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Mortgage renewals in 2018: Prepare for nasty rate surprises

March 16, 2018
The era of pleasant surprises for people renewing their mortgage is done.

Years of falling interest rates in the aftermath of the 2008-09 financial crisis taught a generation of home buyers that renewing a mortgage is a chance to reduce your payments. Now, we're heading into the first wave of postcrisis renewals at higher mortgage rates.

If you bought your house five years ago and chose a mortgage with the ever-popular five-year term, rate hikes since last summer mean your payments are headed higher on renewal. Competitively discounted fixed five-year mortgage rates today run from 3.19 per cent to 3.59 per cent, depending on your particular home and mortgage details. Five years ago, a comparable rate was 2.74 per cent. The lowest five-year rate widely available in the past five years was 2.44 per cent in mid-2016, according to


David Larock of Integrated Mortgage Planners said he's starting to hear from homeowners who are taking in this shift in rates. "I get e-mails from people once in a while to say, if you can get me my old rate of 2.49 per cent, I'd be happy to renew," he said. "I have to break their hearts."

Higher rates are just half the story. New mortgage-industry rules are complicating the process of taking your mortgage elsewhere if you don't like the rate offered by your current lender. Vince Gaetano, a broker with, said a lot of people seem to think the new rules applied only to first-time buyers. "Now, they're coming up to their renewals and they're saying, I had no idea this impacted me. I would have planned for this last year."


The new rules require buyers with a down payment of 20 per cent or more to undergo a stress test that ensures they could afford their mortgage payments at the greater of the Bank of Canada's five-year benchmark rate (now 5.14 per cent) or the actual rate being offered plus two percentage points. People with down payments below 20 per cent already faced a stress test, but it was set at the five-year Bank of Canada rate and thus slightly less stringent.

For existing homeowners, the stress tests are a non-factor as long as they're renewing their mortgage with their current lender. If they want to move the mortgage to a different lender, a stress test must be applied. Unless you can pass the stress test, you're likely stuck with your current lender. Mr. Gaetano expects lenders, notably the banks, to use the new rules as an opportunity to become less competitive in the renewal rates offered clients who appear to be less creditworthy. Better rates may be out there, but these clients won't be able to get them.

recent column looked at how people refinancing their mortgages to add other debts must also pass the stress test now. Refinancing is a popular tactic used by people who are getting overwhelmed by their debts. How popular? Mr. Gaetano said about 80 per cent of his clients who are up for their first mortgage renewal have in the past refinanced as opposed to simply renewing.

The biggest rate shocks will be felt by people who thought they were being prudent borrowers by putting down 20 per cent or more and thus avoiding the cost of mortgage-default insurance. This insurance makes a mortgage more attractive to lenders because the equity built up in the house means they won't lose money if borrowers can't repay what they owe.

That competitive 3.19-per-cent, five-year fixed rate mentioned earlier is for people who started with a so-called high-ratio mortgage, where the down payment is less than 20 per cent, and/or for those who have a mortgage that is less than 65 per cent of the current value of their home. Also, the purchase price had to be below $1-million. The best rate applies here because the mortgage is insured against default.


Expect rates in the area of 3.39 to 3.59 per cent if you're renewing a mortgage of between 65 per cent and 80 per cent of the home's current value (for example, a couple that put down 20 per cent at the time of purchase several years ago) and/or had an original purchase price of $1-million and higher. The same applies to people who are refinancing when they renew.

If years of declining rates have reduced the motivation for homeowners to shop around for a mortgage deal, Mr. Larock expects that to change this spring. "If their costs are going up, a lot of people are going to be more inclined to see what else is out there."

Will pot shops affect property values in your neighbourhood? They did in Colorado.....

An employee at a marijuana dispensary in Denver holds up a bud for a customer. Recreational sale of marijuana has been legal here since January 2014


As Canada moves closer to legalizing the recreational use of marijuana, many are speculating on how the decision will affect society and the economy. While some are concerned about health and safety effects, others are optimistic about potential new tax revenues and the prospect of bringing the sale and distribution of marijuana out of the criminal sphere.

One area that few are talking about, however, is how legal marijuana will affect residential property markets.

While retail rents are likely to benefit first, housing prices may also get a boost, if the experiences in other jurisdictions that have legalized marijuana are repeated.

Writing in the prestigious journal Real Estate Economics, James Conklin and coauthors studied how the conversion of medical marijuana stores to recreational marijuana stores affected housing prices in Denver, Colo., where the recreational sale of marijuana was legalized in January 2014.

Their research provided strong evidence that homes located near such converted stores experienced a much higher increase in value than houses located farther away — as much as 8 per cent more.
Conklin and his coauthors were meticulous in their research. They implemented several robustness checks and falsification tests to avoid undue influence of spurious correlation. Their results remained consistent and stable and withstood the scrutiny of all tests.

Their results showed that single-family residences situated within 0.1 mile (528 feet) of a medical marijuana store that became a recreational marijuana store experienced an increase of 8 per cent relative to homes sold farther away.

However, dwellings located between 0.1 mile and 0.25 mile from a converted store did not experience any proximity premium. The authors, therefore, concluded that the proximity premium was highly localized.

This finding raises several questions. For instance, why would housing prices report a proximity premium within such a small buffer zone around the converted stores? What possible benefits could a homeowner expect to derive from being that close to a marijuana dispensary, other than ease of access?

Alternatively, why would a homebuyer not buy a structurally similar house that is a little further away, that was not rising in price so quickly? Equally relevant is the question of whether homebuyers who purchased homes near a marijuana store were even aware of the store’s presence.

While Conklin and his coauthors were mindful of these limitations and “agnostic as to the underlying cause of our results,” it is possible to speculate about some potential explanations.

One possibility not raised in the study is that homes around marijuana dispensaries had been subject to a discount prior to legalization, but that legalization lifted the stigma around such homes.

Another is that the stores had knock-on economic effects that were highly localized and boosted the economic profiles of their specific neighbourhoods.

While those are only guesses, theirs is not the only research demonstrating a strong linkage between the legalization of marijuana and higher housing prices.

In a recent paper in Economic Inquiry, Cheng Cheng and coauthors found almost similar results suggesting a 6 per cent premium in prices for homes sold in municipalities that legalized retail sales of marijuana, versus those that didn’t.

Cheng and coauthors found that by August 2015, 46 out of the 271 incorporated municipalities in Colorado had passed laws enabling retail marijuana sales. Using even a more rigorous approach by restricting their analysis to dwellings that sold multiple times during the study period they found similar results as Conklin and his coauthors.

The Canadian government expects annual recreational marijuana sales to be around $4 billion, which will be subject to a 10 per cent excise tax and additional provincial sales taxes. These taxes are expected to raise net new revenue mostly for provinces.

Whether homeowners also see a high remains to be seen.

Greater Montreal home sales rise 5 per cent from a year ago


The Greater Montreal Real Estate Board says home sales in the region grew five per cent year-over-year in February, as the number of active listings dropped 17 per cent.

A total of 4,081 residential sales were made last month across the city's census metropolitan area, marking the 36th straight increase and the busiest month of February since 2012.

As was the case in 21 of the past 24 months, condominiums registered the largest increase in sales, jumping by 14 per cent.

Single-family homes and plexes posted small increases of one per cent and three per cent, respectively.

The median price of single-family homes across Greater Montreal was $310,000 last month, up six per cent year-over-year, while plexes reached $481,500, a one per cent increase.

As for condominiums, the median price grew by five per cent last month, with half of all units selling for more than $250,000.

The real estate board says acceleration in price growth is a direct result of increasingly tighter market conditions.


4 ways you can still afford your 1st home

CBC News Posted: Feb 23,Your first home could also be your first income property, according to real estate expert Ken Beaton.

CBC News Posted: Feb 23,
Your first home could also be your first income property, according to real estate expert Ken Beaton. (Ilia Fabbri)
Starting to fret you'll never be able to buy a home?

With rising mortgage rates and new rules making it tougher to qualify for a home loan, nobody will blame you.

'Understand the impact of the financial choices we make in life — the good ones and the bad ones.'- Ken Beaton, ARCA Real Estate Investments

On top of that, salaries have failed to keep pace with inflation, and more and more of us are working as freelancers or contract employees — a red flag for traditional lenders. And we love to spend our disposable cash instead of socking it away. 

According to real estate expert Ken Beaton, however, there are still ways to enter the housing market without jeopardizing either your financial future or your lifestyle.

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Here are four of Beaton's tips for first-time real estate buyers.

Dump luxury items, eliminate credit card debt

Before you can clean up in real estate, you'll have to clean up your debt, Beaton said. For most of us, that means better discipline with our high-interest credit cards.

Census credit

Young people should make reducing high-interest credit card debt their first priority, Beatson advises. (Ryan Remiorz/The Canadian Press)

"It's the credit card debt that will sink people. And it's the credit card debt that gets people into a world of hurt."

Credit cards are far more likely to bring people to the financial brink than is home ownership, Beaton said. He believes the government could better help Canadians spend within their means by focusing on plastic instead of making it so difficult to afford a home. 
Going into long-term debt to purchase one of the most bulletproof investments out there is far smarter than charging big-ticket items such as boats and RVs, Beaton said.

There's nothing wrong with the toys if you can afford them — but they won't get you any closer to your dream of home ownership. 

"Understand the impact of the financial choices we make in life — the good ones and the bad ones," Beaton advised.

Move to the country

Never mind the clean air, the safer streets and the slower pace: moving away from the big city could benefit your wallet, too, said Beaton, who's based in Almonte, Ont.

Property values tend to be lower in the outskirts, but buyers get more bang for their buck. Also, some rural municipalities offer incentive programs to attract first-time homebuyers.

"They will give you the five per cent down payment for your first purchase," Beaton said. "Not many realtors know and understand this."

Beaton has one tip before you pack your bags: be sure to pick a community with easy access to commuter buses or rail.

Bank of Mom and Dad

Most of us know that we can tap into our RRSPs to help with a down payment — we just have to pay it back. But if that's not an option, you can always visit the Bank of Mom and Dad, Beaton said.

That's right, your parents can lend you the money from their own RRSPs. It's safe, can securely earn them interest, and will help you out in the process, Beaton said.

"Unlike a conventional mortgage from the bank, [parents] are allowed to lend 90 or 95 per cent of the value of that property," he said.

This is different from a family member "gifting"' you the money to help with your down payment: that's when the loan is truly a gift, and isn't being repaid with interest, Beaton said. He warns a loan masquerading as a gift is deemed mortgage fraud, and can get you, mom and dad into hot water with the Canada Revenue Agency.

First-time homebuyer, part-time landlord

Buying a home that's a bit bigger than you need might be more expensive up front, but could literally pay for itself in the long run, Beaton said.

"Buy a single-family house, like a raised bungalow, and suite out the basement. Turn it into a one- or two-bedroom apartment in the basement and it will pay 80 to 100 per cent of the mortgage," he advised.

"Yes, you don't have the entire house to yourself initially, but it is a perfect stepping stone to get into the game and build some wealth for yourself."

Just do your homework and make sure the neighbourhood you're looking to purchase in is open to legal basement suites. Some neighbourhoods and newer subdivisions frown upon the practice, so you could just end up with more house that you bargained for, Beaton said.