In as many weeks, Canadians got another big announcement when it came to mortgages last week, and it may lead some to think, what's next? After the federal government announced surprise changes to amortization and maximum purchase prices for insured mortgages a couple weeks ago, the Office of the Superintendent of Financial Institutions seemed to have a hold my beer moment and made a huge surprise announcement themselves, this one was around uninsured, or conventional, mortgages.

First, who is the Office of the Supervisor of Financial Institutions, or OSFI for short? OSFI is an independent agency of the government of Canada that regulates and supervises financial institutions, in order to contribute public confidence in the financial system. Being independent, even though they are a part of the federal government, they are able to set their mandates and make decisions independently of government intervention.

Last week, OSFI announced that effective November 21st, they would scrap the requirement for financial institutions to stress test clients when the clients are looking to switch their uninsured mortgage from one lender to another. This is a huge win for mortgage holders as it now makes it easier to obtain the most competitive mortgage rates and products when your mortgage comes up for renewal, even if they are not with your current lender.

Currently, if someone wanted to switch their mortgage to a new lender, they would have to prove that they could afford the mortgage at a higher rate, also known as the stress test, which qualifies the mortgage at 5.25% or the contract rate + 2%, whichever is higher. The issue here is that by having the stress test in place, it could effectively block you from switching a mortgage that you are already affording to a new lender because the stress test may say you actually can't afford it.

This potential roadblock could possibly lead to your lender offering higher rates because they may think, or know, that you have nowhere else to go and will have no choice but to renew with them at whichever rate they offer. It is important to note that OSFI has said that it has found no evidence of this happening; however, the potential does present an unfair advantage to your current lender.

This potential unfairness was the subject of a Competition Bureau recommendation to OSFI this past March that was actually turned down by OSFI where they announced that they had no plans to remove the stress test on uninsured mortgages when a client was looking to switch lenders. As part of its recommendation, the Competition Bureau criticized the rule and said that switching lenders and promoting fairness should be focused on more than discouraging the practice.

Six short months later, OSFI makes a complete 180 and will now allow the increased competition. As mentioned this is a huge win for mortgage holders, especially ahead of the next few years, which are set to have the most mortgages coming up for renewal.

To summarize the change, when your uninsured mortgage comes up for renewal and your lenders offers you renewal options, you can now shop your mortgage with a Mortgage Broker to see which lenders would offer competitive interest rates and products that would allow you to switch your mortgage to them by qualifying at the actual contract rate, not the higher rate. You do still need to qualify to prove that you can afford the mortgage; however, you don't need to qualify at an inflated rate presented by having to use the stress test. This may even lead to your current lender offering more attractive renewal rates since they know there will no longer be the obstacle that could stop you from reviewing other options.

Overall, this is an announcement that has been advocated for by the mortgage industry for a long time and ensures fairness to Canadian mortgage borrowers. It has been a big couple of weeks with a few surprise announcements to rules and regulations that Mortgage Brokers have been pushing for and up to now thought that there would be no movement by the regulators in charge of them.

This week started with quite the surprise announcement by the Federal Government as it was announced that they were making the 'boldest reforms in decades' regarding Canada's mortgage system. The announcement of the two major changes was definitely surprising to everyone as it was not expected, and seemed to come out of nowhere.

The first announcement was that first time home buyers could now qualify for 30 year amortization on an insured mortgage whether they were buying a new build home or a resale property. This is a change from previously allowing only 25 year amortization on insured mortgages, while amending another change that came into effect August 1st that allowed first time home buyers to qualify for a 30 year amortization as long as they were buying a new build home.

As a reminder, an insured mortgage is when a home buyer has less than 20% to put down on a property and features a mortgage default insurance premium in order to be backed by the insurer and decrease risk to the lender.

The change to allowing 30 year amortization can accomplish two things; I will give examples shortly. The first is that it can lower monthly payments to allow first time home buyers to better afford their new property while getting used to home ownership. The increased cash flow can assist home buyers with this; however, the lower payment is offset by the fact that their will be an increased interest cost to the mortgage and less principal will be paid off during the term, resulting in a higher mortgage amount at the end of it. The second thing that the increased amortization can do is increase the amount that the potential home buyers would qualify for and be potentially be able to compete for a wider range of properties that they otherwise would not have had access to; however, a budget should be considered ahead of using the program for this purpose in order not to end up house broke.

To give an example of the lower payment potential that a 30 year amortization would represent, we will use a mortgage amount of $500,000 at todays average insured rates on a 5 year fixed mortgage. The mortgage payment using 25 year amortization would be roughly $2,800 compared to the mortgage payment of roughly $2,550 using 30 year amortization. This represents a difference of $250 per month and can help make the mortgage more affordable; however, as mentioned before, the downfall to this is that there is roughly an increase of $2,000 in interest expense and there will be roughly $16,000 less going towards principal over the term of the mortgage. This means that at the end of the term, the mortgage balance at renewal will be roughly $16,000 higher than it would have been if the 25 year amortization was used. There will likely be an increased mortgage default insurance premium to consider with the longer amortization; details on this will follow as the insurers have time to prepare for the upcoming changes.

It is important that clients consider the downfalls of using a longer amortization period and take advantage of prepayment options available to them when possible in order to ensure their mortgage is properly positioned for them in the future.

It is important to note that the 30 year amortization announcement is for first time home buyers buying a new build or resale property, as well as anybody purchasing a new build property, whether a first time home buyer or not.

The next example is in regards to how the longer amortization period can affect how much clients would qualify for; which means they may have the opportunity to find a property that is suitable for them that may not have been an option with the current 25 year amortization. If we use annual income of $120,000 with a down payment of $40,000 and 25 year amortization we would come up a maximum purchase price in the range of $530,000; however, if we increase the amortization period to 30 years, the maximum purchase price could potentially increase into the neighborhood of $565,000. While this can present the opportunity of having more options available and being able to compete a bit more, it does come with the same downfalls of increased interest expense and less principal being paid over the term. It also may present the downfall of clients potentially buying more home than they can afford and struggling to make mortgage payments along with other household expenses.

Before using the 30 year amortization as a way to increase purchase potential, the suitability of the program for the clients should be weighed heavily and all negative aspects should be considered. Just because you may be able to use the increased amortization to buy more house; doesn;t always mean you should. 

The other announcement was an even bigger surprise and represented a bigger change than anyone in or out of the industry expected. Many in the mortgage industry have been advocating for an increase in the cap to purchase prices in order to have an insured mortgage. Currently the maximum purchase price is $1,000,000 and is sufficient in most parts of the country; however, there has been a push to increase the maximum purchase price to $1,250,000. The federal government surprised everybody and announced that the cap for an insured mortgage was being increased to $1,500,000, which is the first change to this since 2012.

While this change will assist some home buyers with being able to enter the market with a lower down payment in the more expensive parts of the country, it's use may be limited as the amount of income required to qualify for such a large mortgage is out of range for most people. This may lead to an increase in co-signers being used; however, changes to tax rules regarding co-signing need to be considered first.

A mortgage over a million dollars with 30 year amortization for a first time home buyer can definitely present some big challenges, and affordability of the home buyers themselves needs to be carefully considered, even if there are co-signers willing to assist with the purchase.

The changes are proposed to take effect on December 15th of 2024 and before looking to take advantage of these programs, it is important to discuss the pros and cons with a Mortgage Broker beforehand.

So, let's talk about the new CRA T3 filing requirements for people who have co-signed on a mortgage. You might be wondering why this is even a thing, and what it means for you. Well, don't worry, because I'm here to break it down for you. First things first, let's quickly go over what a co-signer is. When you co-sign a mortgage, it means that you are essentially taking on the responsibility of the loan along with the primary borrower. This can happen when someone, like a family member or a close friend, doesn't meet the lender's criteria on their own. So, as a co-signer, you're on the hook for the mortgage if the primary borrower defaults on the loan. Second, a Bare Trust is a situation where you legally or are named as a legal owner of an asset or property, but the asset is held for the benefit of someone else. Having co-signed for someone else’s mortgage so they can qualify and get into the housing market is an example of a Bare Trust. Usually when co-signing for a mortgage, you will be added to title for as little as 1 percent of ownership; therefore, you are a named legal owner of the property. Now, let's get into the nitty-gritty of the new CRA T3 filing requirements. The Canada Revenue Agency (CRA) has recently implemented changes to ensure that all income from joint investments, including co-signed mortgages, are properly reported. In the past, co-signers did not have any reporting obligations when it came to these investments. However, with the new requirements, co-signers are now required to report any income earned from the co-signed mortgage on their T3 tax form. So, what does this mean for you as a co-signer? Well, it means that you need to pay close attention to the income earned from the co-signed mortgage. This includes any interest, dividends, or other types of income that may be generated. You will need to gather all the necessary information related to this income and report it on your T3 tax form. It should also be noted that even if there is no income generated by the property, you will still need to file a Schedule 15 (Beneficial Ownership Information of a Trust) which forms part of a T3 tax form; therefore, a co-signer of any property will now need to have a T3 filed. Now, you might be thinking, "How do I even know what income is earned from the co-signed mortgage?" The first step is to communicate with the primary borrower and the financial institution where the mortgage is held. They should be able to provide you with the necessary information, such as annual statements and tax documents. Once you have all the required information, you will need to complete the T3 tax form. This form is specifically designed for reporting income earned from joint investments, including co-signed mortgages. It will ask for details such as the type of income, the amount earned, and any taxes withheld. Make sure to fill out the form accurately and double-check all the information before submitting it to the CRA. The T3 tax form can be a bit complicated for someone that has never completed one and even though the CRA provides detailed instructions and guides on their website, it is highly recommended to seek the advice of a tax professional who can guide you through the requirements and ensure that everything is filed correctly. The deadline for the filing of the T3 is April 2nd; which is well ahead of the April 30th tax return filing deadline. There may be significant penalties levied for late or unfiled T3 tax forms. The CRA may waive penalties for the 2023 tax year; however, if it is shown that the T3 was not filed knowingly or due to gross negligence an even more severe penalty will apply. It's important to note that these new filing requirements are not limited to just the current tax year. Co-signers are required to report income from co-signed mortgages for each tax year moving forward. So, it's crucial to stay on top of your reporting obligations every year. To avoid these complications, it's essential to understand and fulfill your obligations as a co-signer. Take the time to educate yourself on the new filing requirements, gather all the necessary information, and ensure that you accurately report the income earned from the co-signed mortgage on your T3 tax form. In summary, the new CRA T3 filing requirements now require co-signers on mortgages to file a T3 tax form and report any income earned or generated by the property; even if there was no income earned whatsoever. This means that as a co-signer, you must gather all the relevant information, accurately complete the T3 tax form, and submit it to the CRA. Failure to comply with these requirements can lead to penalties and potential audits. So, make sure to stay informed and fulfill your reporting obligations to avoid any unwanted complications.

The First Home Savings Account (or FHSA) is a government program designed to help Canadians save money for purchasing their first home. It's a special type of registered savings account that allows you to deposit money on a tax-free basis, with the added bonus of earning tax-free income on the investments within the account. This program combines the advantages of an RRSP and a TFSA by reducing your annual taxable income while allowing you to generate tax-free income on the amount you save. Now, let's talk about the benefits of the FHSA. Foremost, the tax advantages are a major plus. By contributing to this account, you can reduce your taxable income and potentially receive a higher tax refund. This means more money in your pocket to put towards your dream home! Additionally, the FHSA offers some flexibility when it comes to contributions. You can contribute up to a certain limit each year, which is determined by the government. However, if you don't use the full limit in one year, you can carry forward the remaining contribution room to future years. This can be especially beneficial if you have fluctuating income or if you're not able to save as much in a particular year. Just like an RRSP, any contribution up to your annual limit will reduce your taxable income and will likely result in an increased tax refund (or reduced tax amount owing); however, unlike an RRSP, the contribution deadline is Dec 31st of each year instead of by the end of February the next year. Another advantage of this account is that you can invest the funds to potentially earn higher returns. Unlike a regular savings account with limited interest, the FHSA allows you to invest in a variety of eligible investments including mutual funds, stocks, bonds, and GICs. This gives you the opportunity to grow your savings faster and maximize the potential for a larger down payment on your first home. Furthermore, the FHSA allows you to withdraw funds when you're ready to purchase your first home. The withdrawals are tax-free as long as they are used for qualified housing expenses, which include the down payment, closing costs, and certain other expenses related to buying a home. This can be a significant benefit, as it means you have more money available to put towards these costs, ultimately reducing the amount you need to borrow and potentially saving you thousands of dollars in interest over the life of your mortgage. It's also worth mentioning that the FHSA can be used in combination with other existing government programs for home buyers like the Home Buyers' Plan; which allows you to withdraw money from your registered retirement savings plan (or RRSP) to purchase or build a qualifying home. By combining these two programs, you can potentially have even more funds available for your down payment, making your dream home even more achievable. It should be noted that unlike the RRSP Home Buyers' Plan; the amount withdrawn from the FHSA does not need to be repaid and if you are not using them to purchase a property, they can be transferred to your RRSP or RRIF. To be eligible to participate in the FHSA you must be a Canadian Resident, be legal age in your province of residence, be younger than 71 as of December 31st of the current year and must not have had a qualifying home in Canada as your principal place of residence that you or your spouse owned during the part of the calendar year preceding the opening of the FHSA or during the preceding four calendar years. For clarity, as of January 2024 if you (or your spouse that you resided with) owned a home at any time from January 1st 2020, you would not qualify. In summary, the Canada First Home Savings Account offers several benefits for Canadians looking to save for their first home. The tax advantages, flexibility in contributions, and potential for higher investment returns make it an attractive option. Plus, the ability to withdraw funds tax-free for qualified housing expenses provides significant financial assistance when it comes time to make that all-important home purchase. So, if you're dreaming of owning your first home, the Canada First Home Savings Account may be just the tool you need to make that dream a reality!

Managing a mortgage is a journey that requires careful navigation. Mortgage brokers understand the challenges and uncertainties homeowners face when it comes to their mortgage payments. Today's economic climate can be unpredictable, but with the right strategies, you can manage your mortgage effectively and even turn this responsibility into a rewarding part of your financial plan.

Understanding Your Mortgage

The first step in managing your mortgage is understanding it. Familiarize yourself with the terms, rates, and amortization periods. Each mortgage is unique, and understanding the specifics of your agreement is crucial. Remember, knowledge is power, especially when it comes to financial commitments.

Budgeting for Success

Creating a realistic budget that includes your mortgage payments is essential. It helps you visualize your financial situation, prioritize expenses, and avoid overspending. Equally important is an emergency fund. Life is full of surprises, and an emergency fund ensures that unexpected expenses won't derail your mortgage payments.

Refinancing and Renegotiating Your Mortgage

Refinancing or renegotiating your mortgage can offer relief or benefits under certain conditions. Perhaps you can secure a lower interest rate, or you need to adjust your payment schedule due to life changes. Your mortgage broker can help navigate this process, ensuring you make decisions that align with your long-term financial health.

Making Additional Payments

Did you know that making extra payments, no matter how small, can significantly impact your mortgage? Additional payments can reduce the total interest you pay and shorten the term of your loan. Even an extra few dollars monthly can make a noticeable difference over time.

Government Programs and Assistance

Several Canadian government programs can assist homeowners with their mortgage payments. These programs vary in eligibility and benefits, so it's worth researching to see if you qualify. Programs like the First-Time Home Buyer Incentive or various tax credits can provide substantial support. Your mortgage broker can help you find the program that best fits your needs. You can also reach out to your municipal government office and ask about incentives for local homeowners.

When Facing Financial Hardship

Financial hardships can happen to anyone. If you're struggling, it's crucial to address the situation proactively. Contact your lender to discuss options like payment deferrals or loan modification. These conversations can be difficult, but they're a crucial step in managing your mortgage during tough times.

Leveraging Technology

Take advantage of technology to manage your mortgage payments. Numerous apps and tools can help you track expenses, set reminders for payments, and stay informed about interest rates and market trends. Embracing technology can simplify your financial management and provide peace of mind.

Long-term Planning

Consider your mortgage as part of your broader financial plan. Long-term financial planning is key to managing not just your mortgage but your overall financial health. Working with financial advisors or mortgage brokers can help you align your mortgage with your future goals.

Successfully managing your mortgage is achievable with the right approach and resources. Remember, it's not just about making payments, but about making informed decisions that align with your financial goals. If you're feeling overwhelmed, know that you're not alone. A mortgage expert can help you navigate these waters.

If you have questions or need personalized advice on managing your mortgage, don't hesitate to reach out to a trusted advisor who can make your mortgage work for you.