When is the Best Time to Buy a House in Ontario?

Traditionally speaking, the housing market does follow certain ebbs and flows (or ‘seasonality’). Just like other types of investments, even the real estate market shares opportunistic times to buy/sell throughout the calendar year based on competition created by supply and demand. And, of course, the ‘best time’ often refers to the ‘cheapest’ or the periods with the lowest competition.

 

So, when is the best time to buy Real Estate in Ontario?

Decades of data suggest that the best seasons to buy real estate in Ontario tend to be the Fall and the deep Winter.

 

Fall – High Inventory + Lower Prices

When the kids go back to school, parents kick it into high gear. The Fall presents an expansive inventory. When inventory is high, there tends to be lower competition. Lower competition is better suited for buyers because (as we have all learned) bidding wars can make homes quite unaffordable.

Winter (late December – late January) – Low Inventory + Lower Competing Buyers

Many home sellers and buyers don’t want to brave the cold, so during these times, inventory could be far lower. But those that do list their homes, are likely motivated and eager to sell. Also, they could be trying to dodge the Spring market where inventory grows, thus making competition harder for the seller. This might be a great buying opportunity with room for negotiations in both the price and closing date.

 

Can Spring/Summer ever be the best time to buy a house in Ontario?

It’s not impossible that Spring/Summer can also present opportunities to buy a house in Ontario, at a great price. It’s circumstantial and depends on other factors (ex. Motivation to sell, interest rate, competition, economic factors, etc.). Historically, Spring and Summer have more competing buyers since it’s a great time for most families to move, but also have more buying options in general.

 

Do interest rates have any impact on the best time to buy a house in Ontario?

Yes, most certainly.

Lower Interest Rates = higher purchasing power. As affordability rises for everyone, so do home prices as competition grows strong and causes high competition (and in some cases, unhealthy competition – evident throughout 2020/2021)

Higher Interest Rates = lower purchasing power. As affordability drops, so do home prices (evident throughout most of 2022). Even though home prices drop, it might not be an equal match to the drop in affordability… so this can still be an opportunistic time to buy.

 

Disclosure: The time of writing is Q4 of 2022 – An anomaly of years to say the least. With continuous pressure from the Bank of Canada to curb inflation, we can’t claim that traditional trends for buying a house in Ontario hold in this current market – not until events play out for another 2-3 quarters. We can then reflect on the data of those quarters (once available) to determine any trends.

 

Call us for advice on rates, strategies, and trends in the mortgage market at any given time. (905) 455-5005.

Canada Mortgage Rates Forecast – What Could Mortgage Rates Look Like in 2023 in Canada?

First and foremost, it’s important to remember that predictions are not factual. Mortgage rate predictions, however, are made based on facts and data that are available to us. It’s possible to be completely right, but also completely off the mark.

 

Why is the Bank of Canada Increasing Mortgage Rates?

Here is what we know so far. We hit a 31-year high in inflation earlier this year. High inflation, if not tamed, can have worse consequences for families and households than high-interest rates themselves. High inflation decreases our purchasing power, and our ability to save money and in some cases, pushes households closer to the poverty line. Not to mention, very high inflation can cause companies to go belly up, therefore increasing the unemployment rate and worsening the economic outlook for a nation.

 

Mortgage Interest Rates Forecast 2022 Canada (remainder of the year)

So far, 2022 has seen a total of 3.00% in rate increases by the Bank of Canada. We started the year at 0.25% (tail end of the pandemic), and now we sit at 3.25% with another (very likely) rate hike coming on October 26th, 2022. After October 26th, there will be one remaining interest rate decision to be made on December 7th to wrap up the year.

The Bank of Canada had initially vocalized a target interest rate of 4.00% by the end of 2022. After October 26th, we’ll likely be sitting at 3.75% if predictions hold, with an additional 25bps remaining to hit their target rate. When inflation numbers report for October and November, we will have a better idea and outlook to make a mortgage rate forecast for their final meeting.

 

Mortgage Interest Rates Forecast 2023 Canada

Homeowners and potential buyers are worried, and they’re already asking questions about mortgage interest rates forecast for 2023. Some are trying to plan for change. For others, there is closure in just knowing – even if there’s nothing that can be done.

We know that the central banks have a target inflation rate of 2.00%. This means that we have some ways to go solely based on September’s reported inflation number of 6.86%. However, this is down month over month, and down almost 1.00% – 1.50% from May/June 2022 (when inflation started to peak). In other words, these mortgage rate increases are already having a deflationary impact!

While we’re trending positively in slowing inflation, but it can take at least another year or two to get back within reach of healthy inflation figures (2.00%). Now is not the time to take our foot off the brake.

Rate increases so far have been sizable, to say the least. The central banks will need to look in all directions to assess the impact of these rate increases heading into 2023. Inflation control, if carried away, could turn into damage control if we get pushed further into recession/depression territory.

Will the Bank of Canada start to decrease interest rates in 2023? This was once a consideration but is likely wishful thinking now. It takes time for these policies to do their job, so quantitative easing is unlikely to take place in the year 2023 as it would just encourage borrowing (leveraging) and likely retrace some of the progress already made in curbing inflation.

Our mortgage interest rates prediction for Canada in 2023: Pause but not decrease. We will likely hit a plateau, and mortgage rates will hover for a large part of the year until inflation is well under control. This plateau will need to be a happy medium between controlling inflation at a fast enough pace while avoiding a major recession/depression.

 

Mortgage Interest Rates Prediction Canada – Impact on Housing Prices

It’s no secret that the BOC’s rate increases already had a downward pressure on house pricing. Depending on whom you ask, this can be a positive or negative thing… it’s circumstantial. Some cities have already seen a 7-8% drop in home prices, while other areas have dropped as much as 20-25%. With each further increase, we should see home prices drop as a response. Historically, house prices have gone up as household income increased. This was not the case for 2020 and 2021. Prices were increasing in direct correlation to decreased cost of borrowing money. Despite higher costs of borrowing, this is a healthier, more balanced market… would you agree?

 

Want to get more granular about the mortgage rates forecast Canada? We love bringing knowledge to our potential clients and network. Let’s hop on a call (905) 455-5005.

Why is my Affordability Going Down?

We often get repeat inquiries from clients whom we have spoken to in the past. For various reasons they weren’t ready to make their purchases at the time but were working towards setting themselves up to do so (i.e., down payment, credit, etc.).  Now that they are ready to pull the trigger, they find themselves not being able to qualify for the same mortgage they would have a year prior. What gives!?

The short answer is that interest rates have doubled from their all-time lows and the published qualifying rate is no longer used in the stress test. As a reminder, the stress test that needs to be used in qualifying for a mortgage is either the published “qualifying rate” or the contract rate + 200 bps (basis points), whichever is higher.

For a long time, the “contract rate” + 200 bps was less than the qualifying rate. Therefore, in most cases, the qualifying rate was used across the board to determine maximum mortgage affordability. At the time of writing this piece, the contract rates + 200bps have exceeded the qualifying rate. This means that the stress test has ultimately gone up, which ultimately puts downward pressure on one’s mortgage affordability.

For example, if you have an income of 100k and used the qualifying rate of 5.25%, you could manage a maximum mortgage of approximately $480,000. However, using a contract rate of 4.59% + 2% (= +200 bps), then the maximum mortgage affordability gets reduced to approximately $420,000.

The main reason for this shift in the stress test approach is that the contract rate has risen to exceed the qualifying rate. Fortunately, home prices have recently come down from their all-time highs and in some cases, are enough to offset any decrease in mortgage affordability.

Although this is the current state of qualifying for a mortgage, there are often strategies we can use to help nudge (increase) mortgage affordability in a favorable direction. If you would like to learn more about this topic or would like to assess your affordability, please give us a call today at (905) 455-5005.

Second Mortgages in Canada: Everything You Need To Know

What is Home Equity?

First, let’s talk about home equity. In Canada, home equity can be extremely useful to help push homeowners forward financially or pull homeowners out of a financial bind. Luckily (in Ontario especially) homeowners will gain appreciation in their home as time passes, creating a substantial amount of unrealized equity. Home equity is the difference between the current value of your home and the remaining balance on all mortgages secured against the home. (Value – mortgages = equity).

Accessing that equity for home renovations, debt consolidation or further investing are just a few reasons why a homeowner might choose to apply for a second mortgage.

 

What is a Second Mortgage?

Now, let’s talk about second mortgages. A second mortgage is a secured loan against your home, behind an existing first mortgage. It’s registered in the second position, hence the term ‘second mortgage’. Like your first mortgage, a second mortgage will have its own monthly payment, separate from your first mortgage. This payment is often made via post-dated cheques or pre-authorized debit.

How do I know if I need a Second Mortgage?

A second mortgage isn’t always the best option. Often, it might be an option you only consider after exploring a mortgage refinance. The suitability of a second mortgage varies but is usually most applicable in situations where the banks/lenders refuse to lend you the money you need.

How much can I get?

Second mortgage lenders in Canada will often let you borrow up to 85% of your property value (minus your existing mortgage balance)

Types of Second Mortgages:

Second mortgages come in two forms: A home equity loan (standard private second mortgage) or a home equity line of credit (HELOC).

Where do I get a Second Mortgage?

Unless your bank is willing to give you a HELOC, you will need to seek out assistance from a Mortgage Broker in order to arrange a second mortgage. Banks offer HELOC’s usually behind their own mortgage. For example, you have a mortgage with Bank ABC, and want a HELOC from Bank ABC – this is likely. However, if Bank ABC says no, then what? Mortgage brokers have established relationships with many banks, monoline lenders, credit unions and alternative lenders – all of whom might be willing to lend you the second mortgage you need.

What are the most common reasons to get a second mortgage?

Common reasons to get a second mortgage might be (but are not limited to):

  • Consolidate high-interest debt
  • Pay tax arrears to CRA
  • Complete home renovations
  • Pay for school
  • Avoid filing for bankruptcy or a consumer proposal
  • Pay mortgage arrears
  • Avoid Power of Sale (also known as foreclosure)
  • Supplemental income during a difficult time
  • Cash for a new or existing business
  • To purchase an investment property or vacation home

 

What are some pros and cons of second mortgages?

Pros:

  • Lower interest rates than credit card debt
  • Quick turnaround (as little as 3 business days)
  • Less stringent on qualifications
  • Less supporting documents needed
  • Bad credit acceptable
  • Pre-payment options to reduce monthly payments

Cons:

  • Higher interest than your first mortgage
  • Interest-only payments
  • Shorter terms (typically 1 year at a time)
  • Higher closing costs
  • Must be an exit strategy

 

How do I pay out my Second Mortgage at maturity?

Exit strategies are important. As such, taking a second mortgage without knowing how or when you’ll likely pay it off is a bad idea. There are a few ways to pay out your second mortgage:

  • Refinance, and consolidate it with your first mortgage
  • Sell your home (only if this was already in the plans)
  • Replace it with a HELOC from the Bank
  • Replace it with a second mortgage from a different lender
  • Pay it out in full from your own funds

 

What risks do I face by taking out a second mortgage?

Any mortgage will have a certain level of risk, and second mortgages are not risk free. Similar to your first mortgage with the bank, a second mortgage can incur fees and penalties and faces the risk of non-renewal at maturity. Of course, every one of these is a consequence of an action taking place (missed/late payments, arrears, removals of home insurance, default, etc.).

 

For more information and trusted guidance on second mortgages, you can reach us at (905) 455-5005.

(905) 455-5005.

Are Mortgage Calculators Useful?

In preliminary steps, yes, they are useful. However, to rely on mortgage calculators 100% – we advise against this.

 

There are two types of mortgage calculators that mortgage seekers often search for:

  1. Mortgage affordability calculators
  2. Mortgage payment calculators

 

Mortgage Affordability Calculator:

This type of mortgage calculator helps applicants, on a very basic level, determine their maximum mortgage affordability (or purchasing power). It used variables such as income, debt, credit, down payment, property taxes, and heating, to determine how much an applicant (or group of applicants) can afford to borrow. This type of mortgage calculator is meant to run quite simple scenarios, so they are not as intuitive as a Mortgage Broker or Agent with many years of experience. Complex scenarios often require more data to accurately calculate a borrower’s mortgage affordability – data that a mortgage calculator simply does not consider.

Mortgage Payment Calculator:

This type of mortgage calculator is more simple and more accurate. It computes a mortgage payment based on the inputs of a loan amount, interest rate, frequency, and amortization. These calculators are also meant to be used in preliminary steps, rather than being relied on 100%. But, unlike a mortgage affordability calculator, the calculation will likely be 100% correct based on the user’s inputs – it’s just a question of whether the user’s inputs are accurate in the first place.

 

Mortgage calculators are great tools as they empower borrowers to be self-sufficient in the initial phases of obtaining mortgages – rather than relying on a mortgage professional right from the beginning. Sure, calculators served us well in school, but there are so many variables that need to be taken into consideration with personal finances that are hard to figure out, without the right credentials and experience.

 

If there’s advice, we’d give to those using mortgage calculators, it’s this:

  • Use the calculator to help educate yourself first, but always run the results by a mortgage broker or agent to validate their accuracy.

(905) 455-5005.

What is an Ontario Mortgage Agent? – Understanding Representation and Duty

To first understand what a Mortgage Agent is, or does, we must first understand the term ‘Agency’.

Agency, or an Agency Relationship, is when one party acts on behalf of another party.  In the case of a mortgage Agent, the Agent acts on behalf of their principal Mortgage Broker. The Mortgage Agent also acts on behalf of borrowers to obtain mortgage financing in their best interest.

 

Important things to note about Ontario Mortgage Agents, and your partnership with them, are:

  • What is required to be a Mortgage Agent in Ontario?

A Mortgage Agent MUST be licensed in the Province of Ontario (or anywhere in Canada for that matter)

 

  • Who does the Mortgage Agent act for?

First and foremost, the Mortgage Agent is acting in the best interest of you, the borrower.

 

  • What are the duties of a Mortgage Agent in obtaining mortgage financing for you?

Mortgage Agents’ duties include 1. Carry out any proper instructions your client gives you (excluding anything that is illegal) 2. Use proper skills 3. Use proper care 4. Protect your client’s best interests

 

The Fiduciary Duties of a Mortgage Agent include:

  • Loyalty
  • Selflessness
  • No conflicts of interest
  • Full disclosure
  • Confidentiality

 

While Mortgage Agents work for you, the borrower, A Bank employee (or bank mortgage specialist) is less likely to be an agent by its true definition. Unlike a Mortgage Agent, bank representatives act for the employer (the bank) and not the borrowers, hence why each bank refers to their mortgage professionals, not as Agents, but as ‘specialists’ or ‘advisors’.

Our Ontario Mortgage Agents have over 10 years of individual experience in the field. To find out more about how one of our Agents can help you, call us at (905) 455-5005.

A, B, C Mortgage Lenders – Pros and Cons

As many people are aware, three main types of lenders offer mortgage solutions. By default, most people strive to get their mortgage with an A lender, but the B and C lenders do offer value to those who need a suitable mortgage solution. Below is a breakdown of each:

A Lenders – Although there are many alternative A lenders in this space, these lenders are known to most as “the banks”. The main proposition of A lenders is that they offer the best rates at any given time and in any given market. These lenders are looking for the best applicants whose borrowing profiles are polished because the risk tolerance of this lending category is low. Due to the lower risk tolerance, they are “stricter” in their approval guidelines when it comes to the overall strength of the applicant/s and their ability to sustain the mortgage payments. Due to their strict policy on qualifying, these lenders also have access to default insurance which ultimately allows for borrowers to make purchases with as low as 5%.

Bottom line: best rates, relatively more difficult to qualify – considered to offer long-term mortgage solutions

B Lender – Most people attach a negative sentiment to this category of lenders, which often stems from the spread of misinformation. B lenders offer a more risk-tolerant solution to their clients in exchange for a reasonably higher interest rate. These lenders have favorable approval guidelines around lower credit scores, income, and higher debt servicing thresholds. Due to their qualifying approach, they are unable to obtain default insurance, and thus, applicants typically require a minimum down payment of 20%.

Bottom line: Easier to qualify, qualify for larger mortgages, requires 20% down payment, relatively higher interest rates – considered to offer short-to-long term mortgage solutions

C Lenders – Most people know of these lenders as private lenders. These lenders have the most favorable lending guidelines when it comes to credit and income. In fact, the main priority of these lenders is that you have sufficient equity/Down payment (20% or more). Due to their high-risk tolerance, they are considered the most expensive of the three categories of lenders.

Bottom line: If you have at least 20% down, you will almost certainly get approved, have higher interest rates + costs, and are considered to offer short-term mortgage solutions.

 

Each of these lenders has a place in the mortgage market because they solve different problems for different applicants. None of the solutions offered by any of these categories of lenders are bad solutions unless you were mistakenly assessed down the ladder. In other words, if you work with the wrong mortgage professional, you might be placed with a C lender, when you would have qualified with a B or A lender. In other cases, you might be told you don’t have any options when at the very least, a C lender might be able to assist you.

Therefore, it’s important to work with the right mortgage broker so that all your options can be explored. We take the approach of “working down the ladder”.  That way, we know that if we have settled on a solution, it’s only after exploring all the best options that are available. Call us for more information on your mortgage scenario at (905) 455-5005.

Why Should I Refinance my Mortgage to Consolidate Debts?

Refinancing your mortgage to consolidate debts is one of the best ways to get a handle on those debts. There are various reasons why this approach is suitable for many people but the most obvious one is that it’s always best to park your high-interest debt at the lowest interest rate possible.

What does that mean? Simply put, it’s about taking all your high-interest debts and shifting them over to a creditor that offers a lower rate. By doing this, less of your scheduled payment will go towards servicing the interest, and thereby, more of the principal amount is paid off. A Mortgage typically offers the lowest interest rates because they offer the creditor collateral against the overall debt. In other words, they have your home as a safety net. In fact, one of the reasons unsecured debts have a higher interest rate attached to them is because they do not have collateral to protect against their losses, other than the threat of “bad credit” to the borrower.

Another reason to consolidate your debts by refinancing your mortgage is that it makes it easier to keep up with the debts by virtue of having only one payment to worry about. For example, if you have 5 separate bills, with different payment amounts (and schedules), it could be easy for payments to be missed or just plain exhausting to keep up with. By having those 5 debts consolidated into your mortgage, you only must make that one scheduled payment which ultimately services all those combined debts.

Furthermore, by combining all the debts into your mortgage, you would essentially clean and preserve your credit strength. If you have already experienced blemishes on your credit report, then this would help in the “rebuilding” process which helps you in the future with your borrowing needs with favorable offers.

Lastly, one of the top reasons homeowners refinance their debts is to increase their monthly cash flow. High-interest debts can siphon away your hard-earned money on just interest alone. This leads to many homeowners living “paycheck to paycheck” while relying on their credit cards to finance their lives (in between those paychecks). Therefore, it’s very appealing for most homeowners to refinance their homes for the purpose of consolidating their high-interest debts. Ultimately, it can bring down their payment obligations by hundreds or thousands of dollars per month. Any decrease in this payment pressure only increases the amount of disposable income you and your family can have each month.

Are you juggling multiple debts and think you could benefit from this approach? Give us a call and let’s figure out how much more of your money, you can keep for yourself. (905) 455-5005.

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