Rate forecast pointing to variable rate mortgages and weak Canadian dollar

Posted on April 18, 2024April 18, 2024 by markogel@gmail.com

(April 17, 2024)

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On April 11, the Bank of Canada opted to stay put, leaving their benchmark policy rate steady at 5% (which, by the way, translates to a hefty 7.2% for Canada’s consumer-grade Prime Rate). But guess what? The consensus is growing that their sideline-sitting days are numbered. After the April 11 BOC announcement, the odds of a rate cut at the next scheduled BOC meeting in June were sitting at a solid 50%. But hold on to your hats, folks! After April 16’s Stats Canada CPI release, those rate cut odds spiked up to a whopping 68%. So you can pretty much bet on a quarter-point drop in June, nudging that 7.20% prime rate down to a slightly less suffocating 6.95%. Cue the collective sigh of relief from households across Canada burdened by mortgages and other debts linked to prime rate. And also let’s not forget about the provincial governments, corporations, and millions of small businesses, all of whom are also struggling with interest costs tied to the overnight lending rate.

Now, let’s talk about that rate drop. Sure, a 25-point rate cut might offer some respite, but let’s not kid ourselves—it’s hardly a gesture. Rates are still hanging out in the stratosphere when you compare them to the rock-bottom lows we recently departed from. Remember that swift ascent from 2.45% to 7.20% over the past three short years? Yeah, we’re inching back down, but we’re hardly hitting the reset button with that anticipated dip to 6.95%. The goal here is to get cozy with this new normal and adjust our financial expectations to a more, shall we say, moderate range of interest rates, somewhere between 4% and 6%. And while some folks are shrugging off this adjustment like it’s no big deal, there are plenty who are still struggling to find their footing.

But we can’t forget, there’s a downside to cutting rates, and it’s a bitter pill to swallow. Brace yourselves for the blow to our (already limp) dollar. If you’ve ventured beyond Canadian borders lately, you’ve probably felt the sting of our weak currency compared to the almighty USD and EURO. Trust me, I felt it firsthand while breaking bread with some Americans and Germans in Croatia a couple of weeks ago. They were astonished by the sorry state of our currency, assuming that being part of the G7 club meant we were rolling in dough like the rest of the big shots. Spoiler alert: we’re not. My dinner bill, converted from CDN to EURO, ended up a whopping 40% higher than theirs. Ouch. This got me thinking about our energy sector again, and our stubborn refusal to cash in on it. Just imagine all that powerful foreign currency flowing into our economy if we’d just loosen the purse strings on our resources (i.e. selling to other countries who will actually pay us market value for it). Not only would it cushion our economy from hardship, but it’d also give our dollar a much-needed boost and foot the bill for our ever-growing demands for infrastructure and social services (due to an aging population and explosive immigration). But hey, who needs all that when we can pat ourselves on the back for cutting greenhouse gas emissions by a fraction of a fraction, right? Meanwhile, the rest of the world is snickering behind our backs and snatching up opportunities we’ve casually tossed aside. Take, for instance, when the Germans came knocking, looking to strike a fuel supply deal amidst the Ukraine crisis, and we shrugged them off with our eco-warrior stance. Nice one, Canada. But I digress. Let’s circle back to our limp dollar. Brace yourselves, folks, because when the BOC starts its rate descent (likely in June), our dollar’s taking a nosedive right along with it. Lower rates mean a weaker position in the currency market, especially if we beat the Americans to the punch. Sure, it might give a little boost to our exporting sectors, but it’s going to hit us where it hurts when we’re importing goods from the US and Europe. And you know what that means? Prepare for an extended stay in this elevated-cost era. Now, I’m not saying we’re hurtling toward another inflation apocalypse, but let’s just say it’s not going to be a walk in the park.

So, what’s the bottom line here? If we want to minimize the pain and set a precedent for a real and meaningful recovery, we’ve got some tough choices ahead, we’ve got some tough choices ahead. We can either dial back on our green crusade and throw our weight behind the energy sector, or we can roll out the red carpet for Canadian entrepreneurs and give them a fighting chance to build international empires (I think we should do both). Because let’s face it, we’re not going to strike it rich peddling Tim Hortons coffee to each other. It’s time for Canada to grab the wheel and take charge.

I can’t end without any mention of mortgages, so here’s a little something to chew on until next time: variable rate mortgages are making a comeback among Canadians. These days, everyone’s on edge when it comes to locking in their mortgage terms, whether it’s for a new purchase, a refinance, or a renewal. Fixed rates are on the decline, but mark my words—the way down will not be immediate and predictable, but rather bumpy and gradual. Same goes for variable-rate mortgages. So here’s the play: consider a variable rate mortgage with an aggressive discount and ride out the current environment for the next year or so as fixed rates gradually decline (along with prime rate). And when the time’s right, convert your variable rate to a fixed term without incurring any fees or break penalties. A fixed-rate mortgage doesn’t allow for this conversion/swap without incurring substantial break fees. The cost-effectiveness, flexibility, and revolving rate option of a variable rate mortgage place the reins in the mortgage holders’ hands allowing them the freedom to adjust their position in the future.

Want to discuss further? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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A Mortgagenomics perspective into Calgary and Vancouver

Posted on April 14, 2024April 15, 2024 by markogel@gmail.com

(April 13, 2024)

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It’s that time of the year again – the real estate spring/summer market is upon us!

Is your market hot?

The answer to this question will vary across cities in Canada, and there will be further variance within the cities spanning their regions and communities. It is crucial to align yourself with an experienced realtor who specializes in your area. Market conditions have been deceiving and complex in the past few years, and many broad-based real estate economists have found themselves revising their predictions. Stay agile and well-informed by relying on a reliable source of intel. If you require a reference in your area, feel free to reach out, and I will likely have an established contact in your neighbourhood whom I can introduce you to. Meanwhile, here are some statistics on the markets I primarily deal with: Vancouver and Calgary.

VANCOUVER Real Estate Market: (as of March 2024)

The average price of a home in the GVA (Greater Vancouver area) stood at $1,318,687, marking a 4.1% increase annually (close to the benchmark of $1,196,800). The current benchmark price is 29% higher than in 2020 but 5.2% lower than the all-time high of $1,262,600. Essentially, Vancouver is nearing an all-time high, despite its sluggish market conditions and persistently high borrowing costs. The ongoing scarcity of supply and steady population growth will likely maintain prices at or near current levels. Unlike Calgary, Vancouver doesn’t develop new communities; instead, it repurposes older properties into luxurious $2.3M starter homes (yes, I’m serious!). Vancouver’s approach to affordability lacks some crucial variables. Although a new province-wide blanket zoning policy is set to take effect in the next couple of years, substantial market corrections shouldn’t be expected. While supply will inevitably increase, it won’t do so to an extent that significantly affects affordability. Therefore, success in Vancouver’s market hinges on staying adaptable and aligning yourself with industry experts who can provide high-quality information (such as real estate agents and mortgage brokers).

Other notable points about BC:

The province imposes a Property Transfer Tax (PTT), which is due upon completion of a real estate purchase. As of April 1, 2024, the ceiling exemption for first-time homebuyers has been raised to above $500,000. This means that first-time homebuyers can now qualify for a partial PTT exemption on homes valued up to $835,000, with a maximum rebate of $8,000. Previously, the exemption ceiling was $525,000. You can download my award-winning Mortgage Mobile App and utilize the Property Transfer Tax calculator to determine how much PTT you would pay on your property purchase in your area.

If you are a temporary resident or work permit holder, be mindful of the 20% Foreign Buyer Tax and the Prohibition on the Purchase of Residential Property by Non-Canadians Act. Click Here to be redirected to a previous blog post for more information on these two regulations.

CALGARY Real Estate Market: (as of March 2024)

Calgary seems to be on everyone’s radar these days, with Ontarians and British Columbians notably considering the move to Canada’s crown jewel of affordability. Sales in Calgary have surged by 9.5% since last year, and the benchmark price has risen by 10.9% to $597,000 for an average-priced home. Even if you’re experiencing FOMO (fear of missing out), there’s still ample affordable upside from $597,000. If you think you’ve missed out after hearing about many people moving to Calgary, think again (especially if you’re from Ontario or BC, where the move to Calgary offers significant relief in terms of price points)! For roughly $700,000, you can choose between a two-bedroom condo in Vancouver or a 3-bedroom home with an attached double garage and a large yard in Calgary (you can likely purchase the latter for less). What’s not to love about Calgary? It boasts the youngest working demographic in Canada, the sunniest days of any city in Canada, and the unique chinook phenomenon, an anti-winter event. Calgary is continuously expanding and seemingly always constructing new communities en masse. It’s a well-designed city, scalable for increasing population and development (such as the ring road).

Notably, the province of Alberta does not impose a Property Transfer Tax, resulting in significant savings when purchasing a home.

Additionally, the Foreign Buyer Tax doesn’t apply in Alberta. However, the Prohibition on the Purchase of Residential Property by Non-Canadians Act, a federally legislated policy, does apply.

Interest Rates Overview:

Currently, variable-rate mortgages are priced as high as 1.5% higher than fixed rates, and this spread isn’t expected to narrow until June or July. I don’t subscribe to the “higher-for-longer” argument; I believe the Prime rate will begin its descent in June and continue throughout the year. If I were the Bank of Canada, I would also withhold any indication of rate reductions until the actual announcement day. Since the rate hike commenced during COVID, consumer sentiment has been heavily influenced by post-announcement messaging from the Bank of Canada Governor rather than the scheduled announcement itself. The post-announcement press conference holds significant weight as it shapes and influences Canadians’ behavior leading up to the next scheduled announcement. Therefore, expect the hawkish messaging to persist, with the Bank of Canada avoiding overly optimistic post-announcement conferences (hinting at lower rates ahead) for fear of reversing any progress made in preceding months with inflation. The most recent announcement on April 10 has served its purpose; the Bank of Canada has left the overnight rate unchanged, avoiding any unwanted momentum in the spring housing market. However, Governor Macklem hinted at future adjustments, leading many economists and policymakers to anticipate a 0.25% rate cut in June. Not long ago, homebuyers favored variable-rate mortgages due to their qualification advantages; however, today, the opposite holds true. The default qualification method is now fixed-rate mortgages, as they offer higher qualification amounts. Variable rates currently range from 6.20% to 6.40%, while fixed rates can be as low as 4.89%. The end game with interest rates? I believe fixed rates are establishing a new standard as they hover in the high 4’s. Fixed rates are likely to stabilize in this range for the foreseeable future until the spread with variable rates diminishes more significantly. However, due to the intricate nature of interest rate pricing, you can still expect to find numerous rates in the low to mid 5’s. To qualify for special discounted rates, your mortgage typically needs to be large (over $500k), insured (less than a 20% down payment), or within 45 days of closing/completion.

Want to discuss further? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

Download my amazing Mortgage App…it’s loaded with calculators and tonnes of useful information!

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

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Is your Mortgage Prep-Approval Verified?

Posted on April 11, 2024 by markogel@gmail.com

(April 11, 2024)

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Mortgage pre-approvals have become a hot topic of late, particularly the accuracy and validity of them. With so much at stake in Canada’s cut-throat real estate market, prospective buyers have misleadingly been sent to the market believing that their mortgage pre-approvals are intact and verified. But the fact of the matter remains – many mortgage preApprovals (as we know them today) are essentially unverified and highly unreliable.

Whether you’re dealing with your banker or a mortgage broker, set the bar high and make sure the following points are accounted for within your mortgage preApproval, otherwise you might be in for an 11th-hour shock.

Request a verified mortgage pre-approval from your mortgage broker

A verified mortgage pre-approval means that the application has been underwritten. Many mortgage pre-approvals are unverified and underwritten only when a live offer is presented – this defeats the sole purpose of a mortgage “pre-approval”. Underwriting for mortgage qualification involves meticulously scrutinizing applicant documentation while adhering to stringent lending criteria to assess whether the candidate aligns with an acceptable risk profile for the lender. It’s a complex process, and is often unintentionally misleading as many applicants perceive mortgage qualification as a one size fits all type of outcome. What you may deem as obvious and safe, a lender may view as risky and unacceptable. A verified mortgage pre-approval offers a precise conclusion about your borrowing capacity and essentially eliminates all the uncertainties of mortgage qualification.

Multiple qualification scenarios should be included in your pre-approval

For example, let’s say you have an unspecified amount of debt. There should be a qualification scenario with the debt factored in, and another scenario without the debt. Or perhaps you would like to see an additional scenario that displays how much more you would qualify for with a co-signer. Regardless of how many scenarios you are curious about, don’t hold back in requesting them! If your mortgage broker is annoyed with your requests, then find another.

Interest rates

Both fixed and variable interest rates should be included in a mortgage pre-approval. And equally important, the maximum qualification amount should be displayed for each. In todays interest rate environment, variable rate mortgages yield lower qualification amounts than fixed rates.

Terms and Conditions

This is an absolute must. Whether you agree or disagree with them, the conditions need to be displayed openly in the pre-approval document. Acknowledging your restrictions and limitations ensures that you are swift and efficient throughout your shopping and negotiating phase.

Request touch-ups to your pre-approval

Don’t be shy to inform your mortgage broker if things have changed throughout your property search. For example, if you’ve been pre-approved based on $2,500 annual property tax estimates but are finding that the range is actually $1,800, inform your mortgage broker and have them adjust the qualification accordingly. This difference will result in a higher qualification amount.

Substance

Your pre-approval should contain at least 500 words and various mathematically derived tables and scenarios. The document should be dense and loaded with information.

Availability

Lastly, your mortgage broker should be available outside standard banking hours. Purchasing a property is a dynamic experience, and the pursuit of it is often in the evenings and weekends. Your mortgage broker should be available (within reason) to service general inquiries and emergencies regardless of the time and day.

Do you have a verified mortgage pre-approval? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

Download my amazing Mortgage App…it’s loaded with calculators and tonnes of useful information!

Don’t want to miss out on the next blog post? Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

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Survival Guide for First-Time Home Buyers in Canada

Posted on March 24, 2024March 25, 2024 by markogel@gmail.com

(March 24, 2024)

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In Canada’s ever-evolving real estate landscape, first-time homebuyers are constantly grappling with the ongoing challenges of affordability. Rather than dwell on the perceived unfairness of the market, I’ll instead share insights gained from my extensive dealings with this group. Firstly, I’ll reveal the common mortgage qualification struggles they encounter. Then, I’ll delve into the common approaches and evolving strategies of first-time homebuyers that are proving successful in today’s challenging market.

Depending on which part of the country you reside in, you are likely well-versed in Canada’s challenging real estate landscape, so I’ll keep this list abbreviated and precise. There are a few major challenges that first-timers have to contend with in Canada’s largest and most active markets: Vancouver, Toronto, and Calgary:

Large Down Payments

Vancouver and Toronto are by far the most challenging real estate markets in Canada, especially for first-time buyers. With price trajectories still elevated and no signs of heading in the opposite direction (not substantially anyway), down payments remain the number one challenge for first-time homebuyers. The minimum down payment required to purchase an owner-occupied principal residence in Canada is 5%, but only up to a purchase price of $500,000. Any portion of the purchase beyond $500,000 (and less than $1M) requires a top-up down payment of 10%. And finally, for properties valued at $1M or greater, the minimum down payment escalates to 20%. Gifted sources of down payment (proceeds from direct family members) continue to be a key component in the overall qualification of first time home buyers in Canada. In summary, here are some tiered minimum down payment examples: for a $400,000 property the minimum down payment is $20,000, $65,000 for a $900,000 property and for a $1.1M property, $220,000.

Property Transfer Tax

On top of the minimum down payment tiers, Ontario and BC additionally incorporate substantial Property Transfer Taxes that are due upon completion of the purchase. Here is how much you can expect to pay as a first-time homebuyer for an average-priced condo in Toronto ($695k) and Vancouver ($827k); in Toronto $12,275 and in Vancouver, $6,540 (these figures are as of April 1, 2024 when BC’s new Property Tax rules come into effect). Click on the following links to be redirected to the respective provincial jurisdictions’ property transfer tax calculators: British Columbia, Ontario. There are indeed First Time Home Buyer exemptions and rebates, but they are only available up to a specified purchase price. In BC (effective April 1, 2024), purchases up to $500,000 will receive full exemptions and purchases between $500,000 and $860,000 will receive partial exemptions (Click Here to be redirected to the Property Transfer Tax Calculator of one of Vancouver’s leading legal real estate firms). In Toronto, you are eligible for a full rebate ($4,475) for purchases up to $400,000, but for the rest of Ontario, that rebate is decreased to $4,000 up to a maximum purchase price of $368,333. And finally, there’s Alberta… where there’s no property transfer tax to speak of!

Lack of Inventory

You might be all good on the qualification front but find that the availability of listings in your region is either limited or diminishing. This only hinders the purchasing cycle further as your mentality morphs from innocent-dreamy-property-shopper to fierce-analytical-viking-buyer. Tight markets create stress and force you into situations you haven’t financially prepared for. In competitive markets, it is especially critical to align yourself with top-tier mortgage brokers, real estate agents, and lawyers.

High-Interest Rates

On top of current elevated rates, many forget that a 2% stress test method is applied when qualifying for a mortgage in Canada. Interest rates are definitely on the decline, but prospective homeowners need to stay light on their feet in anticipation of a potential counteraction that the real estate market will heat up as rates begin their descent. Many prospective homebuyers are “rolling the dice” in today’s environment accepting short-term pain (in the form of still high interest rates) for long-term gain.

FIRST TIME HOME BUYER STRATEGIES AND TIPS

INTEREST RATES

When it comes to interest rate selection, there are two camps; short-term fixed and variable. Both are sound approaches, but for first-time buyers, the fixed-rate approach seems to be the prevailing choice simply for the reason that it generates the best return for your qualifying amount. Although the outlook for variable rate mortgages is promising, the current rate of prime in Canada (7.20% as of the date of this article) significantly diminishes your qualifying amount. At the moment, the rate variance of a variable and fixed-rate mortgage could be as high as 2%, which equates to a qualification difference of up to 15%. For example, an applicant with a $100,000 annual income would qualify for a $408,000 fixed-rate mortgage, but under the higher variable rate, the maximum qualification would decrease to $365,000.

DOWN PAYMENTS

Currently in Canada, the minimum down payment is 5% up to a purchase price of $500,000, then 10% on the balance thereafter up to $999,999. For purchases that are $1M or greater, the minimum down payment threshold is 20%. For down payments less than 20%, qualification criteria are rigid and non-negotiable (your qualification amount should be similar to virtually every lender in Canada). However, for down payments that are 20% or greater, qualification guidelines loosen considerably and qualification amounts vary significantly from lender to lender. Interest rates are negotiable regardless of the amount of your down payment, but qualification amounts are only negotiable when down payments are 20% or higher. Acceptable forms of down payment: own sources and gifted proceeds (from family members). Proceeds from borrowed sources are not acceptable forms of down payment (i.e., personal line of credit).

CO-SIGNERS

Co-signers are becoming increasingly common amongst first-time home buyers in Canada. An important thing to note about co-signing is that it doesn’t have to be a forever thing (for the co-signer). As soon as the primary applicants can show evidence that they qualify for the mortgage on their own, the co-signer can be removed. This could be enacted at any time throughout the life of the mortgage. Ask your mortgage broker to provide exit scenarios for your co-signer; this will make all parties more comfortable with the transaction.

TRY TO PURCHASE A PROPERTY WITH A RENTAL SUITE

This might be difficult in some markets, but if possible, give this some serious thought. A property with a rental suite could offer a pleasant qualification boost for a first-time home buyer. For example, with a $100,000 annual income, you could max out with either a $400,000 property without a rental suite, or you can explore property types with rental suites in the $600,000 range. Both outcomes are possible, but the latter receives an additional qualification boost as the rental income of the suite provides additional eligible qualifying income.

VERIFIED MORTGAGE PRE-APPROVAL

With so much at stake in today’s highly competitive market, it is critical to align yourself with a top-tier mortgage broker. Just as an athlete prepares for a championship game, a buyer should also enter a market fully prepared and informed. One should expect the following to be included in a pre-approval:

Request a verified mortgage pre-approval from your mortgage broker. A verified mortgage pre-approval means that the application has been underwritten. Many mortgage pre-approvals are unverified and underwritten only when a live offer is presented – this defeats the sole purpose of a mortgage “pre-approval.” A verified mortgage pre-approval firmly calculates your maximum purchasing power and eliminates any unknown variables.
Multiple qualification scenarios should be included in your pre-approval. For example, let’s say you have an unspecified amount of debt. There should be a qualification scenario with the debt factored in, and another scenario without the debt. Or perhaps you would like to see an additional scenario that displays how much more you would qualify for with a co-signer. Regardless of how many scenarios you are curious about, don’t hold back in requesting them! If your mortgage broker is annoyed with your requests, then find another.
Interest rates. Both fixed and variable interest rates should be included in a mortgage pre-approval. And equally important, the maximum qualification amount should be displayed for each.
Terms and Conditions. This is an absolute must. Whether you agree or disagree with them, the conditions need to be displayed openly in the pre-approval document. Acknowledging your restrictions and limitations ensures that you are swift and efficient throughout your shopping and negotiating phase.
Request touch-ups to your pre-approval. Don’t be shy to inform your mortgage broker if things have changed throughout your property search. For example, if you’ve been pre-approved based on $2,000 annual property tax estimates but are finding that the range is actually $1,800, inform your mortgage broker and have them adjust the qualification accordingly. This difference will result in a higher qualification amount. The increase could be marginal, but every dollar counts in a competitive market.
Your pre-approval should contain at least 750 words and various mathematically derived tables and scenarios. The document should be dense and loaded with information.
Lastly, your mortgage broker should be available outside standard banking hours. Purchasing a property is a dynamic experience, and the pursuit of it is often in the evenings and weekends. Your mortgage broker should be available (within reason) to service general inquiries and emergencies regardless of the time and day.

Download my amazing Mortgage App…it’s loaded with calculators and tonnes of useful information!

Don’t want to miss out on the next blog post? Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

Call Marko via WhatsApp!

Download my award winning Mortgage App on your phone

Email: gelo.m@mortgagecentre.com

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The key to qualifying for a single-family dwelling in Vancouver – the basement suite

Posted on March 8, 2024March 24, 2024 by markogel@gmail.com

(March 7, 2024)

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Qualifying for a mortgage in Vancouver, renowned as one of the most exorbitant real estate markets globally, presents a daunting challenge for aspiring homeowners. With prices soaring sky-high and stringent lending criteria, many find themselves hitting a wall in their pursuit of a single-family dwelling. However, there exists a game-changing secret often overlooked: leveraging the qualifying income potential of a basement suite, a hidden gem that can significantly boost your mortgage pre-approval amount.

Regardless of whether you intend on leasing out your basement suite or not, it’s important to know that simply having one within your property can significantly increase your eligible mortgage amount. You can use the market rental income it could generate as eligible qualifying income! Over the years, I’ve encountered countless applications where applicants were under-qualified because the market rental income of a basement suite was not accounted for. In some instances, the variance was as high as 20% between a pre-qualified mortgage using basement suite income and one without the extra added rental income boost.

What is it about the basement rental suite that packs such a powerful punch?

Dollar-for-dollar rental to qualifying income ratio:

This means that every dollar you generate in rental income equally translates to one dollar of qualifying income for the mortgage. Just this alone is enough to put many applicants in the black when it comes to mortgage qualification. For example, with a combined annual family income of $240,000, you would qualify for a mortgage of $1.5M, so with a 20% down payment, your purchase price would max out at $1.875M. On the other hand, if your current mortgage provider shortchanged your qualification by not including the rental suite income, you would qualify for a mortgage of approximately $1.3M, reducing your purchasing power to a price of $1.625M… that’s a 15% variance! Be sure to ask your mortgage provider if rental suite income is included in your mortgage pre-qualification; it could be a game-changer.

Determining the qualifying rental income:

This is a moving target and can change significantly from one property to another. From the onset of your mortgage pre-qualification, your mortgage provider may use an arbitrary estimate for monthly rental income, but feel free to do your own research and provide more precise values to your mortgage broker; this will make your mortgage pre-qualification more accurate and reliable. The market rental value will ultimately be confirmed once you have narrowed down a property and are in the financing conditions stage of the offer acceptance process. At this time, the lender will request an appraisal and the market valuation will be included in the appraisal report. Alternatively, if there is a tenant in place at the time of the purchase that you will retain, you will be able to use the existing lease agreement as your qualifying rental income.

Tax Benefits:

Not only will the rental income contribute to your mortgage payment, but it will also create some tax advantages associated with the rental suite. Inquire with an accountant to explore any potential tax benefits associated with renting out a basement suite.

Are you maximizing your preQualification with basement rental income? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

Don’t want to miss out on the next blog post? Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

Call Marko via WhatsApp!

Email: gelo.m@mortgagecentre.com

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I bet you didn’t know this about the RRSP First Time Home Buyer Plan

Posted on March 3, 2024March 4, 2024 by markogel@gmail.com

(March 2, 2024)

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Canada’s RRSP Home Buyer Plan (HBP) is one of the most common sources from which Canadians withdraw funds to secure their down payment on a new home. If you are considering taking advantage of this program, here are the key points to be aware of:

funds held within an RRSP are allowed to grow tax-free, but once you begin withdrawing the funds they are taxable as per your personal marginal income tax rate in the year you made the withdrawal. However, under the RRSP Home Buyer Plan, you can access the funds tax-free, provided you use the funds for the purchase of a property in Canada!
Although you do not pay taxes on the funds, you are required to pay it back over 15 years with the first payment starting in the second year after the year when you made your first withdrawal from your RRSP under the HBP program. For example, let’s say you withdrew $35,000 from your RRSP and used it as a down payment on a home that was scheduled to close/complete on Dec 1, 2024. Your first scheduled loan repayment would begin on Dec 1, 2026.
What are the repayment terms of the withdrawal? At least 1/15 of the borrowed amount must be re-contributed every year.
What happens if you don’t pay the withdrawal back after 15 years? Any portion of the withdrawal that is remaining after the due date will be declared as personal income in your tax return for the year in which the deadline occurs.
The maximum amount that you are allowed to withdraw from your RRSP under the HBP is $35,000 per applicant (as of the date that this article was published). For example, if you are purchasing a property with your spouse, you would each be able to access $35,000 from your RRSP towards the down payment for a total of $70,000.
You must move into the property within one year of purchasing it
a property is considered eligible under the HBP as long as your intent was to move into and reside in the subject property at the time it was purchased. If you resided in the property, but later moved out of it and retained it as a rental property, the 15-year loan period and tax privileges would carry on
Many people think that the HBP is restricted only to “First Time Home Buyers”, but that is not the case. Although the program was initially designed to accommodate to first time home buyers, it can also be used for repeat buyers provided they fulfill the following “first-time home buyer” criteria:
- If, during the current calendar year before the withdrawal (excluding the 30 days immediately preceding the withdrawal) or within the previous four calendar years, you have not resided in a qualifying home (or a property that would qualify if located in Canada) as your main residence, either solely owned by you, jointly-owned by you, your current spouse, or common-law partner (at the time of the withdrawal), you will be classified as a first-time homebuyer. For instance, if you’re withdrawing funds on July 31, 2024, you must not have lived in a home as your primary residence, whether owned solely by you or jointly with your spouse or common-law partner, between January 1, 2020, and June 30, 2024.

For direct correspondence with the Government of Canada regarding the Home Buyer Plan (HBP), call 1-800-959-8281.

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Emerging Mortgage and Real Estate Trends in BC and Alberta.

Posted on February 26, 2024February 27, 2024 by markogel@gmail.com

(February 27, 2024)

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From all indications, it’s evident that we’ve reached the peak of the rising interest rate trajectory, with the prevailing sentiment in Canada now leaning towards a ‘higher for longer’ stance. Yet, as the economy experiences a slowdown and inflation is primarily fueled by the shelter component—rent and mortgage payments—maintaining higher rates for an extended period poses a delicate balancing act for the Bank of Canada. While elevated rates may facilitate a more direct path towards achieving the 2% inflation target, they come at the expense of federal, provincial, and municipal governments, businesses, and the average Canadian consumer, all of whom are grappling with the burden of exceedingly high debt servicing payments. With Canada’s general consumer Prime Rate currently at 7.20%, the anticipation of relief couldn’t be more urgent for variable rate mortgage holders across the country. With seven interest rate announcements scheduled for 2024 (the next one slated for March 6), speculation abounds as to when the cuts will commence. The prevailing consensus suggests June as the starting point, while a smaller contingent believes relief could arrive as early as April. Regardless, it’s reasonable to expect relief is forthcoming, leaving the only lingering question: when will it materialize? In the interim, the fixed-rate market is adjusting, with prevailing rate sentiment being factored in daily. Stay nimble and vigilant, as fixed rates have already begun their descent.

DISCLAIMER: Rates are coming down, but it will be a zig-zag type of descent. Be prepared for potential fluctuations in rates during your decision-making process. Call right now or schedule a call with Marko Gelo to discuss your options.

Beyond the interest rate narrative, several noteworthy developments continue to exert pressure on the Canadian real estate landscape:

Alberta’s attractiveness for homebuyers seeking affordability and urban living options has surged. In 2023, Alberta set records with the addition of 56,245 people from other provinces and 112,562 from around the globe. British Columbia also set some multi-decade milestones with both interprovincial migration and international migrants. Incoming residents from other provinces declined to a 20-year low as BC saw most of its exodus depart to neighbouring Alberta. However, any loss to other provinces was quickly negated by the +150,000 international migrants that made their way to mostly Vancouver. These population boosts will continue to press demand in both BC and Alberta for the foreseeable future.
inflation has moderated to 2.9%, outpacing consensus estimates (of 3.3%), driven by declines in gas and clothing prices but tempered by substantial increases in shelter costs (rent and mortgage payments).
A generational shift is underway, with millennials surpassing baby boomers in population size, while Gen Z emerges as a formidable demographic force. As of last summer, millennials (1981-1996) surpassed the longstanding demographic leaders in Canada, the baby boomers (1946-1965). Look for this trend to continue to influence the shape and pace of real estate development across Canada. And right on the heels of the millennials are the Gen Z’ers, who are currently on pace to overtake all demographics by as early as 2038.
BC has sounded the alarm bells for housing affordability with its aggressive province-wide upzoning initiative. This initiative essentially allows every residential property to upzone to at least a duplex and as high as a 6-unit multifamily complex, depending on your lot size and proximity to public transportation routes. Calgary is also in the midst of implementing an aggressive zoning revamp of their own. These sudden announcements and aggressive timelines for concepts that are traditionally entrenched with time-consuming approval and study processes give you an idea of how dire the circumstances have become in Western Canada’s housing scene.
Meanwhile, China’s economic evolution presents challenges for global green initiatives, as the nation’s dependence on fossil fuels remains entrenched despite strides towards renewable energy adoption. In 1981, 97% of China’s population was living in poverty. Today, that number has shrunk to 1%. This type of transition is also prevalent in other places around the world like India. This substantial increase in personal net worth from politically unstable and undesirable parts of the world will only increase the flow of immigrants into Canada seeking a higher quality of life for years to come.

Wondering how you fit in today’s real estate landscape? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Watch out for these deal-killing mortgage conditions.

Posted on February 19, 2024February 22, 2024 by markogel@gmail.com

(February 18, 2024)

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Securing a mortgage pre-approval marks a hopeful step toward homeownership. However, the path from pre-approval to finalizing financing conditions can be tricky. Overlooking key details during the pre-approval stage can turn a promising start into a declined application. This article explores common pitfalls, emphasizing the importance of addressing them early on to avoid the disappointment of a rejected mortgage application during the critical financing conditions period in a real estate purchase transaction.

Following are the most common qualification criteria that are often overlooked or under-prioritized in the pre-approval stages:

Down Payment Verification:

Lenders generally require proof that you have accumulated or had possession of your down payment proceeds for a period of 90 days. But where things get confusing is when applicants have frequently moved their funds from one bank account to another within a condensed time frame. This results in a tangled and very challenging interpretation of down payment verification for two main reasons:

Copious amounts of document collection may be required as the funds travel from one bank account to another.
Of all the bank statements provided to verify the tenure and whereabouts of your funds, if an unexplained deposit is identified that is greater than $2,000, a further 90-day verification will be required on that particular deposit. This is often the most overlooked thing when a mortgage broker or banker collects down payment verification documents during the pre-approval phase. A singular unverified down payment verification can turn a mortgage approval on its head and result in an 11th-hour crisis. In most cases, it’s just a major inconvenience as the applicant will have to provide further documentation, but where it could become a major/threatening issue is if the funds are sourced from a borrowing account (i.e., personal line of credit, credit card, loan, etc). If this is the case, the entire mortgage qualification needs to be re-qualified at a more demanding standard which often ends up in a crisis as the debt servicing ratios you qualified at will rise significantly in most cases. Moral of the story? Make sure none of your down payment sources are from another credit source (credit card, line of credit, etc), and if it is, disclose it to your mortgage broker from the onset to ensure it gets accounted for.

Property Taxes and Strata Fees:

Many applicants are unaware that annual property taxes and monthly strata fees factor into a mortgage qualification, and worse yet, many mortgage providers underestimate their value within the mortgage qualification. For example, if you’re pre-qualified for a $700,000 condo with an estimated monthly strata fee of $400 and an annual property tax figure of $1,500, this means that if you end up placing an offer on a property with a strata fee of $600 and a $1,900 property tax figure, you will exceed your allowable debt service ratios and slide into decline territory. Make sure your pre-approval accounts for strata fees and property tax, and more importantly, the values should be stated somewhere within your pre-approval document so you are completely aware of the limitations. Once you begin your property search and get a feel for price points, report back to your mortgage provider and request a tune-up for your pre-approval to reflect more accurate strata fees and property tax figures. This process of fine-tuning will ensure a more smooth and predictable outcome.

Condo Documents and Property Disclosure Statements:

Property deficiencies and non-structural condo/strata issues (financial and legal) are not accounted for in pre-approvals. With the property being the primary collateral source for a mortgage, lenders diligently review all documents associated with the current and past condition of the subject property. If a recent/current/evolving deficiency about the property is revealed within the strata/condo documents, a lender will analyze further to ensure that the future sale of the property is not impacted. If the lender is wary of the condition, they may request a larger down payment, or in some instances, outright decline the application based on the severity of the condition. Your mortgage provider must be aware of any property disclosure as they should immediately disclose it to the lender to ensure the condition complies with their (or the insurer’s) guidelines. In BC, a property disclosure statement is made available to prospective buyers that states any existing or past conditions with the property. Failure to disclose issues during the financing conditions period can leave you vulnerable to 11th-hour crises when lenders eventually discover critical items through their final funding checkers or closing legal providers. Avoid the getting-away-with-one mindset and be proactive and forthcoming if you feel that something may have been overlooked. The outcome will likely have far higher negative implications than any degree of benefit you may have received by not disclosing a potential issue.

New To Canada Intricacies:

The adaptation of provincial and federally mandated policies has made mortgage qualification for new Canadians extremely challenging and for many, prohibitive. The qualification criteria for temporary and permanent residents have remained the same for the past several years, but it is the implementation of the Foreign Buyer Tax and the Prohibition on the Purchase of Residential Property by Non-Canadians Act that have caused many seemingly standard purchase transactions to suddenly go sideways. Here’s what you need to know to avoid any pitfalls if you are a temporary or permanent resident purchasing a property in Canada: upon getting pre-approved for a mortgage, you must then get pre-approved for the right to purchase a property in Canada. As most mortgage providers have no idea about Foreign Buyer tax policies and prohibition legislation, make sure you suit up with a mortgage broker who is well versed about the policies and how they relate to mortgage qualification. Depending on which province you want to purchase in, the legislation varies accordingly. For British Columbia and Ontario: there are two legislations to be aware of that have specifically been drafted to SEVERELY DISCOURAGE Non-Canadian residents from purchasing real estate, they are:

Foreign Buyer Tax – in BC the tax is 20%, in Ontario 25% (applicable to all temporary residents who purchase property)
Prohibition on the Purchase of Residential Property by Non-Canadians Act – to be eligible for the purchase of a property, an applicant must have either been awarded their Permanent Residency or have at least 6 months of validity remaining on their work permit on the closing date of their purchase

Exemptions: Provincial nominee certificate recipients are essentially exempt from Foreign Buyer Tax in BC and Ontario (provided they fulfill the eligible exemption criteria). But when it comes to the Prohibition Act, it’s a different story, and this is where we have been seeing crises unfold with mortgage qualification. Many Provincial nominee recipients have been caught off guard by the expiration of their work permits upon being awarded the provincial nominee certificate. Understandably so, nominee recipients have been allowing their work permits to expire during their PR (Permanent Resident) application waiting period as their residency statuses automatically renew to an unspecified date until the PR application is approved. This automated renewal process is known as implied status and allows the nominee to continue employment and residence in Canada while their PR application goes through the process. However, when it comes to Canada’s banks, the implied status doesn’t appear to hold too much weight. Lenders continue to request a copy of the applicant’s work permit to fulfill the 6-month condition of validity as per the Prohibition on the Purchase of Residential Property by Non-Canadians Act. Even with their transitionary implied status, lenders are still requesting formal work permits. This has become a major deal breaker as almost every nominee recipient hasn’t renewed their work permit knowing that they can proceed as they are with an implied status, and by the time they realize that a formal work permit is required to remain compliant as per the Prohibition Act, it’s too late. The queue for work permit renewals is not a transactional type of process. Like most government programs, it’s a simple application process, but the servicing and completion process is lengthy and unreliable, thereby leaving nominee recipients in compromised positions as their completion date approaches. There are alternative financing scenarios, but they are costly (higher interest rates and fees). Please note that there are additional exemptions not mentioned in the post: For BC Foreign Buyer Tax exemptions, click here. For Ontario Foreign Buyer Tax exemptions, click here. For Prohibition on the Purchase of Residential Property by Non-Canadians Act exemptions, click here.

Need further clarification on any of the above? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Maternity Leave, Child Support, and Canada Child Benefits – can you use them to qualify for a mortgage?

Posted on February 11, 2024February 11, 2024 by markogel@gmail.com

(February 11, 2024)

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If you’re navigating the journey towards homeownership and have the unique joy of raising a family, this is a must-read. The path to securing a mortgage takes a distinctive turn when you have little ones in the picture. Discover the built-in child-related qualification boosters designed to tackle and diminish the financial challenges associated with the broader expense load of families. From harnessing government support like Canada Child Benefits to collecting child support payments, navigating maternity leave intricacies, and considering the impact of youth employment – this blog is your indispensable guide to not just a home but a stable and thriving future for your family.

From early childhood to the age of majority, here are the key child-related mortgage qualification boosters:

MATERNAL/PARENTAL LEAVE:

In Canada, the maternity leave guidelines offer flexibility and support for new parents. Both women and men are entitled to take time off from work to care for their newborn child, a provision commonly referred to as maternity or paternity leave. During this time, the government provides financial assistance through Employment Insurance, granting a portion of the individual’s average weekly earnings. There are two primary options available to parents: a standard 12-month maternity leave, offering 55% of average weekly earnings, or an extended 18-month leave, providing 33% of average weekly earnings. Additionally, some employers offer a top-up, supplementing the government’s contribution up to 100% of the individual’s salary.

When it comes to mortgage qualification during maternity or paternity leave, lenders will allow up to 100% of your workplace income, provided you can obtain a letter of employment from your employer indicating the expected return to work date. However, if the return is projected to be greater than 12 months, lenders will scale back the qualifying income to 60% of the base salary as stated on the return to work letter.

CHILD SUPPORT PAYMENTS:

Child support payments are considered eligible qualifying income and can often be a game-changer when it comes to mortgage qualification. For applicants receiving child support, verification documents are required and may include the most recent Notice of Assessment or T1 General/Tax Return, supported by a separation agreement or court order. Alternatively, a two-month history of bank statements illustrating regular support payments, along with a copy of the formal separation agreement or court order, may also suffice. These documents are essential for demonstrating the stability and reliability of the income stream, but also for verifying that the child support payment is expected to continue for the foreseeable future. Additionally, there’s a stipulation that the child-support payment cannot exceed 50% of the overall eligible employment income of the application (of all applicants). Conversely, for applicants who are obligated to pay child support rather than receiving it, the entire payment is factored in as part of their liabilities. Consequently, the total mortgage qualification amount decreases proportionately.

CANADA CHILD BENEFIT PAYMENTS:

The Canada Child Benefit (CCB) is a financial support program provided by the Government of Canada to assist families with the cost of raising children. It is designed to provide monthly payments to eligible families to help with child-rearing expenses.

In terms of mortgage qualification, lenders account for the CCB in determining eligible income subject to the following conditions:

Age Limit: While the CCB payments are available for children until the age of 17, for mortgage qualification purposes, lenders only recognize payments for children up to the age of 15 at the time the mortgage transaction completes.

Full Eligibility: One hundred percent of the CCB payment is typically eligible for mortgage qualification purposes. This means that lenders consider the entire amount of the benefit when assessing the borrower’s income level.

Income Limit: Similar to child support payments, there is a cap on the total eligible CCB benefit that can be included in mortgage qualification calculations. The total eligible benefit cannot exceed 50% of the total application income.

WHEN CAN MY CHILD QUALIFY FOR A MORTGAGE?

The minimum age requirement to become an eligible applicant for mortgage qualification purposes is determined by each province’s age of majority laws. The age of majority is 18 in the following six provinces: Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan. The age of majority is 19 in the remaining four provinces and the three territories: British Columbia, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, and Yukon.

Any questions on any of the above? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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Interest Rates, Affordability, Zoning, and 2026 FIFA World Cup!

Posted on February 4, 2024 by markogel@gmail.com

(February 4, 2024)

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The first month of 2024 is behind us!

Here’s a summary of how things are shaping up for the rest of the year.

Interest Rates and Market Trends:

If January is an indication of things to come, it’s fair to say that we’re headed in the right direction. Fixed rates have already dropped by a full percent, comfortably placing them in the 5% range over the last few months. However, variable rates are yet to follow suit. Currently, Canada’s Prime Rate has held steady at 7.20% for the past 7 months. After deducting the industry-standard discounts (-0.35% for conventional mortgages, -0.90% for high-ratio mortgages), you’re left with an effective rate of 6.30% – 6.85%. The question arises: why even bother with a variable rate mortgage then? Opting for a fixed rate might seem like a no-brainer, but hold on. Economists predict a Prime Rate drop of at least 1%, possibly more, before the end of 2024… and likely further drops into 2025. The pace of pre-approvals post-Christmas suggests a robust spring market is ahead of us. If this plays out like I think it will, the Bank of Canada (BOC) will sit idle throughout the spring market without any interest rate reductions. Even though inflationary pressures appear to be on the mend, the BOC will likely go the extra mile and allow higher interest rates to take one final bite out of the economy until it finally begins its descent. While some anticipate this drop earlier, my personal opinion is that a drop will not occur until the July 24 announcement, which will be the fifth interest rate announcement of eight for 2024. By July 2024, it will be 28 months since the rapid ascent of 2022 began when Prime Rate in Canada skyrocketed from 2.70% to 7.20% in 17 months.

Will we ever fix the affordability crisis? (Vancouver, Toronto…Calgary)

Is there genuinely a supply issue in Canada? The past decade has seen various government measures aimed at curbing demand, but affordability remains a pressing concern. Despite measures like the Foreign Buyer Tax, the Foreign Buyer Ban, the 2% stress test, and various other mortgage qualification and real estate purchase restrictions, Canada continues to grapple with an ongoing affordability crisis. Immigration is also a contributing factor, and until Canadians start reproducing en masse, importing talent globally remains essential. Canadian birth rates in the low 1s are not gonna cut it and won’t address our low productivity rates as a nation. Let’s face it; Canadians need to get busy and make strides to increase our population naturally, but until they do, expect strong flows of immigration for years to come. It’s going to take at least a decade and lots of shovels in the ground until we see at least a hint of a meaningful market correction. Vancouver will carry on being Vancouver, Toronto will continue to attract the most newcomers, and Calgary (and Edmonton) will increasingly become the affordability poster child until one day it isn’t anymore.

David Eby’s Zoning Initiative in BC: A Positive Step

Finally, something meaningful! This is the scale of magnitude required to get the pendulum swinging in the right direction. It’s about time someone body-checked the municipalities out of their comfort zones (well done, Eby!). In my opinion, this is where the affordability crisis was born. Ridiculous permitting processes, over-the-top studies, and distracting/strategic community town hall meetings. Like, come on, I get it, let people have their say, but we’ve been letting the minority (aka NIMBY’ers) have their way for far too long already. Too much time building bike lanes, charge stations, and other virtue-signalling construction ventures. Let’s build homes again, and lots of them! The more 700-square-foot condos we insert into our communities, the lower the birth rate will remain… time to ramp up construction and start building more of the bigger, family-oriented, missing middle homes (townhomes, row houses)! The province’s new housing legislation slated for 2026 will deliver more small-scale, multi-unit housing to the market. Homes currently zoned for single-family or duplex use will essentially be permitted for three to four units (depending on lot size), and up to 6-units for even larger lot sizes close to transit stops.

FIFA World Cup is just around the corner, will it kick Vancouver’s real estate market into a higher gear?

We’re about two and a half years away from co-hosting the largest sporting event in the universe, the FIFA World Cup. Vancouver will once again be featured on the world stage. With the Foreign Buyer ban set to expire in 2025, it will be interesting to see which anti-foreign-real-estate-demand policies remain in effect leading up to the World Cup. Following Expo 86 and the 2010 Winter Olympics, Vancouver’s real estate market experienced immediate and prolonged upswings. Will the same pattern happen post-World Cup? We’ll have to wait and see. Until then, be light on your feet and stay subscribed to this newsletter to keep at the pulse of everything real estate and financing!

Want to discuss your financing possibilities for 2024? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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