Varying Mortgage Rates

Depending on the type of mortgage you have (or want), there is a wide variation in the actual rate you pay. With the recent drop in the Bank of Canada (BoC) overnight lending rate, the variable mortgage lending rates have trended down to an average of 2.16% and a 5-year fixed rate mortgage can be had for 2.55%. The Benchmark Qualifying Rate (currently at 4.64%) is the rate that lenders must use when calculating a hypothetical mortgage payment for debt ratio analysis. People who choose a variable mortgage or a term of less than five years must typically prove they can afford this payment to qualify for the mortgage.

Not everyone has perfect credit, so with a lower credit score – only the higher rate mortgage products are available (as lenders assume a higher risk of default). Lenders have also been know to demand higher rates for certain types of properties (such as lease hold, commercial or vacation properties). This brings me to a recent message from Katusha who asked:

Do banks or financing agencies normally apply a premium to mortgage rates for rental properties?  Are there those that do, those that don’t? What is the experience of blog readers in this area?

According the RateHub, an investment property that is “non-owner occupied” requires a 20% down payment. Mortgage default insurance is also required, with rates varying from 2.90% for non-owner occupied to 1.25% for owner-occupied for a property with a 20% down payment and 25-year amortization.

Are there any mortgage brokers out there who can provide additional information? Any suggestions for Katusha from successful landlords? 😉

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88 thoughts on “Varying Mortgage Rates

  1. Good point. Gold is getting to the cut line where most mines will be shelved and supply will dry up. The next run up will be huge but not for another year or so.

  2. Since you are paying attention, My position in Paypal started at $40.28. (still own 2/3 of my Etsy position) I’ll hopefully remember to post any added positions if I do so… For the actual record my Etsy position is at $17.45 (TFSA) and $14.20(RRSP).

  3. Started A position averaged down so my cost base was $16…. I have an Etsy shop so I have faith still 😉 that’s why I didn’t cash out when they popped to $21.

  4. Good for you Dasmo to hang in there until it bounced to $19 today, as I bet most people who started a position @ $25 back in April would have bailed near $13 early this month. That takes a strong stomach.

    dasmo said…
    Started a position in ETSY @ $25. Just for the record….
    April 20, 2015 at 4:34 PM

  5. “Michael Lewis, commodities chief at Deutsche Bank, said the “fair value” for gold is around $750. This is based on an index of eight indicators, such as oil, copper, income per capita and equity prices, that dates back to the early 1970s. Gold tends to “mean revert” over time.”

    From The Telegraph. It’s profoundly interesting to me that a statement like that can be made about gold (“fair value”, “revert to mean”) and everyone nods gravely in affirmation. Make the same statement using the same terms about a Victoria house price and half the people here would spew their morning coffee over the screen….

  6. “oh I remember now, up 160% in those 7 years. ”

    Church Lady indeed, lol. I owned a home here then and never made no 160%. You need to do some recalculations and take away the 100%

  7. No sir Hawk, there’s nothing wrong with BMO Kavcic’s chart. He clearly states it’s the population of 25-34 year-olds. Say, remind me what happened to Victoria prices again between ‘87-’94 where Kavcic is clearly showing “Housing Bear Market” 😉 …oh I remember now, up 160% in those 7 years. Throw in 10 million retiring boomers this time and maybe things are about to get interesting in our little garden city by the sea?…maybe?

    I will say the one enormous factor Kavcic is overlooking is the average age of a first-time buyer is much older now than in ‘87.

    “According to a survey from BMO Economics, Calgary is home to the youngest first-time homebuyers in all of Canada. The survey showed the average age of those Calgarians entering the housing market for the first time to be just 32-years-old compared to the national average of 36-years-old.”
    http://www.crebnow.com/young-and-the-restless/

    Maybe BC’s FTBs are in between at 34, I don’t know. What I do know is they are older now than in 1987.

  8. Surprising you would doubt Stats Canada’s numbers Michael since you post them religiously as fact….but I guess when it doesn’t suit your case. Demographics don’t lie. If this major buying group is declining then it’s only natural the numbers have to decline over the coming years.

    Trashing Ben’s record doesn’t change the charts numbers. I take it BMO is wrong too ?

    http://www.huffingtonpost.ca/2014/06/12/housing-market-canada-bmo_n_5487772.html

    “This helps explain why condo construction has been so strong in recent years, Kavcic says — young homebuyers prefer the urban lifestyle. To prove his point, he offers a chart showing that the last major housing market crisis in Canada — in the late 1980s and early 1990s — took place at a time when there was an unusually low number of people in the 25-34 age group.”

  9. I remember Ben talking about shorting Genworth on a Vancouver forum about 3 years ago…about the time it was half of what it is today. He gave a presentation later that year in Van (Nov 2012) telling people to get out of property and how to short real estate.
    https://vreaa.wordpress.com/2012/11/29/overheard-at-ben-rabidouxs-presentation-on-canadian-housing-he-asked-when-do-you-think-the-crash-will-occur-ben-of-course-said-right-now-sell-now-shockin/
    I suspect him and his colleagues would be short many Canadian banks and likely long gold…as most doom n’ gloomers seem to be. I have nothing against the guy, other than I find his analyses simplistic and misleading. Prime example his “Housing starts vs. population growth” graph in that Huffington link. Misleading because it’s not actually “population growth“… simplistic, well, we‘ve already discussed. But I get it, he’s likely trying to regain some losses. I wish him well.

  10. The only way that I can think of to short Canadian real estate is to short the public companies that supply the materials that go into building homes.

    But if you know some other way. I’d really like to hear about it.

  11. Thanks Marko! Sales are steady and new listings remain about 13% below last year. My revised estimate is for 742 sales for July.

  12. From looking at their markets, China’s debacle clearly started in ’07 and recently ended in ’13. Onwards and upwards from here. Soon to be by far the largest economy in the world

  13. Huffington is certainly a suitable name for that tabloid. I wonder how much money Rabidoux has lost for himself and clients shorting Canada over the years. I notice he’s worked at 3 different firms since he started growwwling years ago. Wonder when will his present clients get out the pitchforks.

  14. Yes, you should do someting because it is “doable”…

    I get ahead by spending half that a month (with a family in a nice neighbourhood). And you forgot about opportunity costs again.

  15. Gold is getting hammered by the Chinese last night on the Shanghai gold exchange, who are forced to sell to cover stock margin losses. Another nail in the BC mining business. China debacle is just beginning IMO.

  16. So glad I’m not in any Gold right now! Couldn’t hand that on top of my SDRL shares! Ouch for the metal heads!

  17. Monday, July 20, 2015 9:10am

    MTD July
    2015 2014
    Net Unconditional Sales: 455 681
    New Listings: 810 1,195
    Active Listings: 3,981 4,570

    Please Note
    Left Column: stats so far this month
    Right Column: stats for the entire month from last year

  18. Not many deals to be had these days. Mostly foreclosures and properties in need of repairs and remodeling.

    Half the sales of houses in the core this month have sold between 90 to 110 percent of their government assessment. The more prestigious hoods have buyers paying at the high end of the fair and equitable range for housing by an additional 10 percent or some 125% of the assessed value..

    Following the herd this time might just lead to an Abattoir.

  19. Lol…top of the morning to you Jack.
    Not sure how lowest vacancy rates on the highest-priced rentals equal “more people seek lower cost housing.” ?? And I once rented a $350 bachelor pad for half a year before I bought a 4 bdrm house. It wasn’t a “sign of tougher economic times” for me. It was called holding onto a big down payment.

    All I know is we have some of the lowest vacancy rates in the country and they’re trending lower… which was my original comment that somehow got your knickers in a knot 😉

  20. Actually no. The survey is a sampling of buildings that have no less than 3 units. This intentionally excludes condos, basement suites and houses.

    CMHC contacts property managers to get this information. I don’t know if the property managers are paid for their information or this is just a pro bono 5 minute call by a trainee, working for CMHC, to every property manager in the phone book.

    CMHC has no way of determining the vacancy rate for single ownership condos that are rented or home owners who have decided to rent their basement or house. We know how many rental apartments there are in the City. The number is on file at City Hall. Unlike apartments that were built for rental use only, a condo or basement suite can be occupied by an owner. So you don’t know the total available inventory of rental condos or basement suites at any given time? It’s always changing.

    All the CMHC vacancy rate is stating is that more people are renting in purpose built apartment blocks. These suites are generally lower cost alternatives to basement suites and privately owned and rented condominiums.

    At this point you could say its rich baby boomers slumming in the City or it could be a sign of tougher economic times as more people seek lower cost housing.

  21. In 20 years you’ll have a paid off appreciating $550,000 asset – should be worth more 1.2 million. If you buy the 250,000 home in Windsor you’ll have less than half that amount and you’ll be in Windsor.

    Amazing! And if that family stretches a bit and buys a 700k house now they’ll have 1.5 million!

    There you have it kids, buy the biggest and most expensive house the bank will give you and you’ll be a millionaire very soon. After all 4% of a bigger number is a bigger number.

  22. “The survey doesn’t include the higher priced condos or basement suites. Just apartment buildings.”

    Actually Jack, CMHC includes everything with as few as 3 units. That’s likely why you see the $1500+ per month category in that table above. What surprised me too is it’s the opposite of what you said, it’s the highest priced places that have the lowest vacancy.

    Oh and to answer to your question… because only once you pay for the cow, is the milk free. Otherwise the milk will set you back $1500+ a month, with landlord milk increases every year 😉

  23. In Victoria, the market has corrected over the last six years or so simply by staying relatively flat.

    I’m not sure what your definition of market “correction” is … The 12-month median price in January 2005 was $341,323, and climbed 56% to $532,647 in January 2010. This median price actually increased by a meager 0.8% to $536,860 in January 2015. Wouldn’t a “correction” be a drop of 56%, after accounting for inflation?

  24. Yep … A couple years ago I decided to try out one of those online mortgage calculators provided by one of Canada’s major banks. I was astonished/horrified to find out that based on my and my spouse’s income, that we could qualify for a $900,000 mortgage. Owing that kind of money would keep me up at night and and I see that kind of debt as a life on economic servitude. Huge risk and no money left over for the fun things in life.

  25. @totoro @Just Jack

    You both raise interesting points. The four fundamental reasons that people feel forced to sell are known as the four D’s: diapers, divorce, death and debt. (I plan to write a future topic about this.) It seems that there is risk associated with all these “D’s” and it is just a matter of which reason may be the greatest risk for a specific individual or family.

  26. Interesting article … When driving through Langford earlier today, I noticed that all those boulevard trees are getting a lot bigger! Gordon Head was relatively devoid of trees when new subdivisions were put in 40 years ago.

  27. I think that Churchill also said: “Democracy is the worst form of government, except for all the others.” 😉 Mind you, capitalism and socialism are primarily economic policies and can both co-exist within a democratic framework,

  28. It looks like you can currently get a variable rate as low as 1.99% (prime – 0.71%). I would suggest “shopping around” and getting a second opinion from a second mortgage broker.

  29. You must smoke some strong stuff. That chart comparison means diddly, doesn’t even go to 2015. Guess you bought at the top, too bad.

  30. The same source that you are: CMHC.

    CMHC surveys the property management companies twice a year. The survey doesn’t include the higher priced condos or basement suites. Just apartment buildings. Victoria property managers have stated that the vacancy rate for condos and suites is higher than the data CMHC reports.

    Someone moving to Victoria would likely rent for a time. However I can’t see the millionaire baby boomers living in a 1970’s apartment building complete with silver fish and bed bugs. However, I would expect them to rent a downtown condo which is not included in the CMHC vacancy rate study. And there is no guarantee that these boomer renters will buy, they may just chose to have the flexibility of renting.

    “Why buy the cow, when you can get the milk for free”

  31. Dang, I must say the bears are bringing their best game today!
    When I’ll get concerned is about 7 years from now when Macleans, Hawks, Rabidous and other furry friends all become deafeningly silent.

  32. Snicker, snicker… little do the bears know that the identical 6-year commodity & currency crash of the early 80s preceded Victoria’s greatest property bull run.

    Are you ready for what comes next? …up 160% in the next 7 years 😉 😉

  33. Lumber prices are down the past year as well as oil and especially the major world economic indicator copper.

    http://stockcharts.com/h-sc/ui?s=%24COPPER

    Prices at Lumberworld will start falling soon as the global recession is just beginning, so you can’t claim sunshine and puppy dogs forever hanging on to forecasts that are less reliable than the weather forecasts. Takes up to six months to see the price effects but they are already happening in China steel markets as the McLeans article stated cabbage is more expensive.

    This smells of 2007 summer all over again but the only thing happening is the US stock market and that is showing holes in topping out. Better start buying more property. 😉

  34. There are 40-50 more countries following in China’s footsteps. India for example (HIM) is already growing faster than China, not that China won’t accelerate again as they transition to a consumer-led economy.

    If you’ve been to Lumberworld lately you would know building materials have, and will only continue, rising.

  35. Yikes, not sure where you’re pulling your info from, but as you can see it’s our highest-priced rentals that have the lowest vacancy rates, and they deem the data reliability to be excellent. Maybe it’s the rich Albertans moving in…running from the grips of socialism (Alberta NDP) 😉 More likely the boomer retirement wave has started. Newcomers usually rent for 6 months to a year before they buy, so I expect a bigger surge in sales and prices starting later this year and into 2016.

    Victoria needs to keep adding big apt buildings like Hudson Mews and that across from Tillicum mall.

  36. I opine that if Canada is hoping to surf the American recovery wave, the job creation will be in Central Canada’s manufacturing sector and not the resource based western provinces.

    As China’s demand for resources slows down, the natural resource economies of the world will slip into recessions.

    For the new housing market that means the cost of materials will be trending lower and lower. That is NOT a good thing for the construction trades. That means the cost to build a home six months from now will be cheaper than a home just completed today.

    The worldwide rise in home prices was predicated on steadily rising costs of materials. Almost entirely caused by the intense demand for resources from China. Rising material costs affected all developers equally and that allowed them to equally pass those costs on to the consumer.

    With falling material costs, builders can undercut each other to get the job.

    If you’re a roofer, plumber or electrician it’s time to sell that bad ass Dodge Ram truck you financed last year.

  37. The low vacancy rate that you keep mentioning is for the lowest level of rental accommodation. These are the least expensive suites in purpose built apartment buildings from the 1960’s and 1970’s. Perhaps it’s all those Albertans coming to spend their unemployment checks this summer.

    There can be a lot of reasons why we are seeing an atypical drop in the vacancy rate for the older apartment suites in town. These are people looking for a cheaper place to live. What you can say is that there is a strengthening demand for lower cost housing.

  38. Is that migration due to a loss in jobs? Better to spend your unemployment check in BC than Alberta?

    It depends on factors just as relevant as population growth. The biggest surge in home prices happened in the early noughties. Now look at the graph again.

    You may want to look at migration from all sources into the cities. If you were living in rural BC and looking for work you went to the cities for construction related jobs. When those jobs are not here anymore – you’ll go home again.

  39. A great poem… And all true 😉 the important message in that line isn’t taking the risk. It’s accepting that you did if you fail and moving on from it. Own the risk you take…. Because you could lose it all….

  40. There isn’t any doubt that it is doable for a middle income family. If it wasn’t then house prices would be lower.

    That allows someone buying a home with a 3 or 5 year term the assurance that they will be able to afford that home for that many remaining years. What it is not saying is that the home will ALLWAYS be affordable to the home owner.

    Back in 2000 we started into falling interest rates, that made housing more affordable going forward into the future and the risk of buying real estate went to zero. And house prices went ballistic.

    Today, prospective purchasers are again considering the risk of buying. And that risk has kept prices flat for the last six months despite the extreme low inventory and low rate that homes are coming to the market. Low inventory that had made prices go to the moon back in the early noughties.

    Risk is back! And I suspect it’s on the minds of every prospective purchasers these days that real estate is not the sure bet that it was just a couple years ago.

    One of the more difficult, if not impossible, things to calculate is risk. Easy to calculate affordability but not its companion risk. And you can’t have a meaningful discussion about affordability if you are not also considering risk.

  41. Maclean’s is running crash articles again, time to buy more property. Now we just need Canadian-shorters like Rabidoux to come out of their cave again… oh wait a sec 😉

  42. “If you can make one heap of all your winnings
    And risk it all on one turn of pitch-and-toss,
    And lose, and start again at your beginnings
    And never breath a word about your loss;…..
    – you’ll be a Man, my son!” (Kipling) by way of Dasmo Alderon

    The wonderful poem “IF” begins with; “If you can keep your head when all about you are losing theirs and blaming it on you…..”

    Later in the poem; “If you can bear to hear the truth you’ve spoken, twisted by knaves to make a trap for fools…..”

    It’s one thing to risk “your winnings” but quite another to risk borrowed money.

  43. The 1.5 million would be mainly renter households. I know many GenY up to their eyeballs in debt, with only ankle-high assets. A 21 year-old nephew who’s about 70,000 in debt, no assets save for a car that might be worth 10k. His debt-to-disposable income ratio would be multiple times higher than the average Canadian’s 163.3%. If we hit a rough period and they declare bankruptcy, they only affect the market indirectly through vacancy rates. However Victoria is among the lowest vacancy rates in the country and trending lower.

  44. “IN MY VIEW YOU SHOULD NOT BE LIMITING YOUR BORROWING TO THREE TIMES INCOME IF YOU ARE A MEDIAN EARNER AND WANT TO LIVE IN VICTORIA.” (TOTORO)

    Why would anybody wish to limit their borrowing to time tested ratios? Perhaps to live without unnecessary stress. Perhaps to remain in control of one’s future. Percentages and ratios do not change, arithmetically. Those who ignore sensible limits do so without regard for “math”. Those who believe themselves to be “owners” rather than heavily indebted borrowers are fooling themselves. As Shakespeare wrote in Polonius’ speech to his son Laertes; “…and borrowing dulls the edge of husbandry.” In other words, when one borrows enormous sums of money from a lender, one gives up partial control of one’s future. Whilst some are happy to do this, (witness the current state of the Canadian housing and Auto markets) there are many who prefer to remain in full control of their lives. To suggest that we may now abandon “three times income” as a sensible ratio to, instead, embrace five or ten times income for our borrowing guides, is a specious argument.

    Perhaps we might all benefit from questioning so many of the modern myths masquerading as wisdoms(?). We could begin by asking, what is meant by the phrase; “…to get ahead.” ? Who are we all trying to get ahead of?

  45. Agreed, never be frozen by fear, but if you are laying out a half a million dollars plus and aren’t making killer money in extremely secure jobs then you have to not be stupid when the red lights are flashing everywhere that there is a high risk of danger ahead here for the first time in 7 or 8 years. Harper and the BOC ,as well as the banks, ignored the signs and continued to put out positive forecasts and have been wrong in spades.

    China has fueled this bubble the last 15 or more years and it’s obvious their system is corrupt and showing major cracks. When you are a resource based economy and relying on them to carry the ball, you are in the line of fire for a major wake up call and caution is needed before making life changing financial decisions, that’s all I’m saying.

    This McLean’s article clearly lays out the hazards ahead and I would be thinking long and hard before jumping into a hot market with limited supply and being forced to overpay.

    http://www.macleans.ca/economy/economicanalysis/how-canadas-economy-went-from-boom-to-recession-so-fast/

    “But the crash has done something else: it has laid bare serious problems with the narrative of China’s growth miracle, and the health of resource countries that increasingly depend on it. It’s also raised questions about Beijing’s revered ability to successfully manage the levers of its economy. While the extreme and desperate measures taken by officials to arrest China’s stock crash—from jailing short sellers to imposing outright bans on stock sales by large shareholders—brought calm (albeit likely only temporarily), it has left the world to wonder how much worse things could get. And it’s flashed warning signs about what’s in store for Canada as China continues to slump.”

  46. Compared against socialism most other systems would look good.

    The central principle behind capitalism is simple: greed. The accumulation of wealth as the most important attainment in life.

    This is the magic of real estate. You can fool people into thinking they are wealthy by increasing the equity in their homes. The result is people living near the poverty line owning million dollar homes.

    Personally, I find it difficult to have sympathy for these people. They complain about not having this or not having that. That the government owes them this or needs to pay for that.

    I nod at them, but think…

    …”just sell your f$^%ing house and stop your bitching”

    I guess, I’m one of the few true capitalist left.

  47. Yes…Think for yourself is the key. You also don’t want to be frozen by fear. Or afraid of risk. “If you can make one heap of all your winnings
    And risk it all on one turn of pitch-and-toss,
    And lose, and start again at your beginnings
    And never breath a word about your loss;…..
    – you’ll be a Man, my son!”

  48. You can keep your head in the sand all you like but high debt levels are causing increased bankruptcies and many people like this dude with no care of his future is what will bring down the next correction.

    (Bankruptcy trustee) “Hoyes believes there will also be dire consequences if Canadians continue their spending binge. He reports that, for the first half of this year, he’s already seen a 20 per cent increase in personal bankruptcy cases at his firm, Hoyes, Michalos & Associates, which services clients across Ontario.”

    http://www.cbc.ca/news/business/bank-of-canada-rate-cut-will-lure-canadians-deeper-into-debt-say-experts-1.3154931

  49. “1.5 million people could sink this market in a heartbeat in a credit crisis or recession related correction.”

    That was my own opinion posted before the last paragraph by accident.

  50. You missed the important part Michael where Porter says a small percentage hold that wealth effect.

    “Yet as BMO’s Porter points out, the celebrated rise in our collective wealth hasn’t fallen evenly across the population. Those with little to no debt and flush investment portfolios have reaped the biggest gains.

    “High income earners would be holding the lion’s share of those assets, it’s pretty safe to assume,” Porter said.

    At the other end of the spectrum, the Bank of Canada suggests at least 12 per cent of Canadian households – or 1.5 million – are extremely indebted, another record high.

    “That’s the problem with looking at these broad numbers. It masks the sub-plots beneath the surface,” Porter continued.”

    1.5 million people could sink this market in a heartbeat in a credit crisis or recession related correction.

    “It may very well be the vast majority of those assets are held by a very small portion of households, whereas the debt is probably concentrated on a different set of households.”

  51. Looks like we’re doing alright… the increasing area between the blue and red line is our net worth.

  52. “As far as people getting “crushed” when things go South, there is risk in everything. The biggest risks to owning a home are not prices falling or rates rising. You can mitigate and manage in these situations until the market starts to rise again – like now.”

    Risk is managed by judging the global landscape before you buy and not within the little world of Victoria so many think it is insulated from. That’s what I mean by your complacency that all things are manageable if there is a deep recession and/or credit crisis where banks shut down their lending on masse and only cash rich people can borrow. It’s happened before and isn’t something one can always “manage” when the bank won’t renew your mortgage without more cash up front due to negative equity which devastated millions in the US.

    Canada got off light last time due to flipping the debt to CMHC, and that choice won’t be there next crisis, which has higher odds of happening more than ever. Rates aren’t low for no reason, this country is entering an unknown future with no lifeboats left.

    “As far as Home Capital goes, it should definitely be better. If you are a high risk borrower perhaps home ownership is not a reasonable choice until you are in a better credit position.”

    Easy to say but mortgage brokers are what has kept this bubble going when it should have corrected the last six years. Markets don’t magically correct because prices stay flat and interest rates go down. Otherwise why weren’t prices and sales through the roof a year ago when rates were still dirt cheap ? It’s now the buy now or be locked out forever mantra which is never true.

    As the Home Capital CEO said:

    ““One has to be always prepared for a major adjustment in the mortgage market — it can happen without a lot of foresight or advanced warning,” he said. “Lending has to be done by asking: what if tomorrow is the start of a very serious recession?”

  53. In case anyone wants to understand our market, in 6 words or less 😉

    ***Net interprovincial strongest in two decades***
    Jun 29, 2015

    We’re about to make the inflows of the late 80s and early 90s look like a mole hill.

  54. In Victoria, the market has corrected over the last six years or so simply by staying relatively flat. Six years is a very long time to wait if you are hoping to own. And those who waited for the bubble to burst have been disappointed.

    My opinion that we are not in a bubble is not based on complacency. It is based on observation of the market over a significant period of time. In an era of low interest rates that are declining following a period of flat growth it is very unlikely that prices will drop in Victoria. If interest rates rise and prices drop a bit you will likely still be in the same monthly payment amount. You’ll only benefit if you have a very significant down payment.

    As far as the new normal, prices have been climbing relative to income for fifty years. It is very unlikely that housing will become more affordable. It is very likely housing will become less affordable over time. The next generation will have a much harder time buying a house that the average family in Victoria does today.

    Right now is not a bad time to buy in our market based on affordability. It is, however, a sellers market so that means competition for available housing is pretty tough.

    As far as people getting “crushed” when things go South, there is risk in everything. The biggest risks to owning a home are not prices falling or rates rising. You can mitigate and manage in these situations until the market starts to rise again – like now.

    The biggest risks to owning a home in my opinion are the two big decimators of financial progress: divorce and disability. At least disability you can insure for.

    As far as Home Capital goes, it should definitely be better. If you are a high risk borrower perhaps home ownership is not a reasonable choice until you are in a better credit position.

  55. That’s my experience also, small premium but overall only marginally higher than my principal residence.

  56. I think I’ll stick with one rental property for now, Michael 🙂 ….but appreciate advice as I head into mortgage renewal. I’d like to improve upon the five year 3.29% fixed rate mortgage that is expiring and get something closer to the 2.25% variable I have on my principal residence. Last round my broker told me that there was a premium for rental properties, but I’m hoping to push back this round and have some evidence to back that up….if possible 🙂

  57. You can juggle the down payment numbers upward from 50K to 80K to suit your case but the fact remains complacency, like you mentioned being the “new norm”, is how people get crushed when things go south. Home Capital one of the largest lenders to high risk home buyers just got smoked 30% on their stock price after disclosing shady brokers were cut from their company.

    “Of course, all that frothy pricing has attracted those willing to bet the market is in a bubble ready to pop, and Home Capital’s direct exposure to riskier mortgages has made it a prime target.”

    “Multiple sources familiar with the company and its partners suggested this was no meager number of brokers: Hundreds of them were cut off, representing multiple firms. A source tied to Home Capital, however, clarified on Saturday that the number was in fact less than a hundred brokers, but would not provide an exact figure. The brokers were primarily based in Ontario and sources said that instances of improper mortgage documentation were discovered as part of an audit.”

    http://business.financialpost.com/investing/home-capital-group-inc-is-used-to-critics-who-say-its-vulnerable-to-a-housing-pop

  58. I don’t think that first time family buyers are being shut out.

    A couple with good credit, no other debt, $85,000/yr and $80,000 down will qualify for $557,000. You can find a house with a suite in Victoria for this price.
    https://tools.td.com/calculators/mortgage-affordability/

    A $500,000 mortgage at cheap mortgage rates is a pretty fine thing to have access to imo. If you have a suite you end up paying less than rent and have a buffer if rates rise.

    I do agree that it is nowhere as easy as it used to be to buy a house in Victoria. In my grandparents generation only one person needed a job to be able to afford something in Oak Bay.

    That said, it is no where near as hard to buy a house here as it is in most places in Europe, Japan and China relative to income.

    I believe we are looking at the new normal and affordability will never ever return to where it was in the past. Families starting out will need to buy smaller, further out, have a suite, or have parental help to get started.

    http://www.researchgate.net/publication/235269994_Affordability_and_Germany's_low_homeownership_rate
    http://www.theguardian.com/housing-network/2015/feb/17/europe-uk-housing-shortage-poverty-study-protest-march
    http://www.theatlantic.com/business/archive/2013/07/china-has-the-most-unaffordable-housing-in-the-world/277428/

  59. “In my view you should not be limiting your borrowing to three times income if you are a median earner and want to live in Victoria. Particularly if you are willing to have a suite.”

    Using the RBC qualifier, anyone with the 10% down payment plan and $85K a year can only qualify for a place worth $400K at 2.25%. Since most banks test your ability to pay 4.75% then you are knocked down to $337K max price. Not many places with suites for 500K or less unless you are in the toolies and will still need two cars to function.

    I’ve owned several times in Victoria over the years with 10% down on average wages and it never cramped my lifestyle. Did I have to watch my bucks closer and pump more spare cash into renos and upkeep ? For sure. But didn’t have to cut out second cars and some frills for fun times to the point where we had to cut coupons and scrutinize every expense.

    When most renters pay $1800 to $2000 for a SFH, then jumping up $700 a month plus surprises does cramp ones lifestyle in a hurry and makes housing unaffordable unless you have a huge down payment in the $150K range or higher.

    Looks to me like the first time family buyer with low downpayment is getting shut out of the market which eventually kills the goose with no chance to move up the golden ladder. When the rungs start to break, then the plan can go for a crap in a hurry.

  60. In my view you should not be limiting your borrowing to three times income if you are a median earner and want to live in Victoria. Particularly if you are willing to have a suite.

    A $212,000 mortgage won’t get you anything unless you have a $360,000 down payment and, if you have this, you’d be better off investing the amount you don’t need for the down payment to qualify at today’s rates.

    If you want to own on those calculations you’d best move to Windsor.

    I agree you should think about your future in terms of years rather than months. In 20 years you’ll have a paid off appreciating $550,000 asset – should be worth more 1.2 million. If you buy the 250,000 home in Windsor you’ll have less than half that amount and you’ll be in Windsor.

    And no, I don’t believe this will be a hardship on a monthly basis. There are many ways to economize on non-appreciating aspects of cost of living – such as cars. Appreciating assets are a source of long-term wealth.

  61. “THE MEDIAN FAMILY INCOME IN VICTORIA IS $84,500 – OR $72,500 AFTER TAX….

    GET OUT YOUR CALCULATOR AND REALLY DO THE MATH AND PRIORITIZE.” (TOTORO)

    Amen Sister. Great advice. Enter $72500 into calculator, multiply by three; answer equals the maximum loan (mortgage) one should borrow for a comfortable and stress free life. Don’t listen to the money lenders. Instead, “really do the math and prioritize.” Think for yourself. Think about your future in terms of years rather than months.

  62. If you want to see some serious misallocation (misery), take away free markets in favour of socialism.

    Like Churchill said…
    “The inherent virtue of socialism is the equal sharing of miseries.”

  63. The median family income in Victoria is $84,500 – or $72,500 after tax assuming the incomes are split equally- $6000.00 a month net.

    This allows you to qualify for a $500,000 mortgage provided you have the down payment and the credit.

    The payments on the mortgage amount will be approximately $2100 a month plus approx. $500 maintenance and utilities. That is $2700 a month.

    I’d say that is doable on the median family income and in no way “outrageous”. More than doable if you have a suite bringing in $1000 a month. Cheaper than rent.

    If you have a toddler in daycare expenses are tax deductible which reduces the $800 quoted to more like $680 after tax, plus you get the CCTB of approx. $150 a month tax free if you have a toddler. And daycare doesn’t last forever.

    Complaining is easy. Get out your calculator and really do the math and prioritize. Find out where you can economize and how you can plan to get ahead.

    The people I see who have the real troubles with buying homes are divorced couples with kids. Half the income and half the credit with a lot of doubling up of expenses.

  64. Agreed Jack. The market needs a serious cleansing here. I don’t buy these affordability stats as they don’t take into account of the reality of true monthly and day to day costs to the average family. Note I said “average”, not couples with no kids making 100K each.

    Average families with two kids in daycare at $800 a pop,(or even one kid), plus all the other child costs for sports and other activities that come along with raising a family make it a ball and chain for those who do squeak in making outrageous monthly payments to the banks.

    I don’t see where Victoria houses are anywhere near 40% affordable for the average family not to mention rising food costs, and gas prices that are still high after an oil price chopped in half. Something has to give soon, and a deep recession with unemployment increasing in the fall is not out of the question.

  65. Are high home prices good for the economy?

    Our “free” market system promotes boom/bust cycles, causes wide swings in availability of labor, forms price bubbles, miss-allocates financial resources and encourages hoarding.

    The “free market” distracts the governments from concentrating on the economy. Tempering what is right for our province or country against the political fall out of falling home prices.

    High prices mean a lifetime of atrocious loan repayments for future home owners. And the inability to financially plan, outside of real estate, for the future. It also effects the amount of post secondary education to the number of children that new households can afford.

    How about we stick a fork in this turkey, pop the bubble, and get back on track to building a province and a country for future generations to enjoy and not to be enslaved.

    Back to a 10 percent down payment with CMHC fees not being rolled into the mortgage.

  66. The upcoming China crash will make the HGTV flippers stories a distant memory. The numbers have been scammed for years now and the big money now realizes it. You can’t have commodities prices tank on low demand when China has been the main driver. The party is over in my humble opinion.

    China’s real estate, credit and investment bubble risks global recession

    “Our concern is that a triple bubble in housing, credit and investment comes with the significant risk of a hard landing,” Mr Garthwaite said.

    China’s house prices have fallen for the first time without political intervention, and housing accounts for more than half of total household assets, indicating a significant negative wealth impact, according to Credit Suisse.

    “If house prices fall by 15 per cent or more, then we think that we are likely to get a hard landing and the authorities risk running out of fiscal firepower,” Mr Garthwaite said.

    “Moreover, with housing contributing to a third of local government revenue, 56 per cent of banks’ collateral and around a fifth of GDP, the knock-on impacts could be immense.”

    http://www.smh.com.au/business/china/chinas-real-estate-credit-and-investment-bubble-risks-global-recession-20150717-giebmc.html

  67. Katusha suggestions: Buy, buy , buy! 😉

    I have to point out the obvious answer from the previous thread questions:
    “What are the gains that could be had and when should I have bought?”
    “And what type of real estate and where should you have bought?

    Anything like 1711 Haultain in 2013. From the before after pics I estimate the buyer put in 25-30k in renos, got around 440k, paid 300k. Made about 100k (likely tax free) in a little over 2 years. Onto the next.

  68. I know that when I had a suite in my house (even with it truly being an in-law suite), that house insurance cost about 10% more. How does the insurance on your rental property compare with your residence?

  69. It probably depends on intent. I didn’t have any funny business with my mortgage on the rental house but my intent was to build there when I bought it. It just turned into a rental house. Hard to get away with that if it’s a multi unit complex….

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