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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Options For Your Downpayment

By Marci Deane • April 30, 2025
Your downpayment refers to the initial payment you make when buying a property through mortgage financing. A downpayment is always required when purchasing, because in Canada, lenders are only allowed to lend up to 95% of the property value, leaving you with the need to come up with at least 5% for a downpayment. In fact, securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. Canada has three default insurance providers: the Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. There is a cost for default insurance which is usually rolled into the total mortgage amount and is tiered depending on how much you put down. As your downpayment can be a significant amount of money, you probably need a plan to put this money together. So, let’s take a look at some of the options you have to come up with a downpayment. Money from your resources If you’ve been saving money and have accumulated the funds and set them aside for to use for your downpayment, you'll need to prove a 90-day history of those funds. As far as the lender is concerned, this is the most straightforward way to prove a downpayment. Any large deposits to your bank account that aren’t from payroll will require you to prove the source of funds. For example, if you recently sold a vehicle, you’ll need to provide the paperwork as proof of ownership, which corresponds to your account’s deposit. Or, if you have funds in an investment account that you’ve transferred over, statements of that transfer or account would suffice. You have to prove the source of your downpayment funds to the lender when qualifying for a mortgage to help prevent money laundering. Funds from the sale of another property If you’ve recently sold a property and you’re using the proceeds of that sale as the downpayment from your new purchase, you can provide the paperwork from that transaction to substantiate your downpayment. RRSPs through the Home Buyer’s Plan Okay, so let’s say you don’t have all the money set aside in your savings, but you do have cash in your RRSP. Assuming you’re a first-time homebuyer, you can access the funds from your RRSP Tax-Free to use as a downpayment. You’re able to access up to $35k individually or $70k as a couple. The money has to be paid back over the next 15 years. If you’d like more information on what this program looks like, please get in touch. Gifted downpayment Now, if you don’t have enough money in your savings, but you have a family member who is willing to help, they can gift you funds for your downpayment. With the increased cost of living, making it harder to save for a downpayment, receiving a gift from a family member is becoming increasingly commonplace. Now, to qualify, the gift has to come from an immediate family member who will sign a gift letter indicating there is no schedule of repayment and that the gift doesn’t have to be repaid. Proof that the money has been deposited into your account is required through bank statements. Gifted funds can make up part of or the entire amount of downpayment. For example, if you purchase a property for $300k and have $10k saved up, your parents can gift you the remaining $5k to make up the total 5% downpayment. Borrowed downpayment Suppose you aren’t fortunate enough to have a family member who can gift you a downpayment, but you have excellent credit and a high income compared to the amount you’re looking to borrow. In that case, you might qualify to borrow part or all of your downpayment. It’s possible to borrow your downpayment as long as you include the payments in your debt service ratios. Typically this is 3% of the outstanding balance. So there you have it, to qualify for a mortgage, you’ll need to come up with a downpayment. That can be through your resources, a property you sold, an RRSP, a gift from a family member, borrowed funds, or a combination of all five sources. If you’d like to discuss your downpayment or anything else related to mortgage financing; it’s never too early to start the conversation about getting pre-approved for a mortgage. Please connect anytime. It would be a pleasure to work with you!

Paying Off Your Mortgage As Quickly As Possible

By Marci Deane • April 23, 2025
Being a home owner is excellent, having a huge mortgage isn’t. So, if you have a mortgage that you’re looking to get rid of as quickly as possible, here are four things you should consider doing. Accelerate your payments Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference or increased payment. A traditional mortgage with monthly payments splits the amount owing annually into 12 equal payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments accelerate the paying down of your mortgage. Increase your regular mortgage payments Chances are, depending on the terms of your existing mortgage, you can increase your regular mortgage payment by 10-25%. Alternatively, some lenders even offer the ability to double-up your mortgage payments. These are great options as any additional payments will be applied directly to the principal amount owing on your mortgage instead of a prepayment of interest. Make a lump-sum payment Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance in a bulk payment. Some lenders are particular about when you can make these payments; however, you should be eligible if you haven’t taken advantage of a lump sum payment yet this year. Making a lump-sum payment is a great option if you’ve come into some money and you’d like to apply it to your mortgage. As this will lower your principal amount owing on the mortgage, it will reduce the amount of interest charged over the life of the mortgage. Review your options regularly As your mortgage payments debit from your bank account directly, it’s easy to put your mortgage on auto-pilot and not think twice about it until your term is up for renewal. Unfortunately, this removes you from the driver's seat and doesn’t allow you to make informed decisions about your mortgage or keep up to date with market conditions. So let’s talk about an annual mortgage review. Working through an annual mortgage review with an independent mortgage professional is beneficial as there may be opportunities to refinance your mortgage and lower your overall cost of borrowing. By reviewing your mortgage at least once a year, you can be sure that you’ve always got the best mortgage for you! There is no cost involved here, just a quick assessment and peace of mind. If you’ve got questions about your existing mortgage or want to compare your mortgage to options available today, please connect anytime. It would be a pleasure to work with you.

Bank of Canada Rate Announcement Apr 16th, 2025

By Marci Deane • April 16, 2025
Bank of Canada holds policy rate at 2¾%. FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario April 16, 2025 The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. The major shift in direction of US trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations. Pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada and globally. Instead, the April Monetary Policy Report (MPR) presents two scenarios that explore different paths for US trade policy. In the first scenario, uncertainty is high but tariffs are limited in scope. Canadian growth weakens temporarily and inflation remains around the 2% target. In the second scenario, a protracted trade war causes Canada’s economy to fall into recession this year and inflation rises temporarily above 3% next year. Many other trade policy scenarios are possible. There is also an unusual degree of uncertainty about the economic outcomes within any scenario, since the magnitude and speed of the shift in US trade policy are unprecedented. Global economic growth was solid in late 2024 and inflation has been easing towards central bank targets. However, tariffs and uncertainty have weakened the outlook. In the United States, the economy is showing signs of slowing amid rising policy uncertainty and rapidly deteriorating sentiment, while inflation expectations have risen. In the euro area, growth has been modest in early 2025, with continued weakness in the manufacturing sector. China’s economy was strong at the end of 2024 but more recent data shows it slowing modestly. Financial markets have been roiled by serial tariff announcements, postponements and continued threats of escalation. This extreme market volatility is adding to uncertainty. Oil prices have declined substantially since January, mainly reflecting weaker prospects for global growth. Canada’s exchange rate has recently appreciated as a result of broad US dollar weakness. In Canada, the economy is slowing as tariff announcements and uncertainty pull down consumer and business confidence. Consumption, residential investment and business spending all look to have weakened in the first quarter. Trade tensions are also disrupting recovery in the labour market. Employment declined in March and businesses are reporting plans to slow their hiring. Wage growth continues to show signs of moderation. Inflation was 2.3% in March, lower than in February but still higher than 1.8% at the time of the January MPR. The higher inflation in the last couple of months reflects some rebound in goods price inflation and the end of the temporary suspension of the GST/HST. Starting in April, CPI inflation will be pulled down for one year by the removal of the consumer carbon tax. Lower global oil prices will also dampen inflation in the near term. However, we expect tariffs and supply chain disruptions to push up some prices. How much upward pressure this puts on inflation will depend on the evolution of tariffs and how quickly businesses pass on higher costs to consumers. Short-term inflation expectations have moved up, as businesses and consumers anticipate higher costs from trade conflict and supply disruptions. Longer term inflation expectations are little changed. Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. This means we will support economic growth while ensuring that inflation remains well controlled. Governing Council will proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve. Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians. Information note The next scheduled date for announcing the overnight rate target is June 4, 2025. The Bank will publish its next MPR on July 30, 2025. Read the April 16th, 2025 Monetary Report