21 Sep

Inflation Cooled Again in August, But Higher Rates Still Coming

Latest News

Posted by: Gabriel Da Silva

 

Canada’s headline inflation rate cooled again in August, even a bit more than expected. The consumer price index rose 7.0% from a year ago, down from 7.6% in July and a forty-year high of 8.1% in June, mainly on the back of lower gasoline prices.

The CPI fell 0.3% in August, the most significant monthly decline since the early months of the COVID-19 pandemic. On a seasonally adjusted monthly basis, the CPI was up 0.1%, the smallest gain since December 2020. The monthly gas price decline in August compared with July mainly stemmed from higher global production by oil-producing countries. According to data from Natural Resources Canada, refining margins also fell from higher levels in July.
Transportation (+10.3%) and shelter (+6.6%) prices drove the deceleration in consumer prices in August. Moderating the slowing in prices were sustained higher prices for groceries, as prices for food purchased from stores (+10.8%) rose at the fastest pace since August 1981 (+11.9%).

Price growth for goods and services both slowed on a year-over-year basis in August. As non-durable goods (+10.8%) decelerated due to lower prices at the pump, services associated with travel and shelter services contributed the most to the slowdown in service prices (+5.5%). Prices for durable goods (+6.0%), such as passenger vehicles and appliances, also cooled in August.

In August, the average hourly wages rose 5.4% on a year-over-year basis, meaning that, on average, prices rose faster than wages. Although Canadians experienced a decline in purchasing power, the gap was smaller than in July.

Core inflation–which excludes food and energy prices–also decelerated but remains far too high for the Bank of Canada’s comfort. The central bank analyzes three measures of core inflation (see the chart below). The average of the central bank’s three key measures dropped to 5.23% from a revised 5.43% in July, a record high. The Bank aims to return these measures to their 2% target…

 

Bottom Line

Price pressures might have peaked, but today’s data release will not derail the central bank’s intention to raise rates further. Markets expect another rate hike in late October when the Governing Council of the Bank of Canada meets again. But further moves are likely to be smaller than the 75 bps-hikes of the past summer.

There is still more than a month of data before the October 25th decision date. The September employment report (released on October 7) and the September CPI (October 19) will be critical to the Bank’s decision. Right now, we expect a 50-bps hike next month.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

 

 

20 Sep

First Time Home Buyers Guide

Mortgage Tips

Posted by: Gabriel Da Silva

 

Let Us Be Your Guide Through The Mortgage Process.
When you work with us, we’ll pair you with an experienced agent to take you step-by-step through the mortgage process. You’ll receive personalized, one-on-one service designed to get you across the finish line.

 

Notable Terms.
Mortgage Term: The length of time that you’re locked into your rate and conditions.

Down Payment: Any down payment less than 20% requires mortgage default insurance. Over 20% is considered a conventional mortgage, which doesn’t require insurance.

Mortgage Type: An open mortgage allows the borrower the option to pay off all or any of the balance owing on the mortgage at any time, without a penalty but tends to come with a higher interest rate.

Mortgage Rate: You’ll choose either a fixed or variable rate mortgage. Variable rates are often lower but involve more risk, as your payments may fluctuate with the rate set by the Bank of Canada. Fixed rates mean you are locked in for a term and your monthly mortgage payment is set in advance.

Amortization: The number of years it takes to repay your entire mortgage loan amount, based on a fixed payment schedule. Most lenders offer 25-year amortizations.

Closing Costs: Don’t forget about closing costs. Lenders typically like to see that you have at least 1.5% of the purchase price to cover these costs.

Mortgage Stress-Test: Federal regulations have made qualifying for a mortgage a little tougher. Regardless of the low rates offered, you’ll need to qualify to ensure that if mortgage interest rates go up, you’ll still be able to afford your payments.

 

Looking for your First Mortgage? There are Programs and Rebates to Help.

THE HOME BUYERS’ PLAN (HBP)
If you’re a first-time homebuyer, the HBP allows you to withdraw up to $35,000 from your RRSPs tax-free to put toward buying your first home. The HBP allows you to pay back the withdrawn funds within a 15-year period.

THE FIRST-TIME HOME BUYER INCENTIVE
The First-Time Home Buyer Incentive helps people across Canada purchase their first home. The program offers 5% or 10% of the home’s purchase price to put toward a down payment. You pay back the same percentage of the value of your home when you sell it or within a 25-year window.

 

The Mortgage Financing Process.
The number one question for someone new to the mortgage process is “what does this process entail?”. The following is a simple outline to give you an idea of the process and help you understand what to expect as you embark on your home buying journey!

STEP 1 – BE PREPARED
Having the following information on hand before meeting with your mortgage professional will help them determine what you qualify for and help them determine the best mortgage product for you:

Contact information for your employer and your employment history
Proof of address and your address history
Government-issued photo ID with your current address
Proof of income for your mortgage application
Down payment proof (amount and source)
Savings and investments proof
Details of current debts and other financial obligations

STEP 2 – GET PRE-APPROVED
One of the best things any potential homeowner can do when starting the home buying process is to get pre-approved. Mortgage pre-approval requires submission and verification of your financial history and can help you determine your price range, understand the monthly mortgage payment associated with that price range and provide the mortgage rate for your first term.

It is important to note that pre-approval does not mean that a lender has fully reviewed your documentation and you may still need the approval of a mortgage insurer. However, it does have a lot of benefits that can give you a “leg-up” in your search!

BENEFITS OF PRE-APPROVAL
Getting pre-approved not only makes the search easier by helping to determine your price range and budget, but pre-approval also guarantees the interest rate for 90-120 days while you search for that perfect home. Plus, the rate will automatically be adjusted down with any market reductions. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.

Quick Tip: Being entirely candid with your home-buying team throughout the process will be vital! Hidden debt or buying a big-ticket item during your 90-120 day pre-approval can change the amount you are able to borrow. It is best to refrain from any major purchases (such as a new car) or life changes (such as changing jobs) until after closing and you have the keys to your new home!

STEP 3 – HIRE A REALTOR
In today’s competitive real estate market, it can be very difficult to acquire property WITHOUT the help of a realtor. One of the reasons realtors are integral to the home buying process is that they can provide access to properties that never even make it to the MLS website. Realtors also gain access to information about homes that may come onto the market before a listing is even signed.

Most importantly though, a realtor understands the ins-and-outs of the home buying process and can tell you how to be successful in your endeavors to purchase a home by guiding you through the process from the first viewing to having your bid accepted.

STEP 4 – SHOP THE MARKET & MAKE AN OFFER
Once you have found the property that meets your needs, you’ll put in an offer that’ll be accepted or countered. This may go back and forth until you reach an acceptable price with the vendor.

STEP 5 – OFFER IS ACCEPTED
Once your offer is accepted with the condition of financing, you will need to do a few things to finalize the sale:

Ask for a realtor intro between your mortgage professional and realtor.
An appraisal may be required, which will be determined and arranged by your mortgage professional.
Send in any remaining documents required for financing (income confirmation, down payment confirmation, etc).
Arrange a home inspection.
Receive the lender’s approval on property and final approval letter.
STEP 6 – REMOVE CONDITIONS
At this point, your financing is in place and you’re ready to proceed with the purchase of the property.

STEP 7 – LAWYER’S OFFICE
You’ll be asked to provide any money that’s to be used as your down payment, which is not already on deposit with your realtor. Typically, you’ll go in 1-2 days prior to the completion date.

 

DLC-FCF

 

6 Sep

Understanding Mortgage Trigger Points

Mortgage Tips

Posted by: Gabriel Da Silva

 

As we move into the Fall market, there are some important things you should be aware of.

While inflation has now likely peaked, we will still be dealing with the repercussions from these heightened levels for a while before things balance out. As inflation is corrected, we are also seeing home prices moving back to normal post-pandemic era.

However, we are still anticipating some final rate hikes from the Bank of Canada coming into the fall.

With that in mind, now is an important time to discuss what this means for your mortgage – specifically in regards to trigger points. Another increase in rates on the horizon will put many variable-rate borrowers near their mortgage trigger points – even for fixed payments.

While static payment variable-rate mortgages are not designed to fluctuate with prime, the reality is that a mortgage payment consistent of two components: your principle and your interest. With the existing rates and subsequent increases expected in the fall, the amount paid towards principle has decreased with an increase in the amount of interest on a static mortgage. For instance, if you are paying $2000 a month on your mortgage, only $200 might be going towards the principle with the rest covering interest. An additional increase to the interest rate, means that your interest portion will spike again and may actually exceed your total payment. When this occurs, it is called hitting your trigger rate.

You can calculate your own trigger rate with the following formula: (Payment amount X number of payments per year / balance owing) X 100) to get your trigger rate in percentage.

If you have reached your trigger rate, don’t panic. You are certainly not alone and there are options:

  1. Adjust Your Payment: Firstly, you may choose to adjust your payment amount to ensure that you still have some going towards your principal balance.
  2. Review Your Amortization Schedule: Consider switching your amortization schedule from 20-year to 25-year which would be ideal if you already have equity in your home. However, if you’re already at your maximum amortization for your lender (i.e. 30-year mortgage), you would need to increase your payment.
  3. Switch to a Fixed-Rate Mortgage: Many borrowers are now choosing to opt for a fixed-rate mortgage to avoid the issue of increased interest and trigger rates. Keep in mind, depending on your mortgage product, you may face penalties if you switch your mortgage mid-term. Be sure to discuss any mortgage changes with me before going ahead.
  4. Pay Off Your Mortgage: The final option that is always there is for you to pay off your mortgage entirely. Though don’t fret if this is not possible!

While I understand words like “inflation” and “trigger rates” can be scary, as a dedicated mortgage professional I am here for you. I would be happy to discuss any concerns you have or help explain in more detail how these changes may impact your mortgage and what your options are.

 

Gabriel Da Silva
Dominion Lending Centres – FC Funding
Commercial & Residential Mortgage Agent
Lic.# 10671
Independently owned and operated
www.DLC.mortgage
416.587.3787