There is more than one type of adjustable/variable rate mortgage and it is important to know which type you have. If you have an Adjustable Rate Mortgage then as the prime rate has been changing, so have your payments, which keeps the amortization the same. With a Variable Rate Mortgage, the rate changes but your payment stays the same, which in turn extends the amortization. You may have been happy to find out you have a variable rate mortgage as prime rates moved up quickly and yet this can really affect you at renewal time. Let me explain.

The variable interest rate has increased by 4.5% in the past 18 months. To put that into perspective, with a 15 year amortization, this is an increase in payments of $762 per $100,000 in mortgage money to stay on track and not go backwards. For a 25 year amortization it is an increase in payment of $550 per $100,000 in mortgage payments. So if you have a $400,000 mortgage, you should be increasing your mortgage payment by a minimum of $2000 per month to avoid moving into a negative amortization situation (defined below).

Let’s suppose you have a variable rate mortgage with a $1200/month payment and 15 years remaining on your amortization. If the payments have remained the same you will likely be at around a 40 year amortization at this point. This is what is called negative amortization as your entire mortgage payment is going to interest and even that interest is not fully covered. This will become a “problem” when your mortgage is up for renewal. At renewal time a few things can happen.

1. You will need to make a massive lump sum payment to bring the balance back to the original amortization or

2. Your payment will increase to put your amortization back to 25 - 30 years.

3. You could be forced to remain at your current lender due to either of these situations, unable to negotiate the best mortgage rate for you.

How do you protect yourself?

Call your lender/bank and ask some key questions. I would ask:

1. What is my current payment?
2. What is my current rate?
3. What is my current amortization?
4. What is going to happen at my renewal if I don’t make any changes?
5. What changes do I need to make to ensure I do not have a negative amortization upon renewal of my mortgage?

Once you have those answers you can make an informed next step decision, whether that is to increase your mortgage payments, keep them the same or make a lump sum prepayment. Knowledge is your power. Do not avoid this conversation. The sooner you know what is happening with your mortgage the sooner you can right the boat and get back on course. 

One thing I know after over 20 years in the mortgage financing industry is that lenders of money do not like to have mortgage defaults on their books. Arrears in mortgages are when payments are 90 days past due. https://cba.ca/mortgages-in-arrears  Arrears in Canada are still very low, however, for people who are already at the top of their payment budget and have a renewal coming up in the next 24 months there could be some serious challenges. 

As interest rates rise and fall, it is your responsibility to protect the largest financial asset you have. I am here for you if you have any questions about your mortgage and your home.

It is forest fire season in Canada and that means that insurance companies are watching where fires are burning in your neck of the woods. For example, on Vancouver Island as of writing this article there are two forest fires. Insurers have rules around insuring homes near forest fires and therefore you getting insurance on your new home purchase could be in jeopardy. 

Recently State Farm advised it was no longer underwriting home insurance in California due to the continued fire hazard in the State. For perspective, State Farm’s market share of insurance in California was 19.9% in 2021. Forest fires cause significant financial damage to insurance companies and at some point they will decide the reward is not worth the risk.

In BC, when getting your home insurance it is important to ask some questions. Ask if your home insurance covers you in case of wildfire damage and is there additional coverage for additional living expenses if your house does burn down? Ask about flood insurance, wind damage, earthquake damage. Then you can decide which natural disasters you wish to get coverage for. 

When purchasing a home it is important to get your home insurance quote and have the insurer issue a binder (this is different from a quote). A quote summarises what you are being offered and the price of the insurance. When an insurance company BINDS an insurance policy it means they have actually issued the policy and will come into effect on an agreed upon date. Once a policy has been bound, the policy generally will be honoured.

Selling a house due to separation or divorce can be stressful on all parties and this is where we come in. I have gone through this before. Trust me, I get it. You are dealing with managing finances, trying to maintain a normal homelife for dependents, figuring out what is best for you and what you are going to do after this is over. Our job is to make the sale process as quick and easy as possible, provide you the best advice and keep communication open for both parties so there are no surprises. 

Divorce and owning real estate is a difficult combination. One of the biggest challenges is timing. “You can apply to the court any time after you separate - the court will not grant a divorce until you have been separated for at least one year. A divorce is automatically final 31 days after the court grants a divorce if no appeal has been filed.” https://www2.gov.bc.ca/gov/content/life-events/divorce/family-justice/family-law/separation-divorce/what-do-i-need-to-know-about-getting-a-divorce

Often in a divorce situation there is a division of assets and often one of those assets includes a house. There are a few things that can be done in this situation. 1. One spouse could buy the other spouse out. 2. Sell the property and divide the assets. In both cases it is important to have several facts. 1. Did one of the parties already own the property or sell a previous property for part of the down payment? If so, then the division of assets may only be the increase of the value in the property or the value of the property less the down payment. 2. What is your household debt, including the mortgage, car payments, credit cards etc. This includes debt one or the other party may not know about. 3. Common exclusions of joint property are assets you owned before living together and inheritances or gifts that only one spouse received. https://family.legalaid.bc.ca/finances-support/property-debt/dividing-property-and-debts-after-you-separate

The division of assets is complicated and requires expert legal advice.

If you are facing a divorce situation this is my immediate advice. Limit the credit on your credit cards, ensure you are staying on top of your debt with at least minimum payments, figure out what the total assets and liabilities are for the household debt. If you have any joint lines of credit, credit cards, etc ensure these are not utilised without both parties in agreement. If you have joint accounts ensure the accounts are not being drained by the other party. Both parties need to protect their credit and their assets, and as we read above, this is a long process so the better the communication and understanding of the outcomes is paramount.

The Worthy Group gets it. We can facilitate the sale of your home efficiently, effectively and with the least amount of stress on all parties involved. That’s what we do.

I hear a lot of people saying the market is going to continue to go down, and I hear a lot of people saying they don’t have a crystal ball and cannot predict what is going to happen. What I can tell you from my over 25 years in the mortgage and real estate industry is that Vancouver Island is its own little micro-economy. Inventory is still very low, rental properties are hard to find and buyers from out East (the rest of the country) are tired of the long, cold winter.

Here are 3 scenarios I see could happen.

1. The increase in interest rates brings inflation back down.(Baseline)

2. Inflation is sticky and doesn’t go back down as predicted (Persistent Inflation)

3. Inflation drops optimistically and rates start dropping sooner than expected.(Optimistic)

Which of these do you think is going to happen?

I was recently on a call with Brendon Ogmundson, Chief Economist for BC Real Estate Association and we covered these 3 scenarios:

Source: Brendon Ogmundson, Chief Economist for BC Real Estate Association

What I can say in each of these scenarios is that prices are going to rise again. Worst case scenario we have prices dropping for a few more months. That’s it. Vancouver just reported that the City had a strong February.  I am not sure what the news outlets are going to say about that!  

Last year properties were selling in the Comox Valley at 105.79% above list price, this year they are selling at 98.60% of the  list price (Vancouver Island Real Estate Board). This is not desperate selling. This is properly priced homes for the market we are in. Pricing your home properly is key to selling your home. 

Real Estate is a long term investment. It is not about timing the market, it is about TIME IN the market. I am still fighting for my buyers, in multiple offer situations. I am still working with my sellers to get the best offer possible. The market is active and spring is going to be busy. If you are serious about buying or selling, get prepared for GO TIME!

I was sitting at a table today and we started talking about the inflation rate. Both of my tablemates felt interest rates were going to head up to 20% again as they did in the 80s. I want to give you my professional opinion on this interesting outlook and why I believe this will not happen. 

Inflation: a persistent rise in the average level of prices over time.

Consumer Price Index: tracks how much the average Canadian household spends, and how that changes over time.

The Bank of Canada has limited resources to curb inflation so they raise or lower interest rates to increase or decrease inflation. Their preferred range for inflation is between 1% and 3% with a target of 2% increase in inflation each year.

Why are we experiencing inflationary pressures right now? 

1. COVID - COVID created huge government payouts to its citizens to ease the burden of not being able to work. Although this may have seemed like a good idea at the time and people were certainly in need, printing boatloads of money has had repercussions. People have more income to spend on goods and services.

2. SUPPLY CHAIN - we heard continually that the supply chain issue was temporary, but it is not temporary. There is a huge imbalance in the economy today. Employees cannot find permanent work and employers can’t find employees. Locally we have seen airport lineups, ferries cancelled, restaurant sections not being available, shortened hours at offices due to lack of staff. Potential employees want permanent full-time, stable employment where they are treated respectfully and paid well.

3. UKRAINE AND RUSSIA - I personally did not realise how much of Canada's supply of grain, oil seed and corn came from Ukraine. This sudden drop in exports and the Russian EU battle for energy has rocked our market. The biggest challenge for Canada with this is that we really have very little control over the outcome of someone else's challenges.

Base-Line Effects in CPI

That being said, there are some items within our CPI that are not as they appear. For example, the CPI is based on a year over year change and 2020-2021 were COVID years. We are basing 2022 price increases over a 2021 benchmark - challenging to do when how people shopped and travelled dramatically changed. The CPI is based on the percentage of increase from 2022 to 2021. As an example, hotel rooms cost more in 2022 than 2021 because for the most part we weren't travelling. 

Substitution, new products, quality changes and online retailers have a large impact on the CPI. How do you compare a laptop purchased in 1995 to one purchased in 2022. The two experiences are completely different. Online shopping has exploded in the last couple of years and online shopping tends to be cheaper.  

What you need to know:

When the CPI comes down, it tends to come down fast. This is the CPI index for Canada (blue line) and BC (yellow line) for the past 62 years. 

Source: Statscan Consumer Price Index. (Link below)

Another wrinkle in time is that the Office of the Superintendent of Financial Institutions Canada (OSFI) is looking at the bank underwriting guidelines for mortgages with a report due out in April of 2023. Here is what I know from past experience with OSFI. The mortgage underwriting guidelines WILL get tighter. OSFI hates the amount of debt that consumers carry. OSFI did not like the low interest rate environment and the amount of mortgage lending happening in Canada by banks over the past 10 years. Therefore, OSFI will do its best to ensure that the Canadian Banking System remains stable at any cost. 

 
Takeaways:

If you are looking at buying a home and are at your maximum ratios, things are going to get even harder to qualify for after April of this year. It also appears it will become much more difficult to purchase an investment property as OSFI is really focusing on income to loan value. 

Once rates drop again, housing prices will increase as there will be more demand. 

Consider taking a short term 1 year mortgage and ride the interest rate wave down.

https://www.bankofcanada.ca/2021/05/understanding-consumer-price-index/

https://www.statcan.gc.ca/en/subjects-start/prices_and_price_indexes/consumer_price_indexes

https://www.osfi-bsif.gc.ca/Documents/WET5/ARO/eng/2022/aro.html

https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20-nfo.aspx

Effective January 1, 2023 foreign citizens will not be allowed to buy a residential property in Canada except in certain areas (Whistler for example) or if you are one of the following:

(a) a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;

(b) a protected person within the meaning of subsection 95(2) of that Act;.

(c) an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law-partner is a Canadian citizen, person registered as an Indian under the Indian Act, permanent resident or person referred to in paragraph (a) or (b); or

(d) a person of a prescribed class of persons.

This is certainly an interesting move by a Government who has a mandate to allow 1,440,000 new immigrants into Canada by 2025 and is fully aware there is a rental shortage. 

I am still waiting to learn what a “prescribed class of person” is. I am sure there will be many exceptions to the rule and we will learn more in December. The good thing is that anyone who has made a purchase contract prior to December 31, 2022 will be protected. 

With this new mandate and very low vacancy rates, this will be a great opportunity to purchase a rental property. If this is something that interests you, please reach out and we can discuss options that could work for you.

AKA The least the government could do and still save face.

This new policy essentially protects Buyers who got in way over their head in making a really bad emotionally charged decision. Basically, for three days after an offer is written a Buyer can cancel the transaction with no reason and pay a 0.25% cancellation fee. That is $250 per $100,000 in purchase price. So a $750,000 purchase would incur a $1875 penalty. 

How will this affect you? 

As a Seller, for the first three business days you will sit on pins and needles waiting for the time to pass. This does not include the day of the acceptance, weekends or holidays, so the rescission period could technically be 5-6 days depending on when the offer was accepted by all parties.

As a Buyer you will likely be required to give an immediate deposit for the amount of the 0.25% penalty to show good faith and cover the possible rescission fee.

Where does this get tricky for everybody?

Suppose that you as the Buyer have made an offer subject to obtaining financing. Right away your mortgage broker then tells you that you cannot get the financing required. You have to cancel the contract because of the financing condition but you don't want to pay the rescission fee because you have a valid reason for cancelling.

Do you wait for the rescission period to end before advising the Seller? So far the legal advice is to wait so there is no confusion between cancelling for no reason and cancelling because a condition cannot be fulfilled.  This is bad for the seller because they have their property tied up for up to a week in a deal that is going to collapse. Hopefully there will be some better clarification on cancellation for no reason and cancelling because a condition cannot be fulfilled. 

This law was brought into play due the the last two years of unconditional offers. We will all have to have time to get accustomed to this new policy before the market goes crazy again (and it will). History does tend to repeat itself.

Radon is the #1 cause of lung cancer in non-smokers and second leading cause in smokers.

This smelless gas comes out of the ground and into our homes. Luckily on Vancouver Island we have very low radon gas emissions.  On the map below green is good! Green shows less than 1% have radon gas at a dangerous level. The rest of BC is notso lucky. That is one more advantage to living on the rock!

Source: https://bccdc.shinyapps.io/bcradonmap/

Recently the Government of Canada sent out a postcard discusing the dangers of radon gas and suggested purchasing a test kit for your home.
I ordered our test kit through the BC Lung Association (link here), paid $29.99 for the kit, $12.00 for shipping and $5.04 tax for a total of $47.03.  It arrived in 5 days and now we are setting up the test kit in the crawl space where it will sit, undisturbed for three months. Once the necessary time has ellapsed, we will pack it up and send it off to be analysed. I should be able to share the results of our test in the March or April newsletter. 

I spoke with a local home inspector, James Robinson, of Wave Home Inspection Ltd. He used to live in Calgary, which has a lot of Radon, and he advised that if there is a dangerous amount of Radon it is quite easy to remediate and make your home safe. That made me feel better. 

Regardless, I will update you when I get my results, and if you live outside the green area on the map, I recommend that you order a Radon test. Lung Cancer is the leading cause of cancer deaths in Canada. Let’s do what we can to change this statistic.

I recently saw a TikTok in which the interviewer asked people how much their car payment was. All of the payments were between $1000 and $2000/month and many of those were amortized over 7 years. Here is the thing, every $500 in debt payment is roughly equal to  $100,000 in mortgage money. That’s right, a $1,500 truck payment is worth $300,000 in mortgage money. Whoa wait.... then what about rent? Yup, same thing. $1,500 in rent is worth another $300,000. Between the truck payment and rent that is $600,000 worth of mortgage money which is most likely available to you if you have a down payment.

I often hear people say "I will never be able to own a home", but in reality most just don't know HOW they will ever be able to own a home. I want to provide you a realistic step by step plan to start preparing for how you can own a home.

1. Realize that your first home IS NOT your forever home. It is a steppingstone to get you into the
market. If all you can afford is a $250,000 condo, then buy a $250,000 condo. In a few years, when the timing feels right, either sell or refinance and purchase another home.

2. Make sure your debt is UNDER CONTROL. The best way I have found to do this is to take three months of your last bank and credit card statements and take a good hard look at the income received and spending you have done. This allows you to see where you may be over spending and where you can cut back.

3. Understand how credit scores work and if you have damaged credit start fixing it right away. We all go through good times and bad times. Credit IS REPAIRABLE. It takes time, commitment and dedication, like all good things in life do. Don’t miss any more payments, even if you can only pay the minimum amount, ensure you are paying your credit cards and bills on time.

4. See a MORTGAGE BROKER and identify if you have a weakness, whether that be credit, downpayment, income, and work to STRENGTHEN YOUR POSITION.

5. Have automatic savings go into a separate account or TFSA. Even if it is $25/pay period to start, try that. If you don’t miss the money, make it $50/pay period, and gradually up it from there. Try to save $100, then $1000, then $2500. Make goals for yourself, having this financial cushion will make you feel great.

6. Don’t try and “BEAT” the market, this just delays your start. The real estate market goes up and down. Get in and get going. You need 5% down payment to buy a place. If you buy a $250,000 condo that is $12,500 down payment. You can borrow from an RRSP, withdraw savings or TFSA, get a gift from parents, sell an asset... maybe that TRUCK.

Home ownership provides housing and financial security. What if you started today?
There is a 2 bed, 1 bath $309,000 condo on the market in Courtenay right now. You need $15,450 down payment and your monthly payment will be approximately $1650/month.

There is a $200,000 1 bed 1 bath condo on the market in Courtenay right now. That is $10,000 down payment and your monthly payment will be $1050/month.

I got the idea for this article here: What is your Car payment TikTok Dealer Celebrates High Monthly
Payments on TikTok (roadandtrack.com)

The more “The Sky is Falling” headlines there are in the news the better the readership. The challenge for readers is that often there is no factual data or analytical perspective in these articles. Here is a recent article in Better Dwelling about how drastically home prices are dropping.

More Canadians See Real Estate Prices Falling As Market Psychology Shifts: BMO - Better Dwelling

Quote: Vancouver the market price dropped last month by $28,500.

Fact: The average selling price went from $2,029,100 to $2,000,600.

Perspective: This drop is less than 1.5%. If prices went up 1.5% this would not be news. Dropping 1.5%
really isn’t news either, hence throwing in the big numbers. 


In the Financial Post recently there was an article about how people will feel pressure with an interest rate increase.

What a Bank of Canada 0.75% rate hike would mean for mortgages | Financial Post

Quote: About a quarter of the Canadians who took part in the accountancy firm’s quarterly survey said
they are not financially prepared to deal with an interest rate increase of one percentage point

Fact: According to the Bank of Canada Financial System review about 35% of Canadians in a home are
home owners with a mortgage. Of that 35%, only 10% have a Variable Rate Mortgage. Of that 10% of
Variable Rate Mortgage holders only 2% have a mortgage payment that changes when the Prime Rates
change.

Perspective: There is no reason to panic over interest rates. We have been at historical lows for over ten years. People who purchased homes and refinanced their homes had to qualify at in inflated rate to be protected in instances just like this.