Buying your first home and getting your first mortgage can be an overwhelming experience.
If this is your first home buying experiencing, applying for a mortgage can be the most intimidating part of the process , so where do you start?
In the past, the home buyer turned to their banks for their mortgage needs, but now you have more options at your disposal with over 40% of consumers turning to mortgage brokers for their mortgages needs instead of the banks.
Mortgage brokers are provincially licensed and regulated by CMBA . They can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.
Many lenders’ rates and mortgages can only be accessed through a mortgage broker. Not having the selection of lenders, and simply choosing to get a mortgage with a bank, can mean choosing harsher prepayment penalties for breaking your mortgage in the future, as well as a higher interest rate; which can cost buyers thousands upon thousands of dollars over the life of their mortgage.
A mortgage broker is also able to better tailor a mortgage product to your specific needs, whether that be working with a lender who is more flexible when it comes to self-employed income; one who has more flexible prepayment terms; or one that has more options for consumers that possibly have suffered some credit challenges in the past. Because mortgage brokers have access to more lenders, they’re better able to find a lender and a mortgage based on your specific needs and financial situation to get you the lowest mortgage rates today.
Mortgage brokers offer convenience, which lets you meet around your schedule, not the banks hours.
Mortgage brokers also operate on commission and are paid by the lenders who ultimately grant you your mortgage, so there is no cost to the consumer. Referrals are the life blood of our business so it is in our best interest to serve you as best we can.
Bottom line, using a mortgage broker gives you the freedom of CHOICE and comparables to consider, using a bank gives you no other choice but ONE, theirs.
Fixed and Variable rate mortgages both have their advantages and disadvantages!
Historically speaking, homeowners tend to pay lower rates with variable mortgages, but these mortgages are also vulnerable to fluctuations because they’re tied to the Bank
of Canada’s prime rate (which is announced eight times per year). Fixed rates, on the other hand are primarily influenced by the yield on Canadian government bonds (bond yields) , and are typically higher than variable rates, but their rate is consistent throughout the term of the mortgage. Below are a few questions to help you determine which type
of mortgage is right for you.
CAN I AFFORD TO TAKE A VARIABLE RATE MORTGAGE
There is some risk associated with variable rate mortgages, so if you go this route, you must be able to mitigate the risk if rates do rise. One method of protecting yourself involves setting your payment to a fixed amount that’s higher than the minimum requirement. For example, setting your payments based on the current 5 year fixed rate will allow you to provide a buffer in the event that rates rise and, because you’re paying more than the minimum amount, you’ll be paying more of your principal as well.
DOES A VARIABLE RATE MORTGAGE FIT MY RISK PROFILE?
Once you have decided you can afford a variable rate mortgage, the next thing to assess is whether a variable rate mortgage fits your personality, lifestyle and comfort zone. If you’re the type of person that can’t sleep at night knowing that your rate and payment may change by 0.25%, then a variable rate mortgage may not be the best option for you.
WHAT TYPE OF VARIABLE RATE MORTGAGE SHOULD I CHOOSE?
There are three main factors to consider when choosing a variable rate mortgage:
Payment frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (i.e.accelerated biweekly or weekly payments).
Rate changes – Some lenders change their variable rates in line with the Bank of Canada eight times per year while others do it quarterly.
Conversion to fixed rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at anytime? If so, what rate are you guaranteed on conversion – the best discounted rate or the posted rate?
If you would like to discuss all of your options in detail please contact me directly at 250-819-6536 or 1-888-819-6536 or email me at firstname.lastname@example.org
With the hike of fixed rates again last week with some of the 5 big banks variable rates are looking attractive with a discount if -40 off prime interest rate currently at 3% making a 5 year variable rate 2.6%. A 5 year fixed is 3.39-3.79 depending on lender.
Variable rate mortgages are a great option but also come with a few challenges too, to qualify for a variable rate we must use a higher rate which can impact your borrowing power as well they fluctuate with the Bank of Canada prime lending rate so there definitely is more risk attached.
Best way to know if variable rates are for you is get informed and look at all your options. Any questions you can call me or email me! 1-888-819-6536 or email@example.com.
Some changes that will come into effect on July 9, 2012. How will this affect homebuyers or home owners in terms of dollar amounts… Heres a quick snapshot below;
Payments based on a 25 year amortization vs a 30 year amortization would cost the borrower a difference of $52.48 per month per 100K in mortgage. In terms of borrowing power the homeowner that could buy a home for $300k would now only be able to afford a $266K home, a difference of approximately $34k based on the above changes from 30 year amortization to 25 year. If your in the market for a mortgage or a refinance, I would consider firming those details up before July 9, 2012 to take advantage of our current options.
READ ON; After speaking in Halifax just hours after Finance Minister Jim Flaherty announced a series of changes that come into effect next month, Mr. Carney reiterated his concerns about the effects that his ultra-low interest rates have had on the behaviour of both borrowers and lenders, warning the economy cannot “depend indefinitely” on debt-fuelled spending, especially as incomes stagnate.
At the same time, Europe’s growing crisis is expected to keep the central bank on hold for a long time yet, leaving regulation as the only real avenue for reining in housing-related investment, which Mr. Carney said now makes up “an unusually elevated share” of the economy.
“In this context, Canadian authorities are co-operating closely to monitor the financial situation of the household sector, and are responding appropriately,” Mr. Carney, who was almost certainly involved in Mr. Flaherty’s decision, said in a speech to the Atlantic Institute for Market Studies.
“Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.”
Last week, Mr. Carney and his policy team warned that Europe’s worsening drama could slam Canada with a “major shock” if it is allowed to spread out of control and further infect healthier regions, particularly the still-fragile U.S. economy. They also warned that more Canadian households could find themselves under water with their debt payments if a big unemployment shock were to result, and sharpened their warnings about Toronto’s booming condo market.
Some investors are betting that the situation in Europe and the failure of the U.S. economy to gain more traction could force the central bank to cut interest rates from the current 1-per cent level sometime later this year. However, in his speech, Mr. Carney strongly hinted that he is not even considering a reduction in rates, echoing much of the language on the economy from his last interest-rate statement on June 5, indicating his domestic outlook hasn’t shifted much since then.
“Despite these ongoing global headwinds, the Canadian economy continues to grow with an underlying momentum consistent with the gradual absorption of the remaining small degree of economic slack,” said Mr. Carney, whose next decision is scheduled for mid-July. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”
Still, Mr. Carney left himself the same wiggle room from recent statements, saying that the “timing and degree” of any rate hikes would depend on how things play out.
There’s good reason for him to be cagey, and not just outside of Canada’s borders. Despite the worries about consumers over-borrowing, recent economic data suggest the housing market is already slowing down, and a report from Statistics Canada today showed that in April, retail sales fell – both in terms of prices and volumes.
Some analysts have already warned that the mortgage moves could be too effective and spark a slowdown in a key area of strength before the economy is ready for it.
Earlier Thursday, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years, and will cut the maximum amount of equity homeowners can take out of their homes in a refinancing to 80 per cent from 85 per cent. Also, the availability of government-backed mortgages will be limited to homes with a purchase price of less than $1-million, and the maximum gross debt service ratio will be fixed at 39 per cent, and the maximum total debt service ratio at 44 per cent. All the changes will take effect on July 9.
Mr. Carney’s speech, meanwhile, was largely a re-hash of his views on what is needed to foster the more balanced and sustainable global economy on which export-heavy Canada’s fortunes largely depend, including an “open, resilient” financial system. The central banker, who is also chairman of the Group of 20-linked Financial Stability Board, again warned against delaying the implementation of reforms designed to make international finance safer for the global economy.
“The current intensification of the euro crisis has only sharpened our resolve,” he said, adding that a system that restores confidence will need to “rebalance” the relationship between government regulation and financial markets, and in which policy makers realize they must help do what’s good for the world rather than taking a simply national approach.
Heres an interesting article on things to consider when locking in your mortgage or at least considering renewing your mortgage for a better rate. Lots of things to look at when rates are at an all time low. You can imagine consumers are taking a good look at their mortgage and where they want to go with it. Small differences in rates can save you thousands over the longer term. As most of us have a mortgage for years, take advantage of at least looking at your current mortgage and consider whether making a change could be beneficial. As always any questions or comments please feel free to contact me at 1-888-819-6536.
The gap between short-term and long-term rates has shrunk enough that it might be time for anyone renewing a mortgage to consider locking in.
Moves last week by the major banks to reduce the discount on variable-rate mortgages comes as the discounts for long-term mortgages have gotten as steep as they have ever been.
“What seems to be happening is they are focusing their attention on fixed rates. We are starting to see some aggressive competition on four-and five-year products,” says Gary Siegle, a mortgage broker and Invis Inc. regional manager in Calgary.
How aggressive? Try as much as 190 basis points. A five-year, fixed-rate mortgage with a posted rate of 5.39% is now being offered for 3.49%.
For whatever reason, the four-year, fixed-rate mortgages are being priced even more aggressively.
Mr. Siegle says he can lock consumers into a four-year, fixed mortgage for as low as 3.09%.
The discounting comes as variable-rate products, linked to prime, have become more expensive. Short-term money has become more expensive in the bond market, forcing banks to reduce discounts.
The banks traditionally move their prime rate with the Bank of Canada rate. With no flexibility there and existing customers getting huge discounts based on old deals, banks are forced to raise rates for new loans as short-term money gets more expensive.
The trend began in April when FirstLine Mortgages, a subsidiary of Canadian Imperial Bank of Commerce known for its low rates, cut its discount on variable rates.
Others banks were slow to follow, hoping to make money on volume. But refinancings have dried up under tougher mortgage rules and sales have slowed, creating the need to tighten profit margins on variable-rate products.
Today, the discount on a variable-rate mortgage is about 55 basis points off the prime rate of 3% – in other words, 2.45%. Compare that to 3.09% on a four-year mortgage and the premium to lock in is not that much.
“This gap is about as narrow as it goes,” says CIBC deputy chief economist Benjamin Tal. “It reflects a flat yield curve, which makes it difficult to make money in this business.”
Mr. Tal says variable-rate mortgages tend to be more attractive when there are inflation expectations not yet expressed in short-term rates. This time, he says, the bond market is depressed, anticipating recession, and that has shrunk spreads dramatically.
The one thing keeping people in short-term money is the sense that there is no urgency to move because the U.S. Federal Reserve Board has pledged not to raise rates for two years, which also effectively ties the hands of the Bank of Canada.
“We know the five-year rate is attractive, but we also know short-term rates are not raising,” Mr. Tal says.
What does that mean on a practical, dollars-and-cents basis?
Let’s use the Canadian Real Estate Association’s 2011 average sale price forecast of about $360,000 and assume a 20% down payment and a $288,000 mortgage.
At 2.45%, your monthly mortgage payment based on a 25-year amortization would be $1,282.98. At 3.09%, your monthly payment rises to $1,376.28.
But even at the gap, you would pay about an extra $7,000 in interest to lock in over four years.
Ultimately, the $7,000 amounts to an insurance policy. You get payment certainty for four years, but at a price.
If rates climb 200 basis points on your variable-rate mortgage, it could cost you $22,000 more in interest over four years. The reality is that rates wouldn’t jump at once and, therefore, increases would likely be gradual.
Moshe Milevsky, the York University finance professor who wrote the oft-quoted study that variable-rate mortgages do better than fixedrate mortgages 88% of the time, said if you start thinking about it like insurance, it comes down to your risk tolerance.
“There are people who pay a lot for protection on their portfolio; there are people who pay a lot for life insurance,” Prof. Mr. Milevsky says. “If the premiums are low enough, you might say, ‘Sure, I’ll pay.’ But if you have a tight budget, every basis point counts, and it might not be worth it.”
To me, he still has the ultimate answer for the tough decision whether or not to lock in.
“I still don’t get why more Canadians don’t split their mortgage,” Prof. Milevsky says. In other words, locking in half of the mortgage and floating with prime on the other half.
“When is a bank going to come to the realization Canadians hate making this choice?”
He’s right. Even with rates this low and the gap between short-term and long-term rates this narrow, it is still a tough call
With anticipated interest rate increases on the horizon, many homeowners are wondering whether to lock debt such as mortgages and secured lines of credit into a fixed-rate mortgage or stay variable. Even some who are mortgage free are concerned with how rate increases will impact secured lines of credit, the financing of vacation homes and recreational property.
First-time buyers may be particularly concerned with entering the national capital’s expensive real estate market.
What can you afford?
As a first time home buyer, it’s essential to figure out what you can afford. A quick rule of thumb is that your household expenses should not add up to more than 40 per cent of your pre-tax household income. Household expenses include mortgage payments, property taxes, condo fees, utility and heating costs, and any payments on other loans such as car loans, credit card debt and lines of credit.
Probably the first step should be to get a copy of your credit history from Equifax Canada and/or the credit bureau. As this is what lenders will look at, it’s important to review its accuracy.
Then do a household budget, list your assets and liabilities and meet with a bank or mortgage broker to get pre-approved for a mortgage. Try the monthly payments on for size. Let’s assume that your current rent is $1,000 and your anticipated payment as a homeowner is $2,350 for principal, interest, taxes, hydro, etc. Try putting aside the extra $1,350 immediately. Not only will this help you save some extra money, but it will get you in the habit of allocating this level of payment every month. Consider the maintenance costs as well, from normal upkeep to potentially larger expenses like a new roof or furnace.
It’s important to find out how much you can afford before falling in love with a house.
Start saving before you start shopping — the larger the down payment, the lower the financing costs. Although it’s not always possible for first-time home buyers, try to come up with at least a 20-per-cent down payment. Any down payments below this level must be insured with Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial — another expense to factor in.
To assist with your down payment, consider using the Home Buyer’s Plan, which allows you to withdraw up to $25,000 from your RRSP for the purchase of a qualifying home.
Work with a real estate agent familiar with the area you would like to live in, an experienced home inspector and a real estate lawyer to help draft an offer and ensure that title is transferred properly.
A recent survey indicated that more than 60 per cent of Canadians expect rates to rise over the next 12 months. With this in mind, here are some mortgage strategies to consider.
Fixed rate: If the prospect of rate increases is causing you significant concern, then perhaps you should consider locking in all or some of your debt. With the inflated home equity line of credit rates that consumers have been charged (prime plus 0.5 to one per cent instead of the traditional prime), it’s not that big a jump to a five-year fixed rate, perhaps as little as one per cent more.
If your fixed-rate mortgage is renewing in 2011 and you are interested in another fixed-rate mortgage, it may be worthwhile negotiating with your lender to close out your current mortgage and move into the new lower rate mortgage without penalty. As a strategy to pay off the mortgage sooner, consider increasing the payment and utilize weekly or accelerated bi-weekly payment schedules.
If you would like some level of security but don’t want a fixed rate on all your debt, consider a blend where a portion is at a fixed rate and the balance at a variable rate.
Variable rate: There are many studies that show that despite its volatility, a variable-rate mortgage tends to save more interest in the long term.
Variable-rate mortgages are best for consumers who are financially stable and can financially and emotionally handle the day-to-day fluctuations. One strategy is to benchmark your variable rate payment to that of a five-year, fixed-rate mortgage. Not only will you apply thousands of dollars against the principal and shorten the mortgage term, you will also build a higher potential payment into your budget.
Here are other tips for a variable-rate mortgage:
• Ask for a variable-rate mortgage at below prime. You might even be able to get prime minus 0.75 per cent.
• Negotiate a better rate on your home equity line of credit. Try to get the prime rate or prime plus 0.5 per cent, as opposed to the current prime plus one per cent that you are probably paying.
• Consider moving all of your debt to a combination of these two options.
For consumers who like the variable-rate mortgage option but are concerned about rate increases, ask your financial institution to give you a 120-day rate guarantee at their best discounted five-year rate. Keep the five-year, fixed-rate guarantee as insurance if rates increase significantly and renew it every 120 days until you feel rates have stabilized.
OTTAWA — The Bank of Canada said Tuesday the economy is growing at a “slightly” faster pace than expected as signs emerge of a recovery in exports – although that remains at risk due to a high dollar and poor productivity.
Strength in commodity prices, which is a driving factor behind the Canadian dollar, could get a further short-term boost from recent unrest in north Africa and the Middle East, the central bank added.
As expected, the central bank kept its benchmark rate unchanged at 1%. In a five-paragraph statement, it acknowledged conditions in Canada are strengthening, a day after Statistics Canada reported the economy grew at a 3.3% annualized clip in the fourth quarter — or a full percentage point above the central bank’s forecast. Part of this is due to U.S. economic activity that is “solidifying.”
Furthermore, the central bank said early signals suggest a necessary transition is underway, from an economy powered mostly by consumers to business investment and exports.
The Canadian dollar weakened to C$0.9730 to the U.S. dollar after the bank’s statement.
“The recovery in Canada is proceeding slightly faster than expected,” the central bank, led by governor Mark Carney, said, “and there is more evidence of the anticipated rebalancing of demand.”
In its last rate decision on Jan. 18, the central bank said economic recovery in Canada was headed for a period of “more modest growth,” with 2.4% expansion expected in 2011. At the time, Mr. Carney said the country would be hard pressed to “fully benefit” from an upswing in U.S. prospects due to a lack of competitiveness. But the 2011 outlook is near the low end of expectations compared with private-sector economists, who upgraded their forecasts further after the release of fourth-quarter GDP data.
At present, the Bank of Canada said in its Tuesday statement, domestic demand continues to expand although household spending is “moving” in line with growth in disposable income. Over the past year the central bank has raised myriad concerns about the record levels of debt households are carrying, prompting the federal government to move twice to toughen mortgage-lending standards.
In the Bank of Canada’s view, business investment continues to “expand rapidly” as companies take advantage of low interest rates and the need to boost competitiveness. And an anticipated comeback by the trade-oriented sector appears to be unfolding.
“There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities,” it said, although warning: “The export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.”
Prior to the rate statement’s release, the Canadian dollar touched another 40-month high, as the loonie hit US$1.0309, up from Monday’s close in the US$1.029 range. The Canadian currency shot upward after the release of the GDP data, on the anticipation the Bank of Canada may begin raising rates earlier than previously believed.
Traders have priced in 100% odds of a rate hike in July, once the U.S. Federal Reserve completes its US$600-billion asset-purchase plan. But some analysts say the GDP report tilts the balance back in favour of an interest rate increase in May.
Derek Holt at Scotia Capital, however, told clients prior to the Bank of Canada release that he expected Mr. Carney to highlight concerns about the loonie.
“Don’t expect the Bank of Canada to abandon its commitment to arguing that over the full cycle, Canada’s lackluster productivity gains and an elevated currency will constrain the extent to which Canada leverages up the U.S. recovery just because one quarter’s worth of data counsels otherwise,” he said.
The Canadian dollar rise is powered by the country’s relatively sterling fiscal fundamentals, economic prospects, and a rise in commodity prices — highlighted by oil prices cracking the US$100 a barrel level last week on concern about Libya.
In the rate statement, the central bank said robust demand from emerging economies is driving the strength in commodity prices, “which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.” That was the only reference to the potential risks posed by a growing wave of protests across north Africa and the Middle East.
Global inflation pressures are rising due to higher energy and food costs. But in Canada, the central bank said inflation is in line with its expectations – the core rate, which strips out volatile-priced items, stood at 1.4% in January – and pricing pressures remain subdued, reflecting “considerable slack” in the economy.