Preparing for higher interest 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 sense for you.

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.

How Many Mortgage Quotes Should I Get?

You don't have to worry about getting rate quotes when you work with a Mortgage Broker! With access to over 40 lenders, including major Banks, credit unions, national, regional, and private lenders, we shop the mortgage market for you.

If you are looking at low online rates, do your research but be sure to get in touch with us to discuss. Rock-bottom online rates often come with restrictions and high penalties that could work against you in the long run. Important mortgage privileges don't fit in a rate ad but are critical when determining your situation's best mortgage.

Please reach out at anytime and we will do the mortgage shopping for you.

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 pay down. Change from monthly payments to weekly or biweekly, which increases your number of payments and takes 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.

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

What affects mortgage rates?

Government policies to protect the economy during the pandemic resulted in exceptionally low mortgage rates for both fixed- and variable-rate mortgages. As we start moving towards recovery, fixed rates have started to edge upwards. The prime rate, which variable rates are based on, has not increased. So why did fixed go up but not variable? Let's look at the mechanics of both.

How are variable rates set?
The chartered banks set the prime lending rate (the rate they offer their best customers). They base their decisions on the Bank of Canada's overnight rate because that's the rate that influences their own borrowing. There are approximately eight times a year the Bank of Canada makes rate announcements. Variable mortgage rates and lines of credit move in conjunction with the prime lending rate, with most lenders currently offering variables at prime minus a certain percentage. The Bank of Canada in their most recent announcement did not increase the overnight rate and did not mention when they foresee the need to increase rates.

How are fixed rates set?
Fixed-rate mortgages are a little different. Banks predominantly use Government of Canada bonds to raise money for fixed-rate mortgages. In the bond market, interest rates can fluctuate more often since they're subject to the changing moods of traders and bond investors as they try to figure out how fast the economy will grow and where inflation is headed. That's why you watch the bond market for clues on where fixed mortgage rates will go next. Recently the yield for 5-year government bonds went up, causing fixed mortgage rates to follow suit.

Why are there so many different mortgage rates?
Fixed and variable are not the only factors affecting rates. There are rate premiums for certain situations i.e., rental properties, 30-year amortizations. There are different rates for insured, insurable and uninsured mortgages. Rock-bottom online rates often come with restrictions and high penalties. The rate you qualify for can be very different from what your neighbour got. That's why it is so important to get in touch for unbiased professional advice when you need to determine the best mortgage and rate applicable to your situation, whether it's for a purchase, renewal, or refinance. Knowledge is power!

Is your mortgage on track?

If you're like most people, you don't think of your mortgage as something that needs to be reviewed on an annual basis, but it's essential if you want to make sure you're on track to achieve your financial goals. Your circumstances or priorities may have changed over the last year, which means your mortgage needs may have also changed.

An annual mortgage checkup will help you make sure that:

·         1. With the historically low rates caused by the pandemic, we’ve done the analysis needed to determine if you can take advantage of those low rates;

·         2. You are using your prepayment privileges to maximize your mortgage principal reduction;

·         3. Large amounts of high-interest debt are transferred to a lower interest rate so you can have one manageable payment, boost your cash flow, and save on interest costs (if you have enough equity in your home);

·         4. You get a professional review of your options if your mortgage is renewing in the next 12 months; and,

·         5. You have access to the lowest-cost funds for renovations, education funding, an investment property, new business or other large looming expense.

Or you may have mortgage-related questions that you want to ask like whether you should help a family member buy a house, what your mortgage options are if you want to trade up or downsize, whether you should renovate or relocate, or how you can improve your credit score.  

If you haven't had a mortgage checkup in the last six months, book your no-obligation review and make sure your mortgage incorporates what may be ahead: it could pay big dividends and is the best way to get you where you’re going in your financial future. I'm here to make sure you get the most out of homeownership. Get in touch at any time!

5 Reasons To Get a Second Opinion On Your Mortgage Renewal

Given the large financial commitment of a mortgage, it's surprising that so many homeowners sleepwalk through the mortgage renewal process and don't look at all their options in the marketplace. Many accept whatever their lender offers or just have a short negotiation to shave a few percentage points off.

While it's tempting to choose what is easiest, it's so important to have a mortgage expert give you a second opinion and start working for you as early as 9 months prior to renewal. Here's why:

1. With access to over 50 lenders and hundreds of mortgage options, we can make sure you are being offered the best rate and mortgage possible.

2. If you have enough equity in your home, you may be able to move high-interest debt to your lower-rate mortgage, improving cash flow and saving on interest. Renewal is the perfect time to do this we can run the numbers to see if this strategy makes sense for you.

3. Having a good credit score is important if you want to switch your mortgage to a new lender for a better deal. You have control over your credit score, and may want to discuss credit improvement strategies.

4. Taking on new debt or an employment change prior to renewal can affect your ability to move your mortgage to another lender. We can discuss the potential impact of changes to your personal situation.

5. If you need to free up cash flow for specific needs or life situation, a 30-year amortization might be an option for you to consider (20% or more in equity required).

At renewal, you can renegotiate everything pertaining to your mortgage – with no penalties – which means this is an important moment of opportunity. So as soon as you hear from your lender about your mortgage renewal, get in touch for an important second opinion!

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 are 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 strangling 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 an unsecured line of credit.

 Since breaking your current mortgage comes with a fee, We 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 our 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 if you can, 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, we can also advise how that may be possible. We do this all the time and am here to help! 

No Need To Panic Over New Mortgage Rules

No one has a crystal ball to see what the next few months - or years - will bring, but it’s likely that some Canadians will have trouble with their debt in the wake of COVID. With that possibility in mind, the Canadian Mortgage and Housing Corporation (CMHC) recently announced that it is tightening the rules for Canadian homebuyers looking for insured mortgages. Homebuyers with less than 20% downpayment require mortgage default insurance: an important protection for Canadian lenders.

Summary of the new CMHC rules (effective July 1):

1. Reduced buying power. Previously, CMHC allowed 44% of total income to service all your debt and up to 39% of total monthly income to service housing payments (principal, interest, taxes, heat, condo fees). They have now tightened this back to 42% of total income can now go to service all your debt, and 35% of total monthly income to service housing costs. This reduces a homebuyer’s purchasing power by anywhere from 9 to 11%. As an example, someone qualifying for a $500,000 home now, will see that decrease to approximately $445,000.

2. Higher minimum credit score. At least one applicant’s credit score must now be a minimum of 680, up from 600. Find out your own score - free - through Equifax or TransUnion.

3. Downpayment funds can no longer include most borrowed down payment sources. Very few buyers used this option so this will have a minimal impact.

Alternative options available

This is a great time to work with a mortgage broker! I work with dozens of lenders… and private mortgage insurers – Genworth Canada and Canada Guaranty - that are an alternative to CMHC. Neither have announced new underwriting guidelines, which means I expect to be guiding many new homebuyers through these alternate insurance channels.

Get in touch at anytime

Having trouble keeping up with all the changes lately? That’s why I’m here. My only focus is mortgages and I am always up to date on the changing mortgage marketplace. If you or someone you know is looking to buy, it’s important to get in touch early so we can put a solid plan in place. Or, if you have concerns about your current mortgage strategy, let’s talk, especially if you want to find out if you can renegotiate your mortgage to take advantage of today’s low rates, or refinance to consolidate troubling high-interest debt.