25 Jan

BoC maintains the overnight rate for the 4th consecutive meeting

Latest News

Posted by: Kenny Rijhwani

My highlights from the January 24 Bank Of Canada (BoC) announcement

  • Concerns about inflation persist, but the explicit statement on being prepared to raise rates further is dropped.
  • Focus shifts from discussing whether interest rates are high enough to when they can be lowered.
  • Core inflation measures haven’t shown sustained declines, preventing an immediate shift to rate cuts.
  • Wage growth remains high, and a pullback in bond yields has eased financial conditions somewhat.
  • Softening economic backdrop increases the likelihood of lower inflation.Unchanged GDP in Q4 is expected, marking a sixth straight drop in per-capita output.
  • Unemployment rate edges higher, and employment counts no longer keep up with population growth.
  • BoC estimates the output gap to be back below zero by the end of last year, reinforcing the expectation of slowing inflation.
  • Overall, the expectation is for the BoC to gradually lower the policy rate by mid-year due to slower price growth and a weakening economic backdrop.
3 Jan

Gifted Down Payments – A complete guide

Mortgage Tips

Posted by: Kenny Rijhwani

The Rise of Gifted Down Payments

As home prices and interest rates soar, Canadian families are finding creative ways to support their children in entering the real estate market. Gifted down payments have become a popular strategy, with a significant percentage of first-time buyers benefiting from this assistance.

The Impact of Gifted Down Payments

A 2021 CIBC report reveals that 30% of first-time buyers in Canada received monetary gifts for down payments, ranging from $10,000 to over $1 million. James Harrison, Mortgage Broker at Mortgages.ca, notes that a considerable majority of his clients receive such gifts, emphasizing parents’ desire to aid their children in achieving a 20% down payment goal.

Changing Landscape: Gift Trends Over the Years

The average Canadian gift for down payments has seen a substantial increase, rising from $52,000 in 2015 to $82,000 in 2021. Notably, Vancouver leads with an average gift of $180,000, followed closely by Toronto at $130,000.

Understanding Gifted Down Payments

Definition of Gifted Down Payments

A gifted down payment is a financial contribution from close relatives, such as parents, grandparents, or siblings, towards a home purchase. Unlike a loan, it is non-repayable, and those giving the gift should have no expectations of repayment, often formalized through a signed agreement.

Gifted Down Payments vs. Co-signing

Gifted down payments do not confer ownership of the property or assume any associated risks, distinguishing them from co-signing arrangements. Co-signing entails being on the property title, bearing 100% liability if homeowners default on their mortgage.

Impact on Mortgage Approval

Gifted down payments do not affect mortgage approval. The loan amount you qualify for is determined by your income, and the down payment is an additional factor. A larger down payment can potentially enable you to afford a more substantial property and move from an insured to a conventional purchase.

Navigating Gifted Down Payments

Rules and Requirements

To formalize a gifted down payment, a mortgage gift letter is essential, with each lender providing its template. Proof of the gifted funds’ deposit into the recipient’s account is required, typically no later than 15 days before closing. Compliance with anti-money laundering laws may apply, depending on how the gifted funds are utilized in the transaction.

Using Borrowed Funds for Gifting

While it’s possible to use borrowed funds for gifting, it’s a less common practice. Approximately 5.5% of gifting parents use debt for financing. Caution is advised when using a line of credit to avoid excessive debt, especially if nearing retirement.

Tax Implications

In Canada, gifted down payments are not taxed, and immediate family members can provide gifts without tax implications. However, considering protection for the gift in case of a recipient’s relationship dissolution is recommended by experts.

Planning for Down Payments

Protecting the Gift

Harrison suggests considering protective measures for the gifted amount in case of a recipient’s separation from their partner to prevent potential division.

Further Down Payment Planning

For additional information on down payment planning, exploring options such as RRSPs, TFSAs, and FHSAs is recommended.

Conclusion

Entering the real estate market can offer various benefits, and supporting immediate family members with a down payment is a noble way to help them embark on their homeownership journey. While this article provides valuable insights, it is essential to consult with financial or legal professionals for personalized advice.

3 Jan

Investing in Residential Rental Properties with the right financing

Residential Investing

Posted by: Kenny Rijhwani

Unleashing the Potential of Rental Properties

Investing in rental properties can be a lucrative endeavor, provided you navigate the financing landscape effectively. Many, including myself, believe real estate as a gateway to wealth, and Canada’s thriving housing market serves as a robust foundation for real estate investments.

Decoding Investment Properties

The term “investment property” encompasses various possibilities, including rental properties and house flipping. Investing in rental properties allows you to generate income through monthly rent for long-term rentals or whenever the property is leased out for short-term stays. House flipping involves purchasing a property, renovating it, and then selling it shortly afterward for a profit, marking another avenue within the realm of investment properties.

Crafting the Right Financing Strategy

Arranging mortgage financing for investment properties demands a strategic approach, with the suitable method contingent on the type of investment property.

Rental Properties: A Closer Look at Financing

When acquiring a rental property, the mortgage structure differs from that of a residential home. A down payment of at least 20% is required, and while there may be a slight interest rate premium, the mortgage products are akin to those for primary residences.

Unique Strategies for Multi-Unit Purchases

Consider the strategy of purchasing a multi-unit property like a Duplex, Triplex, or Quadroplex. Living in one unit while renting out the others can prove lucrative, potentially allowing for a lower down payment, even as low as 5%.

House Flipping Financing Challenges

Financing a house flip can be intricate as traditional Mortgage Lenders are often reluctant due to the short repayment period. Private Lenders become crucial sources of funds, though they come with higher setup fees and interest rates.

The Complexity of Investment Property Loans

Navigating the intricacies of investment property loans pose a higher level of complexity compared to regular mortgages, demanding careful consideration.

The Crucial Role of the Right Mortgage Product

Regardless of the chosen investment property, the selection of the right mortgage product is paramount for maximizing returns.

Personalized Guidance for Your Journey

I’m here to assist you in exploring the various mortgage options tailored to your investment goals. Let’s make informed decisions and turn your investment aspirations into reality.