Preparing for higher rates

Given inflationary pressures, the Bank of Canada indicated in their last rate announcement that rate hikes could take place earlier than previously indicated, in mid-2022, which means variable rates that rise and fall in tandem with the key rate will start climbing. Views among economists vary as to how many hikes we’ll see in 2022 and 2023 because no one really knows whether inflation is truly transitory given supply chain issues, or even if it won’t be a long-term issue at all. 

Keep in mind that even with the projected increases, we’ll still be in an ultra-low-rate environment and an incredibly stable market. We’ve also seen increases before to only see them decrease again. But rates will likely rise, so here are answers to the questions I’m getting:

What is the impact on my current mortgage? With variable rate mortgages, as rates rise so too will be the amount of interest you pay. While your payment often doesn’t increase, you’ll pay less principal and more interest. Fixed-rate mortgages - which are based on the bond market – have already been trending slightly upward, although if you have a fixed mortgage, you aren’t affected until it’s time to renew. Consider taking advantage of your prepayment privileges and increase your payment so at renewal, you are accustomed to paying the higher amount. 

Should I refinance now? Many have already taken advantage of low covid mortgage rates to refinance their current mortgage to get a lower rate, for debt consolidation, renovations, or to help a child buy a home. If you feel this is a good opportunity and want to access these low rates that won’t be around too much longer, please get in touch for an analysis of whether it makes good financial sense.

Should I lock in my variable rate mortgage? A key question to consider is - why pay more money than you have to? It will take several prime rate increases for variable rates to be on par with a fixed rate, and you are likely better off sticking with your original strategy of focusing on payment vs. rate. Preparing for higher rates is different than locking in. You can prepare by increasing your payment amount if your budget allows, so you are paying down more principal and building a buffer for later. 

But if it’s going to keep you awake at night then let’s talk about your conversion options. Remember though, you should be confident you’ll stay in a 5-year fixed mortgage for the entire term. Breaking a fixed mortgage can result in some onerous penalties. If you aren’t sure you’ll stay in the mortgage for 5 years, the interest rate risk of a variable mortgage may be a better option than the penalty risk of breaking a fixed mortgage.

What if my mortgage is coming up for renewal? Don’t feel rushed or pressured by a renewal letter or call. Let’s discuss your options. We’ll review your renewal offer together and I’ll shop around to see if it’s really the best deal available. Do you have too much other debt? This may be the time to roll it into a new mortgage to boost cash flow and save on interest costs. 

Should I jump into the market now? The prospect of higher rates could cause a sense of urgency among homebuyers to get their mortgages before those increases take place. My advice is always the same: buy when you are financially ready. Don’t jump the gun just because rates “may” go higher. But, if you’re thinking about buying, I can arrange a pre-approval, so you’re protected from rate increases for up to 120 days while you shop around. 

Should we talk? Yes for sure. You should have confidence in your mortgage plan and that’s why professional mortgage advice is so critical.  I have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy for whatever is ahead. 

The lowdown on appraisals

Whether you’re purchasing a new home or want to complete a refinance of your current mortgage, it’s important to understand the role of the home appraisal and how it can impact the outcome of your mortgage application. 

After you submit an application, your lender may require an appraisal, which is simply an unbiased determination by an accredited independent appraiser of the market value of the property your lender will be financing. 

When you purchase a home, your lender wants to be sure that the home’s selling price is an accurate representation of the home’s condition and neighbourhood, and that you are not borrowing more than what the home is worth. The lender also wants to be sure the property meets its lending guidelines.

When you refinance your mortgage for debt consolidation or to access funds for other needs, the appraisal will be used by the lender to determine the amount of funds that you can borrow since you can only refinance a set amount, up to 80% of your home’s appraised value. 

When switching your mortgage to a new lender at renewal to get a better rate or terms, the appraisal is required to verify the property’s value. 

To complete the appraisal process, an appraiser typically visits the home to get the information needed. The appraiser will also analyze market comparables and then provide the lender with a written opinion of the property’s value. If the appraised value is sufficient, your mortgage approval is finalized assuming all other conditions have been met. The cost is often passed along to you, typically forming part of your closing costs.  

What’s important for you? 

• In many bidding war situations, some buyers are paying over asking but the appraiser may determine that the property has a lower value, which could affect your financing and require you to increase your downpayment, particularly if you are right at 5 or 20% down. 
• A hot housing market also means that appraisers are very busy so be careful with quick closings. It may not be possible to get the appraisal done in time. 
• The lender is the appraiser’s client, not you, so the appraisal is sent to the lender and only discussed with them. 
• When a realtor gives you an evaluation of a property’s value, that should not be considered an appraisal for financing purposes.  
• A home inspection is not the same as an appraisal. A home inspection is often a condition of a purchase and is done to protect the homebuyer. A qualified home inspector assesses the physical condition of the home and its major systems to help you determine if everything is in good working order, and what repairs are needed and by when.   

As always, please get in touch at any time if you have any questions regarding a home purchase, refinance, or a switch at renewal. It’s always a good idea to get advice well in advance of the mortgage financing process so you know what to expect and are fully prepared.  

What’s involved in giving your child a boost to home ownership?

With the financial demands of school loans, living expenses, and finding a career path, many young people struggle to purchase their first home. Often, parents and grandparents are very sympathetic. They’ve enjoyed the financial benefits of long-term home ownership themselves and see how hard it is today to make that important first step into the real estate market. And when you add in the run up in home prices over the last 18 months, it’s not a surprise that homebuying assistance using these two strategies is up dramatically -

1. Gifted downpayment – you sign a gift letter for the lender that says the funds are a gift and are not required to pay the money back at any time. 
2. Co-signing the mortgage – you assume a shared legal responsibility, agreeing to repay the mortgage if your child is unable to do so.

You do want to put some careful thought into this before you help. Here are some things you may want to consider:  

Your own financial situation. Your first responsibility is to your own financial security, so you need to consider what kind of help you can afford. Can you afford to gift the money, and if so, how much? Will you be okay to assume responsibility of the mortgage payments if you co-sign and the primary borrower defaults? Co-signing could also limit your ability to borrow and affect your credit score. 

Family dynamics. Are there siblings or other family members to consider? Will there be an issue of fairness that you need to manage?

Homeownership is a big financial responsibility. You know there are more costs to homeownership than just paying the monthly mortgage payment, like heat, hydro, insurance, cable, taxes, and of course repairs and upkeep. Before you offer your child a boost to homeownership, consider whether they’re ready for the financial responsibility.

If your child is married or living with a partner, consider property law. Should your child’s marriage break up, you may discover that 50 percent of the money goes free and clear to your child’s partner as part of a settlement of family property. If this is a concern to you, be sure to get in touch with a lawyer to discuss what protections you may be able to put in place before funding.

Get in touch! Your child is preparing to embark on an important financial journey, and you want to do your best to help get them on the right path. The best place to begin is with sound, expert advice. Start them on a good financial habit and have them get in touch for access to the most mortgage options and clear-eyed, common-sense advice. The earlier the better!

Six tips for financial fitness this Fall

It’s September and there is some optimism that we may be moving towards the end of life in a global pandemic. The Fallhas always been a great time to go back to school on financial fitness, and this year it may be more important than ever. Here are some tips to help make sure your finances are fit and stay that way: 

1.  Splurge, just a little. Many of us dealt with stressors that we didn’t even know existed, like not being able to see loved ones. That’s why we all want to live a little, but perhaps do it strategically so you don’t break the bank. Maybe have some celebratory days with a set amount that you can spend where you go out and do the things you’ve really missed.
2. Revisit (or start) your budget. Having a budget is one of the most important ways to achieve a solid financial future. It might not be the most thrilling task, but it’s one that will give you a clearer picture of where you stand and how much you can truly spend. You’ll also be able to determine how much money you can allocate to your “live a little” fund. While preparing your budget, first take a new look at your monthly bills and go through them line by line. You may have signed up for services you never really use or perhaps don’t remember requesting. Look for small, unexplained charges, fees, and add-ons, and the services that you can now live without. 
3. Maintain your credit. Your credit score is essentially your passport to financial opportunities. It can mean the difference between getting approved or denied for any kind of credit and can prevent you from getting the lowest mortgage rate. The good news is that you have a lot of control over your score. That’s why it’s important to always have good credit behaviours. The single biggest factor to having a good score is a timely bill payment history so never let a bill get past due. Be sure to know your credit limits and try not to use more than 30% of the available amount, don’t be tempted to apply for store cards just to save on your purchase that day, and before you cancel a credit card get advice.
4. Focus on your high-interest debt. Always keep an eye on your high interest debt and pay down your credit cards as much as possible. If you find that your debt is making things difficult, you may be able to move that debt to your lower-rate mortgage if you have enough home equity. You could save thousands in interest, have one lower monthly payment that greatly improves your cash flow, and enjoy much reduced financial stress.
5. Spend time, not money. We’ve all gained a new appreciation of the value of being able to spend time with loved ones in person, that it’s something to treasure. Focusing on this may keep you from spending money you might not have or might not want to spend! 
6. Help others. There are many that weren’t very fortunate during the pandemic. Consider committing some money to giving back – charities, shop local, tip restaurant workers and others generously.  

I’m here to help so please get in touch at any time. It’s my goal to help you maximize your financial fitness so you can build wealth for the long term.  

6 Ways for Homeowners to Build Wealth

History has proven that homeownership is a solid long-term investment. You build your equity stake through your regular mortgage payments and your home’s price appreciation over time. But wealth building doesn’t have to stop there. Here are 6 ways to do more throughout your mortgage years.  

1. Speed up your mortgage paydown. Change from monthly payments to weekly or biweekly, effectively increasing your number of payments, which will take years off your mortgage. Also consider putting found money like raises and tax refunds against your mortgage principal. Check your mortgage contract for the amount you can prepay each year.  
2. Get a financial reset when needed. Too much high-interest debt over long periods of time is a definite wealth killer. It chokes your cash flow and having multiple debt payments can be stressful. If you have enough equity, you may be able to move that debt to your lower-rate mortgage, giving you one comfortable payment and thousands in interest savings. 
3. Renovate using your lowest-cost funds. With historically low mortgage rates, homeowners with enough equity are using the opportunity to roll the cost of their renovation into their mortgage for one easy monthly payment, and then using their prepayment privileges to pay it off faster. It’s a win-win when you increase the comfort and enjoyment of your home, while also improving the long-term value. 
4. Apply for incentives to help pay for energy-saving investments in your home.The federal government recently launched a new program that offers Canadians grants of up to $5,000 to pay for energy-saving home upgrades – such as insulation, furnaces, solar panels, windows, and doors – and up to $600 to help with the cost of home energy evaluations. Additionally, if you paid mortgage default insurance when financing your home, you can also get a savings boost from your mortgage insurer. If you make retrofits to improve energy efficiency, you can apply for a refund of either 15 or 25% of the default insurance premium that you paid. Applications are accepted within two years of the closing date of your mortgage.
5. Look at your mortgage renewal as an important moment of opportunity. When your lender sends out a letter suggesting you renew your mortgage at their current offer, get in touch. Everything pertaining to your mortgage can be renegotiated, giving you the opportunity to get the best possible deal for your current situation, which may be very different from when you first got your mortgage. 
6. Know your prepayment penalty. When choosing between fixed-rate mortgages, be sure to compare how the early payout penalty will be calculated. If you ever need to get out of your mortgage early, having the right mortgage could save you thousands. If you take a lower rate mortgage with a high prepayment penalty, the benefit of that lower rate could mean nothing if you overpay on the penalty to get out of your mortgage. 

I’m here to save you money and help you build wealth throughout your mortgage years. Get in touch at any time!