Industry Insights

Find Interviews with Mortgage Brokers, Home Inspectors, Stagers and other Industry Experts here on a quarterly basis.

This time: Ahmad El-Farram, Mortgage Broker

January 2023

Ahmad, the Banks and Economists are indicating that interest rates are coming down this year. When do you think we can expect the first drop?

Concerning the prime rate and the Bank of Canada, there seems to be a bit too much optimism regarding the first rate cut happening in the first or early second quarter. I find this expectation to be overly optimistic; it's likely that the Bank of Canada (BOC) has concluded its rate hikes. However, if you're carrying a substantial variable rate mortgage or line of credit, don't anticipate relief until the end of 2024. The BOC needs to ensure that inflation is unequivocally under control before contemplating interest rate cuts.

The BOC prefers to err on the side of overshooting rather than undershooting, as overshooting allows for compensation through interest rate cuts. Dealing with inflation is more challenging when you undershoot.

As of right now, Canada's inflation rate is at 3.4% (December 31st, 2023), up from 3.12% in November. The Bank of Canada remains unwavering and committed to its 2% target, even though achieving it may seem challenging at the moment.

What is your outlook for 2024 and going into 2025?

I have a positive outlook on fixed rates for the this year, and here's my rationale: bond yields have significantly decreased over the past three months, leading to a rapid decline in fixed rates. Fixed rates have dropped by nearly 0.7% in the last 15 days.

Realistically, as rates stabilize and level off by the beginning of 2025, we can expect them to hover in the mid to low 4% range. This is a promising, especially when compared to fixed rates in the decade leading up to the pandemic.

Throughout the 2010s, Canada experienced economic growth and expansion, emerging relatively unscathed from the 2008-2009 recession. In contrast to previous decades, the 2010s marked a period of relative stability for Canadian interest rates. The 5-year fixed mortgage rate remained within a narrow range of 2%, fluctuating between 4.64% and 6.25% throughout the decade. In my opinion, with the current 5-year fixed rate at 4.99%, the light at the end of the tunnel is visible, and it's not too far away.

What advice do you have for homeowners whose mortgage is coming up for renewal in the next 6-12 months?

Over the next two years, $900 billion worth of mortgages will be up for renewal. Getting the conversation started with your mortgage specialist 6-12 months before your renewal date ensures thorough preparation and protection. Ask for a mortgage check-up from your agent or broker to gain a clear understanding of your current financial situation and how banks and lenders will assess your file in today's economic climate.

The reality is that Canadian homeowners are committed to ensuring their mortgage payments are made every month. However, many currently face challenges associated with high-interest credit card debt and unsecured loans, limiting their ability to explore and qualify for more favorable mortgage products and rates. Stay ahead of potential pitfalls by calling your mortgage specialist at least 6 months prior to your renewal.

I often find that people are not very well educated when it comes to Mortgages. What kind of tricks, secrets etc. are out there that people should know?

Here's a matter we've been increasingly addressing lately, and the solution isn’t widely known.

Recently, we assisted a young couple in purchasing their first property - a condo in Barrie. Like many first-time buyers, they asked a parent (an existing homeowner) to co-sign the application to strengthen their mortgage file.

The parent was willing to assist his son and daughter-in-law but was hesitant due to the potential exposure to capital gains tax when the young couple sells the property in a few years to upgrade to a larger home.

Because the father already owned a primary residence, he would be considered an "investor" from a tax perspective, subject to full capital gains on the property's sale. Here's how we helped them mitigate this and successfully purchase the property.

For the majority of purchases, ownership is typically arranged as a joint tenancy, signifying equal ownership for all involved parties. With our guidance, their lawyer structured ownership on title, distributing it by percentage between the father and the couple. In this arrangement, the father owned only 1% of the property, while the young couple owned the remaining 99%.

Now, when the young couple decides to sell their condo for a profit to acquire a larger home, the father will only be liable for paying capital gains tax on 1% of the total profit. This strategic approach shields the father from potentially facing a substantial tax burden while still assisting two first-time homebuyers.