Canadians have faced surprises and uncertainty in 2020, reinforcing the value of basic financial awareness and planning. Here are 5 things you need to know right now to get ahead in 2021.

Need-to-know #1: How much money you owe

FAST STAT: Canadian households owe $1.77 for every dollar of disposable income. (Source: Statistics Canada)

If the idea of tallying up your debt makes you want to bury your head in the sand, first, know that you’re not the first person to feel this way. Second, fight the urge and add it all up.

The most common forms of debt include mortgages, car loans, personal loans, lines of credit, credit cards , student loans and money owed to Canada Revenue Agency (CRA). Knowing how much you owe – and at what interest rates – allows you to prioritize debt reduction goals and strategies .

Need-to-know #2: Your bottom line

FAST STAT: The average Canadian household spent just over $86,000 on living expenses in 2017, the most recent year for which data was collected. (Source: Statistics Canada)

Subtracting your fixed and variable expenses from your income will help you determine whether or not your spending habits are sustainable and if they align with your short-, mid- and long-range goals. Check online for budget worksheets or download one to your smartphone to get started.

If you’re not doing this already, adjust your budget so you can allocate savings to a household emergency fund to cover you in the event of job loss, illness and other unforeseen circumstances. The FCAC recommends saving three to six months of income or of living expenses (whichever you prefer).

Need-to-know #3: Your credit score

FAST FACT: 29.2% of mortgage holders increased their credit score in the first quarter of 2020. (Source: Canada Mortgage and Housing Corporation)

Strong credit benefits you in a number of ways. If you’re a homeowner (current or aspiring), it’s your ticket to the best mortgage rates . If you’re a tenant, it can make or break your rental application. As a consumer, it can impact whether or not you’ll be approved for a credit card , car loan or line of credit.

According to Equifax, one of Canada’s two primary credit reporting agencies: “credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.”

Monitor your credit score regularly to ensure you’re on track with your financial goals.

Back this up by ordering your credit report annually and checking to ensure all listed creditors are legit; this can alert you to potential identity theft.

Need-to-know #4: What Covid-19 relief programs can help you

FAST STAT: Canadian employment income fell by nearly 9% in the second quarter of 2020, but household disposable income grew by 11% as a result of government support programs. (Source: Statistics Canada)

As Canada experiences the second wave of the COVID-19 pandemic , the government and many financial institutions continue to address financial concerns stemming from illness, reduced income and/or job loss.

Plan ahead by knowing what support you may be entitled to if your income is impacted by the pandemic:

• Check your bank or lender’s website to see if you qualify for deferred payments or reduced interest on your credit card, line of credit, other consumer loans or mortgage;
• Reach out to a mortgage broker if you have concerns about your debt payments or mortgage – they may be able to find solutions that can reduce your monthly debt obligations and interest charges;
• Check the federal government’s Covid-19 Economic Response Plan page for updated info on the programs you may qualify for.

Need-to-know #5: Your Plan B

FAST STAT: Canada regained 378,000 jobs in September 2020. Pandemic-related job losses are down to (a still-significant) 720,000 jobs compared to pre-pandemic February 2020. (Source: Statistics Canada)

The good news is that Canada is well on the road to economic recovery. But, as the country continues to respond to regional virus surges with actions including business restrictions, it’s good to plan for the unexpected.

This may include an honest assessment of your employment prospects: the restaurant, entertainment, hospitality and tourism sectors don’t look great right now, while tech, gaming, groceries and home decor all are booming.

Consider what skills could help you transfer to a new industry, or if now would be the time to get more training or education. Consider how you might fund more education – mortgage refinancing or a CHIP reverse mortgage are two options.

Could you build your income by taking on a side hustle like food or grocery delivery, starting an Etsy shop or starting your own business walking dogs or tutoring online?

A Plan B can provide peace of mind during uncertainty, but another side benefit is, it may just lead you to fulfilling new opportunities you hadn’t even considered.

Want to learn more about financial literacy? Visit the FCAC’s Financial Literacy Month site.

Home equity is one of those terms you hear a lot. You may have a general sense that it’s a good thing that’s tied to homeownership, but not know the nuts and bolts of it. No fear: here’s an explain-it-to-me-like-I’m-12 look at home equity.

DEFINITION

Home equity refers to your ownership stake in your home. It’s calculated as the home’s current market value less what you owe on the property via your mortgage and any liens.

For example: If your home’s market value is $500,000 and there’s $240,000 remaining on your mortgage, your home equity is $260,000 or 52% of its value.

HOW HOME EQUITY CHANGES OVER TIME

Home equity changes over time. Examples of how this works are:  

• You gain equity as you make mortgage payments; each payment reduces your home loan a little bit;
• You gain equity as the value of your property increases due to home improvements or changes in the real estate market;

It’s also possible to lose equity, say, if housing values drop or if the home itself loses value due to disrepair or bad renovation choices .

If that $500,000 home we talked about earlier now has a market value of $450,000 and the same $240,000 mortgage, your home equity is now $210,000 or 46.6% of the property’s value.

Fortunately, home values generally tend to appreciate (increase) over time.

HOW TO USE YOUR EQUITY

Home equity can be used as collateral in a home equity loan or a home equity line of credit (HELOC), also known as a second mortgage.

Another way to use your home equity is to borrow additional funds at mortgage renewal time, or by refinancing your existing mortgage.

Canadians over age 55 can leverage their home equity with a  reverse mortgage .

Because these types of loans are secured against home equity, they are offered at interest rates well below unsecured loans such as credit cards or personal lines of credit. Many Canadians leverage their home equity to boost their overall financial health. Examples of this include:

• Paying off high-interest consumer debt;
• Funding university, college or a training program;
• Paying for home improvements;
• Freeing up money for a down payment ona second home or other investment.

Although you’re adding to what you owe on your home, it’s money well spent because, to use the examples above, you’d either be saving money outright (elimination of high-interest debt), be boosting future income (education and training) or building home equity in the mid- to longer term (the other two examples).

BOTTOM LINE

Home equity is a financial tool you can leverage if it is needed – or simply watch grow!

With today’s low-interest environment, 2020 can be a great year if you’d like to utilize some of the equity you’ve built in your home.

Got questions? Contact 8Twleve Mortgage for personal advice and product recommendations specific to your needs and lifestyle. 

Is it Worth the Cost to Break a Mortgage?

The Bank of Canada (BOC) is Canada’s national bank. It’s a Crown corporation that operates independently of whatever political party is in power in Ottawa. The central bank exists to promote Canada’s economic stability and financial welfare.

You may already know the BOC issues the bank notes you tuck into your wallet, but did you know it indirectly determines the interest rate you pay on your mortgage or consumer debt, too?

HOW LENDERS SET INTEREST RATES

While the BOC doesn’t set mortgage rates, credit card rates or any other consumer lending rates, it sets a target for the “overnight rate” (also known as the “policy interest rate”), which is what major financial institutions charge one another in their daily short term (or “overnight”) transactions. The big banks use the overnight rate ( currently targeted at 0.25 %) to set their prime lending rate, the interest rate they give to their best customers, (i.e. those with stellar credit and a solid income).

A variety of factors play into the interest rate you’ll pay for your mortgage, including:

• Your credit score;
• Your income;
• Is it a fixed or variable rate interest mortgage?
• Is it an open or closed mortgage?
• Do you have mortgage default insurance?
• Is it a primary mortgage, second mortgage, third mortgage or a reverse mortgage?

Check out this informative article by Bank of Canada , for more insights into the process.

WHAT DOES THIS MEAN FOR ME?

Interest rates are low right now, so borrowing money to buy a house can be done “on the cheap.”

If you’re house-hunting in a hot market like Victoria, Toronto, Ottawa or Montreal, home prices won’t be dipping in 2020 ( so long, coronavirus-related price drops ), but you’ll find some great mortgage rates, given the lending climate the Bank of Canada has promoted.

If you own your own home and have no plans to move, now might be a good time to consider refinancing your mortgage. Making a switch in order to take advantage of today’s low interest rates could save you thousands of dollars over the next few years. 

Want to learn more? Reach out to 8Twelve’s team of skilled mortgage professionals. You can trust your 8Twelve Mortgage Strategist to help you get the best mortgage for your needs.

The COVID-19 pandemic has forced many Canadians into a financial reckoning. One recent poll of 1,500 Canadians found two-thirds would be in (or already were in) a “severe financial crisis” due to job loss or income reduction. A full 30% said they would skip credit card payments if they absolutely had to. No one wants to be in the situation of having to choose between their mortgage and credit cards, or, for that matter, any other monthly essentials, so let’s take a look at one strategy that may help “crisis-proof” your finances.

USE YOUR EQUITY

One of the advantages of homeownership is the ability to tap into the equity you’ve put into your home. A second mortgage, third mortgage or reverse mortgage all allow you to borrow money at interest rates lower than what you’d pay on a credit card or unsecured line of credit.

Used correctly as a short-term solution that is part of a longer-term strategy, these types of mortgages can help homeowners get out of debt sooner.

Here’s a quick overview of three mortgage options and how they may work for your needs.

SECOND MORTGAGE

A second mortgage lets you borrow money using your home equity as security. To qualify for a second mortgage, a homeowner must have at least 20% equity in their home and can borrow up to 80% of the home’s appraised value. (Equity is the difference between your home’s appraised worth and what you owe on your existing mortgage. Your home equity increases as you pay down your mortgage, and/or as the value of your home goes up.)

A second mortgage exists independently of the first mortgage. Expect interest rates to be a bit higher, too. You’ll be making payments on both mortgages concurrently. Most second mortgages have terms of between 3 and 18 months.

Use your second mortgage to consolidate and pay off high-interest consumer debt, or for a major investment like post-secondary education or home renovations. When your primary mortgage is up for renewal, you should use this opportunity to pay off your second mortgage by rolling it into your primary mortgage.

This strategy reduces the amount of interest you pay on your debt load, improves your credit score by lowering your debt-to-income ratio, and will get you better mortgage rates when it’s time to renew your primary mortgage.

REVERSE MORTGAGE

For homeowners over age 55, a reverse mortgage can provide an additional income stream to augment retirement savings or work income. If you have a mortgage remaining on your home, you’ll have to use your reverse mortgage funds to pay it off. The remaining funds can be used to cover your debts, or, for that matter, fund home improvements, investments, post-secondary education for your children or grandkids or other priorities.

BOTTOM LINE

Second mortgages, third mortgages and reverse mortgages aren’t for every situation, but used correctly, could help you save thousands of dollars in interest, get debt-free faster, and stay on track with your financial goals. 

Want to learn more? Reach out to 8Twelve’s team of skilled mortgage professionals. You can trust your 8Twelve Mortgage Strategist to help you get the best mortgage for your needs.

Is it Worth the Cost to Break a Mortgage?

Most homeowners should expect to pay a penalty if they want to break their mortgage to get a better rate or for a complete refinance. Homeowners in 5-year fixed mortgages often look to break their mortgage during their 3rd year for debt consolidation or to accommodate changing life circumstances.

The penalty to break a mortgage is typically the greater of

• three months’ interest, or
• the interest-rate differential (IRD)

With the IRD, your mortgage lender will want you to pay the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates. Unfortunately, not all lenders calculate IRD the same way so you should always get the actual penalty from your lender. Check your lender’s website for their prepayment penalty calculator.

If you want to look at breaking your mortgage, we can review the terms and conditions of your mortgage and do an assessment of your situation to determine if your benefit outweighs the cost. There is no cost or obligation. Often penalties are rolled into the new mortgage, so you don’t have to be out of pocket. At 8Twelve Mortgage, our licenced Mortgage Strategists will provide you the advice, education and resources you’ll need to make smart financial choices.

For those with high-interest credit card debt, the COVID-19 pandemic has made a stressful situation even more challenging. But there is good news, too: According to Statistics Canada, Canada is making headway in job recovery . With many of us back on financial track, September is a good time to work on tackling credit card debt and improving credit. Here’s a two-step action plan that could work for you.

Step 1: Trade bad debt for good

High-interest credit card debt is hard to get out of. Once you fall into the pattern of carrying a balance, compound interest adds up fast. If you only pay the minimum each month, it can take years – or decades – to clear your debt.

This chart explains how a $1,000 credit card balance at an 18% annual percentage rate (APR) would take over five years to pay off, assuming no additional purchases are made.

But let’s say you’re in greater debt than $1,000. This Forbes article identifies some strategies for paying off a significant amount of credit card debt, such as: tackling credit cards one at a time; transferring high-interest balances onto a 0% APR credit card and chipping away at the balance before the 0% promo rate ends; or, finally, clearing them once and for all via credit card debt consolidation.

The latter is the solution we recommend, and here’s why:

If you own your own home, you can use your equity to restructure your mortgage. Let’s say you have $20,000 in credit card debt. If it’s time for your mortgage renewal (or if you consider mortgage refinancing), you could take out $20,000 in home equity and have it added to your mortgage. This allows you to clear that high-interest credit card debt immediately, replacing it with one affordable monthly mortgage payment at today’s record low mortgage rates.

You’ll end up paying less interest each month and can devote more of your income to savings or investments while paying off your mortgage sooner.

Step 2: Make more money

The second piece to this strategy is income. Don’t use your home as a piggy bank. Sure, real estate tends to appreciate over time, but you won’t make headway on your mortgage if you get into a cycle of racking up credit card debt followed by dipping into your home equity to clear it.

If you find yourself carrying a credit card balance on a regular basis, you’re spending more money than you make . This is a common problem with two solutions:

One is to spend less .

The other is to earn more. Think: side hustle. Make a few extra bucks each month and you’ll be able to pay for those extras you used to put on plastic.

Take dog walking – just four walks a week at $25 per walk translates into an extra $400 a month.

Not into dogs? What about house-sitting cats?

Or virtual tutoring?

The point is, a steady side hustle can bring in cold hard cash and if you dedicate those funds to your expenditures – or better yet, towards ramping up your mortgage payments – you’ll reach your goals sooner than relying on your main income alone.

Bonus: All the ideas above are social-distancing friendly, by the way!

Want to learn more about debt consolidation? Contact 8Twelve Mortgage for solutions tailored to your unique needs.

COVID-19 has changed the way Canadians buy real estate. Say goodbye to open houses, Realtor showings and in-person paperwork with your mortgage broker, and say hello to virtual tours, video conferencing and e-signatures. Industry experts say technology was set to play a larger role in the homebuying process anyway, but social distancing has accelerated the pace. Here’s how tech is helping get Canadians home.

HOUSE HUNTING

As any house hunter knows, real estate listings rely on more than just photos these days. Slideshows, video and 3D renderings are visual elements that buyers have come to expect. While most serious buyers say they would want an eventual in-person viewing, a May 2020 Nanos/Ontario Real Estate Association survey shows that 42% of Ontario house hunters would be open/somewhat open to buying a home using only online tools to view it.

Anurag Kumar and his wife took possession of their first home in April 2020, at the height of the pandemic. Kumar says he and his wife were already amenable to tech-based house hunting strategies: “We went on virtual tours, and video conferences and e-signatures were the other major tools we used,” along with a few socially distanced home viewings.

HOME INSPECTIONS & APPRAISALS

Home inspections were down 50 to 70 percent during this year’s early spring real estate market, however, home inspectors were able to work by following social distancing and by donning hazmat suits and respirators. Communication with prospective homebuyers was maintained via phone or video call. If Canada sees another wave of coronavirus this coming fall/winter, this may be the workaround the industry continues to use. 

For homeowners seeking mortgage refinancing, appraisals are heading towards tech-based collaboration between homeowner and home appraiser. Guidelines from the Appraisal Institute of Canada direct homeowners to take interior photos, and to conduct video-based walkthrough “inspections” for appraisers via video-call using apps like Zoom, Skype, Facetime or WhatsApp.

MORTGAGE & FINANCING

The financial side of home buying has experienced a similar fast-tracking of technology, says 8Twelve Mortgage COO and Principal Broker, Akber Abbas – although some organizations have been better equipped to respond than others.

“As a mortgage brokerage, we were well-suited for COVID. We were moving towards a paperless environment and being cloud-ready in Canadian data centres. Back in 2018, we had started putting plans together to enable us to maintain our operations and continuity,” he explains.

“When COVID hit, everyone [at 8Twelve Mortgage] was able to literally pick up their laptops, being in a secure environment, and start working from home. We were able to service clients. We were still able to get approvals moving forward,” says Abbas, contrasting that with tech-adverse companies that were ill-equipped for social distancing. “Some brokerages in Canada didn’t have CRM solutions in place, or e-signatures, or even Zoom video conferencing. These were all part of our repertoire,” he says.

COVID has forced those who were caught by surprise to catch-up fast, whether it’s home mortgage lenders embracing video conferencing, or banks onboarding businesses faster for remote deposit capture of checks to facilitate electronic payments.

MOVING FORWARD

Canadians are living in unprecedented times. For companies like 8Twelve Mortgage, tech solutions have proven pandemic-ready, helping first-time homeowners secure the best mortgage rates and established homeowners restructure a mortgage without delay. “The market is catching up to where our business capabilities were,” says Abbas.

According to first-time homeowner Anurag Kumar, technology is only as good as the people wielding it. “We can use all the technology we want, but the human touch is different – trust me, I work in IT, so that’s something I am not supposed to say. Our 8Twelve Mortgage agent, Muhammad Mirza, helped us throughout the process by answering our calls at night, our emails, and through video calls and so on. He gave us his professional help and guidelines,” every step of the way, says Kumar, sharing his experience via email from his first home in Milton, ON.

Getting ready to buy your own home? There are a lot of boxes new homeowners have to tick off, and one of the most confusing can be insurance. Certain types of insurance are mandatory and others are optional…. but highly advisable. Here are 5 types of insurance the experts want every homeowner to have.

HOME INSURANCE

While not legally required, it’s nearly impossible to get a mortgage without proof of home insurance. But why would you want to leave your biggest investment unprotected? Home insurance covers the rebuilding or replacement value of your house, detached structures such as a garage, your contents, plus personal liability if anyone gets hurt on your property.

Be sure to read the fine print and find a plan that works for you . Standard policies may not include things like earthquakes, termite damage, or certain types of flooding. If these are relevant to you, look into additional coverage.

The cost: Varies depending on coverage, home value and additional factors

CONDO INSURANCE

Many condo owners think their condo corporation’s commercial condo insurance covers their unit, too. This is not the case. It is limited to common areas like the building structure, its exterior and shared spaces like the lobby or elevators. You’ll need a personal condo policy to protect your own unit, its upgrades and contents (including those stored in your locker).

Personal condo insurance isn’t legally required, but most mortgage lenders consider it mandatory. You should too, says Steve Totani , a real estate broker with Zolo Realty in Toronto.

Totani provides the example of a small condo building that experienced massive flooding as the result of a plumbing problem. Owners’ homes were ruined as were their belongings. “Once the units were repaired, they each got an empty unit with four dry walls. Property insurance would have brought a condo owner’s unit back to how it was, for example, granite countertops and better appliances. Just relying on the condo’s [building] insurance is a big mistake. Paying $20 or $30 a month extra can save you tens of thousands of dollars in that sort of situation,” explains Totani.

The cost: Varies depending on coverage, condo value and additional factors

TITLE INSURANCE

A property’s title is the legal proof of its ownership. When you buy a home, the owner signs the deed over to you. Title insurance protects you against challenges to your ownership or issues relating to your home’s title, such unpaid liens, encroachment issues, fraud, and other issues that could prevent you from selling, leasing or mortgaging your property. ( You can read more details here .)

Toronto real estate lawyer Bob Aron writes that “most real estate lawyers today regard title insurance as a critical component of the [real estate] transaction and will usually not close a purchase without it.” Likewise, most lenders make it a requirement for financing.

The cost: A one-time premium based on the value and location of the property, generally in the $225 to $325 range[yh1] .

MORTGAGE DEFAULT INSURANCE

Mortgage default insurance (also known as “mortgage insurance”) is mandatory on all high ratio mortgages . Those are mortgages with a down payment of less than 20 percent of a home’s purchase price.

This insurance protects lenders in return for qualifying borrowers with as little as 5 percent down, making it a win for both parties. Without mortgage insurance, homeownership would be impossible without a sizeable down payment.

The cost: Between 2.8% to 4% of the mortgage[yh2]  amount. This can be rolled onto the mortgage so it’s not an out-of-pocket expense.

LIFE INSURANCE

“Life insurance is the type of insurance that’s overlooked the most often” says Totani, the Zolo Realty broker.

“People ask about mortgage rates, property tax, property insurance, and their monthly payments, but I hardly ever hear anyone asking, ‘Should I top up my life insurance policy?’ to ensure their mortgage is paid off and their family is not going to be out of their home,” in the event of a tragedy, says Totani.

Totani advises checking your policy and upgrading it if needed, to reflect your homeownership situation. The peace of mind this provides will be worth the effort. 

The cost: Varies depending on life insurance type, coverage, and personal factors.

What’s next for Canada’s housing market after the first wave of the COVID-19 pandemic?

While the national housing market experienced an unprecedented drop in volume during the 2020 spring market, May 2020 housing stats already show some recovery underway.

“The big picture is things are moving in the right direction… but still have a long way to go. [But] prices appear to be holding firm at this point,” says Shaun Cathcart, Senior Economist with the Canadian Real Estate Association, in the industry organization’s May 2020 national statistics report .

Benjamin Tal, managing director and deputy chief economist at CIBC World Markets, says the real estate market is in no jeopardy of seismic change. While housing activity may have dropped 70 percent compared to one year ago, “The damage to the real estate market is not as significant as perceived,” said Tal in a Canadian Real Estate Forums webinar . Tal expects the economy to recover between 2022 and 2023, adding “the demand for real estate will remain very strong.”  

We spoke with Paul Taylor, President and CEO of Mortgage Professionals Canada to get a mortgage expert’s take on the two major factors that will affect Canadian real estate values in the mid-to-longer term.

EMPLOYMENT

“If employment is strong house price growth tends to be strong also, but when employment numbers fall, you start to see higher levels of mortgage default, or people choosing to sell their home before they have to miss that payment. This can add supply to the market which can make house prices a little bit softer,” says Taylor.

The billion dollar question is, what will Canada’s employment and jobless rates look like in Q3 and Q4 2020? At last official count (June 2, 2020), unemployment hit 13.7% (the highest jobless rate in four decades), however, employment has been rebounding , with 289,600 positions returning in May after March and April’s waves of job losses.

While some sectors are returning to business others will be contending with longer term issues, notably Alberta’s oil industry, which was experiencing a downturn prior to COVID-19. Other sectors Taylor expects to “suffer a bit,” through 2020? Tourism and hospitality and manufacturing (less employment means less discretionary spending).

Keep an eye on employment statistics, as they are an indicator of what could be coming down the line.

EMERGENCY RELIEF PROGRAMS

Canada’s government responded to the COVID-19 pandemic with programs aimed at keeping Canadians secure in their homes during the shutdown. The federal response included temporary programs such as the Canada Emergency Response Benefit (CERB) and increases to the Canada Child Benefit, a wage top-up for low-income essential service workers, and a special GST tax credit payment.

Banks and other mortgage lenders offered up to six months of  mortgage payment deferrals , allowing homeowners to put a pause on mortgage payments, with the skipped payments and accrued interest added to the loan’s outstanding principal.

What happens next remains to be seen, says Taylor: “There’s a number of folks that have had their employment significantly impacted by COVID. So, the big question is how close to a full-capacity economy can we get to by September when the mortgage deferral programs expire? If the deferrals expire and a number of people find they have to sell their home because they have still not managed to get back to full income levels, we’ll see a slowdown.”

BOTTOM LINE

Keep an eye on the fall. September onwards will reveal where employment is headed, as well as the impact of removing  – or potentially extending – income and mortgage relief programs.

Canadians with questions about mortgage options (including mortgage payment deferrals or mortgage refinancing) should speak to a mortgage professional for personalized advice tailored to their situation.