Tag Archives: New Mortgage Rules


Higher Rates and New Rules Cooling the Condo Market

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Higher Rates and New Rules Cooling the Condo Market

Higher Rates and New Rules Cooling the Condo Market: But It’s Not Bad News

After remaining at a record low for close to a decade, the Bank of Canada has started to raise its benchmark interest rate. A strong economy and positive job growth are some of the reasons behind the hike. This increase means anyone with a variable rate mortgage is now paying more for the same loan. Money is getting more expensive to borrow.

More Cooling Effects

Added to this, new mortgage rules brought in at the beginning of 2018 are making it harder for borrowers to qualify for more. The lender is now required to stress test all mortgages, regardless of the down payment or the amount being borrowed. These new rules mean borrowers have to show they could pay their mortgage if rates were two percentage points higher than their contract rate, or the Bank of Canada posted fixed rate, whichever is more. Overall this is keeping homebuyers away and has had a cooling effect on the housing market, including condos. One report by the Mortgage Professional of Canada claims 18 per cent of home buyers can’t pass the stress test, even though they can afford the mortgage payments.

What Industry Critics Are Saying?

No surprise mortgage brokers, and the association that represents them, are concerned homebuyers will no longer be able to borrow enough for the home they want. The recent report by the Mortgage Professionals of Canada found that, “New government policies are causing consumers to have a more negative outlook for housing and real estate in Canada.” The Report on the Housing and Mortgage Market in Canada says most consumer still see real estate as a good investment but “overall strength of consumer sentiment has been weakened by increasing interest rates and the new rules making it harder for homebuyers to secure mortgage financing.”

One Solution

The report argues that the stress test, albeit important, is too strict (or maybe too stressful), for first time homebuyers in particular. Paul Taylor is the president and CEO of Mortgage Professionals Canada. He says, “We support a stress test, albeit at a reduced rate of 0.75 per cent, as it is a useful tool to test a borrower’s ability to make future payments. However, the cumulative impact of rising rates, a two percentage or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively supressing housing activity not just in Toronto and Vancouver, but throughout the country.”

Managing Expectations

The Bank of Canada is hinting rates are poised to go higher. Before the end of 2018 the Bank could raise rates again, making money even more expensive. They are warning debt seeking homebuyers to pull the reigns on the amount they agree to borrow, because it will cost more when rates rise. The stress test represents where rates could be by the end of the mortgage term. They are realistic and frankly, in my opinion, they are needed. Canadians are close to a record level of debt. Statistics Canada data shows in June 2018 Canadians owed $1.68 cent for every dollar of disposable income. That is actually down slightly from the beginning of the year, indicating the new mortgage rules are already working.

Canadians shopping for a home need to be realistic about what they can now afford. Looking in the rear view mirror is not helpful. Where prices were and what you could afford then is not the reality now. Crunch your numbers based on this new reality, higher rates and stricter rules, and see how much you can afford. Even then, you don’t have to borrow the whole amount the bank offers. By borrowing less, you will automatically save yourself thousands in interest payments. Mange your expectations of the house you are buying. Maybe a smaller home, or a condo in a different area is the solution. Keep your options open.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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The Salesman: The Wave Theory

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The Salesman: The Wave Theory

By Dan Flomen
Empire Communities

If you have been in real estate long enough, you know about the wave theory. No, I’m not referring to a mathematical theory, but the rise and fall of the velocity of sales in the market.

From-time-to-time, and often due to governmental interference, the number of sales in a given quarter rise or fall. The more the volume of sales fall, the greater the news coverage.

The beginning of this year should prove to be a slower sales cycle, not because of pricing, which continues to rise, but because of the government’s desire to slow the pace of sales under the premise of protecting the future. Because of that, the new mortgage rules and stress test are now in place. Some statistics show that 10 per cent of the market will no longer be able to purchase a home. Others have stated that is a lowball estimate. But what is the underlying reason behind the government’s changes to the rules? Is it to actually slow the market or to ensure that buyers are not over-extending themselves and protecting the future? Only time will tell, but the issues surrounding the new stress test are not black and white.

The first issue is that they are requiring conventional buyers to qualify at a much higher interest rate and therefore eliminating many potential homeowners who would otherwise qualify. Keep in mind they are basing this on potential future increases in interest rates, while at the same time not factoring in employment income increases. In other words, they are saying you need to qualify for a much larger monthly payment (assuming the rates go up over the next several years) but not factoring in salary increases.

This makes no sense. This creates undue pressure on young families trying to get into the market. Forget investors for a moment and focus on Canadians trying to get into homeownership.

The other issue is that so much emphasis was put on getting this message out that the fear mongering will take over the psyche of many who do qualify.

This in turn will affect the volume of sales in the short term.

The silver lining in all this is that — like a wave — the slower short-term sales numbers will often be offset by a rush of sales in the second quarter when the reality of the changes are absorbed and understood better. The initial shock to the general public will be forgotten and buyers seeking a home or an investment will come back.

Let’s face a truth: Toronto and the outlying areas are still a great opportunity for long-term investing. As well, the first quarter will see some unique opportunities for those people looking to get into the market. Waiting too long may result in missing out on lower prices; as with any wave, with rising sales volume prices increase, too.

Take your time and purchase wisely … but don’t stop buying.

Dan Flomen is EVP, sales at Empire Communities and EVP at TFN Realty Inc.


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Four up-and-coming neighbourhoods in Toronto

Four up-and-coming neighbourhoods in Toronto

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Four up-and-coming neighbourhoods in Toronto

by Madisyn McKee

Whether you’re a first-time homebuyer or looking to make a good return on your investment, you need to consider these Toronto neighbourhoods

The amount of change and growth happening in Toronto is evident by simply looking at the skyline. Many have joked that the bird of Toronto should be the crane and it’s not hard to guess why; everywhere one looks there are new developments being created, proposed, approved and built.

With housing prices skyrocketing and the new mortgage rules taking effect, many Torontonians are looking for alternative ways to get on the ladder. One of the best ways to get the most out of your money is to start looking at neighbourhoods that are in the process of gentrification.

Take a look at four up-and-coming neighbourhoods in Toronto that will likely put you in a good position to make a decent return on your investment:

Regent Park

Don’t let the history of this neighbourhood scare you off. A 2017 MoneySense article claims this area is going through a dramatic change at the moment. One of the main reasons this area has stayed so affordable for so long are the number of low-income properties, but things are starting to shift. The new aquatic centre is a great example of the positive changes happening to the community.  If you have the patience to wait for the city to catch up, you could make a good return on investment.


Despite this area getting attention for a couple of years now, it’s not too late to get in. In fact, TorontoRentals.com noted this area as being one of the best for first-time homebuyers. The new York Community Centre that opened in April 2017, and the Stockyards Open Mall have made this quite the hotspot. While it’s not the best location for transit at the moment, the Eglington Crosstown isn’t too far away from opening and, once it does, this area will certainly grow in price.

East End-Danforth

Many of the homes in this neighbourhood have been loved for years but are now getting much needed makeovers. The area is close to both Woodbine beach and the TTC making it a smart place to invest money. Many builders are snapping up older homes in the area for quick renovations and selling them at a large profit. It’s a great spot for young families and first-time home buyers as the area has a vibrant nightlife. There are also plenty of independent shops and restaurants to enjoy.

Yonge and Sheppard

This Toronto neighbourhood has seen drastic changes in the last number of years and shows no signs of stopping. Many homebuyers will find affordable pricing here as many still deem it as “too far North.” Situated close to the TTC, residents are only a 25-minute subway ride into the downtown core. Don’t forget there is also plenty to do in the area so as not to warrant a venture into the city.

Madisyn is a freelance writer and social media obsessed traveler based out of Toronto. Always looking for her next adventure but glued to her phone you can contact her at madi@therestlessworker.com or visit her at therestlessworker.com.


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Condo Finance

Finance: Three Ways Your Personal Finance Situation Will Change in 2018

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Finance: Three Ways Your Personal Finance Situation Will Change in 2018

There’s a great deal of uncertainty about how our finances will change in 2018. New mortgage rules that kicked in January 1st are threatening to further cool the real estate market, economists are expecting a jump in interest rates this year and investors are weary about how much longer the 10-year bull market can last. Here’s what you should pay closer attention to in 2018.

Real Estate Prices

The new, stricter mortgage rules will affect not only the volume of sales, but also the purchase price. The Bank of Canada has already noted that 10 percent of Canadians will not qualify for the same amount as did before. The interest rate comparing site RateHub.ca suggests it could result in purchasing power being reduced by up to 21 per cent this year. This means there are fewer people bidding, with less money.

TD Bank says this could depress demand by up to 10 per cent and shave up to four per cent off the average price. That’s the national average, so in some areas those declines could be steeper.

One unintended consequence of the mortgage rules is many Canadians may find freehold homes less affordable and look to condo ownership as a solution. This could drive condo prices higher as demand rises, especially in places like Toronto.

Rents Creep Higher

One of the bleakest forecasts is these new mortgage rules will result in higher rents and job losses. This is coming from Will Dunning, the chief economist for Mortgage Professionals Canada. He predicts this year, landlords will hike rents and 50,000 jobs will be lost. That’s because, according to him, things like housing starts will fall, as fewer people are likely to buy. This can impact many areas of the economy, including construction, retail and banking. For condo renters, already saddled with high rent costs, this could be another financial blow.

Interest Rates

Economists are expecting the Bank of Canada to raise rates again in 2018. The Bank of Canada says higher rates, are “likely overtime.” TD Economics notes that forecasts continue to point to a hike sooner rather than later. Their long-term forecast is rates will rise another full percentage point by the end of this year. Anyone with a floating rate loan or a variable mortgage should expect money to get more expensive. Our economy seems ready for it too. Canada’s economic growth has been better than expected, and national unemployment is at near-record lows. Add to that, consumer and business confidence is up.


Global stock markets hit record highs in 2017 as investors showed confidence with better than expected data and business friendly tax cuts being promised south of the border. The S&P500 was up more than 20 per cent this year. 2018 could be much different, Wall Street heavyweight Morgan Stanley is forecasting volatility in 2018, after a stable and positive 2017. Add to that, Sam Stovall, chief equity strategist at CFRA, says, “One could say that in 2018 investors should expect more for less — more volatility for less return.” CFRA is one of the world’s largest independent investment research firms.

In 2018 we have to adjust our expectations about our money and our personal finance, because things are about to change in a big way.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney


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Finance: New Mortgage Rules Kick In January 2018

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Finance: New Mortgage Rules Kick In January 2018

For the sixth time since the financial crisis in 2008 Canada’s top banking regulator is making it harder for Canadians to qualify for a mortgage. Starting in January 2018 Canadians applying for a new mortgage will be subject to a stricter set of rules to prove they can afford the loan.

The most significant change is to guidelines around the mortgage stress test. Now all new mortgage applicants, regardless of down payment amount, will be subject to it. This stress test also includes those with an existing mortgage who choose to switch banks once their term is over.

Now financial institutions require all borrowers to qualify at the greater of the two, either the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate plus two percentage points.

Previously only those with less than a 20 per cent down payment had to undergo a stress test to show they could make their mortgage payments at a higher rate. Those borrowers still require mortgage insurance provided usually though the Canada Mortgage and Housing Corporation (CMHC).

The new guidelines, announced back in October 2017, are published by the Office of the Superintendent of Financial Institutions Canada (OSFI) in the Residential Mortgage Underwriting Practices and Procedures.

OSFI Superintendent Jeremy Rudin, in a press statement, says these rules are needed to “reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada.” OFSI also makes clear that financial institutions must adhere to these rules going forward, which are “reflective of risk and are updated as housing markets and the economic environment evolve.”

There are more guidelines for lenders as well. All federally regulated financial institutions are also prohibited from arranging a mortgage with another lender, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum Loan to Value (LTV) ratio. This means banks can’t arrange other unsecured loans that make the borrower appear to have a larger down payment.

The good news for current homeowners is these new rules only affect new mortgage applications. If your mortgage is coming up for renewal, these changes won’t affect you if you stay with your current bank.

If you’re shopping for a home right now beware that your purchasing power will be lower than what it was prior to 2018. For first time homebuyers and those applying for a new mortgage, forecasters say these new rules will affect your affordability by as much as 15 per cent.

They also predict existing home sales will fall by up to five per cent and home prices will fall another up to four per cent, because of the new mortgage rules.

From a personal finance perspective I applaud these new rules for protecting Canadians who are stretching themselves to the financial limits to get into their dream home. As I have been saying for years, you should always calculate your affordability two percentage points higher than what the bank offers you, and pay your mortgage at that rate as well. Remember, even if the bank offers you a large mortgage it’s not always financially prudent to take it.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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