Interest Rates & Commodity Prices Surge

General Michele McGarvey 7 Mar

Interest Rates & Commodity Prices Surge On Economic Rebound Optimism.

Canadian 5-Year Bond Yield Surges 

In an unprecedented move, bond yields are spiking around the world. Yields globally are now at levels last seen before the coronavirus spread worldwide. At the same time, commodity prices are surging, including energy, metals and minerals, agricultural products and lumber. The Biden administration’s $1.9 trillion stimulus package is has triggered fears that if the US economy returns to full employment too quickly, inflation might be the result.

Central banks have attempted to soothe markets, with European Central Bank chief economist Philip Lane saying the institution can buy bonds flexibly. Fed Chair Jerome Powell called the recent run-up in yields “a statement of confidence” in the economic outlook. Bank of Canada Governor Tiff Macklem told us earlier this week that it’s a long road to recovery for the Canadian economy. The Bank of Canada will continue to provide support every step of the way. Many Bay Street economists took this to mean that he reinforced the BoC’s commitment to keeping the policy rate at its effective lower bound of 25 bps until sometime in 2023.

These global developments have sideswiped Canada. On Tuesday, I warned that the 5-year government bond yield had risen 27 bps to 0.69% since the beginning of this month, shown in the first chart below. This morning, the rise has become exponential, hitting 1.00%, shown in the second chart.

 

 

Keep in mind that Canada’s economy has considerable slack with unemployment rising in recent months and the lockdown continuing for at least a couple more weeks in the GTA. Moreover, Canada has fallen far behind other countries in the vaccine rollout. But there is no denying that pent-up demand in Canada is high. Not only have home sales been breaking records, but auto sales and anything housing-related–such as Home Depot earning growth–have skyrocketed.

Savings rates are high, and the big banks have reported a surge in deposit growth as consumers squirrel away those savings. Remember, the Roaring Twenties was a response to the 1918 Pandemic, more than anything else.

The CRB commodity price index, shown below, is on a tear, and the gains are in every sector except gold and orange juice. That means that new home construction costs are also rising, as home sales remain well above listings.

 

Bottom Line

It’s time to lock-in mortgage rates. For those in the market, preapprovals are prudent. Rising rates will likely trigger more housing activity in the near-term as those thinking of buying might move off the sidelines, pushing prices higher over the first half of this year.

The surge in interest rates would undoubtedly stall or reverse if we see a third wave of new variant COVID cases in advance of a full rollout of the vaccines in Canada. However, there is enough monetary and fiscal stimulus in global markets, and oil prices are expected to continue to rally sufficiently that an ultimate rise in interest rates cannot be far off. This is indicated by the loonie moving to a near a 3-year high.

written by DLC Chief Economist Dr. Sherry Cooper

Inflation Ticked Up Again in January

General Michele McGarvey 17 Feb

Canadian Inflation Rose Again in January to 5.1% y/y, Pressuring The Bank of Canada to Hike Rates in March.

StatsCanada today reported that consumer price inflation rose to 5.1% from year-ago levels in January, compared to 4.8% in December. This was higher than expected but still well below US inflation posted at 7.5% for the same period. Undoubtedly, this puts additional pressure on the Bank of Canada to hike the overnight policy rate target in early March when it meets again, despite the disappointing jobs data last month. Even excluding gasoline, the CPI rose 4.3% y/y last month.

Shelter costs rose 6.2% year over year in January 2022, the fastest pace since February 1990. Higher prices for new homes contribute to higher costs associated with the upkeep of a property or the homeowners’ replacement cost. Higher home prices also tend to raise other owned accommodation expenses. In contrast, lower interest rates bring borrowing costs down—measured in the CPI through the mortgage interest cost index, which includes new and resale home prices.

The owned accommodation index, which measures the ongoing costs of homeownership, increased 6.1% year over year in January. Homeowners’ replacement cost (+13.5%) and other owned accommodation expenses (+14.0%), which includes commissions on the sale of real estate, put upward pressure on shelter prices amid rapid price growth in the housing market throughout the pandemic.

Conversely, mortgage interest costs fell 6.8% year over year in January, putting downward pressure on the shelter index.

Renters also saw a rise in prices, as the rented accommodation index increased 3.2% year over year, contributing to the higher shelter prices Canadians faced in January.

Another highly visible component of rising inflation was the surge in food prices. Shoppers paid more for groceries, as food prices from stores rose faster in January 2022 (+6.5%) than in December 2021 (+5.7%).

Prices for fresh or frozen beef (+13.0%), fresh or frozen chicken (+9.0%), and fresh or frozen fish (+7.9%) rose more in January 2022 compared with December 2021. Margarine (+16.5%) and condiments, spices, and kinds of vinegar (+12.1%) were also up compared with January 2021. Higher input prices and shipping costs because of ongoing supply chain disruptions have contributed to increased food prices. In addition to supply chain disruptions, unfavourable growing conditions have led to higher prices for fresh fruit (+8.2%) and bakery products (+7.4%).

Consumers paid more for alcohol in January 2022, as alcoholic beverages purchased from stores rose 2.9%, following a 1.6% gain in December 2021. Much of this increase stemmed from higher prices for both beer and wine, amid material shortages and increased shipping costs.

Bottom Line

Inflation has now exceeded the Bank of Canada’s 1% to 3% target band for 10 consecutive months. Other central banks have already begun to hike overnight rates from their effective lower bound of 25 basis points introduced in March 2020.

The U.S. Federal Reserve is preparing to raise interest rates in March, and last Friday’s jobs report fueled speculation it may need to move aggressively. The Bank of England just delivered back-to-back hikes, and some of its officials wanted to act even more forcefully. The Bank of Canada is set for liftoff next month. Even the European Central Bank may get in on the action later this year.

The recent trucker protests and border blockades have further disrupted the fragile auto supply chain. Wages in Canada rose 2.4% y/y, so Canadian households, on average, are seeing their purchasing power diminish.

Markets are pricing in as many as seven increases in borrowing costs over the next 12 months. While the Bank runs the risk of tightening too aggressively, there is little doubt that the emergency monetary easing has run its course.

written by DLC Chief Economist Dr. Sherry Cooper

Major Setback in Canada’s January Employment Report

General Michele McGarvey 7 Feb

No Wonder The Bank of Canada Didn’t Hike Interest Rates Last Month

Statistics Canada released the January Labour Force Survey this morning, reporting a much more extensive than expected decline in jobs last month. The Omicron shutdowns and restrictions took a much larger toll in Canada than expected, as employment fell 200,100 in January and the unemployment rate rose 0.5 percentage points to 6.5%.

Ontario and Quebec drove January employment declines, and accommodation and food services was the hardest-hit industry. In January, youth and core-aged women, who are more likely than other demographic groups to work in industries affected by the public health measures, saw the most significant impacts. Goods-producing sectors recorded a gain, led by construction.

We did not expect the Bank of Canada to hike rates in January because of the risk that Omicron restrictions would batter the economy at least temporarily. If we see a reversal in these declines in February, rate hikes could well commence. The Bank of Canada’s next policy-decision date is March 2. But we won’t see the Labour Force Survey for February until March 11. This could postpone lift-off by the BoC until the next meeting on April 13, when we will have both the February and March employment reports. This would put the first rate hike in April, exactly when the Bank’s forward guidance initially told us the hikes would begin. 

The timing of lift-off is subject to the incoming data. It is troubling that the US employment report, also released today for January, was surprisingly strong, in contrast. To be sure, the US did not impose Canadian-style Omicron restrictions last month, but the Omicron wave did depress US economic activity. It was expected to translate into weak hiring. It didn’t. 467,000 jobs were created in the US, and massive upward revisions suggest a fundamentally very strong US economy. With US companies desperate to hire and the most significant issue being the lack of qualified staff, wages are rising more sharply south of the border.

Canadian employment remains just over 30,000 above pre-pandemic levels, and the country has a strong track record of bouncing back after prior waves of the virus. Yet, today’s jobs numbers suggest a tough start for the Canadian economy in the first quarter. Hours worked — which is closely correlated to output — fell 2.2% in January, and the number of employees who worked less than half their usual hours jumped by 620,000. January also saw the first drop in full-time employment — down 82,700 — since June.

Average hourly wages grew 2.4% (+$0.72) on a year-over-year basis in January, down from 2.7% in November and December 2021 (not seasonally adjusted). The January 2022 year-over-year change was similar to the average annual wage growth of 2.5% observed in the five years from 2015 to 2019.

The concentration of January 2022 employment losses in lower-wage industries did not significantly impact year-over-year wage change, partly because employment in these industries experienced similar losses in January 2021 as a result of the third wave of COVID-19.

 

Bottom Line 

There remains uncertainty regarding when (not if) the Bank of Canada will begin to renormalize interest rates. Canadian swaps trading suggests markets are still expecting a hike on March 2, with five more hikes over the next year. Potential homebuyers are certainly anxious to get in under the wire.

 

written by DLC Chief Economist Dr. Sherry Cooper

No Rate Hike Until March

General Michele McGarvey 31 Jan

No Rate Hike Until March–BoC Assures Inflation Will Return To 2% over 2023-24.

Bank Will Hike Rates At Next Meeting

While markets were 70% certain the Bank would hike their overnight target rate today, we remained of the view that the Governing Council would hold off until March or April because of the slowdown in first-quarter growth arising from the Omicron restrictions. The Bank announced today that economic slack in the economy had been absorbed more rapidly than expected in late October when they last met. “Employment is above pre-pandemic levels, businesses are having a hard time filling job openings, and wage increases are picking up. Unevenness across sectors remains, the Governing Council judges the economy is now operating close to its full capacity.”

Consequently, the Bank now believes that emergency measures arising from the pandemic are no longer necessary. They clearly state that a rising path for interest rates will be required to moderate domestic spending growth and bring inflation back to target. Being mindful that the increasing spread of Omicron will dampen spending in the first quarter, they decided to keep the policy rate unchanged today and to signal that rates will rise going forward. “The timing and pace of those increases will be guided by the Bank’s commitment to achieving the 2% inflation target.”

Notably, the Bank also suggested that another vital policy measure to reduce demand and thereby control inflation is “quantitative tightening” (Q.T.), reducing the central bank’s holdings of Canadian government bonds on its balance sheet. This selling of bonds also raises interest rates. “The Bank will keep the holdings of Government of Canada bonds on our balance sheet roughly constant at least until we begin to raise the policy interest rate. At that time, we will consider exiting the reinvestment phase and reducing the size of our balance sheet by allowing maturing Government of Canada bonds to roll off. As we have done in the past, before implementing changes to our balance sheet management, we will provide more information on our plans.”

The Bank of Canada is very concerned about maintaining its hard-won inflation-fighting credibility. Remember that while Canadian inflation is at a 30-year high–as it is in the rest of the world–at 4.8%, Canadian inflation pales compared to the 7.0% rate in the U.S. and 6.8% rate in the U.K. (see chart below). It is also below the pace of the Euro area. The Bank stated that “CPI inflation remains well above the target range and core measures of inflation have edged up since October. Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022. As supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and gradually ease towards the target over the projection period. Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target. The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation.”

 

Bottom Line

It surprises me that economists in Canada would expect the Bank to hike interest rates during a Covid lockdown without properly measured signalling beforehand. Bay St’s hysteria about inflation seems to have muddied thinking. The Bank will be taking out the big guns to get inflation under control. Overnight rate hikes begin at the next policy meeting on March 2 and then Quantitative Tightening shortly after that. The downsizing of the Bank’s balance could have even more dramatic effects on the shape of the yield curve, hiking longer-term interest rates.

In today’s policy statement and Monetary Policy Report, the Bank emphasized the strength of the housing market and the impact on inflation of the more than 20% rise in Canadian house prices last year. The MPR suggests that housing market activity strengthened again in recent months, led by a rebound in existing home sales.”Low borrowing rates and high disposable incomes continue to contribute to elevated levels of housing activity in the first quarter. At the same time, other factors that support demand, such as population growth, are also now picking up.”

Traders continue to bet that the Bank of Canada will hike interest rates by 25 basis points five or six times this year. This would take the overnight rate from 0.25% to 1.5% to 1.75%. It was 1.75% in February of 2020 before the pandemic easing began. Markets also expect two more rate hikes in 2023, taking the overnight rate to 2.25%.

Volatility in financial markets has surged this year. The FOMC, the US policy-making body, announces its decision at 2 PM ET today. No rate hike is expected yet, but the Fed will undoubtedly commit to serious rate hikes and balance sheet contraction in the coming months.

written by DLC Chief Economist Dr. Sherry Cooper

Canada’s Fiscal Response To COVID is the Largest in the Industrialized World

General Michele McGarvey 1 Dec

Federal Fiscal Update–Finance Minister Freeland’s Debut

 

Justin Trudeau’s government, which has delivered the biggest COVID-19 fiscal response in the industrialized world, announced plans for another dose of stimulus and vowed to continue priming the pump as long as needed.

Finance Minister Chrystia Freeland unveiled $51.7 billion of new spending over two years in a mini-budget Monday, led by an enhanced wages subsidy for business. Freeland also pledged, without detailing, another $70 billion to $100 billion of additional stimulus over three years to spur the recovery.

But the finance minister clearly heeded calls for fiscal prudence. She put off any major structural spending announcements, promised any additional stimulus will be temporary and introduced new taxes on digital giants including Netflix, Amazon, and Airbnb, to help pay for it all.

“Our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth,” Freeland said. It will provide “the fiscal support the Canadian economy needs to operate at its full capacity and to stop COVID-19 from doing long-term damage to our economic potential.”

Freeland revised higher the nation’s projected deficit this year to $381.6 billion, or 17.5% of GDP. That’s up from a deficit of 1.7% of GDP last year. According to estimates from the International Monetary Fund, no major economy will show a bigger fiscal swing in 2020.

 

 

The budgetary red ink is projected at $121 billion next year, before any additional stimulus. In total, spending linked to the government’s COVID response accounted for C$75 billion of this year’s deficit, and C$51 billion next year.

Based on Monday’s projections, the deficit is seen gradually narrowing to about $51 billion in two years and $25 billion by 2025.

The planned stimulus over the next three years will total no more than 4% of GDP, which the document said is in line with the Bank of Canada’s estimate of the level of slack in the economy. Freeland said, “fiscal guardrails” tied to the labour market would help determine the extent of the additional stimulus.

Among the measures announced today, Freeland boosted the government’s wage subsidy program (Canada Emergency Wage Subsidy, CEWS) to cover as much as 75% of payroll costs for businesses and extended its commercial rent subsidy and lockdown support top-ups until March. Both were slated to run out on December 20. The current cap on CEWS was 65%.

The federal government plans to create a new funding program to help restaurants, tourism companies and other businesses in industries hardest hit by COVID-19.

The Highly Affected Sectors Credit Availability Program (HASCAP), which was announced in the government’s fiscal update Monday, will offer eligible businesses loans of up to $1 million, with a 10-year term.

The money will be lent by banks or other financial institutions, but guaranteed by the federal government.

“We know that businesses in tourism, hospitality, travel, arts and culture have been particularly hard-hit. So we’re creating a new stream of support for those businesses that need it most — a credit availability program with 100-per-cent government-backed loan support and favourable terms for businesses that have lost revenue as people stay home to fight the spread of the virus,” Finance Minister Chrystia Freeland said in her prepared speech to the House of Commons.

 

 

Establishing a national childcare plan is a key long-term goal, with Freeland vowing a detailed plan in next year’s budget. In her forward to the fiscal update, she described the daycare strategy as “a feminist plan” that also “makes sound business sense.”

As a start, the Liberals are proposing in their fiscal update to spend $420 million in grants and bursaries to help provinces and territories train and retain qualified early childhood educators.

The Liberals are also proposing to spend $20 million over five years to build a child-care secretariat to guide federal policy work, plus $15 million in ongoing spending for a similar Indigenous-focused body.

The money is designed to lay the foundation for what will likely be a big-money promise in the coming budget.

Current federal spending on child care expires near the end of the decade, but the Liberals are proposing now to keep the money flowing, starting with $870 million a year in 2028.

There is also money for action on climate change. The government allocated C$2.6 billion in grants for homeowners to improve efficiency and $150 million over three years for electric vehicle charging stations.

The government also detailed some help for the hard-hit tourism sector, including funding for airports. But with Transport Minister Marc Garneau’s negotiations with airlines underway, there is no specific money for carriers including Air Canada and WestJet Airlines Ltd.

Bottom Line

There will continue to be great concern about the largest budget deficits since World War II. Does Canada really need the proportionately largest COVID fiscal response in the industrialized world?  The outlook is somewhat less dire than when the government released a fiscal snapshot in July. The unemployment rate at 8.9% is down materially from May’s 13.7% high but well above February’s 5.6%. The economy recovered ground through the third quarter, although the second wave of pandemic and ensuing restrictions undoubtedly will topple economic activity this quarter.

There is little worry that the government can sustain a massive deficit this year. It can, given low debt levels entering the crisis and historically low interest rates. But now that it has no fiscal guardrails, there’s a risk debt-to-GDP will continue to rise in the medium term if it continues to spend ambitiously.

The government is adding a new revenue source by taxing large digital companies. Still, in time, with this level of spending, they will be tempted to raise taxes on domestic sources, for example, hikes in the GST and higher capital gains taxes. This would be misguided, given the fragility of the recovery.

There is a greater risk that the government is overdoing the stimulus with vaccines on the horizon than undergoing it. Canada’s programs have been generous and household-focused compared to our G7 peers. The government must be strategic in assuring that new program spending is focused on future growth, beyond the pandemic, so that our debt-to-GDP will resume its downward trend. The risk is that once created; it is difficult to rein in spending.

credit to Dr. Sherry Cooper Chief Economist, Dominion Lending Centres

Demand Loan vs. Term Loan. What’s the Difference?

General Michele McGarvey 31 Oct

29 Oct 2018

Demand Loan vs. Term Loan. What’s the Difference?

What’s the difference between a Demand Loan and a Term Loan? A recent commercial mortgage refinancing I was involved with resulted in a discussion around Demand Loans. What are they exactly, and how they might typically differ from a term loan?

A demand loan is a loan that a lender can require to be repaid in full at any time. This condition is understood by the lender and the borrower (or should be) from the outset. A term loan on the other hand is a loan which has a specific length of term. It has a set repayment schedule.

Normal loan default remedies are provided to the Lender in typical term loan documentation. Unless and until there is a default, the borrower generally continues making regular (often monthly) payments. Apart from having to typically report annually with updated rent rolls or financial statements, has little contact with the lender until loan maturity.

Robert D. Betteridge, a lawyer with Burnet, Duckworth & Palmer LLP, in a May 2008 article entitled Does Demand Always Mean Demand? indicated that in simple terms a Demand loan often has all its required terms in a few paragraphs. “The debt is acknowledged, an interest rate and payment mechanism is specified and a clear statement that the loan is payable on demand is included.” He goes on to state that “term loan documentation is necessarily more complex”. Of necessity the lender will typically need to cause repayment of the debt if certain elements of default occur, often a monetary (i.e. non-payment) event.

Increasingly however, Lenders are using hybrid loan documentation which seems to include both elements of Demand and Term loans. These hybrid loans may in fact be Demand loans in the sense that they provide the Lender “a right to demand repayment upon the occurrence of a specified event of default”.

Do Lenders really call loans?
A relatively sophisticated borrower I represented last year, secured an attractive rate from a Bank lender. However, the product was only offered as a Demand Loan. This borrower successfully negotiated a further provision. The lender’s security documentation was amended, to require the lender to specifically identify the item of default, and to set out a 10 day Notice period to cure the default, prior to being able to call the loan (i.e. Demand payment).

Was it necessary for this borrower to amend the loan security? This borrower, out of an abundance of caution, felt that it was. I have often thought it prudent to consider a commercial mortgage as a loan with a demand element. The practical reality is that many/most commercial mortgages include a borrower covenant to pay as well as security for the debt. The covenant to pay typically includes language which sets out that if default occurs, all mortgage money then owing to the lender will, if the lender so chooses, become due and payable.

My experience has been that Demand is a lever that Banks or other lenders could use if they feel that there overall investment is at risk. Its more likely to happen if the borrower’s financial situation is precarious, or if the loan security is in jeopardy. A well leased commercial real estate project provides excellent security for a lender. Lenders in these situations most often supplement their security with an Assignment of Rents to further protect themselves. This allows them to step into the shoes of the borrower/landlord, during a mortgage enforcement action, to secure rents directly from property tenants, to continue to service the mortgage payments.

What’s the take-away here?
In practical terms, if you make your monthly mortgage payments as agreed, your loan will likely not be “demanded” or “called”. It is important to understand that it’s the lender’s prerogative. Other factors come in to play of course. Consider the rate of interest. If your loan carries a rate of 6%, and market rates have fallen to 4%, your lender is not likely to call your loan anytime soon, unless they perceive undue risk. They cannot readily replace the loan they call, with a new investment opportunity paying the same rate.

Bear in mind your loan documentation may reflect a Demand/Term hybrid loan. If unclear, speak to your lawyer to understand under what specific circumstances, your loan is callable.

Allan Jensen

Allan Jensen

Dominion Lending Centres – Accredited Mortgage Professional
Allan is part of DLC The Mortgage Source based in Ottawa, ON.

7 things every self-employed individual should know — Before you apply for a mortgage

General Michele McGarvey 24 Oct

Very useful information about self-employment and mortgages…

7 things every self-employed individual should know — Before you apply for a mortgage

Self-employed individuals are quickly becoming one of the most common clients that we handle. Daily we have successful business owners come into our offices who enjoy the perks of being an entrepreneur. One of these includes fantastic write-offs that allow them to bring their income down to a low tax bracket.

However, this benefit can also mean that the same business owner may have a hard time qualifying for a mortgage all because their income is significantly reduced on paper… how frustrating ‘eh? But these savvy business owners know that there is advanced planning that is involved in being able to qualify for conventional financing. Back in 2015, Statistics Canada reported that there were about 2.7 million people self-employed in Canada… which is an astounding 14% of the total population of Canada! What does that stat mean? Two things:

1. That being self-employed is a more than viable way of earning income in today’s world.
2. That 14% may not fit into the conventional lending “box”

The Conventional Lending Box
To fit into this box, self-employed individuals must meet certain qualifications. For example, they must be able to provide:
>Two most recent years of personal tax returns
>Two most current years Notice of Assessments
>Two most current years financial statements
>Statement of Bank Account Activity
>Investment Income Statement
>Photo ID

Now, the one area that raises a red flag in the above is the tax returns. As we previously mentioned, their income claimed on the return itself might be significantly different than their actual income. Tax deductions related to business often reflect meals, rental spaces, credit card interest etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what their actual take home pay is. However, the conventional lending box requires income to justify the mortgage. So how do we pull this off?

The Unconventional Lending Box
Now please keep in mind that “unconventional” in this box just means that as a self-employed individua,l you are going to work with a Mortgage Broker to find an alternative to allow you to show that you can justify the mortgage. There are several well-known and consistently used pieces of advice that we would like to pass along to you:

1. If you are organized and planning (think 2 years out) you can plan to write off fewer expenses in the two years leading up to the property purchase. Yes, you will pay more personal taxes. However, your income will be higher, and it will be easier to qualify you for the mortgage amount you are seeking.
2. Set up your finances through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time you spend doing your own taxes will not be nearly as efficient both financially and time-wise as a professional. Make sure that you discuss with them what your goals are so that they can set up your taxes properly for you!
3. Choose your timing carefully. If you are leaving for an extended holiday within the two years before purchasing, your two-year average income may fluctuate. Plan your vacations and extended trips away with income in mind.
4. Consider using Stated Income. You have the option to state your income. This is based on you being in the same profession for 2+ years before being self-employed. The lender looks at the industry and researches the mean income of someone in that profession and with your experience. You will be required to provide additional documents such as bank statements, showing consistent deposits and other documentation may be asked of you to show your income.
5. Avoid Bankruptcy at all cost…. or if you do declare bankruptcy have all your discharge papers on hand to present to the lender and ensure you have two years of re-established your credit.
6. Mortgage Brokers can state income with lenders at the best discounted rates. But if you do not qualify with A lenders using stated income, then a broker will work with you to utilize a B Lender who are more lenient but may come with higher interest rates and applicable lending and broker fees.
7. Last but not least, if A or B lenders don’t fit, private financing can be looked at as an alternative option in order to get you into the market and offer a short-term solution to improve credit or top up your reporting income. Then you and your broker can refinance into an A or B lender at that time. Just keep in mind that private lending will have a higher rate associated with it , with lender and broker fees added on as well, if you choose to go with this option.

So, to all of our self-employed, hard-working, determined individuals, take heart! You can qualify for the mortgage you want, it just takes a little more planning to get everything in order. Keep in mind to that every lender has different guidelines as to how they view self-employment. Working with a Dominion Lending Centres broker leading up to your property purchase can help you ensure you get the mortgage you want.

Geoff Lee

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

A bride and a mortgage broker – Our House Magazine

General Michele McGarvey 17 Oct

16 Oct 2018

A bride and a mortgage broker – Our House Magazine

Dominion Lending Centres’ leading lady in the new national commercial campaign has a few questions of her own. As a young Canadian looking to get into the housing market, Laura Steponchev has a candid Q&A with one of our pro’s.

You could say Laura Steponchev is a pretty typical Canadian millennial. The aspiring actress moved to Toronto from Regina five years ago to pursue her career. And over the years, she’s moved around quite a bit. Steponchev lived on her own for a while, and loved it, but paying the bills was tough and she needed to be more reasonable. She got a roommate, but he moved in with his fiancé, and she moved out of that condo and into an old house in Greektown with four other roommates. She eventually met her boyfriend, and they soon moved in together. The couple decided they wanted a place of their own, so they moved into his parents’ house in the ‘burbs.
“Living with your partner comes with its own troubles, but living together with your inlaws – that’s a whole new ballgame,” she said.
Steponchev wants to get into the market, but she’s got a lot of questions.

Our House Magazine teamed up with Dominion Lending Centres mortgage broker to answer some of those questions and help Steponchev on the path to homeownership.

Q. I understand that first-time homebuyers are granted a five-per-cent down payment – I am not a first-time buyer any more. What am I looking to save for a down payment now?
A. First-time homebuyers are not the only ones who can purchase a home with as little as five per cent down. As long as the home you are purchasing will be your residence, you can still put only five percent down. But all lenders and mortgage insurers (CMHC, Genworth and Canada Guaranty) will want you to have an additional 1.5 per cent of the purchase price to ensure you can cover closing costs such as legal fees, Property Transfer Tax, Land Title registration etc.

Q. What’s the minimum down payment you would recommend to have before looking?
A. As long as you have the minimum five per cent down and 1.5 per cent of the purchase price for closing costs, that’s all a lender and mortgage insurer will want you to have. However, I recommend having a bit more as a buffer against unexpected costs. Remember, with a move there are utility hook-up costs, moving costs, home inspection and so on. Having an additional $5,000 above your down payment and lender-required 1.5 per cent will help make it a smoother move.

Q. What kinds of interest rates are we looking at?
A. Rates will vary day-to-day, but we are still at almost historical lows right now, and they are on the rise. Rates are offered and guaranteed for a period of time called a term. Terms can vary from one to 10 years with some lenders and are priced according to each individual lender’s pricing structure.
The most popular are five-year fixed and five-year variable. Where right now we see five-year fixed rates as low as 3.04 per cent and five-year variable rates as low as 2.36 per cent for qualified applicants, be aware that it is not all about rate. Some of the more appealing lower rate offerings come with additional terms that may not work for you, such as higher penalty structures or bona fide sale clauses that could have you stuck if you want or need to pay out your mortgage mid term.
As always, it is advisable to speak with an experienced mortgage broker to find out more about the terms of any rate offering to make sure you know all the implications that could apply to your situation.

Q. Realistically, what should our budget be?
A. Conservatively, the government has said that 35 per cent of your combined annual gross income should be enough to cover property expenses (mortgage payment, property taxes, condo fees, heating costs), and 42 per cent of your gross annual income needs to be enough to cover the property expenses plus any other credit payments (loans, credit cards, lines of credit).
In reality, every person’s situation is different, so, before you decide to take the leap into home ownership, it is a good exercise to detail your current budget to get a starting point for what supports a comfortable lifestyle. Be sure to include a savings plan into that monthly budget, not only for retirement but you will likely have maintenance costs with your new home or you may want to do some updating.
Now replace your rent payment with property costs (detailed above) and see how your monthly cash flow will be. Is it comfortable, or would you be pinched? Ultimately, it is no fun to be house rich and cash poor, so, if you would feel pinched, it might be an idea to downsize your purchase price to a more realistic level.

Q. In this economy and as a millennial, we’re told that owning a home is a very distant reality (especially due to that darned avocado toast).
Are our dreams of owning our own place just that – dreams?
A. Not at all! In my experience, millennials are very determined when they set their sights on a goal and really just need enough information to formulate a realistic plan. If a home purchase is in your future, my recommendation is to get in touch with a mortgage broker and start building that plan – sooner rather than later.
You may already be qualified and just don’t know it, or there may be tips and tricks you are unaware of that could bring that dream closer sooner. Or it may be that it could take you a year or two to get into a really strong position to enter the market. You just won’t know until you try.
I can tell you personally, it is a very satisfying professional experience when I work with clients from dream to reality, not matter how long it takes. It’s an exciting experience every time!

Jeremy Deutsch

Jeremy Deutsch

Communications Advisor

The Downsizing Dilemma

General Michele McGarvey 15 Oct

12 Oct 2018

The Downsizing Dilemma

With almost 50% of homeowners ready to retire and wishing to stay in their home and 30% of those people with most of their money tied up in home equity, the downsizing dilemma is real. Can they afford to stay in their home or is downsizing the better option.

In the past, retired couples or a widow would keep their clear title home and use pension and investment income to live. They would only sell the family home and move into a retirement home when health issues forced the move or upon death of both people. Times have changed.

People are living longer and want to stay in their home. The cost of living has risen and, due to higher home values, the amount of equity in that home is greater than ever. Many home owners are being stretched with their budget and their retirement income is insufficient to maintain their lifestyle.

We have found that many retired people are unable to meet their budget each month and are using a line of credit and/or credit cards. This becomes a vicious cycle and the cost of interest pushes them to the wall and they reach their maximum limits. Then they are forced to sell their home or reduce their lifestyle to manage. Often family members are unaware till it becomes a serious matter. Planning ahead is essential to avoid this situation and lower stress levels for all family members including the aging parent.

In a recent Globe and Mail article, Scott Hannah of the Credit Counselling Society talks about the risks.

Some homeowners now recognize the need to look to their home as a source of income from home equity financing.

There are a growing number of programs designed specifically for homeowners over the age of 55. Each comes with different requirements, advantages and benefits. It is important for retiring or retired people to talk with their family and then in a group with their independent Dominion Lending Centres mortgage broker and financial planner.

For some family members, the next step is for the aging parent to downsize to a new home. For some, it is to stay in the family home and set up an equity plan to maintain a safe place and comfortable lifestyle. Consideration must be made for current income, current budget and future needs.

Pauline Tonkin

Pauline Tonkin

Dominion Lending Centres – Accredited Mortgage Professional
Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC.

Mortgage Insurance 101

General Michele McGarvey 4 Oct

4 Oct 2018

Mortgage Insurance 101

For a first-time home buyer, the types of insurance surrounding a mortgage can be confusing, so it’s important to know what insurance covers what.

There are 3 main types of insurance to know about when buying a home.

Mortgage Default Insurance – If you put less than 20% down on a home you are buying, Government rules are you must pay for Mortgage Default Insurance which covers the lender should you default on your mortgage payments.

There are three mortgage default insurers in Canada – Canadian Mortgage & Housing Corp. (CMHC), Genworth or Canada Guaranty) The purchase of this insurance solely benefits the bank/lender.

Mortgage Insurance and/or Life Insurance

You’ve just made the biggest purchase of your life: a new home for you and your family.
• What’s the best way to protect your investment if you die?

Insurance is the answer. But what kind: mortgage insurance or life insurance?

There are important differences between the two that we’ll examine.

Please note: Mortgage/Life Insurance is not mandatory to qualify for a mortgage.

You have made the biggest purchase of your life… how do you protect yourself and your family? Many people say they have life insurance through their work, but is it enough?
• The question you should be asking is – do you currently have enough life insurance in place right now, equal to your mortgage amount?

Top Benefits of purchasing Mortgage/Life Insurance

1. Peace of Mind – creates a sense of security that your loved ones will be taken care of if you pass on.
2. Mortgage Can be Paid Off – whereby any other policies that are held will be able to assist with other needs.
3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage/Life Insurance policy holder, the mortgage can be paid off which will allow the family to stay in their home and not become displaced, causing additional anguish.
4. The Younger you are, the Less Expensive – Which means that insurance is extremely affordable for a young, and likely, first time home buyer.
5. Good Health = Coverage for Unexpected Illness Later on – After illness strikes, it is more difficult to acquire life insurance.

Mortgage/Life Insurance is an option that anyone with a mortgage should consider. Ask me about a referral for reputable and credible insurance.

While we’re discussing insurance, there are other types of insurance you need to consider as well…
• Fire insurance – most lenders will want to see that you have fire insurance in place, prior to funding your mortgage to “protect” their investment.

Additional insurance options:
• Disability insurance
• Personal content insurance

Mortgages are complicated… BUT they don’t have to be! You need to protect your investment by engaging an expert.

Contact a Dominion Lending Centres mortgage professional to discuss a mortgage that works for you (not the bank)!

Kelly Hudson

Kelly Hudson

Dominion Lending Centres – Accredited Mortgage Professional
Kelly is part of DLC Canadian Mortgage Experts based in Richmond, BC.

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