5 Things to Know Before Buying a Rural Property.

As cities continuing to grow bigger and busier, a rural home beyond those limits can seem like a dream come true! However, before you dive into country living, there are a few things you should know! Especially, how different it can be to qualify for a mortgage.

1. CHECK THE ZONING

When it comes to buying rural property, it is important to check how the property is zoned. This is vital! Zoning will determine how you are able to use the land, as well as the types of buildings that are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”?

Zoning could affect the lenders available to you and what you qualify for, as well as what you can do with that property. Differences in lending and foreclosure processes, has caused some lenders to be hesitant with financing mortgages in agricultural/country residential zones.

2. PROPERTY BOUNDARIES

Once you have determined how a property is zoned, it is important to look at the land. Requisitioning a survey early in the process will help mark the exact boundaries of your property to avoid future disputes. This is also a good time to get an appraisal done on the land and its value.

3. CONSIDERING THE LAND AND YOUR MORTGAGE

What many borrowers don’t realize is that land has a drastic effect on mortgage qualification and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have a second building or extra land that is being purchased, you will need to consider additional funding on top of your typical 5% down payment.

4. WATER AND SEWAGE

When it comes to rural living, many people draw water from private wells and utilize septic tanks for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city. However, it is important as lenders may request potability and flow tests!

5. COVERAGE MATTERS!

Coverage matters, especially when you are living away from the city. When it comes to rural properties, there are two types of insurance that you should consider:

1. Home Insurance: When it comes to rural living, this can be more expensive than city homes due to the size and location of the land and distance from fire stations and hydrants.
2. Title Insurance: This is vital for rural purchases and will protect you from unforeseen incidents with the deed or transfer. It will also alert you to any improper previous use of the property (such as dumping for waste).

If you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage professional before you do anything. They can often recommend a realtor who specializes in rural properties and knows the area best. A DLC Mortgage professional can also help ensure you understand any differences in the mortgage process and qualifying that come with rural purchases.

• Written by my DLC marketing team

Canadians are Feeling the Pinch

It seems anyone I talk to these days is feeling like there is some strange energy going on in the world. With the crazy high inflation, rising interest rates and the war in Europe it seems there is no positive news to be had. And there is a lot of anxiety and uncertainty as to what will happen in the near future.

The cost of living has increased dramatically over the last year and that has left many Canadians feeling pinched trying to make ends meet. Higher grocery prices, fuel, goods and services costs it seems no matter which way you look your dollar isn’t going near as far as it used to.

Being in a rising interest rate environment it would seem this would be the worst possible time to make a change to your mortgage. But what are the implications of refinancing now for a little relief to the bottom line? Is a short-term cash flow solution worth a small penalty and higher interest costs in the interim?

While there is no one answer for everyone if you are feeling the pinch, especially with the holidays looming, it may be a good idea to have a mortgage analysis done so you can see your options.

These days paying out a mortgage with a lower interest rate means that it’s very likely that only a 3-month of interest penalty would apply. That is much lower than the Interest Rate Differential (IRD) penalty we’ve been up against for the past several years.

So, if penalty is not prohibitive then it might be prudent to consider tapping into your equity to possibly consolidate higher-interest debt (credit cards, lines of credit, loans etc.), beefing up the savings account and stretching out your amortization to lower your overall monthly expenses. Help free up some cash so you can hunker down and ride out this strange storm.

Economic experts are saying that elevated rates will remain through 2023 and into 2024 until the world has a chance to settle out. Going into a shorter term for some relief until then may be an option. I offer a free mortgage analysis, so let me help you.

Looking for an inflation update? Look no further!

DLCs Chief Economist Dr. Sherry Cooper has written a very informative article regarding our current inflation situation. If you have any questions about what this may mean for a home purchase/refinance, do not hesitate to contact one of our many qualified brokers. We are here to help!

Read on to find out what Dr. Sherry Cooper had to say ⇓

Canadian Inflation Slowed On Gas Price Decline, But Not Enough To Satisfy Anyone.

Gasoline Prices Dipped, But No Time To Celebrate

While we are all grateful that gasoline prices declined from record highs in July, today’s release of the July inflation data shows that the underlying inflation momentum remains too strong for comfort. Governor Macklem will likely continue to hike the policy rate aggressively when they next announce their decision on September 7th. Judging from the swaps market, traders are betting evenly on a 50 bps (0.50%) vs. 75 bps (0.75%) increase next month.

The Consumer Price Index (CPI) rose 7.6% in July from a year earlier, compared to 8.1% in June. The dip reflected the largest drop in gasoline prices since the pandemic’s beginning.

On a monthly basis, however, inflation increased 0.1% from the June reading, the seventh consecutive rise. Excluding gasoline, prices rose 6.6% y/y last month, following a 6.5% increase in June, as upward pressure on prices remained broadly based.

Consumers paid 9.2% less for gasoline in July compared with the previous month, the largest monthly decline since April 2020. Ongoing concerns related to a slowing global economy, as well as increased COVID-19 pandemic public health restrictions in China and slowing demand for gasoline in the United States, led to lower worldwide demand for crude oil, putting downward pressure on prices at the pump.

On a monthly basis, gasoline prices fell the most in Ontario (-12.2%), where the provincial government temporarily lowered the gasoline tax.

Prices for food purchased from stores increased more on a year-over-year basis in July (+9.9%) than in June (+9.4%). Prices for bakery products (+13.6%) continued to rise faster as wheat prices remained elevated. Higher input costs and global supply uncertainty related to the Russian invasion of Ukraine continued to put upward pressure on global wheat prices amid an already constrained supply.

Other food items also exhibited faster price growth, including non-alcoholic beverages (+9.5%), sugar and confectionery (+9.7%), preserved fruit and fruit preparations (+10.4%), eggs (+15.8%), fresh fruit (+11.7%), and coffee and tea (+13.8%).

On a year-over-year basis, the mortgage interest cost index (+1.7%) increased for the first time since September 2020 amid elevated bond yields and a higher interest rate environment.

Year over year, growth in other owned accommodation expenses (+9.7%) and homeowners’ replacement cost (+9.1%) slowed, reflecting current trends in many regional housing markets across Canada.

In the context of higher mortgage rates, which could lead to additional rental demand, rent increased 4.9% in July compared with the same month in 2021, following a 4.3% increase in June. Faster price growth in the rent index was largely driven by an acceleration in Ontario (+6.4%) and Alberta (+3.4%).

Bottom Line

With some luck, price pressures might be peaking. The chart above shows the Bank of Canada’s most recent forecast for inflation. The Bank of Canada estimated inflation would average about 8% through the third quarter of 2022 before slowing. Now, the estimate could be revised a bit lower this time. That is why roughly half of the market participants expect a 50-bps rate hike next month, revised down from the 75-bps figure widely expected a month ago. Either way, the prime rate is rising more rapidly than the five-year government of Canada bond yield, making fixed mortgage rates relatively more attractive than variable rates tied to prime. Regardless of which path the Bank takes at the next meeting, the Bank will stay the course for some time.

Central banks cannot return to easy money quickly without risking another burst of inflation. Even with the Canadian economy slowing sharply in the second half of this year, labour markets remain very tight, and the central Bank is behind the curve. With hindsight, we know they kept rates too low for too long, triggering excess demand, particularly in the red-hot housing sector. Watching that unwind, especially in the country’s most expensive and frothy housing markets, will be the Bank’s most prudent option.

• Written by Dr. Sherry Cooper

DLCs Chief Economist, Dr. Sherry Cooper, had this response to Tiff Macklem’s recent Op-Ed

Macklem’s Op-Ed (emphasis is Dr. Sherry Cooper)

National Post Comment, August 16, 2022

Inflation in Canada has come down a little, but it remains far too high. After rising rapidly to reach 8.1 per cent in June, inflation as measured by the consumer price index (CPI) was 7.6 per cent in July.

The good news is that it looks like inflation may have peaked. The price of gasoline, which has contributed about one-fifth of overall inflation in recent months, declined from an average of $2.07 a litre in June to $1.88 a litre in July. And we know gas prices at the pump have fallen further so far in August. Prices of some key agricultural commodities, like wheat, have also eased, and global shipping costs have fallen from exceptionally high levels. If these trends persist, inflation will continue to ease.

The bad news is that inflation will likely remain too high for some time. Many of the global factors that have pushed up inflation won’t go away quickly enough — supply chain disruptions continue, geopolitical tensions are high, and commodity prices remain volatile. And here at home, our economy has been running too hot. As Canadians finally enjoy a fully reopened economy, they want to buy more goods and services than our economy can produce. Businesses are having trouble keeping up with demand, and that’s leading to delays and higher prices. The result is broad-based inflation. Even if inflation came down a little in July, prices for more than half of the goods and services that make up the CPI basket are rising faster than five per cent.

As the central bank, it’s our job to control inflation and that means we need to cool things down. That’s why we have been raising interest rates since March. In July, we took the unusual step of raising the policy interest rate by a full percentage point, to 2.5 per cent. Increasing our policy rate raises borrowing costs across the economy — for things like personal loans, car loans, and mortgages. And when we increase the cost of borrowing, consumers tend to borrow and spend less and save more. We need to slow down spending to allow supply time to catch up with demand and take the steam out of inflation.

One area of the economy where it is easy to see how this works is the housing market. With higher mortgage costs, housing activity has slowed quickly after unsustainable growth during the pandemic, and housing prices are moderating. As housing slows, peoples’ spending on housing-related goods and services, such as renovations and appliances and furniture, should also slow.

To tame inflation, we need to bring overall demand in the economy into better balance with supply. Our goal is to cool the economy enough to get inflation back to the two per cent target. We don’t want to choke off demand — we want to slow its growth. That’s what we call a soft landing. By acting forcefully in raising interest rates now, we are trying to avoid the need for even higher interest rates and a sharper slowing down the road.

I know some Canadians are asking, “Why are you raising the cost of borrowing when the cost of everything is already too high?”

We recognize that for many Canadians higher interest rates will add to the difficulties they are already facing with high inflation. But it’s by raising borrowing costs in the short term that we will bring inflation down for the long term. This will ultimately be better for everyone because high inflation hurts us all. It eats away at our purchasing power and makes it difficult to plan our spending and saving decisions. It feels unfair and that erodes confidence in our economy.

The best way to protect people from high inflation is to eliminate it. That’s our job, and we are determined to do it. Tuesday’s inflation number offers a bit of relief, but unfortunately, it will take some time before inflation is back to normal. We know our job is not done yet — it won’t be done until inflation gets back to the two per cent target.

Tiff Macklem is governor of the Bank of Canada

Bottom Line

I published Macklem’s statement in its entirety to do it justice. You can decide whether you think the overnight rate will go up by 50 vs 75 bps on September 7th, but undoubtedly it will go up. It is also clear that the Bank will not cut the policy rate until inflation is at the 2% target. So don’t assume that variable mortgage rates will decline quickly in response to a slowdown in the economy. The Bank’s emphasis on the housing slowdown being an essential precursor to the reduction in overall economic activity portends an extended period of credit stringency.

This is a sea change in the economy. This is the end of a forty-year bull market in bonds triggered by the disinflationary forces of globalization, cheap emerging market labour and rapid technological advance. It is also the end of very cheap credit. Household balance sheets will feel the pinch. Recent home borrowers who benefited from the record-low mortgage rates for the two years beginning in March 2020 will increasingly feel the constraint of higher borrowing costs on their discretionary spending. Ultimately, this will return inflation to its 2% target, but it will take a while.

• Written by Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

Second Mortgages: What You Need to Know.

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

• The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
• Better interest rate than a credit card as they are a ‘secured’ form of debt.
• You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

• Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
• Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to your DLC Mortgage Expert! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

• Written by my DLC marketing team

What are your post-COVID goals?  Is one of them to become a sun-loving snowbird south of the border or in another part of the world?  A reverse mortgage can help you achieve that goal.  Contact me by email at kwoolard@dominionlending.ca or by phone at 6041-319-6573, and visit us at www.ourreversemortgage.ca for more information.  Let us help you find a solution like Delores!

Many things in our world have changed permanently and the real estate market is no exception.

Shortly after Canada shut down due to the pandemic, interest rates spiked briefly and the Bank of Canada reduced the overnight rate by 150bps to cushion the economic shocks from both COVID-19 and the sharp drop in oil prices. Lenders scrambled to adjust their Variable rate offerings and then Fixed rates went into free fall.

As an example of what we are seeing, there are now rate offerings as low as 1.99% for 5-year Fixed products for applicants with a very specific borrower profile, and as low as 2.29% for standard 5-year Fixed products.

Lenders are also being very picky about income verification in light of the work stoppages that have occurred and, in particular, are scrutinizing applications by self-employed individuals to ensure their businesses haven’t been affected irrevocably by the pandemic.

Coming into 2020, we were looking at what was set to be the strongest real estate market in the past 30-40 years. What will the easing of quarantine restrictions mean for the market post-pandemic? A lot of pent-up demand. Many people had already made the decision to make a move in 2020 – myself included – and having to put off their purchase will make them want to move quickly when they perceive it is safe to do so.

Something else has changed as well. With many companies shifting to the platform of employees working from home for at least part of the work week, many people have realized that if this is the new reality they need more space to accommodate one or even two people working from home. It’s a struggle to be effective when you’ve got to share common space with a spouse and/or children. This will add to the demand we are anticipating.

The market is now starting to become much more active, with more listings coming online all the time. Realtors have taken significant safety measures for presenting properties from upscaling their virtual tours online to providing masks and gloves for on-site viewings.

All and all, it is looking like we are gearing up for a very busy ‘spring’ market in July and August. If you are considering a move, please reach out to me for a free analysis of what your purchase power is.

As the full impact of the COVID-19 crisis starts to be felt, I wanted to ensure you have as much information as possible on the relief measures that are being put into place.

First, if you are facing loss of income due to quarantine or workplace closure you may be able to seek EI benefits and you do not have to be laid off to qualify.  CLICK HERE for full details.  I hear there will be long waits to get through to set up benefits but it could be well worth the wait.

Second, the big six banks are taking coordinated action to assist Canadians during this crisis including mortgage payment deferrals up to six months, as well as relief on other credit products for consumers facing hardship.

Also, CMHC has reintroduced their Insured Mortgage Purchase Program to buy back up to $50 billion in insured mortgage pools, and the Bank of Canada has also pledged to purchase billings in mortgages to help the banks with liquidity – all in an attempt to maintain the strength of Canada’s economy.  CLICK HERE for a report from BNN Bloomberg for more details.

Further, the Federal Government has extended the tax filing deadline to June 1st and the deadline to pay outstanding taxes interest-free is extended to July 31st.  There is also an extension for businesses to pay taxes or installments without penalties or interest either.  The new deadline is July 31st.  CLICK HERE for a link to this announcement.

I’ll keep you posted as new measures are introduced, and I’m hoping you and your family weather this storm in full health.

As always, let me know if you have any mortgage-related questions or concerns.  I’m happy to help.