I sat down with Sarah Park from Mortgage Alliance here in Kamloops to talk about the latest mortgage news.  Here's a summary of our discussion:

Interest rates

The Bank of Canada met again this week and they did NOT raise interest rates. This is monumental after we saw 7 interest rate increases in 2022. The Bank's decision to leave the rates steady is a great sign that inflation rates are curbing. Bank of Canada will convene again in a month to re-assess inflation and the need for any more interest rate increases.

As a result, now is actually a great time to purchase real estate.  We have witnessed a drop in overall housing prices in the last few months. If interest rates go back down, housing prices will move into an upward swing.

If you are close to buying, this is the time to make it happen.  For example if you are only 10K away from achieving your downpayment savings goal for your home purchase, consider borrowing from family, taking out a line of credit or getting a cash-back mortgage for that amount to help get you over the finish line.  This is the time to act, and Sarah's advice is to do what it takes to get there while the conditions are ripe for a good deal.

Co-signing vs Guaranteeing

Co-signing a mortgage and guaranteeing a mortgage are very similar.  A co-signer is going to guarantee the mortgage in both scenarios, but it's not mandatory that a co-signer go on title (whereas guaranteeing a mortgage implies the guarantor is added to the property's title).

Most lenders require that the co-signer goes on title nowadays.  In most cases, it would be beneficial to a co-signer to be on title anyway, to retain a certain amount of control should something unexpected happen to the title-holders.  Sarah gave a colourful example: if she co-signs a mortgage for her daughter (without being on title), then her daughter and her daughter's new boyfriend run off to Mexico and stop making mortgage payments, Sarah would not be able to jump in to arrange a sale of the property, and would be obligated to continue making the full mortgage payments indefinitely.  She would have no control but would bear 100% the financial responsibility.  In this scenario, it would benefit Sarah to be on title to retain that element of control when it comes to selling the property.

New Homeowners Grant

This is a tax tip regarding the New Homeowners Grant.  I asked Sarah about something I've been seeing lately about this grant where ownership is divvied into 1% and 99% stakes between 2 owners.  She explained using this scenario:

A couple goes in to buy a house, and let's say Partner 1 has owned previously and Partner 2 is a first time homeowner.  Partner 2 would be set up as the 99% owner to avoid 99% of the property transfer tax.

The only downside is that the government needs to raise the purchase price threshold for what is eligible for the grant. Currently that threshold is 500K.  There are very few cases where this will allow a purchaser to apply this benefit to a single family detached home, and limits it to apartments and townhouses for the most part.

Gift Letters

If a buyer seeks financial contribution from a parent (for example) to make their downpayment, a gift letter is required for anti-money laundering purposes.  In this scenario, the parents would issue a gift letter explaining that the money was indeed a gift, and does not need to be repaid. A bank draft to prove the transfer of funds would also be required to substantiate this gift letter.  The purpose of this step is to prove that the money is not coming from illicit sources.

That's the recap of my chat with Sarah Park from Mortgage Alliance in Kamloops.  Listen to this episode of the Kamloops Real Estate Insider Podcast to hear our discussion.