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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 Education, Mortgage News

Cameron Miller Q&A

There’s no question the pandemic has changed the real estate market in the Greater Toronto Area.

 

We’ve asked some of our real estate partners how the market has adapted in the past 15 months, and what advice they might have for homebuyers and sellers in this new normal.

 

Who: Cameron Miller

 

Title: Sales Representative, property.ca Realty Inc.; cameronmiller.ca

 

Area: Downtown Toronto

 

Specialty: Condos, pre-construction and re-sale

 

What are some of the changes or precautions we’re seeing taken in the home-buying and selling process right now at this point in the pandemic?

 

Something that has changed is virtual showings. So when sellers are showcasing their property online, they need to have those virtual tours with their listing. A lot of my clients have bought apartments off of a 3-D tour. It’s nothing that’s going to disappear anytime soon. Buyers need to get comfortable with buying virtually because that’s just the world we live in with COVID.

 

What do you need to keep in mind when doing these virtual tours? For sellers, how do you have a really great virtual tour?

 

We need to make the space look as optimal as possible. How do the buyers envision their living room? They want to know where their TV is; they want to know where their couch is. They want those ideas. So a property that’s a one-bedroom condo that’s catered to a guy that’s going to live downtown, you want to stage the property to attract that type of buyer. And in the virtual tour, it’ll show.

 

So on the flip side, when you’re a buyer, any tips or things to pay attention to, especially if a property doesn’t translate well to a virtual tour?

 

Virtual tours don’t usually tour the building. So I think if you’re speaking about a condo, doing research on the building is very important. What amenities do they have? How many people are in the building? Who is the property manager? What’s the track record of the property manager? Things like that. It’s important.

 

In the news, we often hear the terms seller’s market or a buyer’s market. Can you tell us what those mean?

 

A seller’s market is when there’s more demand than listings, so there are fewer sellers than buyers. That means buyers are competing. A buyer’s market is the complete opposite. It’s when there are more sellers than buyers. We saw that in the rental market last year. The rental market was not plummeting, but doing sort of a nosedive. And it was very much a buyer’s market, or a tenant’s market.

 

Has there been one type of market in particular that’s dominated during the pandemic?

The cottage market has dominated during the pandemic. It seems like people want more space and appreciate sanctuary living rather than high-density living in the city. Areas like Muskoka, Collingwood, Blue mountain, etc., have experienced tremendous growth in the past year.

 

Is that still the case or has it switched at all?

I’m noticing in the rental market, it’s definitely stabilized. Buying and selling, there was a time where it was more of a buyer’s market than a seller’s market. It was a very brief time last year that that happened but it went back to a seller’s market very fast. Listings started disappearing very quickly, especially January to March of this year.

 

The cottage market continues to boom as people’s needs for a home away from the city continues to grow.

 

Where are things at right now?

Right now it’s an interesting time. Things have cooled down since the first quarter of the year. But maybe buyer fatigue has set in, where buyers are tired of going over asking (price). In the condo market, Listings have increased, demand has slightly dropped but prices have stayed, so we’ll see what happens.

 

What are some words of wisdom or advice you have for a first time home buyer?

Understand the process because the market — and I’m specifically speaking about the downtown condo market — it’s competitive. That means they would need their ducks in a row beforehand. They need to get pre-approved (for a mortgage). They need to understand the process, and they need to have a deposit check in hand. They need to review the status certificate beforehand, know who their real estate agent is, and know who their lawyer is.

 

What are your thoughts on the post pandemic real estate market? We often hear about pent-up demand. Is there going to be a correction or will it be full steam ahead?

Nobody has a crystal ball with these things but Toronto Real Estate Board Chief Market Analyst Jason Mercer said prices will probably continue to trend upwards as the city starts to grow and things start to open up. We didn’t really have a big population growth last year. But the population continues to grow and the supply continues to shrink when the people who come here absorb it, so prices are probably going to grow.

 

blog, Home Ownership, Mortgage Education, Mortgage News

The Property Shop Q&A

The real estate market is nothing if not fascinating to watch right now.

 

But for those wanting to be more than a spectator, we’ve asked some of our real estate partners how the market has adapted in the past 15 months, and what advice they might have for homebuyers and sellers in this new normal.

 

Who: Vanessa Jeffery and Joe Baglieri

 

Where: Re/Max Property Shop

 

Area: Eastern Greater Toronto Area (Scarborough to Durham Region and north to Markham)

 

Specialty: A high-level, client-centred experience developed through a combined four decades in real estate.

 

What are some of the changes or precautions that we’re seeing taken in the home-buying and selling process at this point in the pandemic?

 

Vanessa: We were well prepared to pivot to virtual consultations as we were doing them for the last year with many clients who were not able to meet in person. For buyers, our preliminary consultations were done by video, to determine their needs, their criteria, and talking about the buying whole process. For our sellers, we gave them the option of taking a walk through their home virtually and being able to have that initial meeting (virtually), including the consultation with our stager to get a head start. With showing homes, because we were an essential service from the beginning of the pandemic, we were still allowed to do in-person visits. A lot of our clients still opted to do in-person showings but we had a COVID screening protocol. We also encouraged our buyers to explore options like virtual and 3D tours to make sure that it was a right fit before we actually went and met in person.

 

In the news we often hear the term “seller’s market” or “buyer’s market.” Can you tell us a little bit what that means?

 

Joe: When they refer to buyer’s market or seller’s market, one thing they’re missing is a balanced market.

 

We are basically looking at the rate that homes are selling, or months of inventory (MOI). This ratio represents the number of months it would take to completely sell all the homes that are currently for sale, based on the area’s current rate of sales activity, assuming no new listings were added.

 

A seller’s market occurs when the MOI falls at or below four months; in a balanced market it falls between four and six months, and a buyer’s market is when the MOI is more than six months, where buyers can have more selection and negotiation power because there’s this constant supply of properties coming on the market.

 

Has one type of market in particular dominated during the pandemic?

 

Joe: It’s been a seller’s market for a while now. In the pandemic, a lot of people squatted in the real estate market at first to see what would happen. However, there was a lot of necessity purchase and sales — people that sold and had to buy, or people that were just given notice from their landlord and needed to buy. Inventory levels were at an all-time low, and there were many people that needed to buy. It’s been like that until now.

 

Vanessa: Another major factor why there’s been a seller’s market is that interest rates have been record-breaking low. People have realized instead of us renting, it’s time for us to jump into home ownership. So from the beginning of the pandemic to now, we’ve been in a seller’s market.

 

What are some words of wisdom or advice that you have for a first time home buyer?

 

Joe: Finding a good realtor and finding a good mortgage broker is really imperative to having a smooth transaction. For many years, people didn’t use the same realtor twice because of the overall experience and feeling at the end of it all. The Property Shop’s mission is to give an exceptional experience from start to finish. It’s about getting them where they need to go and getting a proper informative session together where they can calculate budget, closing costs, comfort zone attributes, and tapering to a neighbourhood. And then, more importantly is, ‘Do I like the person that I’m talking to right now? Am I going to enjoy spending 30-40 minutes in 10 homes (with them) today.’

 

Vanessa: Joe and I are very much about the planning process of it. So get a good handle on your finances. You can get pre-qualified for a much higher amount than where your comfort level is. Budget and understand what your monthlies look like. Does that work for your lifestyle? Do you still want to have a restaurant and social budget? Do you want to be able to travel and still have that extra flex money there?

 

The other thing is to help manage expectations. A lot of buyers can easily get discouraged in a seller’s market. So we always try to put our clients in the frame of mind of knowing and understanding the market conditions, how competitive it is, and how to really be resilient in it. I’ve had many times where buyers have come to us and said, I was looking before for like six months, I decided to put it on hold, and I’ve seen how much house prices have increased from when we started looking to now. And we wish we had found the right fit of a realtor beforehand, because it would have saved a lot of money and heartache.

 

What are your thoughts on the post pandemic real estate market?

Because we often hear about pent-up demand. So are we going to see a correction, or will it be full steam ahead with what’s happening now?

 

Joe: Real estate’s a game you stay in. And as long as you’re in it, you’ll be OK. Real estate appreciates. It always goes up. Over-leveraging, going outside of your comfort zone, not falling within the ratios that are allotted by the banks and financial institutions is never a safe bet when it comes to real estate. Be smart with your money and get into investments that you can sustain. The government doing their stress testing is positive because the sale on money at X per cent right now is not something that’s sustainable long-term.

 

As long as you can stay in the real estate game, a correction is something that may or may not happen, but it’s not as relevant over that 10-20-year period that you’re going to be in that home.