Recent changes in the housing market present exciting opportunities for homebuyers. As a realtor, your role is crucial in guiding clients through these updates, helping them build effective plans to achieve their homeownership goals by having them reach out to a mortgage broker to see what they are able to afford.

Knowing these new rules and guidelines will help with strategy and future goals of climbing the “real estate ladder.”

Expanded amortizations for first-time homebuyers

Starting December 15, first-time homebuyers will have access to 30-year amortizations. This change can benefit your clients in two significant ways:

1. Lower income requirement. By extending the amortization period, the income required to qualify for a home purchase decreases. This means more clients can meet the necessary criteria.

2. Reduced monthly payments. Clients will experience a decrease in their monthly payments, making homeownership more financially manageable. For instance, on a $600,000 purchase, the monthly payment could drop by approximately $250, providing greater flexibility in budgeting.

Increased insured mortgage cap to $1.5 million

For clients with high incomes but difficulties saving for a down payment, the increase in the insured mortgage cap to $1.5 million can accelerate their path to homeownership. Previously, purchasing a $1.4 million home required a down payment of $280,000. Now, as of December, clients can potentially purchase the same property with a down payment of about $115,000 — a savings of $165,000.00 in upfront requirements.

This change is also advantageous for “right-sizers” looking to downsize. It allows them to allocate more funds from the sale of their larger home toward retirement, as they can put less down on a new, smaller property. However, clients should keep in mind that closing costs, typically around 3.0 per cent of the purchase price, need to be accounted for in each scenario.

For a $600,000 purchase price, anticipate that clients will need an annual income of approximately $150,000 to meet today’s stress-test requirements.

Switching lenders at renewal: A business opportunity

While you may not initially think about how switching lenders can benefit your business, it’s essential to understand that mortgages encompass more than just interest rates. The Canadian Mortgage Charter now allows insured mortgage holders to switch lenders at renewal without undergoing a stress test. This change opens up opportunities for borrowers to shop around for better rates and terms, potentially saving them thousands of dollars.

Encourage your clients to consider lenders that don’t adhere to posted rates. This strategy can significantly reduce Interest Rate Differential (IRD) penalties.

Case in point

For example, let’s compare a $1 million mortgage with three years left on a five-year term at a 5.0 per cent interest rate: 

By choosing a monoline lender (provided qualifications are met), your client could save $25,000 in IRD penalties, allowing them to manage financial changes better and seize new opportunities.

Tax-efficient savings strategies

As well, two important tax-efficient savings methods have emerged that can empower your clients on their journey to homeownership:

1. RRSP withdrawal limit increase. The amount that can be withdrawn from an RRSP has increased from $35,000 to $60,000 per borrower. This change provides additional funds for clients to put toward their down payments.

2. First-time home saver account. Introduced in 2023, this account allows clients to save $8,000 per year in contribution room, which reduces their taxable income. Unlike RRSP withdrawals, funds from this account do not need to be repaid and any gains earned within it are tax-free. This account, however, has a sunset clause in 2028, making it vital for clients to act quickly to maximize its benefits.

These recent changes create valuable opportunities for your clients. By understanding the implications of expanded amortizations, increased mortgage caps, flexible lender options and tax-efficient savings strategies, you can help them make informed decisions on their path to homeownership.

On Monday, the federal government announced changes to mortgage rules to help more qualified buyers access mortgages and become homeowners.

The changes, taking effect this year on December 15, include allowing 30-year amortizations for first-time buyers and for newly constructed homes, along with a higher limit on insured mortgages ($1 million to $1.5 million) to reflect current housing prices. As well, homeowners will have the freedom to switch mortgage lenders at renewal without having to take a new stress test.

“We are now making the boldest mortgage reforms in decades to unlock homeownership for younger Canadians,” says The Honourable Chrystia Freeland, deputy prime minister and minister of finance, in a statement. 

“Everyone deserves a safe and affordable place to call home, and these mortgage measures will go a long way in helping Canadians looking to buy their first home,” The Honourable Sean Fraser, minister of housing, infrastructure and communities, adds.

Support from the country’s national industry voice

The Canadian Real Estate Association (CREA) says it welcomes the announced reforms, which represent a significant step towards improving access to homeownership and making housing more attainable, something realtors have long advocated for and continue to stand behind.

“This is good news for buyers, particularly first-time buyers and those in more expensive markets such as Toronto and the Greater Toronto Area (GTA), as well as Vancouver and surrounding areas,” says Janice Myers, CREA CEO.

Broad support across the industry

The mortgage reforms will drive more housing construction and supply and reflect recommendations that the Canadian Home Builders’ Association (CHBA) has been calling for. The organization says it’s just what the market needs to help correct the falling trajectory of housing starts and build more homes.

Likewise, the Toronto Regional Real Estate Board (TRREB) says it strongly supports these measures, which will help reduce the monthly cost of mortgage payments and make homeownership a reality for more people across the country, as well as stimulate new housing construction and help address the ongoing housing shortage in our communities.

Karen Yolevski, COO of Royal LePage Real Estate Services Ltd., agrees. In a company blog post, she notes, “For many homebuyer hopefuls, the monthly mortgage payment is often the deciding factor between a property that fits in their budget and one that doesn’t. An extra few years to spread out those payments will help many purchasers make the transition from renter to homeowner. Those shopping in Canada’s most expensive markets, where home prices over $1 million are the norm, will also find it a little easier to get into the market.”

Myers shares similar sentiments: “In a recent budget submission, we had advocated for extending 30-year amortization terms to all first-time buyers. We’re pleased our suggestion was adopted to provide more opportunities for homeownership.”

Yolevski expects the implementation of the new rules to likely follow another interest rate cut or two this year. “Lower borrowing costs, combined with these extended mortgage powers, may stir first-time buyer demand in the months ahead, setting the stage for a robust spring market in 2025.”

TRREB: Another call to action

TRREB notes that increasing the insured mortgage price cap in today’s market will allow more people to qualify for an insured mortgage and provide crucial homebuyer support in high-cost areas like the GTA.

It also supports the government’s earlier decision to allow insured mortgage holders to switch lenders at renewal without undergoing a new mortgage stress test and would like this extended to uninsured mortgages, typically those where the homeowner made a larger down payment.

“We have long advocated for these measures, particularly for homeowners to be able to switch lenders at mortgage renewal without a stress test,” notes TRREB CEO, John DiMichele. “Increased competition among lenders is good for homeowners and homeownership, so we reiterate our call for this measure to be extended to mortgage renewals for those who do not require mortgage insurance.”

CMBA: Price cap jump ‘reflects lack of policy change in over 10 years … will finally provide more options’

The Canadian Mortgage Brokers Association — British Columbia (CMBA-BC) and its sister organization, CMBA National, are also in support. For several years, they’ve consistently called for “real changes to address mortgage eligibility policy, (with British Columbians) having felt squeezed out of almost every market in B.C. and across Canada.”

“We are pleased to see the federal government has finally listened to our advice and expanded eligibility of 30-year mortgage amortizations to include all first-time homebuyers as well as buyers of new build homes,” says Rebecca Casey, president of CMBA-BC.

“The announcement of an increase in the price cap for insured mortgages to $1.5 million will also provide additional flexibility for homebuyers as they will not need to make a 20 per cent down payment for an additional $500,000 in purchase price,” adds Casey. “This reflects the lack of a change in this policy in over 10 years and will finally provide more options to homebuyers on how to place a downpayment on their future home.”

‘Canada can’t aim to double housing starts, or to industrialize the housing sector to achieve that, if buyers can’t buy’

“These types of changes are exactly what CHBA has been calling for, because we simply can’t build homes, be they condominiums, townhomes or whatever housing form makes sense if owners can’t qualify for mortgages,” states Kevin Lee, CEO of CHBA.

Lee explains that better access to mortgages will enable buyers to access the market, driving more housing starts and giving industry a chance to push towards targets to close the supply-demand gap. He adds, “Canada can’t aim to double housing starts, or to industrialize the housing sector to achieve that, if buyers can’t buy — it’s exactly these types of policy changes that are needed to create the conditions necessary to move forward.”

TRREB President Jennifer Pearce notes that TRREB members continue to support first-time buyers with the purchase of their homes. “The latest changes to mortgage rules are a step in the right direction and provide affordability and flexibility for homebuyers,” she says. “We look forward to our continued collaboration with CREA and the federal government as we work together to achieve our shared goal of ensuring more Ontarians can access housing and financing options that meet their needs.”

Home Buyers’ Bill of Rights Blueprint

The Canadian government also announced its release of blueprints for a Renters’ Bill of Rights and a Home Buyers’ Bill of Rights. CREA says it’s aligned with the four guiding principles laid out but will continue to engage with government as discussions evolve.

Myers points out, “The federal government has acknowledged the primary role of provinces and territories in regulating real estate and the desire to work collaboratively to build a national consensus and strengthen housing access and affordability for all Canadians.”

She notes that CREA will continue working with governments and stakeholders to develop solutions across the full housing spectrum.

CHBA response to argument of rules’ inflationary effect on market

CHBA understands that some feel improving access to mortgages will have an inflationary effect on the market, particularly now, but that the extreme under-supply of homes Canada has faced over recent years is a much stronger home price inflation driver.

“If we don’t quickly start building more houses, falling interest rates will create more demand on the limited number of homes available, further driving up prices,” Lee asserts.

“We need to come at the housing shortage from every angle, and adjusting mortgage rules is a big part of that. Canadians who want to buy their first home need a fair opportunity to do so, and young Canadians who were able to buy a starter home, like a condominium, need to be able to get an insured mortgage for their next home, for example, a new townhome.

Today’s changes will help enable them to do so, and will drive more supply of the types of housing Canada needs.”

Like much of the country’s real estate industry, Myers expresses that CREA remains focused on advocating for policies that will help drastically increase housing supply across the continuum so that all Canadians find a home that meets their needs.

Yesterday, the Bank of Canada lowered its overnight lending rate by 25 basis points to 4.5 per cent, the second consecutive rate cut this year.

The Bank says that growth in the Canadian economy has picked up but is still below long-term potential and that our economy’s weakness is across both household consumption and the housing market, with the labour market softening.

Although the Bank expects growth to increase later this year and into 2025, it notes that excess supply will continue to put downward pressure on inflation.

Sidelined buyers may return to many options, activity should pick up in the fall

Karen Yolevski, COO of Royal LePage Real Estate Services Ltd., weighs in: “Our research shows that many buyer hopefuls have been waiting for a concrete signal from the Bank of Canada that the economy is moving in the right direction. A second cut to the overnight lending rate indicates just that, and with mortgage qualification thresholds continuing to come down, sidelined buyers may have the confidence they need to make their return to the housing market.

We expect this will prompt a slight boost in activity in the short term, followed by more robust buyer demand in the fall. In the meantime, some much-needed inventory has been building in major markets over the last few months, giving buyers more options to choose from. In addition to lower rates, this may also encourage more buyers to re-enter the market in the near future.”

More than rate cuts needed for sales recovery

Zoocasa points out that following June’s rate cut, home sales didn’t recover as many expected — with non-seasonally-adjusted national sales down by 10.9 per cent from May to June and GTA and Metro Vancouver sales down by more than 10 per cent.

As well, the Canadian Real Estate Association adjusted its annual housing market forecast to 6.2 per cent growth from its original 10.5 per cent in April. This is reflected in excess inventory levels the Toronto Regional Real Estate Board reports, with active listings up 67.4 per cent year-over-year in June.

This may not be surprising, given that a recent survey reports 42.3 per cent of respondents note home prices being their main concern about buying in today’s market, with interest rates (25.6 per cent) and economic uncertainty (14.9 per cent) following.

Christopher Alexander, president, Re/Max Canada, seems to agree: “The Bank of Canada’s decision to decrease its key interest rate by a quarter of a percentage point is welcome news for Canadian homebuyers who are still contending with a high cost of living and higher interest rates than we’ve seen in a long time.

We’ll likely need to see interest rates come down further for the housing market to kick into high gear again, but if they continue trending downward, there’s a possibility of a more active fall market.”

Good news for commercial real estate

Avison Young’s Mark Fieder, principal and president, Canada, notes that the rate drop will positively impact investor sentiment.

“Commercial real estate (CRE) return metrics are improving compared to other asset classes, and we expect this will further fuel investor appetite and capital allocation into CRE,” he says.

“We have been in a very uncertain interest rate environment over the last two years. This second rate drop certainly shows the Bank’s confidence in the inflation data and reinforces the fact that we are finally shifting into a different interest rate regime.”

Buying a condominium might be easier than purchasing a single-family home, especially for first-time buyers. Traditionally, two incomes are better for achieving homeownership dreams. However, a new trend is emerging among Canadian homebuyers, as a recent Point2 survey reveals.

It found that four in 10 Canadian renters are willing to apply for a mortgage alone. What was once the norm — applying for a mortgage with a spouse — is now taking a backseat to solo home buying.

Andra Hopulele, the writer of the study, emphasizes: “Young adults and single people are starting to separate two ideas that truly seemed inseparable: Buying a home doesn’t necessarily mean they need to find a partner and get married, and getting or being married isn’t a prerequisite for home ownership. Although the reasons vary depending on the generation, the number of Canadians living alone is increasing, and they are increasingly becoming comfortable with the idea of taking up the challenge of home ownership on their own.”

Here are some generational highlights from the study:

Most generations

42 per cent of renters across all generations except one are considering applying for a mortgage alone. High home prices are cited as the main obstacle (39 per cent), followed by concerns about down payments (27 per cent).

Gen Z and Millennials

Gen Z, the youngest renters, are ambitious: 72 per cent plan to buy within the next 12 months, with many having saved up to $30,000. 57 per cent of younger Millennials want to buy within a year, and 76 per cent have saved up to $50,000, while half of their older Millennial counterparts still prefer buying with a spouse. This group is slightly more concerned about down payments (35 per cent) than high home prices (34 per cent).

Gen X and Baby Boomers

47 per cent of renters aged 45-54 (Gen X) want to buy alone but are more worried about their credit scores than other age groups, while Baby Boomers (those over 60) are looking for smaller single-family homes and are mostly unsure when they will make the move.

The shift in homeownership: Young adults and singles

Young adults and single people are redefining homeownership. Marriage is no longer a prerequisite for buying a home. This is evidenced by the increasing number of Canadians living alone who are comfortable taking on homeownership by themselves.

Despite worries about rising home prices and high mortgage rates, renters’ desire to own a home remains strong. Student debt is the least of their concerns, even though a bachelor’s degree often comes with significant debt.

In a culture valuing autonomy, significant life decisions are increasingly seen as individual pursuits. This includes applying for a mortgage.

According to Statistics Canada, single-person households are the most common household type (30 per cent) for the first time in history, and the number of these households has more than doubled since 1981.

The new homebuyer has ambitious goals

The survey found that eight out of 10 Canadian renters aim to buy a single-family home, particularly of a large size. Both the youngest renters and Baby Boomers over 65 show strong determination to purchase within the next 12 months.

Gen Z and Baby Boomers are particularly determined. Many have significant savings set aside for a down payment. Despite the competitive housing market, Canadian renters are not deterred. They are committed to achieving homeownership, even if it means doing it alone.

The Bank of Canada (BoC)’s recent 25 basis point drop that lowered its key overnight lending rate to 4.75 per cent sparks the questions of if and when other rate drops will follow, and what the financial impact will be on the average five-year variable mortgage holder. Zoocasa looked into this in a recent report.

Rate fluctuations and 5-year variable mortgage savings in major Canadian cities  

The report focuses on major Canadian cities. For example, in Toronto, payments can be expected to decrease by about $155 per month. This creates savings for homeowners of about $1,860 per year. In Vancouver, the average monthly change between different interest rates is $166.20, creating an average annual savings of over $1,994.

On the other side of the spectrum, Regina, the most affordable city, showed an average monthly change of $75.60 between different interest rates, resulting in an annual savings of $907.

There will be even more savings if we see further rate cuts going forward. The BoC’s next announcement will be on July 24, 2024. 

‘With lower lending rates, prospective buyers will be motivated to get off the sidelines’

Unsurprisingly, high borrowing costs can be a major challenge for current and prospective homeowners. A 2024 Zoocasa survey of 1,577 people across Canada and the United States found that over half of non-homeowners noted high prices as the main reason for not purchasing a home, despite their desire to do so.

“With lower lending rates, prospective buyers will be motivated to get off the sidelines, ultimately leading to more sales activity and the potential for an increase in prices,” says Carrie Lysenko, Zoocasa CEO.

Read the full report here.

If you’ve wondered how the Bank of Mom and Dad is faring in these dodgy economic times, rest assured it’s more popular than ever.

Recognizing that it’s harder to buy a home now than when they were young, in recent years Canadian parents have passed billions of dollars to their adult children to give them a leg up entering or advancing in a housing market where they’re up against impossible prices, limited supply, stringent mortgage requirements and steep interest rates and taxes.

It’s being hyped as an unprecedented transfer of wealth, taking FOMO — fear of missing out —  to new levels, with boomer parents doing all they can to ensure their kids grab the receding brass ring of homeownership before it’s completely out of reach. 

Embracing extreme measures before homeownership completely out of reach

This has gone way beyond providing a loan or helping with the down payment, especially in the past five years. Parents are embracing more extreme measures, pitching in with mortgage installment payments or becoming loan guarantors, liable for mortgage payments if the child defaults. Many are even going on title as co-signers to help their offspring qualify for a mortgage. 

In some cases parents are flying without a net, pulling funds out of their retirement savings or equity from their own home, using a second mortgage or home equity line of credit to assist, potentially putting their retirement at risk.   

Suggest clients get legal advice if asked about parents loaning or gifting money to kids

It’s a wonderful thing to be able to help get your struggling offspring launched — especially if they’ve been getting a little too comfortable in your basement. But realtors need to be aware of the potential risks when representing clients in these situations, “or they could find themselves in hot water,” warns Toronto business and real estate litigation lawyer Matthew Mulholland.

If things go sideways, realtors may be exposing themselves to an expensive and time-consuming lawsuit. “In all cases, real estate agents should encourage their clients to obtain legal advice when consulted about parents loaning or even gifting money to their children,” Mulholland advises.

He provides this sobering example: “Imagine a situation with a pre-construction home and rising interest rates. There’s a risk that a child may not be able to secure a mortgage by the time the sale closes. They may face exposure for damages from the developer … but exposure may be limited by their limited assets. A parent, on the other hand, may have another property or other assets, and face significant exposure because they’re named as a buyer on the agreement of purchase and sale.”

Tough saving for down payment with rent and mortgage payments so close

Greater Vancouver Re/Max agent Tim Hill says he’s seeing parental bounty in well-off families extending to helping with second home purchases: “It’s not just limited to the first.”        

Hill has witnessed parents providing these funds as an early inheritance or finding other creative ways to get their kids into a more stable situation or keep them nearby. “Everything is so expensive here,” he says. “If rent costs nearly as much as a mortgage, it’s hard to save enough for a down payment to make the jump to owning.” 

He recalls clients — a young couple —  whose parents helped with a down payment and also went on title, which enabled the pair to move from a condominium into a fully detached house, potentially their forever home. “That financial nudge put them ahead of the game, allowing them to get something long-term now and avoid having to potentially make the jump to a townhouse first.” 

What about families with fewer resources?

Those who come from families without deep pockets have fewer options. “In the past year I’ve seen more young families make the move to Alberta than ever before,” Hill says.

Unfortunately, parental generosity is increasingly necessary if younger generations are to get ahead, especially in large urban centres. Without that foot in the door, the dream of home ownership is “slipping away from too many young families,” observes Tim Hudak, CEO of the Ontario Real Estate Association (OREA). 

The phenomenon exists across the country, but Ontario and British Columbia “are in greatest jeopardy of losing younger generations to other provinces” due to lack of housing affordability, Hudak asserts.

Student loan debt: Among the biggest barriers for young adults wanting to buy a home

The government urgently needs to prioritize housing supply and affordability issues and first-time buyer initiatives, in his opinion. 

“The divide between the haves and have-nots is growing wider. If you can’t borrow from mom and dad, it makes getting into the market much more difficult,” and access to housing and financial security more precarious, with disadvantaged groups particularly at risk, states Hudak.  

According to a 2023 OREA poll around the impact of student loan debt on homeownership, this type of debt is among the biggest barriers for young adults wanting to purchase a home. “Young people have far more debt today,” confirms Hudak. One offshoot of this is that it’s taking them longer to hit life’s milestones — homeownership, marriage, starting a family, etc., the poll found.

Because of high housing and living costs, their parents are postponing milestones too. Nearly half of those surveyed by OREA said they’ll stay in their family home for the foreseeable future rather than downsizing.

75% of post-secondary graduates “still believe in the (homeownership) dream” despite worsening affordability

A different survey conducted by OREA in 2022 found that at that time, 4 in 10 parents in Ontario had helped their adult children (aged 18-38) financially with a home purchase. The average loan provided was about $41,000, while those parents who gifted money averaged close to $74,000. (Many parents gave a combination loan/gift.) 

Some bank studies put that amount significantly higher, especially in large cities like Toronto. Today, as prices have climbed, it’s believed that gift amounts have likely risen as well, experts note. And it’s been observed that it’s not uncommon for “children” as old as 40 and over to be the recipients of parental largesse around housing. 

“Now, two years later, it’s our expectation that the affordability crisis has deepened,” says Hudak. In spite of this, 75 per cent of post-secondary graduates “still believe in the dream and want to own a home.”

Because of changing market conditions, buyers who may have been pre-approved for purchase may find out later that, as a result of a low appraisal done before closing, their mortgage loan amount has either been reduced or cancelled and they may not be able to close their deal.

Here are six lessons to remember so you can avoid this happening to you or your clients.

1. Remember, pre-approvals are not guarantees that a lender will fund their mortgage.

Just because a buyer gets pre-approved for a loan does not mean that the lender will close. There are always conditions on any pre-approval and one is typically that an appraisal is conducted that is satisfactory to the lender.

Always make sure that a finance condition is included in any agreement and do not waive any finance condition until you know for sure that the lender has completed their appraisal and approved the sale price.

2. See if there’s a solution.

There are solutions out there. For example:

• deals can be extended,
• properties can be put back on the market in an attempt to reduce the losses suffered,
• buyers may be able to borrow from private lenders through a short-term loan until their financial situation improves,
• mutual releases can be negotiated and
• prices may be reduced if the parties want to avoid expensive litigation.

In addition, a seller may be able to provide a vendor take-back mortgage. Just be sure to always get legal advice before suggesting any solution.

3. What if the client threatens to sue you for what happened?

Buyers and sellers think that if they threaten a lawsuit, somehow the agent will agree to pay part of their damages to end the matter. Remember, as long as you, the agent, have not committed fraud, you are protected against any lawsuit by your errors and omissions insurance policy — meaning that you don’t pay for your lawyers to defend you.

The client will typically be asked to pay at least $5,000 just to retain a lawyer to sue you, with thousands more still to come. In my experience, once clients see how much this is going to cost them, they end any talk of lawsuits.

4. What if the client threatens to report you to your provincial regulator?

Somehow, buyers and sellers are of the mistaken belief that provincial regulators (RECO in Ontario) are collection agencies for consumers. Not so.

While the regulator is supposed to investigate every complaint made against a salesperson or brokerage, they are for the most part looking at whether the salesperson or brokerage followed their duties under the legislation, including the Code of Ethics. They are not there to collect damages against agents for the benefit of consumers.

5. How do you demonstrate to the regulator that you’ve fulfilled your obligations?

Always ensure that all your paperwork is properly documented and that you have a written record of it. This includes making sure that all documents, including the agreement of purchase and sale, have been carefully explained and signed, and that copies have been delivered to the client.

Try to document any instructions in writing as well, to avoid any misunderstandings later.

6. Always speak to your broker or manager before responding to any complaint or potential lawsuit.

It’s always stressful when someone alleges that you made a mistake and they’re going to suffer a loss because of what you did, or when they try to blame you for their situation. But, you need to resist the temptation to say something you may regret later.

Try something like this as an answer: “I am sorry you feel that way. I will review my file and my notes and will get back to you.” Then, go discuss this with your manager or company lawyer and figure out what your next step should be.

To help mortgage brokers make the best recommendations for your clients and further protect them, the Mortgage Broker Regulators’ Council of Canada (MBRCC), as part of its 2023-2026 strategic plan, is publishing its Principles for Mortgage Product Suitability Assessments.

“Given high interest rates, elevated inflation and reduced mortgage affordability, many consumers are looking to the mortgage brokering sector for sound advice,” Antoinette Leung, chair of MBRCC, mentions in a release.

Principles will enhance “protection of Canadian consumers during a period of challenging financial conditions”

Leung continues, “The principles developed by MBRCC will support the industry’s provision of suitable recommendations to clients, enhancing the protection of Canadian consumers during a period of challenging financial conditions.”

Public feedback on the proposed principles was requested and obtained last summer. Respondents were generally supportive, and MBRCC made revisions based on the feedback received.

Even more protection for borrowers

This is timely and complementary to the federal government’s recent Fall Economic Statement. In the announcement, it introduced its Canadian Mortgage Charter initiative, which adds to the expectations and guidance already established for how banks and financial institutions should treat borrowers.

Federal government’s mortgage charter expectations

The Government of Canada’s website states the expectations listed in the charter:

1. Allowing temporary extensions of the amortization period for mortgage holders at risk

2. Waiving fees and costs that would have otherwise been charged for relief measures

3. Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal

4. Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options

5. Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties

6. Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization

Source: Government of Canada

Review MBRCC’s proposed principles here.

Since March of last year, the Bank of Canada has raised interest rates an unprecedented nine times. Not only that, but the rates themselves have swung from historic lows to a 20-year high. Resulting monthly expenses have been just too steep for many mortgage holders.

To get a read on Canadians’ sentiments overall, Royal LePage commissioned a survey. It found that “74% of mortgagees with lending agreements set to renew within the next 18 months report feeling concerned about higher interest rates”.

As a result, many Canadians are looking to cut costs, including by considering a change to their mortgage product or a longer amortization period.

Hopefully, they feel at least some relief after yesterday’s announcement of the Bank of Canada holding its overnight rate target at 5 per cent.

Key highlights

The study found that over 30 per cent of all Canadian mortgage holders – or 3.4 million people – have lending agreements that will renew by March 2025. Over half of this group will renew in the next year.

Nearly 75 per cent of Canadian mortgagees are on a fixed rate, while 20 percent are on a variable.

High impact on variable/hybrid mortgage holders

Of the latter group (or hybrid mortgage holders) that are worried about their renewal, 40 per cent say they plan on switching to a fixed-rate mortgage.

“Many Canadians today are facing a mortgage renewal at a significantly higher rate than they’re used to, and this will continue to be the case in the coming years as more loans mature,” says Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd.

“Canadians generally tend to err on the side of caution when it comes to their finances, and we believe this has served them well. Our financial institutions are well positioned to support consumers through one of the largest and most important purchases of their life.”

Vast majority at the trigger rate

64 per cent of variable or hybrid mortgage holders feel their mortgage payment has reached its trigger rate, thanks to higher interest, and therefore raised their monthly cost.

“Some Canadians with variable-rate mortgages have seen their monthly payments double or even triple over the last year and a half, due to the Bank of Canada’s aggressive interest rate hike campaign aimed at tamping down high inflation. Those locked into a fixed-rate mortgage, which most are, have been protected from those increases, at least for a short time,” says Yolevski.

“While the central bank’s key lending rate is expected to come down in the medium term, the likelihood that we will return to rock-bottom rates of less than one per cent is very low. Upon renewal, fixed-rate mortgage holders will be faced with a new reality – higher monthly payments.”

When asked if their household has felt financial strain due to raised interest rates and were then prompted to lower spending and use savings, 86 per cent of variable or hybrid mortgage holders concurred.

Read RoyalLepage’s survey, including regional summaries, here.