Title insurance and Home Insurance: Do Homeowners Need Both?

General Kim Stenberg 21 Sep

It’s a common question and one that deserves a little context.

Buying a home is an incredibly exciting event for any new homeowner, but with ownership of any property comes the need to protect it from a range of risks. These could include losses or damages to the home and fraudulent attempts to steal, transfer or use the ownership title. Homeowners and lenders can safeguard property from threats with the right insurance.

Many Canadians are familiar with two of the most common forms of insurance, home and title. But they may not be aware that they are two fundamentally distinct forms of coverage. This common misconception can be dangerous, and confusing the two has led many people to obtain one form of insurance, but not the other, leaving them vulnerable to greater risks down the road. The reality is, both forms of insurance are essential to provide comprehensive protection of your property.

The red-hot real estate market shows no signs of slowing down in the foreseeable future. As more Canadians become homeowners, it’s more important than ever for mortgage brokers to understand the difference between title insurance and home insurance to properly assist your clients, and the benefits of investing in both to protect what may be the largest single purchase of their lifetime.

HOME INSURANCE

Home insurance (also known as homeowners insurance or house insurance) protects a residence against losses and damages for many risks and can also include additional structures on your property. While home insurance comes in many forms in the market, the standard policy includes coverage that provides six types of protection:

  1. Dwelling coverage: the most recognized coverage, which protects from natural disasters such as fire, wind and lightening. It is important to note that flood and earthquake coverage are not always covered and may need to be purchased separately.
  2. Other structures coverage: protects sheds, fences and detached garages from natural disasters.
  3. Personal property coverage: covers the items inside the home such as furniture, clothing, electronics and jewelry. Each policy will outline the maximum amount of personal property coverage that homeowners are entitled to.
  4. Personal liability protection: pays for the legal defense if someone gets injured on the homeowner’s property. It is important to note that the policy will only pay up to the specified coverage limit. If legal costs or a settlement exceeds the coverage, the owner will be required to pay the balance out of pocket.
  5. Medical payments coverage: provides protection if someone gets injured on the property and does not want to sue. This coverage will pay for their medical expenses such as crutches or prescription medicines.
  6. Loss of use coverage: covers expenses such as a hotel stay and restaurant meals if the home becomes uninhabitable and needs repairs due to an event that is covered by the policy. Again, there is a limit to how much coverage is received for loss of use. Make sure your client checks with their insurance provider.

Home insurance is typically paid via monthly insurance premiums and the cost depends on various factors including details of the property and the province, or city. The average annual home insurance cost in Canada hovers around the $1,500-mark.

TITLE INSURANCE

Title insurance is a policy that provides protection by indemnifying against loss with respect to your ownership or true entitlement of the insured property. There are two types of title insurance: one protects property owners through an owner’s policy and the other protects lenders through a loan policy. A homebuyer receives title to a home once the previous owner has signed the deed and transferred the property over, and the homebuyer is registered in the government’s land registration system.

Many homeowners assume that title insurance is included within a home insurance policy. Because of this misunderstanding, an alarming number of Canadians today do not have title insurance. While home insurance protects homeowners from unexpected circumstances that occur on or against their property, title insurance protects the homebuyer from unexpected circumstances that affect the title to the property, such as financial loss from title fraud or other issues.

Title insurance also provides protection against loss from pre-existing issues, which may include:

  1. Challenges to title by third parties.
  2. Liens on the title due to the previous owner’s unpaid debts.
  3. Encroachment issues, such as if your client’s backyard shed is technically on their neighbour’s property and needs to be removed.
  4. Adverse matters that would have been disclosed on an up to date survey.
  5. Title fraud, which occurs when a person uses false identification to get the title of a property in order to obtain a mortgage or sell the home without the homeowner knowing or impersonating you to obtain a mortgage.

Additionally, title insurance protects homeowners from title issues that may impact their ability to sell, lease or mortgage their property in the future. It also includes a “duty to defend” to protect both buyers and lenders against expensive litigation related to title issues.

Unlike home insurance, title insurance is a one-time premium that is typically purchased at the same time as the property. However, title insurance can be purchased even if your clients already own their property. The cost of title insurance in Canada averages around $250 but can range anywhere from a few hundred to a few thousand dollars, depending on factors relating to the property.

BE PREPARED

The best way for homeowners to protect themselves from expensive and unexpected costs associated with property ownership is to understand the various risks, and to invest in the right insurance coverage.

Without question, both home insurance and title insurance are incredibly important protection options that homeowners should always consider when purchasing a home.

A home is often your clients’ most valuable asset–make sure they protect it with home insurance and title insurance.

 

Published by FCT
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, please refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
®Registered Trademark of First American Financial Corporation.

10 Mortgage Mistakes

Mortgage Tips Kim Stenberg 16 Sep

10 Mortgage Mistakes.

Whether it is your first house or you’re moving to a new neighborhood, getting approved for a mortgage is exciting! However, even if you have been approved and are simply waiting to close, there are still some things to keep in mind to ensure your efforts are successful.

Many homeowners believe that if you have been approved for a mortgage, you are good to go. However, your lender or mortgage insurance provider will often run a final credit report before completion to ensure that nothing has changed. Changes in your credit usage and score could affect what you qualify for – or whether or not you get your mortgage at all.

To avoid having your mortgage approval status reversed or jeopardizing your financing, be sure to stay away from these 10 mortgage mistakes:

1. BEEFING UP YOUR APPLICATION

This is not a time to try and ‘beef up’ your financials; you must be honest on your mortgage application. This is especially true when seeking the advice of a mortgage professional, as their main goal is to assist you in your home buying journey. Providing accurate information surrounding your income, properties owned, debts, assets and your financial past is critical. If you have been through a foreclosure, bankruptcy or consumer proposal, disclose this right away as well. We are here to help!

2. GETTING PRE-APPROVED

With all the changes and qualifying requirements surrounding mortgages, it is a mistake to assume that you will be approved. Many things can influence whether or not you qualify for financing such as unknown changes to your credit report, mortgage product updates or rate changes. Getting pre-approved is the first step to ensuring you are on the right track and securing that mortgage! Most banks consider pre-approval to be valid for four months. So, even if you aren’t house-hunting tomorrow, getting pre-approved NOW will come in handy if a new home is in your near future.

3. SHOPPING AROUND

One of the biggest mistakes people make when signing for a mortgage is not shopping around. It is easy to simply sign up with your existing bank, but you could be paying thousands more than you need to, without even knowing it! This is where a mortgage broker can help! With access to hundreds of lenders and financial institutions, a mortgage professional can help you find a mortgage with the best rate and terms to suit YOUR needs.

4. NOT SAVING FOR A DOWN PAYMENT

Your down payment is a critical part of homeownership and a useful financial tool that you should utilize when purchasing a home. A down payment reduces the overall amount of financing you need and increases the amount of equity right from the start. Down payments also show the bank you are serious. In Canada, the minimum down payment is 5% (with mortgage insurance), with the recommended being 20% if possible.

5. CHANGING EMPLOYERS OR JOBS        

As employment is one of the most important factors that determines whether or not you qualify for financing, it is important not to change employers if you are in the middle of the approval process. Banks prefer to see a long tenure with your employer, as it indicates financial stability. It is best to wait for any major career changes until after your mortgage has been approved and you have the keys to your new home!

6. APPLYING OR CO-SIGNING FOR OTHER LOANS

Applying for additional loans or financing while you are currently in the midst of finalizing a mortgage contract can drastically affect what you qualify for – it can even jeopardize your credit rating! Save any big purchases, such as a new car, until after your mortgage has been finalized.

Also, just as applying for new loans can wreak havoc on a mortgage application, so can co-signing for other loans. Co-signing signifies that you can handle the full responsibility of the debt if the other individual defaults. As a result, this will show up on your credit report and can become a liability on your application, potentially lowering your borrowing power.

7. AVOIDING CREDIT MISSTEPS

As mortgage financing is contingent on your credit score and your current debt, it is important to keep these things healthy during the course of mortgage approval. Do not go over any limits on your cards or lines of credit, or miss any payment dates during the time your finances are being reviewed. This will affect whether or not the lender sees you as a responsible borrower.

Also, although you might think an application with less debt available to use would be something a bank would favor, credit scores actually increase the longer a card is open and in good standing. Having unused available credit and cards open for a long duration with a good history of repayment is a good thing! In fact, if you lower the level of your available credit (especially in the midst of an application) it could lower your credit score.

8. HAVING TOO MUCH DEBT

Credit card debt is on the rise and overuse of lines of credit can put you at risk for debt overload. Large purchases such as new truck or boat can push your total debt servicing ratio over the limit (how much you owe versus how much you make), making it impossible to receive financing. Some homeowners have so much consumer debt that they aren’t even able to refinance their home to consolidate that debt. Before you start considering a new home, make sure your current debt is under control.

9. LARGE DEPOSITS

Just as now is not the time for new loans, it is also not the time for large deposits or “mattress money” to come into your account. The bank requires a three-month history of all down payments and funds for the mortgage when purchasing property. Any deposits outside of your employment or pension income will need to be verified with a paper trail – such as a bill of sale for a vehicle, or income tax credit receipts. Unexplained deposits can delay your mortgage financing, or put it in jeopardy if they cannot be explained.

10. MARRYING INTO POOR CREDIT

Having the financial talk before getting hitched continues to be critical for your financial future. Your partner’s credit can affect your ability to get approved for a mortgage. If there are unexpected financial issues with your partner’s credit history, make sure to have a discussion with your mortgage broker before you start shopping for a new home.

If you are currently in the midst of a mortgage application, or are looking to start the process, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today to ensure that you do things the RIGHT way to succeed with your home purchase.

Published by DLC Marketing Team

Insufficient Housing Supply Boosted Home Prices Again in August

Latest News Kim Stenberg 15 Sep

Home Prices Still Rising as Falling Sales Reflect Insufficient Supply

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell a slight 0.5% nationally from July to August 2021–the fifth consecutive monthly decline. Over the same period, the number of newly listed properties edged up 0.8%, and the MLS Home Price Index rose 0.9% m/m bringing the year-over-year (y/y) rise to 21.3%. Transactions appear to be stabilizing at a more sustainable, but still strong level (see chart below).

Small declines in the GTA and Montreal were offset by gains in the Fraser Valley, Quebec City and Edmonton.

The actual (not seasonally adjusted) number of transactions in August 2021 was down 14% on a year-over-year basis from the record set for that month last August. That said, it was still the second-best month of August in history.

New Listings

The number of newly listed homes ticked 1.2% higher in August compared to July. As with sales activity, it was a fairly even split between markets that saw declines and gains. New supply declines in the GTA and Ottawa were offset by gains in Vancouver and Montreal among bigger Canadian markets.

With both sales and new listings relatively unchanged in August, the sales-to-new listings ratio remained a tight 72.4% compared to 73.6% in July. The long-term average for the national sales-to-new listings ratio is 54.7%.

Based on a comparison of sales-to-new listings ratio with long-term averages, a small majority of local markets remain in seller’s market territory. The remainder are in balanced territory.

There were 2.2 months of inventory on a national basis at the end of August 2021, down a bit from 2.3 months in July. This is extremely low – still indicative of a strong seller’s market at the national level and most local markets. The long-term average for this measure is more than twice where it stands today. It was also the first time since March that this measure of market balance tightened up.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.9% month-over-month in August 2021. In line with tighter market conditions, this was the first acceleration in month-over-month price growth since February. While the trend of re-accelerating prices was first observed earlier this summer in Ontario, the reversal at the national level in August was less of a regional story and more of a critical mass story. Synchronous trends across the country have been the defining feature of the housing story since COVID-19 first hit, and that still appears to be the case.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 21.3% on a year-over-year basis in August.

Looking across the country, year-over-year price growth is averaging around 20% in B.C., though it is lower in Vancouver, a bit lower in Victoria, and higher in other parts of the province. Year-over-year price gains are in the mid-to-high single digits in Alberta and Saskatchewan, while gains were a little over 10% in Manitoba.

Ontario saw year-over-year price growth still over 20% in August. However, as with B.C. big, medium and smaller city trends, gains are notably lower in the GTA, around the provincial average in Oakville-Milton, Hamilton-Burlington and Ottawa, and considerably higher in most smaller markets in the province.

The opposite is true in Quebec, where Greater Montreal’s year-over-year price growth, at a little over 20%, is almost double that of Quebec City. Price growth is running a little above 30% in New Brunswick (higher in Greater Moncton, a little lower in Fredericton and Saint John), while Newfoundland and Labrador is in the 10% range on a year-over-year basis (a bit lower in St. John’s).

 

Bottom Line

Local housing markets are cooling off as prospective buyers contend with a dearth of homes for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon despite all of the election promises. As net new immigration resumes, this excess demand in housing will mount. The impediments to a rapid rise in housing supply, both for rent and purchase, are primarily in the planning and approvals process at the municipal levels. Federal election promises do not address these issues.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Canadian Inflation Pressures Mount in August, Even As They Eased in the U.S.

Latest News Kim Stenberg 15 Sep

Annual Inflation in August Rises to 4.1% in Canada — But Area We Close to the Peak?

 

Today’s release of the August Consumer Price Index (CPI) for Canada posted another uptick in the year-over-year (y/y) inflation rate, but hidden in the details was some support for the Bank of Canada’s position that the spike in inflation is transitory. The Bank has long suggested that the rise in prices will prove to be the result of base effects (y/y comparisons that are biased upward by the temporary decline in prices one year ago), supply disruptions, and the surge in pent-up demand accompanying the reopening of the global economy.

This morning’s Stats Canada release showed that consumer price inflation surged to a 4.1% y/y pace last month, above the 3.7% pace recorded in June, and the 3.1% pace in May. This is now the fifth consecutive month in which inflation is above the 1%-to-3% target band of the Bank of Canada.

The good news, however, is that the monthly rise in prices slowed on a (seasonally adjusted basis) in August to 0.4% compared to the 0.6% rise in July. As well, core measures of inflation preferred by the Bank of Canada, which exclude food and energy, are considerably lower than the all-items measures of the CPI. All three of the BoC’s core inflation measures rose on a y/y basis last month to an average level of 2.6% vs. the all-items level of 4.1%

The major contributors to the surge in inflation didn’t change in August. Gasoline prices rose a whopping 32.5% y/y, owing to production cuts and disruptions in the wake of Hurricane Ida. This more than offset the decline in demand due to the rise in the Delta variant, causing a sharp slowdown in China and other hard-hit regions. The homeowners’ replacement cost index, related to the price of new and existing homes, rose to 14.3% in August–the largest annual increase since September 1987. Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, rose 14.3% year over year in August. The easing of travel restrictions boosted demand for airfares and hotel accommodation when labour shortages and rising energy costs pressed these industries. Meat prices have also surged in the past year as restaurant demand spiked. Auto sector prices continued to rise sharply as the inventories of new vehicles, disrupted by the chip shortage, hit new record lows.

Bottom Line

As the first chart below shows, the US has posted the highest level of inflation in the G-7, as the economic rebound there has outpaced that of its counterparts where Covid restrictions were more pervasive. Yet, yesterday’s release of the US August CPI report showed a marked slowdown in inflation pressure, leading some to suggest that the transitory view of inflation has been validated.

One thing to watch, however, is wage rates. Job vacancies and labour shortages have pushed up wages in some sectors, especially in the hardest-hit low-wage hospitality and leisure sectors, including food services and accommodation. If price pressures become validated by enough wage inflation, we run the risk of inflation becoming embedded. Wage-price spiraling has not been a factor since the 1970s when labour unions were much stronger and labour had much more pricing power.

Financial markets appear to be sanguine about the prospect for inflation-induced rate hikes in the near term. Bond yields remain historically low. Next week, we will hear more from the Fed on this subject as the policy-making group releases its report on Wednesday, September 22.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Good News on the Canadian Jobs Front

Latest News Kim Stenberg 10 Sep

August Employment Report Showed Continuing Recovery

This morning, Statistics Canada provided us with some much-needed good news on the economic front following last week’s surprisingly dismal Q2 GDP report. Canada’s labour market continued its recovery in August, especially in the hardest-hit food services and accommodation sectors. The August Labour Force Survey (LFS) data reflect conditions during the week of August 15 to 21. By then, most regions of Canada had lifted many of the Covid-related restrictions. However, there were capacity restrictions in such indoor locations as restaurants, gyms, retail stores and entertainment venues. Also, for the first time since March 2020, border restrictions were lifted for fully vaccinated non-essential travellers from the US.

However, the reopening of the Canadian economy has been creaky, owing to supply constraints and difficulty in filling job vacancies in sectors that require high-contact interfaces, especially with the concern regarding a fourth wave of the delta variant. Nevertheless, today’s LFS indicated that employment grew last month by 90,200, the third consecutive monthly gain, further closing the pandemic gap. Employment is now within 156,000 (-0.8%) of its February level, the closest since the onset of the pandemic. Moreover, most of the net new jobs were in full-time work. Increases were mainly in the service sector, led by accommodation and food services.

The jobless rate fell from 7.5% in July to 7.1% in August. The unemployment rate peaked at 13.7% in May 2020 and has trended downward since, despite some short-term increases during the fall of 2020 and spring of 2021. In the months leading up to the pandemic, the unemployment rate had hovered around historic lows and was 5.7% in February 2020.

The adjusted unemployment rate—which includes discouraged workers–those who wanted a job but did not look for one—was 9.1% in August, down 0.4 percentage points from one month earlier.

Employment increased in Ontario, Alberta, Saskatchewan and Nova Scotia in August. All other provinces recorded little or no change. For the third consecutive month, British Columbia was the lone province with employment above its pre-pandemic level. Compared with February 2020, the employment gap was largest in Prince Edward Island (-3.4%) and New Brunswick (-2.7%). The table below shows the jobless rates by province.

Bottom Line 

The Bank of Canada this week once again suggested that it would not begin to tighten monetary policy until the economy returned to full capacity utilization, which they estimate will not be until at least the second half of next year. Employment will need to surpass pre-pandemic levels before complete recovery is declared because the population had grown since the start of the crisis 18 months ago.

Although August was another solid month for the jobs market, there is a wide disparity across sectors of the job market in the degree to which they have recovered from the effects of the pandemic. The table below shows the employment change in percentage terms by sector compared with February 2020.

Sectors where remote work has been widespread–such as professional, scientific and technical services, public administration, finance, insurance and real estate–have seen a net gain in employment. However, in high-touch sectors that were deemed nonessential, the jobs recovery has been far more constrained. This is especially true in agriculture, accommodation and food services, and recreation.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

 

BANK OF CANADA RATE ANNOUNCEMENT: BoC Responds to Weak Q2 Economy – Holding Policy Steady

Latest News Kim Stenberg 8 Sep

As we await the quarterly economic forecast in next month’s Monetary Policy Report, the Bank of Canada acknowledged that the Q2 GDP report, released last week, caught them off-guard. In today’s policy statement, the Governing Council of the Bank said, “In Canada, GDP contracted by about 1 percent in the second quarter, weaker than anticipated in the Bank’s July Monetary Policy Report (MPR). This largely reflects a contraction in exports, due in part to supply chain disruptions, especially in the auto sector. Housing market activity pulled back from recent high levels, largely as expected. Consumption, business investment and government spending all contributed positively to growth, with domestic demand growing at more than 3 percent. Employment rebounded through June and July, with hard-to-distance sectors hiring as public health restrictions eased. This is reducing unevenness in the labour market, although considerable slack remains and some groups – particularly low-wage workers – are still disproportionately affected. The Bank continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery” (see chart below).

Bank Says CPI Inflation Boosted By Temporary Factors–Maybe

Financial conditions remain highly accommodative around the globe. And the Bank today continued to assert that the rise in inflation above 3% is expected, “boosted by base-year effects, gasoline prices, and pandemic-related supply bottlenecks. These factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely. Wage increases have been moderate to date, and medium-term inflation expectations remain well-anchored. Core measures of inflation have risen but by less than the CPI.”

The Governing Council again stated the Canadian economy still has considerable excess capacity, and the recovery continues to require extraordinary monetary policy support. “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.” Concerning forward guidance, the Bank said, “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s July projection, this happens in the second half of 2022.” This seems to be a placeholder statement, allowing the Bank to reassess the outlook next month, possibly delaying the guidance if the economy continues to perform below their July projection.

Similarly, the Bank maintains its Quantitative Easing program at the current pace of purchasing $2 billion per week of Government of Canada (GoC) bonds, keeping interest rates low across the yield curve. “Decisions regarding future adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective”.

Bottom Line

Only time will tell if the Bank of Canada is correct in believing that inflation pressures are temporary. Financial markets will remain sensitive to incoming data, but bond markets seem willing to accept their view for now. The 5-year GoC bond yield has edged down from its recent peak of 1.0% posted on June 28th to a current level of .80%. In contrast, the Canadian dollar had weakened significantly since late June when it was over US$0.825 to US$0.787 this morning. Clearly, the Bank of Canada is committed to keeping Canadian interest rates low for the foreseeable future. 

The next Bank of Canada policy decision date is October 27th. Stay tuned for the Canadian employment report this Friday.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres