Mortgage Rates

If you’re in the market for a home in Ontario, you’ve probably noticed that things are constantly shifting when it comes to mortgage rules and regulations. The federal government has implemented new regulations to make buying and owning a home more accessible and affordable. In this article, we’ll break down the key mortgage changes and explain how they impact your decisions.

Interest Rate Cuts: A Chance to Save on Your Payments

Good news for homebuyers: The Bank of Canada cut its key interest rate to 4.25% on September 4, 2023, marking its third consecutive rate cut. This easing of monetary policy is designed to stimulate the economy, and for homebuyers, it means lower borrowing costs.

For example, you’re purchasing a $500,000 home with a 20% down payment, which is $100,000. Your mortgage amount would be $400,000. With a 0.25% interest rate decrease, your monthly mortgage payment would decrease by approximately $30.

Lower rates also mean you may qualify for a larger mortgage, as lenders calculate your borrowing capacity based on your monthly obligations. However, while lower interest rates can ease the financial burden, it’s important to note that home prices in Ontario, especially in cities like Toronto, remain high. While a rate cut helps, it’s still crucial to stay within your budget.

Price Cap for Insured Mortgages: Understanding the New Tiered Structure

Next up, let’s talk about insured mortgages—those with less than a 20% down payment. Recent government mortgage changes have introduced a tiered insurance structure that raises the price cap for insured mortgages, giving homebuyers a bit more flexibility. But what does this mean for you?

Previously, if you were looking to buy a home over $1 million, you wouldn’t have been able to get an insured mortgage. Now, the price cap has been bumped up to $1.25 million for insured mortgages, but with stricter down payment requirements.

Here’s the breakdown:

  • Homes between $1 million and $1.25 million: You can still get an insured mortgage, but you’ll need a bigger down payment than before.
  • Homes over $1.25 million: You’ll need an even larger down payment, and your mortgage insurance premium will go up.

This change is a big deal if you’re shopping in high-priced markets like Toronto, where that old $1 million cap was a serious roadblock. Now, buyers looking at homes in the $1 million to $1.25 million range have more options, but you’ll need to be prepared for a larger upfront cost.

30-Year Amortizations: Lower Payments, Higher Interest Costs

A positive development for homebuyers is the return of 30-year amortizations for uninsured mortgages (those with a down payment of 20% or more). Most insured mortgages are still limited to a 25-year amortization.

Let’s break it down: If you’ve got a $400,000 mortgage at 4% interest rate:

  • With a 25-year amortization period, your monthly mortgage payment would be approximately $2,325.
  • With a 30-year amortization period, your monthly mortgage payment would decrease to approximately $2,135.

But there’s a catch—while you’ll have lower monthly payments, you’ll end up paying more in interest over the life of the mortgage. So, while a 30-year amortization can give you some breathing room in the short term, make sure you’re comfortable with the long-term cost.

Want to explore how different amortization periods affect your payments? Try our Monthly Payment Calculator to see what works best for you!

Mortgage Stress Test: New Rules for Switching Lenders

Great news for homeowners with uninsured mortgages (20% or more down payment): You no longer need to pass the stress test when switching lenders. Previously, even if you were looking for a better mortgage interest rate at the end of your term, you had to requalify under the stress test with your new lender.

Now, as long as you’ve been making your payments, you can switch lenders without going through the stress test again, giving you more flexibility to find better mortgage deals. However, the stress test still applies if you’re applying for a new mortgage or refinancing.

Whether you’re looking to secure the best mortgage rate or need more info on how these mortgage changes affect you, our team is ready to guide you. Schedule a call with one of our experienced agents today by visiting our application page—we’re here to make your mortgage process as smooth as possible!

Today, the Bank of Canada announced an increase in the prime rate from 1.25 per cent to 1.5 per cent. The rate hike was the central bank’s first interest rate move in the past 6 months and the fourth rate increase over the last 12 months. Please watch the video below to learn how the latest rate hike can impact your mortgage. While is subject to change, the prime rate still remains at historical lows. When considering fixed-rate mortgages or variable-rate mortgages, it is very important to know your options and understand the math behind your own financial scenario. If you have any questions regarding the rate hike, feel free to call us at 416.480.0234 or send an email to info@nmdev1.online.

The Bank of Canada made another announcement recently that there will be no change to the prime rate. The outlook is still the same as we previously thought, the rates are not expected to be touched until at least 2023. The reasoning for this is to avoid putting pressure on small business and people affected by the pandemic. 

All in all, do not panic! Enjoy the low rate environment and take a look at a variable mortgage as a viable option with these historically low rates. #LiveAMonsterLife.

It appears that after years of declining interest rates, The Federal Reserve in The United States, better
known as the “Bank to the World”, we begin a series of rate increases, starting in March this year. When
they cough, we in Canada catch their cold. The Bank of Canada could start to increase rates in January.
This is not written in stone. Our governments face a number of challenges but the U.S has stated that
inflation is the problem and that the virus is no longer front and centre. It’s time to stop the stimulus,
government programs and money that have flooded the market and start moving people off
government support. The U.S economy has not been shut down. The Fed governor suggested that the
pandemic isn’t as frightening as inflation.

Raising interest rates, whether the Bank of Canada prime moves 4 or 5 times this year will slow down
the economy. The inflation we are seeing in food, housing, including rent, affects every Canadian.
Don’t forget that consumers are responsible for 73% of our economic activity – we are the engine keeps
our country growing. As you increase interest rates, consumers simply change their spending behavior
and curb demand. The benefit of rising interest rates is that prices of goods and services should retreat
as the year progresses.

Can our economy handle higher interest rates? That is a great question. In addition to inflation, we have
one other problem looming. Our economy and that of our neighbor are at or close to full employment –
it’s a tight job market which puts further pressure on wage inflation. This, coupled with brisk demand for
goods, disrupted supply chains and various shortages have pushed inflation to its highest readings in
almost 4 decades. Core consumer prices, which excludes food and energy, reached 4.7% in November
and 7% in December, year over year.

This paints a rather tricky picture for both governments. The Bank governor ended his interest rate
review by saying that he “hopes there will be a return to normal supply conditions” which will take some
pressure off pricing. If inflation persists, raising interest rates is the ” tool left and in the toolbox”.
What does this mean for MonsterMortgage.ca clients in 2022? Well, currently the variable rate option
at 1.5% seems to be the product of choice up to this year. With a simple 3 months interest penalty, it
offers the flexibility that client want. The dilemma is what to do moving forward. The 5 year fixed rate is
currently around 2.75%. The prime rate in Canada would need to move 5 times for the variable rate to
be equal to today’s 5 year rate. That would normally take a number of years but given what has
occurred as written above, it could all happen in 2022. Baring an additional economic fumble, Variable
rate mortgages will end the year at 2.50%. The moves will be gradual but with the pandemic in the rear
view mirror, rates have nowhere to go but up.

Your Monster Agent has ideas on how to capitalize, even in a rising rate environment. Sometimes peace
of mind and a guarantee long term payment is the right answer during volatile times. Call us for
independent advise on your current mortgage.

Don Bayer
President, Founder and Principal Broker,
MonsterMortgage.ca
416-480-0234 ext. 222

A handful of economists are saying Canada no longer needs zero-interest rates but the Bank of Canada is saying different.

After leaving its key lending rate at its rock-bottom low, the bank effectively told variable-rate mortgagors on Wednesday that they can keep enjoying historically cheap borrowing costs. That is, until “the middle quarters of 2022.”

That means the prime rate could potentially remain at 2.45% as late as September, 2022, however, the market doesn’t buy it.

The data seems to be not on the bank’s side. December inflation is expected to blow past 5 percent as Canada nears full employment, wages are starting to surge and the last time unemployment was this low, the prime rate was 150 basis points higher. (There are 100 basis points in a percentage point).

Despite the Bank of Canada being at odds with the market, and leaving aside unknowable risks such as the number and the economic impact of continued virus waves, rate hikes are coming. As a mortgagor, Job No. 1 is positioning yourself in the right term given how much you are willing to risk and affordability constraints.

Investors are betting that rates rise 2-3 years, according to Bloomberg data. But, interestingly, consumer sensitivity to rate hikes has those same investors betting that rates will start drifting lower again before the end of 2025.

Given this outlook and current pricing, and assuming you need a new mortgage for at least five years, here are a few options:

  • Five-year fixed: The best insurance against high inflation;
  • Five-year variable: Only for the financially secure and risk tolerant, especially those with a modest mortgage relative to income, a short amortization, or a potential need to break their mortgage early;
  • Five-year hybrid: Half fixed and half variable to diversify rate risk.

First of all, what’s wrong with taking a flyer on a five year mortgage at 2.30%? Or for that matter, a 10 year term at 2.94%?

 

The Bank of Canada finally signaled that in 2022, the benchmark overnight Bank rate will increase. The move, estimated at 3 increases will move the Bank rate from 0.25% to around 1%. We will be the first developed country in the world to begin this change in monetary policy. The concern is always inflation – too much money chasing too few goods. I remember that – and only that from Economic – 101. Pundits like Robert McLister, Rob Carrick of The Globe and Mail and even CIBC’s Deputy Chief Economist, Ben Tal, have been talking about runaway inflation over the last few months and the impending interest rate disaster that is waiting to happen.

 

Many Canadians have taken advantage of this low rate environment and have focused on paying down their debt and increasing their savings. The most effective way of doing this is to use a variable rate mortgage. Averaging 1.5% for the past year, they offer flexibility with a simple 3-month interest penalty to break the mortgage.

 

Is inflation real and here to stay or are these supply chain issues driving up supply and prices in the short run? None of us so-called “experts” know and none of us pay your mortgage. I know what rates are for 120 days because our lenders guarantee that timeline.

 

Here are a few points that I know from history of mortgage rates in Canada:

  1. Historically, these are great fixed rates – never been better.
  2. Once the Bank of Canada starts moving up, they generally continue for a few years, not months.
  3. Fixed rates move up twice as fast as variable rates. There is generally a 1% to 1.25% spread between the two.
  4. If you take a variable rate mortgage, consider increasing your monthly payments by 20%. In other words, use your extra money to pay down principal each month. It’s not fun or exciting, but it will keep more money in your pocket and NOT your bank’s, build up more equity in your home and help you pay your mortgage off faster.

 

This pandemic has changed the economics of every country and makes predictors look like fools. Use common sense. If your family is on a tight budget, managing interest rate risk with a low cost fixed rate makes perfect sense. Variable rates are enticing and offer flexibility. They are generally well suited for individuals who can handle changes, sometimes significant, to their payments each month.

 

If you need a sounding board, some great mortgage options or trusted advice, call or email MonsterMortgage.ca today.

 

Donald Bayer

President, MonsterMortgage.ca