April Dunn – Jun 12, 2021 / 11:00 am | Story: 336731
If you are a typical Canadian mortgage holder, you will take a fixed rate mortgage (77%)* with a 25-year amortization (90%)* and you won’t increase the amount of your payments, or:
- Pay any lump sum payments
- Increase the frequency of your payments (66%)* at any time during your mortgage.
The Monster in your mortgage is the interest you are paying. It’s really quite outrageous when you think about it. Yet, every day, many Canadian home buyers are accepting The Monster in their mortgage without a thought to what it might mean to their overall financial health for the future.
Here’s a typical scenario.
You have found your dream home. Congratulations! Your realtor was a great negotiator and you purchased your new home for $550,000. Your mortgage is $440,000 with monthly payments of $1,932 a month over a 25-year amortization.
You were also able to negotiate a great rate (2.32%)* with your mortgage lender, so you are feeling pretty good right about now.
But wait a minute, let’s total those payments:
- That’s $579,600 worth of mortgage payments over the next 25 years.
- With your down payment of $110,000, does that mean you are paying $139,600 more than you agreed to pay for the house?
Assuming that there is no increase in mortgage rates over the next 25 years, the answer is yes. Yes!
If rates increase the overall cost of buying your home will increase significantly as you renew your mortgage at higher rates assuming that rates will increase within the next five years, which is most likely.
The good news is, something can be done to weaken The Monster and make it nearly helpless. With a couple of small affordable strategies that do not even require lump sum payments, you could potentially save thousands in mortgage interest even within the first five years of your mortgage.
You can start by setting your mortgage repayment at accelerated bi-weekly payments. Just rounding up your payment to an even amount will save you and then set yourself on a program to increase your mortgage payments annually.
These are only three of the many strategies that are available to get your mortgage under control and you don’t have to be a new homeowner or wait until your mortgage is up for renewal. They can be implemented at any time during the life of your mortgage.
If you would like to know more specifically how these strategies can put a large amount of the interest on your mortgage back into your pocket, let me know. We can discuss and implement a mortgage plan that will help reduce the overall cost of borrowing on your mortgage.
For more information please call 1-888-561-2683 or email [email protected]
April Dunn – May 29, 2021 / 1:19 pm | Story: 335322
Mortgage stress test changes kick in Tuesday.
The Office of the Superintendent of Financial Institutions (OSFI) confirmed last week it will move ahead with the stress test changes it announced last month.
The changes will apply to uninsured mortgages — those with more than a 20% down payment.
The Department of Finance confirmed it will follow OSFI’s lead and apply the same higher qualifying rate to insured mortgages, or those with less than 20% down.
Starting June 1, both insured and uninsured mortgage borrowers will be subject to a stricter stress test when qualifying for their mortgage.
When the mortgage stress test was first introduced in 2018, the qualifying rate at that time was 5.34%. It is currently 4.79% and will increase to a minimum of 5.25%.
The new stress test rate will reduce purchasing power by approximately 4-4.5%. Applying the higher stress test to insured borrowers will impact roughly one in five mortgage borrowers.
The Finance Minister made this statement regarding the increase in the stress test rate for insured mortgages.
“The recent and rapid rise in housing prices is squeezing middle class Canadians across the entire country and raises concerns about the stability of the overall market,” Finance Minister Chrystia Freeland said in a statement.
“The federal government will align with OSFI by establishing a new minimum qualifying rate for insured mortgages…. It is vitally important that home ownership remain within reach for Canadians.”
This new mortgage rule change isn’t that drastic so it might not do much to cool the housing market since the bigger issue is supply and it’s doubtful that it will do anything to prevent rising home prices.
The other side of the change is to protect the lenders and the quality of the mortgages on their books and reduce the potential for mortgage defaults. The Bank of Canada feels that the quality of mortgages granted during this pandemic have declined.
I’m sure many mortgage brokers would comment that it’s actually been more difficult to get clients approved and mortgage requests have had more scrutiny recently.
Mortgage default rates are still low in Canada and debt levels are generally being managed well.
The new mortgage stress test may disqualify some insured mortgage buyers given that they are typically our young, first-time home buyers, singles or those who are going through a marriage breakup.
In some real estate markets, it’s almost close to impossible for those in these categories to afford home ownership already as typically they only have 5% down payment funds available.
This change will force them to either save more for a down payment or reach out for family assistance.
For insured mortgages, the maximum allowable for housing costs is 39% of gross income, but in comparison for uninsured mortgages some lenders will allow up to 44% of gross income and even up to 49% with some of the big five banks for very qualified borrowers.
It’s doubtful that the increase in the stress test will affect those in this category at all.
If you are curious how this change may affect your future mortgage borrowing, whether you are considering a new home purchase or refinancing to access equity in your property for renovations or consolidating debt, please give me a call to discuss and we can run some numbers.
April Dunn – May 15, 2021 / 11:00 am | Story: 334027
There is no doubt that the real estate market in and around the Okanagan is hot.
There are not enough homes on the market, so we are seeing multiple offers and record high sale prices.
If you are a home owner and were considering a move this year, but aren’t sure whether you want to venture into this crazy market or you can’t find the home of dreams, there may be other alternatives such as renovating your current home.
Property values have increased significantly over the year, so there could be significant untapped equity in your home to access to complete some improvements such as:
- Upgrading to your dream kitchen
- Putting in a rental suite in your basement as a mortgage helper
- Turning your backyard into the oasis you have dreamed about.
I’ve assisted several clients over the last few months to refinance their current mortgages to access that additional equity that they now have in their homes.
There are many advantages to taking a look at that now such as:
- Accessing equity to renovate their homes
- Consolidating debt to lower monthly payments and eliminate high interest credit card debt
- Leveraging home equity to purchase revenue property or a vacation home
I’ve also assisted clients who are looking to retire soon to access the dead equity in their homes by restructuring their current mortgages to include a home equity line of credit in case of emergencies in the future.
The maximum amount available for a refinance or equity take-out is 80% of the appraised value of your property so with some properties increasing in value by approximately 30% over the last year there is potentially significant equity to smartly access.
Effective June 1, 2021 the new qualifying stress test rate for uninsured mortgages will increase to 5.25% from the current rate of 4.79%. This new higher rate will affect certain borrowers by reducing the amount they can borrow by approximately 4.5%.
With increased property values and an increase in the mortgage qualifying rate taking effect soon, now might be the time to review your finances whether you are considering renovating or consolidating debt.
As always please enlist the expertise of a mortgage broker to review all of your possible options or give me a call at 1-888-561-2689.
April Dunn – May 1, 2021 / 11:00 am | Story: 332598
Photo: Kindel Media from Pexels
Most borrowers focus on finding the best interest rate when they are shopping for a mortgage.
That is, of course, important as it determines what amount you will be paying for your monthly payments, but you need to look beyond the interest rate to the length of your mortgage contract (the term) as that will have the most impact on your overall costs.
The term of your mortgage, how long you have before you need to renegotiate your mortgage, should be your primary concern, as that will affect the flexibility you have with your mortgage.
We have mortgage terms available from six months to 10 years, so many options available with many different lenders.
Let’s take a look at three of the more common mortgage term lengths in Canada.
Three year fixed term
This mortgage term is chosen by approximately 20% of mortgage borrowers as it offers the flexibility of a shorter term mortgage.
This is great option if you are uncertain about what the future might hold as long-term plans may not be firm. It offers a great interest rate for a reasonable period of time and, at the end of the term, you can reconsider your options.
It might take a little more comparison of lenders to find the best three-year rate as the low promotional rates are not available quite as often with this product but the rates are generally lower than a five year fixed term mortgage at most times.
Five year fixed term
This is the most popular mortgage term in Canada. More than 50% of borrowers commit to a five-year, fixed-term mortgage.
Why? Because it’s the term that is pushed most by the big banks. And why do banks push five year fixed term mortgages — it’s a great investment for a bank. They lock you in for a long period of time and if you break the mortgage early, they can charge you a penalty.
They are counting on you to stay with them for five years and if not they are going to penalize you.
The reality is that close to 60% of borrowers who have a five-year, fixed-term mortgage break their mortgage early either:
- To refinance to access equity
- There’s a marriage break up and the home needs to be sold
- There’s a lower rate available at another lender and they want to switch lenders.
- Any number of reasons.
10 year fixed term
This is the least popular mortgage term in Canada, but it’s an option that should be considered more when making a decision for your mortgage term.
It’s a fairly safe choice if you have no plans to sell your home and move in the next 10 years. It gives you the security of knowing that your mortgage payment will not increase for a long time.
This one is for the long-term planners who are staying put.
If you break your mortgage term within the first five years on a 10-year term, you could be facing massive penalties, but if you go past the first five years, then the maximum penalty that can be charged is three months interest.
A potentially lower penalty than if you had taken a five year, fixed term then renewed for another five-year term and then break your mortgage before the end of the second renewal term.
Rates are slightly higher than other terms but today’s rate at one my lenders is offering 3.04% for their 10-year term. Historically speaking, this is a great rate.
My best advice is to consider more than just a five-year, fixed-term mortgage when you are choosing your mortgage term.
As your mortgage broker, I will review both your long term and short term plans so you can make your best decision. There are so many options available so don’t get stuck on a five-year, fixed-term because you believe it has the lowest rate.
Your term needs to fit both your long-term and short-term goals to work for you.
Please give me a call if you would like to discuss further at 1-888-561-2679 or email [email protected]. Let’s put your mortgage to work for you rather than vice versa.