% per year over the past 12 years
- Dunning expects the growth rate to slow to 5.6% by the end of 2017 and 5.5% for 2018
This article was written by Steve Huebl of Canadian Mortgage Trends. It was originally published here on December 8 2017.
The Bank of Canada today maintained its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economy is evolving largely as expected in the Bank’s October Monetary Policy Report (MPR). In the United States, growth in the third quarter was stronger than forecast but is still expected to moderate in the months ahead. Growth has firmed in other advanced economies. Meanwhile, oil prices have moved higher and financial conditions have eased. The global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies.
Recent Canadian data are in line with October’s outlook, which was for growth to moderate while remaining above potential in the second half of 2017. Employment growth has been very strong and wages have shown some improvement, supporting robust consumer spending in the third quarter. Business investment continued to contribute to growth after a strong first half, and public infrastructure spending is becoming more evident in the data. Following exceptionally strong growth earlier in 2017, exports declined by more than was expected in the third quarter. However, the latest trade data support the MPR projection that export growth will resume as foreign demand strengthens. Housing has continued to moderate, as expected.
Inflation has been slightly higher than anticipated and will continue to be boosted in the short term by temporary factors, particularly gasoline prices. Measures of core inflation have edged up in recent months, reflecting the continued absorption of economic slack. Revisions to past quarterly national accounts have resulted in a higher level of GDP. However, this is unlikely to have significant implications for the output gap because the revisions also imply a higher level of potential output. Meanwhile, despite rising employment and participation rates, other indicators point to ongoing – albeit diminishing – slack in the labour market.
Based on the outlook for inflation and the evolution of the risks and uncertainties identified in October’s MPR, Governing Council judges that the current stance of monetary policy remains appropriate. While higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
As this was the last announcement in 2017, here are the announcements dates set out for 2018.
- January 17th 2018*
- March 7th 2018
- April 18th 2018*
- May 30th 2018
- July 11th 2018*
- September 5th 2018
- October 24th 2018*
- December 5th 2018
*Monetary Policy Report published