Newsletter April 2021

The government is starting to target the increasing prices on Real Estate. Today’s newsletter is fully dedicated to this topic and mortgages.

1. Changes to Stress Test for uninsured mortgages.
2. What other implementations are being discussed due to current situation in Real Estate market?
3. Mortgage and interest rate – what are happening today and what to expect in upcoming years.
4. Debt Consolidation – refinancing property, why not if it is beneficial? And yes, the stress test has not been changed yet.
5. Register for an interesting program and enter a chance to win a trip with friends to a wonderful cottage on the coast of Georgian Bay.

Now in more details:

1. Changes to Stress Test for uninsured mortgages.

In April 2017, the government introduced a 15% tax for non-residents buying property in Ontario, and that helped slow down crazy increase in prices that was present for a few years prior. But that time has passed, the market is active again, with the beginning of pandemic and lower mortgage rates the prices are again increasing rapidly. For March 2021, year-over-year property prices growth in Toronto was 20%, outside the GTA the increase was as much as 31%.
And now we are in April again, this time in year 2021, and the government is intervening again.
OSFI – Office of the Superintendent of Financial Institutions has decided and will probably implement on June 1st increased stress test on uninsured mortgages.
Current qualification rate in all scenarios is 4.79%.
What is a Stress Test?
The banks are worried that at the time of renewal of your mortgage in the future, the rate will be higher and you would not be able to continue paying your obligations, which would be a problem for everybody.
This is why you get qualified at a high rate, and if you qualify to meet your payments at this higher rate in accordance with a specific formula, you receive the lower rate, currently offered on the market. The above mentioned higher rate is the Stress Test, which today is 4.79%.
This is the Stress Test that is planned to be increased to 5.25%.
I would like to offer examples to show how such changes will effect ability to purchase property.
I would like to begin by saying that prior to pandemic, the rate for Stress Test was even higher than 5.25%.
Prior to pandemic, on mortgages with a 30-year amortization period, in order to estimate an approximate mortgage amount that could be obtained with a specific income, total income was multiplied by 5.
In other words, if the total income was $100,000 per year, approximate mortgage that could be obtained was $500,000. During the pandemic, the rates decreased dramatically and with a stress test of 4.79% (current rate) income could be multiplied by 5.4. Therefore, today, a mortgage of $540,000 can be obtained on the same $100,000 income.
When the rate increases to 5.25%, the appropriate multiplier would be 5.1. Meaning, the same $100,000 can now be estimated to receive about $510,000 to buy a property, which is worse than the current situation but better than prior to COVID.
How will this reflect on the market is still uncertain, there is no expectation of a crash, although it may prevent some from buying property in a certain price range. I am hoping the changes will lead to a more reasonable growth rate, what is happening right now is not right, should not be like this.
Unfortunately, there are talks that insured mortgages can also be introduced with the same stress test.

I would like to remind you that our office works with various financial institutions (Lender A, B, credit unions, private lenders), and we can offer a mortgage in a variety of situations. For example, there is a way to not use stress test at all, which results in obtaining higher mortgage amount with the rate lower than the bank without the stress test. Today, the interest on B lending mortgages, where CRA income verification is not required, instead gross income as self-employed or business owner is used, has decreased so much that it is almost the same as Lender A category.
Contact us, we are always ready to help.

2. What other implementations are being discussed due to current situation in Real Estate market?

On April 1st, 2021, Central Bank of Canada released a warning that the real estate market is overheated. Chair of the Bank of Canada, Tiff Macklem, announced that people are wrong when buying real estate and expect it to grow at current rate.
Ideas are being brought forward on how to deal with rapid increase in property prices, including removing the ability to not pay taxes upon sale of own property (principal property capital gain exemption), introduction of speculative tax for non-residents of the country that own a property but do not live in it. On top of that, removing the practice of non-disclosure of prices of competing offers during the purchase of the same property. Such practice artificially inflates the prices of the properties.

3. Mortgage and interest rate – what are happening today and what to expect in upcoming years.

Fixed rate on mortgages increased in the last month, but remains fairly low. A year ago such rates were unthinkable.
Majority of experts believe that no change to Prime Rate is to be expected until year 2023. Many have already changed their mortgages with higher rates to lower fixed rates. We can help analyze your situation, but you should call us once you find out the amount of penalties you will have to pay for breaking the current contract. Contact your bank, find out what the penalties would be and then we would be able to analyze your situation.
At the same time, variable rate has become more attractive.
Rates on mortgages, in short term, can increase or decrease. It is best to secure a good rate 4 months prior to the maturity of your current contract and wait until the current mortgage term ends. If, in the meantime, the rate decreases, you automatically receive a better rate, if the rate increases, you win.
Please read the following section on our website Manage Your Mortgage | totrov.com.

4. Debt Consolidation – refinancing property, why not if it is beneficial? And yes, the stress test has not been changed yet.

Very often it is important to stop paying such high interest to the bank on credit card and line of credit balances, all debts can be combined into one, low rate. Imagine all your credit cards and lines of credit with no balance, you do not have to pay high interest and you are paying only one debt – mortgage. Sure, it increased by the amount of your other debts on cards, but the payments have become significantly smaller in comparison to current mortgage and all other payment for your debts on cards, lines of credits and loans.
At the end of the day it is important to relax, eliminate stress, which is certainly present in these situations.
We can help you calculate the benefits of such transaction.

5. Register for an interesting program and enter a chance to win a trip with friends to a wonderful cottage on the coast of Georgian Bay.

Those who register on our website for the Manage Your Mortgage program, will be entered into a draw of five prizes every 3 months Three Night Cottage Vacation | totrov.com.
One of the prizes – trip to a cottage on the coast of Georgian Bay for 3 nights (maximum 8 people). In today’s environment of pandemic, to spend time with family or friends, away from the city, is a dream.
But you also have to remember that the Manage Your Mortgage | totrov.com may help you save money over the next few years.
Read the information on our website and you will understand that this is true. With the money you saved, you can maybe go somewhere else or even pay for the same cottage with your own money.

Serguei Totrov
Financial Advisor, CFP, CLU, EPC
Mortgage Broker, AMP
TOP-75 Mortgage Brokers in Canada
2015, 2016, 2017, 2018, 2019, 2020
416-222-0533
www.totrov.com

If you no longer wish to receive these messages, please respond to this e-mail.