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Mortgage Refinancing in Canada



Mortgage Refinancing

You feel the interest rates burden after you’ve got your mortgage loan and are repaying the debt. However, there are means through which you can lessen this burden. Your option is to go in for mortgage refinancing. You can choose to pay your current mortgage with a new mortgage. This is again secured against the same property. If your interest bills are high and you’re OK with combining your first mortgage with the second one to pay a single installment per month, then mortgage refinancing is a good option for you to consider. Refinancing is another option that you can think about, which means you make a single massive payment compared to paying smaller installments.

The reason why most people desire refinancing is low mortgage interest rates. You can lower your monthly payments in this scenario only if you don’t go in for a higher mortgage principal amount. Building equity faster on your property is another reason why refinancing is preferred. This is feasible only for those who can afford a higher monthly mortgage payment. Some part of this goes toward the interest, and the remaining is applied to the principal. You could even change the type of mortgage loan by refinancing.

Refinancing may not be your best bet if you plan to sell off your house shortly. If you will stay in the house for many years to come, see if it is worth paying a refinancing fee to avail yourself of the lower interest rates. There are “refinancing calculators” online that help you evaluate the savings you could make by taking another loan, i.e., refinancing.

It would help if you spoke with your mortgage lender about the prerequisites for refinancing. Most mortgage banks would consider some information, including your current monthly payment, insurance statements, property tax status, and outstanding mortgage balance, among others. The new lender would also need information about debts and assets, an appraisal, site survey, employment verification, and debt verification. Refinancing almost always involves an additional charge as the loan is taken is considered to be as good as new. However, check with your mortgage broker if there are banks that offer refinancing with little or no “processing charges.” In this case, you may have to pay a higher rate of interest.

Many people are enjoying the benefits of refinancing. They are paying lower monthly benefits thanks to the low mortgage rates. For an ARM mortgage borrower, it may be better to opt for refinancing and change to a fixed-rate loan, according to real estate experts in Canada. Lower monthly payments will reduce your monthly expenses. You could benefit from the flexible terms and amortization periods. The fixed, regular installments bring you peace of mind. Under refinancing, you could borrow up to 100% of the loan (OAC), and you also know the exact terms of your mortgage loan. However, you need to see if this scheme would be suitable for you after understanding the risks involved. Speak with a few mortgage loan officers and shop for the best rate and package. Get the best deal possible, and with the way the real estate market is spiraling downwards, refinancing could be considered, say, mortgage lenders in Canada.

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Ottawa's hot housing market becoming unaffordable for some – CTV Edmonton



There has never been a more intense housing market in Ottawa than there is today.

Prices are through the roof; which is great for sellers, but buying a house in today’s market might not be as simple as you think.

Tanya Trevors and Chris Armstrong were lucky enough to purchase their dream home just before COVID-19 hit the capital last year, but that doesn’t mean it was any easier.

“Couple hundred thousand dollars I would say, more than our budget,” says Armstrong.

Trevors adds, “Yah, we did get into a bidding war. There was one other person bidding on the house. So we did end up overpaying for the house.”

The market was just starting to heat up to what we see today. They avoided the spike, but still spent about $50,000 over asking.

“We were looking for almost a year,” says Trevors. “And we’re really happy with what we got. So my advice would be to be patient.”

Dominique Milne is a real estate broker in Ottawa. She says low interest rates, combined with the government and high tech sectors in the capital, have created a perfect storm for sky high prices in Ottawa.

“We have record low interest rates, which are certainly funnelling some fire,” says Milne. “It’s a fantastic time to sell. Everything is selling. We’re down to 16 days on market for February. We haven’t seen that ever. But for buyers, it is hard. The competition is fierce. You have to have your ducks in a row. Conditions? Forget it.”

Andrea and Scott Martin have put down nine offers on nine houses, each time being outbid by other buyers. 

“We’ve been looking for almost two years,” says Andrea. “We’ve gone up to almost $170,000 over and still not gotten the house.”

Over the course of two years, prices have risen so high, the Martins say it’s near impossible to get what they were originally hoping for. 

“When we started looking for houses, we were looking in a range of around $400,000, and they were nice properties,” says Scott. “And now when we look at anything of the same quality, it’s almost double the price.”

They say they are quickly running out of hope, and options.

“Eventually we’ll be priced out of the market if the prices keep going up the way they are,” says Andrea.

The pandemic has had a lot to do with people’s lifestyle change and working from home, causing a supply and demand issue. It’s changing the way people work, and what most families need during these times.

“Suddenly you have two people working at home. Two kids at home on and off. And we’ve gone from needed three bedrooms to needing five bedrooms and an extra space for people to separate from themselves,” says real estate broker Daria Kark.

Kark adds a lot of homebuyers are being squeezed out of the market by investors.

“Current rates of two per cent or so for a five-year fixed mortgage, you know, you can’t make that much on a regular investment. So people are just investing in their mortgages. They’re investing in their real estate.”

But as frustrating as it is to be a home buyer today, the Martins have not lost all hope just yet.

“We’re offering on another house tomorrow,” says Scott. “Offering over asking, no conditions. Same as every house we’ve bid on. We’ve never had a condition and it never seems to matter. So we don’t get our hopes up anymore, but we keep trying.”

The Ottawa Real Estate Board reported record sales in February.

A total of 1,390 residential properties were sold in Ottawa last month, up from 1,134 in February 2020. The average sale price for a residential-class property was $717,914, an increase of 27 per cent from a year ago. Condominiums sold for an average of $407,671, an increase of 17 per cent from February 2020.

The sales volume for residential properties and condos in Ottawa was $885,592,105 in February, 54 per cent higher than the same month last year.

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Red-hot Winnipeg real estate market proves tough for buyers – CTV News



Real estate is booming in Winnipeg, and with bidding wars and high prices, some buyers are having a tough time locking down a new home.

Buying your first home can be an exciting time in life, but for Michael Hill and his partner, it has been stressful.

“I think we started to figure out why it’s so difficult. The houses are sparse, the good ones are sparse, and the rates are so low where everybody’s able to just basically bid on kind of what they want,” Hill said.

Hill said they’ve been house shopping for the last couple of months, and despite putting down offers on two houses, they haven’t had much luck.

“A combination of being outbid and also having no conditions for the other bids,” said Hill. “One bid literally just said they didn’t have a finance condition, essentially meaning here’s $350,000 in cash.”

Jayesh Guliani, a realtor for Royal LePage, said this year has been extremely difficult for buyers.

“The low inventory, the low-interest rates, and of course pent up demand of people waiting to make their move. Now people are ready to make their moves but unfortunately, so are 30 to 40 other home buyers who are just as qualified and writing just as good offers,” Guliani said.

Numbers released by the Winnipeg Regional Real Estate Board show a 48 per cent increase in sales for Feb. 2021 compared to Feb. 2020. Year-to-date sales for 2021 are up more than 38 per cent compared to this time last year.

Peter Squire, vice president of external relations and market intelligence for the board, claims there’s been a decrease in the number of available listings as well.

“Essentially, demand’s outstripping supply, so that’s why those listings are depleted,” said Squire. “Our actives are down about 40 per cent.”

Squire said the historically low-interest rates happening right now are contributing to the increased demand.

Even with less than perfect timing, Hill isn’t being deterred from finding a home.

“We had our savings built up; we wanted to establish that and make sure that we wanted to do this. It just so happened to be at the time where everybody else is competing for this,” he said.

The Winnipeg Regional Real Estate Board said the city is a very steady market and even if there is a dip in sales later in the year, it doesn’t predict a severe drop-off.

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Canada Tried To Stop Real Estate Prices From Falling, And Created A Bigger Bubble – Better Dwelling



Last March, the Canadian government sprung into action when news of a pandemic struck. No, not for PPE as you might guess. An email shows they rejected an offer from a major N95 supplier, stating “masks are not a priority.” If healthcare wasn’t the government’s top priority, what was? Preserving real estate prices, it would seem. Here’s a brief list of measures taken that contributed to supersized home price growth.

Bank of Canada Cuts Interest Rates 3x

The most obvious contributor to the overheated real estate market is interest rates. The Bank of Canada (BoC) made not one cut, not two cuts, but three cuts to the overnight rate in less than a month. The overnight rate was 1.75% on March 4, 2020 and received a 50 bps cut on March 4. It was followed by another on March 16, with a third on March 27, 2020. The rate is now 0.25%, effectively making interest rates negative in real terms.  

This is one of those cases where it appears panic ruled over actual data. According to the BoC, it takes “between six and eight quarters” (18 to 24 months) to feel the full impact of a rate change. They may have had an argument as to why they did it (Fed needed debt, currency), but it still resulted in unexpected consequences.

They also made repeated cuts before they had a full assessment of the issue. Doing this always runs the risk of adding too much stimulus. Not surprising, since the general rule is to err on greater social inequality, than to err on lost profits.

Canada Eased The Mortgage Buyer “Stress Test”

The BoC also lowered the five year conventional mortgage rate, which is used for the stress test. The rate was 5.19% on March 11, 2020, and received three cuts along the way until it hit 4.79% on August 12, 2020. This added an additional ~4.5% in qualified buying power. The stress test only applies to OSFI-regulated lenders, but they’re the majority of activity.

The implementation of the stress test was bad to begin with, and should have been more responsive. Non-OSFI regulated lenders aren’t required to stress test. In fact, many lenders (including credit unions) qualify at the contract rate. Banks are also allowed to exempt a certain percent of borrowers, as long as they manage the risk properly.

It was pretty useless in my opinion, but even so the timing of the cuts added fuel. Credit is supposed to tighten during a downturn, not loosen. If access to credit is expanded beyond relief during a downturn, it’s a prioritization of the economy over borrowers.

The Bank of Canada (BOC) Bought Billions In Mortgage Bonds

In January 2019, the BoC began to add Canada Mortgage Bonds (CMBs) to their balance sheet. The move was similar to the one the US Federal Reserve made in 2009, to stimulate home price growth after the crash. The BoC assured people this was just a routine operation. They would only be buying it on a non-competitive basis. At the time, it was questioned if they were putting in place a mechanism for quantitative ease (QE) when needed.

Fast forward to March 2020, and the BoC announces a program to begin buying CMBs on a competitive basis. The central bank began actively competing with investors, to drive rates lower. A QE program was born, and it already had mortgage tools. Neat coincidence.

The program only existed for a few months, before being discontinued in October 2020. By December 2020, they held $9.66 billion worth of CMBs, an 1,803% increase from a year before. This move suppressed yields, and injected billions in liquidity into the system. It’s not the size of the program, but the amount of excess it provides that matters. In this case, a sh*t ton. 

Banks Didn’t Have To Put Aside Money For Mortgage Deferrals 

Last March, Canada did what many countries did – rolled out mortgage payment deferrals. Unlike other places, Canada didn’t require a reason for a payment deferral. It was just a break from paying your bills, and an interest free loan. CBA statistics show 16.7% of mortgages at member banks granted payment deferrals. That’s one in six mortgages held by member banks. The rate of deferrals was even higher than the peak unemployment rate.

No, this isn’t about granting people payment deferrals. Banks aren’t supervillains. They always try to grant mortgage payment deferrals for people that need them. Typically they have to put aside capital for the mortgages they defer, as a safety measure. Regulators allowed banks to skip that during special treatment. Consequently, they handed them out like candy, and got a liquidity injection. Can you see a trend here?

Canada More Than Doubled Lost Income 

The Canada Emergency Response Benefit (CERB) was a popular program with everyone. The amount chosen, and the lack of targeting, was a little odd though. The government ended up replacing the lost income with almost 3x the amount of income lost. Even the partners of politicians took the government up on the offer, despite not exactly facing hardship.

The result of handing cash to people that didn’t need it, is an elevated savings rate. Economists have stated they expect this to help push real estate sales further. Future expectations play a large part in setting current behavior. This added gas to FOMO-driven real estate markets.

Banks Get A $300 Billion Injection of Credit Liquidity

The domestic stability buffers are extra cash the largest local banks have to put aside. In December 2019 Domestic Systemically Important Banks (D-SIBs), were told to raise buffers. In a note from OSFI, the banks were notified to raise the buffers from 1.0% of risk-weighted assets, to 2.25%. This was to go into effect on April 30, 2020, giving them a few months.

The reason was “key vulnerabilities … remain elevated, and in some cases show signs of increasing.” They further add a list of vulnerabilities, which “includes Canadian household indebtedness” and asset imbalances. At the time, they were worried households held too much credit, largely mortgages. 

Banks can’t just scale up the capital they reserve by one point all at once – they need time to do it. That means by March, they would have largely put aside most of the cash needed for the buffer. On March 13, 2020, OSFI announced they were reversing the measure.

This injected $300 billion of cash into … what’s that? You know this one? That’s right, liquidity. All of a sudden household vulnerabilities didn’t matter. It was more important to issue credit as quickly as possible, which was largely mortgages.

The US has a similar set of rules in place to increase bank liquidity, but on a timeline. The rules are set to expire on March 31, 2021, with senators fighting to make sure they expire. The lack of liquidity is no longer the threat. Too much liquidity is now the issue they’re trying to tackle. Canada isn’t even having this discussion yet.

This Was Far From A Comprehensive List

Now, this was just a short-list of some of the measures that impacted home prices over the past year. This isn’t a criticism of whether these were the right or wrong moves, just a partial list of price influences. That said, front-loading stimulus for real estate is generally a really bad idea.

When you do that, you aren’t just trying to forecast when a real estate price will happen. You’re trying to forecast when home prices will crash, then trying to stop it. Figuring out how much home prices will fall is a hard enough task. Add trying to figure out how much cash you need to lend people to prevent it, makes it impossible. 

In March, the government thought the world was going to end… at least for real estate. The BoC was expecting arrears to rise over 300%. The CMHC was expecting real estate prices to drop 11% on average. The government planned their response with the same data, and tried to prevent it. 

When the world didn’t end, they had already delivered a “response” to fix it. The average home price didn’t drop by 11%, like they thought. It only fell *checks notes* oh, it increased by 23.5% over the past year. If you think the CMHC forecast was bad, you should ask the Fed how they determined the amount of stimulus needed.

Now, let’s circle back. This isn’t a comprehensive list of measures that impact prices, but it’s a lot of them. By the end of March, they had started cutting interest rates, reducing stress test rates, buying mortgage bonds, giving payment deferrals, replacing income in excess of wages lost, and injected hundreds of billions into credit liquidity at just the big banks. A couple months later, Canada suggested maybe wear a mask

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