Understanding the New Mortgage Charter & Inflation Update

Understanding the New Mortgage Charter: What Realtors Need to Know

Amidst the ongoing housing crisis, the government has introduced a new mortgage charter as part of the 2023 Fall Economic Statement. This charter aims to ease the financial burden of homeownership for Canadians. Let's unpack what this charter means and its potential implications.

Key Measures of the Mortgage Charter

Extension of Amortization Periods:

  • The charter proposes temporary extensions of amortization periods for mortgage holders at risk, allowing them to manage payments over a longer time. While this can lower monthly payments, it's important to note that it may increase the overall interest paid.

Waiving Fees for Relief Measures:

  • Fees typically charged for relief measures are slated to be waived. However, the effectiveness of this voluntary measure remains to be seen.

Easier Switching for Insured Mortgage Holders:

  • Insured mortgage holders won’t need to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal. This measure has been in place since 2017 and was already extended by OFSI earlier in the year.

Advanced Notice for Mortgage Renewal:

  • Homeowners will receive early notification, four to six months in advance, of their mortgage renewal to explore options. This practice aligns with current lender behaviours, where banks often offer promotional rates for early renewal.

Flexibility with Lump Sum Payments and Sale Options:

  • Homeowners at risk will have options for making lump sum payments above their prepayment privilege or selling their principal residence without prepayment penalties. These lump sum pre-payment provision are already in most borrowers mortgage contracts.  As for the waiving of penalties when selling due to financial distress the practical application and eligibility criteria of this measure need clarification.

The Charter's Voluntary Nature and Its Implications

The mortgage charter is voluntary and does not carry the force of law. This raises questions about the banks' commitment to following these guidelines without a clear enforcement mechanism. While the government expresses optimism about banks working collaboratively, the real estate industry may remain cautious.





Inflation

Recent economic indicators, particularly the October inflation data, suggest significant shifts that could impact the mortgage landscape. Let's delve into these changes and what they mean for the real estate sector.

Bank of Canada's Rate-Hike Cycle: A Potential End in Sight

  • The October inflation data, which came in weaker than expected, indicates growing market confidence that the Bank of Canada's (BoC) rate-hike cycle might be winding down. This shift is critical for realtors and clients alike, as it directly influences mortgage rates and borrowing costs.

Statistics Canada's Report and Market Reaction

  • Statistics Canada's recent report showed that headline CPI inflation has dropped to an annualized rate of 3.1%, hovering just above the BoC’s neutral target range of 2% to 3%. This decrease from September's 3.8% is noteworthy. Additionally, core inflation measures, which exclude volatile items like food and energy, have also shown a downward trend. For instance, CPI-trim eased to 3.5% year-over-year, and CPI-median slowed to 3.6%.

  • Bond markets have been quick to react to this data, now pricing in a 76% chance of a rate cut by March 2023. Furthermore, the odds for two quarter-point cuts by June have risen to 78%, and there's a 54% chance that the BoC will implement three cuts by September, potentially lowering the overnight target rate to 4.25%.

Inflation Report: A Mixed Bag

  • However, it's not all good news. The inflation report also highlighted areas of concern. Service prices remain high, and shelter prices continue to rise, with a year-over-year increase of 6.1%. A significant surge in rent prices and mortgage interest costs has been noted, with October seeing the largest monthly rent increase since 1983. The impact of these increases, coupled with the notable rise in annual property tax changes captured in October, will continue to affect the inflation rate.

Fixed Rates and Current Trends

  • In the past week, fixed mortgage rates have remained relatively stable, even as bond yields have started to inch upwards again. This stability, amidst fluctuating economic indicators, is something to watch closely.

Conclusion: What This Means for Realtors

For realtors, these developments are crucial. A potential easing of interest rates could invigorate the market, affecting everything from home prices to buyer enthusiasm. However, the rising costs in certain areas, like housing and services, present challenges that need to be navigated carefully.

Stay tuned for more updates as we continue to monitor these trends and their implications for the real estate industry.



Sam de la FosseComment