Debt & Retirement: How to Manage It, and Who to Talk To About It
An excerpt from RBC “Life and Money” By Diane Amato
Diane Amato is a Toronto-based freelance writer who loves to talk about finances, travel and technology.
More and more Canadians are retiring with debt. Even so, that doesn't make it any easier for you to pay off what you owe once you stop working.
It’s easy to spend money before you retire. In the years leading up to retirement, you may want to tackle some home renovations, take a vacation, or help out your children with education, housing or wedding expenses. And while you might expect to have ample resources available to pay off any debt you accumulate before retiring, life doesn’t always work out as planned.
The result can be a debt load that gets carried into retirement – a trend that is growing among Canadian seniors. In fact, a 2015 study from the credit firm Equifax says that seniors are increasing their debt loads at a much faster pace than the population at large. The same study indicates that this debt is becoming harder to pay off. Delinquency rates (when you’re 90 days or more behind on your bills) for Canadians aged 65 and up have risen for the first time in 5 years.
The challenging part about carrying debt into retirement is that it becomes harder to pay off balances. Your budget is more fixed, and money that you have saved up for your retirement is earmarked to cover your living expenses and what you had planned for your next 30 years.
If you are entering retirement with unexpected – or higher than anticipated – debt, there are ways to reduce the amount you owe. At the same time, it’s important to speak to the right people about the debt you have to effectively manage it going forward.
For more information contact The Wilson Team or call 613-695-9250
Stress test to impact 'move-up' home buyers the most
by Ephraim Vecina 19 Oct 2017 Mortgage Broker News.ca
The newest set of mortgage restrictions announced by the Office of the Superintendent of Financial Institutions (OSFI) will hit home buyers looking to upgrade to new properties the hardest, according to BMO financial group chief economist Doug Porter.
OSFI’s latest rules state that even home buyers who don’t require mortgage insurance because they have a 20% down payment will have to prove they can make meet their commitment if interest rates rise above the five-year benchmark rate published by the Bank of Canada or 2% higher than their contracted mortgage rate, whichever is higher.
Move-up buyers would be disproportionately impacted because they would be most likely to have home equity and qualify for an uninsured mortgage, Porter explained.
The economist noted that last year’s restrictions took 5% to 10% out of the housing market’s buying power, and that OSFI’s latest changes will have a comparable effect.
The guidelines, similar to OSFI’s draft release in July, are scheduled to take effect on January 1, 2018.
“This is potentially more wide ranging and it will dampen the housing market in 2018, probably more significantly than we saw (with) the earlier federal measures,” Porter told the Toronto Star.
However, he emphasized that the changes are “another reason to believe the [Bank of Canada] will hold off on rate hikes this year. Between the uncertainty around NAFTA and between these measures I think the bank will take a bit of a pause at this point.”
And although the Canadian economy is projected to experience some slowdown in 2018, the housing market’s fundamentals remain robust.
“We have strong population growth, we still have relatively low interest and job growth has been robust. Consumers are confident, so it’s not as if this will drive the market down abruptly but it will have a significant dampening impact,” said Porter.
For the past half-decade, the OSFI has been tweaking underwriting standards for home loans amid the introduction of cooling measures in Vancouver and Toronto by both federal and provincial authorities.
“Our mandate is focused on the safety and soundness of the federally regulated financial institutions,” OSFI superintendent Jeremy Rudin said, adding that he might re-evaluate the stress testing as market conditions change.
Purchase or refinance now before rules change in January
If you’re looking to buy and will have more than 20 percent down, or if you are considering refinancing, then you might want to do so before January 1, 2018. Why? On October 17, the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for residential mortgage underwriting at all federally regulated financial institutions. Beginning January 1, 2018, a new 'stress test' will be applied to all new conventional mortgages – and not just those mortgages that require mortgage insurance (downpayment or equity of less than 20%).
The so-called “stress test” is designed to protect homeowners should interest rates rise. Lenders will be obligated to qualify all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or the contracted rate plus 2%. So if your contract rate is 3.29%, you will be qualified at 5.29%.
Here’s what that might mean for you:
You want to buy a home with more than 20% down. Your payments will always be based on your contract rate so this new rule isn’t costing you more. However, the new rule might change how much mortgage you qualify for. If that’s the case, you may need to look at a less expensive home, save up for a larger downpayment, or reduce any other debt. Or we can take a look at a variable rate mortgage that lowers your qualifying rate (if the rate plus 2% is less than the benchmark 4.89%) and has the option to convert to a fixed mortgage.
You want to refinance to pay off debt or buy an investment property. Here too, your actual mortgage payment will not be affected. But the new rule could slow you down by making it more difficult to qualify for your refinance. You may need to wait and accumulate more equity, or look at a lower-rate variable mortgage. If that refinance is important to securing your own financial health, get in touch ASAP.
Your mortgage comes up for renewal next year. This more stringent qualifying requirement will not apply to mortgage renewals. If you go shopping for a better deal with a new lender, however, that will require that you re-qualify… and the new rule will kick in for you too. It still is very important that we review your options together.
What can you afford?
New mortgage qualifying for purchases with 20% down
| Household Income | Purchasing Power Today | Purchasing Power Jan 1, 2018 |
| $60,000 | $409,626 | $334,323 |
| $100,000 | $682,710 | $557,206 |
| $150,000 | $1,024.065 | $835,809 |
| $200,000 | $1,365,420 | $1,114,411 |
For illustration purposes only. Based on 25 yr amortization, 20% down purchases, 5 yr term, qualifying rate 3.29% today and 5.29% January 2018. Does not include property taxes, heat or condo fees. OAC.
Get in touch now – you have the rest of 2017 to get in under the old rules.
Going forward, I’m here to work with you early in the process to make sure you are fully prepared for your purchase or refinance. I also have access to non-federally regulated lenders that do not fall under this new guideline. I’m always here to answer your questions, so feel free to call or email at any time!
Government lying about reason for rule change implementation, claims industry veteran
by Neil Sharma 18 Oct 2017 Mortgage Brokers News.ca
The Office of the Superintendent of Financial Institutions laid out new regulations governing underwriting practices yesterday, but voices within the mortgage industry question both the government’s motive and the intended effectiveness of its intervention.
According to the new rules, even homebuyers with 20% down payments, and who don’t need mortgage insurance, will be subjected to mortgage stress tests of 200 basis points in order to prove they won’t default on their mortgages. Additionally, there are restrictions on co-lending to curb any potential circumvention of the rules that stipulate how much can be lent.
Michael Lloyd, team leader for Dominion Lender Centres Canadian Mortgage Experts, believes the government’s real intention is to lower housing prices in Vancouver and Toronto, which he says would explain its repeated intervention in the housing market over the last year or so.
“It certainly seems that way,” said Lloyd. “They don’t have any room to raise rates, so it seems like the only other options they can do is make it tougher for people to qualify for mortgages.”
He also doesn’t buy the government’s reasoning that Canadian households are too indebted, thereby making the housing market precarious.
“Some of those household debt numbers they’re using are Canadians who have unused secured lines of credit and they’re using the limits and saying they owe that, but they don’t.”
Lloyd said the government has become so myopic that it’s going to stunt real estate markets in the rest of the country.
“The problem is most people making purchases in Vancouver and Toronto won’t be affected by the changes, but people in the rest of the country will,” continued Lloyd. “If somebody in small town Saskatchewan is trying to buy a house, they will now be further from that. It’s disappointing that they did this in spite of experts in the industry telling them not to.”
“It’s going to impact everyone. The market will be effected, which will cause less demand, which will slow prices or maybe even causes prices to come down a bit.”
The overall housing market could suffer aftershocks from the new underwriting regulations. For starters, borrowers could opt for shorter-term mortgages to benefit from the lower interest rates – and have an easier time passing the stress test – but that could also expose them to more rate hikes, which could compromise their renewals and cause them to default.
“I don’t think it will be as dramatic as some people think right now, but probably 10-20% of the mortgage market could be affected,” said Lloyd. It is a substantial number.
“We have the strongest housing market in the world, but we keep tinkering with it.”
Principal Broker of DLC Service First Mortgages, Kevin Boucher, says the intervention is going to decimate monolines.
“To compete on a rate level so banks end up making up the money, that’s the real problem with all these rule changes,” said Boucher. “It’s going to decimate portfolio insurance, the monoline lenders, and make it three times more expensive to insure the same stuff it did six months ago.”
Boucher has also noticed a major drop in the number of first-time buyers he has as clients, 90% of whom usually have their parents present as guarantors.
“Thirty-five percent of my business used to be first-time homebuyers, but this year I’ve only done seven or eight applications for first-time buyers,” he said. “A certain segment of the market is gone. That’s my experience since the first round of tightening with the insurance rules, and now they’re doing it with conventional mortgages, which is wholly unnecessary. This is going to be a self-fulfilling prophecy that will stall the market, impact the economy, and people are going to get hurt.”
In it for the right reasons
by Neil Sharma16 Oct 2017 / Mortgage Broker News.ca
A Calgary-based social enterprise that helps families attain homeownership using the rent-to-own model has arrived in the GTA, where affordability has reached crisis level.
Homeowners Now purchases homes its clients choose, rents it to them, and then gives them exclusive rights to purchase it if they choose at the conclusion of the agreement’s terms. According to Dale Monette, Homeowners Now’s managing director, the organization works on its clients’ behalf to help them save for eventual ownership and augment their credit scores.
“Our mission is to help as many Canadians get into homeownership as possible by using the rent-to-own transaction structure, which allows them to rent a property for a certain amount of time with the option to buy at the end, kind of like leasing a car,” he said, adding that the company did its due diligence before entering the Toronto market, where its services are badly needed.
Homeowners Now is partnered with the North American Private Assets Corporation (NAPAC), which provides financing. NAPAC is regularly approached by real estate investors who use similar rent-to-own structures, but regularly turns them down. However, it approached Homeowners Now because it believes that the nascent company – which was registered in 2015 but investing with this structure since 2011 – is in it for the right reasons.
Moreover, Homeowners Now has a 100% success rate in helping renters achieve homeownership.
“NAPAC got in touch with us,” said Monette. “They’ve been approached by two dozen rent-to-own companies over the years, but they noticed these companies weren’t in it for the right reasons. We mostly deal with people who don’t have major credit issues – although we deal with them too – and that have good incomes but need that extra boost. Most of the time they’re young families.”
Entrepreneurs are particularly maligned by the current mortgage rules, and Monette says they also comprise part of Homeowners Now’s clientele.
But families for whom money is precarious receive particular care and attention by Homeowners Now. Monette recounted a story in which a client’s gas bill was mixed up and unpaid for to no fault of their own. Homeowners Now stepped in and lent them around $2,500 interest-free to be repaid in 25 installments. Another client had a broken dishwasher, washer and dryer, and Homeowners Now granted them half of the money to replace the appliances.
“Because we’re a social enterprise, whenever a client gets into strife, we help,” continued Monette. “If this client misses a rent payment, they default, but we genuinely want to help.”
GTA residents, specifically, could benefit from this rent-to-own structure. Homeowners Now only entered the market a month ago, but it already has three clients and about 75 applicants. Its goal is to oversee 15 projects a month by the end of 2018.
“What we’re seeing in the Greater Golden Horseshoe is a lot of people are moving further out while a lot of newcomers are arriving,” said Monette. “A lot of people might only have $15-20,000 in savings and that usually falls short of a down payment. There’s a huge need for individuals to get into the market as quickly as possible before being priced out of the market.”
Breaking News: OSFI releases final B20 guidelines
Canada's banking regulator has published the final changes to its guidelines for residential mortgage underwriting, including a financial stress test for buyers who don't need mortgage insurance.
The Office of the Superintendent of Financial Institutions said Tuesday the changes will come into force by Jan. 1, 2018.
Even homebuyers who don't require mortgage insurance because they have a down payment of 20 per cent or more will have to prove they can continue to make payments if interest rates rise.
Other changes include restrictions on co-lending, or bundled mortgages, aimed at ensuring financial institutions do not circumvent rules that limit how much they can lend.
The final guidelines are generally similar to what OSFI had proposed in July, when the regulator put out a draft for public consultation.
The proposed changes, however, have been criticized for including potentially increasing costs and limiting access to mortgages for some home buyers.
"These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,'' said Superintendent Jeremy Rudin in a statement on Tuesday.
The Canadian Press
We assume they ignored the Fraser Institute. See previous post."Report calls intervention unecessary"
Report calls intervention unnecessary
by Neil Sharma - Oct 2017
A new Fraser Institute report, Uninsured Mortgage Regulation: From Corporate Governance to Prescription, fired a warning shot the government’s way by positing that its new mortgage regulations are both unnecessary and harmful.
Neil Mohindra, a public policy consultant independent of the Fraser Institute and the report’s author, says the Office of the Superintendent of Financial Institutions (OSFI) is intervening because of high debt levels in the country, and because it wanted to meet the Financial Stability Board’s international standard, but the new stress test will adversely impact the residential mortgage market.
Mohindra added that OSFI didn’t need to write a prescriptive requirement into the guideline because financial institutions already choose from an assortment of underwriting criteria that mitigate risk.
“The main point of the paper is that the stress test is not necessary,” Mohindra told mortgagebrokernews.ca. “Cities like Vancouver and Toronto are very different from other parts of the country and there is potential for housing prices to be depressed because buyers simply don’t have enough buying power. But that also depends on a number of factors, including policies being taken recently from the provincial, municipal and federal governments.”
Mohindra says the mortgage industry risks less competition and becoming more concentrated. “There are some lenders that are federally regulated financial institutions and they specialize, to a large extent, in mortgages, and they have specific niches which they target,” he said. “Some are at different risk levels. They can qualify a lot of borrowers through their models and through their focus on niches. If there’s a stress test that puts all borrowers into the same category that it makes it more difficult for these institutions to define niches and pursue them, then this will hurt small lenders that are more specialized than big banks.”
Consumers will also be short-shrifted, he warned. Not only will their buying diminish, many might not be able to buy the homes they want – which they would have been able to prior to the government’s intervention.
“You can have an individual who puts a minimum of 15% down instead of 20%, and in that case the loss on default would be even lower, but the borrower would still be subjected to the same stress test against a 200 basis point increase in interest rates. That’s what it is going forward.
“Right now, lending institutions are expected to follow the existing OSFI guidelines on mortgage underwriting practises, which indicate how they should assess or which borrower should be approved, but it does not have the same degree of prescription.”
But Mohindra is perplexed by the need to fix a functional system. While OSFI is concerned about household indebtedness in Canada at their highest ever levels, he believes the previous system provided the necessary checks and balances.
“They’re just a bit spooked, which is why they’re going in this direction,” he said, “but it’s a departure from how they regulated in the past – a departure from a successful model of good governance and good policies and procedures.”
Boomers holding tight, not moving into retirement homes until their 80s:
Not so fast. Canadian seniors are a long way from ready for retirement homes. Only a small percentage of younger seniors are opting for some type of institutional setting but a tsunami is coming when they hit 80.
Millennials hoping for a break in the housing market as seniors move into retirement homes may have to wait a while, says a new report.
The “tsunami” in demand for retirement and nursing homes will not happen until the boomers reach their 80s, said the report by Toronto-based real estate consultants Altus Group.
Based on the 2016 census, Altus data shows single family homes — including detached, semi-detached and townhomes — were the preferred option by 71 per cent of the population aged 65 to 74. Another 27 per cent were living in apartments with the rest in some sort of collective living that could be a senior residence or a full-on retirement home.
“We call 65 senior, but part of the point is that at 65-74, you are still pretty young,” said Patricia Arsenault, executive vice-president of research consulting services with Altus, and author of the report.
Altus found that as seniors age, they begin to move out of their homes into collective dwellings, but the process is not happening in dramatic way until they reach 85. In 2016, even among those 75 to 84, 61 per cent lived in a single-family home while 31 per cent lived in apartment building.
“Even if you go back five to 10 years, there is not much of a difference,” said Arsenault. “The propensity to live in a collective setting just has not changed much.”
In the 85-years-and-older category, only 32 per cent of the population lived in a collective setting, up marginally from 31.1 per cent in 2011 and 29.9 per cent in 2006.
The good news for retirement home operators is the sheer size of the boomer age group means the actual number of seniors living in collective dwellings is growing, with 500,000 Canadians fitting that description in 2016, more than half of them aged 85 or over. Between 2011 to 2016, the number of seniors living in collective dwellings grew by 63,000.
“The increase…is entirely attributable to the expanding size of the seniors population base, which more than offset the modest decline in the overall incidence of living in collective dwellings,” according to the report. “The tsunami in demand for retirement and nursing homes, however, will not begin until baby boomers start to reach their 80s.”
Arsenault said people generally want to stay in their homes and, increasingly, support systems are in place to allow this to happen. “The Ontario government is certainly providing support services,” she said.
There is some upside for millennials hoping for those boomers to move. “There are opportunities for more move-down product, adult lifestyle products — the younger seniors,” Arsenault said. “We are finding some of the demand in other areas outside the (Greater Toronto Area) is people cashing in from their house in Toronto. They are moving to areas outside (the city) and maybe not necessarily to smaller homes.”
Some of those downsizing could be doing so to deal with debt as 17 per cent of those 65 or over still have a mortgage. Among those 65-69 age group, 21 per cent still have a mortgage.
Prep Your Garden for Fall
Fall gardening to do list
Just like your financial garden, your backyard garden can benefit from a little seasonal pruning and protection. To help you out, we’ve compiled our to do (and don’t) list:
1. Plant trees, shrubs, perennials and spring bulbs, giving them a great head start for spring!
2. Deadhead but don’t prune to remove spent blossoms from your roses and perennials.
3. Give your roses and blooming plants a rest from fertilizing, although keep feeding annuals.
4. Get a soil test so you can do some amending before the next growing season, if required.
5. If you have mature stands of early-blooming perennials, you can divide them so they can settle before winter.
6. Go through your beds and carefully snip, bag and discard any diseased foliage.
7. Leave much of your healthy garden intact: especially if you have plants with seedheads that will provide winter food for birds.
8. Try not to scrub the garden clear of brush piles or dead groundcover. Beneficial insects depend on that habitat for their winter survival.
9. All those fallen leaves are nutrients your garden needs next year. Run them over with the lawn mower and rake into your flower beds.
Let Renters Help Pay Your Mortgage
Are you a savvy homebuyer? Then let renters help pay your mortgage. Recently Canada Mortgage and House Corporation (CMHC) announced that when qualifying for a mortgage, homeowners could now count all of the income from their legal secondary unit(s) instead of the previous 50 per cent, making it easier to qualify and giving this home buying option a boost.
Whether you’re a first-time homebuyer feeling your way into the housing market or an existing one looking to lower your mortgage payment, here are five reasons why having renters help pay your mortgage is such an appealing option:
1. Some first-time buyers want to move directly into a single-family home and get mortgage assistance using a rental suite instead of purchasing a condo at a lower cost.
2. If you want to get your foot into the world of real estate without breaking the bank, a home with a rental suite can be a great start, especially if the area you happen to love is pricey.
3. Homeowners looking ahead to the future may want to lower their mortgage cost so they can channel money into other investment areas like RRSPs, TFSAs, RESPs. Or simply as a way to become mortgage free sooner!
4. Spending less on your mortgage can give you the freedom to change your lifestyle or follow your dreams, perhaps to travel, start a new business venture, or allow for the luxury of having a stay at home parent.
5. Rental suites are also great if you have ageing parents. You can keep them close without infringing on personal space. Keep in mind that if tenants are family members, lenders and insurers will not use the rental income for qualifying purposes.
Ready to become a savvy homeowner and let renters help pay your mortgage? Talk to us today and find out how!