Has the idea of buying an investment property ever crossed your mind?

Maybe you’d like a place to rent out and have someone else pay some or all of your mortgage while you build equity in a tangible real estate asset, or perhaps as a home for your child to live in.

Whatever your reason, investing in an additional property (or multiple properties) can be a good way to accomplish those goals, but there are also some key considerations before you dive in.

Aside from the potential challenge of finding a good tenant, there are some financing hurdles that you should be aware of.

Mortgage Rules for Investment Properties

While there are many Canadian lenders that will finance rental properties, the Department of Finance tightened mortgage lending criteria as part of its rule changes introduced in 2016.

That included eliminating mortgage default insurance, for certain mortgage types, including those for investment properties with less than 5 units.

As a result, you need at least 20% down to...

IMPENDING MORTGAGE RULE CHANGES

OSFI (Office of the Superintendent of Financial Institutions) has propose a change to the uninsured stress test rate. OSFI regulates and supervises more than 400 federally regulated financial institutions (80% of all mortgage lenders). They do not watch over provincial credit unions and private lenders. OSFI reports to parliament through the Minister of Finance and regulates the conventional space.

Proposed change - Effective June 1st the qualifying rate for conventional (uninsured) mortgages will be based on a stress test of 5.25%

Note that Department of Finance regulates insured mortgages who currently have a stress test rate of 4.79%

Timeline - On May 7th the public was invited to provide feedback to the change. By May 24th the feedback will be taken into consideration and the final amendments will be made. As of June 1st the changes will take effect.

What does this mean to clients?

• If you have a signed accepted offer dated prior to June 1, 2021,...

Mortgage rates have spent the better part of the past year in near-freefall, with numerous terms setting fresh record lows.

But a couple of weeks ago, rates pulled a U-turn and have been starting to climb higher ever since. And here’s why. Since the beginning of February, 5-year Canada bond yields, which typically lead fixed mortgage rates, have surged. They’ve risen nearly 60 basis points over the past month to a 12-month high.

With funding costs being pushed up and margins being squeezed, lenders could no longer hold rates at those record-low levels.

As for why bond yields are rising—which often coincides with market optimism—the answer is multi-fold.

For one, yields have been soaring south of the border, and when U.S. bond yields move, Canadian yields often follow. Given expectations for rising vaccination rates and ultimately an end to lockdown measures and a return to normalcy, many see greater inflationary pressure ahead, which usually leads to rising interest...