2 May

When do you need to purchase Mortgage Default Insurance?

General

Posted by: Adam Sale

When do you need to purchase Mortgage Default Insurance?

Mortgage Default Insurance is added to a mortgage when a borrower is purchasing a property with a down-payment less than 20% or when a property is higher risk to the lender, such as a micro-suite, rural location or mobile home.

Mortgage default insurance is designed to protect the lender in the event the borrower defaults on their loan. The borrower is required to pay for the insurance premium. The insurance premium can be paid when completing the property transfer, or added to the total mortgage.

Once the mortgage is protected from the risk of default, the borrower is awarded the lowest mortgage rates possible for the life of their loan, or until they refinance the mortgage.

Mortgage default insurance follows the mortgage amount, and can be transferred to a new lender or transferred to a new property.

There are 3 mortgage insurers in Canada: CMHC, Canada Guaranty and Sagen.

To discuss mortgage insurance in more details, contact me at:

Adam Sale Mortgages
Cell: 778-215-4121
Email: Adamsale@dominionlending.ca

11 Apr

Add a HELOC to Your INSURED & INSURABLE Mortgage

General

Posted by: Adam Sale

Did you know that you may be able to add a Home Equity Line of Credit (HELOC) to your insured or insurable mortgage without having to refinance your entire mortgage?

This is a unique and little-known product that could help you save thousands of dollars in interest payments over the life of your mortgage.

Most banks require you to refinance your entire mortgage to add a HELOC, which can be costly and result in higher interest rates.

However, select lenders offer a special product that allows you to keep your insured or insurable mortgage as-is and simply add the HELOC as a second mortgage.

This means you could access the equity in your home without sacrificing your lower insured or insurable interest rates!!

If you’re interested in learning more about this cost-saving mortgage product, send me a message and I’ll be happy to explain how it works and connect you with a lender that offers it.

4 Mar

Rental Mortgage Tips!

General

Posted by: Adam Sale

Rental Mortgage Tips

The most common problem I help my clients with during a rental mortgage application is finding a lender with a competitive rental program which allows us to use the greatest amount of rental income possible.

The key features of a Rental Mortgage Product is it allows us to include the current and/or expected rental income to a mortgage application. Increasing your overall income will ultimately help you qualify for a larger mortgage.

However, some things to keep in mind when applying for a rental mortgage are:

1. The type of property, and

2. The number of properties owned

will play a key role in determining which lender is best suited for your purchasing, or refinancing scenario.

Every lender has their own policy on how much rental income they will include on a mortgage application.

Many lenders discount the rental income by 50%, as a buffer in case the property is unoccupied for a few months of the year, while other lenders will discount the income by only 20%.

This small distinction in policy can often make the difference between you qualifying for the property, or requiring you to significantly increase your down-payment.

In regards to the number of properties owned; most lenders will finance up to a maximum of 6 properties with one client. To continue increasing your housing portfolio, we will need to find other lenders with more competitive rental programs.

If you’d like to know how you can best qualify to purchase or refinance a rental property, contact me today let’s discuss your options!

☎️ Cell: 778-215-4121

📬 Email: adamsale@dominionlending.ca

12 Jan

Changes Coming to Mortgage Qualifying Rules

General

Posted by: Adam Sale

Stricter Mortgage Qualifying Rules

OSFI, Canada’s banking regulator, is once again looking at “clamping down” on higher-risk borrowers from entering the market.

In 2016, the Department of Finance introduced the “stress-test” on insured borrowers. Then in 2018 OSFI expanded the stress-test to include uninured borrowers.

OSFI is back at it again, and they are proposing new rule changes to minimize lenders’ risk.

Credit defaults are on the rise in Canada, and OSFI is constructing new policy with the purpose of protecting lenders’ from risk of defaults in case a borrower loses their job, suffers from a divorce or experiences a sudden increase to interest rates.

OSFI is considering the following 3 approaches:

  1. Restrict mortgage debt, OR total debt, to 4.5x annual income – Very aggressive.
  2. Create stricter debt servicing coverage restrictions similar to what we see with insured mortgages – Very aggressive.
  3. Create a more adaptive Interest rate affordability stress test based on different risk characteristics, product types and term lengths.

OSFI said it may choose to pursue “one or more of these measures or others that meet OSFI’s prudential policy objectives.”

OSFI has an open consultation period for industry professionals to give their suggestions until April 14, 2023. Afterwards, OSFI will be reviewing these suggestions and should have new rules to implement by December 2023.

Click the links to learn more:

22 Dec

Inflation Rate, How-To Video & Rate Special

General

Posted by: Adam Sale

Inflation Report, How-To Video & Rate Specials

CPI Inflation Report

We received an early Christmas gift from Statistics Canada yesterday morning regarding the consumer price index (CPI) report.

For the 6th month in a row the CPI remained relatively flat. the CPI has increased only 1.1 points with the last 6 months. This indicates the rate of inflation has slowed considerably, and now it will just take some time for the numbers to catch up.

Check out the video below to see what I mean.

The inflation rate decreased from 6.9% to 6.8%.

Based on the consumer price index (CPI) report from Statistics Canada, I am optimistic we will achieve the Bank of Canada’s goal of decreasing the inflation rate sooner than expected (Q3 of 2023).

Unless, of course, we see another large spike in fuel prices, or possibly another ship stuck in the Suez canal…

The Consumer Price Index is the underlying data used to determine the inflation rate.

Will There Be Another Rate Hike? 

I think so, the CPI numbers for December 2021 decreased slightly before posting ever increasing numbers from January to July 2022.

When the inflation report for December 2022 is released it will be using the December 2021 CPI numbers as the base, and since the base declined in this month, it will be very difficult a show a decreasing inflation rate.

Expect the inflation rate to increase from 6.8% to 7.1% before dropping down in February.

How to Calculate the Inflation Rate – Video
How to Calculate the Inflation Rate - EASY!

RATE SPECIALS

We continue to see mortgage rates decreasing in the 3-year, 4-year & 5-year fixed terms. I believe this trend will continue throughout 2023.

Insured Mortgages

5yr fixed as low as 4.79%

3yr fixed as low as 4.89%

25-yr Mortgages

1-yr & 2-yr – 5.59%

3yr: as low as 4.94% – 5.08%

5yr: as low as 4.79% – 5.09%

30-yr Mortgages

3yr: 4.99% – 5.12%

5yr: 4.79% – 4.99%

If you want to purchase a home in the next year or two, I would love to speak with you!

I help my clients by putting together home-purchasing plans so they can maximize their qualifying potential, and stay on-track with their timeline.

Adam Sale

Cell: 778-215-4121

Email: adamjsale@gmail.com or adamsale@dominionlending
5 Dec

Inflation Rate & Consumer Price Index Predictions for 2023

General

Posted by: Adam Sale

Inflation Rate & Consumer Price Index Predictions for 2023 

Hi folks,
On November 15thh the October inflation rate and the consumer price index (CPI) report was released.

The Consumer Price Index is the underlying data used to determine the rate of inflation.

For the 5th month in a row, the Consumer Price Index remained relatively flat, posting only a 0.9 point gain over this period.

This is much lower than the 6.6 points gained over the previous 5-months
(January 2022 – May 2022 – take a look!).

If the Consumer Price Index has slowed considerably, why haven’t we seen any major decreases in the inflation rate yet?

The inflation rate is calculated on a yearly basis, and uses the corresponding month from the previous year as the base.

As we move through the months of January 2023 to June 2023 we will use the months of January 2022 – June 2022 as our base, it is within these inflation reports that we will see considerable decreases in the inflation rate.

Take a look at the graph below where I plotted the expected inflation rate using 3 different CPI Values (153.8, 154.5 & 155.5).

In all 3 of these models, we notice one more increase in the inflation rate during the December report (released in January), and then a significant drop in the inflation rate beginning from the February report (released in March) – right in time for the Spring Market.

How to Use this Information for Your Benefit?

We are in a period of uncertainty; many buyers don’t want to purchase a property until the following conditions happen:

  1. Inflation Rate decreases
  2. Housing Prices decrease
  3. Interest rates decrease.

In an extremely desirable market like Greater Vancouver, I have my doubts we will see all three of these conditions at once.

As the inflation rate decreases in March-June, fixed mortgage rates will decrease and consumer confidence will return to the market. When fixed interest rates decrease, buyers’ purchasing power increases and housing prices in the lower mainland will stabilize.

The best time to purchase a property in the Greater Vancouver area is between now and March 21st. The competition for a property is lower, prices have softened, and if you can opt for a longer completion date you will have a better opportunity of getting a lower mortgage rate.

If you’re waiting until June – August to purchase a property, you may get a better fixed mortgage rate, but consumer competition will be increasing and it is likely we will see prices across many property types increasing as well.

For further information on everything mortgages, please contact me at 778-215-4121.

24 Oct

CPI Report, Inflation Rate and 2023 Mortgage Rates

General

Posted by: Adam Sale

Consumer Price Index, Inflation Rate and 2023 Mortgage Rates

On October19, 2022 Stats Canada posted September’s data to the consumer price index (CPI), and updated the inflation rate.

For the 4th month in a row, the Consumer Price Index posted results in-line with previous months, showing no significant gain. This decreased the inflation rate from 7.0% to 6.9%.

Monthly Consumer price index

Now I know 0.1% seems like a miniscule decrease, but if we can stay on this path we’ll see large decreases in the inflation rate starting in January through May.

**To learn how the inflation rate is calculated please see the formula outlined below.
As you can see from the last 4 months of data, aggressively raising the interest rate has slowed the economy and kept the CPI index within a range of +/- 0.5. If the bank can maintain this stalled price growth going forward, we will see the inflation rate come down quickly in the first half of 2023.

Expected Inflation Rate for 2023

If (big if) the Consumer Price Index doesn’t exceed 153.6 (current CPI is 152.7) the expected inflation rate for 2023 is as follows:

Monthly inflation rates
** A conservative CPI of 153.6 was used for this chart.

What happens when inflation gets back to the 2% target? Will interest rates decrease immediately?

Once the Bank of Canada hits their target (hopefully by summer 2023 if all goes well), it is unlikely we will see any major decreases in the variable interest rates for a few months. The Bank will want to keep interest rates elevated for sometime afterwards to ensure inflation doesn’t return.

However, there is some good news! As the inflation rate drops, bond yields will decrease as well. The drop in bond yields will then cause the fixed mortgage rates to decrease. The first rates to decrease will be the 5-year fixed, then 4-year fixed and so on.

What to expect in the coming months?

Expect at least 2-more rate hikes this year. Bank of Canada will likely increase the interest rate by 0.50% – 0.75% on October 26, and will likely see another increase on December 7th.

The Consumer Price Report/Inflation Rate Reports releasing on November 17, December 21, and January 17 will provide us with the data we need to know to ensure we are on the correct path.

The Bank is looking for a significant drop in the inflation rate, but (if all goes well) we wont see this drop until the January CPI Report.

How to Calculate the Inflation Rate using the CPI Report

Using the Consumer Price Index graph above, we calculate the inflation rate on a yearly basis.
The formula to calculate the rate of inflation is: (X – Y) / Y * 100 = Inflation Rate

  • X is the current month
  • Y is the base month

Example
X – Current Month: September 2022: 152.7
Y – Base month: September 2021: 142.9
Equation: (152.7 – 142.9)/142.9 * 100 = 6.857%, we round up to get an Inflation Rate of 6.9%

Links to the CPI Report Data
Do you have any home finance questions I can help answer? Let’s connect!
Adam Sale Mortgages
778-215-4121
21 Sep

How to Calculate the Inflation Rate

General

Posted by: Adam Sale

Inflation Data Released Today

Great news today, this is the second month in a row the inflation data is showing the inflation rate decreasing. This is a step in the right direction, especially since we saw the Bank of Canada increase their overnight interest rate on September 7 by another 75 basis points to 3.25%.

In June, we saw the Bank of Canada switch their strategy for tackling inflation from being too passive to a much more aggressive tightening tactic. The Bank stated they plan on front-loading rates by raising the overnight rate quickly to stop inflation in its tracks.

According to the new inflation data this is exactly what’s happening, but there is still a long way to go. The current inflation rate is at 7% and the Bank is trying to bring it down to 2%.

How Inflation is Calculated

Most people understand inflation is calculated using the CPI index, which is essentially an index of prices for a group of random goods & services. The changes in prices of this group of goods & services over a period of time indicates the amount of inflation in the economy.

Fewer people understand how the rate of inflation is calculated. The inflation rate is calculated on a yearly basis. To determine the inflation rate for August 2022, we use the CPI index for August 2021 as our starting point and the CPI index of August 2022 as our current date.

The formula to calculate the rate of inflation can be presented as X-Y/Y * 100, where Y represents the consumer price index at the starting point, and X represents the consumer price index of the current date.

For example 
Starting point: August 2021: 142.6
Current date: August 2022: 152.6
Equation: (152.6 – 142.6)/142.6 * 100 = 7.01%
CPI and Inflation Data is posted monthly here: https://www.rateinflation.com/consumer-price-index/canada-cpi/

When looking at the data from the website above we notice a few things:

  1. The CPI index grew an enormous 6 points in 2021, and so far, it has grown 7 points in the first half of 2022.
  2. Based on CPI index data recorded over June – August 2022 it appears the CPI index has peaked (fingers crossed!).
  3. If the Bank of Canada is able to keep the CPI index between 152.6 – 155.0 over the next 9-months we will achieve reaching the Bank’s inflation target of 2% by May 2023.
    1. (155.0 – 151.9) / 155.0 * 100 = 2.00%

Once we achieve an inflation target of 2% it will be anyone’s guess as to how long the Bank will keep their overnight interest rate elevated before bringing it back within their target level of 2% – 3%.

Where are Rates Heading?

October 19th is when September’s inflation data will be released, and the Bank of Canada is meeting on October 26th to determine if there will be any changes to the overnight interest rate.

If the October data continues to show the inflation rate is decreasing (the CPI index is stagnant), then I believe we will see a 0.25% rate hike or possibly no hikes.

If the data shows the CPI index is still increasing, then we will likely see a 0.50% rate hike and possibly (but unlikely) another 0.75%.

If you have any questions about your mortgage and would like me to perform a calculation to determine what your monthly payments should be to maintain your desired amortization schedule please don’t hesitate to reach out.

Best,
Adam Sale Mortgages

11 Aug

What is a 2nd Mortgage, and why are they so popular?

General

Posted by: Adam Sale

2nd Mortgages are rising in popularity

Over the last 2 months I’ve had several conversations with homeowners interested in finding alternative ways to unlocking their home equity to either purchase a rental property, or consolidate debts.

When rates were significantly lower last year it made sense for homeowners to refinance their property, take out equity, and take advantage of a lower rate. But now that fixed rates are at 4.59% or greater, it doesn’t make financial sense to refinance a property: pay the penalty for breaking a mortgage, and end up paying a much higher mortgage payment.

This is why 2nd mortgages and Home Equity Lines of Credit in the 2nd position are increasing in popularity. These mortgages are a cheaper option for homeowners to tap into their equity without having to pay a penalty or disturbing their current low monthly payment.

They operate like this:

Original Purchase Price $600,000
Original Mortgage amount $556,000
Current Home Value $750,000
Current Mortgage amount $500,000
Available Equity – (*80% of Current Home Value – Current Mortgage) $100,0000
  • When adding a 2nd mortgage or a Home Equity Line of Credit, we are only required to stress-test the new funds.
  • Generally, this makes the 2nd mortgage an available option as long as the value of the property has increased enough.

What is a 2nd Mortgage?

A second mortgage is like a regular mortgage except it is considered to be in the “2nd position” on the property’s title. Which means should the property be foreclosed on, the original mortgage would be paid out first, the leftover funds (if any) would go towards paying off the 2nd mortgage and then finally all the remaining funds would be distributed to the owner.

Because the 2nd mortgage is paid out after the original mortgage, the lender is assuming additional risk so they lend these funds out at a higher interest rate.

Even with the higher interest rate, a 2nd mortgage or a Home Equity Line of Credit in 2nd position is often a much cheaper option than the current costs to refinance a property.

If you are interested in exploring your options to tap into your home equity to either purchase an additional property or consolidate debts and increase your monthly cashflow please don’t hesitate to reach out.

Adam Sale Mortgages

778-215-4121

13 Jul

Key Points of Bank of Canada’s 1% interest rate increase

General

Posted by: Adam Sale

Key Points from Bank of Canada’s 1% Rate Increase

As I’m sure you’ve heard by now, the Bank of Canada increased they’re overnight rate by 1%, this will increase the Prime interest rate to 4.70%.

Below is a snippet of the monetary policy report & key points

Tiff Macklem discusses the Bank’s strategy 10:55 – 14:20

Key Points from the Report

  1. The Canadian economy is in excess demand and short supply, this is causing inflation to increase.
  2. To bring inflation back to the 2% target the Bank is raising interest rates to reduce demand.
  3. The previous strategy to raise rates over a 2-year period would’ve lead to prolonged inflation and the need to raise rates even further.
  4. Bank of Canada has decided on a new strategy to “Front-Load Interest Rates” in an attempt to stifle demand and allow supply to catch up.
  5. The Bank was not prepared for the global economy to rebound from covid so quickly, which lead to excess demand for fuel and created many supply chain complications.
  6. Once demand is reduced, this will alleviate stress on fuel & supply chains and we should see inflation come back down.
  7. Expect a few more months of inflation in the 8% range before it begins decreasing.

Looking forward:

The Bank considers the neutral range of the overnight lending rate to be between 2% & 3%. Today’s rate increase is putting us right in the middle at 2.5%.

Tiff Macklem has said in the report he is considering raising the rate again to the upper bound (3%) or even slightly higher (3.25%). In the future I think its safe to say we can expect another (0.50% – 0.75%) rate hike.

Where’s the Opportunity?

If you have clients looking to purchase, renew or refinance the best mortgage rates are still being found at the Credit Unions for Fixed Rates and Monoline lenders for Variable rates.

Prospera Credit Union is still offering their 1-3 years fixed interest rates in the 4% range, and a 5-year fixed special at 4.99%

First National Financing has the best variable rate on the market at Prime – 0.90% for an insured mortgage.

If you would like to know more, lets connect!

Adam Sale Mortgages
778-215-4121