Not All Variable Mortgages Are Created Equal

General Carola Singer 12 Jun

Did you know not all variable mortgages are created equal?

Even if they look the same from the outside with the same rate there could be important factors that will affect the overall cost of that mortgage.

How could that be? Well there are different types of variable mortgages. Some have restrictions, different prepayment options and different compounding.

Things to watch out for:

  • bonafide sales clause: some no frills mortgages have a greater rate discount however the only way to exit that mortgage is to sell your home. Some allow you to only refinance with that lender which might not have the most competitive rate or product at that time
  • additional discharge fee: again they may have a better rate for display but there are some no frills products that will tag on a 2.75% fee on the mortgage amount if you break the mortgage early. 6 out of 10 break their mortgage after 3 1/2 years. So this could be costly. A typical non restricted variable mortgage payout penalty is 3 months interest.
  • lower prepayment options: with most mortgages you are allowed to apply an extra 15-20% per year prepayment to the mortgage. Most of them have flexibility on how you do this as well. Some of the restricted variable mortgages only allow 10% and only on the anniversary.
  • interest compounding: you could have 3 different lenders with the same variable mortgage rate, yet they all have a different effective rate because the way they are compounded:
    • lender A: compounds the interest semi-annually in advance which is the most cost effective
    • Lender B: compounds the interest monthly in advance (typically most of the Big 5)
    • Lender C: compounds the interest according to your payment frequency. Example: if you change your payment to biweekly accelerated to pay down your mortgage quicker, the lender will now compound your interest biweekly. Sneaky I know. We know of at least one major bank that’s doing that.

When you get your mortgage through a licensed mortgage associate this will be disclosed up front as we are accountable to our regulators. This is not the case for customer service reps facilitating mortgages at branch level. So you have to make sure you really read and understand the small print as some of the details explained above.

Making sure you are in the right mortgage product is crucial. You don’t want to find out you got the lowest rate but it cost you $15000 to break the mortgage 3 years down the road.

You don’t plan to break the mortgage! Most people don’t yet 6 out of 10 do. Life happens: divorce, job change, job loss, transfers etc). Life is variable so should be your mortgage!

You say this sounds really complicated. Well it can but it doesn’t have to be.

Let me be the expert for your mortgage so you don’t have to be!

 

My Renewal Isn’t Up For Another Year…

General Carola Singer 14 May

Famous last words. If you knew last year that rates would go up as much as they did, would you have broken your term and renewed early at a lower rate. Of course you would have if we would have had that crystal ball and foreseen the future.

Why it’s good to talk to your mortgage broker about 12 months before your maturity date:

  • You might need to incorporate different strategies like a renovation, a move or purchasing another home down the road.
  • To take you to a new lender we can hold their rate between 90 and 120 days from renewal. When rates are on an upward trend this will protect you for the renewal date.
  • Maybe you want to stay with your current lender and we can negotiate an early renewal.
  • Even if you are in a fixed term your payout penalty is most likely 3 months interest and can be capitalized into an early renewal if you switch lenders. And if not we can just be proactive and keep an eye on it. This might be an opportunity to switch into a more flexible variable rate (lower rates than fixed, lower payout penalties)

Why would you switch into a variable rate when Prime keeps going up?

The variable rate is a combination of Prime Rate and a discount the lenders will give you. What does this have to do with renewals?

  • In January 2017 Prime was set at 2.70% and a typical discount was around 0.50% so if you took a variable rate out your mortgage rate was 2.2%. Currently on May 14, 2018 Prime sits at 3.45%. The discount lenders give on a variable is in the ball park of Prime -1%, so effectively 2.45% for a mortgage rate.
  • To break a variable mortgage and early renew your payout penalty will be 3 months interest unless you are in one of those restricted no-frills mortgages.
  • What am I saying? If your mortgage is variable and your discount is currently less than 0.50% of Prime, it doesn’t matter if you have 3 years left on your term, it would be worth your while to see if it would make sense to early renew with a much better discount.

This is why I like variable mortgage rates because of this kind of flexibility.

Clear as mud? Does this sound confusing? Did I lose you with all the numbers? Just give me a call and I walk you through it. No mortgages are one-size-fits all.

 

Take Advantage of your RRSP for Mortgage Qualifying

General Carola Singer 10 Jan

With increasing home prices it can be overwhelming to think about saving the minimum 5% downpayment required to qualify for a mortgage.

With the Home Buyers Plan an RRSP is a great vehicle to capitalize on some perks that help accelerate this process. Why not take advantage of some double dipping.

Now is a great time to review this as we have until February 28, 2018 to max out our contributions for 2017.

First let’s look at how RRSP contributions work?

  1. Contribution limits are calculated at 18% of the prior year’s reported earned income.
  2. RRSP contributions within the first 60 days of the tax year may also be used as deduction for the previous tax year. The savings depend on the tax bracket.
  3. Some employers will match contributions or even offer a group RRSP plan. Take advantage of it!

How does the Home Buyers Plan work?

  1. A borrower can borrow up to $25000.00 single or $50000/couple tax free from one’s RRSP for a downpayment as long as one hasn’t been a home-owner for five years.
  2. The funds have to stay in the RRSP for 90 days before withdrawal.

How can you make the most of it?

  1. Some employers match contributions or offer group RRSP plans . Can you say free money? Take advantage of it!
  2. You increase your savings by increasing your tax refund and either add it to the RRSP or pay down an RRSP loan. Take advantage of it!
  3. RRSP loans can be used to maximize your contribution and tax savings.

 

Example:  Fast-tracking your downpayment with a $5000 RRSP loan. Borrower with 32% tax bracket makes $250/month RRSP contribution. Employer matches contribution 1:1. 

  • $8000 Yearly contribution by borrower
  • $3000 Yearly matched employer contribution (this could vary depending on the employers cap on contribution)
  • $11,000 Total RRSP balance
  • $5000 RRSP loan
  • $2560 Tax savings applied as RRSP loan payment
  • $2440 remaining RRSP loan balance 

You will save up for a downpayment a lot quicker than with a regular savings account. This strategy might help to become a homeowner sooner.

What if you also got a $5000 gift from a parent on top of this to help you out? $16000 as a 5% downpayment could put you into a $320000 purchase oac.

What if you and your spouse both did this? $22,000 as a 5% downpayment could put you into a $440000 purchase oac.

Maybe you are closer to qualifying for a mortgage than you think. Let’s have a conversation!

Feel free to contact me!

Don’t leave money on the table!

Canadian Home Buyers Plan Link

It is important to seek advice from licensed professionals (financial planner, accountant, mortgage broker) for your own scenarios.

Should I Stay Variable Or Lock In?

General Carola Singer 12 Sep

Yes there have been two increases to Prime by Bank of Canada this Summer. The question a lot of people have is whether to lock in or stay in a variable mortgage rate.

Here are some considerations:

  • If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a great place to be.
  • If your discount from Prime is 0.25% or less then depending on which lender you are with you may consider locking into a fixed rate, BUT (yes it’s a big BUT):
  • The penalty to prepay (example: refinance or sale of property) a variable is typically 3 months interest which is about 0.50% of the mortgage balance. Whereas the penalty for a 4yr/5yr or longer fixed rate mortgage the mortgage penalty can be almost 4.5% of the mortgage balance depending which lender you are with and what term you are in. So switching from a variable to a fixed could be costly in the long run if you need to break that mortgage down the road. CHOOSE WISELY!
  • Before locking in there are many questions to ask, most the lenders will not ask you. Since your lender is re-active, you need to be pro-active. That could mean not to take action at all.
  • The benefit to lock in is mostly the lender’s not yours. Once you lock in they have much more of a ransom (penalty) on you.

We had two recent rate increases. Wouldn’t it mean there will be more on the way? 

Not necessarily.

Depending if the government had overstepped with the rate hikes there could be a pullback within the next 6 to 12 months. In 2010 rates increased 0.25% three times and then didn’t move up further for 5 years, after which it was decreased twice by 0.25%.

So last time Prime was pushed to todays level it remained there for 5 years before it was cut.

Food for thought.

The next Bank of Canada meeting is October 25, 2017. I will be watching and waiting. Remember, BE PROACTIVE!

 

Is It Worth It To Port Your Insurance Premiums?

General Carola Singer 20 Jan

Did you know you can port your mortgage insurance (CMHC, Genworth or Canada Guaranty) premiums even if you break the current mortgage for a better rate? You may be upsizing and add more money to your mortgage. Most people think they have to pay the premium on the whole mortgage amount again if they don’t have 20% downpyament. Not necessarily. 

When you add to the mortgage you can have your mortgage broker check with the underwriter if it’s more economical to pay the topup premium or redo it. Even though the topup premium percentage is higher it could still be cheaper depending how much the topup amount is. 

Checking this avenue can save you thousands of dollars. I just recently did a scenario with a borrower where the topup was $9322 versus $18000. That’s just about half. Does it workout like that every time? Not always but there is nothing to lose. It’s a win-win to check. 

Most borrowers don’t know this and my guess is that not every CSR or mortgage broker thinks of this either. 

If you have any questions I’m just a phone call away. 

Why I Favor Variable Rates!

General Carola Singer 12 Jan

Up until October 2016 there was an advantage of choosing a 5 year fixed rate over some of the other terms. The advantage was that one could qualify at the discounted rate for a mortgage versus the Benchmark Rate set by the Bank of Canada. At the time that was a 2 percent difference and gave borrowers a lot more buying power. October 17th came and with new regulations that advantage went away unless the mortgage is conventional. So now all insured mortgages no matter what term are qualified at the Benchmark Rate.

Statistically 60% of borrowers break their 5 year mortgage term after 3 1/2 years and have to pay a penalty. When you have a fixed term the penalty is based on the interest rate differential which means the difference between the existing mortgage rate and rate for the remaining time left on the term. If you are with a bank that can be expensive as their penalties are sometimes as much as quadruple of straight mortgage lenders because they incorporate the discount they gave you for the discounted. But some of the products the banks have are really good and depending on what the borrower is looking for, the best fit. How can we avoid those penalties?

Well this is one of the reasons why I favor variable rates but there are a couple altogether:

1. The penalty on a variable rate mortgage is typically 3 months interest, no matter when you break it in the term, unless it is specialty product with restrictions. In that case that should be disclosed up front before making a final decision. But this is a huge difference.

2. Statistically people fare better with variable rates

3. Variable rates do NOT go up with fixed rates. Variable rates fluctuate with Prime going up or down which is set by Bank of Canada throughout the year in eight meetings. Fixed rates go up or down depending on bond rates. 

4. With fixed rates recently having gone up, the variable rate is still lower.  You can set your payment higher as if you had a fixed rate and apply the difference of the fluctuations to the principal.

If you have any questions feel free to contact me

How Your Credit Score Affects Your Purchase Price!

General Carola Singer 9 Jan

How Your Credit Score Affects Your Purchase PriceYour Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

                                               CLICK HERE TO READ MORE                                  

 

Newsletter December 2016

General Carola Singer 12 Dec

 

 

December 2016

 

 

In this issue

 

 
Bank of Canada on Hold – Maintains Rate  

Credit Score Compatibility: The Connection Between Financial Wealth and Romantic Health  

About Dominion Lending Centres & DLC Leasing  

Did You Know…  
Homeowner Tips  

 

Welcome to the December issue of my monthly newsletter!

This month’s edition looks at Bank of Canada on Hold – Maintains Rate, as well as talks about the value of creating sustainable neighbourhoods. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

 

   

 
   

Bank of Canada on Hold – Maintains Rate

 

         

 

It is no surprise to anyone that the Bank of Canada maintained its target overnight rate at 1/2 percent today, judging that although the global economy has strengthened, uncertainty continues and is damaging business confidence and dampening investment in Canada’s major trading partners. Since the Trump victory, US interest rates have risen sharply with the expectation of sizable fiscal stimulus. Stock markets in the US have risen to record highs and the TSX has enjoyed a huge upsurge reflecting a sharp rise in bank stocks–up more than 20 percent this year. Canadian interest rates have increased sharply as well, as the yield curve has steepened, which is good for bank profitability. However, it is not good for Canadian housing. Mortgage rates have already risen in Canada in the past month and more is likely to come as potential homebuyers are already struggling with more stringent qualifying criteria and particularly non-bank lenders are confronted with new mortgage insurance rules.

The Bank highlighted that household debt ratios will continue to rise, but these will be mitigated over time by the announced changes to housing finance rules. Even before the unanticipated rise in mortgage rates in October, the Bank revised down its economic forecast in large measure because of the federal government’s new initiatives “to promote stability in Canada’s housing market”. The Bank of Canada reported that these measures are “likely to restrain residential investment while dampening household vulnerabilities.”

According to the October Monetary Policy Report, the housing initiatives were expected to dampen 2016 GDP growth by 10 basis points and by 30 basis points next year. Government sources say they expect the growth in housing resales to decline 8 percentage points in 2017 from the forecasted 6.0 percent growth pace this year. Private estimates of the negative impact of the new housing measures on overall economic growth vary, but most expect the contractionary effect to be roughly a 30-to-50 basis point reduction in growth over the next twelve months. Given that baseline potential growth is less than 2 percent, this is a very material dampener.

Even before the mortgage rate hikes, we have seen housing resales slow significantly in Vancouver and the surrounding region. Particularly in the single family sector, resales and prices have fallen. This has been attributed to the August introduction of a new 15 percent land transfer tax on non-resident purchasers. Anecdotal evidence suggests that foreign buyers have shifted their sights to some US cities, notably Seattle, as well as Toronto and Montreal, but it is too early to have any hard data. Indeed, CMHC recently reported that foreign ownership of Canadian real estate is less than 3 percent nationwide and only as high as 5 percent in Vancouver and somewhat less in Toronto Central.

 

The Canadian economy overall has behaved pretty much as the Bank expected, rising sharply in the third quarter in a partial bounce back from the dismal first half. Consumer spending was strong, owing in part to the new Canada Child Benefit, while federal infrastructure spending has yet to show up in the data. Growth in the current quarter is expected to be far more modest as business investment and trade continues to disappoint. Moreover, we now face the prospects of a Trump-led renegotiation of NAFTA next year.

Canadian inflation remains in check. The real question is how much further US yields will rise, pushing Canadian bond yields and borrowing costs higher. There is far more slack in the Canadian economy than in the US, despite the spate of strong employment gains. The Bank does not expect the economy to be operating at full capacity until 2018.

In contrast, it is all but certain that the Federal Reserve will hike interest rates by 25 basis points when they meet again in mid-December. Prospects are we will see two or three additional Fed rate hikes next year, while the Bank of Canada holds steady. This will put further downward pressure on the Canadian dollar, which might be offset in part if oil prices continue to edge higher in response to the recent OPEC decision to cut production (if it holds). Oil prices had recently risen to over $50 a barrel for West Texas Intermediate, although it has sold off sharply today.

The US economy is operating at or near full capacity as the jobless rate fell in November to a mere 4.8 percent. To be sure, there remains troubling evidence of underemployment and the labour force participation rate of prime age workers in the US has fallen sharply, well below the level in Canada (see Chart). President-elect Trump is planning to cut taxes and increase government spending as well as to take initiatives to secure new and existing American jobs. To the extent he is successful, the Federal Reserve will continue to tighten monetary policy, hiking interest rates more than expected.

Some have suggested that the Bank of Canada might cut interest rates again next year, particularly if housing slows too much. Judging from comments made by the CEO of the CMHC, a slowdown in housing is the intended result of the new rules. Clearly, Governor Poloz sees the enhanced mortgage stress tests and changes in the insurability of mortgages as mitigating his concerns of overextended homebuyers. It would take a material negative shock to growth for the Bank to cut rates.

 

   

 

Credit Score Compatibility: The Connection Between Financial Wealth and Romantic Health

   

         
 

In a study from 2015, researchers found a connection between the likelihood of a breakup in a relationship and the credit scores of each person

Essentially, this study suggested that two people with excellent credit scores are far more likely to stay together long-term than a couple where one or both parties have very low credit scores. Because finances play a significant role in all relationships, a couple’s credit score compatibility becomes a reliable indicator of potential strains down the road.

 

Much marital discord is found in household in finances. According to a study from 2012, “financial disagreements are stronger predictors of divorce relative to other common marital disagreements.”

Money is a significant dynamic in people’s social and romantic lives.

This begs the question, should romantic partners share credit reports and scores with each other, checking-up on fiscal health as a couple before co-mingling assets?

In todays increasingly complicated world it would seem the answer is a resounding yes.

 

   

   
 

Homeowner Tips

Reduce Heating Costs:

 

Your furnace or boiler is the largest energy user in most homes. If health permits, keep thermostat at 20°C or below. Lower the thermostat at night and when no one’s home. Check the furnace filter once a month during the heating season. Change or clean when dirty. Have a professional tune-up of your heating system every other year. Replace your older, 60% efficient furnace with one of at least 90% efficiency.

 

 

 

 

 

   

About Dominion Lending Centres & DLC Leasing

 

         

 

 
We are Canada’s largest and fastest-growing mortgage brokerage!

 

We have more than 2,500 Mortgage Professionals from more than 350 locations across the country!

 

Our Mortgage Professionals are Experts in their field and many are ranked among the best nationally.

 

We work for you, not the lenders, so your best interests will always be our number one priority

 

We have more than 100 mortgage programs, making it easy to choose the best fit for your unique situation.

 

We close loans in all 10 provinces and 3 territories.

 

We can process your mortgage in as few as 7 days.

 

We are the preferred mortgage lender for several of Canada’s top companies.

 

Dominion Lending Centres’ Mortgage Professionals are available anytime, anywhere, evenings and weekends – and we’ll even come to you!

 

 

Lenders make a lot more money when they renew your mortgage than on your initial term. That’s partly because lenders often do not have to compensate their own staff or a Mortgage Broker for referring your business, and they pocket the difference. It’s also because many clients renewing their mortgage fail to call their Broker and check in on current rates of the day.

According to a Maritz/Mortgage Professionals Canada survey, only 56% of borrowers negotiated their mortgage rate at renewal. A remarkable four in ten clients accepted the first offer their bank made. That’s a scary statistic considering banks rarely, if ever, offer their lowest rate upfront regardless of how long you’ve been a customer!

That’s why it’s so important to rely on your Mortgage Broker at renewal time as well.

 

 

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