A normal English article with predictions of Canadian Mortgage Interest Rate Predictions, September 2021.
We think these rates are going to happen but ON A LONGER TIME RANGE that what they think.
Summary of Expected Rates*
- 2.55% – 2.65% in October, 2021
- 2.60% – 2.85% in December, 2021, reduction in buying power of 7%
- 3.10% – 3.30% in October, 2021, reduction in buying power of 8% – 14%
*These rates can totally happen, and are still lower than Pre-Covid rates, but also consider these things that would delay economic recovery/ keep rates low: Iraq – any thing, a 4th and 5th wave of Covid, new variants, USA droughts/ wild weather.
Mortgage Mark Herman, top Calgary Alberta mortgage broker, for new buyers
And a Renewal Surprise:
You may be surprised by the cost of a renewal. A $500,000 mortgage with a 5-year fixed rate of 2.0% would pay around $46,080 in interest over the term. If that rises to 3.1% next year, the cost of interest over the same period would be $72,183. That is an extra $26,000 if interest a year. ANSWER: look at renewing early. We can help you out with that.
OK … on with the news:
The Canadian economy is improving, excluding some minor hiccups like this morning’s GDP. An improved economy needs less stimulus, and that means higher mortgage rates. To see what Canada is in for, we modeled a forecast range for 5-year fixed-rate mortgages. If Canada doesn’t go into a double-dip recession, much higher mortgage rates are coming.
Canadian 5 Year Fixed-Rate Mortgage Forecast
Today we’re looking at 5-year fixed-rate mortgage interest, and where it’s heading. More specifically, we’ll be focusing on conventional (aka uninsured) mortgage rates. These are for homeowners with a decent amount of equity, and a loan to value ratio below 80%. Insured and variable rate mortgages follow a different path. However, they’ll generally follow the same trend.
This model is based on fixed income forecasts created by major financial institutions. Since they’re forecasting how much investors will make, we can forecast how much you’ll pay. Just a couple of quick notes for the nerds, and aspiring nerds.
The strength of the economy and the recovery are going to be big factors in determining how high these go. A stronger economy means a faster recovery, and along with that is higher mortgage rates. Weaker economic performance will generally mean lower rates to stimulate borrowing. As economic conditions change, so will these forecasts.
Credit liquidity will also play a role in the direction of mortgage rates. If there’s excess capital to lend, mortgage lenders tend to accept smaller margins. This helps to lower the cost of borrowing since they’ll make it up on revenue. If capital for mortgages becomes scarce, mortgage rates rise to adjust to demand.
Today’s chart assumes a medium level of credit liquidity. That is, not much excess, but it’s not scarce either. That’s how the mortgage market was pre-pandemic, and we’ll assume it goes back to that.
Canadian Mortgage Rates Are Going To Climb
Mortgage borrowing costs are likely to reach pre-pandemic levels soon. Our median 5-year fixed-rate forecast is 2.55% by the end of Q3 2021. Based on the most bullish yield forecast, it would rise to 2.65%. The downside yield forecast is the same as the median.
Most institutions have consistent near-term expectations. That sounds weird, but it makes sense. Near-term forecasts are the most visible, with the least number of variables compounding. As forecasts are further out, we’ll see the gap widen as their difference in outlook is magnified.
Canadian 5-Year Fixed Rate Mortgage Forecast
The forecast range for Canadian conventional 5-year fixed-rate mortgages, based on financial institution fixed income forecasts.
Mortgage Interest Rates Can Increase Substantially By Year-End
By the end of this year, we start to really see the potential for these rates to climb. By Q4 2021, the median forecast would put a typical 5-year fixed-rate mortgage at 2.73%. The forecast range becomes wider, going from 2.6% (low) to 2.85% (high). It may not sound like much, but it can have a big impact.
The rate of change is much more important than the actual number. If you go from a 2% rate to a 2.73% rate, your cost of interest rises 36.5%. If we exclude the stress test, buying power sees a 7.84% decline. Since recent buyers are mostly stress-tested, default isn’t much of an issue. However, the cost and size of debt can be.
Mortgages Rates May Rise More Than A Point By Next Year
Next year is going to be a big one for mortgage rates if the economy recovers as expected. The median 5-year fixed-rate forecast works out to 3.10% by the end of Q3 2022, which can lead to an 11.5% reduction in buying power. On the low end, the rate still comes in at 2.7%, reducing buying power by 8.0% outside of a stress test. The high range would see it climb all the way to 3.30%, pulling maximum mortgage credit 14.3% lower. Keep in mind the stress test rate may also adjust higher as well. It depends on how comfortable OSFI is with rates rising closer to their stress test number.
Another factor to consider here is the cost of the renewal. A $500,000 mortgage with a 5-year fixed rate of 2.0% would pay around $46,080 in interest over the term. If that rises to 3.1% next year, the cost of interest over the same period would be $72,183. I don’t know about you, but $26,000 is a decent chunk of money to spend over a year.
Existing mortgage holders close to renewal may want to text their mortgage broker. If you see the economy improving, locking in rates might save you a little money. It might not though, depending on whether you have prepayment penalties. It’s always best to run the numbers with a broker on various scenarios though.
Pending a double-dip recession doesn’t occur, higher mortgage rates are coming. Maybe not as high as the Desjardins forecast, but definitely higher than it is now. Those supersized mortgages with short terms are going to divert more capital from the economy on renewal. The takeaway isn’t how high mortgage rates can climb though. It’s how absurdly cheap mortgage debt has been during the pandemic.
Link to the actual article: https://betterdwelling.com/canadian-mortgage-rates-will-rip-higher-soon-heres-how-high/#_
Best answer I have seen yet is below … it still makes the 5-year fixed the better option right now (for most people)Mortgage Mark Herman, Top Calgary Mortgage Broker
The latest significant news was good, but modest. Canada’s unemployment rate dipped to 7.5% with the creation of 94,000 jobs in July. Most of those are full-time and in the private sector.
Employment levels are linked to inflation, which is a key factor watched by the Bank of Canada in setting interest rate policy which, in turn, can affect mortgage rates.
As the labour market tightens up, employers tend to offer higher wages to attract workers. That increases the cost of producing goods and services, driving inflation. As well, as more people get work and earn more money demand for goods and services increases. If that demand outpaces supply, inflation can also result.
Canada finds itself in this position now. Inflation is running high chiefly because of supply constraints caused by the pandemic. At the same time, more and more people are heading back to work.
That has some analysts forecasting the Bank of Canada will be raising rates to calm inflation. The Bank, however, has been saying otherwise.
It is also useful to watch what is happening in the United States. The two economies are tightly linked and actions in the U.S. can offer useful clues about what will happen here.
In its latest assessment of the American economy the U.S. Federal Reserve continued to down play inflation – which is running high there as well – as “transitory”. The Fed continues to look to the second half of 2023 as the most likely time for any possible rate hikes. While the Bank of Canada has said it expects rates could start rising as much as a year sooner than that, it would be unusual for the BoC to move before the Fed.
What is everyone doing with the money they saved during Covid?
- Eating out, travel, debt reduction and BUYING HOMES!
- Mortgage rates are low and home prices are close to 2005 levels!
Mortgage Mark Herman, Top Calgary Alberta Mortgage Broker
Latest Bank of Canada Survey:
As COVID-19 continues to be pushed down in Canada, consumer spending is expected to go up. The latest survey by the Bank of Canada suggests that will lead to an even greater demand for homes.
The Bank of Canada’s Survey of Consumer Expectations… indicates:
- 40% of respondents managed to save more money than usual during the pandemic.
- They expect to spend about 35% of those savings over the next 2 years on activities that have been restricted during the pandemic, such as dining out.
- Respondents plan to put 10% of their savings toward debt repayment and
- 10% toward a down payment on a home.
14% plan to buy a home soon, much of that was driven by renters, with 20% saying they want to get into the market.
80% of the respondents who have “worked from home” expect to continue with that and there is a consistent with the shift in demand for larger properties, away from city centres.
There is LOTS of room for rates to go up, and very little for rates to go down or even hold steady.
Fixed mortgage rates are predicted to rise by 40% and go back to Pre-Covid rates or higher:
- 2.9% (from 2.09% now) for less than 20% down; CMHC insured
- 3.10% (from 2.24% now) for more than 20% down; conventional / not insured.
Prime – what variable rates are based on:
- The Bank of Canada has moved their target for Prime increase from 2023 to 2022.
- The US Fed has moved their target for Prime increase from 2024 to 2023, and the market expects that to move to 2022 as well.
- Prime is 2.45% today, it was 3.95% just before Covid (Feb, 2020) and will be trending back that way soon.
- Prime – 1% is the rates for today. 2.45% – 1% = 1.45% which is a great rate but how soon and how much will it move?
This article is awesome, and clear on what the changes mean. The summary above is all you need but you love this data, then read on …
Canadian Mortgage Rates Forecast To Rise Over 40%, Posted Rate Can Hit 7%
Canadian inflation is marching higher, and so are the expectations for mortgage rates. One bank sees the 5-year posted rate having more room to rise than fall in the future.
The institution has forecast the posted 5-year fixed-rate mortgage can rise up to 40% by 2024.
While the posted rate is rarely the rate paid by mortgage borrowers, it does impact a number of things. More importantly, it reflects an environment where credit is tightening.
The Posted Mortgage Rate Vs What You Really Pay
The posted mortgage rate is an unusually high mortgage rate that’s kind of like the sticker price of a car. It’s unreasonably high, few people will use it, and it’s mostly to help buyers feel like they’re getting a deal. The spread between the posted rate and a lender’s best available rate is usually between 220 to 250 bps. This means the rate borrows often pay is a full 2.2 to 2.5 percentage points lower than the posted rate. That doesn’t mean the posted rate is useless though.
The two biggest impacts it has are on payment penalties and the stress test. If you were to break your fixed-rate mortgage early, for say refinancing at a lower rate, you have to pay a penalty. That penalty is usually 3-months of interest, or the interest rate differential (IRD). The IRD is the difference between your rate and the posted rate closest to your remaining term. Then subtract any discount you received at origination. It’s pretty much what banks use to make sure you pay a big ole’ penalty for changing plans.
The stress test rate is also likely to be influenced by the posted rate, but maybe not directly. Originally the Bank of Canada benchmark rate was used to determine the stress test rate. This was based on the posted rate at various banks. OSFI, the bank regulator, found it wasn’t very responsive to risk though. Rather than rely on the benchmark, they established a rate floor — the minimum rate that can be used. The criteria for how the floor can evolve can change a lot from now until 2024. However, it’s unlikely the stress test rate would ever fall below the posted rate. The stress test rate is currently around 50bps higher than the posted rate.
Canadian 5-Year Fixed-Rate Mortgages Have More Upside Risk Than Downside
There’s uncertainty, but Canada’s faster than expected recovery shows more upside than down. The five-year posted fixed rate is 4.74% currently. In a downside scenario, they see this falling to 4.40% by the fourth quarter of 2021. The upside scenario sees it rising up to 5.25% in the same quarter. Higher inflation expectations are also contributing to a stronger upside scenario.
Canadian Posted 5-Year Fixed Rate Forecast
By next year, the posted 5-year fixed rate is forecast for an even higher maximum — breaching the 6 point mark. Rates are forecast to have a downside of 4.6% in 2022, and an upside of 6.20%. In 2023, the range rises to 4.70% to 6.60% for the full year. In 2023, it gets a little more uncertain with the range widening from 4.55% to 6.95%. While the latter range is wider, it has a lot more upside than downside. The probability of it falling would likely require a substantial economic slowdown.
Since a number of factors go into a forecast, the longer the date, the more uncertainty it faces. Economic conditions would have to worsen and inflation drop for rates to fall. For rates to rise, Canada would have to continue a strong recovery, and/or see higher levels of inflation. Canada is so dependent on housing now, we likely have many people cheering on a crash to keep rates low.
Link to the full article is here: https://betterdwelling.com/canadian-mortgage-rates-forecast-to-rise-over-40-posted-rate-can-hit-7-desjardins/
If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?
While the sudden loss of employment is always a possibility, the current uncertainty of our economy has made more people think about the stability of their income. Whether you’ve already made an offer on a home or you’ve just started looking, here is how job loss could affect your mortgage approval.
What role does employment play in mortgage approval?
In addition to ensuring you earn enough to afford a mortgage payment; mortgage lenders want to see that you have a history of consistent income and are likely to in the future. Consistent employment is the best way to demonstrate that.
To qualify for any mortgage, you’ll need proof of sufficient, reliable income. Your mortgage broker will walk you through the income documents your lender will need to verify you’re employed and earning enough income. So, if your employment situation is questionable, you may want to reconsider a home purchase until your employment is more secure.
Should you continue with your home purchase after you’ve lost your job?
What if you’ve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing.
If you’ve already gone through the approval process, then you know that your lender is looking for steady income and employment.
Here are some possible scenarios where you may be able to continue with your purchase:
- If you secure another job right away and the job is in the same field as your previous employment. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period (usually three months), you might not be approved. Consult your broker.
- If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
- If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered under the right circumstances.
Can you use your unemployment income when applying for a mortgage?
Generally, Employment Insurance income can’t be used to qualify for a mortgage. The exceptions for most financial institutions are seasonal workers or people with cyclical employment in industries such as fishing or construction. In this situation, you’ll be asked to show at least a two-year cycle of employment followed by Employment Insurance benefits.
However, it’s not the ideal situation and most lenders won’t be willing to approve your mortgage under those conditions.
What happens if you’re furloughed (temporary leave of absence)?
Not all job losses are permanent. As we’ve seen during the COVID-19 pandemic, many workers were put on temporary leave. If you’ve already been approved for a mortgage and are closing on a house, your lender might take a “wait-and-see” approach and delay the closing if you can demonstrate you’ve only been furloughed. In these cases, you’ll need a letter from your employer that has a return-to-work date on it. Keep in mind, if you don’t return to work before your closing date, your lender will likely cancel the approval and ask for a re-
If you haven’t started the application process, it would be wise to wait until you are back to work for at least three months to demonstrate consistent employment.
Your credit score and debt servicing ratios may change because of lost income, which means you may no longer meet your lender’s qualifications for a mortgage. While it may not be possible, try to avoid accumulating debt or missing any payments while unemployed.
Talk to your mortgage broker.
“You don’t want to get locked into a mortgage you can’t afford.
You also don’t want to lose a deposit on a home because you lost your financing.
When trying to assess if it’s better to move forward or walk away, we should be your first call.”
Mortgage Mark Herman; Calgary Alberta Mortgage Broker
The latest in giant payout penalties, this one was $47,291.
Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)
To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.
- Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
- Would you sign an agreement like that?
- Have you already signed an agreement like this without knowing you have?
EASY to AVOID …
You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.
Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.
Broker banks also have better Terms & Conditions than the Big-6.
“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”
Mortgage Mark Herman, Top Rated Calgary Mortgage Broker
We always focus on the Terms and Conditions of the mortgage. Most people have no idea what the bank is talking about when they sign the mortgage. We DO as we do this every day.
Here is a link from a Canadian Law website about a CLASS ACTION LAW SUIT against CIBC for calculating their payout penalties incorrectly: https://canliiconnects.org/en/commentaries/66074
My favorite part of the article is here:
“difficulty of enforcing fairness to consumers … there is a serious imbalance of bargaining power between the oligopolistic banks and individual borrowers. Legislative action to provide better consumer protection would be desirable.”
And here is a link to a guy that was almost our customer but stayed at his bank because they matched our broker rate. And now he is paying a $35,000.00 payout penalty because of it.
I had an engineer contact me this week. On the exact day of his 1-year anniversary of starting his 5 year, fixed mortgage. At his own bank.
Precisely one year and 10 days before that call came in, he sat in front of me and guaranteed me, with clenched fist lightly pounding on my desk, that he would never leave this house; the dream house. He had his dream job as an engineering team leader at and an oil company in downtown Calgary.
His own bank – one of the Big-6 – had “dropped their pants to keep his business” and matched the rate that that we secured for him at a broker-only lender. I hear this all the time, and went on to explain there is much more to consider than just matching rates. The T & C’s – Terms and Conditions – of our deal were significantly better. Specifically due to the 500% to 800% lower payout penalties if the mortgage ever had to be closed down. After all he worked for an international oil company – and he could be transferred.
Other points for the advantages we reviewed were discounted as well:
· Always getting the best rates on renewal. (Banks know 86% of mortgage renewals will take the banks first offer they send out in the mail, so they always offer more than what the best rates are. The difference is pure profit and shareholder satisfaction.)
· Better repayment allowances
· And a “normal mortgage” registration at land titles, not a “collateral charge” which means you essentially are signing an I-O-U for everything you own as security for the home. This locks you into that same bank when your term is up.
So, today he called and said he is transferring to Texas.
He has to sell his home in a down market and will have a $35,000 payout penalty and realtor fees. He believes the $35,000 payoff penalty is worth it. Taking this punch to the wallet is the only thing between him and ensuring he still has a job more than 5 years from now.
$35,000 is about two years of discretionary spending income after you pay for your mortgage/rent, taxes, food, and car insurance. His penalty with the lender we had secured for him would have been about $7,000. Surprise, exactly 5 times less than what the Big-6 banks penalties are.
Quick Lesson/ Remember This: Your bank may be convenient, and they might match the best rates after you do the work to find a better deal at a broker but they will never change their Terms and Conditions for you. The Big-6 Banks write their details to favor themselves; and they make ~$1 Billion every 120 days. The terms at Broker Banks are as fair as you can get, the cost to you is usually $0, and you always get best rates, and way better service.
And you probably don’t get a $35,000 payout penalty either.
Mark Herman has his Master’s degree in Finance, is a 16-year broker at the brokerage that placed #1 in all of Canada for 6 years in a row. He has done way more than 5,000 mortgage applications. His work partner, Katie, was the 2017 Canadian Mortgage Broker of the Year out of all 14,000 of us, and 2018 President of the Alberta Mortgage Broker Association. They have worked together for 15 years and have not killed each other.
Use a mortgage broker for the biggest asset you can buy as brokers have your best interest in mind. As above, the bank does not look out for your best interests.Mark Herman, Best Calgary Alberta Mortgage Broker
Inside data on maxing your credit score – 10 tips
It can be tough to optimize your credit score when you don’t even know what it is? The answer is by focusing more on your overall “credit hygiene” rather than on any one particular score.
Dental hygiene is preventative maintenance to ensure your teeth and gums are the best they can be at all times. Having a similar routine for your personal credit history can be equally important to avoid problems when you least need them—like when buying or refinancing a home.
If you are always employing best practices, then you are optimizing your credit score and your overall credit profile, regardless of who is checking, when they are checking and what is being counted and reported.
Unfortunately, more credit in the wrong hands can lead to abuse. Some people rely on credit to supplement their income and end up in an untenable situation. These credit hygiene tips are intended for people who are responsible with credit.
1. Never Go Over Limits – Leave Some Room
When you have a credit card or line of credit hovering around its limit, you are at risk of going over, which is not a good thing for your credit score. And it might happen innocently—you started out under the limit, but with interest charges and possible over-limit penalties, you are now over limit and lose about 100 points.
Even when you deploy a balance transfer promotion or some form of interest-free period, you should leave room at the top.
It’s like when ordering a coffee, leave room at the top for the milk—even if you take it black, avoid spillages.
2. Accept All Offers of Increased Limits
You should usually welcome credit limit increases. You look healthier and stronger to the casual reader, because your limits have some heft to them. And perforce, you instantly reduce your percentage utilization of credit with an increased limit. This often results in a higher credit score.
Percentage utilization has a 30% weighting on your personal credit score.
3. Spread Around Your Balances
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. If your goal is to maximize your score at all times, but you do carry credit balances, try to spread it around, rather than cluster it all on one card. One way this can arise is when you use balance transfer promotions to reduce interest expenses. You’ll have to evaluate the trade-offs of each approach.
4. Exercise All Cards and Lines of Credit
We tend to favor one particular credit card (maybe we like their rewards program) and we might neglect our other cards. If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a brief moment every few months.
These trade lines can get stale and they are not pulling their full weight. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately.
5. If in Doubt, Do NOT Close a Credit Card
It will rarely be correct to close older, unused credit facilities since they are contributing “score juice.” If you want to close the card to avoid an annual fee, just ask the card issuer to downgrade your card to a free card. You will retain your valuable history, but avoid annual fees (and the spectre of forgetting to pay the fee).
PS: My Avion card just charged me $120 annual fee and I am not using it. I called and they reversed the fee for me! and the card is still open.
Equifax Canada states your history can have a 15% weighting on your personal credit score.
6. Use It or Lose It
If you never borrow money, or you have a solitary credit card in your wallet and you never actually use it, eventually you will have nothing generating a credit score for you. And you may end up with no score at all. And that can really cramp your style when you need a mortgage.
You want at least 2 things reporting to your bureau. 2 credit cards are best so if one oes sideways, you still have one running.
7. Pay Your Active Credit Cards At Least Twice Monthly – The Statement Date Strategy
I keep track of the statement cycle of my oft-used cards, and I pay the balance in full several days BEFORE the next statement is issued. The card issuer typically reports my statement date balance to the credit bureaus – so I always want that balance to be small, and that way my utilization ratios are really good.
And within a week or so of the statement being issued, I go back in and pay the statement balance in full. This ensures I never have interest charges on my core credit card usage, since the balance is always brought to zero before the due date.
The smaller the limits on your credit cards, the more dramatic the impact of the statement date strategy.
8. Pay Disputed Items – Then Argue Your Position After the Fact
You may know someone who was offended by charges they were certain did not belong on their credit card statement. They refused to pay and preferred to wait out the investigation process. Unfortunately, by doing that they run the risk of interest charges and late payments.
My own experience has always been the card issuers do the right thing when fraud or outright billing errors are at hand. So, I pay and wait for the credit to come back to my account when the investigation is complete.
NOTE – if the fraudulent charges are very large and quite serious, this is a different matter altogether and you should strategize the best approach with the authorities and management at the card issuer.
9. Scour & Clean All Reporting Errors
There might be some incorrect information in your personal credit history that is needlessly dragging down your score. Those are easy and necessary fixes. And the impact on the personal credit score can be profound. There are many types of errors, but two examples are:
- You have two or more personal profiles with the credit bureau, so your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name.)
- You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should NOT be “R9s.”
Each agency provides a mechanism on its website for reporting errors. Mortgage brokers can fast-track an investigation with Equifax Canada for their clients. What might take a consumer two months we can often get done in a few days.
10. The Takeaway
The credit reporting agencies may generate a different score for credit card issuers, car dealerships or mortgage lenders, and the score they provide the consumer upon request is typically none of these. Therefore, you should be more concerned with ensuring you are always using best practices that will score well, regardless of who is doing the measuring.
The credit hygiene strategy ensures your credit history is a weapon you can wield with confidence, and that whatever method is generating your credit score, it will always be optimized and at its maximum potential.
“Always be working on your credit,” Mark Herman, best Calgary mortgage broker.Mark Herman, best Calgary mortgage broker.