Real Estate Blog

More than half of Canadian borrowers anticipate their monthly mortgage payment to increase upon renewal in 2025

More than a million Canadian mortgages will come up for renewal this year. Though interest rates have been on the decline for the last several months, many borrowers are bracing for an increase to their monthly payment – an adjustment that could be quite steep for some households.

According to a recent Royal LePage survey, conducted by Hill & Knowlton,1 more than half (57%) of Canadians who are renewing the mortgage on their primary residence in 2025 expect their monthly mortgage payment to increase upon renewal (35% expect it to increase slightly and 22% expect it to increase significantly). Meanwhile, 25% say their monthly mortgage payment will remain about the same – within $100 of their current payment amount – and another 15% expect their monthly payment to decrease upon renewal.

“When it comes to post-pandemic mortgage renewals, many Canadians have avoided the worst-case scenario of having to sell their homes due to the inability to cover the cost of their mortgage, thanks to solid employment trends and declining interest rates,” said Phil Soper, president and CEO, Royal LePage. “Nevertheless, some will face a substantial rise in their mortgage costs, putting added pressure on their household finances. Many in this situation are exploring options to lower their monthly fees, such as extending their amortization period; a tactic which has proven popular.”

Of those who expect their monthly mortgage payment to rise upon renewal, 81% say the increase will put financial strain on their household; 47% expect a slight strain, while 34% expect a significant strain.

Though many Canadians will see their monthly mortgage payment rise this year, most see no reason to make preemptive major lifestyle changes to cope with increased housing expenses. A majority (62%) of respondents say they will not change their living arrangements to avoid potentially higher monthly mortgage costs. Respondents in Quebec were the most likely to say they will not adjust their living arrangements (78%), while those in Alberta were the least likely to say so (53%). Nationally, however, 11% say they are considering relocating to a more affordable region; 10% say they are considering downsizing; and 10% say they are considering renting out a portion of their home to subsidize expenses. Respondents were able to select more than one answer.

Variable-rate mortgages rise in popularity

With interest rates on a downward trajectory, variable-rate mortgages are gaining in popularity. According to the survey, 66% of Canadians with a mortgage renewing this year say they plan to obtain a fixed-rate loan upon renewal (down from the 75% who currently hold fixed-rate mortgages), and 29% say they will choose a variable-rate loan (up from the 24% who currently hold variable-rate mortgages).

While most Canadians with pending renewals in 2025 plan to stick with the same type of mortgage product they currently have, a sizable shift toward variable-rate loans has emerged. Of those who currently have a fixed-rate mortgage renewing this year – the most popular mortgage product overall in Canada – 20% say they will switch to a variable-rate loan. Seventy-six per cent say they intend to renew with another fixed-rate loan. Meanwhile, 61% of current variable-rate mortgage holders intend to renew with another variable-rate loan, and 37% say they will switch to a fixed rate.

“Since last summer, the Bank of Canada has made several cuts to its overnight lending rate amounting to a decline of 200 basis points thus far, driving variable mortgage rates down in tandem. For homeowners looking to reduce their monthly payments or pay down their principal faster, variable-rate mortgages have become an increasingly attractive option in light of today’s declining rate environment and the likelihood of further cuts this year,” added Soper. “Ultimately, Canadians should choose the mortgage product that best suits their financial goals and risk tolerance.”

A home inspection is a crucial step in any real estate transaction, providing buyers and sellers with a comprehensive understanding of a property’s condition. With evolving market conditions in 2025, ensuring a smooth inspection process is more important than ever. Whether you're purchasing your first home or selling an existing property, proper preparation can make all the difference.

 Why Home Inspections Matter In 2025

The Canadian real estate market remains competitive, with high demand in certain regions and evolving housing regulations. A home inspection not only ensures transparency in transactions but also helps buyers and sellers navigate potential financing requirements and avoid unexpected expenses.

For Buyers:

• Identifies structural, electrical, plumbing, and HVAC issues before finalizing a purchase.

• Can be a negotiation tool for price adjustments or repair requests.

• Some lenders may require an inspection before approving financing.

For Sellers:

• Helps identify potential deal-breakers before listing, allowing for proactive repairs.

• Builds trust with potential buyers, increasing the likelihood of a smooth transaction.

• Can support a more competitive asking price if no major issues are found.

Key Inspection Areas To Watch In 2025

With changing building codes, climate-related risks, and new home efficiency standards, inspectors are paying close attention to:

1. Energy Efficiency & Insulation – Many buyers prioritize energy-efficient homes due to rising utility costs and government incentives.

2. Structural Integrity – With extreme weather events increasing, inspectors are focused on foundation strength, roofing, and exterior materials.

3. HVAC & Plumbing Systems – Aging systems may require costly upgrades, making it crucial to assess functionality and potential repair needs.

4. Smart Home Features – More homes include smart security systems and automated utilities, which must be evaluated for proper function and compatibility.

How Buyers Can Prepare For A Home Inspection

• Attend the Inspection: Being present allows you to ask questions and better understand the home’s condition.

• Review Past Renovations: Ensure that any modifications meet building codes and are properly documented.

• Budget for Repairs: Even move-in-ready homes may require minor fixes, so plan accordingly.

How Sellers Can Prepare For A Home Inspection

• Address Minor Repairs in Advance: Fix leaky faucets, replace worn-out seals, and ensure smoke detectors are functional.

• Provide Access to Key Areas: Ensure inspectors can easily access the attic, basement, electrical panel, and HVAC systems.

• Offer Documentation: Have receipts and permits for recent renovations or repairs to demonstrate compliance.

The Role Of Mortgage Brokers In The Process

A home inspection can impact financing options, especially if major issues are uncovered. Mortgage Brokers Ottawa can assist buyers by:

• Helping navigate lender requirements if the home inspection reveals necessary repairs.

• Providing financing solutions if additional funds are needed for home improvements.

• Offering guidance on whether to renegotiate price or explore other mortgage products. 

Whether you’re buying or selling, preparing for a home inspection in 2025 is essential for a successful real estate transaction. Understanding key inspection areas and working with experts, including mortgage brokers, can help you navigate the process with confidence. Contact Mortgage Brokers Ottawa to ensure your financing aligns with your homeownership goals.

In its first announcement of 2025, Canada’s central bank lowered the overnight rate by 25 basis points

On January 29th, its first scheduled announcement of 2025, the Bank of Canada announced that it had lowered the target for the overnight lending rate by 25 basis points to 3.0%. This marks the sixth consecutive cut to rates since June 2024.

In December, Canada’s Consumer Price Index (CPI) rose 1.8% on a year-over-year basis, down from a 1.9% increase in November, once again hitting under the Bank’s 2% inflation target. In its announcement, the central bank stated that lower interest rates are helping to increase household spending, and as a result, the economy is expected to strengthen gradually and inflation to stay close to target. However, trade conflict from south of the border threatens to cause economic turmoil.

“A long-lasting and broad-based trade conflict would badly hurt economic activity in Canada. At the same time, the higher cost of imported goods will put direct upward pressure on inflation. The magnitude and timing of the impacts on output and inflation will depend importantly on how businesses and households in the United States and Canada adjust to higher import prices,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement. “Unfortunately, tariffs mean economies simply work less efficiently — we produce and earn less than without tariffs. Monetary policy cannot offset this. What we can do is help the economy adjust. With inflation back around the 2% target, we are better positioned to be a source of economic stability.”

Tariff conflict throws rate trajectory into question

Though lower borrowing costs will be welcome news for homebuyers in the immediate future, the course of interest rates and the broader economy remains uncertain in the face of looming tariff threats by the United States. With the spring housing market expected to get underway in a matter of weeks, trade conflict will be on the minds of many Canadian consumers.

“The Bank of Canada has dropped interest rates yet again, a decision that will further increase borrowing capacity for homebuyers and benefit mortgage holders whose loans are coming up for renewal. This latest decrease arrives just before the spring housing market – when demand typically picks up – which should spur buying and selling activity in the weeks ahead,” said Phil Soper, president and CEO of Royal LePage. “However, the looming promise of hefty tariffs by the United States government is a source of uncertainty for the central bank and consumers alike. Not only is there debate on just how severe the tariffs might be, but how Canada will respond.

“We believe the Bank of Canada’s focus will be a decided shift from an inflation battle to avoiding an economic downturn. A recession resulting from a tariff tit-for-tat could prompt additional cuts in the short-term to stimulate the economy. Though Canada’s housing market would be insulated for the most part from trade turmoil, economic challenges could eventually cause activity to slow.”

Two supersized rate cuts in the fall of 2024 helped to spur buying and selling activity in Canada’s housing market during the final months of the year. According to the most recent Royal LePage House Price Survey, the aggregate1 price of a home in Canada increased 3.8% year over year to $819,600 in the fourth quarter of 2024. On a quarter-over-quarter basis, the national aggregate home price remained essentially flat, rising a modest 0.5%. While activity began to flourish again in the final months of 2024, following sluggish demand in most major markets over the summer, home price appreciation remained in check last quarter. Royal LePage is predicting home prices to appreciate across the country over the coming year, as lower borrowing costs bring buyers off the sidelines.

The Bank of Canada will make its next interest rate announcement on Wednesday, March 12th.

Sinck Tuck | Nunavut

In Nunavut and other Canadian Northern areas, native Inuits celebrate Sinck Tuck. This is a celebration of the winter solstice, and involves meals composed of caribou, raw fish, seal, dancing, and gift exchanges.

Réveillon, Midnight Meal | Quebec

Réveillon is a major feast celebrated in Quebec. This meal begins on Christmas eve and lasts until the morning of Christmas, and commonly consists of pig’s feet stew (Ragoût aux pattes de cochons), and meat pie (Tourtiere).

Chicken Bones | New Brunswick

In New Brunswick, Chicken Bones are a holiday treat! Chicken Bones are a holiday spicy cinnamon candy treat, filled with chocolate. These candies are bright pink, and have been a traditional treat since 1885. The town of Niagara Falls is famous for its extravagant Christmas lights display, which has been running since 1983. It turns the city into a glowing winter wonderland!

Masked Mummers | Newfoundland

In Newfoundland, masked mummers can be seen roaming the streets during the holiday season. These individuals make lots of noise and visit various homes asking for treats. If the person who answers the door can guess who is behind the mask, the masked individual must take off their mask and stop their annoying ways.

Boxing Day | Canada

Boxing Day is a public holiday in Canada, celebrated on December 26th. Boxing Day is primarily known as a shopping holiday, similar to Black Friday in the United States. Many retailers offer significant discounts and promotions, and it has become one of the busiest shopping days of the year. Bargain-hunters often line up outside stores early in the morning to take advantage of the post-Christmas sales.

Eggnog is perhaps an acquired taste for some, but it’s a popular holiday drink in Canada.
According to Statistics Canada, almost six million litres of eggnog are consumed in December.

Rudolph was almost named Rollo or Reginald and his crew also had lots of other names.
They've previously been called Flossie, Glossie, Racer, Pacer, Scratcher, Feckless, Ready, Steady and Fireball.

The town of Niagara Falls is famous for its extravagant Christmas lights display, which has been running since 1983. It turns the city into a glowing winter wonderland!

If you were born in Canada after 1964, you have probably watched the “animagic” holiday special, Rudolph the Red-Nosed Reindeer.
Rankin-Bass, an American production company, created this beloved Christmas program, but did you know that there’s a secret Canadian connection? All the characters’ voices (with the exception of Sam the Snowman) were performed by Canadian actors, singers and voiceover artists at the RCA Victor Studios in Toronto.

In some parts of Canada, it’s Christmas 365 days a year.
• Reindeer Station, Northwest Territories
• Christmas Island, Nova Scotia
• Sled Lake, Saskatchewan
• Holly, Ontario
• Noel, Nova Scotia
• Turkey Point, Ontario
• Snowflake, Manitoba

The first Christmas tree in North America was placed in Sorel, Québec in 1781.
It was decorated with fruits and lit with white candles.

While A Christmas Story appears to be an all-American, a substantial part of the movie was filmed in Canada.
Ralphie’s school, the Chinese restaurant where his family eats Christmas dinner, the famous swearing scene as well as the interior segments were all shot in Canada. And where else would you find the old TTC “red rocket” streetcars?

As mortgage interest rates fluctuate throughout 2024, many homeowners are contemplating whether breaking their mortgage early is worth the penalty. The idea of locking in a lower rate and reducing monthly payments can be tempting, but the cost of breaking a fixed-rate mortgage can be substantial. Here's a breakdown of when it makes financial sense to break your mortgage early, and when it might be better to stick with your current terms.

Why Break Your Mortgage Early?

There are a few key reasons why homeowners consider breaking their mortgage before the term ends:

1. Securing a Lower Interest Rate

One of the main motivations for breaking a mortgage is the potential to secure a lower interest rate, which could significantly reduce monthly payments. If rates have dropped since you locked into a fixed-rate mortgage, you might be able to refinance at a lower rate, saving thousands of dollars over the term of the loan.

2. Accessing Home Equity

As home values rise across Canada, some homeowners may want to access their home equity to pay off debts, renovate, or invest. Refinancing by breaking your mortgage can allow you to borrow against your home's increased value, often at a lower rate than other types of loans.

3. Life Changes

Major life events like moving, divorce, or financial changes may necessitate breaking your mortgage early. If you're moving to a new home and can't transfer your mortgage, or if your financial situation has changed, you may need to rework your mortgage to suit your new circumstances.

Understanding the Penalties

Breaking a mortgage typically comes with penalties, which can be calculated in one of two ways, depending on your lender:

1. Interest Rate Differential (IRD)

The IRD penalty is most common for fixed-rate mortgages. It is based on the difference between your current interest rate and the lender's current rates for a similar mortgage term, multiplied by the remaining balance and the length of the term. This penalty can be particularly high if rates have dropped significantly since you locked in.

2. Three Months' Interest

For some fixed and variable-rate mortgages, the penalty is calculated as three months' interest on your remaining balance. This method generally results in a lower penalty compared to the IRD, making it more attractive to break variable-rate mortgages.

Is It Worth the Cost?

To determine whether breaking your mortgage early makes sense, you'll need to calculate the potential savings versus the cost of the penalty. Here's how to approach it:

1. Calculate the Penalty

Start by asking your lender for an estimate of your mortgage- breaking penalty. Be sure to ask whether the penalty will be calculated using the IRD or the three months' interest method, as this can significantly affect the total cost.

2. Estimate Your Savings

Once you know the penalty, calculate how much you would save by refinancing at a lower interest rate. Use a mortgage calculator to compare your current rate to the new rate and see how much your monthly payments would decrease. Multiply the monthly savings by the number of months remaining in your term to estimate your total savings.

3. Compare the Costs and Benefits

Subtract the penalty cost from your estimated savings. If the savings are greater than the penalty, breaking your mortgage could be a smart financial move. However, if the penalty outweighs the savings, it's likely better to wait until the end of your term to refinance.

Scenarios Where It Makes Sense

1. Interest Rates Have Dropped Significantly

If you locked into a fixed-rate mortgage when rates were high and rates have since dropped considerably, the long-term savings from securing a lower rate may outweigh the penalty. For example, a homeowner with a 5-year fixed rate at 5.5% might benefit from breaking their mortgage early if they can secure a new rate of 4.2%.

2. You Have Significant Home Equity

If your home's value has increased substantially, refinancing to access that equity might make sense, especially if you can lock in a lower rate on a larger mortgage. This can be particularly beneficial if you plan to use the equity to consolidate high-interest debt or make value-adding renovations.

Scenarios Where It's Not Worth It

1. Minor Rate Changes

If the drop in interest rates is only marginal (for example, 0.5% or less), the savings might not justify the cost of the penalty. In such cases, it's often better to wait until your mortgage term ends to refinance without penalties.

2. High IRD Penalties

If your mortgage lender calculates the penalty using the IRD method, the cost of breaking your mortgage can be prohibitively high. In such cases, even a significant drop in interest rates might not make it worth paying the penalty.

Conclusion

Breaking your mortgage early can be a strategic move in 2024, especially if interest rates continue to drop or if you need to access home equity. However, the decision ultimately depends on the penalty you'll face and the potential savings. Carefully calculate the costs and benefits, and consult with a mortgage broker to explore your options. In many cases, it's worth waiting until your term ends to avoid penalties, but if the savings are substantial, breaking your mortgage could be a smart financial decision.

In an effort to make homeownership more accessible, the federal government of Canada recently introduced significant changes to mortgage regulations that will take effect in December 2024. These new rules are designed to give buyers, particularly first-time homebuyers, a better chance at entering the housing market despite current high interest rates and soaring home prices. Here’s what you need to know about the 2024 mortgage rule changes and how they will affect your buying power.

Key Changes to the Mortgage Rules

The most important changes coming this December revolve around longer amortizations for insured mortgages and a higher cap on insured mortgage amounts. These reforms are expected to provide relief to many Canadians looking to purchase a home in today's challenging housing market.

1. 30-Year Amortizations for Insured Mortgages
   Previously, most insured mortgages in Canada were limited to 25-year amortizations. Starting in December 2024, first-time homebuyers and buyers of new builds will have the option to extend their amortizations to 30 years. This change will allow borrowers to stretch out their mortgage payments over a longer period, reducing monthly payments and improving affordability, especially in high-priced markets.

For example, extending a mortgage amortization from 25 years to 30 years could reduce monthly payments by up to 10%. This longer amortization is essentially similar to a 0.90% cut in mortgage rates, giving buyers a substantial financial advantage​. 

2. Increased Mortgage Insurance Cap
   The second major change is the increase in the mortgage insurance cap. Currently, the cap sits at $1 million, meaning buyers purchasing homes above this amount are not eligible for high loan-to-value mortgage insurance. As of December 2024, this cap will rise to $1.5 million. This is particularly important for homebuyers in expensive markets like Toronto, Vancouver, and other major cities where the average home price often exceeds the $1 million mark​.

The new rules will allow buyers to purchase homes up to $1.5 million with just a $125,000 down payment, compared to the $300,000 required for uninsured borrowers. This significantly lowers the barrier for many first-time buyers, making it easier to secure financing for higher-priced homes​.

Who Benefits the Most?

These changes are designed with specific buyers in mind. First-time homebuyers, buyers of new builds, and those looking for higher-priced homes will benefit most from the new rules. Here's why:

• First-Time Homebuyers: Extending the amortization period from 25 to 30 years lowers monthly payments, giving first-time buyers more flexibility and the ability to afford homes they may not have been able to under the previous rules. Lower monthly payments also make it easier for buyers to manage other financial obligations such as student loans or credit card debt.

• Buyers in Expensive Markets: With the mortgage insurance cap rising from $1 million to $1.5 million, buyers in high-cost regions like Vancouver or Toronto now have access to homes previously out of reach. The reduced down payment requirements mean they can secure financing without needing to save an enormous upfront amount​.

• New Home Buyers: If you’re purchasing a newly built home, you can also benefit from the extended amortization periods, provided the loan-to-value ratio is 80% or higher. Newly constructed homes or condos with interim occupancy periods will still qualify, making it easier for buyers to navigate today's unpredictable market.

How These Changes Affect Your Buying Power

By lowering monthly payments through longer amortizations and reducing down payment requirements for homes between $1 million and $1.5 million, the new rules effectively increase your purchasing power. With lower payments, buyers can afford more home for the same monthly budget. This is especially important as housing affordability remains a critical issue in many Canadian cities.

While these changes will help boost housing demand, some experts have noted that increasing purchasing power could also drive prices higher in the long term, as more buyers are able to enter the market​. Therefore, it's crucial to carefully consider how these changes fit within your overall financial plan and long-term goals.

How to Prepare for the Changes

If you’re planning to buy a home in the near future, it’s a good idea to start preparing now:

1. Evaluate Your Budget: With the potential for lower monthly payments, you may be able to afford a more expensive home. However, it’s essential to ensure you’re still within a comfortable budget, especially if interest rates rise in the future.

2. Save for a Down Payment: If you're eyeing a home priced above $1 million, the changes to the insured mortgage cap will reduce the amount you need for a down payment. Be ready to take advantage of this by saving as much as possible.

3. Talk to a Mortgage Broker: With these new rules in play, it’s more important than ever to work with a mortgage broker who can guide you through the process and help you find the best mortgage product for your needs.

Conclusion

The upcoming mortgage rule changes in 2024 represent a significant shift in how Canadians can approach home buying. By extending amortization periods and raising the mortgage insurance cap, these changes will make homeownership more attainable for many buyers, especially in high-cost markets. As the Canadian housing market evolves, these reforms could be key in making your dream of homeownership a reality. Stay informed and consult with professionals to make the most of these new opportunities.

Yet another change is in the pipeline for Canadian mortgage holders in 2024.

The Office of the Superintendent of Financial Institutions (OSFI) revealed last week to The Globe and Mail that it will eliminate the mortgage stress test for uninsured borrowers who plan to switch lenders upon renewing their loan. The borrower, however, must keep the same amortization schedule and current loan amount.

In practice, removing the test for renewing borrowers would encourage banks to offer more competitive rates to retain current customers, and make it easier for those with uninsured mortgages to change lenders. The new rules would take effect on November 21st, 2024.

“There are two primary reasons for this change. First, we are listening to what we have heard from industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal,” said an OSFI spokesperson via email to the Toronto Star. “Second, when we look at the data over time, we have observed that the prudential risks that this was intended to address have not significantly materialized. As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”

What are the current stress test rules, and how are they changing?

When a homebuyer takes out a mortgage loan with a federally regulated financial institution, they must pass the stress test to prove that they can cope with higher monthly payments in the event that interest rates were to rise or their income were to be reduced.

Under current rules, the minimum qualifying rate for uninsured mortgages is the mortgage contract rate plus 2%, or 5.25%, whichever is greater. Mortgage insurance is not required on loans with a down payment of 20% or more.

When an uninsured mortgage term comes up for renewal, under current rules, the borrower would be required to pass the stress test again if they intended to trade their current lender for a new one. In cases of a “straight switch,” where the borrower’s amortization schedule and loan amount stays the same, passing the stress test is still required. When OSFI’s updated policy takes effect on November 21st, uninsured borrowers will forgo any additional stress testing when their mortgage comes up for renewal if they plan to make a straight switch.

Those with insured mortgages – mandatory with a down payment of less than 20% – are not subject to the stress test if they are making a straight switch, as their mortgage insurance already protects the new lender from potential missed payments.

This latest change to mortgage financing rules quickly follows the federal government’s recent announcement to expand eligibility for 30-year amortizations on insured mortgages to all first-time homebuyers, and increase the mortgage insurance cap to $1.5 million, which will take effect on December 15th.

Buying a home is a significant financial commitment, and while the mortgage is often the largest expense, it's far from the only one. To ensure you're fully prepared for homeownership, it's essential to understand the various costs beyond your mortgage that you'll need to budget for. This article breaks down these additional expenses to help you plan effectively and avoid any financial surprises.

 1. Property Taxes

Property taxes are a recurring cost that homeowners must pay annually. These taxes are levied by local governments and fund services such as schools, road maintenance, and emergency services. The amount you owe is based on the assessed value of your property and the local tax rate.

• Tip: Check with your local municipality for an estimate of property taxes for homes in your area. Be sure to include this amount in your monthly budget.

 2. Home Insurance

Home insurance protects your property and belongings from risks such as fire, theft, and natural disasters. It also provides liability coverage in case someone is injured on your property. The cost of home insurance varies based on factors such as the size of your home, its location, and the coverage level you choose.

• Tip: Shop around for home insurance quotes and consider bundling your home and auto insurance for potential savings. Review your policy regularly to ensure it meets your needs.

 3. Utilities

Utilities are essential services that keep your home running smoothly. These typically include:

• Electricity: The cost of powering your home’s lighting, appliances, and electronics.

• Natural Gas or Heating Oil: Used for heating your home and, in some cases, for cooking.

• Water and Sewer: Charges for water usage and sewage services.

• Internet and Cable: Costs for internet access and television services.

• Tip: Estimate your utility costs based on your home size and usage patterns. Track your expenses over a few months to get a more accurate picture.

 4. Maintenance and Repairs

Homeownership comes with ongoing maintenance and repair responsibilities. Regular maintenance helps prevent costly repairs and keeps your home in good condition. Common maintenance tasks include:

• Cleaning Gutters: Preventing water damage and roof leaks.

• Landscaping: Maintaining your yard and garden.

• Seasonal Maintenance: Preparing your home for different seasons (e.g., winterizing pipes).

Additionally, unexpected repairs may arise, such as fixing a leaky roof or replacing a broken appliance.

• Tip: Set aside a maintenance fund, typically 1-3% of your home’s value annually, to cover both routine and unexpected repairs.

 5. Homeowners Association (HOA) Fees

If you live in a community with a homeowners association (HOA), you’ll likely be required to pay HOA fees. These fees fund the upkeep of common areas and community amenities, such as pools, parks, and clubhouses. HOA fees can vary significantly depending on the community and its services.

• Tip: Review HOA fee structures and understand what’s included before purchasing a home in an HOA-managed community. Factor these fees into your overall budget.

 6. Closing Costs

When buying a home, you’ll encounter closing costs, which are one-time expenses incurred during the home purchase process. These can include:

• Legal Fees: Costs for hiring a real estate lawyer or notary.

• Land Transfer Taxes: Taxes based on the purchase price of the home.

• Home Inspection Fees: Fees for inspecting the home’s condition before purchase.

• Appraisal Fees: Costs for appraising the home’s value.

• Tip: Closing costs typically range from 1.5% to 4% of the home’s purchase price. Be sure to budget for these expenses and review the breakdown with your real estate agent.

 7. Moving Costs

Moving to a new home involves various expenses, including hiring professional movers, renting moving trucks, and packing supplies. The cost of moving can vary based on the distance and the amount of belongings you need to transport.

• Tip: Get quotes from several moving companies and plan your move during off-peak times to potentially save money. Consider DIY options for a more budget-friendly approach.

 8. Property Upgrades and Renovations

Many homeowners invest in property upgrades and renovations to improve their home’s functionality and value. These can range from minor updates, like painting and landscaping, to major renovations, such as kitchen remodels or adding a new bathroom.

• Tip: Prioritize upgrades based on your needs and budget. Obtain quotes from contractors and set aside funds for future projects to avoid financial strain.

Conclusion

Understanding and budgeting for the costs beyond your mortgage is crucial for successful homeownership. By accounting for property taxes, insurance, utilities, maintenance, HOA fees, closing costs, moving expenses, and potential upgrades, you can create a comprehensive budget that prepares you for the financial responsibilities of owning a home. Being proactive and informed will help you manage these costs effectively and enjoy your home with peace of mind.

Canada’s central bank has made a third cut to its overnight lending rate this year, lowering borrowing costs for existing and aspiring homebuyers yet again.

In its scheduled September 2024 announcement, the Bank of Canada dropped the target for the overnight lending rate by 25 basis points to 4.25%.

In July, Canada’s Consumer Price Index rose 2.5% year-over-year, increasing at the slowest pace since March 2021. Continued easing of inflationary pressures were a contributing factor of the Bank’s decision to lower interest rates by another 25 basis points.

“Our decision reflects two main considerations. First, headline and core inflation have continued to ease as expected. Second, as inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target. Inflation continues to reflect the push and pull of opposing forces. Overall weakness in the economy continues to pull inflation down. But price pressures in shelter and some other services are holding inflation up,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement.

“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate. We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time,” he continued.

Three cuts down – more to go?

The third cut to the overnight lending rate comes at the start of the fall housing market, traditionally a time when buying and selling activity picks up across Canada. For those who have been sitting on the sidelines waiting for cheaper borrowing costs, another decrease to the overnight lending rate may be the extra sign of encouragement they’ve been waiting for.

According to a recent Royal LePage survey, conducted by Leger,1 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.

For today’s first-time homebuyers who face many financial obstacles on their path to home ownership, lower interest rates mean lower monthly mortgage payments and improved affordability. Another Royal LePage survey, conducted by Hill & Knowlton,2 revealed that three quarters (74%) of those in the next generation of homebuyers – Canadians belonging to the adult generation Z and young millennial cohort, born between 1986 and 2006 – say that owning a home is a priority for them and a milestone they hope to achieve in their lifetime. Buoyed by the prospect of lower borrowing costs, nearly one in five respondents (18%) who are planning to purchase a home say that their timeline to buy is within the next three years, and another 13% plan to buy in three to five years.

“The Bank of Canada continues its delicate balancing act, gradually easing the economic drag of high interest rates as the economy cools. With inflation now at its lowest point in three years, policy-makers are shifting their focus to jobs and housing,” said Phil Soper, president and CEO of Royal LePage. “For first-time homebuyers, the key question is whether to buy now or wait. Home values have largely plateaued this year, and improved affordability due to lower borrowing costs has benefited many. However, once the backlog of sidelined buyers is released into the market, pent-up demand will drive prices higher. This fall, we can expect more cautious Canadians to take the plunge, while those willing to take on the risk might hold out for further rate cuts.”

The Bank of Canada will make its next announcement on Wednesday, October 23rd.

Further interest rate cuts required to increase purchasing power and improve consumer confidence

According to the Royal LePage House Price Survey released today, the aggregate price of a home in Canada increased 1.9 per cent year over year to $824,300 in the second quarter of 2024. On a quarter-over-quarter basis, the national aggregate home price increased 1.5 per cent, despite a slowdown in activity in the country’s most expensive markets.

“Canada’s housing market is struggling to find a consistent rhythm, as the last three months clearly demonstrated,” said Phil Soper, president and CEO, Royal LePage. “Nationally, home prices rose while the number of properties bought and sold sagged; an unusual dynamic. The silver lining: inventory levels in many regions have climbed materially. This is the closest we’ve been to a balanced market in several years.

“This trend dominates activity in two of the country’s largest and most expensive markets, the greater regions of Toronto and Vancouver, where sales are down yet prices remain sticky,” Soper continued. “There are exceptions. In the prairie provinces and Quebec, low supply and tight competition persist.”

Despite the Bank of Canada’s move to cut the overnight lending rate by 25 basis points on June 5th, from 5.0 per cent to 4.75 per cent, buyers did not immediately rush back to the market as initially expected.

“This spring, with bank rate cuts highly anticipated, we saw some buyers race to get a deal done ahead of an expected spike in demand. Yet, when that first cut finally occurred in early June, market response was tepid,” said Soper.

“A change in monetary policy drives consumer behaviour in two important ways. Lower rates mean lower monthly payments, opening the door to some families previously shut out of the market. Secondly is the psychological signal broadcast to sidelined buyers that the tide is turning, and that market activity is about to pick up again,” added Soper. “Not surprisingly, the quarter-point cut to the bank rate didn’t substantially improve the affordability picture. As for consumer sentiment, our early year research indicated that only one in ten potential homebuyers would be motivated by a tiny rate drop. The tale the market tells as rate cuts get to the point of a material reduction in the cost of borrowing should be a very different one.”

According to a Royal LePage survey, conducted by Leger earlier this year, 51 per cent of sidelined homebuyers said they would resume their search if interest rates reversed. Ten per cent said a 25-basis-point drop would prompt them to jump back into the market, 18 per cent said they are waiting for a cut of 50 to 100 basis points, and 23 per cent said they need to see a cut of more than 100 basis points before they will consider resuming their search.

The Royal LePage National House Price Composite is compiled from proprietary property data nationally and regionally in 64 of the nation’s largest real estate markets. When broken out by housing type, the national median price of a single-family detached home increased 2.2 per cent year over year to $860,600, while the median price of a condominium increased 1.6 per cent year over year to $596,500. On a quarter-over-quarter basis, the median price of a single-family detached home increased 1.8 per cent, while the median price of a condominium increased 0.8 per cent. Price data, which includes both resale and new build, is provided by RPS Real Property Solutions, a leading Canadian real estate valuation company.

The national aggregate home price remains well above pre-pandemic levels. In the second quarter of 2024, the aggregate price of a home in Canada recorded an increase of 30.8 per cent over the same period in 2019.

“2024 marks the fifth year since the pandemic and post-pandemic rebound began to wreak havoc on real estate prices. Yes, values remain well above 2019 levels, yet a thirty per cent rise in home values spread over five years, or six per cent annually, is approaching long-term norms for Canadian residential property appreciation. The market has a way of correcting mistakes.”

Inflation and interest rates

For the last two years, the national housing market has seen home prices fluctuate between modest declines and increases – with some regional exceptions – as a result of the impacts of higher interest rates. As the Bank of Canada cautiously navigates the delicate balance between lowering the key lending rate and keeping inflation in check, some segments of Canada’s housing market have stalled.

“Canada’s housing market faces pent-up demand after two stifling years of high borrowing costs. While inflation control is crucial, persistently high rates are increasing the risk of a surge in demand when buyers inevitably return. New household formation and immigration keep fueling the need for housing, and a sudden release could create much market instability. This highlights the need for a more nuanced approach that balances inflation control with economic vitality,” added Soper.

“It is worth noting that once you remove the impact of high mortgage rates themselves from Canada’s Consumer Price Index calculation, inflation today sits well below the two per cent target.”

According to Statistics Canada’s latest report, Canada’s inflation rate rose to 2.9 per cent in May, up from 2.7 per cent in April. When shelter costs are removed, that figure dips to 1.5 per cent.

Increased borrowing costs slow new home construction

Elevated borrowing rates are not only dampening housing market activity but also stifling the construction of new homes. Builders, who rely heavily on lending, are finding it increasingly difficult to finance new projects, exacerbating the country’s shortage of housing at a time when our population continues to grow.

“Gradual interest rate reductions could unlock a housing supply logjam,” said Soper. “Lower rates would not only empower buyers but also incentivize builders, who rely on borrowing for development. This is crucial to meet the diverse needs of our growing population. We need affordable options for first-time buyers, growing families, and downsizing retirees. Incremental rate adjustments are key to achieving a balanced and inclusive housing market. Without a significant supply boost, prices will continue to rise, impacting both those who seek home ownership and the one-third of Canadians in rental markets.”

The Canada Mortgage and Housing Corporation (CMHC) reported a month-over-month increase in national housing starts in May, following two months of decline. In Vancouver, where competition for housing remains extremely tight, housing starts declined, while Toronto and Montreal posted a lift in starts. Still, the rate of new construction remains well below what is required to satisfy demand.

“Canada’s housing market faces complex challenges. While raising interest rates was crucial to fighting inflation, it has unintentionally choked off the essential flow of new housing supply. Higher borrowing costs, coupled with labour shortages in the construction trades and rising material prices, have made it economically unsustainable for developers to launch new projects. This creates a perfect storm – our population is growing steadily, yet we’re building far fewer homes than what’s needed to meet that demand. This situation urgently needs innovative solutions to ensure Canadians have access to affordable housing options,” concluded Soper.

Here's How to Prepare for Your Mortgage Renewal

More than half of Canadian mortgages will renew before the end of 2026, and with the Bank of Canada lowering its key interest rate from 5.0% to 4.75% on June 5th, many homeowners are now wondering which mortgage type they should opt for upon renewal — a fixed or variable rate. Understanding the options available and anticipating changes is essential to successfully navigating today's evolving mortgage landscape.

With a significant cohort of homeowners needing to renegotiate their mortgages within the next three years, those who opted for variable-rate mortgages -– or who took out a loan in 2021 at the trough of historically low rates — will be particularly affected by the planned adjustments. For those who will soon have to deal with the current higher-rate mortgage environment, below are some considerations to help you make an informed decision about an upcoming mortgage renewal.

Current Situation

While variable rates were historically lower during the height of the pandemic real estate boom, the trend has recently reversed, with variable rates now higher than fixed rates. The average five- year variable interest rate offered by mortgage lenders currently hovers around 6.7%, while most fixed rates are typically 5.6%.

A variable mortgage rate depends on a number of economic factors, such as the key overnight lending rate, which is set by the Bank of Canada. Although Canada's central bank recently cut its key rate for the first time in four years, the institution could change course if inflation levels increase in the months ahead. However, economists widely expect further cuts to the lending rate by the end of 2024. The trend is set to continue into 2025, unless economic conditions change significantly. Regardless of declining interest rates, the historically-low rates Canadians have been accustomed to over the last two decades are now a thing of the past.

What You Need to Know About Variable Rates

When it comes to variable-rate mortgages, when the prime rate rises – which is influenced by the Bank of Canada's overnight lending rate – mortgage payments automatically increase.

However, with variable loan structures with fixed-payment options, monthly payments remain unchanged, even in the event of a rate increase. Instead, this type of variable-rate mortgage adjusts the mortgage amortization period (the time it takes to repay the mortgage in full). This is due to the fact that a smaller proportion of each payment is allocated to repaying the mortgage principal.

Understanding Your Needs

The choice between a fixed- and variable-rate mortgage largely depends on the borrower's risk tolerance and personal situation. Since variable rates are subject to fluctuations, is your lifestyle conducive to these changes? Even if interest rates begin to fall, there are many economic factors influencing their direction, which can occur at various times during your mortgage term.

The right mortgage product for you depends on your short- and medium-term situation. If you're currently in a period of transition (career change, separation, etc.), you may want to opt for a fixed-rate that offers you some stability.

Strategic Options for Borrowers

Fixed-Rate Mortgage with a Shorter Term

Amidst economic uncertainty, more borrowers are opting for fixed-rate mortgages with shorter terms (one, two or three years). This way, in an environment where rates are quickly changing, borrowers can lock in predictable monthly payments without the need to stay with the same rate long term.

Hybrid-Rate Mortgage

This option combines customized features of both a variable and a fixed rate — part of the mortgage has a fixed interest rate and the other has a variable interest rate. This way, the borrower can benefit from the best of both worlds.

Convertible Mortgage

This type of loan offers the possibility of converting a variable interest rate loan into a fixed-rate mortgage, or vice versa, before maturity, thus allowing borrowers to adapt their mortgage financial strategy to market conditions.

Consult a Professional

At a time when real estate prices remain high due to sustained demand, choosing the right mortgage product is crucial. It is advisable to consult a mortgage broker to explore scenarios best suited to each individual situation. Anticipating interest rate fluctuations and adjusting your financial strategy accordingly can make a big difference in managing your long-term mortgage.