Tag: real estate

Here’s what the Bank of Canada’s latest interest rate hike means for borrowers

Post author By Cottage Life
Post date 13 September 2022

Photo by Shutterstock/sockagphoto

It might be time to reassess that budget—the Bank of Canada has once again hiked interest rates.

Last Wednesday, the country’s central bank raised its policy interest rate by 75 basis points to 3.25 per cent, the highest it’s been since 2008. Canada’s biggest banks, including TD and RBC, followed suit, raising their prime lending rates by the same amount.

By raising interest rates, the Bank of Canada is impacting the amount of money Canadians are able to borrow in the form of mortgages and lines of credit, as well as increasing the amount of interest customers have to pay on loans.

This is the fifth rate hike in approximately six months. The Bank of Canada continues to increase interest rates in an attempt to tackle runaway inflation. Earlier this summer, the inflation rate hit a 39-year high of 8.1 per cent. Thanks to a drop in gasoline prices, inflation has since eased to 7.6 per cent. But the bank says this isn’t a reason to relax.

“That has helped bring the pressure down on inflation,” said Carolyn Rogers, the Bank of Canada’s senior deputy governor, during a press conference. “Apart from that, though inflation has broadened and increased. Certainly the raises have helped, but commodities in general remain volatile, so there’s still a chance that we get pressure back up in the other direction.”

The war in Ukraine and COVID lockdowns in China continue to impact the supply chain, preventing manufacturers and suppliers from meeting demand. Rogers explained that demand in Canada remains strong, but to reach the bank’s goal of two per cent inflation, it needs to continue curbing demand through interest rate hikes until it balances with supply.

“We have seen some early signs that monetary policy is working. Interest-rate sensitive parts of the economy—the housing market being an obvious example—have seen some pull back,” Rogers said.

The one scenario that the bank is concerned about is if Canadians start to make long-term decisions based on the idea that a high rate of inflation is here to stay. “That’s the entrenchment that we talk about that would be damaging to the economy,” Rogers said. “If that starts to occur, it makes inflation much harder to get down. It means monetary policy has to do more and rates have to go higher to get inflation down.”

How long will the rate hikes last?

When asked whether interest rates are expected to keep increasing, Rogers was cagey with her response. “We’ll take the next decision when it comes,” she said. The bank is expected to reassess its rates on October 26.

In a report published around the end of August, CIBC theorized that the 3.25 per cent rate should remain throughout 2023 with no additional hikes. However, CIBC recanted this theory in a later report, saying: “We’ll be lifting our target for the end of this tightening cycle, with another 25-50 [basis points] on tap for October. Even in October, the Bank is likely to want to leave the door open for a further move until it gets more definitive evidence of a deceleration in growth and inflationary pressures. We see that as likely to be in evidence over the next two quarters.”

Rogers mirrored this statement during a speech last Thursday, saying it will take time to get inflation down and there could be bumps along the way.

What does this mean for mortgages?

Many mortgage holders across Canada are feeling the effects of increased interest rates. A mortgage is one of the most common types of debt held by Canadians. According to the Canadian Financial Capability Survey, in 2019, 40 per cent of Canadians had a mortgage, with the median amount of those mortgages being $200,000.

For those with a fixed-rate mortgage, the interest hike won’t affect them until they have to renew. CIBC estimates that approximately one-fifth of mortgage holders have to renew their fixed-rate contract in a given year.

As for mortgage holders with a variable rate, 70 per cent have fixed payments, meaning the payments don’t change, only the amortization period does. The other 30 per cent are feeling the immediate impacts of the rate hikes.

There is concern with the fixed-payment, variable-rate mortgages that the latest interest hike has caused many of them to reach their “trigger rate”. This means the interest rate has gone up so much that an individual’s monthly payments are only covering the interest and are not paying down any of the principal loan. If interest rates pass this trigger, monthly payments will go up. Those most affected will be individuals who took out loans in early 2020 when interest rates were at 0.25 per cent.

During a conference call discussing its third quarter earnings, RBC revealed that 80,000 of its customers are about to surpass their trigger rates, causing an average increase of about $200 per month. An individual’s monthly payment increase will depend on the size of the loan, the amortization period, and what the rate was when the customer borrowed the money.

Canadians may also have more difficulty qualifying for mortgages. Anyone making a down payment of less than 20 per cent on a property must pass Canada’s mortgage stress test. The test shows lenders that a borrower can make mortgage payments at either the rate offered by their lender or the Bank of Canada’s five-year fixed rate, whichever’s greater. As interest rates go up, so does the five-year fixed rate. It now sits at 4.33 per cent.

How do you prepare for interest rate hikes?

For those concerned about paying off their mortgage amidst interest rate hikes, the Canadian government suggests paying down as much of your debt as possible before an interest-rate increase. “If you have less debt, you may be able to pay it off more quickly. This will help you avoid financial stress caused by bigger loan payments,” the government said.

Other suggestions include cutting expenses so you have more money to pay down your debts, paying the debts with the highest interest rates first so that you’re spending less money on interest, consolidating debts with high interest rates into a lower interest-rate loan, and making sure you have an emergency fund to deal with unplanned costs.

As Rogers said during her press conference, the most important factor is to not let the idea of high inflation sway your long-term spending decisions, as this can negatively impact the Canadian economy

“The thing that the governing council is most focused on is getting inflation back to target,” she said.

Tags Bank of Canada, cottage mortgage, inflation, interest rates, mortgage broker, mortgage rates, real estate

Cottage Life

Cottage real estate region: Last Mountain Lake

Post author By Cottage Life
Post date 13 September 2022

Photo by Lost Mountain Studio/Shutterstock

Last Mountain Lake is nicknamed locally as Long Lake: stretching a slender 93 km from north to south, it’s the largest natural lake in southern Saskatchewan. The southern tip is only about 40 km northwest of Regina, earning it “beach within reach” status.

The area features sandy shores, rolling prairie hills, and native vegetation like Saskatoon and chokecherry bushes. Roughly 50 hamlets rim the lake, and a wide variety of road-access cottages are available, from modest lots with small cabins to more expensive four-season getaways. There’s also a decent selection of vacant lots on the lake.

Cottagers love the long prairie summer evenings; the watersports; summer and winter fishing for pike, perch, and walleye; and winter activities such as snowmobiling and cross-country skiing. Regina Beach offers grocery stores and once-weekly medical care (the closest hospitals are in Regina). The Last Mountain Lake Bird Sanctuary, the first federal bird sanctuary in North America and a National Historic Site, at the north end of the lake, is home to more than 280 bird species. There are two small provincial parks on the eastern shore.

Tags cottage, Last Mountain Lake, Long Lake, real estate, régina, saskatchewan, VRBO

Cottage Life

How to successfully budget for a cottage (yes, you can do it!)

Post author By Cottage Life
Post date 31 August 2022

Photo by Shutterstock/Billion Photos

So you’re thinking of dipping your toes into cottage ownership. But where to start? Is it the same as buying a house? What’s involved in a cottage mortgage? Are there other fees you need to consider? Don’t worry, as long as you budget appropriately, cottage ownership isn’t a mystery. We spoke with a handful of budgeting experts to outline everything you need to know to financially prepare for owning a cottage.

Figure out what kind of cottage you want

The first step in budgeting for a cottage is narrowing down the type of property you’re interested in. Are you looking for a waterfront cottage or a cabin in the woods? Do you want a four-season place or somewhere only accessible during the summer? What about location? Are you hoping to buy a three-bedroom cottage in the heart of Muskoka or something rustic north of Timmins?

All of these decisions will impact the price. Popular locations, such as Muskoka, will be more expensive. Waterfront will also hike the cost, especially if you’re looking for a sandy shoreline perfect for swimming with good sun exposure. And the more bedrooms and bathrooms, the higher the price tag.

Our experts say that you need to be realistic about what you can afford. You may have your heart set on a $1 million property in the Kawarthas, but does your income allow for that kind of cottage? Take the time to browse through listings or meet with a realtor. This will give you a better idea of what type of properties are available and how much they cost.

Budget for the cost of cottage ownership

If you’re having trouble figuring out how much you should spend on a cottage, our experts suggest looking at your cash flow. Subtract your expenses, including your phone bill, your mortgage payments, even your retirement savings, from your income. Whatever’s left is your cash flow. Do you have an extra $1,000 a month to pay off a $200,000 cottage mortgage?

You also need to factor in the other expenses that come with owning a cottage. As any cottager will tell you, they require constant upkeep and repairs. Plus, you have hydro bills and cottage association fees. Not to mention property taxes, which will go up as your property increases in value. These extra expenses can amount to several thousand dollars each year.

If you want to secure a mortgage for your dream cottage, you’ll need to show that you can afford these expenses.

Securing a mortgage

When you’re applying for a cottage mortgage, it’s all about your debt-to-income ratio, says Andrew Thake, a mortgage broker in Ottawa. This means that to be pre-approved for a mortgage, you need to prove that you pay off your debts on time and that you have enough income to cover future debts.

Lenders are looking for good credit scores, Thake says, somewhere around 680 or higher. “Even if you have $100,000 on your credit cards, that’s fine, as long as you’re paying them on time,” he says.

Savings, on the other hand, won’t do much to sway lenders into giving you a loan. You could have $1 million in your bank account, Thake says, but if you default on your credit card payments, the lender isn’t going to trust you to pay back your mortgage.

Thake adds that if you’re buying a three- or four-season cottage, it’s the same process as securing a mortgage on a house in the city— it requires a five to 10 per cent down payment. If, however, you’re looking at something more remote, like a cottage on an island or a property without running water and electricity, it can be harder to find lenders. When you do find a lender, the down payment will likely be closer to 20 per cent, plus higher interest rates. Take this into consideration when figuring out the type of property you want.

Consider your buying options

You’ve calculated your cash flow, and maybe it isn’t quite enough to cover a second mortgage, plus associated cottage expenses. Don’t fret, there are other options, our experts say. Rather than going in alone, you could split the purchase with a family member or a friend. The plus side of this is you’re only paying for half of everything. It makes cottage ownership much more affordable. The downside is that you’re now having to negotiate weekends and figure out how much each of you is willing to spend on necessary upgrades, like a new dock.

Another option is renting. If you’re the type who likes to travel abroad and you only plan to spend a few weeks at the cottage each year, renting a property could be a more affordable option. You don’t have to worry about mortgage payments or upkeep, and you still get to enjoy the lifestyle. The downside is that you don’t get to go whenever you want, you’re limited to what’s available for rent, and you aren’t making an investment in a property.

If you do have your heart set on buying a cottage, keep prices more affordable by purchasing during the off-season, our experts say. Sure, cottages don’t suddenly go on sale over the fall or winter, but demand does drop off. This means you’re less likely to be caught in a bidding war, and you have more leverage to negotiate conditions with the seller.

Plan for future expenses

Don’t pull the trigger on your cottage purchase too soon. You may have figured out your price range and the type of cottage you want, and maybe you’ve even spoken to a realtor and mortgage broker about your options. But before you buy, take a deep breath and think about the future. Owning a cottage may seem like a dream now, but will it always be?

If you’re a young couple, have you thought about adding kids to the equation? A 2015 report compiled by MoneySense found that raising a child to the age of 18 costs approximately $253,946. Our experts point out that the cost of daycare is often underestimated, ranging from $12,000 to $15,000 per year. And if your kid becomes involved in sports or other activities, are your cottage weekends suddenly replaced with soccer sidelines?

If kids aren’t an issue, another factor to consider is old age. Is the cottage you’re looking at on a hill with steep steps down to the water? How will you navigate that as you get older? If you plan to pass the cottage on to someone, there may be a land transfer tax that needs to be paid. Or if you decide to sell the cottage before you reach old age, you’ll have to factor in capital gains tax on the property’s accrued value. Considering current real estate trends, this could amount to thousands of dollars.

These concerns aren’t meant to scare you off buying a cottage, but they are worth thinking about. Cottage ownership is a rewarding experience, and there are professionals, such as financial planners, realtors, mortgage brokers, and estate lawyers, who can walk you through each detail of the ownership process. But to ensure you don’t get in over your head, plan out your budget before you buy.

Tags budget, buying a cottage, cottage ownership, financial planning, mortgage, real estate, saving

Cottage Life

Everything you need to know to apply for a cottage mortgage

Post author By Cottage Life
Post date 31 August 2022

Photo by Shutterstock/G-Stock Studio

So you’re planning to buy a cottage. You’ve probably spent months perusing listings, figuring out what type of property you want, and meeting with realtors. The next step in purchasing your dream cottage is getting pre-approved for a mortgage. This can feel like a daunting process, especially if you’re already paying off a mortgage on your house. To help smooth the way, we’ve assembled all the tips you need to secure a cottage mortgage.

What does a broker look for in a cottage mortgage application?

It’s all about the debt-to-income ratio, says Andrew Thake, a mortgage broker based out of Ottawa. To gain a broker’s confidence, you want to show them that you have a good credit score—typically 680 or higher. To get a good credit score, you need to be paying off your debts on time, including credit cards and other mortgages.

“Even if they had $100,000 on credit cards, that’s fine, as long as they’re paying them on time,” Thake says. “As long as there’s enough income to cover the debt, someone could really have as many debts as they want.”

Savings are a great cushion when taking out a second mortgage, but it won’t do much to sway a broker into approving your application. “Whether you have $10,000 in the bank or $10 million in the bank, that’s nice, but it’s not a heavy application decision-making factor,” Thake says. A broker wants to see that you have the income necessary to cover the mortgage payments and any other outstanding debts.

What type of cottage is it?

Once a broker has pre-approved your mortgage application, they’re going to want to talk about the type of cottage you’re looking for and which lenders would work best for your situation. Traditional lenders, such as banks, like a multi-season place, Thake says. “A three-season or four-season cottage, it’s no different than if someone came and said, ‘I want to buy a condo downtown.’”

These are cottages that could be used as a primary residence with a secure foundation; access from a municipally-maintained road; a permanent heat source, such as a furnace or boiler; and potable running water—this includes a well or water from the lake run through a filtration system. These types of properties typically only require a five to 10 per cent down payment.

On the other hand, a summer-only cottage drastically changes your lending options. Cottages on islands or isolated, rural locations are less appealing to lenders because if you default on your payment, it’s harder for them to resell the property. This includes cottages that don’t have electricity or running water, and aren’t easily accessible by road.

In these circumstances, it’s unlikely a bank will lend you the money, so you may have to turn to a private lender, Thake says. This means a larger down payment (closer to 20 per cent) and higher interest rates (six to nine per cent).

RBC forecasts historic real estate market correction, including cottages

What’s the cottage being used for?

Um…relaxing? This may seem like an odd question, but not everyone buys a cottage to lounge lakeside and take in the surrounding nature. Some buyers may be planning to rent the cottage out, or renovate the property and flip it. These both affect the type of mortgage you’ll need.

If you plan to rent out the cottage, you’ll need to secure a rental property mortgage. This, again, may require a private lender, as opposed to a bank, and typically means a down payment of at least 20 per cent. The interest rate on the mortgage will also be higher. Generally, expect between one to three per cent more interest points on a rental property mortgage than on a standard mortgage.

If you’re renovating the cottage, you should be able to secure a standard mortgage unless the cottage is uninhabitable. In this situation, you’ll need to apply for a construction mortgage or a private mortgage from a private lender, Thake says. This again means a down payment closer to 20 per cent as well as a higher interest rate than a standard mortgage. If you renovate the cottage to the point where it is habitable, you may be able to refinance your mortgage and apply for better terms through a standard mortgage with the bank.

Can you predict the mortgage’s rates and down payment?

Not ready to put in an offer until you know the terms of the mortgage? A broker can help with that. If you’ve settled on the type of property you’re interested in, Thake suggests sending your broker sample listings of desirable cottages.

They don’t have to be cottages you want to submit an offer on. They don’t even have to be cottages in the area you want to buy in, Thake says. But having samples will help your broker secure your mortgage faster when you’re ready to buy.

“It’s a lot easier to have that live property example where we can send it out to a dozen lenders and get some sample terms, like rates and down payment amounts,” Thake says. “That way, when the client does find the place they want, it’s kind of like a clone to what they’ve sent us as the sample.”

How do you finance the mortgage?

When buying a cottage, the down payment for the mortgage doesn’t have to come out of your savings. If you already have a mortgage on your house, you can borrow equity from that mortgage to help pay the down payment. Here’s how Thake explains it:

Say you bought a house for $500,000 and you’ve already paid off $250,000 of that mortgage. That $250,000 that you’ve paid is considered equity that you can borrow from if needed. If you’re buying a $500,000 cottage, you could refinance the mortgage on your house and borrow $100,000 of that $250,000 you’ve paid (you can borrow up to a max of 80 per cent of the property’s value). You can then use that $100,000 for your cottage down payment. Borrowing that $100,000 bumps your house mortgage back up to $350,000, but it brings your cottage mortgage down to $400,000 without depleting your savings.

This may sound complex, but there aren’t a lot of secrets to cottage mortgages, according to Thake. “We really just want to make sure there’s enough debt to cover this new mortgage,” he says, “and if they are looking to borrow the down payment from their existing home, that there’s enough income to carry that as well.”

Buy the Way: A family of three shares a tiny home they can bike to

Tags buying a cottage, cottage financing, cottage mortgage, mortgage broker, mortgage rates, real estate

Cottage Life

These eastern Ontario towns will pay to ‘date’ you for a year

Post author By Cottage Life
Post date 30 August 2022

Photo Courtesy of The United Counties of Stormont, Dundas, and Glengarry/Facebook

It may not be the date you envisioned, but these eastern Ontario towns are ready to commit long term.

The United Counties of Stormont, Dundas, and Glengarry (SDG) launched an unorthodox marketing campaign at the beginning of August. Titled “Date My County”, SDG is offering to pay one lucky applicant to live in the area for 12 consecutive months. Think Tinder but for communities.

“It was initiated by our economic development office as a venue to hopefully attract new residents,” says Tara Kirkpatrick, SDG’s manager of economic development. “We recognize that population growth is something that most areas of the province are challenged with right now, and that we need to compete for some of our labour.”

One of Kirkpatrick’s teammates pitched the idea, but county staff weren’t sure council members would be willing to spend tax dollars on the campaign. “It’s not every day that politicians will be open to something truly creative and kind of out of the box,” she says. “But they saw the bigger picture, and they were excited by it.”

The campaign offers to pay one lucky winner $1,500 a month to live in the SDG area starting this fall through to January 2024. The money can go towards buying a house or renting—it’s up to the winner to sort out their accommodations. The winner will also act as a brand ambassador for SDG, posting twice monthly blogs, vlogs, or photo collages to the county’s website and social media.

Through the campaign, Kirkpatrick says SDG hopes to strengthen its brand and get some much-needed exposure. “We all love Muskoka, and we love Prince Edward County, but I think that a lot of the other areas of the province get missed because of the shine that falls on others,” she says. “People forget that they’re driving by beautiful beaches on the way to get into Prince Edward County.”

Cottage prices remain high despite rising interest rates: RE/MAX

Situated an hour drive from both Ottawa and Montreal, the county is bordered by Quebec and Vermont with the St. Lawrence River running along its southern end. “We’re rural Ontario. Agriculture is our main backbone,” Kirkpatrick says, “but you can get into the city quickly. You can go and watch a hockey game in Montreal, and make it to work the next day, or you can go and meet friends for drinks in Ottawa.”

Kirkpatrick adds that the area also has some of the lowest housing costs in Canada. The average price of a house in SDG is $418,748, over $200,000 cheaper than Canada’s average price ($665,849). Plus the county boasts countless hiking and cross country ski trails, and beaches along the St. Lawrence River.

To date, the campaign has seen 100 applicants, mostly from the Montreal and Greater Toronto Areas, but some as far away as Iraq, Hong Kong, and Mexico. Kirkpatrick notes that to be eligible for the campaign an applicant must be 18 years or older, a Canadian citizen, and they can’t already live in the SDG area.

The applicants have a mix of backgrounds, Kirkpatrick says, ranging from young professionals looking to escape the city, retirees who grew up in the area and want to move back, to new Canadians who want to live somewhere more affordable.

“Date” applicants aren’t required to work in the area, but for those in search of a career change, SDG offers a long list of work opportunities. The 2022 Cornwall and Area Job Fair saw more than 500 jobs posted. “We have jobs to fill,” Kirkpatrick says. “It’s everything from judges and lawyers to factory workers and mechanics.”

The committee in charge of selecting the winning applicant is made up of three county councillors and two lay appointees. The committee is well versed in sifting through applicants, as it handles SDG’s tourism grants and a few business grants.

Committee members aren’t looking for any specific work or life experience in a candidate. The main criteria is someone who’s passionate about the area, excited to explore, fits well with the community, and can act as an effective brand ambassador.

Interested individuals can submit their applications at datemycounty.ca. The deadline to apply is 12 p.m. on November 1, 2022.

The only downside? Kirkpatrick says,“It’s going to be so hard to choose.”

RBC forecasts historic real estate market correction, including cottages

Tags affordable housing, affordable real estate, Date My County, Dundas, Glengarry, real estate, Stormont

Cottage Life

Picture perfect cottage rentals in Tobermory, Ont.

Post author By Cottage Life
Post date 29 August 2022

Photo by VRBO/Bryan

Located on the tip of the Northern Bruce Peninsula, Tobermory straddles the divide between Lake Huron and Georgian Bay. The area is famous for its aquamarine water, craggy coves, and breathtaking hikes.

Looking for things to do? Visit the Grotto in Bruce Peninsula National Park, a natural pool of clear-blue water sheltered in a wave-carved cove; hike along the Bruce Trail, which takes you through the craggy landscape of the Niagara Escarpment, or hop a ride on the MS Chi-Cheemaun, a historic ferry that transports guests to nearby Manitoulin Island.

If any of these activities sound appealing, get the adventure started by booking your accommodation at one of these cottage rentals.

Didn’t find what you’re looking for? Visit our rental hub powered by VRBO to find a cottage rental for you and your family.