Acceptable Sources of Down Payment for a home Canada, 2024
This seems to be the topic of this week … what can I use for down payment on my home?
All banks DO ACCEPT these approved methods to gather down payment for a home.
Acceptable Sources of Down Payment:
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Ineligible Sources of Down Payment
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The new Tax-Free First Home Savings Account (FHSA) and the
FTHBI – First Time Home Buyer Incentive were the government matches your down payment up to 5% ARE both great ideas!
Mortgage Mark Herman, top Calgary Alberta Mortgage Broker since 2004!
Prime Rate Holding, July 1st Expected Reduction & Real Estate Economic Data
The Bank of Canada cited the ongoing risk of inflation for its decision to maintain its overnight benchmark interest rate at 5.0%.
Below are the Bank of Canada’s observations, including its forward-looking comments on the state of the economy, inflation and interest rates.
Canadian inflation
- CPI inflation ended the year at 3.4% and the Bank expects inflation to remain close to 3% during the first half of 2024 “before gradually easing” and returning to the Bank’s 2% target in 2025
- Shelter costs remain “the biggest contributor to above-target inflation”
- While a slowdown in demand is said by the Bank to be reducing price pressures in a broader number of CPI components and corporate pricing behavior continues to normalize, core measures of inflation are not showing sustained declines.
Canadian economic performance and outlook
- The Bank notes that the Canadian economy has “stalled” since the middle of 2023 and believes growth will likely remain close to zero through the first quarter of 2024
- Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted
- With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply
- Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth. However, wages are still rising around 4% to 5%
Global economic performance and outlook
- Global economic growth continues to slow, with inflation easing “gradually” across most economies
- While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment
- In the euro area, the economy looks to be in a mild contraction
- In China, low consumer confidence and policy uncertainty will likely restrain activity
- Oil prices are about $10 per barrel lower than was assumed in the Bank’s October Monetary Policy Report (MPR)
- Financial conditions have eased, largely reversing the tightening that occurred last autumn
- The Bank now forecasts global GDP growth of 2.5% in 2024 and 2.75% in 2025 compared to 2023’s 3% pace
- With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025
Outlook
The Bank believes that Canadian economic growth will strengthen gradually “around the middle of 2024.” Furthermore, it expects household spending will likely “pick up” in the second half of 2024, and exports and business investment should get a boost from recovering foreign demand.
Taking all of these factors and forecasts into account, the Bank’s Governing Council decided to hold its policy rate at 5% and to continue to “normalize” the Bank’s balance sheet.
The Bank’s statement went on to note that Council “is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation” and wants to see “further and sustained easing in core inflation.” The Bank also said it continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
As it has said consistently over the past year, the Bank will remain “resolute in its commitment to restoring price stability for Canadians.”
Although the Bank did not say it, the bottom line is we will have to wait and see what comes next.
Next touchpoint
March 6, 2024 is the Bank’s next scheduled policy interest rate announcement.
Using Disability Income to Qualify for a Canadian Mortgage: 2024
CAN I USE DISABILITY INCOME TO QUALIFY FOR A CANADIAN MORTGAGE?
YES, YOU CAN use DISABILITY INCOME to get a pre-approval leading to a full mortgage approval if you are on disability or have disability income.
- Below are a few clarifications on the typical disability incomes that the banks can use.
- Not all banks accept all types of disability income so we use a few different lenders to ensure we have all your bases covered.
NEXT STEP
Call or send me an email with your contact data so we can have a chat on the phone about how to use these for your purchase.
- I answer from 9-9 x 363, am in the office from 10 – 6:30 most days, best time to call is between 11 am – 3 pm.
- No need to pre-book, just call!
- (How different is that?)
Long-term & Short-term Disability Pension/Insurance
If the borrower has a non-taxable income, the Bank, CMHC and Sagen allow the income to be grossed-up.
- Less than $30,000, this income may be increased by 25%
- At least $30,000, this income may be increased by 35%
Long-term disability: 100% of long-term disability income can be used.
Provide one of the following:
- Letter from the organization or from QPP confirming long-term or permanent disability. If the letter is outdated (over 120 days), current bank statements confirming the deposits are being made to the borrower’s account are also needed
- T4A(P) confirming disability income.
Short-term disability: 100% of the employment income can be used for short-term disability.
Provide the following:
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- A letter from the employer confirming the borrower’s return date, position and salary with a verbal confirmation from the employer to ensure the date on the letter is correct. If the return date cannot be confirmed, the disability income can be used for qualifications.
Pension & Retirement Income/Life Annuity
Retirement pensions are fixed incomes, CPP (Canada Pension Plan), OAS (Old Age Security), GIS (Guaranteed Income Supplement), provincial pension plans and private/corporate pensions and must be Canadian pension and evident on Canadian tax return.
IF you are Splitting Retirement Income: In the case where the pension income is shared for tax purposes, the transferring spouse/common-law partner must be on file and only the amount that has not been transferred/split is admissible.
Provide the most recent two documents of the following depending on the source of the declared retirement income:
- Most recent NOA supported by T1 General
- RL-2 Slip
- T4A, T4A(P)
- Letter from the initiating party confirming the yearly pension amount
- Letter from the organization confirming income and permanency of income
- Copy of current bank statement showing the automatic deposit
- Copy of current monthly cheque stub
For CPP, OAS, QPP and GIS, only one relevant document for each source is required from the list above.
RRIF
Income from a RRIF is admissible if there is proof that the portfolio generates a sustainable income amount for the length of the term.
This is a tough one to nail down as the portfolio has to be sustainable and not “drained” over the term of the loan, as in, there will still be a substantial balance in 5 years, if the mortgage is a 5-year term.
Provide the following:
- The most recent NOA supported by T1 General
- Recent RRIF statement to show that the borrower has sufficient assets to support the indicated income for the length of the term
First Nations
This is a non-taxable income. The income can be grossed-up as follows:
- Less than $30,000, this income may be increased by 25%
- At least $30,000, this income may be increased by 35%
Provide the following:
- Copy of the status card needed
“We use disability income all the time in our practice and have access to the banks and lenders that allow its use some pensions and other disability income better than other options.
Mortgage Mark Herman, top Calgary Alberta and BC mortgage broker, for 21 years.
Winning Variable Rate Strategy: end-2023
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Data on July 1, 2022 Prime Increase to 3.7%
Today, the Bank of Canada showed once again that it is seriously concerned about inflation by raising its overnight benchmark rate to 1.50% – making Consumer Prime 3.70%
This latest 50 basis point increase follows a similar-sized move in April and is considered the fastest rate hike cycle in over two decades.
Everyone STAY COOL!
Says Mortgage Mark Herman, top Calgary Alberta Mortgage Broker.
With it, the Bank brings its policy rate closer to its pre-pandemic level.
In rationalizing its 3rd increase of 2022, the Bank cited several factors, most especially that “the risk of elevated inflation becoming entrenched has risen.” As a result, the BoC will use its monetary policy tools to return inflation to target and keep inflation expectations well anchored.
These are the highlights of today’s announcement.
Inflation at home and abroad
- Largely driven by higher prices for food and energy, the Bank noted that CPI inflation reached 6.8% for the month of April, well above its forecast and “will likely move even higher in the near term before beginning to ease”
- As “pervasive” input pressures feed through into consumer prices, inflation continues to broaden, with core measures of inflation ranging between 3.2% and 5.1%
- Almost 70% of CPI categories now show inflation above 3%
- The increase in global inflation is occurring as the global economy slows
- The Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation
- The war has increased uncertainty, is putting further upward pressure on prices for energy and agricultural commodities and “dampening the outlook, particularly in Europe”
- U.S. labour market strength continues, with wage pressures intensifying, while private domestic U.S. demand remains robust despite the American economy “contracting in the first quarter of 2022”
- Global financial conditions have tightened and markets have been volatile
Canadian economy and the housing market
- Economic growth is strong and the economy is clearly “operating in excess demand,” a change in the language the Bank used in April when it said our economy was “moving into excess demand”
- National accounts data for the first quarter of 2022 showed GDP growth of 3.1%, in line with the Bank’s April Monetary Policy Report projection
- Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been “picking up and broadening across sectors”
- Housing market activity is moderating from exceptionally high levels
- With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be “solid”
Looking ahead
With inflation persisting well above target and “expected to move higher in the near term,” the Bank used today’s announcement to again forewarn that “interest rates will need to rise further.”
The pace of future increases in its policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation.
In case there was any doubt, the Bank’s message today was clear: it is prepared to act more forcefully if needed to meet its commitment to achieve its 2% inflation target.
July 13, 2022 is the date of the BoC’s next scheduled policy announcement.
Rates and Prices Trending Up Due to Inflation and War
Mid-March Commentary: Rates and Prices Trending Up Due to Inflation! and War!!
On March 2nd, 2022, the Bank of Canada made its most anticipated decision on interest rates since the pandemic began. After weeks of speculation and anticipation of an increase, central bankers finally pulled the trigger and moved their overnight rate higher.
For the 1st time since the pandemic began to hurt the economy in March 2020, the Bank raised its overnight benchmark rate by .25% and the knock-on effect is that borrowing costs for Canadians will rise modestly although by historical norms, remain low.
In its updated comments on the state of the economy, the Bank and singled out the unprovoked invasion of Ukraine by Russia as a “major new source of uncertainty” that will add to inflation “around the world,” and have negative impacts on confidence that could weigh on global growth.
Below are the other highlights…
Canadian economy and the housing market
- Economic growth in Canada was very strong in the fourth quarter of 2021 at 6.7%, which is stronger than the Bank’s previous projection and confirms its view that economic slack has been absorbed
- Both exports and imports have picked up, consistent with solid global demand
- In January 2022, the recovery in Canada’s labour market suffered a setback due to the Omicron variant, with temporary layoffs in service sectors and elevated employee absenteeism, however, the rebound from Omicron now appears to be “well in train”
- Household spending is proving resilient and should strengthen further with the lifting of public health restrictions
- Housing market activity is “more elevated,” adding further pressure to house prices
- First-quarter 2022 growth is “now looking more solid” than previously projected
Canadian inflation and the impact of the invasion of Ukraine
- CPI inflation is currently at 5.1%, as the BoC expected in January, and remains well above the Bank’s target range
- Price increases have become “more pervasive,” and measures of core inflation have all risen
- Poor harvests and higher transportation costs have pushed up food prices
- The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities
- Inflation is now expected to be higher in the near term than projected in January
- Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards
- The Bank will use its monetary policy tools to return inflation to the 2% target and “keep inflation expectations well-anchored”
Global economy
- Global economic data has come in broadly in line with projections in the Bank’s January Monetary Policy Report
- Economies are emerging from the impact of the Omicron variant of COVID-19 more quickly than expected, although the virus continues to circulate, and the possibility of new variants remains a concern
- Demand is robust, particularly in the United States
- Global supply bottlenecks remain challenging, “although there are indications that some constraints have eased”
Looking ahead
As the economy continues to expand and inflation pressures remain elevated, the Bank made a clear point of telling Canadians “To expect interest rates to rise further.”
The resulting quantitative tightening (which central bankers framed as “QT” rather than the previous term “QE” for quantitative easing) would complement increases in the Bank’s policy-setting interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving a 2% inflation target.
BoC’s next scheduled policy announcement is April 13, 2022. We will update you following that announcement as always.
Rising rates: fixed or variable?
The Bank of Canada pulled the trigger on an interest rate increase, the first since October 2018 and the Bank has made it clear more increases are coming.
The upward move and the Bank’s messaging have rekindled the perennial mortgage debate: fixed or variable. The answer remains the perennial: it depends.
It depends on the borrower’s end goals, finances and their desire for stability. That last point, stability, is what leads most Canadian home buyers to opt for a 5-year, fixed-rate mortgage. But in purely financial terms – and saving money – variable-rate mortgages tend to be cheaper, and they do not have to be volatile.
In a rising rate environment, many borrowers worry about the cost of their debt going up. But right now, variable-rates are notably lower than fixed-rates and it will take several Bank of Canada increases to close the gap. In the meantime, that amounts to savings for the borrower.
Those savings – often hundreds of dollars a month – could be applied against principal. As rates rise the amount can be adjusted, thereby keeping total monthly payments the same and evening-out any volatility.
It should be remembered that fixed-rates are rising as well. They are tied to Government of Canada 5-year bond yields. Those yields have been increasing, and at least some of that is tied to increases in U.S. government bond yields. Canadian bonds tend to move in sync with American bonds, but those changes do not necessarily reflect the Canadian economy. In other words, the changes are not completely within our control.
A Few More Words on Russia Invading Ukraine
Markets were thrown into a tizzy. They plunged. But the frenzy was short lived. By the end of the day markets were back in the black.
Canada’s economic exposure to Russia and Ukraine is relatively small. Canada imported $1.2 billion from Russia in 2020; Russia imported roughly the same from Canada – less than a week’s worth of commercial traffic across the Ambassador Bridge.
The key factor in the conflict, for Canada, will likely be the price of oil, which has climbed past $100 a barrel. Rising oil prices and higher fuel costs have been a principal driver of inflation here, and inflation is the main concern of the Bank of Canada. It is currently running at 5.1%, a 30 year high, and the central bank is under growing pressure to bring it under control.
Oil is also an important part of Canada’s resource economy. Higher prices will likely lead to more production. Any embargo of Russian oil will create demand for Canadian product. That, in turn, would put more load onto Canada’s economic recovery, which is strong but hampered by pandemic labour shortages and supply-chain problems which, again, are adding to inflation pressures.
None the less, war creates uncertainty, and uncertainty triggers caution among central bankers. A recent Reuters poll of 25 economists suggests the Bank of Canada will go ahead with a quarter-point rate hike this week.
Post-Covid Home Demand to Continue – Data
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.
RBC: charged 15 month payout penalty
The Big-6 banks love your money, not your sparkling personality.
This article is old and still shows the same calculations.
RBC charges homeowner $8900 penalty, or 15 months interest charge!
We get calls on high payout penalties all the time. The answer is broker lenders have payouts that are about 30% as much as the Big-6 banks.
Mortgage Mark Herman, top Calgary mortgage broker.
Prime Rate Cut; Dec 4, 2019
With the latest developments the Bank of Canada (BoC) has clear path to reduce the Prime rate from 3.95 to probably 3.70%
The Bank of Canada is feeling the pressure to get back into the game with a rate reduction and one obstacle has now been removed.
The bank held its rate the same for an 8th straight meeting on October 30th.
At the same time it has clearly signaled it may not be able to hold that line much longer.
The bank pointed directly at trade conflicts (such as the U.S. – China tariff war) as the key cause of a global economic slowdown and around the world more than 35 other central banks have already cut rates in an effort to keep growth up.
The U.S. Federal Reserve has made three cuts in the past several months. That has boosted the strength of the Canadian dollar which makes the country’s exports more expensive on the world market which is unwelcome.
Great news that the Bank is not concerned that a drop in interest rates will trigger a renewed frenzy of debt-funded consumer spending. It is satisfied that the biggest component of household debt – mortgages – have been stabilized by the B-20 regulations. And another big obstruction has been removed. The federal election is over so the bank can operate without risking the appearance of political favoritism.
Fixed rates are still the way to go right now.
They are close to the all time 119-year lows right now.
Mortgage Mark Herman
Why you don’t want your mortgage at your main bank
The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.
Highlights of the last post are below. The post from January is here: http://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/
The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
If your mortgage is at your main bank they can see:
- your pay and income going into your accounts
- debt balances on your credit report
- what your credit score is
- your debt payments
- your home/ rental addresses so they can accurately guess at your home value.
ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said an analyst. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.
Ron Butler said, “Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.