Watch What I Do, Not What I Say

Katherine Martin • May 17, 2017

Is the government being reckless and irresponsible or will rates be this low forever? Here’s a great article that compares the recent changes to mortgage qualifications imposed on Canadians (what the government says) and the government’s own borrowing (what they are actually doing). Authored by Will Dunning, MPC Chief Economist. Enjoy!

“Watch What I Do, Not What I Say”

This is one of the most useful things I learned in high school. Thank you, Mr. Hall!

The federal government has clearly told us that mortgage borrowers need to be prepared for much higher interest rates in future, since the stress test for all insured mortgages requires that borrowers’ ability to pay must be tested at a rate that is more than two percentage points above the rates that can actually be obtained in the market today.

The “posted rate” that is used in the stress test is currently 4.64%; using any of the popular rate comparison websites, it is obvious that available rates are below 2% for variable and short-term mortgages, and below 2.5% for 5-year fixed rate mortgages.

Does the government really believe that there is a serious risk of rates rising by more than two percentage points?

It hasn’t discussed this. So, what can we infer from the way the government is actually behaving when it borrows money?

The federal government does a lot of borrowing: during the 12 months from May 2016 to April 2017 it sold just under $425 billion in bonds and treasury bills, or $35.4 billion per month.  Most of this is to replace issues that have matured, but about $25 billion represents new debt (growth in the total outstanding). By simple math, $400 billion per year ($33 billion per month) is for roll-over of maturing debt.

Given these enormous numbers, we can assume that the Government of Canada is aware that it is exposed to changes in interest rates and that its decisions about terms-to-maturity are based on a risk analysis. If it is concerned that interest rates will rise materially (or even if it is unsure, but sees a risk that they might), then its logical reaction would be to reduce its short term borrowing.

Fun Fact!

The government has not done that: to the contrary, it has SHORTENED the terms-to-maturity of its recent borrowing.

In the table below, data from the Bank of Canada is used to calculate the average terms-to-maturity for new Government of Canada bonds, by year.  (The data can be obtained via this page )

As shown, the lengths of new issues have fallen during the past decade.

For 2017:

  • The average term (fractionally above 4 years) is considerably shorter than in prior years, and is the lowest seen in two decades.
  • 60% have short terms (2 or 3 years). A further 26% have 5 year terms. Just 14% have long terms (10 or 30 years), and this is the lowest share in the 20 years of data.

The data in this table is for bonds, and excludes Treasury Bills (which have terms of 3 months, 6 months, or 1 year).  These short-term T-bills represent one-fifth of the federal government’s outstanding debt.  If they were included in the maturity calculation, the combined average maturity for federal debt issued in 2017 would be far below 4 years.

The data on the federal government’s actions send a very clear message that it either (1) does not expect rates to rise materially or (2) is being reckless and irresponsible. Meanwhile, it is imposing a draconian test on mortgage borrowers.

 

This article was originally published on Canadian Mortgage Trends, a publication of Mortgage Professionals Canada, authored by MPC Chief Economist Will Dunning on May 15th 2017. 

Katherine Martin


Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842


RECENT POSTS

What Is A Spousal Buyout?

By Katherine Martin • July 2, 2025
If you’re going through or considering a divorce or separation, you might not be aware that there are mortgage products designed to allow you to refinance your property and buy out your ex-spouse. If you’re like most people, your property is your most significant asset and is where most of your equity is tied up. If this is the case, it’s possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program. It’s called the spousal buyout program. Here are some of the common questions people have about the program. Is a finalized separation agreement required? Yes. To qualify, you’ll need to provide the lender with a copy of the signed separation agreement, which clearly outlines asset allocation. Can the net proceeds be used for home renovations or pay off loans? No. The net proceeds can only buy out the other owner’s share of equity and/or pay off joint debt as explicitly agreed upon in the finalized separation agreement. What is the maximum amount that you can access through the program? The maximum equity you can withdraw is the amount agreed upon in the separation agreement to buy out the other owner’s share of the property and/or retire joint debts (if any), not exceeding 95% loan to value. What is the maximum permitted loan to value? The maximum loan to value is the lesser of 95% or the remaining mortgage + the equity required to buy out other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV. The property must be the primary owner-occupied residence. Do all parties have to be on title? Yes. All parties to the transaction have to be current registered owners on title. Your solicitor will be required to confirm this with a title search. Do the parties have to be a married or common-law couple? No. Not only will the spousal buyout program support married and common-law couples who are divorcing or separating, but it’s also designed for friends or siblings who need an exit from a mortgage. The lender can consider this on an exception basis with insurer approval. In this case, as there won’t be a separation agreement, a standard clause will need to be included in the purchase contract to outline the buyout. Is a full appraisal required? Yes. When considering this type of mortgage, a physical appraisal of the property is required as part of the necessary documents to finalize the transaction. While this is a good start to answering some of the questions you might have about getting a mortgage to help you through a marital breakdown, it’s certainly not comprehensive. When you work with an independent mortgage professional, not only do you get a choice between lenders and considerably more mortgage options, but you get the unbiased mortgage advice to ensure you understand all your options and get the right mortgage for you. Please connect anytime; it would be a pleasure to discuss your needs directly and provide you with options to help you secure the best mortgage financing available. Also, please be assured that all communication will be held in the strictest of confidence.

Assigning A Construction Mortgage

By Katherine Martin • June 25, 2025
One of the benefits of working with an independent mortgage professional is having lots of great financing options! Rather than dealing with a single lender with one set of products, independent mortgage professionals work with multiple lenders who offer a wide selection of mortgage financing options that provide more choice. Increased choice in mortgage products is beneficial when your situation isn’t “normal,” or you don’t quite fit the profile of a standard buyer. Purchasing a new construction home through an assignment contract would be a great example of this. Purchasing a new construction home through an assignment contract can be tricky as not every lender wants the added perceived risk of dealing with this type of transaction. Most of these lenders won’t come out and say it; instead, they add a significant list of qualifying conditions to make the process harder. The good news is, there are lenders available exclusively through the broker channel that have favourable policies for assignment purchases. Here are some of the highlights: All standard purchase qualifications apply, including applicable income verification, established credit, and required downpayment Assignments can be at the original purchase price or current market value Minimum 620 beacon score with no previous bankruptcies or consumer proposals The full downpayment must come from the purchaser and not include any incentives from the seller. As far as documentation goes, the lender will want to see the original purchase agreement signed by all parties, the MLS listing, the assignment agreement signed by the builder, the original purchaser, and the new buyer. The lender will also want to see the side agreement between the original purchaser and the new buyer, including the amended purchase price. The lender will want to substantiate the value through a full appraisal. Now, as every situation is different, this list of conditions is in no way exhaustive but meant to show that assigning a new construction purchase contract is doable while highlighting some of the terms necessary to secure financing. If you’re looking to purchase new construction through an assignment contract, or if you’d like to discuss purchasing a home through traditional means, please connect anytime! It would be a pleasure to outline the mortgage products on the market that won’t limit your financing options!
© 2025 

Katherine Martin. All Rights Reserved.