Benefits of Homeownership Reaffirmed in New Study

Marci • October 3, 2018

Despite deteriorating housing affordability across the country, buying a home is still the more affordable option when compared to renting.

A new report from Mortgage Professionals Canada has determined that, despite the rapid rise in home prices, those who are able to invest in a home would end up “significantly better off” in the long term compared to renting.

The report, authored by the mortgage broker association’s chief economist Will Dunning, found that while upfront monthly costs are in fact cheaper in most locations, the “net” cost of ownership is less than the equivalent cost of renting in a majority of cases, and becomes even more cost effective over time.

“The costs of owning and renting continue to rise across Canada,” Dunning noted. “However, rents continue to rise over time whereas the largest cost of homeownership–the mortgage payment–typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership.”

Additionally, the costs of ownership include considerable amounts of repayment of the mortgage principal. “When this saving is considered, the ‘net’ or ‘effective’ cost of homeownership is correspondingly reduced,” Dunning added.

On average, the monthly cost of owning exceeds the cost of renting by $541 per month. But when principal repayment is considered, the net cost of owning falls to $449 less than renting.

Interest Rate Scenarios

The analysis compared the cost of renting vs. owning both five and 10 years into the future, with higher interest rates factored into the equation. In all cases, owning comes out ahead:

Scenario #1 : If interest rates remain the same (using an average of 3.25%), after 10 years the average net cost of owning is $1,014 less than the monthly cost of renting.

Scenario #2 : If interest rates rise to 4.25% after five years, the average net cost of owning falls to $1,295 less than the monthly cost of renting.

Scenario #3 : If interest rates rise to 5.25% after five years, the average net cost of owning is still $726 less than the monthly cost of renting.

“By the time the mortgage is fully repaid in 25 years (or less) the cost of owning will be vastly lower than the cost of renting,” the report adds, noting that the cost of owning, on average, would be $1,549 per month vs. $4,655 for an equivalent dwelling.

Canada Still a Country of Homeowners

Despite rising home prices and deteriorating affordability, Canada remains a nation of aspiring homeowners.

The study pointed to the continued strong resale activity as one indicator of this.

Resale activity in 2017 was still the third-highest year on record, at 516,500 sales, just off the peak of 541,2220 sales in 2016.

But other polls have also found a strong desire among younger generations that still dream of owning.

RBC’s Homeownership Poll found a seven-percentage-point increase in the percentage of overall Canadians who planned to buy a home within the next two years (32%), and a full 50% of millennials.

Similarly, a RE/MAX poll found more than half of “Generation Z” (those aged 18-24) also hope to own a home within the next few years.

Perhaps the biggest question is whether those aspiring homeowners will have the means to surpass the barriers to homeownership, namely larger down payments and the government’s new stress test.

“While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term,” Paul Taylor, President and CEO of Mortgage Professionals Canada said in a statement. “Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership.”

Despite its affordability benefit over renting, Dunning addresses some of the impediments of homeownership, namely the longer timeframe needed to save for the down payment. Despite higher home prices and larger down payments required, first-time buyers still made an average 20% down payment.

Additional Tidbits from the Report

Some additional data included in Dunning’s report include:

Average house price rose 6.2% per year from $154,563 in 1997 to $510,090 in 2017
Average weekly wage growth was up just 2.6% per year from 1997 to 2017
The average minimum interest rate for the stress test during the study period: 5.26%
The average annual rates of increase for the following housing costs:
- Property taxes: 2.8%
- Repairs: 1.9%
- Home insurance: 5.4%
- Utilities: 1.6%
- Rents: 2.4%

This article was written by Steve Huebl originally published on the Canadian Mortgage Trends on Sept 17th 2018.

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Benefits of Working with an Independent Mortgage Professional

By Marci Deane • February 12, 2025

If you need a mortgage, working with an independent mortgage professional will save you money and provide you with better options than dealing with a single financial institution. And if that is the only sentence you read in this entire article, you already know all you need to know. However, if you’d like to dig a little deeper, here are some reasons that outline why working with an independent mortgage professional is in your best interest. The best mortgage is the one that costs you the least over the long term. An independent mortgage professional can help you achieve this. Mortgages aren’t created equally. Oftentimes slick marketing leads us to believe the lowest “sticker price” is the best value. So when it comes to mortgage financing, you might assume the mortgage with the lowest rate is the best option. This isn’t always the case. When considering a mortgage, your goal should be to find the mortgage that will cost you the least amount of money over the total length of the mortgage. There are many factors to consider, such as your specific financial situation, the rate, initial term length, fixed or variable rate structure, amortization, and the penalties incurred should you need to break your mortgage early; the fine print matters. An independent mortgage professional can walk through all these factors with you and will help you find the mortgage that best suits your needs. Sometimes taking a mortgage with a slightly higher rate can make sense if it gives you flexibility down the line or helps you avoid huge payout penalties. Working the numbers with an independent mortgage professional will save you money in the long run instead of just going with what a single lender is offering. Save time by letting an independent mortgage professional find the best mortgage product for you. Let's face it, getting a mortgage can be challenging enough on its own. Everyone’s financial situation is a little different and making sense of lender guidelines is a full-time job in itself. So instead of dealing with multiple lending institutions on your own, when you work with an independent mortgage professional, you submit a single mortgage application that is compared to the lending guidelines of various mortgage lenders. This will save you time as you don’t have to go from bank to bank to ensure you’re getting the best mortgage. Simply put, an independent mortgage professional works for you and has your best interest in mind, while a bank specialist works for the bank and has the bank's best interest in mind. It’s no secret that Canadian banks make a lot of money. It seems every quarter they turn billions of dollars in profit (despite the economic environment). They do this at the expense of their customers by charging as much interest as they can and structuring mortgages to their benefit. It’s all about the alignment of interest. Bank employees work for the bank; the bank pays them to make money for the bank. In contrast, independent mortgage professionals are provincially licensed to work for their clients and are paid a standardized placement or finder’s fee for matching borrowers with lenders. When you work with a single bank, you only have access to the products of that bank. When you work with an independent mortgage professional, you have access to all of the lenders that mortgage professionals have relationships with and all their products. Working with an independent mortgage professional will save you money, time, and provide you with better mortgage options. Plus, you have the added benefit of working with a licensed professional looking out for your best interest, providing you with the best possible advice. If you’d like to know more or to discuss mortgage financing, please connect anytime; it would be a pleasure to work with you.

How to Ensure a Smooth Home Purchase

By Marci Deane • February 5, 2025

Chances are, buying a home is one of the most important financial decisions you’ll make in your life. And as mortgage financing can be somewhat confusing at the best of times, to alleviate some of the stress and to ensure your home purchase goes as smoothly as possible, here are six very high-level steps you should follow. While it might seem like the best place to start the home buying process is to browse MLS on your phone and then contact a Realtor to go out and look at properties, it’s not. First, you’re going to want to work with a licensed independent mortgage professional. When you work with an independent mortgage professional, instead of working with a single bank, you’ll be working with someone who has your best interest in mind and can present you with mortgage options from several financial institutions. The second step in the home buying process is to put together a mortgage plan. Unless you have enough money in the bank to buy a home with cash, you’re going to need a mortgage. And as mortgage financing can be challenging and not so straightforward, the best time to start planning for a mortgage is right now. Don’t make another move until you discuss your financial situation with an independent mortgage professional. It’s never too early to start planning. As part of your mortgage plan, you’ll want to figure out what you can afford on paper, assess your credit score, run some financial scenarios, calculate mortgage payments, and have a clear picture of exactly how much money is required for a downpayment and closing costs. You’ll also be able to discuss which mortgage product is best for you, considering different mortgage terms, types, amortizations, and features. Now, what you qualify to borrow on paper doesn’t necessarily mean you can actually afford the payments in real life. You need to consider your lifestyle and what you spend your money on. Understanding your cash flow is the key. Make a budget to verify you can actually afford your proposed mortgage payments and that you have enough funds to close on the mortgage. No one wants to be house-poor or left scrambling to come up with funds to close at the last minute. If everything looks good at this point, the next step will be to get a preapproval in place. Now, a pre-approval is more than just typing some numbers into a form or online calculator; you need to complete a mortgage application and submit all the documents requested by your mortgage professional. Only proceed with looking at properties when you’ve been given the green light from your mortgage professional. When you’ve found a property to purchase, you’ll work very closely with your mortgage professional to arrange mortgage financing in a short period of time. This is where being prepared pays off. As you’ve already collected and submitted many documents upfront during the preapproval process, you should be set up for success. However, remain flexible and provide any additional documentation required by the lender to secure mortgage financing. Once you have firm lender approval and you’ve removed conditions on the purchase agreement, don’t change anything about your financial situation until you have the keys. Don’t quit your job, don’t take out a new loan, or don’t make a large withdrawal from your bank account. Put your life into a holding pattern until you take possession of your new home. So there you have it, six steps to ensuring a smooth home purchase: Work with an independent mortgage professional. Put together a mortgage plan. Figure out what you can actually afford. Get a pre-approval. Provide the necessary documentation. Don’t change anything about your financial situation until you take possession. If you’d like to discuss your personal financial situation and find the best mortgage product for you, let’s work together. We can figure out a plan to buy a home as stress-free as possible. Please connect anytime; it would be a pleasure to work with you.

Bank of Canada Kicks Off 2025 with a Rate Cut and Balance Sheet Normalization

By Marci Deane • January 30, 2025

The Bank of Canada has lowered its overnight rate by 25 basis points—the sixth cut since June last year. It also plans to end quantitative tightening and normalize its balance sheet. This brings the BOC rate to 3.00% and we expect lenders to cut their Prime Lending rate to 5.20%. This is all good news and will help variable rate mortgage holders. However, the Bank warns of "more-than-usual uncertainty," especially with potential U.S. trade tariffs on the horizon. To say that predictions about future rate trajectory are tricky is quite the understatement at this point. Below is a summary of all the factors impacting the Canadian Economy, the Bank of Canada and interest rates right now. Canadian Economy & Housing Lower rates are boosting the economy, with consumer spending and housing activity picking up. Business investment remains weak. Exports should benefit from new oil and gas capacity. Inflation Outlook CPI inflation is near 2%, though temporarily affected by the GST/HST suspension on some goods. Housing costs are still high but gradually easing. Broad indicators suggest underlying inflation is very close to the 2% target. The Bank expects inflation to remain near 2% over the next two years. Labour Market Unemployment sits at 6.7%, signaling a soft labour market. Job growth has picked up after lagging behind workforce expansion. Wage pressures are easing, but progress has been slow. Global Economy, Bond Yields & Canadian Dollar Global GDP is expected to grow 3% annually over the next two years. U.S. growth is stronger than expected, while Europe lags. China’s economy is stabilizing after recent policy support. U.S. bond yields have risen, but Canadian yields are down slightly. The Canadian dollar has weakened against the U.S. dollar due to trade uncertainty. Oil prices have been volatile, recently settling about $5 higher than October projections. Other Key Announcements The Bank will complete balance sheet normalization and resume asset purchases in March 2025. With inflation near 2% and the economy in excess supply, the Bank deemed a rate cut necessary. The impact of rate cuts since June has been "substantial," fueling household spending and gradual economic strengthening. Outlook from the BOC today: The Bank projects 1.8% GDP growth for both 2025 and 2026. Lower immigration targets will slow population growth, moderating overall economic expansion. The risks in the outlook are "reasonably balanced" unless U.S. trade tensions escalate, which could weaken GDP and push prices higher. The Bank reaffirmed its commitment to price stability. Bottom line: The Bank is cutting rates to support growth, but uncertainties—especially trade risks—loom large. So, what to do? Variable rate or Fixed rate? The jury is out on this for the moment but less risk averse borrowers may want to consider a Variable if they believe recessionary pressures will push rates down. The counter argument to this is that Tariffs could cause inflation and thus, push the BOC to increase rates. Given this chance, risk averse borrowers might therefore prefer to “set it and forget it” with a fixed rate. It comes down to a very personal decision and analyzing the financial position and future goals for each borrower. Please reach out to review your personal plans and we can help you weigh the risks based on your personal financial situation.