The Canadian Mortgage Charter spells out the rights consumers have when they are renegotiating mortgages. It calls on financial institutions to provide better relief measures over the next three years to Canadians buckling under a wave of renewals at much higher rates. The federal government has not budgeted any money for the mortgage charter and it is unclear which banks, if any, have signed on.

Under the new mortgage charter, lenders will be expected to notify mortgage holders four to six months in advance of their renewal date. The charter also emphasizes expectations that lenders should have appropriate mortgage relief policies for at-risk consumers, such as extending amortizations.

Canadians can expect:

• Allowing temporary extensions of the amortization period for mortgage holders at risk;
• Waiving fees and costs that would have otherwise been charged for relief measures;
• Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal;
• Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options;
• Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties; and,
• Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.

Update on the Tax-Free First Home Savings Account

The federal government introduced the Tax-Free First Home Savings Account in Budget 2022 to help Canadians get on track towards achieving their dreams of homeownership.

The new Tax-Free First Home Savings Account is a registered savings account that allows Canadians to contribute up to $8,000 per year, and up to a lifetime limit of $40,000, towards their first down payment. To help Canadians reach their savings goals, First Home Savings Account contributions are tax deductible on annual income tax returns, like a Registered Retirement Savings Plan (RRSP). And, like a Tax-Free Savings Account (TFSA), withdrawals to purchase a first home-including any investment income on contributions-are non-taxable. Tax-free in; tax-free out.

As of October 31, more than 250,000 Canadians have already opened a Tax-Free First Home Savings Account to save for their first down payment-putting homeownership back within reach across the country and helping them reach their savings goals sooner.

Tax-Free First Home Savings Accounts are currently available at more than 20 financial institutions across the country, and more institutions are continuing their work to launch Tax-Free First Home Savings Accounts soon.

The combined value of federal-provincial tax relief offered by the Tax-Free First Home Savings Account, compared to a taxable account for a couple living in Ontario, earning about $80,000 and each contributing $8,000 annually is detailed in Chart 1.2. Also shown is the maximum downpayment this couple could make with assistance from the Tax-Free First Home Savings Account, Home Buyers' Plan, and the Home Buyers' Tax Credit.

Housing International Students and Protecting Them From Fraud

International students bring significant social, cultural, and economic benefits to Canada, while enriching the academic experience of domestic students. They also continue to bring long-term benefits to Canada, as many international students transition to permanent residency, and eventually, citizenship.

Canada is a top destination of choice for international students, thanks to our high-quality educational institutions; our welcoming, diverse society; and the opportunities to work or immigrate permanently after graduation. While international students have contributed to life on campuses across the country, some have also experienced challenges.

To help ensure the protection of international students, the federal government is enhancing the Letter of Acceptance verification tool to help crack down on the fraudulent organizations that take advantage of international students wishing to pursue legitimate post-secondary educational opportunities in Canada.

Working with provinces, territories, and post-secondary designated learning institutions, the federal government will also put in place a Recognized Institutions Framework that would reward learning institutions with high standards around selecting, supporting-including by providing access to housing-and retaining international students. Additional details on these measures to help protect international students will be provided in the coming months.

For more details please visit the Government of Canada website here: https://www.budget.canada.ca/fes-eea/2023/report-rapport/chap1-en.html#a1

If you have any mortgage related questions at all please let us know.

We get it. Extra fees, premiums, varying interest rates are annoying. What do they even mean? What is their role in a mortgage? Today let’s break down the concept of insured mortgages, a.k.a. CMHC premiums.

What is a CMHC insured mortgage?

An insured mortgage is a mortgage that is protected by CMHC insurance. The insurance protects the lender, not the borrower, in the off chance there is (1) a default on the loan, (2) payments are no longer being made, and/or (3) there is a shortfall once the property has been sold.

In Canada, mortgage insurance is provided through the Canada Mortgage and Housing Corporation – a federal government crown corporation. So, when you see “CMHC insurance” or “insured mortgage,” just know they are both the same concept through the same organization.

The goal of the CMHC is to make housing more affordable for Canadians by providing funding, knowledge, research, and expertise. One method they utilize to make housing mor affordable is by offering a required 5% minimum down payment on properties less than $500k.

When is an insured mortgage required?

CMHC insured mortgages are required on all properties with a down payment of less than 20%. Why? Because you are borrowing a larger sum of money to finance the property, it helps protect the lender in the case where you are no longer to continue paying the mortgage. However, the minimum down payment required varies depending on the value of the property.

• If the property costs less than $500,000, you need a minimum down payment of 5%
• If the property costs more than $500,000, you need a minimum down payment of 5% on the first $500,000 and 10% on the remainder

If the property costs more than $1M, CMHC insurance is not available. This means that you will need a down payment of at least 20% on these properties.

What are some parameters of a CMHC insured mortgage?

The CMHC mortgage insurance premium you pay depends on the down payment. As of 2022, here is the premium based on the property’s loan-to-value:

• Up to and including 65% – 0.6% standard CMHC purchase premium
• Up to and including 75% – 1.7% standard CMHC purchase premium
• Up to and including 80% – 2.4% standard CMHC purchase premium
• Up to and including 85% – 2.8% standard CMHC purchase premium
• Up to and including 90% – 3.1% standard CMHC purchase premium
• Up to and including 95% – 4% standard CMHC purchase premium

Additionally, if your mortgage is insured through CMHC, the maximum amortization period allocated is 25 years. However, if you go with an uninsured mortgage, you can have an amortization period of up to 30 years.

To qualify for CMHC mortgage insurance, your total monthly housing costs cannot exceed 32% of your gross (before-tax) household income. Meaning, if your combined household income is $100k, housing costs cannot exceed $32k; roughly $2666 per month.

Finally, for residential mortgages in Canada, you can only have one homeowner CMHC-insured mortgage at a time. This means that you cannot get a second CMHC-insured mortgage for a second property – like a rental or vacation home.

Conclusion

The idea of paying a premium on your mortgage can be scary. However, mortgage insurance is great for individuals and households looking to enter homeownership with a smaller budget. With CMHC insurance, you only need to save up 5% for a down payment if the value of the property is less than $500k. Or it’s great for those looking to begin homeownership sooner than they thought!

CENTUM is here for you! Reach out to us today and let’s get chatting about your mortgage options!

If you're on the cusp of getting a mortgage, or if you're considering refinancing, you've likely encountered the terms "fixed rate" and "variable rate" mortgage. These are the two primary pathways in the mortgage landscape, and choosing between them can feel like standing at a crossroads. Let's unpack these options together, so you can stride forward with confidence.

Fixed Rate Mortgages: A Comforting Choice

Imagine walking outside on a chilly fall morning, wrapped in your favorite blanket-that's a fixed rate mortgage. It's stable, predictable, and you know exactly what to expect: no surprises, no sudden chills.

A fixed rate mortgage locks in your interest rate for the entire term of your mortgage. Whether that term is 2, 5, or even 10 years, your payments remain unchanged throughout that period. It's the go-to option for those who sleep better at night knowing their mortgage payment is set in stone, unaffected by the ebb and flow of the market.

The Pros:

• Predictability: Budgeting is a breeze when you know your payment amounts won't change.
• Simplicity: Fixed rates are easy to understand, which is a breath of fresh air for first-time buyers.
• Stability: If interest rates skyrocket, you'll be positioned with your rate firmly in place.

The Cons:

• Higher Rates: Fixed rates are often higher than the initial variable rates because you pay a premium for stability.
• Less Flexible: Breaking a fixed mortgage can be costly due to higher prepayment penalties.
• Opportunity Cost: If rates decrease, you could be paying more than necessary.

Variable Rate Mortgages: Riding the Financial Wave

Now, let's switch gears to the variable rate mortgage. If fixed rates are a comforting blanket, variable rates are more like surfing-thrilling and potentially rewarding but with a bit more uncertainty.

A variable rate mortgage fluctuates with the market. In Canada, this rate is tied to the lender's prime rate, which moves in tandem with the Bank of Canada's policy interest rate. Your mortgage payments will change whenever the prime rate changes. Some find this unsettling, while others see it as an opportunity to capitalize on lower interest rates.

The Pros:

• Lower Rates: Usually, variable rates are lower than fixed rates initially, potentially saving you money.
• Potential Savings: If interest rates go down, your payment amount might decrease.
• Flexible: Variable mortgages often come with lower prepayment penalties than fixed mortgages.

The Cons:

• Uncertainty: Rates can increase, potentially raising your monthly payments.
• Complexity: Requires a closer watch on the market and an understanding of economic factors.
• Risk: Not ideal for those who prefer stability and predictability in their monthly budget.

Which Type of Mortgage is Right for You?

Choosing between fixed and variable rates is not just about crunching numbers-it's about your comfort level with risk, your financial goals, and how you handle the unexpected. Here are a few scenarios for you to consider:

Go Fixed If:

• You Prefer Certainty: If the thought of fluctuating payments sends shivers down your spine, fixed is the way to go.
• You're on a Strict Budget: Fixed rates make sense if you have less flexibility in your monthly spending.
• You Believe Rates Will Rise: Locking in a rate now could save you money if you think rates are going up.

Go Variable If:

• You Want to Save Money Initially: A lower starting rate can mean significant savings-at least in the short term.
• You Can Handle Fluctuation: If your budget can handle potential increases in payments, variable rates could work for you.
• You're a Rate Hawk: If you're financially savvy and ready to refinance should rates change significantly, variable rates can be advantageous.

Consider the Economic Climate

Understanding the current economic environment is critical. If the economy is heating up, interest rates may rise to cool inflation-a point for fixed rates. If the economy is struggling, rates may decrease to stimulate spending-a tick for variable rates.

The Conversion Option

Some variable rate mortgages offer the flexibility to convert to a fixed rate during the term. This can be a safety net if you start with a variable rate and then decide you'd rather not ride the waves anymore.

Ask the Right Questions

When you're discussing your options with a mortgage broker, ask questions. A lot of questions! What is the penalty for breaking my mortgage? Can I make extra payments, and if so, how much? What's the process if I want to convert my variable rate to a fixed rate?

Final Thoughts

There's no universal right or wrong choice when it comes to fixed vs. variable rate mortgages. It all boils down to your personal situation, your risk tolerance, and the economic outlook. Both paths lead to homeownership. They just offer different scenery along the way.

Remember, a mortgage is one of the biggest financial commitments you'll make. Take your time, do your homework, and don't be afraid to ask for professional advice. That's what mortgage professionals are here for!

Whether you decide to anchor down with a fixed rate or sail with a variable rate, make sure your choice fits not just your wallet, but your peace of mind, too.

Tips for Improving Your Credit Score Before Applying for a Mortgage

For many people, buying a home is a significant milestone in their lives. However, getting approved for a mortgage isn't always a straightforward process. One of the most critical factors that lenders consider when evaluating your mortgage application is your credit score. A higher credit score can help you secure a better interest rate and save you thousands of dollars over the life of your loan. If you're planning to buy a home in the near future, it's crucial to focus on improving your credit score. In this blog post, we'll provide you with some essential tips to boost your credit score before applying for a mortgage.

1. Check Your Credit Report

The first step in improving your credit score is to obtain a copy of your credit report from all three major credit bureaus: Equifax, Experian, and TransUnion. Review your report carefully for any errors, such as incorrect account information or unauthorized inquiries. Dispute any inaccuracies with the credit bureau to have them corrected. A clean and accurate credit report is the foundation of a healthy credit score.

2. Pay Your Bills on Time

Consistently paying your bills on time is one of the most important factors that affect your credit score. Late payments can have a significant negative impact on your credit history. Set up payment reminders or automate your bills to ensure you never miss a due date. Remember that even one late payment can damage your credit score, so it's crucial to stay on top of your financial obligations.

3. Reduce Credit Card Balances

The amount of credit you're using compared to your available credit, known as your credit utilization ratio, plays a vital role in your credit score. To improve your credit score, aim to keep your credit card balances low. Ideally, you should aim to use less than 30% of your available credit. Paying down high credit card balances can have a positive impact on your credit utilization ratio and boost your credit score.

4. Avoid Opening New Credit Accounts

Every time you apply for a new credit card or loan, a hard inquiry is made on your credit report. These inquiries can temporarily lower your credit score. If you're planning to apply for a mortgage in the near future, it's a good idea to avoid opening new credit accounts. This will help keep your credit report free from recent hard inquiries.

5. Keep Old Accounts Open

The length of your credit history is another factor that influences your credit score. Older accounts can have a positive impact on your credit score, so avoid closing them, even if you're not using them regularly. Closing old accounts can reduce your credit history's average age, potentially lowering your credit score.

6. Diversify Your Credit Mix

Lenders like to see a mix of different types of credit accounts, such as credit cards, installment loans, and mortgages. Having a diverse credit mix can have a positive impact on your credit score. If you have only credit cards, consider adding an installment loan, like a personal loan or a car loan, to your credit profile to demonstrate responsible credit management.

7. Work with a Credit Counselor

If you're struggling with a low credit score and don't know where to start, consider working with a credit counselor. A reputable credit counselor can help you create a plan to improve your credit and provide valuable guidance on managing your finances more effectively.

A strong credit score is essential when applying for a mortgage. By following these tips and consistently managing your finances responsibly, you can improve your credit score and increase your chances of securing a favorable mortgage rate. It may take some time, but the effort you put into boosting your credit score will be well worth it when you're able to purchase your dream home with confidence.

Bank of Canada maintains policy rate, continues quantitative tightening

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5.25% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty.

In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures. Consumption has been subdued, with softer demand for housing, durable goods and many services. Weaker demand and higher borrowing costs are weighing on business investment. The surge in Canada's population is easing labour market pressures in some sectors while adding to housing demand and consumption. In the labour market, recent job gains have been below labour force growth and job vacancies have continued to ease. However, the labour market remains on the tight side and wage pressures persist. Overall, a range of indicators suggest that supply and demand in the economy are now approaching balance.

After averaging 1% over the past year, economic growth is expected to continue to be weak for the next year before increasing in late 2024 and through 2025. The near-term weakness in growth reflects both the broadening impact of past increases in interest rates and slower foreign demand. The subsequent pickup is driven by household spending as well as stronger exports and business investment in response to improving foreign demand. Spending by governments contributes materially to growth over the forecast horizon. Overall, the Bank expects the Canadian economy to grow by 1.2% this year, 0.9% in 2024 and 2.5% in 2025.

CPI inflation has been volatile in recent months-2.8% in June, 4.0% in August, and 3.8% in September. Higher interest rates are moderating inflation in many goods that people buy on credit, and this is spreading to services. Food inflation is easing from very high rates. However, in addition to elevated mortgage interest costs, inflation in rent and other housing costs remains high. Near-term inflation expectations and corporate pricing behaviour are normalizing only gradually, and wages are still growing around 4% to 5%. The Bank's preferred measures of core inflation show little downward momentum.

In the Bank's October projection, CPI inflation is expected to average about 3½% through the middle of next year before gradually easing to 2% in 2025. Inflation returns to target about the same time as in the July projection, but the near-term path is higher because of energy prices and ongoing persistence in core inflation.

With clearer signs that monetary policy is moderating spending and relieving price pressures, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank's balance sheet. However, Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed. Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is December 6, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on January 24, 2024.

Report as of the Bank of Canada website

Hello dear readers,

Let's have a coffee chat, shall we? If we were sitting in a cozy café, sipping on lattes (or your beverage of choice), today's hot topic of conversation would undoubtedly revolve around the big "I" – Interest Rates. Ah yes, those two words that make homebuyers' hearts flutter (and not always in a good way)!

If you're like many Canadians, you've been enjoying historically low mortgage rates for quite some time. But, as we know in life, what goes down must eventually come up. And, with murmurs about rising interest rates, it's essential to be prepared and have a game plan. So, let's dive in, and I promise to keep it as engaging as our hypothetical coffee chat.

1. Understanding the Landscape

First things first, we need to understand the lay of the land. The Bank of Canada – our central bank – is primarily responsible for setting the tone when it comes to interest rates in our country. Their decisions are influenced by a myriad of factors, but the big one is inflation. When the economy is booming and prices start rising too quickly, the Bank might hike up interest rates to keep inflation in check.

Now, as a homeowner or potential homebuyer, you might wonder, "What does that mean for me?" Well, when interest rates rise, the cost of borrowing does too. This directly impacts mortgages.

2. Fixed vs. Variable: The Age-Old Debate

Ah, the classic debate: Should you go for a fixed-rate or variable rate mortgage? If I had a dollar for every time someone asked me this question, I'd probably own half of Vancouver by now!

In a rising interest rate environment, the natural inclination is to gravitate towards fixed-rate mortgages. Lock in that rate and protect yourself from future hikes, right? Not always. Remember, variable rates, even though they fluctuate, have historically been lower than fixed rates. It becomes a game of risk versus reward. Can you stomach the possibility of rates going up in exchange for enjoying lower rates now? Or would you sleep better knowing exactly what your rate will be for the next five years?

Consider your financial situation, risk tolerance, and life goals before making a decision. And hey, always remember, you can switch from variable to fixed during the term if you feel the winds of change blowing too strongly.

3. Consider Making Prepayments

If you've got some extra cash lying around (maybe from that side gig or an unexpected bonus), think about making a lump-sum payment on your mortgage. Why? It reduces your principal, and that means less interest accumulation over time. Plus, with higher rates, this strategy can save you even more. Most mortgages allow for a certain percentage of prepayments annually without penalties, so take advantage of it!

4. Refinance Strategically

Refinancing can be a brilliant move in a rising rate environment, especially if you can lock in a rate lower than the predicted future rates. But remember, refinancing isn't free. Weigh the costs associated with breaking your mortgage against the potential savings from a new rate.

5. Adopt a Holistic Approach

Mortgages aren't just about interest rates. As we aim to optimize conversion rates in digital marketing, we should also look at "converting" our mortgage strategies for maximum benefit. That means considering payment frequency (bi-weekly accelerated can save tons of interest), assessing property value for potential equity take-outs, or even considering property investments as a hedge against rising costs.

Wrapping Up

As our imaginary coffee cups become empty, here's the takeaway: Yes, rising interest rates can seem daunting. But armed with the right strategies, knowledge, and perhaps a trusted mortgage broker (wink, wink), you can navigate this environment with confidence.

Remember, the mortgage world isn't one-size-fits-all. Just like how some of us are latte lovers and others swear by black coffee, your mortgage strategy should suit your unique taste and situation. So, whether you're looking to buy, refinance, or just get some advice, always ensure you're making the most informed decision possible.

Cheers to smart mortgage strategies and even better conversations! Let's keep this dialogue going, and as always, feel free to reach out with any questions or thoughts. Until our next coffee chat! ☕

Disclaimer: This blog post is meant for informational purposes only and does not constitute financial advice. Always consult with a licensed mortgage professional before making any mortgage decisions.