INTEREST RATES ON THE RISE?

There has been speculation that Canadian interest rates are not done rising yet – and some say they will keep rising until 2020.  This means borrowers will qualify for less when they’re looking to purchase, and current home owners can expect mortgage payments to climb at the time of their mortgage renewal, or if they are in a variable rate mortgage.

Why are rates increasing?
The strengthening Canadian economy strengthening, especially with the recent finalization of the North American Free Trade Agreement (NAFTA), is one of the reasons for higher interest rates for consumers.  Some economists hypothesize that the interest rate will rise not only during the October Bank of Canada (BoC) rate announcement, but it will also increase steadily over the course of 2019.

When are BoC announcements?
There are 8 BoC rate announcements a year where the Canadian Prime Rate can be increased or decreased based of the outlook for the Canadian economy.  The prime rate is the interest rate that commercial banks charge their most creditworthy clients, and it is determined by the federal funds overnight rate (ie. the interest rate that large banks use to borrow and lend against each other).  The next scheduled BoC rate announcement is on October 24, 2018 with strong expectations of an increase.

When was the last time the prime rate was higher than 5%?
Our current Prime Rate in Canada is 3.7%, with expectations from some economists that the Prime rate could be upwards of 6% by 2020.  This is a large increase for most Canadians – especially as we have not seen the Prime Rate above 5% since 2008!

What will this mean for home owners?
To put it simply, anyone with a fixed rate mortgage will not be immediately affected as their payment will stay the same until the end of their mortgage term, when they come up for renewal.  Variable rate clients will feel the brunt of the increases, as when the BoC Prime Rate increases so do their mortgage payments.  With this in mind, it brings the question: is a fixed or variable rate the better choice for the next couple of years?

LEGALIZATION AND LANDLORDS

With cannabis legalization in Canada coming into effect on October 17, 2018, many landlords are wondering about their rights as landlords and how the legalization will affect their rental property investments. New rules allow cannabis to be used recreationally as well as for Canadians to grow up to 4 plants in their homes. Rightfully so, some landlords are panicked that this is a slippery slope that can make their investments riskier.

Although there is the Cannabis Act nationally, each province also has a say in possession limits, minimum age, requirements on personal cultivation and where cannabis may be used in public spaces.

Currently, there some provinces are banning cannabis use in all public spaces, noting that it’s is only to be allowed in private residences or a unit’s balcony or patio, if applicable. Of course, with these rules, landlords would be worried about tenants smoking within the homes. In BC, the Residential Tenancy Act mentions if the tenant has already agreed to no smoking of any combustible material (this would be applicable in multiple provincial tenancy agreements), this would then still apply in the case of cannabis. In Ontario, landlords cannot change the terms of the lease to include such a clause on no smoking until the lease has run out.

With the introduction of these new regulations surrounding cannabis, stratified properties can put bylaws in place for units and common areas to restrict activities such as smoking in common areas or within the building itself. Unfortunately, if you have a detached home you will be at the mercy of the tenancy agreement.

Why is growing cannabis so bad for buildings?

The process of growing cannabis, as for most plants, requires water and proper lighting. Grow ops typically have excess moisture, improper electrical setup for lighting and inadequate ventilation – a combination that can lead to serious home issues such as mold from excess moisture, pesticide and fertilizer contamination, or even electrical fires.

With any grow op comes the retraction of any home insurance on the property, due to the health and deteriorating property conditions it can create. Not only is home insurance an issue with a grow op, even after you remediate a property there are very few mortgage providers who will lend on this type of property due to the health implications if a remediation is not completed properly. After a grow op, the home would need to be remediated by professionals experienced in grow op remediation. Remediations could include any of the following: renovation to remove walls and ceilings and determine all possible mold build up, sanding of home framing to remove any possible mold build up, duct cleaning, alteration to electrical wiring to correct (typically grow op homes will have altered wiring to bypass the electrical grid), and extensive environmental and air quality tests to ensure the home is free from biological and chemical hazards.

Why is smoking cannabis inside bad for buildings?

When you smoke indoors you are exhaling smoke, which can cake itself onto walls, furniture, carpets and even inside vents in the home. This is considered third-hand smoke, and it can linger and cause health effects over time if left exposed. Not only can it cause health problems, but again repairing such damage could require duct cleaning, carpet and furniture replacement and an overall deep clean of the home.

REVERSE MORTGAGES

With mortgage guidelines getting stricter over the past year, it has opened a wave of interest for different types of mortgages – including what’s known as a reverse mortgage. There have been negative connotations about reverse mortgages over the years, so let’s challenge the misconceptions and see if and how a reverse mortgage could benefit you.

What is a reverse mortgage?
Reverse mortgages work exactly as they sound. When you have a reverse mortgage, you are utilizing equity within your property to supplement your income. This can be done in a lump sum payment or through ongoing draws.

Benefits of a reverse mortgage?
For the majority of people, their net worth is tied up in equity. Freeing up some of this capital could allow you to live more freely. With a reverse mortgage, no payments are ever required throughout the life of the mortgage. This allows you to access up to 55% of your home equity and also stay in your home as long as possible. The reverse mortgage will only come due when you sell or no longer reside in the home, at which time the remaining equity would go to your estate.

How does a reverse mortgage not have any payments?
With a reverse mortgage, all accrued interest charges would be tacked onto your mortgage. This would only increase the mortgage to 55% of your home’s value in order to keep value in the home itself for when you sell, as well as to keep value in your home incase prices decrease. If home prices increase, this in turn can unlock more equity from your home.

What do you need to qualify?
To qualify for a reverse mortgage, you and your spouse (if applicable) will have to be over the age of 55 and on the home’s title. Otherwise the only other requirements are having equity in your home to utilize and that the property is your primary residence. If you have a current mortgage or secured Line of Credit (LOC), these would be rolled into the reverse mortgage.

If your pension doesn’t cover all the bills each month, and you have equity within your home, a reverse mortgage may be the right product for you.