General

Download My Mortgage Toolbox!

15 Sep

The Real Deal About Transfers and Switches

General

Posted by: Maria Solverson

Most people who are thinking about a transfer or switch want to take advantage of a lower interest rate or get a new mortgage product with terms that better suits their needs.

Up for renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch – great news! You won’t be charged a penalty. BUT you are still required to qualify at the current qualifying rate and need to consider potential costs around legal charges, appraisal fees and penalty fees (if applicable). In some cases, the lender will offer you the option to include these fees in your mortgage or even cover the costs for you.

Currently have a collateral charge mortgage?

If you have a collateral charge mortgage (which secures your loan against collateral such as the property), these loans cannot be switched; they can only be registered or discharged. This means you would need to discharge the mortgage from your current lender (and pay any fees associated) before registering it with a new lender (and pay any fees associated).

Still locked into your mortgage?

If you’re considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Typically, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments), but you want to be confident that the penalty doesn’t outweigh the potential savings before moving ahead.

Things to consider for a transfer or switch:

  1. You may be required to pay fees associated with the transfer or switch, including possible administration and legal fees.
  2. You will need to requalify under the qualifying rate to show that you can carry the mortgage with the new lender.
  3. You will be required to submit documents that may include, but are not limited to, the following (depending on the lender):
  • Application and credit bureau
  • Verification of income and employment
  • Renewal or annual statement indicating mortgage number
  • Pre-Authorized Payment form accompanied by VOID cheque
  • Signed commitment
  • Confirmation of fire insurance is required
  • If LTV is above 80%, confirmation of valid CMHC, Sagen or Canada Guaranty insurance is required
  • Appraisal
  • Payout authorization form
  • Property tax bill

If your mortgage is currently up for renewal, reach out to speak with me. I can analyze your options and explain any penalties or fees that may be associated with your desired transfer or switch. I can also shop the market for you to find the best options to meet your needs. My network of lender options ensures that you are not only getting the sharpest rate, but that the mortgage product and terms are suitable for you now – and in the future.

Modified from an original article by Dominion Lending Centres Inc.: https://dominionlending.ca/mortgage-tips/the-real-deal-about-transfers-and-switches

22 Jul

Considerations for finding the best mortgage rate: fixed vs. variable

General

Posted by: Maria Solverson

This blog is adapted from an original article by Moneysense. It’s well worth the read!

After consecutive years of record-low interest rates in Canada, we are entering a period of rising rates—which makes the cost of borrowing money, be it for a mortgage or a student loan, more expensive. The possibility of more rate hikes can make the stability of a five-year fixed mortgage rate seem like a good option compared to one with a variable rate—especially for first-time homebuyers or those about to renew their existing mortgage. In fact, five-year fixed-rate mortgages are the most popular mortgage product in Canada. However, as with any financial product, they still have their drawbacks.

Learn more about how they compare to five-year variable mortgage rates.

What is a five-year fixed mortgage rate? 

As the name implies, a five-year fixed-rate mortgage comes with a mortgage term of five years—that’s the duration for which your mortgage contract remains in effect. In Canada, mortgage terms range from six months to 10 years, with five years being the most common.

With a fixed-rate mortgage, your mortgage interest rate is locked in for the period of the contract. This means you can predict what your mortgage payments will be until your mortgage contract comes to an end and it’s time to renew.

For this reason, fixed-rate mortgages can provide a greater sense of security than variable-rate mortgages. With a variable-rate mortgage, the interest rate can fluctuate throughout the term. This flux occurs as lenders adjust their prime rates in response to changes to the Bank of Canada’s overnight rate. The prime rate is at 4.70% at the time of this publishing.

Finally, fixed-rate mortgages can be open or closed. Whereas an open mortgage comes with the option of making additional regular or lump-sum mortgage payments without penalty, these actions are financially penalized with a closed mortgage. As a rule of thumb, closed-term mortgages come with lower interest rates because they offer less flexibility than open mortgages.

How to compare five-year fixed mortgage rates

If you are shopping for a mortgage on a new home purchase, use an online calculator to input your property and payment details and view the best fixed mortgage rates available. The tool can also be used to view mortgage rates for products with different rate types, such as variable.

The mortgage rates comparison calculator offered by MoneySense works really well.

Using this calculator, you can view mortgage rates for the following:

Mortgage renewal: If your mortgage term is coming to an end and you have an outstanding mortgage balance, you will have to renew your contract for another term. You can do this with either your existing lender or another one—but it’s always good to shop around! To view mortgage renewal rates for a new five-year term, use the MoneySense calculator linked above to enter your current mortgage balance, remaining amortization, mortgage payment frequency and location.

Mortgage refinance: If you want to break your current mortgage contract and negotiate a new contract, that’s called refinancing. You may want to do this to take advantage of lower interest rates or access equity in your home. However, the decision to refinance should not be taken lightly, because you could end up paying significant penalty fees. If you want to see five-year mortgage rates on a mortgage refinance, enter your current mortgage balance, as well as the amount of equity you wish to access.

Home equity line of credit (HELOC): This is a revolving line of credit, for a pre-approved amount of money, that allows you to borrow from the equity in your home. The interest rates on HELOCs are usually lower than those for traditional lines of credit, but higher than those typically offered for variable-rate mortgages. The money borrowed through a HELOC is repaid, with interest, in addition to your regular mortgage payments.

How are five-year fixed mortgage rates determined in Canada? 

Rates for five-year fixed mortgages are strongly linked to the price of five-year government bonds. Banks rely on bonds to generate stable profits and offset potential losses from the money they lend as mortgages. When banks expect their bond profits to increase, they lower their fixed-mortgage rates, and vice versa.

Historically, fixed rates have tended to hover above variable rates, however there are a few instances when variable rates have surpassed fixed rates. This historical trend suggests buyers may end up paying more for fixed mortgages, especially during periods of falling interest rates.

However, when Canadian inflation rates exceed the norm, hikes in the Bank of Canada’s overnight rate—which lead to higher variable interest rates—are often not far behind. At times like these, locking in a fixed mortgage rate could be a smart option for borrowers who want to avoid the fluctuations that come with variable-rate mortgages.

The pros and cons of five-year fixed rate mortgages

Pros: 

  • Competitive rates: Lenders know you are shopping around, and they will generally offer comparable and lower rates for your business.
  • Predictability: You know your interest rate, and therefore your mortgage payments will not change for the duration of the term. That stability can help you budget more easily.
  • Potential to save money: If interest rates increase during your term, you could end up paying less than you would with a variable rate.

Cons: 

  • Stiffer penalties: The penalty to get out of a fixed mortgage contract can be quite a bit higher than with a variable mortgage. You may also be more limited in your ability to pay off your mortgage faster through additional payments.
  • Potential to pay more in interest: Historically, fixed rates have been priced higher than variable rates, with a few exceptions. In some instances, you could end up paying significantly more in interest than you would with a variable rate, if market interest rates fall during your term.
  • Higher cost: You will pay for predictability and peace of mind. When comparing fixed to variable rates, you will see that fixed can be slightly higher.

Is a fixed-rate mortgage better? 

My approach is that it always comes down to your finances, intentions for the property, and risk tolerance.

Ideally, if you are choosing a variable rate, you would have finances available to cover sudden rate hikes. If you have savings set aside that can help you ride the cyclical wave of rising and dipping variable rates (and you can sleep easy at night knowing that your rate will fluctuate) variable could be right for you.

Additionally, if you intend to own your property for a short time, a variable mortgage could be the better option because these mortgage contracts are easier to break out of early. They tend to come with lower penalties than fixed rate mortgages.

There is no single solution that will work for everyone. Every situation is unique, which is why it is so important to talk to a mortgage broker about your finances, plans for the future, and risk tolerance. I am here to help you determine what course of action is best for you!

What happens when my mortgage term ends? 

When your mortgage term ends, your mortgage contract will be up for renewal. A few months before it ends, your lender will send you a renewal statement that will include details on the remaining balance on your mortgage, your new interest rate at renewal, your payment schedule and any fees that may apply. At this time, you can choose to renew your mortgage with your original lender or comparison shop for a better rate from another lender.

No matter which lender you decide to go with, it’s always worth reviewing what five-year fixed mortgage rates are currently being offered in Canada before deciding to renew or switch products or lenders.

I recommend putting your renewal date in your calendar along with a reminder to contact your mortgage breaker at least six months in advance of this date. By doing so, you give yourself and your broker ample time to shop around on your behalf and secure the best rate and terms available to you. It might feel easiest to simply renew with your current lender, but there could be a better deal out there and you deserve the chance to compare your options at this stage, just as you did when you first bought.

Should you choose a five-year fixed mortgage rate?  

When deciding if a fixed-rate mortgage is right for you, there are a number of key factors to consider, including the historical performance of five-year fixed mortgage rates. Depending on what happens with market interest rates during your term, you may pay extra, but those additional costs could save you from the stress of predicting ups and downs in the economy and interest rates.

If you are not sure which option suits you best, give me a call! I am here to talk, and my advice is always free.

This blog is adapted from an excellent original article by Moneysense.

15 Jun

Vacation and Investment Properties

General

Posted by: Maria Solverson

So, you are looking to purchase a second property. Congratulations! This is a great opportunity for you to expand your financial portfolio and create stability for the future.

Before you launch into this purchase there are a few things you should know, depending on which type of second property you are looking to purchase.

SECOND PROPERTY WITH INTENTION TO RENT

Buying a property for the purpose of renting it out to someone else comes with different qualifying criteria and mortgage product options than traditional home purchases. Before you look at purchasing a rental property, consider:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used to qualify and determine how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income and subtract your expenses.
  3. Unlike a mortgage for a principal residence, interest rates usually have a premium when the mortgage is for a rental property. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application but bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you decide to sell in the future.

VACATION PROPERTY

While vacation properties are not always the perfect investment, they are popular options for people who want to get away from it all and build memories!

Cottages and vacation homes are classified as either Type A or Type B properties, which have different criteria.

Type A Cottage / Vacation Home Criteria

  • Must be intended for occupancy at some point during the year by the borrower or a relative on a rent-free basis (otherwise it is considered a rental)
  • Winterized home with year-round access
  • Potable running water, central heating, plumbing and electricity
  • Permanent foundation below frost line
  • Property needs to be readily marketable (easy to sell)
  • Floating homes are possible
  • Important: rental pool/timeshare properties are NOT eligible

Type B Cottages Criteria

  • Seasonal (summer road only) or boat access okay
  • Must have a kitchen, three-piece bathroom, bedroom, and a common area
  • Permanent heat source not required
  • Running water, but need not be potable
  • Toilet can be chemical, portable, or a holding tank
  • Sits on a foundation (concrete blocks or pilings)
  • Generally 850 sq ft or more
  • Off-grid power likely acceptable if a 50% down payment is made
  • Must be intended for occupancy at some point during the year by the borrower or a relative on a rent-free basis (otherwise it is considered a rental)
  • Cannot be used as your full-time home

Buying a Type A property is essentially like purchasing a second home with a minimum of 5% down. This type of property can be refinanced as long as 20% equity remains in the property.

Type-B properties require a 10% minimum down payment as a second home purchase with CMHC/Sagen mortgage loan insurance and cannot exceed a $350,000 sale price (although some exceptions are available on a case-by-case basis). Type-B properties generally have limited-to-no refinance options.

Interest rates for vacation properties might be 0.10-0.20% higher than a traditional mortgage because property is not ‘owner occupied’ year-round. It will depend on the lender.

If you are considering buying un-serviced land, know that this typically requires a 50% down payment, though closer to 25% is possible for prime locations (like a waterfront lot).

SECONDARY PROPERTY

Most people are trained to stay out of debt and don’t tend to consider using the equity in their home to buy an investment property, but they haven’t realized the art of leveraging. If you’re using equity from your primary residence to buy a secondary property, keep in mind that the interest you’re using is tax deductible. Consider that you’re buying an appreciating asset, and if you put a real estate portfolio and a stock portfolio side-by-side, they don’t compare.

WHO IS A GOOD CANDIDATE?

You might be surprised to learn that you don’t need to make six figures to get in the game. Essentially, you just have to be someone who wants to be a little smarter with their down payment. Before taking on a secondary property, remember that the minimum down payment is 5% of the purchase price – unless you are intending to rent, in which case it is 20% down.

When it comes to purchasing a secondary property, whether for investment or rental or vacation, it can be a great opportunity! Your Jencor mortgage broker can work on your behalf to find the best solution for your unique needs.

AIR BNB ON YOUR MIND?

More and more Canadians are hopping on the short-term rental train as Air BnB’s popularity has sky-rocketed over the last few years. It’s not a bad way to earn extra money, but don’t forget there are a few things to consider:

  • Check strata/city bylaws
  • Contact your insurance provider to get correct coverage
  • Talk to us to see if a short-term income property can affect your approval
  • Consider tax implications and talk to an accountant

The more services you provide as a host, the greater the chance that your rental operation will be considered a business. There are different requirements for commercial real estate financing that we can talk about.

Buying a second property can be simple with mortgage expertise on your side. Give us a call and let’s see how we can make your investment or vacation home happen!

Based on “Investment Properties” by Dominion Lending Centres Inc.

15 May

Changing Your Financial Direction

General

Posted by: Maria Solverson

Did You Know? The average Canadian owes $23,000 in consumer debt and has at least 2 credit cards. Source: CBC.ca

If you live paycheque to paycheque, the idea of somehow having enough money to invest and eventually have financial freedom seems about the furthest thing possible.

But experts in financial education like to point out, no matter your income and place in life, a few changes to the way you’re living can make all the difference. It’s never too late to start learning and reverse course! If you’re still not convinced, here are a few simple ideas to get you started.

PRETEND YOU EARN LESS THAN YOU DO

Give yourself a cut in pay. The goal is to put 10% in savings from each paycheque into your savings account. The easiest way is to do an automatic direct transfer from your chequing account to your savings every pay day.

CREATE A BUDGET

In order to stop living paycheck to paycheck, you need to know where that money is going. Creating a budget is simple with Google docs or look into other online tools and sites to get started.

BUILD AN EMERGENCY FUND

Once you have your budget in place, review it and break it down into non-discretionary expenses (rent, groceries, utilities, etc.) and discretionary expenses (eating out, entertainment, clothes, etc.). See where you could cut down on discretionary spending and put that money towards your emergency fund. Even starting with just a little amount is great and helps you build the habit of saving.

CONSIDER DOWNSIZING

It may be time to consider a lifestyle change. Consider moving to a smaller place. Get rid of that cost of going to that expensive gym with a trip to the local park. Think about if you really need that brand new car or if a used one would work just as well.

PAY DOWN DEBT

If you have a lot of credit card or unsecured debt, try paying the minimum on all but one of them and aggressively pay down that one card. Once it’s paid off, attack the next one. If you’re so deep in debt that you can’t fight your way out, consider consulting with a company who specializes in debt consolidation. They will help you negotiate your debt into smaller amounts that you can begin to pay off.

DON’T FORGET YOUR FUTURE

Putting at least 3% of your paycheque into a retirement fund is a great idea, or maybe when you get your first raise instead of thinking of it as free money, simply put it into a fund and forget about it. You’ll be glad it’s there when you need it in the future!

Authored by Dominion Lending Centres Ltd.

15 Apr

What to Consider When Choosing Window Coverings

General

Posted by: Maria Solverson

Are you looking to renovate your home this spring? A great way to spruce up the home without breaking the bank is to replace old blinds!

Here are some tips to consider when choosing window coverings:

1. Understand your needs for each space.

Is it privacy you are looking for? Is it light you require? Window coverings can serve many purposes. Perhaps you need to darken a space for sleep. Or you need to let in light while reflecting the heat of the sun. It’s all possible as long as your larger goal is clear!

2.Take a closer look at your windows themselves.

Windows come in many different shapes and sizes. Depending on the depth of the window casing, you may need to place the blinds on the outside rather than the inside of the casing. Looking at the depth of your window casing can help you narrow down which window covering is right for you.

You should also consider the width of your window. Blind manufacturers have maximum widths for particular products. If the width of your window reaches beyond the manufacturer’s maximum, you may have to split your covering into two or three pieces. But don’t worry, blind experts will always be able to guide you and provide you with more information. It’s just something to keep in mind!

3. Let there be light.

Natural light can make a space look larger. Unless you need absolute darkness, consider choosing a product that lets some sunlight into main areas while still providing you with privacy.

4. Think big when it comes to colour.

When choosing the right colour for your window coverings, don’t just look to your walls and floors for inspiration. Be sure to look at your accent pieces, fixtures, kitchen/bathroom back splash, and counter tops. You can really make a space ‘pop’ when pairing window coverings with accent colors.

Always look at how big your space is when choosing a colour too. Remember, darker colors will sometimes create the illusion of a smaller space, while lighter colors can open a space up.

Don’t be afraid to use bold colours and have your windows act as the standout piece for your room. Window coverings aren’t just about blocking out the sun or providing privacy, they can also be a fashion statement!

5. Be true to your style.

Pick a style that will help transform not just your windows, but your home. Think about the space you are working with. The vibe of an office or den might be very different from a bedroom or playroom. How do you want the room to feel? Think of descriptive words like fun, formal, or zen and search for window covering styles that align with your vision.

New Safety Regulations for Cords

Importantly, there are a few new Government of Canada safety regulations to be aware of. The new restrictions and safety measures were put in place to reduce the risk of strangulation. Any exposed single pull cord, chain, or looped cord mechanism must not exceed a length of 22cm. The new restrictions are in effect as of April 30, 2022.  For more information, visit Corded Window Coverings Regulations (justice.gc.ca).

There are several alternatives to cord systems, and these are growing in popularity! You might consider:

  • Cordless lift systems: manually raising and lowering the blind by hand
  • Battery and solar motorized shades: motorized with an option of a single and/or multi-channel remote
  • Automated motorized shades: Pairs to Google, Alexa, and Apple home for control from your smartphone

Talking to a window covering expert can help you select the best blinds or curtains for your space. There are options for everyone, and knowing your goals, style, and window specifics will go a long way to finding the perfect fit.

Authored by Sun Blinds YYC, a preferred partner of Jencor. For more window coverings advice and great pricing, visit sunblinds.ca/calgary.

15 Mar

5 Things to Consider When Building Your New Home

General

Posted by: Maria Solverson

Building a new home is an exciting adventure that requires very different considerations. To help you have the best experience building a home, here are the 5 most important considerations.

1. It’s all in the numbers

Regardless of whether you are shopping for a pre-built home or are looking to create your own from the ground up, it is vital to know what you can afford and stay within budget. This is the key to building a home that you will be able to enjoy for the next 20 or 30 years, while still maintaining your financial stability.

When calculating the cost of building your home, there are many components to think about, such as construction materials; contracts; tax benefits; funds for the down payment; and a slush account. In Calgary AB, the typical cost to build a house is between $185 and $400+ per square foot. In some cases, it could cost as much as $500+ or more per square foot.

Overall, the average cost to build a house can range from $300,000 to $350,000 for 1,000 square feet to double or triple that amount. For example, an average 2,500 square foot home could cost between $500,000 and $875,000 to build, depending on materials, design, etc.

2. Choose a reputable builder

This one seems pretty straight forward, but when you start looking it can quickly become overwhelming when you realize how many options there are. When it comes to determining the head contractor for your project, careful research is needed. Another option is to consult friends and family members who have gone through the process or ask your realtor for a referral.

3. Build a home for tomorrow

As tempting as it can be to personalize your home and include every cool little feature you can think of it is important to always keep resale value and practicality in the back of your mind. Life can often throw a few curve balls that, for one reason or another, may result in your having to sell your home in the future. If that time should ever come, you will want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others, and if the design suits the neighborhood you are building in as well.

4. Go green!

Now more than ever energy efficient upgrades are easy to add to your home. To make your home as efficient as possible, it is important to incorporate these options into your design BEFORE you start building. Options such as energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. For instance, the Canadian Mortgage and Housing Corporation (CMHC) green building program rewards those who select energy efficient and environment friendly options.

5. Understand the loan

Aside from the costs of building a new home, what does a mortgage look like for an unbuilt home? In many cases, this is where a “construction mortgage” might come into play. To properly qualify for financing on an unbuilt home, I need to see a budget that includes both hard and soft costs, as well as the reserve of money you plan to have set aside in case you run into unexpected events.

For example, based on the lender loaning up to 75% of the total cost (with 25% down):

  • Land purchase price: $200,000
  • Total soft and hard costs (as complete): $400,000
  • $600,000 x 75% = $450,000 available to finance

It is also important to note that the lender will also consider the appraised value of the finished product. This value is determined before the project begins. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify. The buyer would have to come up with the initial $150,000 to be able to finance the total cost of $600,000.

Depending on the lender, you may have a timeframe within which you need to complete construction (typically between 6 and 12 months).

When it comes to construction loans, there are a few other key points to remember with regards to repayment:

  • Construction loans are usually fully opened and can be repaid at any time.
  • Interest is charged only on amounts drawn; there are no “unused funds.”
  • Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage.

In addition, a lender will always consider the marketability of a property. This includes not only demographic aspects, but also looking at the geography. For instance, a lot in a secluded area with minimal market demand may not be a property that they will be willing to lend on.

There are a lot of things to consider when you build a home, but a few focus areas that can keep you on track and on budget are to have a solid plan in place, work with a builder you trust, build a strong team around you that can be there from start to finish, and to do your research.

Once you have decided to build, give me a call! I can help you get the ball rolling and guide you to the first step of breaking ground on your new home.

16 Feb

Understanding Your Mortgage Rate

General

Posted by: Maria Solverson

It might surprise you to know there are 10 major factors that affect the interest you will pay on your mortgage.

Knowing these factors will not only prepare you for the mortgage process but will also help you better understand the mortgage rates available to you.

Credit score

Not surprisingly, your credit score is one of the most influential factors when it comes to your interest rate. In fact, your credit score determines if you are able to qualify for financing at all. In order to qualify, a minimum credit score of 680 is required for at least one borrower. Having higher credit will further showcase that you are a reliable borrower and may lead to better rates.

Loan-to-value (LTV) ratio

This ratio is a percentage that compares the value of the amount being borrowed to the overall value of the home. The main factors that impact LTV ratios include the sale price, the appraised value of the property, and the size of the down payment. Putting down more on a home, especially one with a lower purchase price, will result in a lower LTV and be more appealing to lenders. As an example, if you were to buy a home appraised at $500,000 and were able to make a down payment of $100,000 (20%), then you would be borrowing $400,000. For this transaction, the LTV is 80%.

Insured vs. uninsured

Depending on how much you have saved for a down payment, you will either have an insured or uninsured mortgage. Typically, if you put less than 20% down, mortgage insurance will be required on the property. Depending on the insurer, this can affect your borrowing power as well as the interest rates available to you.

Fixed vs. variable rate

The type of rate you are looking for will also affect how much interest you will pay. While there are benefits to both fixed and variable mortgages, it is more important to understand how they affect interest rates. Fixed rates are based on the bond market, which depends on the amount that global investors demand to be paid for long-term lending. Variable rates, on the other hand, are based on the Bank of Canada’s overnight lending rate. This ties variable rates directly to the economic state at-home, versus fixed which are influenced on a global scale.

Location

Location, location, location! This is not just true for where you want to live. Location can also affect how much interest you will pay. Homes located in provinces with more competitive housing markets will typically see lower interest rates, simply due to supply and demand. On the other hand, regions with less movement and competition will most likely have higher rates.

Rate hold

A rate hold is a guarantee offered by a lender to ‘hold’ the interest rate you were offered for up to 90 to 120 days. The purpose of a rate hold is to protect you from any rate increases while you are house hunting. It also gives you the opportunity to take advantage of any rate decreases to your benefit. This means that if you were pre-approved for your mortgage and we put a rate hold in place, you may receive a lower interest rate than someone just entering the market.

Refinancing

The act of refinancing your mortgage means that you are restructuring your current mortgage (typically when the term is up). Whether you are changing from a fixed to variable rate, refinancing to consolidate debt, or just seeking access to your home equity, any change to your mortgage can affect the interest rate you are offered. In most cases, new buyers will be offered lower rates than those refinancing, but refinancing clients will receive better rates than clients needing to transfer their mortgage. Regardless of why you are refinancing, it is always best that we discuss your options to ensure you are making the best choice for your unique situation.

Home type

Lenders assess risk associated with your home type. Some properties are viewed as higher risk than others. If the property you are looking at is considered higher risk, the lender may require higher interest rates.

Secondary property (income property/vacation home)

Any secondary properties, or those bought for the purpose of being an income property or vacation home, will be assessed as such. The lender may deem these as high-risk investments, and you may be required to pay higher interest rates than you would on a principal residence. This is another area where I can help. My access to a variety of lenders and various rates can help you find the best option.

Income level

The final factor is income level. While this does not have a direct effect on the interest rate you are able to obtain, it does dictate your purchasing power as well as how much you are able to put down on a home.

It is important to understand that obtaining financing for a mortgage is a complex process that looks at many factors to ensure the lender is not putting themselves at risk of default. To ensure that you – the borrower – are getting the best mortgage product for your needs, don’t hesitate to reach out!

I can assess your unique situation and find the right mortgage for you. My goal is to see you successfully find and afford the home of your dreams and set you up for future success.

22 Jan

How Mortgage Rates Are Determined

General

Posted by: Maria Solverson

Chances are you’ve heard of the two most common mortgage product types: fixed and variable (sometimes called adjustable).

But did you know that interest rates for each type are determined by different factors?

While both fixed and variable mortgage rates are impacted by a consumer’s financial health, they are also affected by two distinct large-scale economic factors. These factors include activity by the Bank of Canada and by the Government of Canada. Here’s how it works.

What determines variable mortgage rates?

Variable mortgage rates are short-term interest rates that fluctuate in tandem with a lender’s prime rate. Prime rates are most influenced by the Bank of Canada’s “overnight” rate, also called its “policy interest rate.”

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves. They settle their accounts at the end of each business day based on this rate. Eight times a year, the Bank of Canada – or BoC – influences short-term interest rates (like variable mortgage rates and lines of credit) by raising or lowering the target for the overnight rate. This is how the BoC carries out its monetary policy in an effort to keep the economy stable.

When the BoC increases the overnight rate, it becomes more expensive for banks to borrow money. As a result, their prime rate goes up to cover the added costs. When the BoC lowers the overnight rate, banks typically follow suit and lower their prime rate, passing the discount down to their customers. While each lender sets its own prime rate, there is usually consistency across the “big six” banks.

Key takeaway: The overnight rate set by the Bank of Canada is the biggest factor that determines whether interest rates on variable mortgages will go up or down. When the overnight rate increases, variable mortgage rates can be expected to increase as well.

What determines fixed mortgage rates?

Fixed mortgage rates largely depend on Government of Canada (GoC) bond yields. The relationship between fixed mortgage rates and GoC bond yields isn’t firm, but it is positive: meaning that when GoC bond yields go up, fixed mortgage rates tend to go up as well. Why? It’s a matter of risk, supply, and demand.

Because they are guaranteed to be repaid, GoC bonds are considered an ultra low-risk long-term investment product. In comparison, mortgages carry a higher risk (after all, there is a chance that the return on investment could be reduced if a borrower defaults or repays the loan early). Pricing fixed mortgage rates slightly higher than GoC bond yields serves to attract investors by compensating for this higher risk.

At its most basic, when the economy is judged to be weak, safer investments like GoC bonds become more popular. This demand drives GoC bond prices up, which creates lower yields and lowers fixed mortgage rates in response. When the economy is considered strong, investors feel comfortable taking on more risk, and bond demand falls, causing yields to increase and fixed mortgage rates to go up to compete. Factors that influence whether the economy is weak or strong include inflation, employment rates, and consumer spending.

Key takeaway: The performance of Government of Canada bond yields gauges whether fixed mortgage rates will go up or down. The relationship between bond yields and fixed rates is largely positive – when yields go up or down, so do rates.

How does personal financial health factor in?

While Government of Canada bond yields and the Bank of Canada overnight rate are broad indicators of how fixed and variable mortgage rates will behave at a macro level, it’s important to remember that there are micro factors at work too.

The interest rate that is finally offered from a lender to a consumer is also determined by factors unique to each transaction, such as the property type and its value, the down payment, credit scores, employment, the bank’s balance sheet, the bank’s mortgage products, and more. The only homebuyer who will receive the prime rate is a “prime” customer – someone deemed creditworthy based on all the factors above. For this reason, it’s essential to talk to a mortgage advisor who can review your financial health, advocate on your behalf, and find the best rate and best terms for your unique situation.

Key takeaway: Whether your mortgage is fixed or variable, your financial health will ultimately determine your interest rate. For the best advice, speak to a mortgage advisor.

What’s next for mortgage rates in Canada?

While different factors determine the interest rates for different mortgage types, broadly speaking all interest rates follow fluctuations in Canada’s economic performance. With the third vaccine rollout underway and our economy performing better than many analysts anticipated, we can expect long-term (fixed mortgage) interest rates to rise incrementally as demand for bonds falls and investors take more risks. Until the Bank of Canada deems the economy stable enough to lift the overnight rate, we can expect short-term (variable mortgage) interest rates to remain low. The overnight rate has remained at 0.25 per cent since March 2020.

The Bank of Canada’s next interest rate announcement is set for January 26, 2022.

22 Sep

5 Things To Know Before Buying A Rural Property

General

Posted by: Maria Solverson

A rural property featuring a large log house on an expanse of green lawn

As cities continue to grow bigger and busier, a rural home beyond those limits can seem like a dream come true! However, before you dive into country living, there are a few things you should know! Especially, how different it can be to qualify for a mortgage.

1. CHECK THE ZONING

When it comes to buying rural property, it is important to check how the property is zoned. This is vital! Zoning will determine how you are able to use the land, as well as the types of buildings that are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”?

Zoning could affect the lenders available to you and what you qualify for, as well as what you can do with that property. Differences in lending and foreclosure processes, has caused some lenders to be hesitant with financing mortgages in agricultural/country residential zones.

2. PROPERTY BOUNDARIES

Once you have determined how a property is zoned, it is important to look at the land. Requisitioning a survey early in the process will help mark the exact boundaries of your property to avoid future disputes. This is also a good time to get an appraisal done on the land and its value.

3. CONSIDERING THE LAND AND YOUR MORTGAGE

What many borrowers don’t realize is that land has a drastic effect on mortgage qualification and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have a second building or extra land that is being purchased, you will need to consider additional funding on top of your typical 5% down payment.

4. WATER AND SEWAGE

When it comes to rural living, many people draw water from private wells and utilize septic tanks for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city. However, it is important as lenders may request potability and flow tests!

5. COVERAGE MATTERS!

Coverage matters, especially when you are living away from the city. When it comes to rural properties, there are two types of insurance that you should consider:

1. Home Insurance: When it comes to rural living, this can be more expensive than city homes due to the size and location of the land and distance from fire stations and hydrants.

2. Title Insurance: This is vital for rural purchases and will protect you from unforeseen incidents with the deed or transfer. It will also alert you to any improper previous use of the property (such as dumping for waste).

If you are thinking about purchasing a home in a rural area, let’s talk before you do anything. I can often recommend a realtor who specializes in rural properties and knows the area best. I can also help ensure you understand any differences in the mortgage process and qualifying that come with rural purchases.

By: Dominion Lending Centres

22 Aug

25 Secrets Your Banker Doesn’t Want You to Know

General

Posted by: Maria Solverson

Twenty-five or thirty years can sound like an impossibly long time to service a loan – and for many of us, it is. If you are looking to pay off your mortgage faster, here are some tried-and-true tactics to get you to financial freedom that much sooner!

  1. Make a Double Mortgage Payment: A double payment once a year can shave over four years off the total life of the mortgage! Better yet, if your mortgage allows for double-up payments, another option is paying an extra $100 into your mortgage – per month. This can save you over $26,000 in interest on a 5.5% fixed-rate, 25-year amortized mortgage.

  2. Increase Your Payment Frequency: Changing your mortgage from monthly to bi-weekly accelerated payments can shave over three years off your mortgage. At $2,000 a month, three years of no payments is worth $72,000 (not to mention the interest saved!).

  3. Increase Your Payment: Did you know? A one-time 10% increase can shave four years off the mortgage. That’s $96,000 in savings! Imagine if you bumped the payment 10% every year from the get-go. You would be mortgage-free in 13 years—start to finish! Can’t do it? How about 5% every year? You would be mortgage-free in 18 years! You can also consider increasing the payment by the amount of your annual raise.

  4. Lump Sum Payments: This is another option to become mortgage-free even faster! Even just one extra payment a year equivalent to one monthly payment will give you similar results as #2 above. Annual work bonuses or other extra-income is a great option for this.

  5. Renegotiate When Rates Drop: Revisiting your mortgage is a good idea when rates drop. However, it is always best to get expert advice from a mortgage broker to ensure it makes sense for you. If so, the benefits can be huge! For instance, a 1% reduction on a $300,000 mortgage will save $250 a month—times five years, that’s $15,000.

  6. Maintain a High Credit Rating: Even if you have already qualified for the mortgage you want, don’t let your credit rating slip. Pay your bills on time and keep balances low in relation to limits on credit cards, lines of credit, etc. Ideally, using 30% or less of your available credit will garner the highest results (assuming you pay the balances in full every month). Even if you’re filling your card to its credit limit max and paying it off in full each month, it will look like you are maxing out your credit limit and your credit score will drop accordingly.

  7. Increase Your Mortgage: Increasing your mortgage for the purpose of debt consolidation can be helpful for paying off credit card debt, line of credits, car loan and so on for a better rate and a set payment plan.

  8. Make an RRSP Contribution: By making an RRSP contribution, you can then use your income tax refund to pay down your mortgage!

  9. Switch to a Variable Rate: Switching your mortgage to variable-rate while keeping your payments the same as if on fixed can help you pay your mortgage faster. Since variable rates are typically lower, you will be paying more to your principal loan versus the interest. (Caution: Variable rates are not for everyone. Always be sure to seek the help of a mortgage broker to find out if variable-rates are the best choice for you.)

  10. Take Your Mortgage With You: When you move, switch your old mortgage to the new property to avoid a penalty or higher rate on a new mortgage. This is called “porting”, however not all mortgages have this feature so be sure to ask! It is not widely known but could save you a ton of money.

  11. Set Up Automatic Savings: Even setting aside $10 per paycheck can help! When your extra savings reaches the amount of one mortgage payment, apply it to the mortgage! This concept goes nicely with #4.

  12. Unhook From The Money Drip: Stop paying with your fancy points credit or debit card. These make it way too easy to overspend. Go old school, go off the grid and pay cash. It works and can help you stay on track!

  13. Don’t Buy on Layaway: You know, those don’t-pay-for-six-month “deals”, well a lot can change in six-months and you’ll still be on the hook. If you cannot afford it now, don’t buy it. Wait until you are financially able to make the investment.

  14. Downsize Your House: Are you living in a 5-bedroom family home but your kids are grown up and moved out? Consider downsizing to a smaller house. It will save you money on your mortgage payments and maintenance fees in the long run!

  15. Rent Out the Basement: Not ready to move? Consider converting spare rooms to rental and use the income to pay down debt.

  16. Make Your Mortgage Tax-Deductible: If you are self-employed, own rental property or have investments, this is likely possible. Check with your Dominion Lending Centres mortgage broker to see if this option is right for you!

  17. Prioritize Your Payments: Define your various debts by category. This can help you see where you spend your money and also help you pay off your debt faster.

  18. Start With the Highest-Interest Rate: Pay off loans with the highest interest rates first, as these are the ones eating into your extra income!

  19. Leave Tax-Deductible Until Last: Pay the non-tax deductible loans first and fastest and leave tax-deductible debt to the end.

  20. Focus on Ugly Debt First: Debt such as credit card balances are the worst on your credit rating. Pay these off first.

  21. Pay Off Bad Debt Next: Debt for items that depreciate in value, such as car or boat loans, should be the next on your priority list.

  22. Clear Good Debt Last: Loans such as mortgages or investments for assets that should appreciate in value are the least harmful to your net worth and can be paid out last.

  23. Buy a New Car – Outright! Finance it if you have to but don’t lease, unless you are self-employed in which case leasing makes more sense.

  24. Use Your Secret Stash: If you have $20,000 in a bank account for a rainy-day or vacation and yet owe $20,000 on a line of credit, you need to reconsider. The bank account is paying you next to no interest (which is taxable income) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for a rainy day. Make it the secret line of credit that you have but never use.

  25. Give your Banker More Money: No, really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. Some banks charge a fee for transactions and nothing, zero, zilch, zip if you keep $2,500 in the account. Let’s see, $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No-brainer here. Oh yeah, if you need more than 25 transactions a month, see #12 above.

Let’s face it, your financial future will not get any brighter if you continue to run deficits forever. Unlike a bank or big company, you won’t get a bailout! Stop procrastinating and take charge of your own finances with the above tips!

I am here to help by talking about your options and providing free, expert advice about your mortgage and how to pay it down faster.

BORROWER BEWARE:

It is always important to take things with a grain of salt. This is especially important when it comes to too-good-to-be-true, ultra-low-rate mortgages. These “no frills” mortgages are often loaded with restrictions such as pre-payment limitations, fully-closed terms, stripped-out features or unusual penalties. If you’re not looking at what you’re giving up, you may regret it in the future. These hidden terms alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!