What Will Mortgage Financing Look Like In 2021?
Carola Singer • November 4, 2020
There is no doubt that 2020 was one for the books. It will be remembered as a year like no other. COVID-19 has caused significant national economic disruption, to say the least. While we’ve seen government intervention, record unemployment, mortgage payment deferrals, record low-interest rates, we’ve also seen continued growth in the housing market.
So what can we expect as we complete the final quarter in 2020 and move into 2021? Well, low interest rates and increased scrutiny on all mortgage applications are most likely in the cards.
Low interest rates
Right now, both fixed and variable rate mortgage rates are at all-time lows. The cost to borrow money for a mortgage has never been cheaper. According to the Bank of Canada, we can expect them to stay low for the foreseeable future. “Interest rates are very low, and they are going to be there for a long time. Canadians and Canadian businesses are facing an unusual amount of uncertainty, so we have been unusually clear about the future path for interest rates.”
And while low interest rates are a good thing for financing property now, unfortunately, they won’t be as easy to access as in previous years.
More scrutiny on mortgage applications
While we don’t expect lender or insurer guidelines to change much in the coming months, securing mortgage financing in a post-COVID economy has already proven to be harder as lenders apply increased scrutiny to each application. Every mortgage application is being looked at more deeply, and additional documentation is being requested to substantiate your application. Lenders are being more cautious about who they’re lending money to.
If you’re self-employed or rely on overtime, bonuses, or picking up additional shifts to make ends meet, securing a mortgage is going to be more difficult for you. As lenders look at a 2 year average for employment, if you took a hit to your income in 2020, that will impact you in 2021. Any type of non-guaranteed income will be more scrutinized.
If the pandemic impacted your employment and you deferred any payments (credit card, loan, line of credit, or mortgage), expect to be questioned. Lenders will ask for your story; they will want to know why you had to defer payments and how you are now in a better financial position.
Unfortunately, one of the common complaints about getting a mortgage is that it is very document-intensive. Lenders want to see a lot of supporting documents for every mortgage application. And moving into mortgage financing in 2021, you can expect even more requests for supporting documents.
Have a plan in place
So while the housing market continues to grow and low rates make it a good time to buy, the best way to prepare for increased scrutiny and documentation on your mortgage application is to plan ahead.
If your mortgage is up for renewal, you’d like to refinance, or you’re planning on buying a new property, the best thing to do is to get started immediately. Getting together your documents will take time; having a plan on what that looks like is the way to go.
I would love to have a conversation and outline all your options. If you have any questions, please don’t hesitate to contact me anytime!
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Worried About Your Mortgage Renewal? You’re Not Alone If your mortgage renewal is coming up soon, you're likely feeling a bit of financial pressure—and you’re not the only one. A recent survey shows that over half of Canadian homeowners believe their upcoming mortgage renewal could impact their current living situation. With interest rates still higher than what many borrowers locked in before 2022, 45% of those renewing in the next 12 months expect their monthly payments to increase. Even though the Bank of Canada has held its key overnight rate steady at 2.75%, borrowing costs remain elevated compared to the low-rate years we saw earlier in the decade. And that’s changing how Canadians think about their finances. Changing Plans and Tightening Budgets Among those worried about their renewal, 73% say they’re already cutting back on discretionary spending—things like eating out, entertainment, or travel—to brace for higher mortgage payments. For many, it goes deeper than just trimming the budget. Nearly one in four surveyed homeowners said they’re rethinking their entire financial strategy. Some are pressing pause on home renovations (43%), while others are considering downsizing or relocating to a more affordable area (29%). A smaller group (15%) is even open to major lifestyle changes, like moving in with roommates or relocating to a new neighbourhood altogether. Fixed-Rate Mortgages on the Rise In this climate, most homeowners looking to renew are leaning toward fixed-rate mortgages, with 75% preferring the stability of predictable payments. For those facing uncertainty, locking in a rate for the next few years can offer peace of mind—even if it means paying a little more in the short term. First-Time Buyers Are Feeling It Too It’s not just current homeowners feeling the pinch. A separate survey found that more than half of Canadians planning to buy a home are cutting back on non-essential spending to save for their down payment or other buying costs. About 31% are even considering tapping into savings or investment accounts like TFSAs, RRSPs, or first-time home savings accounts to make their purchase possible. What This Means for You Whether you’re preparing to renew or purchase for the first time, this environment calls for smart, strategic planning. You’re not alone in feeling uncertain—but with the right guidance, you can navigate these changes confidently. Have questions about your upcoming renewal or wondering what type of mortgage is right for today’s market? Let’s connect. We're here to help you make informed, confident decisions about your home financing.
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.
