Bank of Canada Rate Announcement: RATES UNCHANGED

Good morning, the Bank of Canada kept rates unchanged this morning with their scheduled rate announcement.  From the Bank’s release, the severe impact of Covid appears to have peaked & the gargantuan policy response has helped replace lost income & cushion the effect of the shutdowns. Right now the Bank’s forecast is for a sharp, partial rebound followed by a slower grind back to pre-crisis levels.  The grind part of that being the key element. 

Let’s remember that policy response was more life support than it was stimulus.  Debt, which was already at high levels pre-covid, is giving up future consumption for greater consumption today.  Unless that debt is used to create a new income stream that will help pay for that new debt, then it creates a drag on future cash flows.  If I take out a mortgage to buy a vacation property, then those payments are going to take away from what I can spend my money on & invest with otherwise.  If I use that financing to buy a rental property, I can acquire that asset without my monthly consumption being as impacted.   The economic gravity of what has happened in Canada & around the world the past few months is something that will weigh on us for a long time. 

What can you do?  If you’re able, use this as an opportunity.  Take advantage of low rates by creating another income stream, or by reducing your current debt load.  If neither of those are options & you are one of the millions turned upside down from has been the worst financial event in anyone’s memory, think about what you can do moving forward to help keep you brace for the unexpected.

I was thinking last night how, through most of my life, it has felt like we have been on a linear path of progress & of course, life is not linear.  Life is cycles of booms & busts, bright times followed by dark times.  Winston Churchill said never let a good crisis go to waste.  Find a way to emerge from this stronger than you were before.  If that means taking government help, education, a career change, using technology to improve productivity, re evaluating your monthly budgeting, investing, spending more time with loved ones, find a way to use this situation as a learning experience.  It is clear we have entered a darker time as humans.  Crisis’s happen & are happening more often than ever in our lifetime.  Find a way to better brace for the unexpected. 

I’m Ryan, glad to be clean shaven again & to have a reason to iron my dress shirts.  I hope you have a great day.

Here is a link to the Bank of Canada release.

Covid-19 Lender Relief

This has been a bit of a moving target & we will do our best to keep this as up to date as possible, but below is a list of the best ways to contact your lender regarding payment relief. PLEASE get in touch if you are having any issues getting through or questions related to the relief available.

Also, make sure to clarify with your lender the financial & credit repercussions of payment deferral.

ATB 1-800-332-8383

Blueshore Financial https://www.blueshorefinancial.com/AboutUs/MediaCentre/WhatsNew/03132020/

B2B www.b2bbank.com/covid19

BANK OF MONTREAL www.bmo.com/covid19

DOMINION MORTGAGE Email. [email protected]

BRIDGEWATER www.bridgewaterbank.ca/covid-19

CANADIANA 1-877-315-1633

CIBC www.cibc.com

CMLS FINANCIAL www.cmls.ca/covid-19

EQUITABLE www.equitablebank.ca/covid-19

FIRST NATIONAL www.firstnational.ca/residential/covid-19

HSBC 1-888-310-4722

ICICI 1-888-424-2422

LENDWISE 1-866-675-7022

MANULIFE https://www.manulife.ca/personal/support/update-on-covid-19.html

MARATHON 1-855-503-6060

MCAP www.mcap.com/covid-19

MERIX www.merixfinancial.com

NATIONAL BANK 1-888-835-6281

OPTIMUM www.optimummortgage.ca/clientservices/covid-19

SIMPLII (PC FINANCIAL) 1-888-723-8881

RFA

  • -1-866-939-5005 Mortgage Numbers starting with 4
  • 1-877-776-6888 Mortgage Numbers starting with 6
  • RFA 1-833-228-5697 Mortgage Numbers starting with 7, 8 or 9

RMG www.rmgmortgages.ca/covid-19

ROYAL BANK www.rbc.com/covid-19

SCOTIABANK 1-800-768-2511 https://www.scotiabank.com/ca/en/personal/scotia-support/latest-updates.html?cid=S1eCOVID0320-001&uid=3435943662&cid=em_ZZ20004&rmid=&rrid=3435943662

STREET CAPITAL See RFA

TANGERINE 1-877-464-5565

TD 1-888-720-0075. www.td.com/covid19 

Westminster Savings https://www.wscu.com/Personal/AboutUs/MediaCenter/MemberNotices/healthupdate/

What Impact Will Coronavirus Have On Mortgage Rates?

I’ve been getting a lot of questions about how the coronavirus will impact mortgage rates so wanted to get this out there to cover what those looking to buy a home, or have mortgages coming up for renewal, or are thinking of maybe refinancing, should expect. A lot of people you know have mortgages & are going to benefit from watching this so please forward on to friends or family or whoever you think is going to want to know what’s going on.

I’ll try to keep this simple: LOWER RATES. Until the world has gotten this virus under control there will be no pressure on rates to go up. The Bank of Canada dropped rates by twice their usual 0.25% cuts last week, something they haven’t done since the great financial crisis, and that was just as this virus was entering Canada. Is that the last of them? No. Bond yields, which are what fixed rates are priced on, have been finding new bottoms, I expect us to see rates follow suit & continue to hit new all time lows.

Regardless of your personal thoughts on Covid19, what is very clear is how contagious this is. Forget death rate & how many ppl die compared to the seasonal flu. What this boils down to is the potential of exponential growth.

Consider this example: if the number of people in a stadium doubles every day, and it takes 50 days for the entire stadium to be filled, how many days does it take before half the stadium is filled? The answer is 49. On day 48 = 25% full. On day 47 = 12.5% full. On day 46 it’s 6.25% full. So in the span of 4 days we go from 6.25% full to 100% full. That gives you an idea of how quickly things can get out of hand & why authorities want to act early.

The path I think we can expect are schools shutting down, employers allowing people to work from home, conferences & sporting events being cancelled. The countries that have gotten a handle on this thing have done so by implementing draconian measures of more or less locking people inside their homes to prevent the spread & that is where I think things are likely to head. To frame all this from the perspective of the economy, it’s not good. Canada’s growth had already been slowing BEFORE corona had shown up. Look at commodity prices. Look at the price of oil right now. That decline started before the Saudi / Russia feud.

Think about the knock on effects of what happens when people aren’t going out for dinner, going to the mall, taking trips, booking flights. When companies aren’t making sales, they cut costs through layoffs. When people don’t have jobs, they don’t spend money. You can see how a deflationary shock like this can be self reflexive. All of this points to rates continuing to drop.

What does this mean to you? Looking purely from the mortgage perspective, this is obviously good. If you have a mortgage that is over 3%, get in touch because in the last week we have found a ton of opportunities for clients to save money refinancing their mortgage. I still think it’s a bit early, but we’re at least knowing these opportunities exist & waiting for the timing to be optimal before finalizing anything.

If your mortgage is coming up for renewal in the next 6 months, DO NOT take your lender’s early renewal offer. At least, not without checking in with me. I have yet to see one in the last few months that is attractive enough to make moving early worth it but I can at least promise to shoot you straight & can tell you quite quickly what you should do.

If you’re looking to buy a place, as always, be patient. There is going to be opportunity out there & on the mortgage front, you’re going to be looking at rates we have never seen in Canada’s history.

The final piece I want to add here is that there is already a ton of government debt in the system & we’re going to see a lot more. The way governments are going to eventually get out of this debt burden is by trying to create meaningful inflation. Any of us who have spoken to our parents about mortgage rates in the early 80s & 90s, have heard of rates in the high teens & even above 20%. We got there because the government was trying to reel in inflation. I’m not saying we’re going to go to 15%, but even rates going from the mid 2% to the mid 5% is going to create a shock to a lot of borrowers. There is a lot you can do in advance of that to prepare.

Once this worm has turned, it is going to be essential for you to have your mortgage not with a bank specialist, not with your account manager at the branch, neither of those avenues get compensated to service their existing book of business.  It is very rare for your banker to approach you with a refinance opportunity. 

That is really where us brokers are worth our weight in gold.  That’s how we make money is by finding these opportunities & saving you money.  You want to work with someone who has your best interests at heart, who knows what’s going on & knows when to do things so you can time it appropriately.

The last thing I’ll add, if you are concerned with the risk of inflation, not in the near term, but down the road, get in touch.  I have some awesome strategies for that, one in particular the “inflation hedge,” which I would love to share with any who are interested. 

Thanks for watching & have a great day!

Big Move By the Bank of Canada

What a week we’ve had…  Yesterday the US Fed did something they hadn’t done since oct 2008.  Oct 2008, for some reason that time period stands out but I can’t quite put my finger on why, OH YA, Lehman Brothers went belly up & the global financial system was in shambles!    

​So what did the Fed do?  The Fed had a scheduled meeting for 2 weeks from now but decided to ​do an emergency rate cut of not 0.25% but 0.5%.  

Fast forward to this morning & the Bank of Canada matched them with the same 0.5% drop.  This was the first time Canada has done such a move since spring 2009.  Not very encouraging precedents…

The reason for the big move was due to the corona virus.  Regardless of whether you think this is overblown hype or a legitimate concern, the reality is covid19 brought China’s economy to its knees.  China consumes about half of the world’s resources so that alone poses a problem for a commodity based nation like ours. 

But what can Central Banks really do to interest rates that are going to counter that?  They’re not buying oil.  They’re not buying plane tickets.  Earlier in the week we saw the Bank of Japan step in with 500 BILLION yen in liquidity injections, followed by the Bank of Australia cutting rates, but both their respective markets, just like the US, rose briefly then fell.  What we are seeing is Central Banks losing their ability to actually impact markets & growth. 

So what happens from here?  Is this big move the only we’ll see?  If you’ve been following these summaries of mine then you’ll know that I’ve been expecting lower rates since the summer.  The US has a dollar shortage & strength problem they’re trying to fix.  You’ve got the eurozone on the brink.   I think this is going to be a race to the bottom.  And all that was before coronavirus.  

I’ve been following this virus since mid January & it was pretty clear even back then that this is an incredibly contagious virus.  Anyone who looks at how exponential growth works can see how quickly this can overwhelm a country’s resources, particularly healthcare, & that, to me, is the big risk here at home.  Call me a fear monger or buying into the hype, or whatever… a country like China doesn’t completely shut down if it wasn’t absolutely necessary.

So in summary, big rate drop today.  Bond yields are either at or near all time lows. The loonie is weak.  Business investment is down.  It’s not a pretty sight & it appears this could just be the beginning. 

How’s that for a happy morning update?  I’m Ryan, thanks for watching & have a great day.

Housing Highlights From Federal Budget 2019

The federal budget came out yesterday & there were some minor actions targeted to first time buyers I wanted to highlight.

First off, don’t get excited. The impact in Vancouver is likely going to be limited, but basically the gov’t is increasing the home buyers plan RRSP withdrawn from $25k to $35k, effective immediately. Note that the funds still need to be repaid in the same 15 year window.

The second incentive is from CMHC which will provide 5% of a first time buyer’s down payment on a resale property & 10% on a new build. The buyer still needs at least 5% down, but this will help reduce borrowers mortgages to lower their payments.

The loan is interest free so from that perspective, why not take it. Lower payments, less interest. The funds will be repaid upon the sale of the home, but so far it is unclear how this would work exactly. CMHC might share in the capital gain or loss, receiving a portion of the sale price, but we will wait to see how this will be rolled out exactly.

There are requirements to meet this program, namely:
-household income under $120k
-borrowers must have the min 5% down
-the purchase price cannot exceed 4 times the buyers household income.

Based on this, the effective limit on purchases will be less than $500k so the impact of this is going to be limited in our market.

While the budget does allocate $10billion over 9 years for new rental homes, it does not bring in any tax breaks or reduced red tape to developers, which, in my view is a more productive & efficient way to attack these issues, but, hey, I’m not running the country!

What is the new mortgage stress test in Canada?

Effective Jan 1 the newest mortgage rule was put into effect in Canada – the “stress test.” This video is going to give some background on mortgage stress tests, then explain the new rule.

Currently, if a borrower is buying with less than 20% down payment & is therefore getting an insured mortgage, they already have to qualify off of a stress test rate (being the 5 year posted rate, currently at 4.99%). For borrowers with 20%+ down, they can avoid this same stress test ONLY if they take a 5 year fixed mortgage (or longer), which means that if they want a variable or, say, a 2 year fixed, they would have to qualify off the 5 year posted rate not their actual interest rate.

The new requirement specifically impacts borrowers getting uninsured mortgages, which you can think of as borrowers with 20% down or more. Now, they will have to qualify for their financing based off a new stress test being their interest rate + 2%. So if they chose, say, a 5 year fixed mortgage with a rate of 3%, they would have to qualify based off a rate of 5%.

The irony of all this is that shorter terms generally mean lower rates, which therefore means that borrowers will qualify for larger mortgages taking shorter terms & shorter terms result in a borrower being more vulnerable to interest rate increases which doesn’t exactly benefit clients.

If you’ve bought a presale prior to these new rules being implemented & are curious how this will impact you, as long as you have a purchase contract dated prior to Jan 1, 2018, you’ll be grandfathered under the previous rules.

Additionally, you have a mortgage coming up for renewal & are not able to qualify to switch under the new rules, all is not lost. There are ways we can still qualify you off the previous rules.

If you’re looking to buy a place but can’t qualify for the price point you need under the new rules, give me a call. There are a still a few ways we can still get you into a purchase qualifying of your contract rate.

Ryan Zupan
604.250.6122
[email protected]

What a Pre-Approval REALLY is

A pre-approval may not be what you think.  We in the industry should really change the name from “pre-approval” to “rate hold,” as that’s largely what this is.

A pre-approval is not a guarantee that you will get approval, nor should having one be reason to write a subject-free offer.  In the best case, a pre-approval means a lender has reviewed your application, told you what mortgage amount you can qualify for & held a rate for you while you look for your home.  What the lender doesn’t know at that time, though, is what property you are buying or if the information in your application is accurate, which are key aspects of getting a mortgage approved.

Because pre-approvals aren’t fully underwritten, they aren’t totally accurate.  The last thing you want is to waste time looking at properties in a price range that you aren’t going to qualify for so make sure you are as detailed as possible in your application & have your broker review your documents early on to avoid surprises down the road.

What can go wrong?  Well, what if the building you want to buy in is a leaky condo?  Or a heritage house?  Or has a commercial component?  What if the property is on leasehold land?  What if your offer price is higher than the property is actually worth?  Maybe you wrote your expected income in the application, or factored in commission income without a 2 year history of that income.  Perhaps your down payment is coming from a family gift but you wrote it as being part of your savings.  The reasons for deals falling apart are endless.  The reality is most borrowers are going to have a different idea about what is acceptable than the lender.

When you do find a property you’d like write an offer on, let your broker know as early as possible so they can begin gathering the necessary documents & reviewing options for approval.  Getting as much done early on will avoid surprises & ensure a smooth approval.

One final note on pre-approvals is that over the last few years, many lenders have flat out stopped offering them or do them based on rates much higher than what you can get on a “live” deal.  Setting aside funds at a specific rate costs lenders money, as does paying staff to review & issue your pre-approval.  All this work is wasted if the lender doesn’t end up getting your mortgage.  Lenders don’t start making money until a mortgage funds & I suspect more & more lenders will trim down their “pre-approvals” in the coming years.

 

 

Why Using A Mortgage Broker Is More Important Now Than Ever Before

The mortgage industry has completely changed in the last 2 months.  With the last round of rule changes, we have now entered a new galaxy of complexity in our industry, where lenders all price their mortgages differently depending on the client, the property & the type of financing requested.  It has never been more important for consumers to do their due diligence when shopping for a mortgage.

Before, if a borrower really wanted to do everything on their own & shop lenders themselves, they could.  It would require a ton of work – completing many applications, setting up lots of meetings with mortgage specialists, and hours of online research – but for the motivated borrower, it was possible to become a well-informed consumer without drawing on a broker’s service (which is free, by the way).  Now?  Good luck!

Let me explain: the aftermath of the mortgage rule changes last fall has left every lender with not only drastically different policies than the next, but greatly varying criteria of what types of mortgages they offer & at what rate they will offer them.  Even within a single lender’s range of options, the pricing now varies depending on the down payment size (less than 20%?  20%- 25% down?  Or greater than 25% down? Greater than 35% down?), amortization & property price.

Many lenders now flat out will only do purchase & not refinances.  Some will only do purchases for borrowers who pay for mortgage insurance.  Many have eliminated niche programs such as rental purchases or have stopped funding mortgages on properties priced at $1m or higher.  It has gotten to the point where brokers, the experts, will have a difficult time knowing what options are available to a client without reviewing their application & studying the matrix of lender policies & pricing nuances.

My point with all this is that it is more important now than ever before to use a mortgage broker.  Not only that, but a broker with the experience & size of business to guide you in the best way possible, utilizing the widest range of lenders.  Use the experts.  If you love how your bank greets you when you walk in & have been with them for 30 years?  Great, but understand that they are only 1 option out of 20+ national lenders, not to mention the local institutions.  With every bank & nonbank lender sporting drastically different options than the next, there is a very small chance you are getting the best product only speaking with your bank.

The best value you can ask for is someone well versed in the field to help you navigate the wide range of options.  Call a broker.  Use the expert.

 

Why Commission Split Isn’t Everything & Why I Work For City Wide

Champion

There are a lot of reasons why I love my job. I love people, I love helping people & I love being a part of what is such an exciting & special time in my clients’ lives. I also love building a business & the income opportunities that lay on the horizon. Would I still do this job if I won the lottery? Without a doubt (buuut I might turn my phone off at 5).

 

When I first started in the business, I was as green as they get, so it was important for me to find a good group who could teach me to build my business the right way. Commission split (the percentage of your finders fee that is paid to your brokerage) was of course something I asked about, but in all honesty it didn’t play a significant role in my decision of where to hang my license & the longer I’ve been in the business, the more firmly I believe that a focus on split is short sighted.

 

One of the best parts of our office is the support. We have some top shooters who do a ton of volume & brokers who specialize in just about every niche you could imagine. This is a huge resource. I can’t tell you how many times I’ve saved a deal or found a solution way out of left field for a client thanks to insight or a contact from one of my colleagues. The knowledge mine at our office has resulted in a far higher volume & income for me then earning a few extra percentage points on my split.

 

How many offices have a list of top brokers who will answer their phones at 10:30 on a weeknight or while vacationing abroad to help another broker work through a deal? This is huge for me. Ultimately, it gives me more tools to help my clients & my realtors & pays dividends down the road. Even years later, now that I’m established, there are still files every now & then that may be outside my normal realm of expertise. No one can specialize in all segments of the market (except maybe Rowan Smith… that hamster’s got legs). If a colleague helps me save 2 or 3 deals a year, it’s made up for a 5% difference in split.

 

For any new broker, the best advice I can give is to find a supportive office & don’t worry about your split. If you come into this business with money as your sole focus, chances are you are not going to be advising clients in terms of what is best for them. The income will come but you have to be in the right environment to learn & grow.

 

Saving deals, or learning how to be a top broker, is something that can be hard to quantify, while commission split is obviously an easy point of comparison. Just as clients looking for the rock-bottom lowest possible rate are probably setting themselves up for a big (and expensive) disappointment down the road, the same is true in this business with new brokers. The old saying of, “you get what you pay for,” is certainly true in this industry. Like most services, the cheapest (or the highest split) isn’t usually the best thing for you.

 

If you are a broker who is just breaking into the business, or one who has been at it a few years but wants to hit that next level, I would highly recommend keeping these points in mind & come talk to City Wide.