Aging Population and Real Estate
Canada’s Aging Population and Real Estate, I’ve got good news and bad news. The bad news is: we’re not getting any younger. The good news is: we’re not going away anytime soon, either, as life expectancy for Canadians is higher than ever before! At least, I think that’s good news—check back with me in 2050 and let’s see how we all feel about it.
Globally, we’ve hit astoundingly high population numbers for people aged 65+, exceeding a threshold of 672 million people (about 8.9% of the total population) in 2019. That’s an increase of more than 500 million compared to 1960 when there were about 150 million people above 65+ globally (roughly 5% of the global population). Oh yes, that’s a whole lot of people.
In fact, it’s only going to get more crowded as the years go by, with the UN estimating that the number of older persons (above 60) is projected to reach 2.1 billion by 2050. And we think it’s crowded now!
This brings us to Canada’s aging population and Real Estate: according to Statistics Canada, “seniors are expected to comprise around 23% to 25% of the population by 2036, and around 24% to 28% in 2061”. With a shrinking working population supporting that ~25% segment, the precise economic implications are too varied to be certain of any firm outcome. What is certain is that the older members of our population will need a place to live, which will have a significant effect on Canada’s real estate landscape.
EFFECTS ON THE SUPPLY OF REAL ESTATE
Our aging population affects the supply of property in the real estate market in several interesting ways. The expectation was that baby boomers would find themselves living in large homes with more space than they needed once they’d retired and their children moved out. At that point, they were supposed to sell their property and downsize to smaller (or less expensive) homes. This influx of property into the market (projected to be half a million homes) would help meet rental or purchase demand, in some cases allowing developers to re-purpose the property into larger, higher density structures (especially in cities).
However, changes to the real estate market may significantly affect how that scenario plays out in reality.
- Small condos and detached or semi-detached townhouses used to be prime candidates for someone looking to downsize. Now, rising real estate prices (especially in cities like Toronto and Vancouver) can make this an incredibly difficult endeavor.
- Millennials (and soon Gen Zs) have begun to move back in with their parents, as they struggle to contend with exorbitant rent prices, lack of steady work, and extremely high property prices. It’s proven economical for them to live at home rent-free (or at least, with a much lower rent) and save their money to put towards buying homes of their own later.
With more reasons to remain in their current homes (such as their kids moving back in with them), as well as high property prices and a lack of suitable options to downsize to, older homeowners are increasingly choosing to hang on to their property. This, of course, delays the timeframe in which their (usually larger) homes will be released into the housing market, which in turn will further exacerbate property shortages.
EFFECTS ON THE DEMAND FOR REAL ESTATE for Canada’s Aging Population
Our aging population has implications for the demand side of the real estate market as well. Accessible property, for example, will increasingly grow in demand as people get older. Fierce competition in the housing market has made it difficult for older people to acquire suitable apartments or houses that cater to their needs (such as, ground floor units or accessibility-friendly rental housing).
Affordable, smaller housing with room for live-in or part-time caregivers, especially in close proximity to essential services and infrastructure (health services, public transit, malls/grocery stores, etc.) will become much more desirable as our population ages.
Some of this demand will likely be met by the government, as it works to fund the construction of homes for senior citizens through the Canada Mortgage and Housing Corporation (CMHC). This will prove vital in the years to come, as increasing numbers of modest to middle-income Canadians retire and start being priced out of the normal rental market. However, with Canada’s population projected to increase at a sharp rate until the middle of the century, we’ll need more than just government intervention to address the issue.
FINAL THOUGHTS
The effects of an aging population on Canada’s own future will be far-reaching, but impossible to predict definitively. That’s not to say we don’t have a good idea of what the likely outcomes are—we’ll need more housing, and we’ll need to be able to support older Canadians, to name two—but nothing about the upcoming decades is written in stone. The manner in which our government addresses social security issues, housing crises, and indeed, which government we even have in power will all play a role in securing stability or uncertainty.
Any speculation on the effects of projected population growth figures should be tempered with the understanding that they’re precisely that: projections. Not everyone agrees with the UN’s assessment of rampant increases, arguing that we might see a return to “normal” population levels towards the end of the century instead of endlessly spiraling into overpopulation. But whatever the outcome, it’s important that we’re paying attention.
Market Smarts: Buying Guide
Market Smarts: Buying Guide from (CMHC) is one of Canada’s three mortgage insurers. CMHC also offers consumer guidance in the form of a unique step-by-step guide for home buying Canada. CMHC has dubbed this guide the “roadmap” to home ownership.
The 27-page, Buying Guide is available on CMHC’s website via the imbedded link. This guide is a manual for homeownership, breaking down the phases potential buyers will need to consider when looking to get into the housing market.
What Homebuyers Should Know – Market Smarts: Home Buying Guide
This guide focuses on preparation being the key to homeownership success, and touches on many things for homeowners to keep in mind. A few good guidelines when considering purchasing a home, including debt management, necessary documents, pre-approval, and more!
Debt-to-Income Ratio
The market smarts: Buying Guide CMHC recommends that you get a pre-approval before you begin looking for a home. Getting pre-approved can prevent future roadblocks when you find your dream home, and ensures that subject-to-financing clauses won’t be an issue. It also guarantees the rate for up to 120 days, so that you can access the best mortgage once you’ve found the right home.
The underlying theme of the guide is to prevent Canadians from getting in over their heads. This guide also shows just how far mortgage brokers have come in Canada, with them mentioned alongside banks throughout. Our experienced brokers will gladly take you through the home buying process from a mortgage application side of the equation. With our team by your side, you’ll experience what over 250 google reviews have told us already. Prime mortgage works is your best mortgage broker option when it comes to arranging your mortgage financing. We work with self Employed, New to Canada, First Time Homebuyers and all walks when arranging the best mortgage rate.
Verifying Your Down Payment When Purchasing
Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home. Verifying the down payment when purchasing a home via supporting documentation is required by alllenders. Doing so also protects against fraud and confirms that you are not borrowing your down payment, which could changes debt servicing ratios and your overall mortgage approval.
DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT
There are STRICT Federal Government (AML) Anti-Money Laundering requirements and this also 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 cannot verify the $10,000 cash that has been sitting under your mattress. Your bank statements will must be clear to show your name and your account number.
Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once 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. The Gift Letter is a key piece in verifying your down payment when purchasing your home.
Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
We will need to show the gifted funds have been deposited in your account 15 days prior to 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 a record of the $30,000 landing in your account. We will provide the applicable Gift Letter template for your use at application time.
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. These funds can be used 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 currently 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. This will also count towards verifying your down payment when purchasing the next home.
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 fees & 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. The Property Transfer Tax (PTT) cannot be financed into the mortgage. Being prepared with the right documentation for your down payment and closing costs can make the process much easier. Courtesy of K.Hudson @DLC
2019 Mortgage Trends report
Here are some Mortgage Insights from CMHC’s latest national edition of the Mortgage and Consumer Credit Trends report covers the second quarter of 2019. Here are a few facts to consider from the 2019 Mortgage Trends report. Contact us at https://primemortgageworks.com/contact/ for more information.
- indebtedness is higher than one year ago, increasing the vulnerability of Canadians to financial difficulties
- the average outstanding balance of newly originated mortgages declined, reversing a trend of growth
- the new mortgages share of all loans moved higher into 2019. This mirrors the national trend in home sales, which fell in 2018, and has risen in 2019
- only HELOCs and mortgages showed considerable growth in monthly obligations on average
Mortgage holders tend to have a higher credit score the non-mortgage holders – Mortgage Insights
Across the board since the beginning of 2019 to the second quarter, credit scores for consumers with and without a mortgage are rising. The credit scores were reported highest for consumers with a mortgage. Over the last 4 years, the average credit scores for consumers without a mortgage have worsened slightly, indicating that these consumers are having a harder time paying off debt than those with a mortgage.
Loan balances rise in Montreal and Toronto due to house price growth in those CMAs
In the second quarter of 2019, the average outstanding loan balance for new mortgages rose in Montreal and Toronto as a reflection of average price growth. It declined in Vancouver compared to last year. Non-mortgage debt has also been rising by region over the last four years, with slightly larger monthly obligations for Montreal.
Despite the large size of millennials entering the market, the share of mortgages held by people aged 55+ grew, as fewer young adult consumers were mortgage holders.
How Payment Frequency Can Save Money
One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, other payment frequency choices can save you money in interest costs over time.
Monthly Payments
Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.
$500,000 mortgage
3% interest rate
5-year term
$2,366.23 monthly payment
$427,372.90 remaining over 20 years
$69,346.70 paid to interest
$72,627.01 paid to principal
Semi Monthly
Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.
$500,000 mortgage
3% interest rate
5-year term
$1,182.38 semi monthly payment
$427,372.99 remaining over 20 years
$69,258.59 paid to interest
$72,627.01 paid to principal
Bi-Weekly
Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.
$500,000 mortgage
3% interest rate
5-year term
$1,091.38 bi-weekly payment
$427,372.36 remaining over 20 years
$69,251.76 paid to interest
$72,627.64 paid to principal
Accelerated Bi-Weekly
Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.
$500,000 mortgage
3% interest rate
5-year term
$1,183.11 accelerated bi-weekly payment
$414,521.40 remaining over 17 years 4 months
$68,325.70 paid to interest
Mortgage Payment Frequency Options
$85,478.60 paid to principal
You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.
The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.
If you have any more questions on how choosing the right Payment Frequency can save money, please do not hesitate to reach out to us at Prime Mortgage Works. Information Courtesy of Ryan O. DLC
First Time Homebuyers DON’T Tips
First time homebuyers tips help you to be prepared before closing but as importantly, AFTER you are pre-approved for a mortgage. In fact, buyers ruin their chances of closing by making simple mistakes once they hear the word “approval” from the mortgage broker. These are some of the most common mistakes people make and most importantly explain what NOT to do as the best First Time Homebuyers Mortgage Tips.
Do Not Start a New Job (please!)
While it is not the most important item for getting a pre-approval, job history and length of time at your present employer is vital to getting approved as a First Time Homebuyer.
If you have been at your current job for more than 2 years, wait until the mortgage is closed before choosing to switch to another company.
Do NOT Purchase a New(er) Car (I beg you!!)
It is so easy to understand the temptation to buy a vehicle after getting a mortgage pre-approval. Most people are a bit nervous and are filled with excitement when they learn they are pre-approved. If their credit and income are good enough to buy a house, then surely it is good enough to get a great deal on a car, right?
The pre-approval issued by the lender was determined by the current level of debt and income at the moment the person applied for the home loan.
It is best to wait until the loan has closed before trading up on your vehicle.
Do NOT Make a Late Payment on ANY Existing Debt
As previously stated, the pre-approval is determined by a snapshot of your credit at a particular point in time. The track record that you have is documented by the credit report used for your approval. The majority of lenders will request a new credit report for you approximately one or two days before the loan closing. Any late payment that shows up could be a red flag to the lender and cause them to turn down the loan.
So, to be safe, make all payments on time while waiting for the lender to finalize your loan.
Avoid Any Unusually Large Deposits
The best First Time Homebuyers Mortgage Tip is that your credit report shows a track record of your payments over time, your bank account also has a track record. The mortgage underwriter will review your checking and savings account to see if there are any larger-than-normal deposits in the months leading up to the purchase. Avoid any large deposits that do not coincide with your normal banking habits.
Do NOT Open a New Bank Account
We previously mentioned that you should not switch jobs or add any new debt. The theme is consistency and this point fits within that theme.
Whether you have used your current bank for 6 months or 6 years, it is best to stick with that bank until the loan closes. Opening up a new account creates questions among mortgage lenders. They wonder if you are trying to hide funds in one account or if you have unrecorded debt obligations that are going to be facilitated with the new account.
Do NOT Spend your for Down Payment or Closing Costs (no Vegas trips…)
Buying a home can be exciting but also stressful. Getting the utilities switched to a new address, changing the address and hiring the movers can all take time and some funds. While you may have saved up a nice nest egg to prepare for the home purchase, don’t spend all of that money.
The estimate provided to you for the closing is just an estimate. Things like property taxes, homeowner’s insurance, and other costs can creep up and cost a bit more than anticipated.
Do NOT Close Out Any Debt Account (First Time Homebuyer 101 tip)
It is usually a good idea to pay down debt and close the account, whether it is a credit card, furniture account or local store account. Keeping your debt as is until the mortgage closes, is key here.
Closing out a credit card, for example, may lower your credit score. Remember the pre-approval is a snapshot in time. Keep the picture the SAME as at application time.
The bottom line, leave all accounts open for the time being.
Do NOT Agree to Co-Sign on a New Loan
As mentioned in the First Time Homebuyers Mortgage Tips, borrowers should avoid any new debt, especially in the form of buying a new car. This is also true for other new debt such as new credit cards, new furniture accounts or an unsecured loan. This is especially true for being a co-signor on a loan.
If your mortgage broker told you that you were approved for a mortgage, do not co-sign for a friend or relative. Becoming a co-signer makes you 100% responsible for the new debt, regardless of the good intentions of your friend or relative. This one area is a big no-no for potential homebuyers.
Do NOT Ignore Requests from Your Broker ;)
Think of a lender as a person very similar to you, they are merely trying to do their job. In this case, their job is to help you the First Time Homebuyer.
Sometimes a mortgage underwriter will ask for very specific things. It is not uncommon for an underwriter to request documentation supporting a sale of a car, major change in job or explanation for one missed payment from 14-36 months ago!
If your broker contacts you and asks for some type of document or explanation, be prompt and thorough in providing the answer. Your entire loan could hinge upon this one item and you don’t want to get rejected because you could not find the time to respond to the lender’s inquiry.
Summing Up What Not To Do Before Closing on a House a First Time Homebuyers Mortgage
After you have received your mortgage pre-approval, continue on with your life as if nothing has changed. Keep making payments on time, don’t close out any accounts and don’t add any new debt. Along with the other suggestions above, this should keep you prepared and ready for closing day and a master at First Time Homebuyers Mortgage Tips.
Getting Over the Down Payment Hump
One of the largest barriers to entry into home ownership is saving enough cash for a down payment. Small every day expenses add up; and depending on the market you live in, rent may also be eating a significant portion of your income each month. You do have options; here are some ways you may be able to obtain the funds to put towards a home:
Save – Simple.
Utilizing a Tax Free Savings Account, determine an amount to save each month that you believe is reasonable yet substantial enough to get you to your down payment goal. Additionally, set up automatic transfer into that accounts that line up with payday and bills will soon find yourself getting over the down payment hump.
Extra Income
Ever consider a side hustle or second job. Put 100% of this cash flow into your down payment.
Home Buyers Plan
Have money in your RRSP account? Incidentally, the Federal government will allow you to pull up to $35,000 from your RRSP account. Note, you have 15 years to return the funds back into your RRSP account. The easiest option for getting over the down payment hump.
Sell an Asset
If you have a valuable asset your willing to give up, sell it! Just make sure to establish a clear paper trail; get a receipt or signed bill of sale to legitimize the source of funds.
The Bank of Mom and Dad
This may or may not be possible. Parent may have built up some equity in their home they can access with a secured line of credit. If this is a gift, a signed gift letter stating so will be needed. If it is to be replayed, the payment must be included in your debt ratios used to qualify.
How Mortgage Brokers Get Paid
Firstly, how do mortgage brokers get paid here at Prime Mortgage Works? We do not charge any retainer or upfront fee for our services. Actually, you don’t pay any fee directly to us for our services, ever! Yes, 100% free, no pressures advise! We are licensed professionals and are governed by provincial bodies, who have you, the clients, best interest in mind.
Who Pays the Broker?
The lender pays us, once your purchase or refinance has completed and you have received your mortgage funds. How do we choose which lender? We take into account many features of a mortgage and your specific needs and wants to advise on the BEST option for you. Underlining why it’s important to understand how mortgage brokers get paid. Lenders typically pay anywhere between .8 to 1% of the final approved mortgage amount directly to the lender. This means for you the borrower, there is no out-of-pocket expense due at closing. Rather, lenders pay the mortgage broker directly from the interest they earn from the mortgage you have secured with them.
The Broker’s Incentive
But, rest assured that it is our mission to guide you through the entire financing process. As we are not paid until after closing, this ensures that we have your best interest in mind at all times. We are always happy to answer any questions, anytime, whether you have just completed financing, or are three years into your term and considering accessing some of the equity in your home.
