Ask people this question and you will get a variety of answers.  Most home owners will say 10% is what you should put down. However, if you speak with your grandparents, they are likely to suggest that 20% is what you need for a down payment.

The truth is 5% is the minimum down payment that you can make on a home in Canada. If you are planning on buying a $200,000 home then you need $10,000.

It all can be explained by the creation of the Canadian Mortgage and Housing corporation (CMHC) by the Canadian government on January 1^st, 1946. Before this time, you needed to have 20% down payment to purchase a home . This made home ownership difficult for many Canadians. CMHC  was created to ease home ownership. This was done by offering mortgage default insurance. Basically what CMHC does is it guarantees that you will not default on your mortgage payments. If you do, they will reimburse the lender who gave you the mortgage up to 100% of what the homeowner borrowed. In return lenders allow you to purchase a home with a smaller down payment and a lower interest rate.

CMHC charges an insurance premium for this service to cover any losses that may occur from defaulted mortgages. This program was so successful that CMHC lowered the minimum down payment to 5% in the 1980’s.

However, if you have little credit history or some late payments in the past they may ask you to provide 10% instead of the tradition 5% if they feel there is a risk that you may default at some time.

You should also be aware that the more money you put down, the lower your monthly mortgage payments will be. You also can save thousands in mortgage default insurance premiums by putting 20% down.  At this time,  home buyers who put 5% down have to pay a fee of 4% to CMHC or one of the other mortgage default insurers to obtain home financing. On a $400,000 home this is close to $16,000.

If you can provide a 10% down payment the insurance premium falls to 3.10% and if you can provide 20% it drops to zero.  While 20% can seem like an impossible amount to save, you can use a combination of savings, a gift from family and/or a portion of your RRSP savings to achieve this figure. The best recommendation that I can make is to speak with your Dominion Lending Centres mortgage professional to discuss your options and where to start on your home buying adventure.

9 REASONS WHY PEOPLE BREAK THEIR MORTGAGES

Did you know that 60 per cent of people break their mortgage before their mortgage term matures?

Most homeowners are blissfully unaware that when you break your mortgage with your lender, you will incur penalties and those penalties can be painfully expensive.

Many homeowners are so focused on the rate that they are ignorant about the terms of their mortgage.

Is it sensible to save $15/month on a lower interest rate only to find out that, two years down the road you need to break your mortgage and that “safe” 5-year fixed rate could cost you over $20,000 in penalties?

There are a variety of different mortgage choices available. Knowing my 9 reasons for a possible break in your mortgage might help you avoid them (and those troublesome penalties)!

9 reasons why people break their mortgages:

1. Sale and purchase of a home
• If you are considering moving within the next 5 years you need to consider a portable mortgage.
• Not all of mortgages are portable. Some lenders avoid portable mortgages by giving a slightly lower interest rate.
• Please note: when you port a mortgage, you will need to requalify to ensure you can afford the “ported” mortgage based on your current income and any the current mortgage rules.

2. To take equity out
• In the last 3 years many home owners (especially in Vancouver & Toronto) have seen a huge increase in their home values. Some home owners will want to take out the available equity from their homes for investment purposes, such as buying a rental property.

3. To pay off debt
• Life happens, and you may have accumulated some debt. By rolling your debts into your mortgage, you can pay off the debts over a long period of time at a much lower interest rate than credit cards. Now that you are no longer paying the high interest rates on credit cards, it gives you the opportunity to get your finances in order.

4. Cohabitation & marriage & children
• You and your partner decide it’s time to live together… you both have a home and can’t afford to keep both homes, or you both have a no rental clause. The reality is that you have one home too many and may need to sell one of the homes.
• You’re bursting at the seams in your 1-bedroom condo with baby #2 on the way.

5. Relationship/marriage break up
• 43% of Canadian marriages are now expected to end in divorce. When a couple separates, typically the equity in the home will be split between both parties.
• If one partner wants to buy out the other partner, they will need to refinance the home

6. Health challenges & life circumstances
• Major life events such as illness, unemployment, death of a partner (or someone on title), etc. may require the home to be refinanced or even sold.

7. Remove a person from Title
• 20% of parents help their children purchase a home. Once the kids are financially secure and can qualify on their own, many parents want to be removed from Title.
o Some lenders allow parents to be removed from Title with an administration fee & legal fees.
o Other lenders say that changing the people on Title equates to breaking your mortgage – yup… there will be penalties.

8. To save money, with a lower interest rate
• Mortgage interest rates may be lower now than when you originally got your mortgage.
• Work with your mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate.

9. Pay the mortgage off before the maturity date
• YIPEE – you’ve won the lottery, got an inheritance, scored the world’s best job or some other windfall of cash!! Some people will have the funds to pay off their mortgage early.
• With a good mortgage, you should be able to pay off your mortgage in 5 years, there by avoiding penalties.

Some of these 9 reasons are avoidable, others are not…

Mortgages are complicated… Therefore, you need a mortgage expert!

Give a Dominion Lending Centres mortgage specialist a call and let’s discuss the best mortgage for you, not your bank!

THE IMPACT OF MORTGAGE RULE CHANGES

The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.

Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.

The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.

But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.

The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?

The latest round of rule changes are rumoured to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.

Canada’s economy continue to generate job growth in March, extending an employment rally that is the strongest in years, but with increasingly sluggish wage increases. Canadian employment grew by 19,400 in March–exceeding economists’ expectation for the fourth consecutive month–while the unemployment rate increased 0.1 percentage points to 6.7% as more people searched for work.

This brings job gains in the first quarter to 83,000 or 0.5%, which is comparable to the last quarter of 2016 and well above the first quarter of last year. This further flags a surge in Canadian economic activity in Q1, as real GDP growth is likely to come in at a 3.5% pace.

Another piece of very good news is that most of the employment gain was in full-time work. The net job gain in March reflected an increase of 18,400 full-time jobs and a gain of 1,000 part-time workers. The year-over-year increase in employment is posted at 276,400 (+1.5%), now mostly in full-time work, as the total number of hours worked rose by 0.7%. Canada has added 223,100 full-time jobs over the past year versus 53,300 part-time jobs.

Yet, the pace of annual wage rate increases fell to 1.1% in March, the lowest since the 1990s. The weakness in wage gains seems to be an Ontario phenomenon. The province, which has led employment increases over the past year, recorded an annual 0.1% increase in wages in March, also the lowest on record. On the brighter side, manufacturing looks like it came back in March, with a gain of 24,400 positions, the most since 2002. The rise in the number of hours worked helped to offset the weakness in wages.

Leading the way was strength in job growth in hard-hit Alberta, showing gains of 20,000, all in full-time work. More people sought jobs in the province last month, leaving the jobless rate unchanged at 8.4%–down from a peak of 9.0% in November. Job gains were also recorded in Nova Scotia and Manitoba. Employment in March fell in Saskatchewan, while it was relatively stable in the remaining provinces.

There were more people working in manufacturing; business, building and other support services; wholesale and retail trade; and information, culture and recreation. On the other hand, declines were recorded in educational services; transportation and warehousing; “other services”; and public administration. The rebound in manufacturing was the largest one-month increase since August 2002. This is on the heels of a downtrend in factory work throughout 2016.

The strength of today’s jobs report for March gives the Bank of Canada a lot to ponder when it meets next week. Real GDP is on track to beat the Bank’s forecasts for a third consecutive quarter and the unemployment rate at 6.7% remains below the 10-year pre-recession average, a time when the economy was considered to be at full-employment. The Bank has played down the recent upswing in economic data and this report will likely fuel their concerns even with the gain in employment. While economic growth has accelerated and employers are hiring, it’s tough to be sanguine about the expansion without a pick-up in wages. Wage rates are growing at only half the pace of the cost of living. The Bank of Canada will likely hold interest rates at today’s low levels despite the Federal Reserve’s rate hikes.

Provincial Unemployment Rates in March In Descending Order (percent)
(Previous months in brackets)
— Newfoundland and Labrador 14.9 (14.2)
— Prince Edward Island 10.1 (10.0)
— Nova Scotia 8.6 (8.1)
— New Brunswick 8.4 (8.9)
— Alberta 8.4 (8.3)
— Ontario 6.4 (6.2)
— Quebec 6.4 (6.4)
— Saskatchewan 6.0 (6.0)
— Manitoba 5.5 (5.8)
— British Columbia 5.4 (5.1)
US JOB GROWTH SLOWS WHILE JOBLESS RATE HITS LOWEST LEVEL SINCE 2007

US payrolls rose 98,000 in March following a 219,000 gain in February that was less than previously estimated. This was well below the median forecast in a Bloomberg survey of economists. The divergence in March from the prior month likely reflected, at least in part, swings in weather disturbances–there was a snowstorm in the March payrolls survey week that dumped 10-to–20 inches of snow over a large swath of the Northeast, following an unusually warm February.

The unemployment rate unexpectedly fell to 4.5% from 4.7%, and wage gains slowed to a 2.7% year-over-year pace.

While the payrolls data are the weakest since May and represent a pullback from the first two months of the year, it may reflect just how close the US is to full capacity. This has led the Federal Reserve to hike interest rates in March and forecast two more rate increases this year. Businesses have reported labour shortages, confronting a dwindling pool of unemployed, and are gradually giving in to pressures to raise wages in order to attract and retain talent. This is in direct contrast to the situation in Canada. With the economy moving ever closer to full capacity, US monetary policy will be more focused on pulling back on the unneeded liquidity in the system. This is expected to keep the central bank tightening going forward via raising overnight fed funds rate along with a shrinking Fed’s holdings of government bonds and mortgage-backed securities.

This despite other evidence surfacing of a slowdown in the US economy, as consumer spending barely advanced in February and demand for autos slowed in March. US growth in the first quarter of this year is expected to be under 2.0%, well below the 3.5% expectation for growth in Canada. A second-quarter rebound, while expected, could depend on the strength in the labour market.

Notably, the retail sector in the US has been very weak. Retailers cut around 30,000 positions for a second month amid reports of store closings, while gains in construction and manufacturing eased. This was mirrored by reports in Canada of layoffs and belt-tightening by Hudson Bay Company, which owns Saks Fifth Avenue and Lord and Taylor’s in the US, as well as The Bay in Canada.

President Trump continues to emphasize job-market indicators that measure slack, including the number of Americans who have given up looking for work and therefore aren’t counted in the labor force. The number of discouraged workers fell by 62,000 in March to 460,000. The underemployment rate, a measure that includes those working part-time who would take a full-time job if it were available, fell to 8.9%, the lowest since December 2007, from 9.2% in February. The labour force participation rate has been historically low in the US, but it may well be held down by the growing number of older workers who are leaving the labour force.