1. Less Stress (Test): The government’s mortgage stress test will get tougher on June 1. In response, more and more lenders are promoting “stress-test-free” financing. One broker-channel lender now offers such mortgages as low as 2.59% for a 1-year term, plus a 1% fee. Even borrowers with trash credit (e.g., a 500 FICO score) can get these loans, albeit at steeper rates of 4.19%+. Not only that, but these products are also accessible to people with high total debt ratios. In other words, your monthly obligations divided by gross monthly income can be up to 50-60%, whereas banks usually cap you out at just 44%. These are not loans for the masses, however. They're meant for niche borrowers who expect significant improvement in their financial position within one to three years.
2. Stress-Tested Pre-Approvals: With the stricter stress test just three weeks away, there's some confusion about how it applies to borrowers who:
(A) get a pre-approval before June 1, but
(B) don’t buy a home until after June 1.
OSFI tells us, “Approved mortgage loans or legal commitments that have been provided before June 1, 2021 and that fund after the effective date would be honoured or funded, as legally required (i.e., using the current qualification rate). In some cases, borrowers may have received mortgage eligibility commitments or “pre-approvals” from their federally-regulated financial institution (FRFI) prior to the effective date of June 1, 2021. In such cases, FRFI lenders would have the discretion to underwrite the loans based on the prior qualification rate.” But there's a catch according to the Canadian Banker's Association. If the borrower doesn't have a signed purchase and sale agreement before June 1, the lender will re-qualify them under the new (more stringent) stress test on or after June 1.
3. Refi Rates Jump: The lowest nationally available 5-year fixed rate for refinances rose 0.10%-points to 2.09% this week. A handful of online brokers and credit unions are advertising slightly lower, depending on your province.
4. Financing Conditions: If you want the lowest possible mortgage rate, you may not get it if you have a financing condition. Certain lenders—including those with the very best deals—are weeks behind on application processing. Appraisers in hot markets across the country are also backlogged. Keep that in mind if you have a financing deadline. Make sure your lender confirms in writing that it can meet your deadline, assuming, of course, that you qualify and provide all required documentation quickly. If the lender won't confirm this in writing/email, find another lender who will. Just be prepared to pay a little more.
5. In case it wasn’t obvious: 96% of economists predict the next rate move will be up, confirms a Finder report.
Rates are based on a $300,000 mortgage.
6. 90% Financing on Cottages: Need a new boat dock real bad? You can now get a second mortgage up to 90% of your cottage’s value in B.C. and Ontario through lenders like Brightpath. But how wise is that? “A private mortgage to 90% of house value is a big risk in normal markets in cities,” says veteran mortgage broker Ron Butler of Butler Mortgage. “But private lending to 90% of today's value on a cottage property is breathtakingly reckless. Not only have rural and cottage values experienced a massive run-up in prices, but they are notoriously hard to sell in a down cycle.”
7. Inflation Watch: Market legends say inflation is running hotter than central banks would have us believe. “We are seeing substantial inflation,” famed investor Warren Buffett told his shareholders recently. "We are raising prices. People are raising prices to us, and it's being accepted." He calls it almost a “frenzy.” —— High-profile inflation warnings can sometimes be self-fulfilling. That may be a problem because we're hearing more and more of them. If prices keep rising as they have, people will increasingly believe governments are covering up the risk of inflation. And if central banks fall behind the curve, interest rates would have to rise more than expected to bring price levels back to the 2% target. “While there is little evidence of genuine inflationary pressures yet,” says Capital Economics, “we think that will change as the vaccinations reach critical mass and the economy re-opens.”
8. Parlaying Equity: Rising home values are reinforcing housing demand by affording homeowners more down payment funds. In fact, one in three Canadians plan to rely on their existing home’s equity, in full or in part, to make a down payment on a new home. Source: Scotiabank 2021 Housing Poll.
9. Condo Shift? “We expect…a sharp deterioration in single-family home affordability (in both large and smaller markets) driving more buyers toward condos.”—RBC Economics
10. Delinquents: Folks with high-ratio insured mortgages are going in default more often. The latest data from CMHC shows 47 out of 10,000 insured borrowers hadn’t paid their mortgage in 90+days at the start of this year. That’s up from 43 out of 10,000 in 2019.
