Key Decisions for the Spring Market

Key Decisions for the Spring Market

It’s springtime and we’re anticipating a robust housing market. Deciding which mortgage is as complex as ever, especially since there is uncertainty regarding when we’ll see our highly anticipated rate cuts.

From fixed-rate mortgages offering stability to variable-rate options with potential savings to the availability of hybrid mortgages and cash-back incentives, choosing the right mortgage is not easy. Beyond these primary decisions lie many other factors like understanding pre-payment penalties and why mortgage features are so important, making it difficult to choose the right mortgage for long-term homeownership success. Let’s look at the key decisions that need to be made.

Fixed Rate Mortgage

Opting for a fixed-rate mortgage provides total stability for the mortgage term. With a fixed interest rate, borrowers benefit from consistent monthly mortgage payments, shielding them from potential market fluctuations. This type of mortgage is particularly well-suited to individuals who prioritize financial certainty and prefer to plan their long-term budget with confidence. First-time homebuyers often find comfort in the protection against rising rates and the steady nature of fixed-rate mortgages, making it easier to manage their finances over the life of the mortgage.

But what term should you take this spring? Before and during the COVID-19 pandemic, the 5-year fixed mortgage was the term of choice. After the pandemic, we dealt with record-high inflation, causing fixed rates to spike. We don’t know when, but we do know that rates will eventually trend lower, so for many, it doesn’t make sense to lock in for 5 years. Homebuyers and homeowners have shown a preference for the 3-year term so they can renew into a lower-rate fixed mortgage sooner. Certain homebuyers continue to take a 5-year term, but mostly because the rate is slightly lower than the 3-year so it’s easier to qualify under the stress test.

Variable or Adjustable-Rate Mortgage

With a variable rate or an adjustable-rate mortgage, the interest rates fluctuate alongside the prime lending rate, based on the Bank of Canada overnight rate. This stands in contrast to fixed-rate mortgages, where the interest rate remains constant throughout the mortgage term

Following the high-rate environment of 2023, homebuyers and homeowners are again considering this type of mortgage. Why? Economists no longer question whether the overnight rate will increase, but rather when the first cut will occur. With an adjustable-rate mortgage, when the overnight rate and prime rate decrease, mortgage payments follow suit, providing a favourable cash flow boost. For those with variable-rate mortgages, while payments do not decrease, the rate reduction means more money is allocated towards interest, accelerating your mortgage repayment. Anticipation of Bank of Canada rate cuts often leads borrowers to scrutinize adjustable-rate mortgages more closely.

Whether to take a variable or adjustable or not depends on when we can expect the Bank of Canada to start cutting the overnight rate. Before 2024, the major Banks projected up to 1.5% in rate cuts by the end of 2023. Now with macro data received since the beginning of the year, those projections have been tempered downward. It may be wise to wait until there is more surety as to when the Bank will start dropping rates before opting for an adjustable-rate mortgage and then ride the rate cuts down and enjoy your boosted cash flow.

Variable and adjustable mortgages do have a certain advantage over fixed-rate mortgages. If you anticipate needing to break your mortgage early for reasons such as separation, divorce, health issues, or job relocation, consider a variable mortgage for the lower fees. You’ll have more flexibility and lower costs if you need to exit your mortgage contract early.

Hybrid Mortgage

Considering the uncertainty surrounding future rate cuts, hybrid mortgages offer unique advantages. By combining features of both fixed-rate and adjustable-rate mortgages, borrowers can enjoy the benefits of each. With a hybrid mortgage, borrowers have the flexibility to choose what percentage of their mortgage remains fixed and what percentage becomes variable. This blending of characteristics aims to provide homeowners with a middle ground – the stability of fixed-rate payments and the potential cost savings associated with variable and adjustable mortgages.

Cash-Back Mortgage

A cash-back mortgage is where the lender provides you with a lump sum cash payment upon closing the mortgage. The cash payment can be used for various purposes, such as covering closing costs, helping with home purchases and improvements, or even paying off debt. However, it’s important to note that cash-back mortgages often come with higher interest rates and specific terms, so borrowers should understand the overall cost and implications before selecting this option.

Fixed vs Variable is Not Your Only Consideration
Other decisions that homebuyers need to consider when obtaining a mortgage this spring include:

  1. Insured vs Uninsured Mortgage: The terms “insured” and “uninsured” are used to differentiate between mortgages that require mortgage default insurance and those that do not. Insured mortgages are required when you have a down payment of less than 20% of the purchase price, and the government backs the mortgage through CMHC or private insurers such as Sagen and Canada Guaranty. The fee for this insurance is added to your mortgage, increasing the total amount and your mortgage payments.
    Uninsured mortgages, on the other hand, are those where the buyer has a downpayment of 20% or more, eliminating the need for mortgage default insurance. However, since the lender isn’t protected with mortgage default insurance, rates are higher than for insured mortgages.
    Insurable mortgages add another layer of complexity, qualifying for mortgage default insurance though not mandated by the government. Lenders pay for this insurance to mitigate risk or securitize mortgages, resulting in slightly higher rates than insured mortgages.
  2. Amortization Period: Insured or insurable mortgages have a maximum 25-year amortization, whereas uninsured mortgages may extend to 30 or 35 years with a rate premium. This option allows for lower monthly payments, freeing up funds for other uses.
  3. Mortgage Features: The saying “the devil is in the detail” certainly applies to mortgages. Features such as prepayment privileges for accelerated mortgage repayment, portability for potential moves, and any associated fees or restrictions warrant careful examination. Watch out for ultra-low-rate mortgages or “restrictive” mortgages. The rate alone may be great, but the restrictions and fees may cost you more in the long run, especially if you break your mortgage early.
  4. Mortgage Prepayment Penalties: One of the important yet often overlooked mortgage features is the implications of prepayment penalties, particularly for fixed-rate mortgages. Be sure to consider their impact on plans to refinance or if you need to get out of the mortgage early.

As you can see, choosing a mortgage involves more than just the interest rate—it’s about selecting the features that best suit your needs and financial circumstances now and in the future.

Top-Rated Mississauga Mortgage Broker Joe Purewal is Here to Help!

To navigate this complex landscape, seek expert guidance from the best Mississauga Mortgage Broker – Joe Purewal, and his team. They will make a recommendation as to the type of mortgage and the features you need based on a complete review of your situation. With their expertise, you can gain clarity and confidence in your mortgage decision, paving the way toward your ideal mortgage solution and homeownership goals.

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The-wrong-mortgage-rate guide by Joe Purewal

The wrong mortgage rate type can cost you a lot of money.

What is the difference between Fixed Rate, Variable Rate and Adjustable-Rate mortgages?

Buying a home will be one of the biggest purchases you will make in your lifetime and with it comes your quest to find the lowest interest rate you could get in terms of financing. I’ve seen clients from different walks of life ask me what’s the best rate I can offer and with that I usually respond with a question myself; “Well, what type of rate are you looking for?”.

Homebuyers often get caught up with the lowest rate they see without considering what type of rate best suit their needs. This way of decision-making end up costing them more money because clients later realize that the rate type they chose may not be the best option for their future plans.

I have outlined below the definition of each rate type as well as their advantages and disadvantages.

FIXED RATE

A fixed rate mortgage entails having the same interest rate throughout the course of the mortgage term. In effect, your mortgage payment stays the same over the entire term. I emphasize on the word term because all rates offered for mortgages in Canada change every term and thus, you cannot keep the same rate for the whole duration of the mortgage.

Advantage

A fixed rate mortgage provides clients with stability; knowing that your payments will not change, and you only need to set aside the same amount every time your mortgage payment is due to be debited. This in turn, gives you an opportunity to save more and pay down your mortgage at a uniform pace.

Disadvantage

The only time a fixed rate mortgage will work against you is if you decide to payout your mortgage prior to the term maturing. This is because the penalty to break a fixed rate mortgage is higher than the other two interest types. You also cannot switch from a fixed rate mortgage to a variable rate or adjustable-rate mortgage.

Ideal Use

Clients who plan on keeping their homes for a very long period or at least until the end of the term would benefit from a fixed rate mortgage since plans of breaking it early is almost non-existent.

VARIABLE RATE

A Variable rate mortgage roots from the word “vary” which is the very essence of the rate type. The payment going to interest and principal changes every time the prime rate changes; however, the total monthly payment remains the same. This means that your mortgage payments almost always stay the same until you reach the trigger point. A trigger point is determined by your lending institution and usually happens when the Prime Rate has grown so large that there is no more payment being remitted towards the principal balance of your mortgage. When this point is reached, your monthly payment will be adjusted.

Advantage

A variable rate mortgage may cost less to break compared to a fixed rate mortgage and still offers the same stability of a fixed rate mortgage.

Disadvantage

When the trigger point in this rate type is reached, it becomes very problematic and could cause borrowers to have to pay a lump sum to cover the unpaid principal or interest.  

Ideal Use

This rate type benefits clients who are looking for that stable monthly payment but have plans of breaking the mortgage early; thereby incurring less in penalties.

ADJUSTABLE RATE

An adjustable-rate mortgage operates on a lot of flexibility. The mortgage payment adjusts every time there is a change in the Prime Rate. This ensures that the same amount of payment is made towards the principal balance of the mortgage regardless of what interest rate is being charged. 

Advantage

Like a variable rate, the penalty to break an adjustable-rate mortgage is cheaper compared to a fixed rate mortgage. It also allows you to enjoy paying off your mortgage balance at a uniform pace regardless of prime rate fluctuation.

Disadvantage

Should the prime rate increase drastically, the mortgage payment for this rate type could become too expensive and unmanageable if the borrower does not monitor the prime rate fluctuation prudently.

Ideal Use

The ideal client for this rate type is typically one that is an experienced investor and have surplus cash flow that could support any fluctuation that could happen on the mortgage payment because of a change in the prime rate.

Contact us today for a free consultation. Leveraging over twenty years of industry experience, we can plan your way forward and achieve your goal of being a homeowner the smart way.

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New Tax Rules for Co-Signed Mortgages Joepurewal

Alert: New Tax Rules for Co-Signed Mortgages

If you or your spouse co-signed a mortgage with your child or grandchild to allow them to qualify for a home purchase and went on the title of the home, you likely have a “bare trust” arrangement. If so, you must file a bare trust tax return for the 2023 tax year and future years. It is being on the title with your child that creates the bare trust arrangement. 

A bare trust is not the type of trust where a lawyer is sought to create it. Often, it can happen accidentally, like co-signing a mortgage. It’s when someone legally owns an asset as is the case if you go on title with your child, but the home technically belongs to your child. You have legal ownership, but you aren’t the one entitled to that property or the income or gain. The only responsibility you have is to transfer the property when demanded.

The technical definition of a bare trust from the Canada Revenue Agency (CRA) is available here. Bare trusts occur when you legally own an asset because you have some percentage of legal title of the trust property, but your child enjoys the benefits of ownership. The arrangement is a separation of legal and beneficial ownership of a property.

Even though there is no tax on the trust’s value, if Canadians don’t file their bare trust returns by the April 2nd deadline (before the general April 30th tax deadline for individuals), they could face multiple fees or penalties. The fee is $25 per day for late filing, with a minimum penalty of $100 and a maximum of $2,500. If CRA suspects gross negligence in filing, they can assess the greater of $2500 or 5% of the trust’s property which can be significant.

NOTE: The CRA recently announced that given the unfamiliarity of this for most Canadians, they will offer relief from the penalty and only go after real blatant cases of gross negligence for 2023. Great news!

While that announcement was a sigh of relief, you still need to file the bare trust tax return. You may have to pay someone every year to file the T3 Trust Income Tax and Information Return and a Schedule 15 Beneficial Ownership Information of a Trust. The new reporting requirements can be found here.

Co-signing a mortgage for your child or grandchild remains an excellent way to help them get on the homeownership ladder. But this new consideration may give some pause. Keep in mind that there is no tax to be paid, just an annual filing requirement.  If you want to discuss the pros and cons of co-signing a mortgage, speak with Mississauga’s best Mortgage Broker, Joe Purewal. Joe will have a frank conversation about the benefits and drawbacks and discuss other available strategies to help your child or grandchild achieve their homeownership dreams.

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Rate Hold Continues, But Cuts Are Coming Soon!

Rate Hold Continues, But Cuts Are Coming Soon!

Rate Hold Continues, But Cuts Are Coming Soon! 

As expected, the Bank of Canada held the overnight rate steady. The Bank wants more confidence inflation is in check and no longer a risk before making any cuts. A relatively good start to 2024 for the jobs market gives the Bank some breathing room to wait and ensure inflation is getting back under control before pivoting downward.

According to Macklem, the Bank aims to balance the need to ease monetary policy without prolonging its restrictiveness, while also safeguarding the strides made in curbing inflation.

We are heading in the right direction. Headline inflation fell to 2.9% in January, much lower than expectations of 3.3% and down from December’s 3.4% pace. We did see a higher-than-expected GDP growth rate of 1% in Q4, against expectations that growth would be flat. While GDP data modestly exceeded the Central Bank’s projections, the details showed that the domestic economy is anything but healthy and struggling under the weight of high-interest rates.

Leading up to Wednesday’s decision, traders in overnight swaps were anticipating that the bank would initiate rate reductions by the July meeting. Economists, however, now view June as the more probable start for the easing cycle. The next Bank of Canada rate announcement is April 10th, 2024, where there is an outside chance of a cut or more likely a hint of what’s to come in June. 

Recent data has caused the major Banks to slightly revise the projections for interest rate cuts. Still very good news but slightly less aggressive.

Source: Canadian Mortgage Trends

If you require a mortgage or are renewing in the next nine months, get in touch for a thorough review of your situation and expert advice. Mortgage decisions are complicated, so make the most informed decision possible.

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low rate mortgage Joepurewal

Don’t let an ultra-low-rate mortgage lure you in and handcuff your future! Get the full picture.

It might not be a good idea to fall for the allure of ultra-low-rate mortgages that could jeopardize your financial future. It’s a misconception that the lowest rate is the only factor to consider when choosing a mortgage. Remember the saying – the cheapest isn’t always the best. Many Canadian homeowners would be surprised to learn that a low-rate mortgage could prove more costly over time. The right mortgage involves much more than just the rate.

Bargain-rate mortgages often come with additional fees, penalties, or constraints that may outweigh the benefits of a slightly higher-rate mortgage with more favourable terms over the long haul. That’s why it’s so important to thoroughly vet all the details before committing. Many people focus on the rate they are getting, not the product itself.

Ultra-low rates can be used as bait, but these mortgages sometimes have significant drawbacks. They may have restrictions such as –

  • The requirement that your mortgage is fully closed. Your mortgage must be completely paid off or settled in full unless you decide to sell. Your mortgage can’t then be ported to a new home.
  • The limitation of refinancing only with the same lender, unless you sell your home, restricts negotiation opportunities.
  • Excessive penalties for breaking the mortgage. 
  • Having a limited amount that you can prepay, for instance, only being able to prepay up to 10% and not the full 20%, hinders efforts to become mortgage-free faster.
  • Not being able to add a Home Equity Line of Credit so you can access your equity later.

Pre-payment options stand out as one of the most effective strategies for interest savings. Whether it’s a quarterly bonus, tax refund, or seasonal income boost, these occasions present prime opportunities to reduce mortgage interest costs. When allocating extra funds towards the mortgage principal, homeowners can save thousands in interest. Missing out on pre-payment privileges with a cut-rate mortgage means missing out on potential savings.

Also watch for low-rate “teasers”: cut-rate mortgages with a short timeline. Sometimes a lender will offer a rate that is good for just 30 days, after which the rate will jump. If closing takes a little longer, or there’s a glitch in documentation, then you need to be prepared with a backup plan. These teasers can be stressful – and not always the best deal anyway.

Be sure to look carefully and consider the potential pitfalls of signing one of these contracts. You may not want a mortgage with handcuffs, especially since 50-60% of homeowners break their mortgage before the end of the term!

Choosing the right mortgage may take more time than quickly accepting a low rate, but it’s essential to pay attention to the details. Most people spend more time selecting the right car than choosing the right mortgage, even though it’s likely the largest expense they’ll likely ever have. Remember – the devil is in the details – so carve out some time for those details and get a second opinion.

We know that even a slight decrease in interest rate can result in substantial savings throughout the term of your mortgage. While mortgage brokers excel at securing competitive rates from various lenders, their expertise extends beyond mere rate comparison. That’s why it’s best if you work with a Mortgage Broker who will spend the time to determine the features and privileges that best meet your situation, looking at:

  • Penalties to get out of your mortgage early.
  • What is best for you – fixed or variable rate?
  • The best mortgage term given your situation and the current economic environment.
  • Pre-payment options so you can pay your mortgage off early.
  • Payment flexibility that can adapt to changes in your circumstances.
  • Additional restrictions and fees.
  • Portability should you want to take your mortgage with you when you move.
  • The ability for someone else to assume your mortgage.

Ensure you have a mortgage tailored to your situation, as the cheapest isn’t always the best option. The right combination of rate and features, matched to your needs, is the fastest route to mortgage freedom.

Another important piece of advice is to read the reviews of the company offering that ultra-low-rate mortgage. Cut-rate mortgages typically pay less in commission, which means there may be a trade-off with the service you receive.

Get the Full Picture and Honest Advice with Joe Purewal

It’s wise to explore the mortgage marketplace thoroughly and conduct diligent research. If you’re tempted by an ultra-low-rate mortgage offer, don’t hesitate to request the contract, and bring it to Joe for a comprehensive review. Joe will carefully examine all the restrictions and implications with you, ensuring you have a full understanding, without any obligation. If you decide to go with that mortgage, you are then making the most informed decision possible. With Joe Purewal’s expertise and commitment to honesty and full disclosure, rest assured you’re in capable hands.

Whether you’re a first-time homebuyer, preparing for mortgage renewal, refinancing, consolidating debt, renovating, or investing, now is the perfect moment to seek timely, expert guidance from Joe Purewal. With Joe, you can expect straightforward and honest advice tailored to your unique situation. Choose expertise. Choose honesty. Choose full disclosure.

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How Alternative Lenders Unlock Homeownership

How Alternative Lenders Unlock Homeownership Opportunities

Once upon a time, those in Mississauga, Toronto, and the GTA dreamt of owning their own home. But increasingly, the path to homeownership became out of reach due to stringent lending criteria set by traditional banks. However, a new array of lenders emerged, offering alternative mortgage solutions that opened doors for aspiring homeowners. So, let’s get familiar with this very important lending niche!

What are Alternative Mortgage Lenders?

Unlike traditional banks, these lenders often operate with more flexibility, accommodating borrowers outside the conventional credit criteria. What sets alternative lenders apart? It’s the ability to pivot, adapt, and tailor financial solutions to meet the diverse needs of borrowers. These lenders, include credit unions, B lenders, Mortgage Investment Corps (MICs), and private lenders, Let’s take a closer look at each:

Credit Unions

Credit unions are member-owned and provide a wide array of financial services and products, including accepting deposits, making loans, and offering other banking services. Credit unions, often more lenient in their credit assessments, support borrowers with unique financial situations, offering an alternative path to mortgage approval.

B Lenders

B lenders, also known as non-conforming or alternative lenders, specialize in providing mortgage financing to borrowers who may not meet the stringent criteria set by banks. B lenders take a more flexible approach to underwriting, often assessing mortgage applications using a more holistic approach, considering factors beyond just credit scores. While interest rates may be higher compared to prime lenders and fees may be charged, their flexibility in underwriting allows borrowers with unique financial profiles to access mortgage opportunities that may be otherwise elusive.

Top B Lenders include –

  1. Home Trust: Home Trust is a leading alternative lender in Canada, specializing in providing mortgage solutions to self-employed individuals, newcomers to Canada, and individuals with credit challenges.
  2. Equitable Bank: Equitable Bank offers a range of alternative mortgage solutions, including home equity lines of credit (HELOCs) and reverse mortgages. They cater to borrowers who may not meet the strict traditional lending criteria and focus on finding tailored solutions to meet their clients’ needs.

Mortgage Investment Corps (MICs)

For a homebuyer who doesn’t qualify for a traditional mortgage, a Mortgage Investment Corporation (MIC) in Canada can be another solution. When traditional lenders have stringent criteria, MICs may offer more flexibility. These corporations pool funds from various investors and use them to provide mortgages. As a homebuyer, you might find an avenue through a MIC if your financial situation or credit history doesn’t meet the requirements of traditional lenders.

Private Lenders

Private lenders, as the name suggests, are individuals or organizations that lend their own money rather than funds deposited by customers. Operating outside the regulatory constraints of traditional banks, private lenders are often willing to take on higher levels of risk in exchange for potentially higher returns.

Private lenders focus less on credit scores and more on the value of the financed property. They often serve as a viable option for borrowers who may not meet the requirements of credit unions, B lenders, or MICs. Private lending comes with its own terms and conditions, including higher interest rates, fees, and shorter repayment periods.

Why do borrowers opt for the private mortgage route? For many, it’s the lifeline they need when traditional banks slam the door shut. Private lenders play a pivotal role in assisting borrowers with imperfect credit, non-traditional income sources, or those facing unique financial circumstances. Their focus on the property’s value rather than strict credit criteria positions them as a lifeline for individuals navigating challenging credit scenarios.

Private lenders are particularly valuable when it comes to second mortgages, which are used when homeowners don’t want to break their current mortgage or don’t qualify for a home equity line of credit to access their home’s value. There are many reasons for getting a second mortgage, including:

  • Debt consolidation – credit cards, tax arrears, unsecured loans – to reduce interest costs, boost cash flow, and improve your credit score.
  • Home renovations, including renewable energy retrofits
  • Large expenses – wedding, educational costs, medical bills, legal bills, divorce settlement, helping family, a big-ticket purchase, immigration costs
  • Investing in a rental or vacation property
  • Business needs

Expanding Housing Opportunities

The emergence of alternative mortgage lenders has expanded housing opportunities for Canadians. These lenders offer more flexible lending criteria, enabling borrowers with unique financial situations to access the funds needed to purchase their dream homes or access their equity for financial needs or opportunities. Whether it’s individuals with non-traditional income sources, self-employed individuals, or those with less-than-perfect credit scores, alternative lenders have become a lifeline for many prospective homeowners and existing homeowners.

Additionally, with higher rates, borrowers are finding it hard to qualify under the mortgage stress test where they must show they can afford their mortgage payments at a rate of two percentage points higher than the mortgage contract rate. With an alternative lender, you can have the option of getting a mortgage without the stress test requirement.

By offering options to individuals who may have previously been excluded from homeownership, these lenders contribute to increased housing affordability and accessibility. According to Stats Can, in the second quarter of 2023, outstanding loans from credit unions, private lenders, and mortgage investment corporations reached $388.6 billion.

Additionally, alternative lenders provide competition, which fosters innovation and drives the market to adapt to the changing needs of borrowers.

While alternative lenders provide access to financial opportunities, it’s important to keep in mind that rates are higher than with traditional mortgages and fees may apply. It’s essential to weigh the costs against the benefits while working with a trusted expert.

Joe Purewal, Mississauga Mortgage Broker – Alternative & Private Mortgage Specialist

Top-rated Mortgage Broker Joe Purewal is ready to review your situation to determine if an alternative lender is right for your situation. With a wealth of expertise, Joe can provide invaluable insights into credit unions, B lenders, MICs, and private lenders, helping individuals make informed decisions. If you are in Mississauga, Toronto, or the GTA and need to break free from traditional lending constraints, Joe Purewal is your trusted partner in exploring flexible and innovative financing solutions. Talk to Joe today!

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What Lies Ahead After a Year of High Rates? How to Take Advantage?

It was a year marked by escalating interest rates, but now it’s time to turn the page on the challenging financial climate of 2023. From a Bank of Canada overnight rate of 4.25% at the close of 2022 to the current rate of 5%, coupled with a surge in bond yields influencing fixed rates, Canadians felt the impact. However, there’s optimism on the horizon as relief is anticipated.

Rate Cuts Are on The Way

In 2024, the anticipation of rate cuts has been generating considerable buzz and speculation. Economists aren’t wondering if the Bank of Canada will cut the overnight rate, but when they will. While nothing is set in stone, there are compelling reasons to believe that Canada could be the first country to cut rates as early as April. Here’s why:

  1. High Canadian Debt Levels: One of the primary drivers for rate drops is the alarming levels of Canadian debt. Canada has one of the highest household debt-to-income ratios in the world. According to a report by Equifax, total consumer debt came in at $2.4 trillion in Q3 2023, an increase of $80.9 billion from the same period last year. In terms of non-mortgage debt, total card balances reached $113.4 billion in the third quarter of 2023, an all-time high, representing a 16% increase from the same period last year.
  1. Mortgage Renewal Payment Shock: A looming $900 billion mortgage renewal payment shock is on the horizon for 2024 to 2026 according to RBC. This impending financial strain will be another crucial factor in the Bank of Canada’s decision to lower interest rates, providing relief to homeowners facing hefty mortgage payment increases and preventing an economic downturn. While rates won’t return to their pandemic lows, every rate cut will help homeowners with their renewals. 
  1. Mortgage Interest as a Significant Component of Current Inflation: Mortgage interest plays a pivotal role in current inflation rates. As mortgage rates rise, the higher interest paid increasingly contributes to the overall inflationary pressure. At the end of 2023, mortgage interest costs are one of the primary reasons we haven’t yet reached the 2% inflation target. This is why the Bank of Canada has said they would drop rates before inflation reaches the target. 
  1. Canada Heading into a Recession: With economic indicators like negative GDP and rising unemployment pointing towards a potential recession, the Bank of Canada will use rate cuts to cushion the impact of an economic downturn and help reignite the economy.

Strategies to Navigate Your Finances

Given anticipated rate cuts, now is the time to consider how you can effectively maneuver the expected environment in 2024. Here are some strategies for various scenarios.

  1. Focus on Your Mortgage Renewal Early: For individuals with upcoming mortgage renewals, early preparation is key. At renewal, you can shop the market to make sure you get the best deal possible, making this an important moment of opportunity!

    If your financial situation is becoming difficult, renewal is a fantastic time to discuss consolidating your debts to get one manageable payment. Debt consolidation can also boost your cash flow, save on interest costs, and potentially improve your credit score.

    Another option, if you are struggling with all your monthly obligations, is to consider extending your amortization for cash flow relief. Joe Purewal is a Mortgage Renewal Expert and will discuss all your options and guide you toward the perfect renewal plan that fits your needs and budget.

  1. Consolidate Debt Now: Consolidating debt before renewal through refinancing or a short-term second mortgage is another strategy that may be beneficial in our current economic environment. By consolidating debts into a single, lower-interest mortgage or line of credit, monthly payments can be reduced, making it easier to manage your overall debt load.

    Debt consolidation through refinancing involves breaking your current mortgage and replacing it with a bigger new mortgage to cover your mortgage and other debts. A second mortgage gives you the option of not breaking your mortgage and incurring fees,  and it lets you keep your low fixed-rate mortgage if you have one. 

  1. Consider a Variable or Adjustable-Rate Mortgage: Given the prospect of declining rates, it’s time once again to consider a variable or adjustable-rate mortgage. With an Adjustable Mortgage, when the Bank of Canada lowers rates, your monthly payment decreases, providing a cash flow boost—a good option for strained budgets. With a Variable Mortgage, your payments remain constant regardless of Bank of Canada rate changes. Lower rates mean you pay off more principal. Your choice depends on your cash flow needs and your financial goals.

Advice for Homebuyers: Seize Opportunities

We anticipate that lower rates will cause the housing market to head back toward its peak. Bidding wars, no-condition offers, sellers not willing to negotiate, and escalating prices could return, leading to stress and anxiety. The following factors have led us to this conclusion:

  1. Chronic Lack of Housing Supply: CMHC estimates that 3.5 million more homes are needed by the end of the decade to return to affordability, yet we are not on track to meet the current goal let alone an additional 3.5 million homes.
  1. Growing Population: Canada’s growing population continues to drive housing demand. Homes aren’t being built fast enough to accommodate this increase in housing needs. According to a study conducted by the Fraser Institute, from 2018 to 2022, Ontario added an average of 239,915 people per year, of which 153,065 were immigrants, or 64% of Ontario’s population growth. However, an average of 70,828 new homes were completed each year, resulting in a ratio of 3.4 new people to each new housing unit. That is quite the deficit! 
  1. Parental Support in Home Purchases: Parents assisting their children in buying homes is a prevailing trend. The intergenerational wealth transfer from the Baby Boomers to succeeding generations will continue to unfold and has become an important driver of the housing market. According to Sagen’s first-time buyer study, six in ten first-time buyers received financial support in some form from their families.

Don’t Wait – Seizing the Opportunity

Seizing the opportunity could mean buying your dream home at a reduced price and with the lowest possible downpayment. For example, if you’re eyeing a $950,000 home, you’ll need to put down 5% on the first $500,000 and 10% on the remaining amount, totaling $70,000 – a 7.4% downpayment. Once that $950,000 home crosses the $1 million mark, you must make a hefty 20% downpayment. Imagine the regret of missing out on locking in your dream home at a significantly lower price and downpayment!

Yes, interest rates are high right now, but remember your rate is only relevant during your mortgage term. The victory you achieve from purchasing a house at a great price lasts a lifetime!

For potential homebuyers, the advice is clear: don’t wait. Lower interest rates can act as a catalyst for the housing market, driving prices higher. Seizing the opportunity now can result in significant long-term financial benefits. Suppose you need help qualifying for a mortgage. In that case, we can discuss strategies like gifted downpayment, getting one or more cosigners, co-ownership with a family member or friend, letting renters help pay your mortgage, borrowing from your RRSP, and alternative lenders.

Get Expert Insights: Turn to Mississauga Mortgage Broker Joe Purewal

In navigating our complex mortgage and real estate markets, seeking professional guidance is paramount. Mississauga Mortgage Broker Joe Purewal provides insights and strategies tailored to individual financial goals. Joe’s perspective adds valuable context and will help ensure you make informed financial decisions. With a focus on personalized advice, Joe Purewal crafts tailored strategies for clients based on their unique financial circumstances and long-term goals.

As we anticipate the Bank of Canada’s move to lower the overnight rate, Canadians find themselves at a pivotal moment. By understanding the factors influencing this shift and employing strategic financial moves, you can navigate the challenges and seize opportunities in Mississauga, Toronto, and the GTA. Taking proactive steps, like getting expert advice from Mississauga Mortgage Broker Joe Purewal, can make a significant difference in weathering a financial storm and capitalizing on emerging trends. As the pages turn on the era of high rates, it’s time to prepare for the rates that we expect in 2024 and seize opportunities as they arise.

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Great News: Bank of Canada Holds Key Rate Steady!

As anticipated, the Bank of Canada has decided to maintain the overnight rate at 5.0% for its final announcement of the year. The Bank noted that inflation is coming down in a “broadening range of goods and services” although rent and mortgage interest are keeping the shelter component of inflation very high and affecting our ability to approach the 2% inflation target. This is why the Bank of Canada will consider cutting rates before we officially reach that target.

In 2024, we expect the central bank to lower the overnight interest rate to stimulate the overall economy, assuming inflation remains under control. This news bodes well for over 50% of mortgages set for renewal in 2025 and 2026.

The major Banks predict that the overnight rate will drop 1 to 1.5% by the end of 2024. Many predict that the first rate cut could come as early as April 2024.

Source: Canadian Mortgage Trends

We also anticipate these rate cuts will have a positive impact on the Mississauga real estate markets and throughout Toronto and the GTA. With pent-up buyer demand, improved affordability thanks to lower rates and prices, robust immigration, and a chronic shortage of housing supply, we can expect increased activity in the housing market.

We continue to recommend to not wait for rates to drop to enter the housing market if possible. Paying a higher rate now at a lower home price is better than higher prices at lower rates.

It’s important to note that when home prices are below $1M, the minimum downpayment is 5% on the first $500,000 and 10% on the remainder.  When prices are over $1M, the minimum downpayment is 20%.  Don’t miss out on getting in on a low downpayment. You only need a small increase in price to offset the higher interest costs.

Purchasing when the market is down means less competition, no bidding wars, more time to decide, the ability to put conditions in offers, and sellers are more willing to negotiate. Remember that your rate only lasts for the term, while a great deal on a home lasts a lifetime!

If you need a mortgage or are planning to renew within the next six months, reach out to Joe Purewal, your trusted Mississauga Mortgage Broker, for a comprehensive review of your situation and expert advice. Given the complexity of the current market, it’s crucial to make the most informed decision possible.

If you aren’t financially ready but see a great opportunity to get into the Mississauga, Toronto, or GTA housing market at low prices, we can discuss these strategies:

  • Gifted downpayment
  • Co-signors
  • Co-ownership
  • Renting part of the home
  • Early inheritance
  • Borrowing from your RRSPs
  • Alternative lenders

The next Bank of Canada announcement is on January 24th, 2024. Stay tuned for more updates! Joe Purewal, the top-rated Mississauga Mortgage Broker, is committed to making sure you stay ahead of the game with timely insights on the mortgage and housing markets.

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The Gift of Financial Well-Being

The holiday season is a time for celebration and joy. However, for many individuals in Mississauga and the Greater Toronto Area (GTA), it can also bring financial stress. With the additional expenses that come with December, feeling overwhelmed by financial worries is not uncommon. That’s why it’s important to prioritize your financial well-being and consider adding a comprehensive debt checkup to your holiday to-do list.

Conducting a debt checkup offers several advantages that can positively impact your financial stability. It allows you to regain control over your finances, alleviating stress, and anxiety. While it may seem counterintuitive to focus on debt during the holiday season, taking stock of your financial situation is essential, especially as the temptation to overspend looms. Many people find themselves burdened with debt overload when their credit card bills arrive in January. Proactively addressing your debt can help you start the new year with a clearer financial outlook.

So where do you start?

Assess Your Debts

Begin by creating a list of all the debts you are dealing with, including the amount you owe, the current interest rate, and the minimum payment. These debts may include credit card debt, personal loans, car loans, and mortgages, each with its terms, conditions, and implications for your overall financial situation.

Strategies for Paying Down Debts

A checkup gets you to identify high-interest debt and develop a strategy to pay it down effectively.

When it comes to prioritizing which debts to pay off first, there are two common strategies: the highest balance method and the highest interest rate method. The highest balance method involves targeting the debt with the largest outstanding balance and paying it off first while continuing to make minimum payments on other debts. This approach can provide a sense of accomplishment as you see a large debt eliminated.

On the other hand, the highest interest rate method involves focusing on the debt with the highest interest rate first. By tackling high-interest debt, you can save money on interest payments over time. This approach is often recommended for individuals who want to minimize the overall cost of their debt. The strategy you choose should align with your financial situation and goals. It’s important to evaluate your debts, their interest rates, and your available resources to determine which approach makes the most sense for you.

Managing Debt: Tips and Strategies

  1. Create a Budget: Developing a budget will help track your income and expenses, providing a holistic view of your financial situation. It enables you to identify areas where you can reduce spending and allocate funds toward debt repayment. Here is an online Budget Planner that allows you to create your budget and save it online. You’ll also get useful tips, and it will help you figure out your next steps with suggestions. You’ll get charts that show you where your money is going, and you have the option to compare your budget with those of other Canadians like you.
  2. Reduce Non-Essential Spending: Analyze your monthly expenses and identify areas where you can cut back on non-essential spending. This could include dining out less frequently, reducing entertainment expenses, stopping subscriptions you no longer use, or finding more affordable alternatives for certain products or services. Making small adjustments to your spending habits can free up extra money for debt repayment.
  3. Increase Your Income: In addition to cutting expenses, consider opportunities to increase your income, such as taking on a side job, asking for a raise at work, or exploring other ways to generate additional income. The extra money can be used to accelerate your debt repayment and achieve your financial goals faster.
  4. Avoid New Debt: One of the most important strategies for managing debt is to avoid taking on new debt whenever possible. While it can be tempting to use credit cards or take out loans to cover expenses, this only adds to your existing debt burden. Instead, focus on living within your means and finding creative solutions to meet your financial needs without relying on credit.
  5. Set Financial Goals: By establishing clear financial goals, you provide yourself with a roadmap for achieving long-term stability. Whether it’s paying off a specific debt or saving for a major purchase, having concrete objectives keeps you motivated and focused.
  6. Explore Debt Consolidation Options: Debt consolidation can be a viable option to streamline multiple debts into a single, more manageable payment. This approach simplifies your financial obligations, boosts your cash flow, reduces interest rates, and provides greater convenience.

    Consider the case of Joan and Yousef, who had a combined debt of $550,000 from their mortgage ($500,000), car loan ($25,000), and credit cards ($25,000). By leveraging their home equity, they rolled all their debts into a new $557,813 mortgage. Despite incurring a fee to break their existing mortgage, the payoff was worth it. They now enjoy an additional $980 in monthly cash flow. Joan and Yousef plan to use some of their improved cash flow along with tax returns and bonuses to accelerate their debt repayment, providing them with more optimism about their financial future.

    While breaking your current mortgage incurs penalties, you want to assess whether the potential savings outweigh these costs. By working with a professional like top-rated Mortgage Broker Joe Purewal, you can determine the feasibility of refinancing or explore other options like a second mortgage that also provides flexibility and financial breathing room. A second mortgage is a good option if you don’t want to break your mortgage and lose your current low rate. You consolidate your non-mortgage debts into the second mortgage and then pay down both first and second mortgages.
  7. Stay Committed to Your Plan: Once you’ve developed a strategy for managing your debt, it’s essential to stay committed to it. Consistency is key when it comes to debt repayment. Set up automatic payments, create reminders, and maintain your commitment to your plan, even when faced with unexpected challenges. Staying disciplined and focused will help you make steady progress toward becoming debt-free.

Joe Purewal, Mortgage Broker, and Cash Flow Specialist

Joe Purewal, a cash flow specialist, and top-rated Mortgage Broker can provide valuable assistance in achieving financial comfort and stability. Work with Joe when you have questions or need assistance with your credit score, to assess the feasibility of debt consolidation, and should you need to better understand alternative financing solutions that offer flexibility and breathing room. With Joe’s guidance, you can make informed decisions about your mortgage plan and overall financial strategy.

Remember, prioritizing a comprehensive debt checkup, implementing effective debt management strategies, and seeking professional advice can help you secure financial stability and start the new year on a strong footing. The gift of financial comfort is within reach for everyone in Mississauga, Toronto, and the GTA. Contact Joe today to embark on your journey toward a brighter financial future.

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Mississauga Housing Stats and 2024 Projections

Data and analysis provided by ReMax.

The Mississauga housing market saw the average sale price decrease by 5.5% between 2022 and 2023, dropping from $1,130,192 to $1,068,367. Concurrently, sales decreased by 16.8%, falling from 6,176 to 5,137 units. The average sale price across all property types is expected to remain steady in 2024, while sales are anticipated to increase by 20%. Overall, the housing market is expected to shift from a buyer’s market to a balanced one in 2024.

City Centre, Hurontario, and Erin Mills are expected to be desirable neighborhoods in Mississauga in 2024. Condominiums are projected to experience the highest demand due to their affordability and an influx of buyers seeking affordable properties amidst rising living costs. There is also interest in duplexes and triplexes to offset monthly mortgage payments by renting out basements, entire floors, or specific units. Even though condominium prices have stabilized at a three-year low, first-time homebuyers are hesitant to enter the market due to the current high-interest rate environment, further delaying their plans. Consequently, increased demand is anticipated in the coming months.

“First-time buyers, move-up buyers, and newcomers are highly attracted to the Mississauga region with its affordable entry price and ample supply. Individuals have plenty of options, especially as the region welcomes several new developments in the years ahead,” says Charles Park, RE/MAX Realty Services Inc. Mississauga currently has 50 new development projects, with many facing delays due to supply chain and labor issues.

Access to public transportation, amenities, and public services is also a priority for buyers in the region, a crucial consideration for neighborhood selection and final purchase decisions.

As with other regions in Canada, higher interest rates are the dominant factor affecting the overall market in Mississauga and will be a key determining factor among buyers in 2024.

If you want to discuss your Mississauga purchase plans, get in touch with Mississauga Mortgage Broker Joe Purewal today!

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Inflation drops to 3.1%!

Fantastic news! The annual inflation rate for October dropped to 3.1%, a significant decrease from September’s 3.8%. The Royal Bank’s projection hit the mark, while the Bank of Montreal had forecasted a slightly higher rate of 3.2%. This positive development is attributed to a decline in gas prices and a moderation in grocery prices.  

Excluding food and energy, inflation fell to 2.7%. Two other inflation measures, trim and median core rates, were also lower. These are closely tracked by the Bank of Canada so it was important they also headed down. 

Ultimately, the obstacle to reaching the 2% target lies in high shelter costs, encompassing rent and mortgage interest payments, which are a direct result of the Bank’s rate increases.

This is very favourable news for the Bank of Canada as it prepares for its next interest rate decision on December 6th, when we anticipate another rate hold. Some economists predict the first rate cut as early as April 2024, with additional cuts throughout the year due to slower economic growth and a softer labour market. While a return to the extremely low rates seen during the pandemic may not be likely, lower rates are certainly on the horizon.

Here in the GTA, we are in a buyer’s market. Now is a great time to look around for that perfect deal. If you aren’t yet financially ready but recognize the financial benefit of buying before prices rise, consider strategies like: 

  • a gifted downpayment
  • securing one or more co-signers to strengthen your mortgage application
  • co-ownership
  • renting out part of the home
  • selling assets
  • getting an early inheritance, or 
  • using an alternative lender with more flexible qualifying criteria. 

We’re here to assist, so let’s talk! 

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Expert Tips to Boost Your Credit Score and Achieve Mortgage Success

Your credit score is more than just a number; it’s a key that unlocks the door to homeownership and it’s your passport to all financial opportunities. Understanding what a credit score is, why it’s so essential in the mortgage application process, and how you get and keep a strong credit profile can significantly impact your financial journey, now and in the future.

What Is a Credit Score?

Your credit score is a numerical representation of your creditworthiness. It’s a three-digit number that lenders use to assess how likely you are to repay your debts on time. Ranging from 300 to 900, a higher credit score indicates a lower credit risk, making you a more attractive candidate for mortgage lenders. But what makes this number so influential in your quest to own a home?

The Significance of Credit in the Mortgage Application Process

The mortgage application process is a rigorous evaluation of your financial stability, and your credit score plays a central role in this assessment. Lenders scrutinize your credit history to gauge your ability to manage debt responsibly.

When you apply for a mortgage, you’re essentially asking a lender to entrust you with a substantial sum of money. Lenders need reassurance that you’re a reliable borrower, and your credit score is one of the primary indicators they use to make this determination.

A strong credit score not only increases your chances of mortgage approval but can also affect the terms of your loan. A high credit score can lead to lower interest rates, which can save you a significant amount of money over the life of your mortgage. Conversely, a lower credit score might result in higher interest rates or even mortgage denial.

In essence, your credit score is your financial reputation, and it can significantly impact your ability to achieve homeownership. It is also within your control. Therefore, understanding how to boost and maintain a strong credit profile is an essential step in your journey toward securing a mortgage. By taking preventative measures and adopting responsible credit habits, you can improve your creditworthiness and open more financial opportunities.

Strategies for Building and Maintaining a Strong Credit Profile:

Ensure Timely Payments – Always: Late or missed payments on credit cards, loans, or bills have the biggest detrimental impact on credit scores. Payment history plays a substantial role in your overall credit score calculation. Consistently making on-time payments demonstrates your reliability and responsibility in meeting financial obligations. Employing reminders and automating payments can effectively mitigate the risk of payment issues.

Have Optimal Credit Utilization: Credit utilization refers to the percentage of your available credit that you currently use. Maintaining low credit utilization signals to lenders that you are not overly dependent on credit and possess prudent control over your expenditures. High credit utilization implies a greater risk of being unable to manage debt effectively. It is advisable to keep credit utilization below 30% for each credit account.

Maintaining low credit utilization yields several other advantages, including increased available credit, providing a safety net for unforeseen expenses, and preserving room for future borrowing if necessary.

To sustain low credit utilization, aim to pay off your credit card balances in full every month.  You should also refrain from maxing out your credit limits, which can happen if you are close to your limit. Interest charges and penalties could put you over.

If you do need to carry a balance, try to spread that debt amongst multiple cards so the utilization is low with each instead of having one card with high utilization. Additionally, consider accepting credit limit increases, but exercise caution to avoid unnecessary spending.

Establish a Credit History: Lacking a credit history leaves lenders with minimal information to assess your financial responsibility and credit management ability. Constructing a credit history involves responsible usage of credit cards and prompt payments. A demonstrated track record of responsible borrowing and repayment is invaluable. This is why it is very important not to cancel your oldest credit card, as it holds your lengthiest credit history. You may want to cancel a particular card to avoid paying the fee but first check to see if you can switch to a no-fee or lower-fee card and keep that valuable history. Seek guidance before deciding to cancel a credit card.

Diversify Your Credit Types: Having a diverse range of credit types, which may include one or more credit cards,  a line of credit, a loan, and a mortgage, tells lenders that you can manage various types of credit responsibly. We typically favour one credit card even if we have more than one available, and often we don’t use our line of credit. You may want to consider using your dormant credit accounts occasionally but then paying them off immediately.

Be Careful with Credit Applications: Submitting numerous credit applications in a short span can adversely affect your credit score, as each application generates a “hard inquiry” on your credit report. It is wise to be selective and only apply for credit when necessary to avert potential negative repercussions on your credit score.

Handle Negative Events: Bankruptcy and collections can inflict significant harm on your credit score. Avoiding these adverse marks is pivotal for maintaining a favorable credit score. Therefore, promptly addressing any outstanding debts or financial issues holds paramount importance.

Deal with Disputed Charges by Paying First, Then Get a Resolution

Discovering questionable charges on your credit card statement can be frustrating. However, refusing to pay and waiting for an investigation can be problematic. If you don’t clear the balance to zero, any credit card charges made after the next due date will accumulate interest charges from the date of purchase. Depending on your card usage, late payments might be reported to credit bureaus, impacting your credit history for up to six years.

In most cases, credit card issuers address fraud or errors effectively. Therefore, it’s advisable to pay the disputed charge(s) and await the credit to be returned to your account once the investigation concludes.

Monitor Your Score & Fix Errors: Regularly monitoring your credit reports empowers you to spot any inaccuracies, discrepancies, or signs of fraudulent activity. Reporting and rectifying these errors can uphold the accuracy of your credit information and preclude any negative impact on your credit score. You can obtain your credit score and report from Equifax and TransUnion.

Guidance and Support from Mississauga Mortgage Broker, Joe Purewal

Your journey to homeownership is linked to the strength of your credit score. However, the road to a strong credit profile can sometimes be challenging to navigate alone. That’s where trusted experts like Mississauga Mortgage Broker Joe Purewal come into play.

Joe Purewal can help craft a customized plan to improve your credit score so you can take deliberate steps to enhance your creditworthiness. Additionally, Joe can help you secure a mortgage while you focus on improving your credit. He has the expertise and available lenders that will look at difficult credit situations.

Your credit score is your passport to homeownership and a world of financial opportunities. By taking proactive measures, adopting responsible credit habits, and seeking guidance from Mississauga Mortgage Broker Joe Purewal, you can not only boost your credit score but also secure the mortgage you need to step closer to your dream of owning a home. With the right support, your financial journey becomes more manageable, and your homeownership goals become more attainable.

Don’t wait; start shaping your credit future today and unlock the doors to the world of homeownership.

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