Thank you to my DLC partner Kelly from BC for the below breakdown, very informative!

Mortgage [ˈmôrɡij] NOUN
With a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s occupants and sell the house, using the income from the sale to clear the mortgage debt.

Mortgages in a Nutshell
Since homes are expensive, a mortgage is a lending system that allows you to pay a small portion of a home’s cost (called the down payment) upfront, while a bank/lender loans you the rest of the money. You arrange to pay back the money that you borrowed, plus interest, over a set period of time (known as amortization), which can be as long as 30 years.

When you get a mortgage loan, you are called the mortgagor. The lender is called the mortgagee.

How Do You Get a Mortgage?
The companies that supply you with the funds that you need to buy your home are referred to as “lenders” which can include banks, credit unions, trust companies etc.

Mortgage lenders don’t lend hundreds of thousands of dollars to just anyone, which is why it’s so important to maintain your credit score. Your credit score is a primary way that lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full WITHOUT a lot of hassle. A score of 680-720 or higher generally indicates a positive financial history; a score below 680 could be detrimental, making you a higher risk. Higher risk = higher rates!

How Mortgages Are Structured
Down payment: This is the money you must put down on a home to show a lender you have some stake in the home. Ideally you want to make a 20% down payment of the price of the home (e.g., $60,000 on a $300,000 home), because this will allow you to avoid the extra cost of Mortgage Default Insurance which is mandatory with all down payments of less than 20%.

Every mortgage has three components: the principal, the interest, and the amortization period.

Mortgages are typically paid back gradually in the form of a monthly mortgage payment, which will be a combination of your paying back your principal plus interest.

1. Principal: This is the amount of money that you are borrowing and must pay back. This is the price of the home minus your down payment
   taking the above example, purchase price $300,000 minus $60,000 down payment to get a mortgage (principal) of $240,000.
2. Interest rate: Lenders don’t just loan you the money because they’re nice guys. They want to make money off you, so you will be paying them back the original amount you borrowed (principal) plus interest—a percentage of the money you borrow.The interest rate you get from the lender will vary based on: property, lender, credit bureau, employment and your personal situation.
3. Amortization means life of the mortgage, or how long the mortgage needs to be, in order to pay off the complete loan (principal) plus interest. Mortgage loans have different “amortizations,” the two most common terms are 25 & 30 years.Within the life of the mortgage (amortization) you will have a Term. The length of time that the contract with your mortgage lender including interest rate is set up (typically 5 years). After your term completes, you can renew your mortgage with the same lender or move to a new lender.

WHEN TO GET A MORTGAGE

First Step: connect with a Mortgage Broker for a mortgage before you start hunting for a home. You need to know what you can afford – especially with all the new government regulations.

Ideally you need a mortgage pre-approval, which an in-depth process where a lender will check your credit report, credit score, debt-to-income ratio, loan-to-value ratio, and other aspects of your financial profile.

This serves two purposes:

1. It will let you know the maximum purchase price of a home you can afford.
2. A mortgage pre-approval shows home sellers and their realtors that you are serious about buying a home, which is particularly crucial in a hot housing market.

Types of Mortgages
How do you figure out which mortgage is right for you? Here are the 2 main types of home loans to consider:

1. Fixed-rate mortgage:This is the most popular payment setup for a mortgage. A fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
2. Variable rate mortgage aka Adjustable Rate Mortgages (ARM) A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions and the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the term. These types of mortgages usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

How to Shop for a Mortgage?
Use a mortgage broker, a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.

Brokers specialize in Mortgage Intelligence, educating people about mortgages, how they work and what lenders are looking for. Everyone’s home purchasing situation is different, so working with us will give you a better sense of what mortgage options are available based on the 4 strategic priorities that every mortgage needs to balance:

• lowest cost
• lowest payment
• maximum flexibility
• lowest risk

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print, not just the rate.

Banks tend to concentrate on the 5 year fixed mortgage rate (since that’s the best option for them)… rates are important, however your Dominion Lending Centres mortgage professional will look at the total cost of the mortgage. Brokers will advise & explain mortgage options, help you understand the implications of your choice and help you avoid the pitfalls of choosing a mortgage based on rates alone.

Thank you to our Chief Economist Dr Sherry Cooper!

Some very interesting and thought provoking facts sourced from Equifax by one or our Lenders, First National.  Enjoy!

Ongoing affordability challenges and tougher mortgage qualification rules have homebuyers turning to alternative lenders, but some are also turning to alternative facts.

A recent survey by credit monitoring service Equifax suggests there is a growing acceptance of fudging the numbers on mortgage applications, especially among younger house hunters.  Nearly a quarter of the millennials (23%) surveyed believe it is acceptable to inflate income on a mortgage application.  That is nearly double the rate (12%) for the overall population.  Nineteen percent of the millennials surveyed actually admit to falsifying their application.

The survey also suggests 53% of consumers believe mortgage fraud is a growing problem.  But there are indications there may be a misunderstanding of what constitutes fraud.  Among those surveyed, 51% indicated it was most likely to be committed by organized crime.  That number climbs to 56% among millennials.  At the same time 16% of respondents called mortgage fraud a victimless crime.  For millennials the number jumps to 23%.

The numbers would seem to suggest that many people do not see a “little white lie” on a mortgage application as fraud or a real crime.  While it is unlikely any consumer is going to go to jail for “fiddling the numbers” on their mortgage application – as Equifax points out – getting caught in a lie, or becoming over extended because of a falsified document can have long lasting effects on a consumer’s credit rating

This is a great indicator and the below also touches on Stress Test Impact and other variables, thank you Dr Cooper!

Housing resales rose for the sixth consecutive month in August as prices increased across the country. August marked the largest one-month gain in Canadian home prices in two years.

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales rose for the sixth consecutive month. Transactions are now running almost 17% above the six-year low reached in February 2019, but remain about 10% below highs reached in 2016 and 2017. Toronto, Montreal and Vancouver all saw sales and prices rise. CREA updated its 2019 sales forecast, now predicting a 5% gain this year. Gains were led by a record-setting August in Winnipeg and a further improvement in the Fraser Valley. These confirm signs that the country’s housing market is returning to health.

Actual (not seasonally adjusted) sales activity was up 5% from where it stood in August 2018. The number of homes that traded hands was up from year-ago levels in most of Canada’s largest urban markets, including the Lower Mainland of British Columbia, Calgary, Winnipeg, the Greater Toronto (GTA), Ottawa and Montreal.

New Listings
The number of newly listed homes rose 1.1% in August. With sales and new supply up by similar magnitudes, the national sales-to-new listings ratio was 60.1%—little changed from July’s reading of 60.0%. The measure has risen above its long-term average (of 53.6%) in recent months, which indicates a tighter balance between supply and demand and a growing potential for price gains.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about three-quarters of all local markets were in balanced market territory in August 2019. Of the remainder, the ratio was above the long-term average in all markets save for some in the Prairie region.

There were 4.6 months of inventory on a national basis at the end of August 2019 – the lowest level since December 2017. This measure of market balance has been increasingly retreating below its long-term average (of 5.3 months).

There is considerable regional variation in the tightness of housing markets. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers an ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains. Meanwhile, the measure is well centred in balanced-market territory in the Lower Mainland of British Columbia, making it likely that prices there will stabilize.

Home Prices
Canadian home prices saw its biggest one-month gain in two years. The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8% m-o-m in August 2019.

Seasonally adjusted MLS® HPI readings in August were up from the previous month in 14 of the 18 markets tracked by the index, marking the biggest dispersion of monthly price gains since last March.

In recent months, home prices have generally been stabilizing in British Columbia and the Prairies, a measure which had been falling until recently. Meanwhile, price growth has begun to rebound among markets in the Greater Golden Horseshoe (GGH) region amid ongoing price gains in housing markets east of it.

A comparison of home prices to year-ago levels yields considerable variations across the country, with declines in western Canada and price gains in eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) was up 0.9% year-over-year (y/y) in August 2019. This marks the second consecutive month in which prices climbed above year-ago levels and the most substantial y/y increase since the end of last year.

Home prices in Greater Vancouver (GVA) and the Fraser Valley remain furthest below year-ago levels, (-8.3% and -5.5%, respectively). Vancouver Island and the Okanagan Valley logged y/y increases of 3.7% and 1.5% respectively.

Prairie markets posted modest price declines, while y-o-y price growth has re-accelerated ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth has continued uninterrupted for the last few years in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index returned to positive y/y territory in August. Two-storey single-family home prices were up most, rising 1.2% y/y. This category of homes had .been hardest hit during the slump. One-storey single-family home prices rose 0.7% y/y, while townhouse/row and condo apartment units edged up 0.3% and 0.5%, respectively.

Stress Test
Canada’s introduction of stricter mortgage-lending rules last year inhibited some potential home buyers. Until recently, declining interest rates and lower home prices may have allowed some of those buyers to return to the market, according to the CREA report.

“The recent marginal decline in the benchmark five-year interest rate used to assess homebuyers’ mortgage eligibility–from 5.34% to 5.19%–together with lower home prices in some markets, means that some previously sidelined homebuyers have returned,” said Gregory Klump, CREA’s chief economist. “Even so, the mortgage stress-test will continue to limit homebuyers’ access to mortgage financing, with the degree to which it further weighs on home sales activity continuing to vary by region.”

CREA also updated its forecasts. National home sales are now projected to recover to 482,000 units in 2019, representing a 5% increase from the five-year low recorded in 2018. The upward revision of 19,000 transactions brings the overall level back to the 10-year average, but remains well below the annual record set in 2016, when almost 540,000 homes traded hands, CREA said.

Bottom Line: This report is in line with other recent indicators that suggest housing has recovered from a slump earlier, helped by falling mortgage rates. The run of robust housing data gives the Bank of Canada another reason — along with robust job gains, higher wage rates and stronger than expected output growth in Q2 — to hold interest rates steady, even as more than 30 central banks around the world have cut interest rates further.

The Federal Open Market Committee meets again on Wednesday, and it is widely expected that they will cut rates by 25 basis points as the White House is calling for “emergency easing moves.” The Trump administration has just in the past few days succumbed to political pressure to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

As a result of this recent easing in trade tensions and last week’s cut in overnight rates further into negative territory by the European Central Bank, the flight to US Treasury bond safety diminished, raising the US and Canadian government bond yields by roughly 25 basis points from extremely low levels. Canadian 5-year bond yields at 1.48% are at their highest level in two months. In consequence, the spread between the best 5-year fixed mortgage rates and 5-year government bonds is at a very tight 77 basis points, which is likely not sustainable. A more normal spread between the two is 120-ish (or more) for the best rates and 150-plus-ish (for regular rates). Some lenders are already hiking mortgage rates.

The situation has been compounded with even more considerable uncertainty with the weekend bombing of the Saudi Aramco oil fields, taking an estimated half of all Saudi oil out of production. Stay tuned.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Rates are still low and appear to remain so for a while still.  Thank you to our Chief Economist, Dr Cooper, for the below insight!

Great insight from my colleague Dave :  Thank you Dave!

RAISE YOUR CREDIT SCORE IN 3 MONTHS

While people often think of mortgage brokers when they are first time home buyers, we can help people in a variety of different ways.
Recently Garrett LaBarre of Calvert Home Mortgages in Calgary shared a success story with brokers. He had a client referred to him by a mortgage broker who had a conundrum. She was paying her credit card balances on time month after month, but couldn’t get them paid down due to the high interest rates.  As a result, she had a 567 credit beacon score. Her bank would not refinance her mortgage or offer her a debt consolidation loan. She was stuck.
The solution was to use some of the equity in her home to pay off the credit card debt and lower the payments to a more manageable monthly. Even though her mortgage interest rate was higher than a regular lender, it was a lot lower than a credit card rate and it was amortized over 30 years.
The result was that within three months this client had her credit score jump from 567 to 769!
What an amazing result. Now there’s one more person who knows that mortgage brokers can do things that the banks can’t do.
If you have a challenging story, be sure to contact your local Dominion Lending Centres mortgage professional for help.

One item to take form Dr Cooper below is that Bond Yields are down ….. this means continued low fixed mortgage rates or perhaps even more reductions …… have a read below!

JOBS STALL FOR SECOND MONTH IN A ROW, BUT WAGE GROWTH SURGES

The booming labour market in Canada seems to have vanished, at least for now, as employment declined and the unemployment rate rose again in July. Whether it is the summer doldrums, a trained worker shortage or the beginning of a slower second-half economy is yet to be seen. But the news is troubling in the wake of the accelerating trade tensions between China and the US. The US-Sino trade war has already sideswiped Canada, and President Xi Jinping does not face an election. He is not backing down, despite threats of a 10% additional tariff on all Chinese imports to the US. Trump’s response to denounce China as a currency manipulator has no teeth, raising doubts of the White House claim that trade wars are easy to win.

Agriculture and manufacturing in Canada, China, the US and the rest of the world have already been hard hit. Businesses spending on capital equipment and software has slowed dramatically in the face of so much uncertainty. The global economy has slowed, and bond yields around the world have fallen sharply as money is moving to the safe havens of government bonds and gold. Yield curves in Europe and the US are now inverted, which is often a sign of coming recession.

In Canada this week, the 10-year government bond yield fell to 1.22% compared to 1.58% one month ago and 2.33% one year ago. The 5-year bond yield is also at 1.22%, down a whopping 14 basis points in one week. The best 5-year fixed mortgage rate has now dropped to roughly 2.30%, although borrowers still have to qualify at the Bank of Canada posted rate of 5.19%.

Consumer spending has held up, and housing activity is strengthening in Canada and the US. But if the economy slows and job markets weaken further, it is only a matter of time before households tighten their belts.

Canada’s labour market lost 24,200 jobs in July according to Statistics Canada, versus expectations for a gain of 15,000. That follows a decline of 2,200 jobs in June. The unemployment rate rose to 5.7%, a second monthly increase after reaching a 40-year low of 5.4% in May. Hours worked on a year-over-year basis slowed sharply, and the number of people employed by private sector companies plunged by the most since the last recession.

One of the few positive signs was accelerating wages, with hourly pay up 4.5% in July from a year ago (see chart below). That’s the most robust annual pay rise in a decade. Another area of strength was the construction sector, which recorded a 25,000 gain in employment.

Bottom Line: The disappointing jobs report and the broadening trade tensions will likely spur the notion that a Bank of Canada rate cut is coming. Accelerating wages might delay such a move. But if the global economy continues to slow, the Bank might add its name to the very long list of central bank rate cuts, which now includes the Fed. What has changed from my view just last week that the BoC would be on hold for the rest of the year is the widening trade war and the back-to-back slowdown in our jobs market.

DR SHERRY COOPER

Chief Economist, Dominion Lending Centres

If you’re interested in what’s happening South of the border regarding rates .. then see the below from our Chief Economists.  Thank you Dr Cooper!

Every little bit counts!  Reduction in the qualifying rate explained below by our Chief Economist!  Great read!

The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 stress test. The benchmark posted 5-year fixed rate has fallen from 5.34% to 5.19%. It’s the first change since May 9, 2018. And it’s the first decrease since Sept. 7, 2016, despite a 106-basis-point nosedive in Canada’s 5-year bond rate since November 8 (see chart below).

Five-Year Canadian Bond Yield

The benchmark qualifying mortgage rate is announced each week by the banks and “posted” by the Bank of Canada every Thursday as the “conventional 5-year mortgage rate.” The Bank of Canada surveys the six major banks’ posted 5-year fixed rates every Wednesday and uses a mode average of those rates to set the official benchmark. Over the past 18-months, since the revised B-20 stress test was implemented, posted rates have been almost 200 basis points above the rates banks are willing to offer, and the banks expect the borrower to negotiate the interest rate down. Less savvy homebuyers can find themselves paying mortgages rates well above the rates more experienced homebuyers do. Mortgage brokers do not use posted rates, instead offering the best rates from the start.
The benchmark rate (also known as, stress test rate or “mortgage qualifying rate”) is what federally regulated lenders use to calculate borrowers’ theoretical mortgage payments. A mortgage applicant must then prove they can afford such a payment. In other words, prove that amount doesn’t cause them to exceed the lender’s standard debt-ratio limits.

The rate is purposely inflated to ensure people can afford higher rates in the future.

The impact of the B-20 stress test has been very significant and continues to be felt in all corners of the housing market. As expected, the new mortgage rules distorted sales activity both before and after implementation. According to TD Bank economists in a recent report, “The B-20 has lowered Canadian home sales by about 40k between 2017Q4 and 2018Q4, with disproportionate impacts on the overvalued Toronto and Vancouver markets and first-time homebuyers…All else equal, if the B-20 regulation was removed immediately, home sales and prices could be 8% and 6% higher, respectively, by the end of 2020, compared to current projections.”

According to Rate Spy, for a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $2,800 (1.3%) more home
• Someone making $100,000 a year can afford $5,900 (1.3%) more home
  (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)

For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $4,000 (1.4%) more home
• Someone making $100,000 a year can afford $8,300 (1.4%) more home
  (Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

Bottom Line: Almost no one saw this coming due to the stress test rate’s obscure and arcane calculation method (see Note below). This 15 basis point drop in in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers. It should also counter, in some small part, what’s been the slowest lending growth in five years.

Note: Here’s the scoop on why the qualifying rate fell. According to the Bank of Canada:
“There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use its assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total currency.”

The BoC explains further:

“Prior to July 15th, we were using April’s asset data to determine the typical rate as that was what was published on OSFI’s website. On July 15th, OSFI published the asset data for May, and that is what we used yesterday to determine the 5-year mortgage rate. As a result, the rate changed from 5.34% to 5.19%.”

Thank you to my colleague at DLC Dave for the below insight, well explained!

A number of times I have had people who wonder why they need to provide so much documentation when it comes to arranging a mortgage. Besides an employment letter, you are usually asked to provide a pay stub and your most recent Notice of Assessment (NOA) to prove income. “Why do they need all 3, doesn’t the employment letter satisfy this condition?” I am often asked. No, is the short answer.

A pay stub shows your current income and shows how much you have made year to date. This will also show overtime or any special allowances you receive such as a northern living allowance. This confirms or sometimes does not agree with your employment letter. The employment letter shows what you are going to make this year and your NOA shows what you made in the past. It also shows that you do not owe taxes to the government. This is important to lenders because they don’t want the government to put a lien on your property ahead of their mortgage claim on title.

Your realtor will provide an offer to purchase and sale agreement, so why do they ask for a MLS listing sheet? While the purchase agreement shows the financial agreement and what is included with the house, the MLS describes the size of the house and lot as well as the amount paid for municipal taxes and the size of each room. This allows the lender to establish whether you have a fair market price for your new home.

Finally, a lender will ask for a 90-day bank statement to show your down payment money. The reason they ask for this is due to Canadian money laundering laws which need to show the source for all funds and that you have been saving the funds over the past 3 months. If you get an inheritance, you will need to show documentation that this is the source of your sudden wealth.
Be sure to contact your local Dominion Lending Centres mortgage professional before making an offer on a home. He/She can tell you exactly what documents you will need in advance and make the home buying process go much easier.