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.

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

28 Mar

How to Keep Your Purchasing Power!

General

Posted by: Adam Sale

How I help my clients keep their purchasing power even during increasing stress-test requirements!

If you know anybody doing a pre-approval and is looking to qualify for the largest amount possible, please have them speak with me to avoid qualifying at the increasing stress-test requirements.

Fixed mortgage rates have exploded over the last month and now the DREADED stress-test is rearing its ugly head and is once again decreasing borrowers’ purchasing capabilities.

Quick Recap: the stress-test requires a borrower to qualify for a mortgage using the benchmark rate of 5.25% or the mortgage rate + 2%, whichever is greater.

5-year fixed mortgage rates have increased by 0.75% in the last 2-months and range from 3.49% to 3.79%. If a borrower wants a 5-year fixed mortgage they must now qualify at a 5.49% – 5.79%.

A few ways for your clients to avoid decreasing their purchasing power is to get pre-approved for:

  1. A variable rate mortgage
  2. A shorter-term mortgage (3-years or less)
  3. Use a credit union that is not required to comply with the federal stress-test guidelines.

This is just one of the ways I help my clients navigate the mortgage process!

28 Apr

Writing a Subject Free Offer – Mortgage Tips

General

Posted by: Adam Sale

Writing a Subject Free Offer – Mortgage Tips

Subject free offers seem to be the new normal in Vancouver’s real-estate market. In regards to financing, here are some tips for purchasers writing a subject free offer:

  • Prior to writing the subject-free offer obtain the Property Disclosure Statement, MLS Listing, Strata Form B (if available) & Depreciation Report (if available) so your mortgage broker can confirm with the lenders they will finance the property.
  • Purchasers should have a down-payment of at least 20%, and preferably 25% of the purchase price. This amount of capital will provide access to the greatest number of lenders.
  • Purchasers wanting to use a down-payment which less than 20% of the purchase price are at the mercy of 3 mortgage insurance companies. If these 3 insurance companies decline the mortgage request, the banks will not approve the loan and the borrower is forced to find a private lender at EXTEMELY high interest rates (14%-20%), or risk losing their deposit, or legal action. When writing a subject-free offer on a property I always ask these clients,

“if you have to, can you come up with a 20% down-payment for this property? If you cannot come up with a 20% down-payment, making a subject-free offer is extremely risky”

  • Prior to viewing properties (or writing a subject free offer), purchasers should receive a complete mortgage analysis from their mortgage broker to discover their lending limits. Many banks will issue pre-approvals (which is essentialy an interest rate hold) based on a borrower’s self-directed application without verifying the necessary documents. A competent mortgage broker will request the required documents upfront to ensure all information is verified and the process moves smoothly.
  • If the property is priced at the purchaser’s upper lending limits, ensure the mortgage broker has received the MLS listing well in advance so they can add the necessary amounts to the application. The property’s MLS listing discloses condo fees, property taxes and sq/ft amounts which may help or hinder the mortgage request.

To learn more about how to write the most competitive offer, please contact me at 778-215-4121.

Best,

Adam Sale

3 Jul

Are You Self-Employed and having a tough time getting Approved?

General

Posted by: Adam Sale

Are you self-employed and having a tough time getting approved at Your bank?

Prime lenders have made it difficult for self-employed (sole proprietor and corporation) earners to obtain financing through regular banking channels. These individuals are now forced to decide between either paying less taxes, or paying less interest.

Sub-prime lenders calculate self-employed income differently than prime lenders and look at the persons total financial picture. The additional income discovered will often be enough to help the self-employed individual qualify for a larger loans, while keeping payments marginally more expensive.

For example:

A 500k conventional mortgage at 2.59% will have a monthly payment of $2,262

A 500k sub-prime mortgage at 3.69% will have a monthly payment of $2,546

The monthly difference is $284; and the annual difference is $3,408.

An additional $3408 in interest a year is not a cheap premium by any means! But what if our self-employed individual can’t qualify for a loan of this size because they don’t pay themselves enough income from their company?

The only way to qualify for a larger amount through a prime lending channel is to show more income – which means paying more taxes.

Depending on which tax bracket they’re in, showing an additional 10-15k in income would translate to roughly a $3,408 tax bill.

Strategy

If a self-employed individual is not able to qualify for mortgage through a prime lender, a sub-prime option may be a great alternative. Sometimes only a 1-year or 2-year term is all that’s required to set an individual up with a prime lender in the future.

24 Apr

Mortgage Deferral Strategy

General

Posted by: Adam Sale

Mortgage Deferral Strategy

Deferring your mortgage is not an easy choice to make. The thought of pausing mortgage payments can feel like your finances are going in reverse. What does deferring your mortgage payments really mean? Does the interest stop accruing? 

No. 

Each lender has their own definition of what deferring a mortgage payment means. Most lenders adopt the following:

“The mortgage deferral offer is a pause on mortgage payments themselves, not a forgiveness of the overall mortgage obligation, which means that interest will continue to accumulate and be added to your debt. In some cases the interest will be compounded. There may also be options available to pause your mortgage credit protection insurance premiums.” – TD

As you can see, the interest will continue to accrue on your mortgage, and in some cases TD will be allowed to charge interest on the interest. 

If you wish to actually pause your mortgage and keep your principle amount owing from expanding, you need to pay the interest portion of your monthly mortgage payment. This will stop the amount you owe from growing. 

Your lender may not advertise an interest only option, but when speaking with them, ask them if they would consider an “interest only” payment. Most banks will gladly do an interest only deferral program. 

If you are interested in deferring your mortgage and the options available to you, please speak with your mortgage provider. Below is a list of lender contacts. 

LENDERS CONTACT

ATB 1-800-332-8383
B2B 1-800-263-8349
Bank of Montreal 1-877-895-3278
Bridgewater 1-866-243-4301
Chinook Financial 403-934-3358
CIBC 1-800-465-2422
CMLS Financial 1-888-995-2657
Connect First 403-520-8000
Equitable 1-866-407-0004
First Calgary Financial 403-736-4000
First National 1-888-488-0794
Haventree 1-855-727-0051
Home Trust 1-855-270-3630
HomeEquity Bank 1-866-331-2447
HSBC 1-888-310-4722
ICICI 1-888-424-2422
Manulife 1-800-268-6195
Marathon 1-855-503-6060
MCAP 1-866-809-5800
Merix 1-877-637-4911
National Bank 1-888-835-6281
Optimum 1-866-441-3775
RFA 1-877-416-7873
RMG 1-866-809-5800
Royal Bank 1-800-768-2511
Scotiabank 1-800-472-6842
Servus 1-877-378-8728
Street Capital 1-866-683-8090
TD 1-888-720-0075

2 Mar

Do You Want the Lowest Interest Rate or the Cheapest Mortgage?

General

Posted by: Adam Sale

Do you want the Lowest Interest Rate? Or the Cheapest Mortgage?

If you’re searching for the perfect mortgage, the questions you should be asking yourself are:

“Do I want the lowest interest rate? Or do I want the cheapest mortgage?”

Image result for teeter totter rate

You’re probably thinking, doesn’t the lowest interest rate mean I’m getting the cheapest mortgage?

Not necessarily. You see too many people are being sold the wrong mortgage product because they are after the lowest interest rate, and end up paying big fees when they have to break their mortgage contract.

Rather than starting the mortgage search by looking for the cheapest rate, we should begin our search by reviewing our financing plan and asking ourselves:

1) What major life changes might we expect in the near future? (are we getting married, having a baby, relocating for work?)

 2) What do we want to accomplish with our mortgage? (do we want to pay it down quickly and build up equity in our property, are we going to add a line of credit to it later?)

My point is this, start your mortgage search by reviewing your future goals and ensuring the mortgage product aligns with these goals.

I urge you, don’t fall prey to the belief that interest rates are like golf scores, where the lowest score wins. Rather, speak with a mortgage broker to find the best mortgage product suited for you! Happy hunting!

– Adam Sale

19 Feb

How to Benefit from the Changes to the Stress-Test

General

Posted by: Adam Sale

New changes to the Stress-Test!

Yesterday the Department of Finance unveiled they are changing the stress test rules April 6th.

The changes will affect “insured mortgages,” which are characterized by their low-downpayment requirements and under $1 million purchase price.

Currently, Bank of Canada restricts our qualifying mortgage rate to 5.19% or the contract rate + 2%, whichever is higher.

Under the new rules, the Bank of Canada is disposing of the 5.19% benchmark, and allowing our new qualifying rate to float based on the Median contract rate for a 5-year insured mortgage + 2%.

 

This is a huge step in the right direction!

Buyers will have more purchasing power, and the qualifying rate will better match our economic condition.

If we take a household making a $100K under today’s standards, they will qualify for a mortgage of roughly $500k.

After April 6th, if our 5-year fixed rates are at 2.79% our same household they would qualify for a mortgage of approximately $525k.

I understand this is not a massive difference in the qualifying amounts, but it is a step in the right direction!

How will this change benefit you?

The “floating” Benchmark Rate will be published on a Wednesday and come into effect the following Monday

Under the new “floating” qualifying interest,  you’ll be about to afford more house during periods of a low interest rates.

I suspect we will see an increase in activity in the summer as the typical “summer rate-specials” come out, but we may see a decrease in activity during the winter as rates tend to rise slightly.

15 Nov

What happens after Subjects are Removed?

General

Posted by: Adam Sale

What happens after Subjects are Removed?

When subjects in the purchase contract are satisfied and you agree to the purchase your new home, you are required to place a deposit on the property to remove subjects on the purchase agreement. The deposit forms part of the down payment amount. Once subjects are removed, the purchase agreement is now a binding contract.

It is extremely important you understand the mortgage commitment letter offered by your lender is based on your information at the time of mortgage submission. Any changes to your credit report or employment between mortgage submission and completing the purchase of your new property could jeopardize your financing commitment, and should be discussed with your mortgage broker. DO NOT FINANCE A NEW CAR during this period of time.

From Subject Removal to Completion Day you need to:

  • Retain a lawyer or notary (if you haven’t already)
  • Arrange home insurance
  • Consolidate your down-payment
  • Prepare for Completion day

Retain a Lawyer or Notary

Once subjects have been removed it is time to notify your mortgage broker on the lawyer or notary you are planning on using to complete the transaction. Your lawyer or notary will facilitate the mortgage signing, transfer property title, register the mortgage and register title insurance. Retain a lawyer or notary as soon as possible to ensure the process flows smoothly and to avoid any additional “rush order” charges.

Arrange Home Insurance

Lenders require home insurance to be setup on your new property before they will provide you with the funds to complete the mortgage transaction. To setup home insurance you will need to speak with an insurance agency/broker and let them know you’ve recently purchased a home and inform them of the completion date. They may ask you for a copy of the purchase contract. Once the insurance is setup, retain a copy of your home insurance as you will be required to bring it to the lawyer/notary office when you sign the transfer documents.

Consolidate Your Down-Payment

To keep the process moving smoothly, begin consolidating your down-payment into one account as early as possible. If you plan on using your RRSPs in the Home Buyers Plan you will be required to fill out the government form “T1036 – Home Buyers Plan Request to Withdraw Funds from RRSP.” Bring this form, and a copy of your purchase agreement to the institution that issued your RRSP’s so they can arrange the withdraw of these funds. It often takes multiple days to transfer funds out of your RRSP/TFSA to your designated account. Consolidating your down-payment into a single account allows for easy withdrawal on completion day.

Preparing for Your Completion Day

Your lawyer will be in contact with you during this process and inform you on what to bring for completing the transaction. You will be instructed to bring a copy of your home insurance, and a cashier’s cheque that will include the following amounts for:

  • Down-payment (less the deposit amount)
  • Legal fees
  • Title insurance fee
  • Property transfer tax amount
  • Property tax / Utility bill adjustments

Completion Day

Finally, the day has come for you to complete your side of the transaction and take ownership of the property. On this day you will bring the requested cashier’s cheque to the lawyer or notary, and sign the required documents to finalize your side of the sale.

Under the guidance of your lawyer or notary you will be signing your mortgage documents, transferring the title of the property, registering the mortgage charge and registering the title insurance.

After all the required documents are signed and your fees are paid, your side of the transaction is complete!

Possession Day

This is the day you have worked so hard for. Today you pick up the keys to your new home!

3 Oct

How to Purchase Property in the U.S.

Mortgage Tips

Posted by: Adam Sale

Living the Goodlife

Have you ever wondered about purchasing property south of the border to get away from our wet winters? Most of us have! Recently I spoke with an accountant who asked “what is the best way to receive financing for purchasing a property in the U.S?”

There are a couple financing options for U.S non-residents, each with their pros and cons.

Disclaimer: Dominion Lending Centres is licensed to arrange mortgages in Canada only.

Option 1: Refinancing Canadian Property

The easiest way to receive financing for a property is to refinance one’s property in Canada and deposit the new money into a bank account. Of course, everyone’s situation for purchasing a property in the U.S. is different. This scenario best applies to persons who own property, or size-able investments, in Canada.

Key benefits of purchasing a U.S property in this fashion

a. Deal with the U.S/Canada exchange rate once – at time of purchase. This allows the buyer more control when taking advantage of exchange rates when they are favorable.

b. Best possible rates, refinancing your Canadian property with a Canadian lender is not considered risky, so lenders will give you their best rates and mortgage payments are in Canadian dollars.
Pro tip: Refinance your property 3 months prior to purchasing your property to satisfy U. S’s anti-money laundering laws. Keep the new funds in a separate bank account and wait until the exchange is favourable, then shop for the best possible exchange rates on large sums of money.

For preferred rate Inquiries, contact Taylor Swaffield at the Vancouver Bullion Exchange taylorswaffield@vbce.ca

Option 2: Get a U.S. Mortgage in Canada

There are options in Canada through TD, BMO and RBC to receive a U.S mortgage. These big banks have ties in the U.S. and each one will lend in specific States. The mortgage process is similar to obtaining a mortgage in Canada; however, it is significantly longer. Expect closing to take approximately 45-60 days. The typical income documents are required to qualify for the mortgage, as well as credit bureau report and a home appraisal.

One thing to note, monthly mortgage payments are in U.S. funds. This makes borrower’s vulnerable to exchange rate fluctuations. Receiving a U.S mortgage may be advantageous for Canadians working in the U.S receiving U.S funds for payment, or for vacation rentals.

When performing any large transaction south of the border, speak with an accountant specialized in Canada/U.S. Taxation to ensure you remain compliant with IRS and CRA rules.

Bank Websites:
Bank of Montreal
Royal Bank of Canada
Toronto Dominion Bank

For more information on mortgage options please contact me at 778-215-4121, or adamsale@dominionlending.ca

Adam Sale
www.adamsale.ca
Vancouver Mortgage Broker
First Pacific Mortgage DLC