Bank of Canada Update

The Bank of Canada (BoC) raised its trendsetting interest rate by a quarter percentage during its latest rate meeting Wednesday – bringing the benchmark to 1.75%.

This was an expected hike, as The BoC and economists had hinted at another increase this year. The new United States-Mexico-Canada Agreement (USMCA) – formerly known as NAFTA – pretty much sealed the deal for a hike this month as it settled a large source of trade uncertainty.

The key rate has been raised five times since June 2017 – to 1.75% from 0.5% – and is at its highest in nearly a decade.

Overall, rates are expected to gradually increase over the next couple of years, returning to more normal levels, since rates have been near historic lows for several years.

This means now’s the perfect time to start home shopping if you’re in the market for a new property and/or examine your debt levels. Pay particular attention to unsecured debt such as credit lines that are impacted by rising rates as well as high-interest credit cards.

Answers to your questions are just a call (705) 691-7646 or email rodney@ndlc.ca away.

As a self-employed person myself, I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Plain speak, we don’t look good on paper.

Normally CMHC wants to see two years established business history to be able to determine an average income. But the agency said it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example a borrower that has been an interior designer with a firm for the past eight years and in the same industry for the past 30 years, but just struck out on his own last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts from the industry in which he has vast connections.
Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that CMHC has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

Rodney Kasunich – 705.691.7646

rodneymortgage.com