The other day a Global News newsletter subscriber stopped me on the cyber-street and asked if accelerating principal repayment is worth it. I'm sharing the answer here in case readers come across similar questions...or need an idea for a client CRM email.

The Question:

"I’ve heard that trying to pay down your mortgage is a financial myth. You need only pay your interest, and when you sell your house, the increased equity will put you further ahead than trying to pay as much of the principal as you can during the course of your amortization. It leaves you with more cash for other expenses. Is there any logic to this approach?"
—Global News Money123 subscriber

Millions of Canadians expected mortgage rates to peak this year. The historic ferocity of rate hikes, an over-leveraged consumer and a 530 bps drop in inflation made that a credible bet.

But there's a reason economic models and long-term rate forecasting don't work so well. They’re unable to price in the unexpected...such as:

After a 15-year marathon in the prime mortgage space, Home Trust is tossing in the towel.

The company—best known for being a non-prime mortgage leader—is canning its Accelerator prime mortgage lineup, effective November 15. It made the announcement to brokers on Tuesday.

According to an insider, the move was driven mainly by one thing.

Ontario's largest credit union (Canada's 2nd biggest) has pulled most of its products from the broker market.

That includes popular offerings, like:

• Contract rate qualification mortgages (which aren't stress tested the same as bank mortgages, allowing customers to qualify for bigger loans)
• Uninsured HELOCs (including Meridian's 70% #LTV# revolving HELOC, which is 5%-points more LTV than banks allow on revolving credit lines)
• Non-income qualifying mortgages.

But why did Meridian pluck these crowd-pleaser products from the broker market—while leaving them in its retail channel?

Whereas most reverse mortgage customers have wrinkles and grey hair, here's a company that will lend you money with no payments required, even if you're not old enough to drink in some countries.

The lender in question is Fraction, an innovator in the equity release space (a.k.a. reverse mortgage market).

In fact, it was so much of an innovator it had to shut down its unique lending model last year due to falling home values and "capital markets" issues. It soft launched again in July, and now it's game on, says Co-founder Hayden James.

Banks across the land have been notifying customers of changes to their #readvanceable# mortgages.

Some of these notices appear written to create mass confusion. We've talked to a sampling of customers who got these letters and swore they were reading an alien dialect. Many are utterly bewildered by what's happening—and why. (All of which makes a good touch point opportunity for mortgage advisors.)

The puzzlement stems from a policy change OSFI announced 15 months ago. Its new rules limit how customers with readvanceable mortgages can reborrow paid-down principal when the total borrowing is over 65% loan-to-value.

"OSFI expects that any and all lending above the 65% LTV limit, which cannot exceed 80% LTV, will be both amortizing and non-readvanceable," the regulator says.

For weeks, we've been a Debbie Downer—warning that today's inflation report promised more frights than a Stephen King novel. And man, did StatsCan deliver a shocker.

Year-over-year inflation comparables and rocketing oil prices set us up for a doozy. But these numbers aren’t just bad; they're more like 'take your lunch money, give you a wedgie and swipe left on your Tinder profile' kind of bad.

Canada's not-so-hidden inflation dragon has re-emerged from its cave—breathing fire at 4%. Here are the sriracha-hot details:

• Annual inflation: 4.0%, up from July's 3.3% (consensus: 3.8%)
• Monthly inflation: Up 0.4% (consensus: 0.2%)
• Average core inflation (y/y): 4.0% vs. 3.75% in July
• Average core inflation (3-month): 4.5% vs. 3.5% in July

One key culprit this month was crude oil, which is high-stepping to a new 11-month high near $93/bbl. Technical analysis suggests potential continuation to at least $95+, barring contrary news.

Mortgage interest costs and rent were also a driver. But, that "is partly the lagged reaction to the Bank’s rate hikes in June and July, so shelter price growth will soon slow," says Capital Economics. In large part, the BoC is looking right through mortgage interest costs, a catalyst of their own doing.

What keeps the BoC most on the edge of their boardroom chairs are the core readings — especially the 3-month ones. And, "Previously, the Bank had been concerned that underlying trends looked like they were stuck around 3.5%," reported BMO Economics today. That view "now seems almost quaint."

Market reaction

Canada's 4-year swap rate—a short-term leading indicator for fixed mortgage rates—is surging. It's up 10 bps as this is being written.

Chances of an October 25 BoC hike have doubled to 41%, with another hike now fully priced in by Q1 of 2024. But if we do get another 25 bps BoC bump, it'll likely be sooner.

Cuts are once again entirely off the board in the next 12 months—as this #OIS#-implied rate table below from Refinitiv Eikon illustrates.

OSFI's proposed "B-20" mortgage policy tightening will "push borrowers to commit mortgage fraud," expects a broker-lender CEO we spoke with off the record recently.

"We have seen a rise in fraudulent applications from borrowers frustrated with their continued inability to purchase a home," he said. "If OSFI wants to introduce more stress test type policies, they must simultaneously give federally-regulated financial institutions more abilities to fight mortgage fraud."

According to Equifax data cited by Cecely Roy at Mortgage Professionals Canada (MPC), mortgage fraud is already almost 30% higher than pre-pandemic. The only thing rising faster than that is the blood pressure of chief risk officers.

Sometimes a turtle in lead boots moves faster than our government. But hey, better late than never when it comes to this announcement.

The government has finally bent to pressure from housing groups and agreed to remove GST from purpose-built rental construction. Trudeau had sent that memo to his Finance Minister in 2015; really took the scenic route, didn't it?

This change gives rental construction a big shot in the arm. It also gives financing pros a shiny new reason to polish their PowerPoint slides and dial up their 4-plus-unit builder contacts.

We asked Canadian Home Builders' Association (CHBA) CEO Kevin Lee to break it down.

Artificial intelligence (AI) is destined to penetrate every nook and cranny of the mortgage business. That's why, in the days and months to come, we'll profile a parade of AI tools to help borrowers and mortgage advisors. And we'll start with this one.

It's called Lender Spotlight AI Assistant, and it's from Lendesk.

Like a digital bloodhound, AI Assistant sniffs through a whopping 7000+ lender policies, figuring out which lender might consider a given mortgage scenario.