27 Jan

Bank of Canada Holds Steady Despite Economic Slowdown

General

Posted by: Moreen Perimal

In a more dovish statement, the Bank of Canada maintained its target for the overnight rate at 1.75% for the tenth consecutive time.  Today’s decision was widely expected as members of the Governing Council have signalled that the Bank still believes that the Canadian economy is resilient, despite the marked slowdown in growth in the fourth quarter of last year that has spilled into the early part of this year.  The economy has underperformed the forecast in the October Monetary Policy Report (MPR).

In today’s MPR, the Bank estimates a growth of only 0.3% in Q4 of 2019 and 1.3%in the first quarter of 2020.  Exports fell late last year, and business investment appears to have weakened after a strong Q3, reflecting a decline in business confidence.  Job creation has slowed, and indicators of consumer confidence and spending have been much softer than expected.  The one bright light has been residential investment, which was robust through most of 2019, moderating to a still-solid pace in the fourth quarter only because of a dearth of newly listed properties for sale.

The central bank’s press release stated that “Some of the slowdowns in growth in late 2019 were related to temporary factors that include strikes, poor weather, and inventory adjustments.  The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted.  Moreover, during the past year, Canadians have been saving a larger share of their incomes, which could signal increased consumer caution which could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.”

The January MPR states that over the projection horizon (2020 and 2021), “business investment and exports are anticipated to improve as oil transportation capacity expands, and the impact of trade policy headwinds on global growth diminishes.  Household spending is projected to strengthen, driven by solid growth of both the population and household disposable income.”  Growth is expected to be 1.6% in 2019 and 2020 and is anticipated to strengthen to 2.0% in 2021.

Inflation has remained at roughly the Bank’s target of 2% and is expected to continue at that pace.

Also from the MPR: “The level of housing activity remains solid across most of Canada, although recent indicators suggest that residential investment growth has slowed from its previously strong pace.  Demand remains robust in Quebec, where the labour market has been strong.  In Ontario and British Columbia, population growth is boosting housing demand.  In contrast, Alberta’s housing market continues to adjust to challenges in the oil and gas sector.  Nationally, house prices have continued to increase and should strengthen slightly in the near term, consistent with the responses to the Bank’s recent Canadian Survey of Consumer Expectations.”

Bottom Line: The Canadian dollar sold off on the release of this statement and I believe there is a downside risk to the Bank of Canada forecast.  Today’s release is a more dovish statement than last month, showing less confidence in the outlook.  The Governing Council did express concern that the recent weakness in growth could be more persistent than their current forecast, saying that “the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.”  They also raised estimates of slack in the economy and dropped language about the current rate is appropriate.

According to Bloomberg News, today’s Governing Council comments “are a departure from recent communications in which officials sought to accentuate the positives of an economy that had been running near capacity and was deemed resilient in the face of global uncertainty.  While Wednesday’s decision still leaves the Bank of Canada with the highest policy rate among major advanced economies, markets may interpret the statement as an attempt to, at the very least, open the door for a future move.”

18 Jan

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME

General

Posted by: Moreen Perimal

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).

Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from, including your: savings, Tax-Free Savings Account (TFSA) or investment money.

  • Regularly deposit all your cash in the bank, don’t squirrel your money away at home.  Lenders don’t like to hear that you’ve just collected $10,000 cash that has been sitting under your mattress.  Your bank statements will need to show your name and your account number clearly.
  • Any large deposits outside of “normal” will need to be explained (i.e. tax return, a bonus from work, sale of a large ticket item).  If you have transferred money from one account to another, you will need to show a record of the money, leaving one account and arriving in the other.  Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift, and no repayment is required.

  • Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
  • Be prepared to show the gifted funds have been deposited in your account 15 days before closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and history of the $30,000 landing in your account.  Bank documents will need to show the account number and names for the giver and receiver of the funds.  Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home.  The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
  • If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
  • You must repay all withdrawals to your RRSP’s 15 years.  Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew.  If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
  • Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements, which need to include your name and account number.  Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your current home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

  • If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

  • Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
    Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much more comfortable.

Mortgages are complicated, but they don’t have to be. Contact me for more information!