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Hombuyer incentives web

Federal government releases details on homebuyer incentive programs unveiled in Budget 2019

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Federal government releases details on homebuyer incentive programs unveiled in Budget 2019

 

Hombuyer incentives web

The federal government has released the details of the first-time homebuyer incentive programs promised in March in the 2019 budget.

Beginning Sept. 2, 2019, the First-Time Home Buyer Incentive will help middle class families take their first steps towards homeownership by reducing monthly mortgage payments required for first-time homebuyers, without increasing the amount they need to save for a down payment. This program complements other measures taken in Budget 2019 to support first time homebuyers with their down payment such as increased RRSP withdrawal limit from $25,000 to $30,000 The government has allocated $1.25 billion over three years for the program. The incentive will be available to first-time homebuyers with qualified annual household incomes up to $120,000.

Budget 2019 also previewed the Shared Equity Mortgage Provider Fund, a five-year, $100-million lending fund to assist providers of shared equity mortgages to help eligible Canadians achieve affordable homeownership. This will support an alternative homeownership model targeted at first-time homebuyers, help attract new providers of shared equity mortgages and encourage additional housing supply. The fund will launch on July 31, 2019, and will be administered by CMHC.

 

ALSO READ: Budget 2019 comes up short

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“Through the National Housing Strategy, more middle-class Canadians – and people working hard to join it – will find safe, accessible and affordable homes,” says Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for CMHC.“Our proposed measures will reduce the monthly mortgage for your first home by up to $286. This will mean more money in the pockets of Canadians and will help up to an estimated 100,000 families across Canada.”

First-Time Homebuyer Incentive facts

  • Canada’s First-Time Home Buyer Incentive will help qualified first-time homebuyers purchase their first home as the incentive reduces their monthly mortgage payment, without increasing the amount that they must save for a down payment. The program will launch on Sept. 2, 2019, with the first closing on Nov. 1, 2019.
  • The incentive will allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage with CMHC, Genworth or Canada Guaranty, to apply to finance a portion of their home purchase through a form of shared equity mortgage with the Government of Canada.
  • For the purchase of an existing home, an incentive amount of five per cent may be available. For the purchase of a newly constructed home, an incentive amount of five or 10 per cent may be available.
  • Doubling the incentive for purchasers of new homes encourages new housing supply.
  • No on-going repayments are required, the incentive is not interest bearing and the borrower can repay the incentive at any time without a pre-payment penalty.
  • The buyer must repay the incentive after 25 years, or if the property is sold.

 

These details confirm that the First-Time Home Buyer Incentive program will be an ownership stake in the property of qualified homebuyers, whereby the government will participate in appreciation of the property and – in the case of the property devaluing – depreciation as well.

“The key issue remains qualifying, and this program diminishes the amount that a first-time homebuyer can qualify for by about 15 to 20 per cent,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “This is because the program limits the mortgage amount to four times the households’ income, whereas those not participating in the program can actually qualify for a mortgage that is 4.5 to 4.7 times their income. Household income for qualified homebuyers is also capped at $120,000.”

Those who would be attracted to the program would be Canadians who are trying to purchase at their maximum qualification, Laird adds. “However, because the program diminishes how much they can qualify for, it doesn’t serve the needs of the group it is targeted at. Canadians can get a larger loan by not participating in the program.”

 

Maximum affordability calculations

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265 monthly mortgage payment.

The maximum purchase price for the same household, if they participate in the First-Time Home Buyer Incentive program, drops to $404,858 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Source: Ratehub.ca 

 

Mortgage payment calculations

If the household took a five-pre-cent incentive from the government (for resales), their mortgage amount goes to $378,947, and monthly payment is now $1,810.
If the household took a 10-per-cent incentive from the government (for new homes) their mortgage amount goes to $357,894 and  monthly payment is now $1,710.

Source: Ratehub.ca 

 

 

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Securing a mortgage

Looking to secure a mortgage? Now is the best time to negotiate

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Looking to secure a mortgage? Now is the best time to negotiate

 

Securing a mortgage

The Bank of Canada again held its influential overnight lending rate today at 1.75 per cent, signalling the continuation of a stable interest rate environment – and underlining that now may be the best time to negotiate a mortgage.

Why? We’ll get to that in a second.

First, the BoC held the rate for the fifth straight announcement – it’s been at 1.75 since October 2018 – citing growing evidence that the Canadian economic slowdown in late 2018 and early 2019 is now being followed by a pickup in the second quarter this year. Housing market indicators point to a more stable national market, albeit with continued weakness in some regions.

In addition, the Bank says, continued strong job growth suggests that businesses see the weakness in the past two quarters as temporary, with recent data supporting an increase in both consumer spending and exports in the second quarter, and it appears that overall growth in business investment has firmed.

“The Bank’s language indicates that things will need to change to the positive or negative in order to move from their current rate strategy,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “Therefore, Canadians can expect a stable rate environment for the foreseeable future.

“This announcement should bring peace of mind to consumers currently in a variable rate mortgage because it is unlikely that the prime rate will increase anytime soon,” he adds. “Going forward, a decrease seems as likely as an increase, which is also good news if you’re in a variable rate.”

Mortgage seasonality

Canadians may also be able to take advantage of seasonality in the mortgage industry to score the best deal on their lending rate. Just like spring is known as traditionally the busy season in real estate, it’s also a very good time of year to secure a mortgage.

Securing a mortgage to buy a condo in Toronto

Ratehub.ca, for example, analyzed historical rate data from 2016 to 2019 to identify the best times of year for Canadians to lock in to a rate, or refinance an existing mortgage.

According to Ratehub.ca’s historical data on the best five-year fixed and variable rates, Canadians have access to the lowest rates during the spring homebuying season – between April and July – every year. The second most competitive time period for mortgage rates occurs between October and December.

A similar story played out in 2017 when the average best five-year fixed rate fell to 2.4 per cent from 3.32 per cent, and the average variable rate dropped from 2.09 per cent to 2.04 per cent.

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ALSO READ: Variable vs fixed mortgages? It’s complicated

A year later, 2018 proved that while a rising rate environment can override the benefits any spring mortgage deals, mortgage holders still benefited from certain promos. The average best five-year fixed rate increased from 2.94 per cent from January to March to 3.07 per cent, but the average best variable rate fell from 2.17 per cent to 1.96 per cent. Lenders actually slashed fixed rates over that period.

Spring promotions

“Lenders and mortgage providers come out with their strongest promotions during the busy spring and summer homebuying season,” Laird says. “Regardless of the interest rate environment, springtime is when lenders are willing to make the smallest margins in order to win business.”

During this period, many lenders will choose at least one rate and term to price very aggressively in order to attract attention to all of their mortgage products. Lenders also come out with special promotion offers to incentivize borrowers to lock in a rate. Consumers can expect to see cash-back deals to help with closing costs and refinance fees. Some lenders offer extra-long rate holds during this period. For example, BMO is currently offering a 130-day rate hold. The “30-day quick close rate” is another promotion many lenders opt for – this is a discounted rate that applies if your mortgage is closing in the next 30 to 45 days.

It’s crucial that lenders remain competitive through the spring market, Ratehub says, to hit their annual mortgage volume targets. In most cases, lenders will hit their targets during the second quarter (April to June) and, as a result, tend to be less competitive with promotions during the latter half of the year.

Consumers will typically see rates fall again in October, in the lead up to Oct. 31, when all of Canada’s major banks end their fiscal year. Lenders that want to get an early start on their targets for the following year often come out with promotions during this time period.

Bank results

Further benefiting the mortgage landscape for Canadians is that Canada’s big banks this week are reporting lower second quarter profits than expected.

“The poor results reported by Canada’s big banks in Q2 2019 could be good news for mortgage consumers,” Laird told Homes Publishing. “In light of these results, it would be unsurprising if the banks aggressively try to win mortgage business by offering lower rates to consumers or promotions to attract more business in the latter half of 2019.”

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Canadian interest rates

Fixed mortgage interest rates fall, but future hikes likely

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Fixed mortgage interest rates fall, but future hikes likely

Canadian interest rates

Well, that didn’t take long. We reported on Jan. 9 that mortgage interest rates might actually take a dip in the coming weeks.

“The (Bank of Canada’s) moderated outlook in the last two announcements has caused bond yields in Canada to drop lower than any point in 2018,” James Laird, co-founder of Ratehub Inc. and President of CanWise Financial mortgage brokerage, told HOMES Publishing. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”

RBC first to lower rates

And sure enough, a week or so later, RBC has done just that – lowering its posted five-year fixed rate to 3.74 per cent from 3.89 per cent. It was the first time RBC has lowered this rate since October 2017.

“RBC is the largest mortgage lender in Canada, so whenever they move their mortgage rates, we can expect that the other four banks will follow suit. We anticipate that the other big banks will soon have a publicly posted rate of 3.74 per cent as well.”

Experts have expected this move from lenders since bond yields dropped in December 2018, Laird says, after the BoC announcement stating that future rate hikes would be slower and less frequent. The most recent Bank on Jan. 9 announcement highlighted policymakers’ concerns with Canada’s energy and housing markets, which suggested that rates will be stable for a longer period of time than had previously been anticipated.

Deep discounts

The Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.

Canadians who need a mortgage this year should frequently check rates and mortgage providers. As the spring homebuying market approaches, says Laird, many lenders will offer deep discounts and promotions in order to attract new customers.

“Anyone looking for a variable rate should act quickly, because the current stable interest rate environment is causing lenders to reduce the discounts being offered on variable rate mortgages,” he says.

Let’s explore a couple different scenarios.

 

Scenario 1: $400,000 mortgage 

According to Ratehub.ca’s mortgage payment calculator, a homeowner with a $400,000 mortgage and five-year fixed rate of 3.89 per cent will have monthly mortgage payments of $2,080.

Comparatively, a homeowner with a five-year fixed rate of 3.74 per cent would have monthly mortgage payments of $2,048.

A 0.15-per-cent difference in their mortgage rate would lower mortgage payments by $32 per month, or $384 per year.

 

Scenario 2: $800,000 mortgage 

A homeowner with an $800,000 mortgage and five-year fixed rate of 3.89 per cent will have monthly mortgage payments of $4,161.

Comparatively, a homeowner with a five-year fixed rate of 3.74 per cent would have monthly mortgage payments of $4,096.

A 0.15-per-cent difference in their mortgage rate would lower mortgage payments by $65 per month, or $780 per year.

 

Hikes likely to come

Personal finance guru and Homes Publishing columnist Rubina Ahmed-Haq says the Bank remains optimistic about Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.

Still, consumers can expect rates to begin to inch higher in the coming months, she says. Forecasters are predicting two hikes this year, down from earlier predictions of as many as three increases in 2019.

 

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Debt

Paying down debt a top priority in 2019

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Paying down debt a top priority in 2019

Debt

It may be a new year, but not necessarily a happy one for everyone. A new CIBC poll finds paying down debt is the top financial priority for Canadians in 2019. Almost a third (29 per cent) say they’ve taken on more debt in the past 12 months, citing day-to-day expenses as the key reason for piling up debt.

“Debt weighs heavily on Canadians, so it’s no surprise that Canadians continue to put debt concerns at the top of their list of priorities each year,” says Jamie Golombek, managing director, CIBC Financial Planning and Advice. “Debt can be a useful tool for achieving long term goals such as home ownership or funding education, but if you’re turning to debt to make ends meet, it may be time for cash-flow planning instead.”

Key poll findings:

  • Canadians say their top sources of debt are: credit card (45 per cent), mortgage (31 per cent), car loan (23 per cent), line of credit (22 per cent), personal loan (11 per cent)
  • 28 per cent say they have no debt
  • Top concerns are rising inflation (64 per cent), low Canadian dollar (34 per cent), and rising interest rates (31 per cent)

While two-in-five (39 per cent) Canadians worry that they’re forsaking their savings by focusing too much on their debt, the vast majority still (84 per cent) believe that it’s better to pay down debt than build savings. This poll finding comes as Statistics Canada recently reported that the average Canadian household owes $1.78 for every dollar of disposable income, even as the pace of borrowing continues to slow.

“There’s rarely enough money to do everything, so it’s critical to make the most of the money you earn by prioritizing both sides of your balance sheet – not debt or savings, but both,” says Golombek. “It boils down to trade-offs, and balancing your priorities both now and down the road. The idea of being debt-free may help you sleep better at night now, but it may cost you more in the long run when you consider the missed savings and tax-sheltered growth.”

Tips to make your money go further in 2019 

  • Write down your income and expenses for a three-month period to determine if your cash flow is positive, neutral or negative
  • Make a plan. If you’re cash-flow positive, use the extra cash to pay off high-interest debt – not your mortgage – first. Use the surplus to build long term savings in an RRSP or TFSA, and if you have kids, put away a little extra in an RESP. If your long-term savings are on track, consider increasing your mortgage payments. If you’re cash-flow neutral or negative, look for ways to cut expenses or lower interest by consolidating debt at a lower rate
  • Automate your plan. Time your savings or debt-repayment plan with your payroll. Putting money directly to your goals right off the top can help you both achieve your goals and get by with less
  • Review and prioritize your goals. You likely have many goals competing for your wallet. Meet with an advisor to build a financial plan that gets you on track to achieving what’s important to you today and the many years ahead

Source: CIBC

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Mortgage web

Homebuyers undeterred by changes in mortgage landscape

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Homebuyers undeterred by changes in mortgage landscape

Mortgage web

Though 2018 was not the best year for the mortgage landscape, Canadians remain hopeful about buying a home.

A new survey from mortgage rate comparison site Ratehub.ca survey found that, despite recent regulatory changes and interest rate hikes,71 per cent of current non-owners plan to buy a home in the future. And 59 per cent of prospective first-time homebuyers plan to purchase a home within the next two years.

This year saw a number of changes that affected the costs of ownership. In January, the mortgage stress test came into effect, which lowered affordability for Canadians with conventional mortgages by around 20 per cent, Ratehub.ca says. In addition, through 2018, the Bank of Canada announced three 25-basis-point interest rate hikes. (These increases are almost always immediately followed by mortgage rate hikes at Canada’s major banks.) Meanwhile, home prices in large cities continued to edge upwards.

Young Canadians most optimistic

Ratehub.ca, however, says younger Canadians remain the most optimistic about the prospect of homeownership, with Millennial and Generation Z Canadians leading the charge in homebuying intent. According to the survey, homeownership is a goal for:

  • 87 per cent of Generation Zers
  • 81 per cent of Millennials
  • 64 per cent of Generation Xers
  • 54 per cent of Baby Boomers

Canadians’ high intent to purchase is tempered by several possible homeownership hurdles. When first-time buyers were asked about their primary barrier to entering the housing market:

  • 44 per cent cited insufficient down payment funds
  • 17 per cent cited housing market uncertainty
  • 12 per cent said their household income was too low to enter the housing market
  • 9 per cent preferred to maintain housing flexibility
  • 6 per cent said their credit score was too low to qualify for a mortgage

Many Canadians also expect home prices and mortgage rates to continue their upward trend in 2019. Among Canadians who plan on entering the housing market in 2019, 68 per cent believe mortgage rates will increase next year, while 58 per cent believe home prices will rise.

Better understanding needed

An eagerness to enter the housing market, however, hasn’t resulted in a better understanding of mortgage regulations amongst first-time homebuyers, Ratehub.ca says. Forty-seven per centof prospective first-time homebuyers are unaware of mortgage qualification rules that came into effect in 2018.

“The biggest hurdle for first-time homebuyers is saving up for a down payment,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “While first-time buyers can take advantage of programs like the RRSP Home Buyers’ Plan which are tailored for their needs, buyers can also benefit from building a realistic savings plan to hit their goals.”

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h_mar2018_view_from_inside_2

The View From Inside: It’s Time To Buy Your New Home

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The View From Inside: It’s Time To Buy Your New Home

Don’t let current chatter about mortgage rules and rates keep you from purchasing your dream home

By Stephanie Lane, Geranium

In a cyclical economic sector such as real estate, it is important to gauge your personal homebuying decisions with relativity and realism in mind. Whatever qualifies as your dream home, be it a modest condo, a five-bedroom mansion or something in between, avoid allowing the current chatter about mortgage rules and rates to keep you from realizing that dream.

Remember that the new rules on obtaining mortgages will affect each homebuyer differently. In addition, depending upon which institution you approach for financing, there may be a variety of outcomes. My advice is to visit a few lending institutions prior to making your purchase decision – or before you start shopping, ideally – so you know what you can afford. Should you not qualify for the amount you were hoping for, at a minimum, you might have to expand your geographic search to more affordable areas, consider an alternate home style, or save more toward a down payment.

Keep in mind, too, that in real estate, everything is relative. Looking at Canadian mortgage rates over the past four decades, our rates have remained amazingly low in comparison. Posted five-year mortgage rates peaked to double digits in the 1980s (when they reached over 20 per cent at one point) and the early 1990s. At that time, economic experts believed that we would never experience single-digit rates again.

Looking at the past few years, things have remained relatively stable since 2010, with bank rates fluctuating between 0.75 per cent and 1.25 per cent from then to early 2018, and prime rates from 2.25 to 3.45 per cent during that time period. The bank rate right now is 1.5 per cent, bringing a relatively small increment of the most recent five-year posted fixed mortgage rates from 4.99 to 5.14 per cent. Even with this moderate rate rise and potential increases in the near future, we are still hovering at the low end of historic rates compared to those of the 1970s through the early 2000s.

Yes, there are more stringent rules now to qualify for a mortgage, but keep in mind that Canada’s conservative financial practices kept us from reaching the devastating economic real estate lows the U.S. experienced years ago. These tightened rules are designed to ensure that buyers are, in fact, equipped to handle mortgage payments over time rather than getting in over their heads.

Rates and rules may change, but one thing that remains the same over the decades is that a well-researched homebuying decision is far more likely to result in happy homeowners than a rushed process. Be sure to consider all of the parameters and contemplate your options thoroughly. You owe it to yourself to make the very best decision possible.

During the past few decades, real estate has proven to be a worthwhile decision for those who ride out the highs and lows of the market. Now remains an excellent time to buy new homes in Ontario.

Stephanie Lane is sales and marketing manager for Geranium. Celebrating 40 years in business, Geranium has created master-planned communities including more than 8,000 homes in Ontario. Geranium.com

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