Rising inflation combined with a strengthening post-pandemic economy gives both reason and opportunity for the Bank of Canada (BOC) to further raise interest through to the end of 2022 and beyond.

The 1% increase to the benchmark overnight rate in early July was a wake-up call that they were not bluffing and are prepared to act aggressively. Depending on how inflation trends, we could be looking at interest rates that are 1% or 2% higher within the next year.

Before jumping into the effects of higher interest rates, we should clarify one common point of misunderstanding about the prime rate and the BOC overnight rate. The prime rate is the basis for most variable rate loans, including mortgages and lines of credit. It is determined by the major banks and currently sits at 4.7%; 2.2% higher than the BOC overnight rate. Although these two rates are different, the key takeaway is that the prime rate moves in lockstep with any changes to the BOC rate, usually within a few days.

Now that we have that out of the way, just how will future interest rate hikes affect your debts?

Variable rate mortgages
The percentage of Canadians holding a variable rate mortgage surged in 2021 and now stands at about 50%. Any rise in the BOC rate is met by an equal rise in variable rate mortgages, so the impact is very clear and takes effect quickly. A 1% increase will add around $200 to the monthly payment on a $500K mortgage. Keep in mind that the interest rate has already rose 2.25% since the beginning of 2022!

Home equity line of credit (HELOC)
HELOCs usually have a variable interest rate that will rise in conjunction with any BOC rate hikes. A $100,000 balance carried on your HELOC will cost you about $20 more in interest each month for every 0.25% increase by the BOC.

Credit card debt
The interest rate on your credit card and how it can be adjusted are outlined in your cardholder agreement. There is usually little correlation between credit cards rates and the rates set by the central bank. However, credit card rates are already so astronomically high that it is unlikely you would even notice a 1% increase! Our advice is to attack any outstanding credit card balance ASAP.

Personal lines of credit
There are fixed and variable rate options out there. If you selected the lower variable rate when you signed your agreement, expect to pay more going forward on any outstanding balance.

Car loans
Most car loans in Canada are fixed, but the average fixed rate is rising quickly and now sits about 5.25%. While not common, variable rate cars loans are loans are available and your payment could be affected by interest rate hikes.

Student loans
There are provincial and federal student loan programs with different interest options so the effect of rate hikes will vary. The default choice for Government of Canada student loans is variable interest “at prime” with a fixed rate option at “prime + 2%”. The point is mute right now as interest charges are currently suspended, but variable rate student loan holders will see a significantly higher payment when interest charges resume in April of 2023.

Most of us will be paying more interest as we move through 2022 and into 2023. A mortgage or some other debt may be inevitable and not all debt is bad, but it’s important to understand your interest expense and adjust your repayment priorities accordingly. For powerful personal finance education and training with immediate results, check out the complimentary livestreams each week from Enriched Academy. View the schedule and sign up for upcoming sessions on

written by DLC Chief Economist Dr. Sherry Cooper

Buying a home is an exciting experience for anyone, and even more of a milestone when you’re doing it solo, but it can be a little different when you’re purchasing on your own. While it can be easier to tailor your mortgage and home search to exactly your needs, it can be somewhat more stressful handling the purchase of a home on your own… fortunately, that’s where a Dominion Lending Centres mortgage expert can help! They assist with your mortgage application, pre-approvals and final financing to make the entire mortgage process much smoother.

In addition to using a mortgage expert and having a trusted realtor, here are some other tips that can help improve your homebuying experience:

1. Be Aware of Your Financial History

Understanding your credit score and your financial history can help to improve your qualification potential. If your credit score is a little lower than it should be, or lower than you’d like for what you are trying to qualify for, you can take steps to improve this prior to seeking a mortgage and get better results.

2. Ramp Up Your Savings

Of course, while a mortgage will cover a large chunk of your home purchase, you are also required to have a down payment. In addition, you need to consider closing costs (1.5-4%) of the purchase price, as well as ongoing maintenance and costs for your new home (repairs, utilities, property taxes). It is important to determine your budget so you are aware of what you can afford monthly.  BUT before you shop is also a great time to start ramping up your savings account so you can put more down and potentially reduce the overall mortgage.

3. Study The Marketplace

One of the most important aspects of homeownership is understanding what you can afford and where you want to live. These two key components can help you to determine your budget and the areas that you should be looking for a home, as well as what type of home size, amenities, etc. Understanding what is available can provide you with more information and help you fine-tune your shopping list.

4. Be Flexible When Possible and Firm When Not

While shopping for a home on your own can be much easier as you’re only concerned about your own needs, it is still important to be flexible. While it is easier to find a home that fits just ‘you’, keeping your options open can also have its benefits. Of course, if there are things you cannot live without or a location you really need to be in, it’s important to be firm about those things as well. Creating a list of wants and needs can help you determine where there is room to be flexible, and where there isn’t.

5. Consider Your Present and Future Needs

While you’re shopping for your new home for you today, you will also want to consider what your life might look like in the future. What are you doing 5 years from now? 10 years? Do you want to start a family or have children? Do you plan on changing jobs or perhaps requiring a move in a few years? All these things are important to be aware of so you can make the best choice for you today, but also ensure that you are considering your future needs.

6. Protect Yourself

Lastly, while you might not be purchasing your current home with a partner, it is important to leave room for this in the future to ensure that you and your home are protected. If you have another individual move into your home down the line, you could become common-law and that could cause complications. Having an honest conversation about expectations and responsibilities can help, as well as writing up a document for both parties to sign, indicating these responsibilities as well as outlining the investment made by the original owner and new partner.

If you are a single homeowner looking to make a purchase, but are not sure where to start, don’t hesitate to reach out to a Dominion Lending Centres mortgage expert. As an expert in mortgages, they have experience in all types of situations and purchases and the knowledge to walk you through the process and ensure you get the best home and mortgage for YOU.

written by DLC Chief Economist Dr. Sherry Cooper

Building or renovating your own home is such an exciting time and allows you to create something tailored to you and your family!  But when it comes to construction mortgages, there are a few different types of loans: new construction and even pre-construction.  Let’s break it down so you can determine the best choices for you.

Construction Mortgage

Construction mortgages service both new builds and large home renovations. The purpose of a construction mortgage is to advance you the full funds for your mortgage in stages as outlined below.

These stages align with the construction process of your home (or through major renovations if you are doing an upgrade) and inspectors are required at each stage to confirm the current construction and allow for advancement of the next set of funds.

In addition to the difference in receiving funds from a construction mortgage versus a traditional mortgage, there are a few other key differences:

1. Home construction loans are short-term agreements with generally one-year in length while mortgages have varying terms and range anywhere from 5 to 30 years in length.
2. Most construction loans will not penalize you for early repayment of the balance, unlike traditional mortgages which can have pre-payment penalties if not part of your agreement.
3. Monthly payments are interest-only until the end of construction.
4. Construction loans only charge interest on the amount of the loan used during the construction. The borrower does not have to pay interest on any unused portions. Traditional mortgages require the borrower pays interest on the entire amount of the loan.
5. Construction loans can provide upfront funds to purchase land for your build, while traditional mortgages typically do not service land-only purchases.
6. Any remaining costs of construction can be paid down by acquiring a mortgage on the home once it’s completed.

Note: If you are choosing to do a self-build, you will need to prove that you have enough experience to properly handle the construction from start to finish.

Keep in mind that, similar to traditional mortgages, construction loans have varying rates and terms depending on the type of property you’re building, the amount of construction and length of the construction.

Pre-Construction Mortgage

Somewhat different from a construction mortgage is a “pre-construction” mortgage. These typically apply to condominiums, townhouses and other new builds. When it comes to pre-construction condo purchases, mortgage approval is required as this tells the developer that you have the ability to finalize on the unit later.

Typically, mortgage pre-approval is required within 30-90 days of purchase but you can get mortgages as early as 2-3 years from when the project is due to be completed. In these cases, you may not necessarily be able to get a rate guarantee due to the timeframe but it is worth asking for a commitment letter if you’re seeking a mortgage closer to the final build.

Similarly with traditional mortgages, your ability to get approval for a pre-construction mortgage is determined by your credit score, income-to-debt ratio and your employment history.

Closing happens once the building has been registered and when you receive the title to your unit. However, with a pre-construction mortgage, your payments will start with the builder occupancy fees from the time of occupancy to final closing, which can be a period of 3-6 months depending on the project.

If you are looking to purchase a new build or are interesting in building your own home or renovating your current one, please be sure to reach out to your Dominion Lending Centres mortgage expert and discuss your options to ensure you’re getting the best construction loan for your project.

written by DLC Chief Economist Dr. Sherry Cooper

When it comes to shopping for a mortgage, it is important to know what you need to qualify – but it is just as important to understand some of the reasons why you DON’T qualify so that you can make some changes and budget accordingly for when the time is right.

If you are in the market for a home, make sure you know the 5 major reasons you may not qualify for a mortgage:

1. Too Much Debt

One of the biggest reasons that individuals fail to qualify for a mortgage is that they are carrying too much debt already. This debt can be in the form of credit cards, lines of credit or other loans. Regardless of where the debt comes from, it all contributes to your Total Debt Servicing ratio (TDS), which is one of the qualifiers for a mortgage loan. The goal is for your monthly debt payments to NOT exceed 40% of your gross monthly income.

PRO TIP: Find ways to lessen your expenses, budget or consolidate debt where possible.

2. Credit History

Another indicator of not qualifying for a mortgage can be your credit history. It is always important to pull your credit score before you start house hunting so that you can understand what your credit rating is to help determine what you qualify for. Your credit score is a direct reflection of your potential risk and, if you have a poor credit history then it makes it harder to secure a mortgage loan.

PRO TIP: To improve your credit score, be sure to avoid late or missed payments, exceeding your credit card limit or applying for multiple new credit cards.

3. Insufficient Assets or Income

With rising housing prices and stagnant income levels, one roadblock for mortgage approval can be lacking sufficient income or assets to put against your loan. For some buyers, the only option is to save up more money for your down payment to reduce the overall mortgage or look at suite income or alternative lenders.

4. Not Enough Down Payment

Another reason you may not qualify for a mortgage could be that you do not have enough of a down payment. In Canada, a 20% down payment is required to avoid mortgage default insurance BUT you can still purchase a home with less than 20%; you simply need to account for the insurance premiums, which are calculated as a percentage of the loan and is based on the size of your down payment.

5. Inadequate Employment History

Lastly, employment history can have a big impact on mortgage approval. Most lenders prefer a 2-year consistent employment history. If you do not have an adequate employment history, have been at your job for a short time or do not have a record of long-term positions, you might find it harder to get a mortgage loan.

Whether you’re looking to get your first mortgage, are ready to move or are simply shopping around, understanding what can impact your mortgage application will help ensure you have greater success!

If you are struggling currently with your mortgage approval or have recently been denied – that’s okay! Don’t be deterred. With a little effort and patience, as well as the support of your trusted Dominion Lending Centres mortgage expert, you will be able to put yourself in a better position to reapply in the future!  If you’re ready, contact one of our experts today to discuss your options.

written by DLC Chief Economist Dr. Sherry Cooper

The worst financial mistake you can make is believing that a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) is something to look into when you are a little older and more able to set some money aside. The fact is, you don’t use these accounts for saving at all, you use them for investing. Your retirement fund could grow to seven figures, even if you only contribute a fraction of the allowable yearly maximums. They also come with huge tax-saving benefits.

A lot of people get discouraged by the sheer amount that you are allowed to contribute to these registered accounts and the mere pittance they may be able to come up with — don’t fall into that mindset!

If you make 60,000/year from your job, you could contribute over $10,000 to your RRSP and another $6000 to your TFSA every year. Considering you are only going to have about $45K in your jeans after taxes, finding a spare $16K would require more than 30% of your take-home pay!

The good news is that your yearly contribution limits can be carried over and as you grow older (and theoretically have more disposable income) you can catch up. The bad news is that playing catch up isn’t going to happen unless you are very disciplined with your spending. Sure, you may earn more, but you will spend more… kids, cars, vacations, even the cat is going to cost you $800/year!

That extra disposable income you were envisioning may not materialize until you are in your mid 50’s, if ever! You need to scrape together whatever investment savings you can now, even saving just 5% ($200/month) of a $60K salary would make a huge impact.

Putting off getting started is going to cost you way more than you ever imagined in lost investment returns. Ignore the pitiful interest rates you see on bank savings accounts, holding cash will actually cost you money at current interest and inflation rates. However, the average annual return on many stock indexes (S&P, TSX, DSJ) over the past 40 years is around 7%. If you do a little math, you are soon going to realize that even on a relatively small investment of $200 month, the difference between starting when you are 18 versus starting at age 28 is jaw dropping.

Investing $200/month from age 18 to 65 at 7% would give you $790,139. The same $200 at the same rate from age 28 to 65 would yield just $384,810. Sure, you would be contributing $24,000 more over that extra 10 years, but your nest egg at 65 would be double — more than enough to keep you poolside at a nice resort every winter while those late starters are stuck in the snow!

There are plenty of rules, regulations and strategies to consider and every angle of the TFSA vs RRSP debate has been extensively written about. While you do need to understand the basics of how they work, the simple goal for the vast majority of us should be to put something, anything, into one (or both) of these accounts on a regular basis and start investing — you can’t go wrong!

written by DLC Chief Economist Dr. Sherry Cooper

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

1. Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.
2. When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.
3. The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!

Before signing for a cash-back mortgage it’s better to discuss your needs with your local Dominion Lending Centres mortgage expert. They can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation

written by DLC Chief Economist Dr. Sherry Cooper

An investment (or rental) property, can be a great option for generating additional monthly income and growing your wealth over time, if done properly.

This strategy has multiple options and outcomes that can benefit Canadians such as:

• Supplementing income now and boosting pension in the future creating more financial freedom
• Allowing you to buy your dream retirement home now and rent it out until you’re ready to use it
• Increase monthly cash flow for potential expenses beyond retirement savings
• Utilize a multi-unit home (such as a duplex) by renting out one of the units

However, before you buy an investment property, there are a few things to know. Firstly, buying a property for the purpose of renting it out to someone else comes with different qualifying criteria and mortgage product options than traditional home purchases.

Before you look at purchasing a rental property, be aware that:

1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else. Another option is to utilize existing equity in your primary residence and refinance for the cash to purchase your rental or investment property. Be sure to factor in funds for closing costs, potential repairs and maintenance in your amount.
2. Only a portion of the rental income can be used to qualify and determine how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income and subtract your expenses.
3. Interest rates usually have a premium when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

With the right purchase price and rental costs per month, this can be a great way to supplement income and make the most out of your retirement. Not only does it offer monthly cashflow, but you also will have the ability to sell the property down the line if you so choose. However, bear in mind, the sale will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), as well as consider maintenance amounts (approximately 1% of the property value for the year) and compare to current rental prices to be sure it is a profitable investment before purchasing.

If you’re looking to purchase an investment property, be sure to reach out to a Dominion Lending Centres mortgage expert to discuss your options and understand what is required.

written by DLC Chief Economist Dr. Sherry Cooper

It’s difficult to find timeless advice in the ever-changing world of personal finance but these five are about as close as you can get.

1. Start small and start early with investing
Only around 5% of Canadians under 25 have a TFSA, which means 95% have already missed out on 7 years of compounded returns. Starting small could be as little as $100 month… and starting early means now! Invest what you can and don’t think a $100 monthly will never amount to anything.

Investing $100 month at 5% for 47 years (age 18 to 65) will give you $68,754 more than someone who did the same starting from age 25. Time really is money when it comes to compounded returns, so get started as soon as possible.

2. Make more or spend less?
Our advice is to do both, but there are limits on how much income you can generate and cutting back on expenses has a bigger impact on your bottom line. If you’re lucky, you may find some expenses you could easily do without, like that lightly used gym membership or seldom watched 200-channel cable package.

A part-time job or side hustle isn’t a bad idea, but you will spend more time working and less time enjoying life. Don’t forget that any extra income is fully taxable — you might need to earn $10 in order to get the same result as a $7 spending cut.

3. Re-evaluate your wants and needs.
A 1200 sq ft bungalow was the standard for most families in the early 1970’s. These days, houses are now over 2000 square feet on average and come with plenty of high-end finishes. Lifestyle creep is not limited to our housing needs and now influences what we drive, how often we eat out, and where we go for vacation. Being able to satisfy your wants later in life will only come from making smart spending decisions on your needs earlier in life and freeing up the cash to start saving and investing.

4. Understand credit and debt.
131 months! That’s how long it takes to pay off a $1000 credit balance paying the minimum amount — and it will cost you almost $1000 more in interest charges! Many people carry a credit card balance and are blissfully unaware of just how much it is costing them each month. Car loans are another area where the financing costs add up to a lot more than most people realize.

The key is to be knowledgeable about your debt. Track what you owe and how much that debt is costing you as well as any alternatives that may lower that cost. For example, refinancing your mortgage or drawing on home equity to pay off higher interest loans or credit cards.

5. Get financially literate.
Managing your money has become more difficult as we have a lot more spending, saving, and investing options, but we also have access to a lot more information and tools to help us. For example, diving into the real impact of those investment fees on your mutual funds (it’s a lot!) can easily be investigated online in just a few minutes.

written by DLC Chief Economist Dr. Sherry Cooper

While getting pre-qualified can give you a ballpark estimate on what you can afford, getting pre-approved is where the real magic happens.

Mortgage pre-approval means that a lender has stated (in writing) that you do qualify for a mortgage and what amount, based on submitted documentation of your current income and credit history.

A pre-approval usually specifies a term, interest rate and mortgage amount and is typically valid for a brief period of time, assuming various conditions are met.

There are three benefits to pre-approval including:

1. It confirms the maximum amount you can afford to spend

Not only does getting pre-approved make the search easier for you, but helps your real estate agent find the best home in your price range. Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

2. It can secure you an interest rate for 90-120 days while you shop for your new home

Getting pre-approved doesn’t commit you to a single lender, but it does guarantee the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates actually decrease, you would still be offered the lower rate. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.

3. It lets the seller know that securing financing should not be an issue

Lastly, pre-approval lets the seller know that you are able to make the purchase. This can be very helpful in competitive markets where lots of offers may be coming in, as it helps to inform the seller that you’re a sure thing versus other potential bidders who may not have pre-approval.

Keep in mind, once you get your pre-approval, you will want to make sure not to jeopardize it. Until your mortgage application and sale is completed, be sure you don’t quit or change jobs, buy a new car or trade up, transfer large sums of money between bank accounts, leave your bills unpaid or open up new credit cards. You do not want your financial or employment details to change at all until you have closed on the new mortgage.

If you have any questions or want to get your pre-approval started today, don’t hesitate to reach out to a Dominion Lending Centres mortgage professional!

written by DLC Chief Economist Dr. Sherry Cooper

When it comes to shopping for your perfect home, it can be hard to find the exact one ready to go! If you are looking into a home that requires improvements, there is a mortgage product known as Purchase Plus Improvements (PPI). This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

Depending on whether you have a conventional or high-ratio mortgage, if it is insured or uninsurable, and which insurer you use, the Purchase Plus Improvements (PPI) product can allow you to borrow between 10% and 20% of the initial property value for renovations. Additional insight on how the qualifying structure works can be found in the table below:

The main difference between a regular mortgage and a purchase plus home improvements program is the need for quotes. As part of the verification process, your mortgage professional and the lender will need to see a quote for the work that is planned for the improvements. The quotes will provide us with the cost and plan details required to secure the final approval.

Working with your realtor, your mortgage professional will help guide you through the final approval process, which works as follows:

1. Find a home
2. Apply and get approved for a Purchase Plus Improvements mortgage
3. Get firm quotes on the improvements
4. Get an appraisal for the estimated as-is and as-improved value of the property.
   • This will be ordered by your lender or broker and quotes are typically reviewed by the appraiser.
   • Note: If you are putting less than 20% down payment on the purchase, often only a final inspection is required to confirm the work on the quotes has, in fact, been done.

5. Close the purchase
6. Depending on your down payment, the lender may provide up to:
   • 80% of the as-improved value, less the cost of improvements (if on an uninsured mortgage)
   • 95% of the as-improved value, less the cost of improvements (if on a default-insured mortgage)
7. Start the improvements
   • The initial advance of funds will be up to 95% of the approved value of the property minus the improvements. You will usually have to pay a portion of the improvements upfront via savings, credit card, personal line of credit, parental funds, etc.
8. Notify the lender when the project is complete
   • At this point, an inspector/appraiser will confirm the work has been completed to the specifications agreed by the lender
   • Once the lender verifies the inspection report, the balance of funds is advanced.

If you have questions about how a Purchase Plus Improvements Mortgage could work for you or are considering taking this route for your next home, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional for expert advice!

written by DLC Chief Economist Dr. Sherry Cooper