Tag Archives: Homewise

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How will the new ‘Stress Test’ help Canadian borrowers?

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How will the new ‘Stress Test’ help Canadian borrowers?

In January 2018, the OFSI mortgage stress test (B-20) was introduced to test a homebuyer’s ability to afford their property in the event of an interest rate increase. Before then, the stress test existed only for highratio mortgages – anyone borrowing more than 80 per cent. However, the new B-20 rules made the stress test applicable to all mortgages in Canada.

Under this stress test, Canadians are no longer qualifying for the value of the home they are purchasing, but instead, the greater of the Bank of Canada’s (BoC) five-year rate or the rate offered by their mortgage lender, plus two per cent. Consequently, this made the new process of qualifying for a mortgage a lot tougher, especially for first-time buyers.

Back in June 2018, the benchmark qualifying rate for the stress test was 5.34 per cent. After three rate drops from the BoC this year, it now sits at 4.79 per cent. This significant drop from 2018 has increased the overall home affordability of Canadian borrowers and thus made the stress test a little easier.

Why does the rate drop help with affordability?

A major pain point with the previous stress test was that its strict guidelines made affordability more difficult for borrowers. With the qualifying rate lowered to 4.79 per cent, this increases the amount of money homeowners and buyers can borrow and also expand their horizons in terms of what they can purchase.

For example, let’s say a young couple is looking to buy their first home. Their household income is $124,000 and they’re willing to make a down payment of five per cent on a $523,000 home. Under the previous stress test, this couple could get approved for a mortgage of $516,724. However, today they could get approved for a mortgage of $543,400 on a $550,000 home. From June 2018 to now, their home affordability increased by $27,000.

How will this help Canadian buyers and homeowners?

When the stress test was first put in place, many first-time buyers were impacted, as it reduced their home affordability. With the qualifying rate lowered to 4.79 per cent, the marketplace is much more inviting for those who have been anticipating the opportunity to purchase their first home.

For those who want to renew or switch their mortgage, the new stress test gives them more opportunity to explore better options outside of their current lender. Under the previous test, many homeowners looking to renew their mortgage could do so only with their existing lender as they wouldn’t be subject to the stress test. Today, this process is a lot more flexible and lenient to homeowners interested in shopping different lenders for a better mortgage. For individuals looking to refinance, the new stress test rate is positive, as it increases their overall affordability and the total amount they can borrow on top of their current mortgage.

The consistent rate drops over the last six months are a direct response to the recent pandemic and the federal government’s efforts to stimulate the Canadian marketplace. With the stress test rate lowered, there’s been a clear spike in buying activity across Canada. At Homewise, we’ve seen this first-hand with a strong influx of clients looking to refinance or switch their mortgage, or purchase their first home. Working with more than 30 banks and lenders, we make it possible for clients to shop around and find the best product for their unique circumstances. With all that said, the current marketplace is buzzing and presents more opportunities for both existing homeowners and prospective buyers.

Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

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How to prepare to buy a home in a hot market

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How to prepare to buy a home in a hot market

As lockdown restrictions ease up and provinces enter new phases of reopening, we’re seeing the Canadian housing market experience the momentum of a delayed “hot spring market” into the summer. With more people listing their homes and resuming home searches, we saw one of the hottest June markets nationwide in a really long time.

According to the Canadian Real Estate Association, national home sales shot up a total of 63 per cent month-over-month in June, with an increase of 15.2 per cent in overall activity year-over-year. As restrictions for open houses are being lifted, we can expect this trend to continue into the later summer months.

So, how can buyers best prepare for this hot housing market?

1 – Determine your down payment

A down payment is the amount of money a homebuyer pays up front when purchasing a home. Knowing what your down payment is from the get-go will make for a more productive home search. It will also give you a rough idea of how much you need to borrow for a mortgage, while helping you budget for other expenses such as closing costs and land transfer taxes, if you’re not a first-time homebuyer.

2 – Get Pre-Approved for a mortgage to find out what you can afford

Once you have a clear idea about what your down payment is, getting pre-approved for a mortgage is your next step. Pre-approval will help you establish your home affordability and what you can borrow right from the start. Having this information will allow you to set a realistic budget, which in turn will simplify your home search and make for a much more enjoyable home shopping experience. At Homewise, we’ve seen a strong increase in pre-approvals over the last three months as buyers were getting prepared to enter the market.

3 – Find a good realtor

Once you’re ready to start home shopping, find a knowledgeable realtor that knows how to navigate a hot market. You’ll want to find an unbiased individual that will steer you in the right direction and help you understand if you have access to buying opportunities in a broader market.

4 – Shop only for what you can afford

Whether you’re looking at a new or resale home, a key rule of thumb when shopping in a hot market is to shop only for what you can actually afford. One of the biggest mistakes buyers make is losing sight of their budget and spending beyond their means. When buying resale and you find yourself in bidding situation, make a five-day conditional financing offer. This gives you necessary time to work with a lender that can shop around and get the financing you need to close the deal.

At the end of the day, purchasing a home is a really exciting milestone. Being prepared and knowledgeable will only help you maintain this excitement as you enter a competitive marketplace. Knowing what you can afford will ensure you make a well-informed buying decision that you can feel good about. Happy shopping!

Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

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Why the new CMHC rules may not affect you

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Why the new CMHC rules may not affect you

At the beginning of June, Canada Mortgage and Housing Corp. (CMHC) announced its decision to tighten the guidelines for insured mortgages as of this month. This applies to mortgages with down payments of less than 20 per cent that require CMHC default insurance.

Given the recent COVID-19 pandemic, there have been varying outlooks of how the Canadian housing market will be impacted. Evan Siddall, CEO of CMHC – who is also scheduled to depart from the organization later this year – strongly believes that Canadian housing prices will be lowering despite upward trends seen across the country. As a result, he implemented these new policies to stop borrowing from who he deems to be riskier buyers.

When he made this decision, there was a lot of disappointment among first-time homebuyers, as they believed this directly targeted them and negatively affected their ability to buy a home. Now that the dust has settled around this and these changes are in full effect, we’re gaining more insight into who may be affected, and how – some good news for those worried first-time buyers.

So, what exactly are the new CMHC guidelines?

As of July 1, the following rules came into effect for insured mortgages:

  • The minimum credit score increased to 680 from 600, for at least one borrower
  • Buyers can no longer borrow money for a down payment (does not include family gifts)
  • Gross Debt-Service ratio decreased to 35 from 39 per cent (lowers affordability)
  • Total Debt-Service ratio decreased to 42 from 44 per cent (lowers affordability)
  • Multi-unit mortgage insurance refinancing is suspended (unless funds are used for repairs or reinvestment in the property)

Who could be affected?

These new rules have the potential to cut the purchasing power of many Canadian homebuyers as it decreases their overall housing affordability. At face value, we can expect this to impact first-time buyers the most, as they’re more likely to make down payments of less than 20 per cent, as well as buy a home close to their maximum affordability.

Some may not be affected at all

The mortgage rules technically only apply to lenders who use CMHC as their only insurer. In other words, not every lender (if any) will be following through with these new rules. Genworth MI Canada and Canada Guaranty are two CMHC competitors that have chosen not to adopt these stricter guidelines. So, depending on the lender you’re working with, Canadian buyers may not be impacted at all. In this climate, especially, shopping lenders and finding an unbiased mortgage advisor has never been more important and encouraged.

Changes like this are the exact reason we work with more than 30 banks and lenders at Homewise. Policies and lending guidelines are constantly changing, so having access to multiple lender options ensures that buyers can find the best mortgage for their unique needs.

Recently, we’ve received a lot of questions about how to navigate this situation. Given the many options we have available, we are able to guide our clients to the right lenders so they don’t have to worry about these new CMHC policy changes. Best of all, many top lenders with great features and rates don’t have to abide by this new criteria.

Given that these rules are new, we’re still learning how they can impact Canadian buyers. For the time being, it’s evident there are other avenues for many purchasers to get a great mortgage without being impacted by these new guidelines.

Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

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How to navigate the mortgage process during COVID-19

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How to navigate the mortgage process during COVID-19

Over the last few months, we’ve seen our world transform at the hands of a global pandemic. We’re living in very different times where meeting face-to-face isn’t really an option. Despite the new reality, the priority of taking care of our personal finances is one thing that hasn’t changed.

When it comes to getting a mortgage, there’s no shortage of demand right now. In addition to those looking to refinance or switch to the very low rates available, there are many Canadians who purchased homes before the pandemic who are looking to get approved. Further, the real estate market is beginning to heat up again, therefore mortgage demand is expected to rise even further. The good news is that despite the current situation, there are great options available to apply for a mortgage without having to leave your home.

In the face of COVID-19, operations and procedures across the mortgage industry have been forced to adapt and do business virtually. With many large financial institutions not exactly built for online, this has lowered efficiencies and increased wait times for many customers. Traditional brokers are also facing this dilemma. Many of them don’t have the infrastructure to facilitate the mortgage process outside of their offices, which has prompted a shift toward mortgage technology companies. For example, we have seen a 400-per-cent increase in site visits over the last three months.

Mortgage tech companies are a popular choice and have been resilient because they were already built to streamline the process digitally, while still having advisors to support clients throughout the process. People are looking for contactless options and these companies have been able to deliver an efficient way to get a mortgage without delays, and often get a better product than they would get with more traditional solutions.

Regardless of the route you choose, here are a few things to keep in mind if you plan to refinance, switch or apply for a new mortgage during this time:

1 – Looking to buy a home soon?
Get pre-approved. All this extra time on our hands has many people reassessing their personal finances and starting to plan for the future. There’s been a massive uptick in people getting pre-approved; it’s an important step and allows prospective buyers to search for a home with confidence, understand what they can afford and lock in a mortgage. To get pre-approved, contact a broker, call your bank or apply online with a digital mortgage company.

2 – Prepare your documents in advance.
Whether you’re looking to refinance, switch or apply for a mortgage, you’ll need to have the right documents on hand. Get a head start and organize all your paperwork to speed up the process later on.

3 – Shop lenders for the best mortgage.
Going from one bank to the next to find the best mortgage isn’t something you can easily do right now. So, one of the best ways you can shop around is to either call a broker or use a digital mortgage company. What’s great about these companies is that they’ll do the shopping for you, so you can find the best mortgage option without having to leave your home.

4 – Expect lenders to be tighter.
The financial downturn caused by COVID-19 alongside the heavy increase of unemployment has led many lenders to be slightly tougher about the application process. Finding an unbiased mortgage advisor will put you on the right path from the start. They’ll give you a full picture of the mortgage options and lenders available so you’re not out there spinning your wheels to get approved.

5 – How to close.
If you’re going to go digital with your mortgage, why not bring the rest of the process online? Regardless of what you’re applying for, you’ll need property insurance and a real estate lawyer for new purchases. Sonnet Insurance allows you to get multiple quotes and buy property insurance online, while Deeded facilitates the entire legal process through video chat. Both of these options are especially helpful in an era of social distancing, enabling you to do everything online from your own home.

The current conditions have really emphasized the advantages of tech companies and how they’ve changed the marketplace, especially when it comes to navigating the mortgage process. They are fully equipped to deliver services virtually and efficiently, helping you find the best mortgage and save money over the long term.

In the end, it’s important to know that there are solutions available and that you don’t have to worry about social distancing restrictions keeping you from getting the best mortgage for your needs.

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Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

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CMHC mortgage regulations

CMHC tightens mortgage regulations slightly

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CMHC tightens mortgage regulations slightly

Canada Mortgage and Housing Corp. (CMHC) has tightened mortgage regulations slightly in response to deteriorating economic conditions brought on by COVID-19.

CMHC mortgage regulations

Effective July 1, new applications for homeowner transactional and portfolio mortgage insurance would have to meet a minimum credit score of 680 for at least one borrower. In addition, funds borrowed for a down payment that increase indebtedness will no longer be treated as equity for insurance purposes, and Gross/Total Debt Servicing ratios are to be limited to the standard requirements of 35/42.

Vulnerabilities

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” says Evan Siddall, CMHC president and CEO. “These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, CMHC says, with potentially a nine- to 18-per-cent decrease in house prices over the next 12 months.

“CMHC’s policy changes come at an interesting time when the housing market finally seems to be getting back on track after a substantial drop in sales during April and May,” Jesse Abrams, co-founder and CEO of Homewise told Condo Life magazine. “These changes will not only make qualifications tougher, pushing up the floor for credit scores to 680, but also decrease the affordability of many buyers who need an insured mortgage by lowering debt to income ratios. Unfortunately, the hardest-hit market may be first-time homebuyers.”

Lesser impact

Another national mortgage insurer, Genworth Canada, says it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements.

“Genworth’s decision to not follow CMHC’s policy changes creates a competitive advantage for them in the marketplace, while reigniting the flame of many prospective homebuyers who were demotivated by CMHC’s decision,” Abrams says. “Most lenders use both CMHC and Genworth, so it is quite possible that the CMHC policy change does not actually affect any homebuyers.”

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