Rate Update: Bank of Canada maintains overnight rate target at 1.75%

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Make sure mortgage math is in your favour

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Yes, you may be able to afford a new home in Toronto. No, you can’t have a backyard

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Home ownership is a hot issue this election. But will politicians’ promises hurt or help prospective buyers?

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Economic Update: What our economist is saying about government intervention, and the direction of the economy.

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Bank of Canada Increases Overnight Rate to 1.25%

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Jan 17, 2018 – The Bank of Canada today increased its target for the overnight rate to 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook.

The global economy continues to strengthen, with growth expected to average 3 1/2 per cent over the projection horizon. Growth in advanced economies is projected to be stronger than in the Bank’s October Monetary Policy Report(MPR). In particular, there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes. Global commodity prices are higher, although the benefits to Canada are being diluted by wider spreads between benchmark world and Canadian oil prices.

In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.

Source: Bank of Canada

Picture Source: Financial Post

Major Policy Change – another day, another mortgage change…and this one’s BIG!

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While the details are still trickling in, the Office of the Superintendent of Financial Institutions (OSFI) has once again used its powers to tighten mortgage qualification rules.  These changes could be effective as early as today for some lenders, but no later than January 1, 2018 and will impact anyone looking to purchase or refinance a home with 20% or more down payment or equity – i.e., a lot of people.

We will continue to monitor this closely as the various banks and lenders issue their responses/implementation dates and guidelines.  We hope you find the below helpful, and we are available at any time to discuss any specific or general questions or scenarios you may have.


What’s Changing?

While a number of changes were announced today, the most significant is with respect to setting a new minimum qualifying rate, or “stress test” for uninsured mortgages (i.e., mortgages with 20% or more down payment).

As a recap, currently if you have 20% or more for a down payment and you select a 5-year fixed mortgage term, you can qualify for a maximum mortgage using your actual monthly payment in the calculations.  A typical 5-yr fixed bank rate is around 3.24% right now, which is called the “contract rate” or “actual rate”.  Going forward, while your actual mortgage payment would still be based on your contract rate, you would need to qualify using a much higher monthly mortgage payment based on the new “stress test” rate requirement which is the HIGHER of:

  • The 5-yr benchmark rate published by the Bank of Canada (currently 4.89%), or
  • The contract rate plus 2.0% (i.e., if the contract rate is 3.24% the qualifying rate would be 5.24%)

In the above example, this change would significantly reduce the maximum purchase price or refinance amount that a person could qualify for as it would require them to qualify based on a stress test rate of 5.24% vs. the contract/actual rate of 3.24%  – please refer to the impact section below for examples.


When is This Changing?

The banks/lenders have yet to comment, but it is anticipated some may start implementing the new rules as early as today, but no later than January 1, 2018.  As this is a federally regulated change it will directly impact the banks, but is also expected to roll out through the mono-line lenders.  As our credit union lenders are provincially regulated, it will be interesting to see if they will have a competitive advantage vs. the other lenders in the coming months and into the new year.


What is the Potential Impact?

While every case is different, we have included a sample max purchase price impact calculation for a 20% down buyer*.  Please contact us if you would like us to run the numbers for any specific scenario or would like the detailed calculations for the below:

Impact Example #1 (Max Affordability):
Total household salaried income = $200,000
Down payment available = 20%*
Mortgage Product Chosen = 5-year Fixed
Purchase Style / Location = Freehold / Toronto
Debts = limited debts (i.e., credit card, car, etc.)

Current Max Purchase Price = Approx. $1,550,000*
Max Purchase Price After New Stress Test Rules = Approx. $1,320,000*
(Note: the above is for illustration only.  Please contact a member of Outline Financial to discuss, or for specific scenarios.)


Impact Example #2 (Max Affordability):
Total household salaried income = $100,000
Down payment available = 20%*
Mortgage Product Chosen = 5-year Fixed
Purchase Style / Location = Condo / Toronto
Debts = limited debts (i.e., credit card, car, etc.)

Current Max Purchase Price = Approx. $720,000*
Max Purchase Price After New Stress Test Rules = Approx. $620,000*
(Note: the above is for illustration only.  Please contact a member of The Lang Team to discuss, or for specific scenarios.)

*Note: for the above examples we converted the 20% down payment to a $ amount and used that same $ amount for both the contract rate and new stress test rate qualifying scenarios.  Many media reports on the subject appear to be using a straight 20% down payment for both scenarios which would make the decrease in affordability appear larger.


What is the Media Saying?

While additional details are expected to be published throughout the week, we have included a link to the OSFI announcement as well as a few relevant articles that have come out in the media today:


Additional Comments

While it is clear this change will have a significant impact on affordability, the argument for this change is that it will help stabilize the Canadian housing market over the long term.  In a worst case scenario, if the housing market overshoots on the downside, given the numerous tightening measures implemented by the government in recent years, they now have many tools at their disposal to help stimulate the housing market if/when needed (i.e., by increasing amortization, lowering the stress test rate, increasing the availability of CMHC insurance, etc.)

Should you have any questions regarding the above, please contact us at any time.


The Outline Financial Team
t: 416 834 1590
e: hello@outline.ca




Bank of Canada Increases Overnight Rate to 1%

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Oct 11, 2017 – The Bank of Canada is raising its target for the overnight rate to 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Recent economic data have been stronger than expected, supporting the Bank’s view that growth in Canada is becoming more broadly-based and self-sustaining. Consumer spending remains robust, underpinned by continued solid employment and income growth.  There has also been more widespread strength in business investment and in exports. Meanwhile, the housing sector appears to be cooling in some markets in response to recent changes in tax and housing finance policies. The Bank continues to expect a moderation in the pace of economic growth in the second half of 2017, for the reasons described in the July Monetary Policy Report (MPR), but the level of GDP is now higher than the Bank had expected.

The global economic expansion is becoming more synchronous, as anticipated in July, with stronger-than-expected indicators of growth, including higher industrial commodity prices. However, significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies. In this context, the Canadian dollar has appreciated, also reflecting the relative strength of Canada’s economy.

While inflation remains below the 2 per cent target, it has evolved largely as expected in July. There has been a slight increase in both total CPI and the Bank’s core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack. Nonetheless, there remains some excess capacity in Canada’s labour market, and wage and price pressures are still more subdued than historical relationships would suggest, as observed in some other advanced economies.

Source: Bank of Canada

Picture Source: Financial Post

2017 Mortgage Consumer Survey

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CMHC recently completed an online survey of 3,002 recent mortgage consumers, all prime household decision-makers who had undertaken a mortgage transaction in the past 12 months. Sixty-five percent had undergone a mortgage renewal, 15% had refinanced their mortgage, and 20% had purchased a home with mortgage financing (11% First-Time Buyers and 9% Repeat Buyers). CMHC has conducted this survey since 1999. It is the largest and most comprehensive survey of its kind in Canada.

The Home Buying Process

  • Sixty-four percent (64%) of First-Time Buyers indicated they were renting before purchasing, and 34% lived with family.
  • Wanting to buy their first home (37%) and feeling financially ready (31%) were the most important reasons First-Time Buyers gave for purchasing a home in the past year.
  • Low interest rates (33%) was the most important reason for Repeat Buyers to purchase a home in the past year.
  • Fifty-three percent (53%) of buyers were aware of the latest mortgage qualification changes, and 19% noted that it impacted their purchase decision. For example, 11% of buyers said they increased their down payment, 6% purchased a smaller home, 5% purchased in a different location, and 3% delayed their purchase.
  • Buyers interact with a wide variety of people, and are most likely to consult a real estate agent (72%), or look to a family member or mortgage lender for advice (both at 57%). Forty-one percent (41%) reported interacting with a mortgage broker. Of all interactions, real estate agents were noted as most valuable.
  • Seventy-one percent (71%) of First-Time Buyers accessed savings for their down payment, while 18% received a gift from a family member.

Click to Read More -> [CMHC 2017 Mortgage Consumer Survey]

Will April 20th mark the single busiest day for real estate transactions in Toronto’s history?

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Our team has received numerous calls today regarding the 16-point plan implemented by the Ontario Government to cool the housing market.

The most pressing question we are being asked is regarding the 15% Non-Resident Speculation Tax (NRST) and the implementation details/timing.  The detailed Technical Bulletin published by the Ontario Ministry of Finance can be access through the attached link ( Non-Resident Speculation Tax Technical Bulletin) and states the following:

NRST Effective Date

  • “Upon the enactment of legislation, the NRST will be effective as of April 21, 2017
  • Binding agreements of purchase and sale signed on or before April 20, 2017 are not subject to the NRST.”

While you should check with your lawyer to confirm the specifics, it appears that any binding agreements entered into on or before today will not be subject to the new tax.  If there are a significant numbers of non-resident speculators sitting on the fence, this potential one day of opportunity could lead to a record number of sales closing on April 20th, 2017.

Details of 16-Point Plan:

As noted, the Ontario government has introduced a 16-point plan to try and control the real estate market.  A summary of the 16 point can be found below, and the details can be accessed at the following Ontario Government Link (https://news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html)

  1. Implement a new 15% Non-Resident Speculation Tax (NRST)
  2. Expand rent control to all private rental units (with “an increase capped at 2.5%”)
  3. Introduce changes to the Residential Tenancies Act – including standardized leases
  4. Create new market housing and affordable-housing units with surplus provincial land
  5. Empower the City of Toronto “and potentially other interested municipalities” to introduce a vacant homes property tax
  6. Making sure multi-residential apartment buildings are charged property taxes at similar rates to other residential properties
  7. A $125-million program over five years “to further encourage the construction of new rental apartment buildings”
  8. Giving municipalities “flexibility” to use property taxes to fuel development
  9. Creating a “Housing Supply Team” to identify obstacles to housing developments and work with developers and municipalities to address them
  10. Working to “understand and tackle” real-estate practices that allow “paper flipping,” which includes using assignment clauses for real-estate speculation
  11. Reviewing rules for real-estate agents to “ensure that consumers are fairly represented”
  12. Establishing a “housing advisory group” to advise the government on the housing market and the effects of the newly announced changes
  13. Educating consumers on their rights in real-estate transactions
  14. Partnering with the Canada Revenue Agency to strengthen reporting requirements and make sure taxes are paid on real-estate purchases and sales
  15. Overhauling standards for elevator repair
  16. An updated Growth Plan with municipalities to address density and “an appropriate range of unit sizes”

(note a number of the above numbered points are courtesy of Tom Cardoso and Evan Annett in their recently published article in the Globe and Mail.  A link to that article is included in the below list)

Other Useful Articles:

While additional information will undoubtedly be circulated in the coming day, the most helpful articles we have found on the subject thus far are included below:

Ontario slaps 15% tax on foreign buyers, expands rent control in 16-point plan to cool housing


Read Ontario’s 16-point plan to cool Toronto and the Greater Golden Horseshoe region’s red-hot housing market

We hope the above is helpful, and should you wish to discuss, please contact a member of The Lang Team by phone or email at any time.


Outline Financial