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If Albertans want to avoid fiscal disaster, the only choices left are difficult ones

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Alberta’s economy is facing a “crisis,” according to Premier Rachel Notley.

She’s right.

Pipeline constraints and lower oil prices are hurting our energy sector and our provincial budget. 

As Notley says, it’s a “real and present danger to the Canadian economy.” When Prime Minister Justin Trudeau visits Calgary later this week — ground zero of Canada’s fiscal and economic challenges — he will hear this message.

Today, federal Finance Minister Bill Morneau delivers the fall fiscal update. It’s an update about where we are as a nation — but Alberta is a big part of that story.

Prime Minister Justin Trudeau and Alberta Premier Rachel Notley met in Edmonton in September 2018. (Jason Franson/Canadian Press )

After all, the immediate challenges are here.

The price for Alberta conventional oil fell from $70 per barrel in July to barely over $20 recently. And the oilsands benchmark fell from $50 to $15. University of Alberta economist Andrew Leach tweeted a stark illustration of the drop.

While the province is undergoing gradual economic recovery, these recent drops could derail that.

While all this is going on, we’re also facing a slow-moving financial time bomb unless we take relatively immediate action. The time for debating the problems has passed. We should accept what we cannot change and focus on solutions.

And that means less spending, new taxes, or a better mix of both.

Ditch the resource rollercoaster

Historically, Alberta depended on high oil and gas prices to balance its budget.

For all the talk of diversification and change, Alberta is still betting its financial future on unstable oil and gas royalties.

The government’s “Path to Balance” hopes to balance the books by 2023. But it depends on rising resource revenues to do so. This just won’t work. It’s not a solution. It’s a hope.

The plan was tenuous when it was released, but now — given the growing oil price discounts and pipeline delays both in Canada and the United States — it’s completely off the rails.

My more conservative projection, made in a recent examination of Alberta’s fiscal future for the University of Calgary’s School of Public Policy, suggests resource revenues are unlikely to fund any more than what we saw between the mid-’80s and early ’90s. If it does, we’d be lucky. And we shouldn’t bet the bank on dreams.

Low resource revenues matter.

I find current policy is pointing us toward deficits on the order of $40 billion by 2040. And that’s just for that one year. Borrowing to cover all the deficits along leads to debt levels beyond any point in Alberta’s history (yes, even the Great Depression), with the resulting interest costs consuming one in six dollars raised by government.

In short, Alberta’s finances are not sustainable.

We can endlessly debate the problems, but we need — right now — to come up with proper solutions.

Our many difficult choices

The bad news is that there are only difficult choices ahead for Albertans. The goods news is that there are many different options. We must pick some. And stick with them.

Balancing the books within the term of the next government — whichever party that may be — is entirely credible. But as we move deeper into the 2020s, the fiscal challenge grows larger.

Currently, Alberta’s debt levels are set to balloon to unmanageable levels. To avoid this, revenue must rise and/or spending must fall. A lot.

For perspective, the required action is the equivalent of introducing a 10 per cent sales tax or cutting one in every six dollars spent by government.

Implementing either of these options immediately would be unwise, politically and economically. There are no simple solutions here. And shock therapy with massive immediate changes is not the way to go.

Rather, Alberta must consider more gradual approaches.

Spending restraint — even aggressive restraint — is not enough on its own. Consider if we restricted spending to rise only with inflation and population growth. This in itself is a tall order, but would solve only about half the long-run challenge.

And so, we must slow the growth rate of government spending (especially in health), and introduce modest new taxes. Yes, I’m talking about a sales tax.

At the same time, instead of either cancelling the carbon tax, as the opposition proposes, or spending its proceeds, as the government is, we could put the revenue toward the deficit.

Of course, other options are available.

We could and perhaps should seek higher federal transfers — something other provinces would echo. And we should conduct a detailed review of our health-care spending and cut what can be cut.

Most if not all of the above will cause anger, resentment and pain. But the time has come to have an honest conversation about where our money comes from today, where it will come from tomorrow, and how best it should be spent.

The right thing to do

There are many paths forward. All involve trade-offs. To ensure we make the best decisions possible, long-term planning is necessary.

To quote the former Auditor General Merwan Saber’s final report: “considering the impact of today’s decisions on future generations of Albertans is not just important but without question the right thing to do.”

He goes on to note that “risks and opportunities are likely to be missed in absence of putting pen to paper and projecting a fiscal path.”

Alberta Finance Minister Joe Ceci delivers the provincial budget in Edmonton in March 2018. (Jason Franson/The Canadian Press)

So let’s put pen to paper. Let’s recognize and prepare for the long-run challenges ahead.

Government — any government — should lead the way with regular analysis and clear, consistent goals. Forecasts shouldn’t be aspirational, but rather be an honest, hard headed reflection of our fiscal reality.

In turn, we Albertans must understand challenges ahead, be open to them, and be aware that at this point only painful options are available.

We did little long-term planning when times were good. We did little when times were bad.

It’s time we do something different.


This column is an opinion. For more information about our commentary section, please read this editor’s blog and our FAQ.

Calgary: The Road Ahead is CBC Calgary’s special focus on our city as it passes through the crucible of the downturn: the challenges we face, and the possible solutions as we explore what kind of Calgary we want to create. Have an idea? Email us at calgarytheroadahead@cbc.ca


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Real Estate

Mortgage insurance vs. life insurance: What you need to know

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Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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Real Estate

5 common mistakes Canadians make with their mortgages

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This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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Canadian mortgage rules: What you should know

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If you’re a new homebuyer seeking a mortgage, or an existing homeowner looking to switch or refinance, it’s important that you’re up-to-date on the new mortgage rules in Canada. Here are some of the top things you should keep in mind if you’re looking for a new home. 

The Canadian Mortgage Stress test in 2021

The stress test was introduced on January 1, 2018, as a way to protect Canadian homeowners by requiring banks to check that a borrower can still make their payment at a rate that’s higher than they will actually pay.  The purpose of the stress test is to evaluate if a borrower (a.k.a. the potential homeowner) can handle a possible increase in their mortgage rate.

For Canadians to qualify for a federally regulated bank loan, they need to pass the stress test. To do this, homebuyers need to prove that they can afford a mortgage at a qualifying rate. For homebuyers who have a down payment of 20% or more, currently the qualifying rate is determined using the Bank of Canada’s five-year benchmark or the interest rate offered by the lender plus 2%, whichever is higher. For homebuyers who have a down payment of less than 20%, the qualifying rate is the higher of the Bank of Canada five-year benchmark rate and the interest rate offered by the lender.

This stress test is also performed with homeowners looking to refinance, take out a secured line of credit, or change mortgage lenders. Those who renew with the same lender will not have to undergo the stress test.

Other new mortgage rules in Canada

As of July 2020, a number of changes were implemented for all high-ratio mortgages to be insured by the Canada Mortgage and Housing Corporation (CMHC).

A high-ratio mortgage is one where the borrower has a minimum down payment of less than 20% of the purchase price of the home. A high-ratio mortgage is also referred to as a default insured mortgage. Let’s break down what recent changes have been made.

Qualification rate

The new CMHC rules will lower the amount of debt that borrowers with a default insured mortgage can carry. Mortgage applicants will be limited to spending a maximum of 35% of their gross income on housing and can only borrow up to 42% of their gross income once other loans are included. This is down from the previous 39% and 44%.

Credit score

The new rules also require the borrower to have a minimum credit score of 680 (good score). If you are purchasing a home with your partner, one of you must have a score of 680. This is up from the previous minimum score of 600 (fair score).

Down payment

Homebuyers are now required to use their own money for a down payment instead of borrowed funds. This means homebuyers are no longer able to use unsecured personal loans, unsecured lines of credit or credit cards to fund their down payment.

Homebuyers with a down payment of less than 20% of the purchase price are required to purchase mortgage default insurance. Properties costing $1 million or more are not eligible for mortgage default insurance.

CMHC and CREA projections

Due to the pandemic, job loss, business closures, and a drop in immigration, CMHC predicted a 9% to 18% decrease in housing prices from June 2020 to June 2021.* However, this prediction hasn’t come to fruition.

Instead, 2020 ended up being a record year for Canadian resale housing activity, according to Costa Poulopoulos, the Chair of the Canadian Real Estate Association (CREA).**

The CREA predicts that all provinces except Ontario will see an increase in sales activity into 2021 as a result of low-interest rates and an improving economy. As for the CMHC, they stand by their original prediction.

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