Mortgages.ca

blog, Home Ownership, Mortgage Education, Mortgage News, Uncategorized

Mortgage Market Update

 

 

 

Fixed rates continue to go up and the banks continue to take away the discount on variable rate mortgages. 

 

Why? 

 

Well, this can be good news in a way, although very suspicious.

The reason banks are taking away the discount on the variable and increasing the rates on short term rates is simple. They do not want clients taking a variable or a short term fixed. Why? Because it’s more profitable for you to take a 5 year fixed, and especially now with some of the biggest spreads between the 5 year bond yields and the 5 year fixed given in history. This means that they are making a lot of money right now on the spread.

 

These are some dirty tricks, but common ones. We have seen this from the banks a few times in history, including the recession in 2009/2010.

 

The banks basically believe rates will go down in the short term (short term meaning in the next 12-24 months), so if you can get clients to lock into a 5 year fixed, that’s a win-win. And let’s be honest – the banks are very good at making money.

 

Therefore, myself and any good, experienced broker will still recommend a variable or a short term fixed rate.

 

The 5 year fixed is now at a 14 year high, and what goes up must come down. Unfortunately, we cannot say for sure when.

 

Stay the course and never panic. Panicking or making rash decisions almost always leads to a regrettable decision. We will all be fine. 

 

This is a very good video on all of this from the President of Mortgage Architects.

Watch and share: Bank of Canada

 

As always, if you or your customers have any questions or concerns, call or email us any time. We are always happy to help and put all of this into perspective.

 

Stay strong – and good luck out there this fall!

 

 

 

blog, Home Ownership, Mortgage Education, Uncategorized

A Great Alternative to “Locking In”

 

The Bank of Canada recently raised the prime rate again by 0.50%, setting a new record for rate increases in such a short period of time. 

 

What does this mean for your payments if you have a variable rate mortgage?

 

A 0.50% increase to the prime rate = approximately $25 per $100,000 mortgage.

 

So, the average $500,000 mortgage payment will go up $125 a month.

 

Could there be more rate increases? 

 

Yes, it is possible. However, if there are, there is just as much of a chance the prime rate drops as well, and those in a variable benefit from any future drops when the Bank of Canada triggers a recession.

 

Are you nervous about your payments? 

 

The best solution for those who want to add more certainty to their payments for cash flow management reasons, is to switch or refinance to a fixed payment variable, currently around 3.2 to 3.3% (on average) – instead of 4.5- 5% for a fixed rate mortgage with a massive penalty to break. (900% greater than a variable rate penalty) 

 

We continue to recommend variable rate today for anyone starting a new mortgage, as we have the biggest spreads in fixed vs variable in over 40 years (at anywhere from 1.50 to 2.00% spread on average, variable to fixed).

 

When you lock into a fixed, you will be self-imposing 6+ rate hikes TODAY, so even if it did go up 6+ times over the next 2 years or more, it is much more beneficial to stagger the increase over time than feel the effects immediately.

 

Additionally, when you lock in you will be increasing your potential prepayment penalty by 900% in the event that you break the new fixed rate mortgage for any reason. Keep in mind that 70% of Canadians break their mortgage for one reason or another. Let’s face it – life happens!

 

We can refinance to switch you to a fixed payment variable and even add a home line of credit assuming you have built up equity. A home line of credit can be a great tool to have instant access to.

 

Don’t forget – taking a variable mortgage is a strategy to pay the least amount of interest over the life of your mortgage, while maximizing your flexibility and control.  Statistically speaking those who go variable and stay variable will save more money over the life of their mortgage. 

 

If you have a fixed rate product or a fixed payment variable already – the prime rate “noise” does not affect you…so no reason to make any changes;) 

 

Check out a new video from the President of Mortgage Architects that you may enjoy:

 

 

Below, you can check out the historical prime rates from the last 15 years. The prime rate goes up and down.

 

Those in a variable save more money over the term, plus they benefit from far superior terms and conditions, the biggest of these being the penalty (and if you have experienced a fixed rate penalty you will understand this –  life happens!)

 

MCAP Prime Rate History

 

 

Remember, we are here for you! Call us at (647) 795-8700 or email us at info@mortgages.ca, anytime. We’ve got your back for life 🙂

 

blog, Home Ownership, Mortgage Education, Uncategorized

How to Navigate a Variable Mortgage Amid Rising Interest Rates

 

 

Recent interest rate hikes by the Bank of Canada may have some homeowners wanting to pull the ‘chute on their variable mortgages and lock into a fixed rate. 

 

It’s understandable these changes, bracketed by high inflation and the economic uncertainty brought on by the war in Ukraine, would cause some to rethink how they’re financing their home. But is it necessary? 

 

“Rates are cyclical,” says Scott Nazareth, a mortgage professional with mortgages.ca. “They don’t always go up and they don’t always go down, so it’s important you don’t make rash decisions out of fear.”

 

Here are some actions variable mortgage holders can take to help navigate what’s ahead.

But first, a history lesson


Unprecedented has been the word of the pandemic, especially when referring to the economic impact of COVID-19. 

 

When the world was forced to shelter in place and economies slowed to a trickle, governments responded with historic social and economic programs to provide stability. 

 

By May 2020, the Bank of Canada dropped its already-low key policy interest rate to 0.25 per cent to encourage borrowing and stimulate the economy. Banks capitulated by setting their mortgage rates at historic lows.*

 

At the time there wasn’t a significant difference between fixed-rate and variable mortgages. But that spread grew over the past two years, inching closer to 1.5 per cent today. Even though variable rates can and do change, depending on the Bank of Canada, they continue to stay lower than fixed rates at this time. 

 

Granted, variable rates can only go up after being set to record lows in 2020. Meanwhile, those with a fixed rate mortgage are guaranteed the same rate for their borrowing term regardless of what the Bank of Canada does.

 

Still, it’s worth noting that variable mortgages have historically won the race. Even through fluctuating rates, variable mortgage holders have typically paid off their principal faster. This was true even before the pandemic.

 

Keep Calm


Last month, however, we saw the Bank of Canada raise the overnight rate to one percent. It’s the second consecutive rate hike and the biggest in 20 years. That resulted in the highest borrowing rates since the pandemic began. 

 

Interest rates are expected to go up even more thanks to inflation soaring above targets and the war in Ukraine.

 

Variable mortgage holders might be asking if they can afford a change in their rates, which currently hover around 2.7 per cent, depending on the lender. 

 

Nazareth says they can.

 

“Every mortgage since 2017 has been stress tested,” he says. “That made people qualify at a rate of 4.65 per cent and more recently at 5.25 per cent. It’s not that you were qualifying at the edge of affordability to begin with.”**

 

Pay the Spread


To be sure, however, Nazareth recommends variable mortgage holders “pay the spread” between current variable and fixed mortgage rates.

 

In other words, don’t just pay the minimum required on your variable mortgage. Throw in the extra 1.5 per cent that you would pay on a fixed rate. Not only will you budget for interest rate hikes before they happen, you’ll hammer down your principal in the process.

 

Still fixated on switching to a fixed rate? 


If you’re still leaning toward a fixed rate, Nazareth recommends looking elsewhere than Canada’s Big 5 banks. 

 

Those mortgages come with huge penalties if you break the term to sell your home, renegotiate your mortgage or refinance for equity. That could be as much as $40,000 on a $700,000 mortgage, Nazareth warns. 

 

Variable rate penalties are only three months interest, in comparison.

 

There is a workaround for those who still want a fixed rate mortgage, however. Nazareth suggests working with a mortgage broker to secure funding through a monoline lender. 

 

Just like banks, monoline lenders are strictly regulated. However, they’re “not as aggressive on their penalty calculation so you can expect to pay less with a fixed rate from monoline lenders” should you need to break the term.

 

Nazareth also suggests choosing a shorter fixed-rate mortgage term, just in case interest rates go down again – which, as history has taught us, is bound to happen. 

 

“No one can tell the future,” he says. “However, remembering what goes up must come down and vice versa should give you limited scope in the eye of the storm.”

 

* Bank of Canada lowers overnight rate target to ¼ percent. https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/

 

** OSFI unveils new stress test rules. https://www.canadianmortgagetrends.com/2017/10/osfi-unveils-new-stress-test-rules/

 

blog, Home Ownership, Mortgage Education, Mortgage Refinance, Uncategorized

Refinancing – What’s YOUR Scenario?

 

 

We are a few months into the year now, when resolutions are either running strong or are beginning to dwindle. Did you commit to a new financial resolution in 2022? Are you looking at tackling an old kitchen or bathroom and want to take on a reno project? Perhaps you’re looking for some options in restructuring your mortgage in order to help immediate family members?  Truth is, there are so many reasons people refinance their mortgage. 

 

What does this mean for you today?  For one thing, you likely have extra equity you may be able to access, and with favourably low interest rates it may be the best time for you to look at refinancing your home to allow yourself greater financial flexibility and fulfil whatever dreams you’ve been looking forward to.

 

In some scenarios refinancing your home may come with a cost, however, in many cases the benefits can far outweigh these costs. 

 

Below are some examples of how this could be beneficial in your situation:

 

Consolidation

 

Clients can save an extra $2,215 per month like one couple did, by consolidating all of their high interest debt balances into one small mortgage payment.  By doing so, giving themselves access to this extra cash flow will allow them to put more towards their principal and pay their mortgage down even faster. 

 

Becoming an investor

 

Clients have also invested their extra cash flow and helped grow their investment portfolio, by contributing to their TFSA/RRSP potentially giving a tax benefit come filing time.

 

Perhaps you’re in an ideal position to purchase a rental property and can use your existing home equity for the down payment, and grow your wealth by becoming a real estate investor. 

 

Renovation

 

We’ve all seen an increase in the number of bins on the neighbour’s driveways with home improvements going on, thanks to the inspiration of HGTV.  Not only do these improvements increase the value of your home, but they refresh your current living space.  Whether it’s giving yourself or your kids a workspace, giving an extra bedroom for your elderly parents, creating open concepts, adding closet space, finishing the basement, can all dramatically improve the quality of living within your home. 

 

Helping your children

 

Another couple who took advantage of the current low rates, after refinancing their mortgage, have freed up an extra $2,430/month, allowing them to help pay for their child’s college/university costs. 

 

Travel Experiences

 

Maybe for you it’s travel, as these last 2 years haven’t exactly been easy to just stay put! Did you know Ontario has introduced a new “staycation” tax credit to boost travel within Ontario and support local businesses? 

 

“Dubbed the “Ontario Staycation Tax Credit for 2022” residents can claim 20 percent of their accommodation such as a hotel, motel, resort, lodge, bed-and-breakfast, cottage or campground when filing for personal income tax and benefit return. 

 

Ontarians are eligible to claim up to a maximum of $1,000 as an individual or $2,000 if you have a spouse/common-law partner or children to see a return of $200 or $400, respectively. This can be for one trip or for multiple trips.” **

 

Whatever your scenario, Mortgages.ca’s team of professionals can assess your situation and help customize a plan unique to your financial scenario, ensuring that in 2022 you’ll be taking advantage of great opportunities and possibilities. 

 

**Resource Global News

 

blog, Home Ownership, Mortgage Education, Uncategorized

Avoiding a Post-Holiday Debt Hangover

 

 

It is without doubt that this upcoming holiday season is looking more positive for most people than it did last year where we were bound by many restrictions and shutdowns. It is our second run through Covid in December, and although the world looks different, the spirit of the holidays is running bright again throughout small towns, large cities as well as people’s homes. A long-awaited desire to return to holiday markets, festivals, light displays, cocktail parties, shopping malls and many other festivities in person has been the consensus indeed, but what does that translate into financially?

 

Have societal behaviours and habits of online shopping become the predominant method at the present time? A recent survey conducted in the early fall shows that 41% of Canadians plan to shop online vs 59% who plan to shop in person throughout this holiday season. Interestingly, these numbers vary among different demographics as baby boomers will spend and shop differently versus Gen X or Gen Z.

 

Overall spending is expected to be 33% higher than last year however still 19% lower than pre-pandemic times.  As such, is there any planning around spending or embracing the idea of shopping budgets? As mortgage professionals, what we see habitually each year is overspending leading to post-holiday debt and financial exhaustion as a result of this unequivocal pressure of having to make the holidays perfect for everyone. Notably, there are ways to proactively curb this in order to avoid a financial hangover you may be surprised with come the new year.

 

Tips on Holiday Budgeting

 

Being mindful of online door crasher sales which can lead to increased frivolous purchases.

 

Beware, a considerable increase in the email inbox from retailers with promotions and discount codes may invite further unplanned spending.

 

Many online retailers are not solely Canadian, thus double checking if you are paying in US funds vs Canadian funds, also factoring in substantial shipping and duty costs may have you re-evaluating whether or not it’s actually worth the spend.

 

Setting budgets for each gift in advance can assist with keeping numbers inline.

 

Looking to host this year’s holiday dinner or cocktail party? Keeping a tight shopping list can ensure you stay within budget, while maintaining a tasteful but simple spread.

 

Consider a pay it forward initiative or charitable endeavour with family in lieu of gifts.

 

Homemade gifts, baked goods and sentimental gestures can cost very little but go a long way.

 

Factoring In Financial Impact

 

With the considerable increase in spending this time of year, particularly using various credit facilities, it’s important to remember the scheduled payment due dates in order to avoid late payments resulting in distressed credit. This can significantly impact the mortgage approval process particularly around rates and can add considerable costs over the term of the mortgage and throughout the credit rehabilitation period.

 

In one of our previous blogs, we outlined the “ABCs of Private and B Lending” and the impact poor credit management can have on one’s mortgage portfolio. While we have the expertise to assist Canadians in dire situations, it’s prudent for us as professionals to continue educating our clients in order to avoid these situations going forward.

 

Rest Assured….

 

Despite roller coaster habits of spending and with changes in pandemic influenced human behaviour, the one constant is knowing you have trusted Mortgage Professionals at Mortgages.ca who can assist with any debt consolidation, refinances and dependable guidance through all situations going forward. Don’t sweat it out too much, relish in the time with friends and family and enjoy the holidays!  

 

*Survey resource – https://www.pwc.com/ca/en/industries/consumer-markets/2021-holiday-outlook-canadian-insights.html

 

blog, Home Ownership, Mortgage News, Mortgage Refinance, Uncategorized

Urgent Message on Mortgage Rates

As many of you may have seen in the media recently:

 

“Rates are going up,” and “Mortgage rates have to go up.”

 

We all know the media tends to focus on the negative – but rest assured, rate changes are nothing new for us as Mortgage Brokers, and this news does not change our client recommendations.

 

Is inflation high right now? Yes. But for the Bank of Canada to even consider raising the prime rate, we’d need to see sustained inflation for 6+ months to move the needle in any meaningful way.

 

For reference: a 0.25% increase in the prime rate = $12 increase per month per $100,000 mortgage borrowed.

 

Below just a few of the many reasons to maintain your variable rate mortgage – or refinance and get a new variable.

 

 

1) The primary reason: Once you lock into a fixed rate, your future potential prepayment penalty goes up 900% on average.

 

No client plans on breaking their mortgage, but over 70% of Canadians do for one reason or another, and over 85% of Canadians will either move or refinance every 3.5 yrs. In other words, the probability is high. Simply put, life happens.

 

2) If you lock in, you are self-imposing a rate increase that is 4 times greater than any Bank of Canada rate increase, as the average fixed rate is 1.00% higher than variable on average.

 

3) The prime rate would have to go up 9 times in the next 5 years for you to lose money comparatively (when comparing fixed to variable today).

 

4) If you are concerned about your payments going up, give me a call. We can lock into a variable rate around product 1.20 to 1.45% with a fixed payment 🙂 Win-win. We are happy to help with that at Mortgages.ca.

 

5) If you think that the prime rate will go up, simply increase your payments now (maybe $200-300 a month). This way, you are paying off principal instead of interest while you wait, and you maintain the FAR superior terms and conditions of the variable product!

 

Pay off your mortgage (ie: put it in your pocket – not the bank’s profit margin).

 

6) The Banks/lender will call you to fear monger you into locking in your variable rate to a fixed within weeks of any prime rate increase:

 

Why? Because it is what is best for them, not you. The fixed rate is more profitable for the banks, especially the 5-year fixed.

 

Don’t get mad. They are a business, and a very successful one at that. Just buy more of their stock and enjoy the dividends.

 

The prime rate goes up and down – not that often, but it happens. The bottom line is that those who take a variable rate mortgage, pay less total interest than those who go fixed (every time for the last 50 years). PLUS they benefit from far superior terms and conditions – if life happens.

 

Life is Variable – Your mortgage should be too!

 

Stay strong – and stay the course 🙂