Unimor Capital Corporation

Tag: first time homebuyer

Interest Rate Hikes: How it Could Impact Your Finances
What is the policy interest rate?
The policy interest rate is the fixed interest rate set by a financial institution for a country or group of countries. This determines how much it will cost to borrow money from a central bank. In our case, the Bank of Canada is the one that is regulating, among other things, the country’s economic activity. Once the Bank of Canada sets the policy interest rate, other financial institutions use it to set the interest rate on a variety of loans (personal, mortgages, etc.) offered to clients. The current increase is an attempt to counteract inflation, which is rising in Canada and the US.

What is inflation?
Inflation is an overall increase in the average price of goods and services. When inflation is low and predictable, it means that the economy is doing well, and the overall value of money is stable. Long story short, it means you have more money in your pocket.

When inflation is too high, consumers, businesses and investors lose purchasing power. This means overall economic development suffers. When this happens, the Bank of Canada will usually step in with a policy interest rate hike to try and stabilize the economy.

How does an increase in the policy interest rate affect my finances?
Most people will be affected by a policy interest rate increase. This means that they’ll pay more interest on their loans. Households and businesses are more likely to reduce their expenses when this happens. Demand for goods and services is expected to decline and their prices may stabilize in the future:
- New homebuyers may have to pass a mortgage stress test at a higher rate. Currently, the mortgage stress test is at the higher of 5.25%, or the mortgage rate plus 2%.
- If you have a variable rate mortgage, your monthly payments will increase. Fixed rate mortgages will only be affected when you renew.
- This could be an opportunity to make new investments. While the market is down right now, it could be the right time to buy low on interesting stocks. Also, investments such as GIC’s or bonds see their interest rates rise in a period of rising rates.
- If your mortgage term expires in less than 6 months, an early renewal may be the key to helping you secure a lower rate before the next rate increase without penalty. If your term expires in more than 6 months, you’ll need to consider the penalty fee when making a decision on early renewal.
- While food, gas, and furniture cost more than this time last year, now’s the right time to readjust and evaluate your budget.
Policy interest rate hike: do I need to review my financial plans?
If there’s a policy interest rate hike, take some time to think about your current projects and future plans, and make informed decisions. You might save money by postponing a major project rather than tackling it now. Alternatively, now be the time to consolidate your debt and get your ducks in a row before rates increase further.
July 4, 2022
COVID-19: Should You Buy a Home Now, or Wait?

Housing markets across the country are changing swiftly—but with interest rates at historic lows, this might be a good time to buy. Here are all the factors to consider.

It almost goes without saying that COVID-19 has had a far-reaching impact on the Canadian economy and healthcare system in the first half of 2020. As expected, the spring housing market was much cooler than 2019, with the Canadian Real Estate Association (CREA) confirming that May 2020 recorded the lowest volume of sales in May since 1996. Despite the significant drop in sales volume due to the pandemic, though, national home prices remained relatively stable.

After a quiet April, market activity began to pick up in local housing markets across the country in May: more buyers resumed their home searches, and more sellers began to list their homes. With more home buyers and sellers hopping off the sidelines, housing competition is starting to heat up in many regions. In Toronto and Vancouver—Canada’s largest markets—demand and supply were evenly matched in May, whereas in Southern Ontario markets like Ottawa and Hamilton-Burlington, buyers faced ever fiercer competition for available homes than last year.

Given how swiftly conditions have changed and continue to evolve in housing markets across the country, prospective home buyers may be wondering: Is now a good time to jump into the market? Perhaps. With interest rates at historic lows, if you are able to buy and hold a home for the medium to long term, this might be a good time to buy. Here are all the factors you should consider as you make your decision.

Account for your finances and your lifestyle needs.

For many Canadians, finances are just one part of the story, and the decision to buy a home often goes beyond the dollars and cents. To put it simply, people need to make changes in their lives and move—regardless of whether there is a pandemic or not. If you have done the math and are confident about your financial ability to carry a new home, this is a great opportunity to take advantage of low interest rates.

Consider why you want to buy in the first place.

Perhaps you’ve had a relationship or family change; a divorce or a baby on the way are common reasons people choose to move. Alternatively, do you want to be closer to family, in a good school district, or have better transit access? If you started planning a move before the pandemic, consider whether and how COVID-19 has altered these priorities.

Once you’ve determined why you need to move, consider how your lifestyle needs may evolve. After all, you will be living in the home you purchase for at least a few years, so you need to think about whether the home you buy is a fit for your needs both today and tomorrow. If you can find what you want, in the location you desire, and are comfortable living there for at least five years, take the leap.

Get local with market data.

When you’ve made the decision to move forward with a home search, you’ll likely turn your attention to how the housing market is performing. After all, buying a home is a major personal commitment, and also one of the biggest financial investments most people will make. With everything going on, in addition to sales updates from national and local real estate boards, a number of Canada’s most established financial institutions, economists and housing corporations have attempted to predict the size and duration of the impact of COVID-19 on the housing sector.

While high-level data from real estate boards and financial institutions can provide valuable perspective on how the housing market is performing at the macro-level, real estate is hyper-regional, and in many respects, local. The type of property, the neighbourhood you’re interested in, and your budget will all play a role in the level of competition you’re likely to face and ultimately the price you can expect to pay.

Working with a real estate agent you trust is one way to cut through the noise and understand how far your dollar will go in real estate based on your situation and your needs. A good real estate agent acts as a trusted expert who can provide you with the facts, data and insights that are most relevant to your purchase decision, so you can make an informed choice that you are comfortable with now and in the future.

Remember that real estate is a long-term decision.

Finally, remember that real estate is a long-term investment. If you are looking to make short term, speculative investments, this is a particularly risky time to do that in real estate. Further, churning real estate has real costs that eat into any sale price, which include but aren’t limited to land transfer taxes, realtor professional fees and moving costs.

Once you’ve carefully weighed your personal needs against your financial appetite and obligations and have also considered the context of the real estate market in your area, take the plunge if you’re confident that everything lines up. If you can buy and hold for the long term, there are some great pockets of opportunity out there.

July 15, 2020
Thinking of Buying Your First Home?

Contribute to your RRSP so you can borrow tax-free!

If you’re planning to buy your first home anytime soon, you may be able to take advantage of a helpful federal government program. This enables you to withdraw money you’ve already contributed to your registered retirement savings plan (RRSP) and use it towards anything related to your home purchase, including your down payment, closing costs or real estate fees. The key is that the funds must be in your account at least 90 days before you can withdraw them under the Home Buyers’ Plan (HBP). You can withdraw up to $25,000 ($50,000 per couple) from your RRSPs tax- and interest-free to buy or build a qualifying home for yourself or a related person with a disability.

If you don’t have money set aside for your RRSP, don’t worry, because you can get a loan from your bank in order to make your contributions. You can contribute up to $26,930 or 18% of your annual salary… and, you can also top up going back to the first year of your working career. You may have noticed these details on the bottom of your notice of assessment (NOA) each year.

The only exception to the first-time buyer requirement where you can take advantage of the HBP is if you have a disability or you’re helping a related person with a disability buy or build a home. You must be able to prove that the new home is a better fit for the needs of the disabled person than his/her current home. You’re considered a first-time homebuyer if you didn’t occupy a home that you or your current spouse or common-law partner owned in the past four years.

The HBP requires you to repay all withdrawals to your RRSP within 15 years. You’ll have to repay 1/15^th to your RRSP each year until your HBP balance is zero. If you don’t repay the amount due for a year, it must then be included in your income for that year. Repayments don’t affect your RRSP deduction limit. You can still contribute to your RRSP and designate that amount as a repayment under the HBP, even if your RRSP deduction limit is zero.

February 1, 2019