Fixed or variable-rate mortgage? 

This spring we’re seeing aggressive pricing for variable-rate mortgages, while fixed mortgage rates continue to be at historically low levels. Which is best for today’s uncertain environment? 

First, a refresher on the differences. With a fixed-rate mortgage, you’ll know with absolute certainty what your rate and payment will be each month for the term of your mortgage, offering you stability and peace of mind. Since fixed rate mortgages are not affected by fluctuating interest rates, you can "set it and forget it." Typically preferred by those on a tight budget, first-time buyers, or those who haven’t owned a home for a long time.

A variable mortgage has an interest rate that will move in conjunction with your lender’s Prime rate, which in turn tracks the Bank of Canada’s overnight rate and will be expressed as “prime minus x percent.”  If the Bank of Canada raises or lowers its rate, then you’ll likely see that reflected in your mortgage payment. Since it can be difficult to predict what kind of rate ups and downs are ahead, a variable-rate mortgage is best suited to people who have a flexible budget and can tolerate slightly more risk. 

Right now, variable rate offers are very compelling causing the demand to be at some of the highest levels ever seen. But it’s not just about the rate. If your circumstances change and you need to get out of your mortgage – and approximately 2 out of 3 people with fixed mortgages do end up breaking their mortgage -- you will appreciate the much lower penalty to get out of a variable vs a fixed mortgage.  It’s important to consider the many “what if” scenarios that could happen over the term of your mortgage.  

Most variables allow you to exercise an option to “lock in” a fixed rate with no penalties when the time is right for you to lock into a fixed-rate mortgage. You can also set up your payments at what they would be if you took the higher fixed rate, which helps you pay down your mortgage faster, and creates a financial buffer for you if rates rise later.

With inflation concerns on the horizon, the Bank of Canada may raise the overnight rate sooner than expected, which will affect those in variable mortgages. While most economists agree that no one can predict what will happen with inflation as the economy continues to reopen, it is a going forward concern. 

Bottom line is to always get advice; the best choice depends on your situation. If you are looking to purchase, renew, or refinance to get today’s low rates or for debt consolidation, get in touch so we can discuss your situation and determine the best option for you. 

New stress test for all mortgages now in effect 

The Department of Finance has announced that insured mortgages will have the same stress test that OSFI recently introduced for uninsured mortgages. The stress test for both will be the greater of the borrower’s mortgage contract rate plus 2% or 5.25%, up from the current 4.79%, which means qualifying has become slightly harder for some. 

Recent mortgage rule changes

There had been speculation that the government would act to cool the hot housing market, but the industry saw only modest measures in the April 19 federal budget. A national annual tax on foreign-owned properties that are left vacant or under-occupied was announced, which will take affect in 2022.  This will only apply to "non-residents” to discourage offshore buyers.

New stress test. The budget also referenced the recent announcement by the Office of the Superintendent of Financial Institutions (OSFI), which is proposing a new stress test rate for uninsured mortgages of 5.25% effective June 1. This is higher than the current 4.79% and, going forward, will no longer be based on bank posted rates. It will be set a minimum of once per year by OSFI. 

What is the stress test? When getting a new mortgage, lenders must ensure that you pass a stress test, which means that you can handle payments at a certain qualifying rate. This is not the same rate as your actual contract rate, it’s for mortgage qualifying only.  

Why June 1 matters. Uninsured mortgages (i.e. when you have more than 20% equity) approved before June 1 are not subject to this tougher stress test so qualifying will be slightly easier. This applies to purchases that close after June 1 with a signed purchase and sale agreement. As a result, if you are thinking refinance to get a lower rate or for debt consolidation, or a purchase with more than 20% down, it’s a good idea to get in touch so we can discuss your situation.

What about high-ratio mortgages (i.e. less than 20% down)?  This stress test has not changed but it is certainly possible that it may also become slightly tougher at some point.  If you are looking to purchase, get a pre-approval so you are house shopping within your budget and have rate protection. It’s important to purchase when you are financially ready and not be driven by market conditions.

I am here to help so if you have questions on any matter, please let me know.

Be safe. Be well. Be happy.

The lowdown on the mortgage approval process

Whether you are purchasing, refinancing, or moving your mortgage to a new lender, it’s important to have a clear understanding of the mortgage approval process. It’s a big financial commitment so you’ll want to be sure you can move through the process with confidence. Here is a general overview:

What’s your need?

First, it’s important that we review your situation so I can help you with any hurdles you may encounter and answer your questions. For instance, I can provide tips that can help quickly bolster your credit score, a very important aspect of the mortgage approval process.  If you are ready, we’ll then move forward with getting the mortgage application completed. I will also let you know what documentation you’ll need to collect to secure your financing.

Application processing

Once I have all your documents, I’ll recommend and submit your application to the best lender with the right mortgage product for your needs.

The lender will verify your employment and banking information, review your credit report, and make sure that both your finances and the property meet all the qualifying guidelines for the mortgage. They will also order a property appraisal if required. Your application will also need mortgage insurer approval if you have less than 20% down.

If your application meets all the guidelines, we’ll receive a mortgage commitment, which means you are approved subject to certain conditions being met. We’ll review the lender’s conditions and make sure they’re satisfied and accepted so we get a “file complete” You’ll sign the commitment and it’ll be returned to your lender. If you are purchasing a home, you can then waive your financing condition.

It’s important that you don’t make any significant changes to your income or debts before your mortgage closes.

Pre-Closing & Funding

You’ll meet with your lawyer approximately a week before your mortgage closes, who will advise what you need to bring. Your lawyer will submit the documents to be registered on title and will transfer the funds on closing day.   

Follow-Up

Some brokers would say goodbye at this point, but I think your mortgage is way too important. I’ll stay in touch all the way through, exploring every option to save you money and help you achieve your long-term goals. I’m with you every step of the way!

Get a pre-approval!

If you are shopping for a new home, a preapproval will tell you how much you qualify for, what your mortgage payments will be, and you’ll get an interest rate that will be held for a specific period of time, like 120 days. This way, you won’t fall in love with a home you can’t afford, or you may find that you’re ready for the house of your dreams and didn’t know it. You’ll be shopping with a full wallet!

5 reasons homeowners refinance their mortgage

There has been a flurry of refinance activity this year given our rock bottom interest rates, providing homeowners with access to today’s low rates and the most cost-effective way to get needed funds. Refinancing means getting out of your current mortgage and replacing it with a new one. A minimum of 20% home equity is required to complete a refinance.

There are several compelling reasons why homeowners refinance their mortgage:

1. To get a lower interest rate.  Refinancing to get a lower rate makes sense if the savings you achieve with the lower rate is greater than the cost of getting out of your existing mortgage.
2. A much-needed financial reset. Debt restructuring is one of the primary reasons homeowners refinance. If you have too much high-interest debt that is eating your monthly cash flow, you may be able to get the breathing room you need by rolling that debt into a new low-interest mortgage. You’ll get one manageable monthly payment, immediate cash-flow relief, and long-term interest savings. It is also a great way to improve and protect your credit score.
3. Renovate. Homeowners are renovating to adapt to their new covid lifestyles, whether it’s to improve the quality of their lives, or for functionality like a new home office.  At the same time, your renovations can increase the value of your home, a nice added benefit.
4. Invest in the future. If you’ve found the perfect cottage or the retirement home of your dreams, refinancing may be the way to make that purchase happen if you’re not quite ready to sell your primary residence. Or perhaps you are thinking rental property for a long-term wealth building opportunity and a source of retirement income.
5. You need funds. You may be able to get the funds you need for major expenses, like a new business, tuition, or wedding, often a better strategy than loading it all onto high-interest credit cards or unsecured line of credit.

Since breaking your current mortgage comes with a fee, I would be happy to complete a personalized cost/benefit analysis so you can determine whether refinancing makes sense. The fee to break your mortgage depends on several factors so it’s best to get in touch to discuss. It is not expected that rates will go much lower so there may not be any benefit to waiting to see if you can get a better deal later.

Get in touch at any time. It’s my job to help you create financial security and enjoy life to the fullest!

Important credit score tips

There’s a virtual credit file with your name on it! When it comes time to take out a mortgage, that file gets opened and the result is a credit score that will help determine whether and how much you can borrow and at what rate.  

The good news is that you are entirely in control of your own credit score. Even if your past credit history has been bumpy, there are steps you can take to increase your score: showing lenders that you are a good risk and worthy of their best rates. Here are a few important tips:

1. Never let a bill get past due. This is the single biggest factor in your credit score: paying your bills on time. Set up automatic payments if you can or keep a careful calendar. This one habit carries the most weight when it comes to your credit score so be sure to take it seriously.
2. Create your own credit limits. If the credit card company gives you a credit limit of $10,000, create your own limit of $3000: or no more than 30% of the available funds. Have more than one credit facility? Balance them out. It’s better to be at 30% on three cards than have one at the limit and two that are never used. You want to show that you are using your credit but using it wisely. 
3. If you are getting too close to your limit, pay more than the minimum every month and work towards clearing off your balance entirely. Having your credit limits increased can help if that doesn’t cause additional spending.
4. Keep that history. Make sure you do have a credit history. You may have a low score because you do not have a record of owing money and paying it back. Since history is important, you don’t want to cancel a card and lose that history. The longer you’ve had a card, the clearer the picture is of how you manage your debt. If you feel you really need to cancel a card, get advice first.
5. Never ever let a bill go to collections. This can be a tough one if you’re short of money or a bill is under dispute. But a bill that is sent to collections is - next to bankruptcy - one of the blackest marks on your good credit name. If you’re having trouble paying, talk to the creditor about a negotiated payment plan. 
6. Be selective. Applying too frequently for credit has a negative impact on your score. A raft of cards looks like you’re an out-of-control spender and not a good credit risk. So when you’re asked - would you like to apply for our Store Card to save on your purchase – just say no; the high rate that goes with that card isn`t worth your savings on that particular purchase.

Get in touch if you want to discuss taking control of your credit score. If you need to get a mortgage while you’re still working on improving your score, I can also advise how that may be possible. I do this all the time and am here to help!