29 Jan

Although Cautious, BoC’s Rate Hikes Will Still Incite Ripples – DLC’s Cooper


Posted by: John Dunford

While the Bank of Canada’s latest increase in its overnight interest rate is a move marked with characteristic caution, a combination of existing factors means that the hike will still make significant waves in the nation’s economic engine, according to Dr. Sherry Cooper of the Dominion Lending Centres.

The BoC’s decision to increase the rate to 1.25%, which marked the third hike since July 2017, pushed the figure to its highest level since the global financial crisis, Cooper said.

“The move comes in the wake of unexpected labour market tightening and strong business confidence and investment. The Canadian economy is bumping up against capacity constraints as the jobless rate has fallen to its lowest level in more than 40 years,” Cooper explained in her latest posting.

Read more: Rate-hike cycle already the most severe in two decades

“Inflation is just shy of the 2.0% target level and wage rates are rising, albeit at a relatively moderate pace,” she added. “Exports have been weaker than expected. NAFTA uncertainty is ‘weighing increasingly’ on Canada’s economic outlook as cross-border shifts in auto production are already beginning.”

Cooper cautioned that consumption and housing will slow as a result of the combination of higher interest rates and new mortgage guidelines.

“Growth of household credit has slowed somewhat since the first half of 2017, even though some households may have pulled forward borrowing in anticipation of the new B-20 guidelines related to mortgage underwriting from the Office of the Superintendent of Financial Institutions (OSFI). This slowing is consistent with higher borrowing costs due to the two policy rate increases in 2017,” Cooper quoted last week’s Monetary Policy Report (MPR) as saying.

Cooper warned that with higher interest rates, the costs of debt servicing will rise, which in turn will put a damper on consumption growth, “particularly of durable goods, which have been a significant driver of spending in recent quarters.”

“Elevated levels of household debt are likely to amplify the impact of higher interest rates on consumption, since increased debt-service costs are more likely to constrain some borrowers, forcing them to moderate their expenditures,” the MPR went on to say.

12 Jan

All But One Of The Big Six Banks Now Say Canadians Will See A Rate Hike This Month

Latest News

Posted by: John Dunford

All but one of Canada’s six biggest commercial lenders now say the central bank will raise interest rates this month after the jobless rate dropped to its lowest in modern records.

Toronto-Dominion Bank, Bank of Nova Scotia, Royal Bank of Canada and the Canadian Imperial Bank of Commerce changed their forecasts after a Statistics Canada report showed the unemployment rate unexpectedly fell to 5.7% in December, from 5.9% the previous month, on the strength of 78,600 new jobs.

“Given the tremendous progress made in narrowing labor market slack – an area highlighted by the Bank of Canada in recent communication – we think that today’s report is enough to push” Governor Stephen Poloz to raise rates on 17 January, CIBC economist Nick Exarhos said in a note to investors.

RBC economist Josh Nye said in a note to investors the jobs figures “further increase the odds that the BoC raises rates at their coming meeting” and confirmed in an interview the bank is also moving up its forecast.

Bank of Montreal remains on the fence. Economist Robert Kavcic said in a research note the Bank of Canada may move this month if a survey of executives the central bank publishes on Monday also shows strength. “We’re going to wait to see what the Business Outlook Survey says,” he added in an interview.

The consensus of economists polled by Bloomberg last month was for an increase in April, with National Bank Financial already calling for a January move in that survey. Poloz increased the central bank’s benchmark overnight rate to 1% at consecutive decisions in July and September, but ended the year stressing that policy makers would be “cautious” with future moves.

11 Jan

Insured, Insurable & Uninsurable vs High Ratio & Conventional Mortgages

Mortgage Tips

Posted by: John Dunford

You might think you would be rewarded for toiling away to save a down payment of 20% or greater. Well, forget it. Your only prize for all that self-sacrifice is paying a higher interest rate than people who didn’t bother.

Once upon a time we had high ratio vs conventional mortgages, now it’s changed to; insured, insurable and uninsurable.

High ratio mortgage – down payment less than 20%, insurance paid by the borrower.

Conventional mortgage – down payment of 20% or more, the lender had a choice whether to insure the mortgage or not.


Insured –a mortgage transaction where the insurance premium is or has been paid by the client. Generally, 19.99% equity or less to apply towards a mortgage.

Insurable –a mortgage transaction that is portfolio-insured at the lender’s expense for a property valued at less than $1MM that fits insurer rules (qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%).

Uninsurable – is defined as a mortgage transaction that is ineligible for insurance. Examples of uninsurable re-finance, purchase, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1MM, (re-finances are not insurable) equity take-out greater than $200,000, amortization greater than 25 years.

The biggest difference where the mortgage consumers are feeling the effect is simply the interest rate. The INSURED mortgage products are seeing a lower interest rate than the INSURABLE and UNINSURABLE products, with the difference ranging from 20 to 40 basis points (0.20-0.40%). This is due in large part to the insurance premium increase that took effect March 17, 2017. As well, the rule changes on October 17, 2017 prevented lenders from purchasing insurance on conventional funded mortgages. By the Federal Government limiting the way lenders could insure their book-of-business meant the lenders need to increase the cost. We as consumers pay for that increase.

The insurance premiums are in place for few reasons; to protect the lenders against foreclosure, fraudulent activity and subject property value loss. The INSURED borrower’s mortgages have the insurance built in. With INSURABLE and UNINSURABLE it’s the borrower that pays a higher interest rate, this enables the lender to essential build in their own insurance premium. Lenders are in the business of lending money and minimize their exposure to risk. The insurance insulates them from potential future loss.

By the way, the 90-day arrears rate in Canada is extremely low. With a traditional lender’s in Canada it is 0.28% and non-traditional lenders it is 0.14%. So, somewhere between 99.72% and 99.86% of all Canadians pay their monthly mortgage every month.

In today’s lending landscape is there any reason to save the necessary down payment or do you buy now? Saving may avoid the premium, but is it worth it? You may end up with a higher interest rate.

By having to wait for as little as one year as you accumulate 20% down, are you then having to pay more for the same home? Are you missing out on the market?

When is the right time to buy? NOW.

Here’s a scenario is based on 2.59% interest with 19.99% or less down and 2.89% interest for a mortgage with 20% or greater down, 25-year amortization. In this scenario, it takes one year to save the funds required for the 20% down payment.

  • First-time homebuyer
  • Starting small, buying a condo
  • 18.9% price increase this year over last

Purchase Price $300,000
5% Down Payment $15,000
Mtg Insurance Premium $11,400 (4% as of March 17, 2017)
Starting Mtg Balance $296,400
Mortgage Payment $1,341.09

Purchase Price $356,700 (1 year later)

20% Down Payment $71,340
Mtg Insurance Premium $0
Starting Mtg Balance $285,360
Mortgage Payment $1,334.40

The difference in the starting mortgage balance is $11,040, which is $360 less than the total insurance premium. As well, the overall monthly payment is only $6.69 higher by only having to save 5% and buying one year sooner. Note I have not even built in the equity that one has also accumulated in the year. The time to buy is NOW. Contact me….

8 Jan

Robust Canadian Jobs Report for December Tops Off a Blockbuster Year


Posted by: John Dunford

The highly anticipated December Labour Force Survey, released this morning by Stats Canada, surpassed forecasts breaking multi-year records. Canada’s jobless rate fell to 5.7% in December, its lowest level in more than 40 years, raising the prospects for a Bank of Canada rate hike possibly as soon as this month. The number of jobs rose by 78,600 bringing the full-year gain to 422,500, the best annual increase since 2002. While most of the jobs in December were part-time, nearly all of the net jobs created in 2017 were in full-time work (+394,000 or +2.7%).

Since September, the country added 193,400 jobs, the largest three-month gain since current records began in 1976. Canadian bond yields and the currency rose sharply in the wake of these data. The loonie surged to over 80.50 cents U.S. According to Bloomberg News, the odds of a rate hike at the Bank of Canada’s next meeting on January 17 soared to 70%, from 40% yesterday, based on trading in the swaps market.

The largest employment gains in December were in Quebec and Alberta. In December, 25,000 more people were employed in finance, insurance, real estate, and rental and leasing, following three months of little change. For the year as a whole, jobs increased by 3.5% in the goods-producing sector and by 2.0% in the services-producing sector.

Actual hours worked in December were 3.1% above year-ago levels, the fastest since 2010. As well, new data show that wages are finally accelerating having been stagnant for much of 2017. Wage gains for permanent employees accelerated to 2.9% year-over-year from 2.7% last month–another closely watched indicator for the Bank of Canada.




U.S. Jobs Report for December Moderates

Also released this morning were December nonfarm payrolls data for the United States. American employers added 148,000 jobs last month as the nation’s unemployment rate remained stable at 4.1%. December’s reported increase was less than the 190,000 expectation. Labour markets are at or very near to full capacity given the persistence of a meagre unemployment rate, which is likely limiting employment gains. December marked the 87th consecutive month of job growth, the longest streak on record and clearly in line with expectations that the Federal Reserve will continue to hike interest rates this year.

8 Jan

2018 forecast: Will the housing market crash by year’s end?


Posted by: John Dunford

 James Loewen believes the government has catalyzed the very thing it is trying to prevent with the recent B-20 changes, and the irony isn’t lost on him.

Loewen says that most borrowers will be stuck in the private channel, and will have to walk away from their homes. The resulting supply surge in tandem with diminished demand—the result of a reduction in buying power, estimated to be around 20%—will bring the housing market crashing down.

“It’s ironic because the government purports that they’re trying to prevent an economic crash, people walking away from their houses, but if you can’t qualify under these guidelines, which, definitively more people can’t, there will be more people walking away and selling their house,” said Loewen, broker and owner of Loewen Group Mortgages.

He added that B lenders got hit particularly hard because borrowers now have to qualify 2% above the prime rate. However, most won’t and will be forced into the private channel—a traditionally temporal solution that could have no end in sight for many borrowers.

“They will be inciting the very thing they’re trying to avoid, which is a collapse,” said Loewen. “If I couldn’t qualify at TD or Scotia, I’d go to Home Trust or Equitable for a slightly higher rate than the best rate, but now I probably won’t qualify for that mortgage, so I‘ll have to go private. The risk private lenders are taking is much lower than even six months ago, and we can’t bundle up to 85% loan-to-value inside these government guidelines, so there might not be a solution at all for the client and they might be forced to sell.”

Regarding increased regulation, Loewen doesn’t think that the industry will be subjected to any more in 2018—but, he added, that could change depending on Q1 real estate numbers. For that reason, he hasn’t ruled out an interest rate hike, either.

“The next logical step is for the government to impose or impede on private lending, but they’ve already indirectly affected private lending guidelines,” said Loewen. “The B market lit up over the last two or three years, but that’s hard now, so the private market is lighting up. There is more demand for private lending but there will come a period of time when people realize they can’t afford private money anymore.”