11 May

CMHC predicts what will happen to Canada house prices this year


Posted by: Henry Gill

Canada Mortgage and Housing Corp. says the average home price could rise by as much as 14% this year, but the pace of sales could moderate by the end of 2023 if broad immunity to COVID-19 is soon achieved.

Prices across the country could soar to as much as $649,400 by the end of the year and reach as high as $704,900 in 2023, the federal housing agency predicted Thursday as it unveiled its annual outlook.

However, the report showed CMHC’s lower-end estimates place the average price at $628,400 by the end of the year and $669,500 by the end of 2023.

CMHC foresees sales and prices slowing from the heated pace triggered by the COVID-19 pandemic in the next two years, but only if the country manages to quell COVID-19 this year and economic conditions return to pre-pandemic levels.

CMHC predicts sales in 2021 will be as low as 584,000 or as high as 602,300, but will slow to as little as 539,600 or as much as 561,100 in 2023.

Last year ended with sales amounting to 551,392 and an average price of $567,699.

“Low mortgage rates, high savings rates and the resilience of income and earnings for more affluent households will continue to support sales for more expensive housing types in 2021,” said Bob Dugan, CMHC’s chief economist, on a call with media.

“In 2022 and 2023, existing home sales will gradually moderate as rising mortgage rates and high prices begin to restrain demand.”

The pandemic trend that saw people flock to cottage country and spacious rural homes will also dissipate.

“The pandemic-induced surge in demand for lower density homes in suburban and smaller communities will have run its course, adding to the downtrend in existing home sales to more sustainable levels,” Dugan said.

But many of these predictions are subject to significant risk, Dugan warned.

COVID-19 remains volatile, economic recovery in major markets is still highly uncertain and a slower-than-expected vaccine rollout would prolong the pandemic and lead to higher mortgage rates, CMHC said.

How employers address remote work could also upend the outlook, Dugan added.

“This is a big question and one that is very difficult to answer, quite frankly,” said Dugan.

“Will employers want their staff back in the office after the pandemic is over or will remote working arrangements continue to some degrees?”

If remote work arrangements continue, he said price differentials between major metropolitan centres and rural counterparts could erode or even reverse.

As Canada pulls itself out of the pandemic, CMHC expects housing starts to stabilize by the end of 2023.

It predicts that rental demand will rebound as immigration recovers, but vacancy rates will likely remain elevated.

In the Greater Toronto Area, where market conditions have heated significantly during the pandemic, CMHC’s highest estimates show prices rising to $1,087,600 this year and $1,205,400 by the end of 2023.

Sales in the city could amount to as much as 113,500 by the end of 2021 and 123,800 by the time 2023 concludes.

They sat at 95,577 in 2020, while average prices totalled $929,673.

Vancouver, another hot market during the health crisis, may see prices climb to as much as $1,129,000 later this year and $1,395,000 by the end of 2023, CMHC said.

The agency added that sales in the city may increase to as much as 50,000 in 2021 and 44,700 in 2023.

Sales amounted to 43,063 last year and the average price was $1,008,688.


By The Canadian Press


17 Dec

New CMHC market assessment sees “moderate degree of vulnerability” in Canadian housing


Posted by: Henry Gill

Wednesday morning, Canada Mortgage and Housing Corporation released its most recent Housing Market Assessment for the third quarter of 2020.

“Although the unprecedented income supports from governments provided temporary relief, the COVID-19 crisis negatively affected the level of permanent disposable income available to households,” said Bob Dugan, CMHC’s chief economist. “Along with the weakening of other drivers of the housing market, overvaluation imbalances increased further or started to emerge in several markets in the third quarter of 2020.”

Be that as it may, the HMA, which examines the level of vulnerability in the country’s major real estate markets, determined that the raging sales activity seen in Q3, despite occurring without the support of robust employment, steady immigration, or economic certainty of any kind, has had a minimal impact on the stability of Canada’s housing markets. Compared to CMHC’s second quarter assessment, only four Census Metropolitan Areas are currently considered more vulnerable overall than they were in September: Regina, Hamilton, Montreal, and Moncton.

In assembling the HMA, CMHC considers four factors: overbuilding, overvaluation, price acceleration, and overheating.

Moderate risk from overheating: Hamilton, Ottawa, Montreal, Quebec City, Moncton

Moderate risk from price acceleration: Hamilton, Ottawa, Montreal, Moncton

Moderate risk from overvaluation: Canada, Victoria, Regina, Hamilton, Halifax

High risk from overvaluation: Moncton

Moderate risk from overbuilding: Edmonton, Calgary, Regina

Six markets received overall low vulnerability scores – Edmonton, Calgary, Saskatoon, Winnipeg, Quebec City and St. John’s – while only two, Moncton and Hamilton, were deemed highly vulnerable. CMHC said the remaining seven CMAs studied, and Canada as a whole, are facing moderate levels of vulnerability.

Despite receiving low vulnerability scores across all four metrics, both Toronto and Vancouver were deemed moderately vulnerable overall. In Toronto’s case, CMHC’s Dana Senagama told Mortgage Broker News that the city’s evaluation reflects the persistence of the city’s housing challenges even though certain technical thresholds were not crossed in Q3.

“Although you are seeing, for this particular quarter, all those indicators showing as green, they were, at one particular time over the course of the last two years or more, in the more vulnerable category,” Senagama said, adding that CMHC is paying particularly close attention to overvaluation in the GTA.

Eric Bond, CMHC’s senior specialist in Vancouver, said the city’s moderate vulnerability assessment was also impacted by its market’s recent performance. One item that has CMHC concerned is the region’s high level of indebtedness, which ranks among the highest in the country.

“While low interest rates are currently supporting housing demand and encouraging that, the uneven impacts of the pandemic mean that debt will affect different households differently,” Bond said. “That’s a vulnerability we wanted to take into account for Vancouver.”

With the HMA built around subjective concepts like “high vulnerability” and colour coding, consumers looking at an individual market’s assessment may wonder what exactly to do with the information in front of them. Dugan said the intent of the report is to promote stability in the market by making Canadians aware of potential issues in the communities in which they may be considering purchasing a home.

“Ultimately, we’re trying to signal imbalances to people to improve the decisions that they make,” Dugan said. “If, for example, there were overbuilding in the market that could lead to price declines, it’s a signal to people that there is some risk around prices in the market. It’s also a signal to builders that maybe instead of adding to inventories sell from the existing inventories you have on hand.”


By Clayton Jarvis 16 Dec 2020

21 Oct

Should you Break your Mortgage for a Lower Rate?


Posted by: Henry Gill

The relentless onslaught of the coronavirus pandemic has had serious consequences for the Canadian economy. In the initial days, the economic contraction prompted the Bank of Canada to cut its overnight rate to 0.25% to support the national economy. A by-product of this move has been the ultra-low mortgage rate environment, prompting the Big Six banks to slash their advertised five-year fixed mortgage rates, most of them are now close to or lower than 2%.

Record low rates and BoC’s low-rate-for-long outlook are creating a dilemma for many homeowners currently locked in a considerably higher fixed-term rates. Which leads us to wonder, ‘Should I break my mortgage?’ But will it make sense after paying all the penalties for breaking the mortgage early?

It takes some serious number crunching as part of cost-benefit analysis that considers the steep penalties lenders impose relative to potential savings. “Look at how much it’s going to cost you to break your mortgage — the mortgage penalties and any fees –versus your interest savings by breaking your mortgage and going with a lower rate today,” says Sean Cooper, mortgage broker and bestselling author of Burn Your Mortgage. “If you’re going to be saving money before the end of your term by switching, that’s when it can make sense.”

For example, he adds, if you have three years left on your term, comparing the savings over those three years, minus your penalty cost will show you how much you come out ahead.

Also Ask ‘Why?’
Penalty is number one but not the only consideration, cautions Joe Jacobs, managing partner with Mortgage Connection in Alberta. “You might also have other needs such as increasing monthly cash flow, higher debts you want to consolidate,” he says, noting “a review of all your finances should be considered. Sometimes the penalty is too high, you may not have the ability to add it back to your new mortgage and may not have the resources to cover it out of pocket. If any of the above is the case, then staying in your existing mortgage may make sense.”

A borrower also needs to figure out why they want to break their mortgage, Cooper says. A life event leading to a dramatic change in personal finances, for instance, could be one of the triggers. “If you’re finding it tough to make your regular mortgage payments due to COVID-19 or you’ve taken on new consumer debt, then you might choose to break your mortgage and refinance it to stretch out your amortization period to make your regular mortgage payments more affordable,” says Cooper.

Conversely, there could be a situation where breaking a mortgage may make sense even if it won’t result in saving interest. “For example,” says Cooper, “if improving your cash flow is the main reason, you might choose to break your mortgage, even if you won’t be saving any interest.”

How Does the Math Work?
How does mortgage math work when it comes to terminating the contract prematurely? All mortgages and penalties are not created equally, experts say. Big Bank mortgages have some of the highest fixed rate penalties, use complex calculations and employ different methods designed to compensate lenders for lost interest payments.

To illustrate how the math works, Cooper does a back-of-the-envelope-calculation. Let’s assume someone with $350,000 in mortgage balance is two years into a 5-year fixed term mortgage at 3.5% rate, looking to take advantage of a 1.95% current mortgage rate. There are three ways to calculate their potential penalties.

Method 1 – 3-month penalty
Formula: Contract Rate × Mortgage Balance × (3 months/12 months) = 3-month penalty

Example: 3.50% × $350,000 × (3 months/12 months) = $3,062.50

Contract Rate = The mortgage rate you’re currently paying on your mortgage

Method 2 – Interest Rate Differential (IRD) with discounted rate
Formula: (Contract Rate + Discount to Posted – Current Rate) x Mortgage Balance x (Months Remaining/12) = IRD with discounted rate

Example: (3.50% + 0.5% – 2.69%) x $350,000 x (36/12) = $13,755.00

Discount to Posted = The discount you received off the posted rate when originally signed up for your mortgage

Current Rate = The current rate that most closely matches your remaining term (i.e. the 3-year fixed rate in this example, since you’re 2 years into a 5-year fixed rate mortgage)

Method 3 – IRD with posted rate
Formula: (Posted Rate – Current Rate) x Mortgage Balance x (Months Remaining/12) = IRD with posted rate

Example: (4.79% – 2.69%) x $350,000 x (36/12) = $22,050.00

Posted Rate = The posted rate when you originally signed up for your mortgage

Potential Savings:
[Mortgage Balance x (Contract Rate – New Contract Rate) x Years Remaining] – Mortgage Penalty = Mortgage Savings

[$350,000 x (3.50% – 1.95%) x 3] – $13,755.00 = $2,520.00

The above calculation shows the potential savings with the IRD with discounted rate (Method 2) when breaking your mortgage to go with a lender offering 1.95%. In this case it would make sense to break your mortgage since you’d be saving over $2,500 over 3 years by doing so, Cooper concludes.

Lowest Rates, Highest Penalties
“All lenders are required to have pre-payment penalty calculations on their website, so start there,” advises Jacobs, stressing homeowners could also contact their mortgage broker or lender and get a quote. It is important to note, he adds, “all [penalties] are subject to change and we have seen big jumps with rates falling.”

In other words, a penalty quote today may be higher tomorrow. “In general, falling rates create a bigger spread compared to your existing mortgage and thus a larger IRD,” says Jacobs. The flip side to the lowest rates of all time, therefore, is some of the largest penalties of all time. There’s often going to be double-digit penalty fees “even [with] lenders that have the fairest calculations,” he cautions.

Variable Vs Fixed
It must be noted that penalties are different for breaking a variable mortgage versus fixed. “Most variable rates are three months of simple interest and most fixed are the greater of three months of simple interest or IRD (calculated differently depending on your lender),” says Jacobs, stressing that “the variable is clearly the winner on penalty calculations.”

If you are breaking a fixed mortgage, though, “it can be downright nasty,” particularly when rates are dropping, he warns.

“The IRD is supposed to compensate lenders for lost interest, but can seem punitive in nature with some lenders, mainly the banks who use their posted rate when calculated the IRD,” says Cooper. “If you like fixed-rate mortgages, there are ‘fairer penalty lenders’ out there that generally offer lower penalties when breaking your mortgage.”

It may be a good idea to tap a mortgage broker who has access to these lenders, he adds.

More than Rates
That said, cost is not always just the rate. Flexibility and lower breakage fees should be a major consideration. “The biggest mistake is being solely focused on the rate when signing up for a mortgage,” says Cooper. “While the rate matters, other things like penalties matter, too, maybe even more than the rate in some cases.”

He goes so far as to say sometimes it can make sense to take a slightly higher rate if it means a substantially lower penalty if you have to break your mortgage later on. What if the borrower can’t pay the mortgage penalty out of pocket? “That’s no problem,” says Cooper, adding, “most mortgage lenders let you add up to $3,000 in penalties and fees when breaking your mortgage.”

For those who incur larger penalties, as is the case with most borrowers in a fixed-rate contact, there’s a workaround, provided they have a good credit standing and at least 20% equity in their home. It’s called mortgage refinancing. “If the penalties and fees exceed $3,000 and you can’t afford to pay them out of pocket, you can refinance your mortgage and add the penalty and fees on top of the new mortgage so you don’t have to pay anything out of pocket and deplete your savings,” says Cooper.

When in doubt, ask for advice. Breaking a mortgage is a major financial decision, it is advisable to contact a professional who can look at your individual financial circumstances and offer the best course of action based on a cost-benefit analysis.


Vikram Barhat 19 October, 2020 

15 Sep

Has Canada’s economic rebound already plateaued?


Posted by: Henry Gill

An August 27 Financial Post story made the case that Canada’s economic recovery “is already flagging.” But that may not be the case. Not yet, anyway.

Citing recent work by RBC economist Colin Guldimann, the Post’s Ydallah Hussain argues that the CERB- and CEWS-fuelled increase in consumer spending seeing from May to July “appears to have plateaued.” That’s true, but it’s only part of the story.

Guldimann’s recent work for the RBC’s COVID Consumer Spending Tracker found that retail spending showed little growth between July 14 and August 4, but it also showed that the level of household spending during that period was between 17.4 percent and 20.2 percent higher than it was for the same timeframe in 2019. Hussain neglected to mention that between August 4 and August 11, household and department store/specialty retail/electronics/hobby spending increased by 5.5 percent and 3.3 percent, respectively.

Additionally, credit and debit card spending has been steadily improving since July 7. As of August 11, credit/debit expenditures were 5.5 percent higher compared to a year earlier. Increased credit card debt isn’t necessarily a sign of strength, but Canadians are certainly still injecting money into the economy.

The idea that Canadians are putting the brakes on spending is also refuted by the growing insanity of the nation’s housing market. CREA said more homes were sold in July 2020 than in any other month in the last 40 years. Those sales are expected to moderate as the country works its way through the end of CERB and the true impact of COVID-19 on Canadian workers makes itself felt, but they were also expected to tank earlier on in the crisis. A lack of supply and soaring prices may limit sales and further price growth, but demand and consumer confidence in much of the country show little sign of collapsing.

Bank of Montreal chief economist and managing director Douglas Porter says it is still too early to be passing judgment on Canadians’ spending habits. The true measure, he says, will come this week, “when we will get a flood of data for August,” including vehicle sales, home sales in certain key cities and, most important of all, the month’s employment figures. A similarly robust wave of data from the U.S. will also provide further clarity on Canada’s future trade prospects.

“Prior to these official numbers, we are essentially looking at high-frequency data, whose reliability isn’t entirely proven,” Porter told Mortgage Broker News by email.

“Our view is that the recovery likely kept grinding ahead in August, albeit at a slower pace than in June and July,” Porter continued. “But, simply, we think it’s premature to say the recovery has ‘stalled’, at least until we see some August data.”


By Clayton Jarvis, 31 Aug 2020

24 Aug

Insurers: Mortgage deferral extensions not on the table


Posted by: Henry Gill

Mortgage insurers are not signalling enthusiasm towards the extension of six-month payment deferrals, according to an analysis by The Financial Post.

The socio-economic disruption brought about by the COVID-19 pandemic brought deferrals to the fore as a vital support system for Canadian households that suddenly found their purchasing power severely restricted.

Data from the Canadian Bankers Association indicated that deferrals since March represented approximately 16% of bank-based mortgages, amounting to more than 760,000 borrowers.

However, Genworth Canada said that it forecasted a “vast majority” of six-month deferrals shifting to regular payment schedules very soon – with a significant caveat.

The private-sector residential mortgage insurer “expects that a subset of insured mortgages with payment deferrals will likely end up in default after the deferral period ends,” Genworth said. “As a result, the company and its lenders have plans in place to increase loss mitigation activities to address the increase in reported delinquencies that is expected starting in the fourth quarter of this year.”

Canada Mortgage and Housing Corporation recently said that an extension was not on the table.

“In developing the COVID-19 Default Management Playbook, the insurers did not feel that further extensions were a viable option on a global basis,” CMHC said. “If the borrower cannot be helped with the existing (default management) tools (stable source of some revenue), then there are few options as there are no government programs currently available.”


by Ephraim Vecina 17 Aug 2020

25 Mar

Trudeau announces new emergency programme for workers who lost work from COVID-19


Posted by: Henry Gill

Trudeau announces new emergency programme for workers who lost work from COVID-19

Prime Minister Justin Trudeau has announced the federal government is launching the Canada Emergency Response Benefit, a new programme that will provide $2,000 a month for four months to individuals who lost their work as a result of the COVID-19 pandemic.

Speaking outside of his residence where he is self-quarantining with his family, Trudeau acknowledged the dilemma facing Canadians trying to process mounting bills without a steady income, noting that “far too many Canadians are having these tough conversations about their finances and their future.”

With nearly 1 million people applying for employment insurance last week, Trudeau stated the new programme is in the process of being set up.

“An application portal will launch as quickly as possible and people should start receiving money as soon as 10 days of applying,” he said.

The programme will replace a pair of initiatives, the Emergency Care Benefit and the Emergency Support Benefit, that were announced last week. Trudeau said the decision to combine the two earlier programmes into a new endeavour was done “in order to streamline the process.”


by Phil Hall  / 25 Mar 2020

16 Mar

Stock and Bond Yields Plummet After Sunday Fed Cut


Posted by: Henry Gill

Fed Cuts Overnight Rate One Percentage Point But Markets Plummet

In an unprecedented Sunday afternoon meeting, the US Federal Reserve cut their key policy rate by 100 basis points (bps) to a level of 0%-to-0.25% (see chart below). Also, the Committee announced increased access to the discount window where the Fed makes loans to banks. The Fed is the lender-of-last-resort and is signalling that it will provide liquidity wherever needed. As well, with interest rates already so low, the Fed is well aware that rate cuts can only do so much. Thus, they are returning to quantitative easing–the buying of large volumes of U.S. government Treasury bills and bonds as well as mortgage-backed securities (MBS), to inject liquidity into the financial system.

The Treasury and US MBS markets are usually the deepest, most liquid markets in the world. But over the past two weeks, liquidity has dried up. Financial instability has risen sharply with the high level of volatility. Banks have experienced significant withdrawals as consumers are hoarding cash like everything else. The cost of funds to banks has risen sharply because of the enhanced perception of risk. With the collapse in oil prices, banks exposed to the oil sector are building up reserves for nonperforming loans. As businesses everywhere in nearly every sector shutdown, the risk of delinquencies rises further. Consumers who are housebound spend less money, and those who are freelancers or hourly wage earners might not get paid. Moreover, the shuttering of schools puts an added burden on parents who have no other daycare options for their kids.

All of this disruption, which according to the Center for Disease Control, could last months–the CDC recommended yesterday the shutdown of meetings of more than 50 people for eight weeks–has led to rising concern about the riskiness of banks. Bank shares have plummeted, and the yields on bank bonds have surged. Besides, banks and other mortgage lenders are fearful of being inundated with requests for refinancings, especially in the US, where penalties for breaking a mortgage are much lower than in Canada. Because of the refinancing surge in the US, the price of MBSs has fallen sharply, raising their yields and making the market highly illiquid.

The rising risk premiums, likely recession and illiquidity are causing banks in Canada and the US to raise some mortgage rates. Lenders are tightening the discount off the prime rate on variable-rate mortgage loans. Some fixed rates have edged higher as well. Such spread widening between mortgage rates and government yields happened during the financial crisis. Bank balance sheets will expand as troubled businesses and consumers extend their borrowings on their open lines of credit. Many will be unable to make timely interest payments. Loan loss reserves, already climbing, will rise further. Liquid deposits will be depleted as many are forced to live off of savings while shying away from selling stocks at markedly depressed prices.

These are not normal times. The Fed’s actions did nothing to calm markets. Indeed, stocks and bond yields plummeted in overnight trade, and the stock markets opened sharply lower in North America. The S&P 500 opened down over 8% while the TSX opened down 11%, triggering a circuit-breaker time out. This is the third time in a week the circuit breaker has hit. The TSX is down roughly 35% from its recent high (see chart below). The S&P 500 is down over 20%. The relative underperfomance of the Canadian stock market reflects our out-sized representation of the energy sector. The two weakest sectors in the TSX are the energy and financial sectors.

The world knows that the Fed and other central banks are running out of ammunition. Governor Powell said yesterday that he would not take the key fed funds rate into negative territory but instead would use “forward guidance” and asset purchases (quantitative easing) going forward.

The good news is that the banks are highly capitalized and much more resilient than during the financial crisis. Central banks since that time have put in place measures to monitor financial stability. Last Friday, the Canadian Office of the Superintendent of Financial Institutions (OSFI) reduced the capital requirements for Canadian banks to free up $300 billion for banks to support troubled borrowers. OSFI warned against the use of these funds to buy back stocks or raise dividends.

OSFI also suspended the proposed revision in the qualifying mortgage rate slated to begin April 6. The posted mortgage rate, published weekly by the Bank of Canada, will remain the qualifying mortgage rate. It is currently 5.19%, but it is expected to fall this week to around 4.95%.

But in these extraordinary times, there is a loss of confidence in the financial system. Some are calling for a full shutdown of the stock markets–but imagine the panic if no one could sell assets. There would truly be a run on the banks. Now is not a time to panic.


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
2 Mar

Morneau Eases Stress Test On Insured Mortgages


Posted by: Henry Gill

Minister Morneau Announces New Benchmark Rate for Qualifying For Insured Mortgages

The new qualifying rate will be the mortgage contract rate or a newly created benchmark very close to it plus 200 basis points, in either case. The News Release from the Department of Finance Canada states, “the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.”

These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.

This follows a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to reflect the evolution of market conditions better. Overall, the review concluded that the mortgage stress test is working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages.

The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight. The earlier rule established the big-six bank posted rate plus 2 percentage points as the qualifying rate. Banks have increasingly held back from adjusting their posted rates when 5-year market yields moved downward. With rates falling sharply in recent weeks, especially since the coronavirus scare, the gap between posted and contract mortgage rates has widened even more than what was already evident in the past two years.

This move, effective April 6, should reduce the qualifying rate by about 30 basis points if contract rates remain at roughly today’s levels. According to a Department of Finance official, “As of February 18, 2020, based on the weekly median 5-year fixed insured mortgage rate from insured mortgage applications received by the Canada Mortgage and Housing Corporation, the new benchmark rate would be roughly 4.89%.”  That’s 30 basis points less than today’s benchmark rate of 5.19%.

The Bank of Canada will calculate this new benchmark weekly, based on actual rates from mortgage insurance applications, as underwritten by Canada’s three default insurers.

OSFI confirmed today that it, too, is considering the new benchmark rate for its minimum stress test rate on uninsured mortgages (mortgages with at least 20% equity).

“The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

“In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” (Thank goodness, as the last thing the mortgage market needs is more complexity.)

The new rules will certainly add to what was already likely to be a buoyant spring housing market. While it might boost buying power by just 3% (depending on what the new benchmark turns out to be on April 6), the psychological boost will be positive. Homebuyers—particularly first-time buyers—are already worried about affordability, given the double-digit gains of the last 12 months.


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
12 Feb

How to Verify Your Down Payment When Buying a Home


Posted by: Henry Gill

How to Verify Your Down Payment When Buying a Home

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.


This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

  • Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
  • Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.


2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

  • Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
  • Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
  • If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
  • You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
  • Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

  • If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

  • Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
    Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

Kelly Hudson
Dominion Lending Centres – Accredited Mortgage Professional