MortgageGirl Market Update

All the numbers aside, CMHC's fourth quarter housing report states that Canada's housing prices will likely stay stable in 2012, same goes for interest rates. That doesn't mean they will stay the same though, we can expect some small ups and downs throughout the year, as usual.



We are watching the global economy like a hawk, especially since Bank of Canada Governor Mark Carney warned that Europe is headed for "at least a brief recession". But we are all in this global boat together, so if Europe gets sick, Canada is not immune to the germs. We will see our economy affected by the global economic turmoil, but I don't think the general consumer is going to notice a big change in day-to-day life because of it. Overall employment levels in Canada are not wildly changing, there are still new home starts happening all over Canada and Christmas decorations are already up at the mall. So when it comes to getting a mortgage, rates are still low and housing prices are predicted to stay relatively flat for the next year. That's good news, right?!

Home School: Back-to-Mortgage Checklist

The back school rush is finally over, summer is out and homework is in. Just like we get the shopping list for new school supplies, we should have a shopping list for our finances to make sure they are going to pass the grade. When was the last time you seriously thought about your mortgage? And I don’t mean thinking about winning the lottery and paying it off tomorrow, I mean thinking about the mortgage savings you could be using towards a new computer for the kids or parents only vacation. Take a look at our Home School shopping list below to see if your current mortgage is getting all A’s or a big fat F.

Backpack- Just like you check for a broken zipper before you buy a backpack, you need to know what is involved in breaking your mortgage term. Make sure you are informed on what your payout penalty is along with any other fees your current lender may charge. Most often it is either 3 months interest or IRD (interest rate differential.)

Pencils- Check the fine print in your original mortgage document. Some mortgage products have extra conditions if you want to pay out early. For example, if you took a zero down mortgage or a cash back mortgage product and you are breaking your term early, you will be have to pay back a pro- rated amount of those funds. This is in addition to the payout penalty and some no-frills discounted rate mortgages feature limited pre-payment privileges.

Calculator- How much could you be saving in interest with a few mortgage tweaks? Just by choosing accelerated bi-weekly payments, you can pay your mortgage off almost 4 years faster*. Think of all the things you could do with an extra 4 years of mortgage-free bliss!

Lunch- We all wish we could have more lunch money to get some better grub and your home equity could be your ticket to the gourmet! Best place to start is to determine the current value of your home and you can do this by asking a realtor friend to do a Comparative Market Analysis or look at your most recent property tax assessment. If your home is worth more than you owe, you have home equity available that could be used for other expenses such as education costs, taking a vacation or to pay off some of your high interest or high payment debts.

Notebook- Do your research! If you are thinking of getting a new mortgage or refinancing the one you already have, educate yourself on the options available to you. Rather than approaching just your current lender, ask for advice from an experienced mortgage broker who deals with many lenders which means they have access to a wider range of products.

Glue- When deciding who to work with, it is important to trust and feel confident with those people. Whether you decide to go back to your existing lender or to work with a mortgage broker, you should feel good about the information you have been given and the decisions you are making. Your mortgage professional is there to explain all details of your mortgage to you and answer any questions you may have.

Eraser- Is it time to move to a new lender? It makes sense to look around to see what else is available. Is it a better interest rate or a new product or term? Most lenders offer to pay your “moving” costs if you are simply switching your existing mortgage balance owing to them. This means, if your mortgage is up for renewal and you are not making any changes to the balance or amortization, the new lender will pay all legal costs and appraisal fees if required.

Just like you follow a list to do your shopping so you don’t overspend and buy doubles of what you already have, you should decide what you need before you go mortgage shopping. Talk to your friends, go on the internet or talk to a mortgage professional. Make sure you are comfortable with your mortgage as it’s with you longer than 4 pet hamsters and a goldfish!

* based on a $300,000 mortgage, 3.5% 5-year fixed rate, 30 year amortization, monthly payments 1342.91, accelerated bi-weekly payments $671.45.

How can a low rate help you buy a better rental property?

Jack & Diane currently own 1 property, the one they are living in. They would like to buy a rental property to diversify their investment portfolio. Keep in mind, you need a minimum 20% down-payment to buy a rental property and get best rates.

Here is how a lower rate can help you buy a better rental property.

Background: Jack & Diane currently owe $200,000 on their $350,000 house; they have monthly mortgage payments of $1220. Between the 2 of them, Jack & Diane make about $100,000/year and have debt payments of $800/month. They have some investments they could use for down-payment on the new rental property but would like to leave them alone if possible.

When Jack & Diane went to the Bank: The banker told Jack & Diane about a Home Equity Line of credit that they could put on their existing house. The bank offered Jackie & Diane a Home Equity Line of Credit at Prime + 1%*. He told them they could take up to $80,000 worth of equity out of their house with interest only payments of $263/ month.

The banker took that information, and told Jack & Diane what kind of rental property they could buy and what their maximum purchase price was. Based on all the information above and a bank rate of 4.19% for a 5-year term, Jack & Diane could qualify for a maximum rental property purchase price of $250,000.

When Jack & Diane came to the MortgageGirls: Martene told Jack & Diane about a Home Equity Line of Credit that they could put on their existing house. They could use this Line of Credit for down-payment instead of withdrawing their investments and paying taxes on them. The MortgageGirls offered Jack & Diane a Home Equity Line of Credit at Prime + 0.25%*. She told them they could take up to $80,000 worth of equity out of their house. She also clarified for them that would have interest only payments on only the money they used. As a line of credit is re-advanceable and fully open, you can use it, pay it down, and then re-use it again. But if they took out the whole $80,000, interest only payments would be $213/ month.

Martene took that information, and told Jack & Diane what kind of rental property they could buy and what their maximum purchase price was. Based on all the information above and an awesome rate of 3.09% for a 5-year term, Jack & Diane could qualify for a maximum rental property purchase price of $280,000.

Bottom Line: The fact that The Mortgagegirls were able to get them a lower rate gave Jack & Diane a maximum purchase price $30,000 higher than the bank’s maximum. $30,000! That could mean the difference between a regular 3-bedroom house and a house with an already completed basement suite that could greatly increase your rental property cash-flow.

* Prime Rate is 3% as of August 11, 2011. Rates subject to change without notice. O.A.C. E &OE.

Benchmark Qualifying Rate

This was one of the new rules the Minister of Finance instated April 19, 2010. The Benchmark qualifying rate is the rate lenders will use to qualify borrowers wanting a variable rate mortgage term or fixed rate mortgage term less than 5 years. Most of the time this only applies when you have less than 20% downpayment when purchasing or are borrowing more than 80% of your homes value in the case of a refinance or renewal . So even though you will get best rates, the lender still wants to ensure you qualify when variable rates rise or if rates are higher when you renew your mortgage. The idea behind the new rule is to ensure borrowers have the capacity to handle higher payments. It has been over a year since the new rule came into effect, and we as mortgage brokers would say it has not had a large impact on borrowers that we have noticed.

The benchmark qualifying rate is always changing, contact your mortgage professional for the recent benchmark rate.

If you have any questions, please do not hesitate to contact Martene Woodward, Mortgage Associate with Argentum Mortgages at 866-932-8412 or info@mortgagegirl.ca

Variable Rate Update

The Prime Rate affecting Variable Rate Mortgages will likely not increase until September. The weak US Economy, the strong Canadian dollar and the effects of the government spending on economic growth in Canada all played a role in the May 31st decision to keep Prime Rate the same. Something they will probably do again for the July 19th meeting.

If we start to see economic growth start to increase in the next coming months, which is predicted to happen, rates will rise.

If the Bank of Canada waits too long to raise rates, potential inflation can could lead to an even steeper rate hike in the future. It is easier to digest a couple of small rate increases than 1 really big one. Therefore, it makes sense for rates to start rising in September.

Prime Rate will likely be about 0.75% higher by the end of the year.

If you have a variable rate mortgage and Prime Rate does change, your payment amount will change as well. The good news is; 71% of Canadians factored a potential mortgage payment hike into their monthly budget. See this article in the Financial Post for more the CMHC annual mortgage survey.

Talk to you existing mortgage lender or a mortgage professional for more information or if you have any questions.


Martene Woodward
Mortgage Associate, Argentum Mortgages
P: 866-932-8412

Pre-Approval Don'ts

DON’T-switch employers or positions

Your pre-approval is based on your current employer, if you change those details, your pre-approval status may change.

DON’T-incur new credit card debt

Your pre-approval is based on your debt balances at the time of application, if you make any changes to those, your maximum purchase price could change. This includes “don’t pay for a year” scenarios.

DON’T-buy a car

You can’t live in your trunk, so don’t buy a new car until you have taken possession of your new house. The car payment will reduce your maximum borrowing power.

DON’T-trust a seller’s opinion on the condition of the property or any recent renovations done

Always confirm the details the seller has told you by obtaining a professional inspection.

DON’T-overlook a property because it needs a little TLC

Some lenders offer an innovative product called a Purchase + Improvements mortgage. This allows you to include the cost of the improvements in your total mortgage amount.

DON’T- make any large deposits into your account without consulting your mortgage professional first

The lender will want to confirm any large deposits into your account that hold the down-payment funds. This is to satisfy the Anti-Money Laundering Law.

Pre-Approval Do's

DO-pay down credit balances

Reducing your debt level is never a bad idea.

DO-use an experienced Realtor; or lawyer in the event of a private sale

You consult a doctor about your health, you consult a mechanic about your car, you should consult a real estate professional about your home purchase.

DO-put a financing condition on the Offer to Purchase

A pre-approval is an approval based on you the borrower and your current financial profile. The lender and insurance company (if applicable) still need to approve the property, specifically the value and condition of it.

DO-start saving up your closing costs

The lender will want to confirm you have cash on hand to cover your closing costs like lawyer fees, property tax adjustments, title insurance etc.

DO-talk to your mortgage professional before making any changes to your financial profile.

We need to know in the event it may change your pre-approval status.

DO-know your payout penalties

Ensure you are aware of the costs involved if you break your term early.

DO- start getting your supporting documents together

This will make the process go faster when you find a property.

Find out how to fix your credit.

Do you know what your credit score is? Your credit score can be the difference in getting a great mortgage rate and not being approved at all. Check out this great info page on what it takes to fix your bad credit.

Fix your credit score

Interest Rate Predictions- If only we had a crystal ball

We saw fixed rates rise across the board over the past month, going up by about 0.1%- 0.4% depending on the lender. These increasing rates also come at a time of growing concern about Canadian’s record debt levels, and just weeks after new mortgage rules were announced. Most economists agree that the upward rate trend will not end any time soon. Chief economist at TD, Craig Alexander, said that the rise in mortgage rates can be linked back to the growing expectations of inflation in the United Stated and strong indicators for U.S. economic growth.

Edmonton Mortgages interest rates are still relatively low by historical standards. The current 5-year fixed rate is still about 1% lower than last April when we saw the debt crisis hit Europe. Economists suggest fixed rates could rise by about 0.65% over the next year. Prime rate will also have to go up eventually and a 1% increase is not an unlikely prediction, so be ready if you have a variable rate mortgage or line of credit. Keep in mind; unexpected events can have an impact on these predictions.

Whether you own a house or are looking to buy, rising mortgage rates affect you directly. If you are looking for a home, you benefit from low rates right now. Options are to buy now to lock in manageable mortgage payments for a while, or risk higher mortgage rates while hoping housing prices will fall. If housing prices do fall, which the Canadian Real Estate Association has projected will happen throughout the country, rates are still going up, which means higher interest costs over the life of your mortgage term. Most economists and real estate professionals I talk to say now is the time to buy, don’t hold off on hope that prices will decrease.

What if you already own your home? You will have to renew your mortgage term eventually. If you took out your mortgage recently, your best bet is to pay as much onto your principal as you can as interest rates could potentially be 3% higher at renewal date than you are paying now. That increase makes a big difference on your mortgage payment, especially since you pay the most amount of interest and the least towards principal in the first 5 years of your mortgage. People further along in paying off their mortgage won’t be hit as hard when rates rise.

When the Finance Minister announced changes to the rules on insured mortgages, the projected impact will essentially have the same effect as rising rates. Both will increase your Edmonton mortgage payment. For example, if you had a $300,000 mortgage with a 4% interest rate, monthly payments would increase by $104 if you had to lower your amortization to 30 years from 35. That is equivalent to a rate increase of 0.56%. Despite these upcoming changes and the predicted rising rates over the year, the housing market is predicted to stay stable, not a big increase and not a big decrease.

If you need an Edmonton Mortgage Edmonton Home Equity Loan or just need Alberta Mortgage Rates please call us and we will answer all your questions.

Mortgage Girl Edmonton

Check our new website with lots of useful information about the Mortgage Rule Changes.
http://www.mortgage-broker-edmonton.com

Jim Flaherty has big news

Ottawa- Finance Minister Jim Flaherty has unveiled three new rules aimed at reducing Canadians' soaring household debt.
· Mortgage amortization periods will be reduced to 30 years from 35 years. – Effective March 18, 2011

· The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from 90 per cent – Effective March 18, 2011

· The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit – Effective April 18, 2011.

The rules are aimed at encouraging responsible lending and borrowing and encouraging people to increase their home equity.

"Our measures will help improve the financial situation of households in Canada," Flaherty said.

"While interest rates are currently low by historical standards, eventually they will rise. Canadians should — and for the most part do — understand this when taking on significant debt such as the purchase of a new home."

The minister said the measures are aimed at protecting "the stability of the economy by ensuring lenders' practices are sustainable." He said that will increase the security and stability of home ownership.

"This will also increase the savings of Canadian families — savings of tens of thousands of dollars over the life of a mortgage, savings that go back in the pockets of hardworking families, where they belong."

The new rules come on the heels of a Bank of Canada announcement that Canadians' domestic debt burdens have hit record levels.

The ratio of household debt to disposable income has reached 147 per cent and household debt has reached $1.4 trillion.

The International Monetary Fund has called household debt the No. 1 risk to the Canadian economy.

Building your credit rating

Don’t close unused credit cards- if the card has a low interest rate, use it periodically and pay off the balance quickly. This can keep your credit active and improve a low credit score.

Beware of closing accounts- get it in writing that the account has a zero balance before closing it. I have seen a $22 balance ruin a credit score because the borrower was unaware of the balance.

Spread out your spending- it is better to have 2 cards at 50% of the limit than to have 1 card at limit.

Never exceed your credit limit- even $1 over limit can lower your credit score. Always ensure your balance is below your limit before your interest calculation day. Your interest calculation date can differ from your payment date; check your statement to confirm.

Speak to professionals with shared goals- there is a different credit plan for someone eliminating debt than there is for someone getting a mortgage. Do your research before making any decisions about your credit.

Pay your bills on time- late payments lower your score and show poor repayment habits when it comes time to apply for more credit.

Know your score- protect yourself from identity theft by checking your credit at least once a year. The higher your score, the lower risk you are to potential lenders if you are applying for credit.

Why is Term Type so important?

The mortgage term is the length of time you have agreed to a certain interest rate and a specified payment schedule. Most common terms range from as short as 6 months to as long as 10 years.

Rate and term go together like home size and location; you have to take both into consideration when making a decision. As we have heard before, “The lowest rate will save you hundreds, but the wrong term can cost you thousands.” Your mortgage term can have a greater impact on interest costs than the interest rate can. Since your term affects how long you are locked into a certain rate, if you were to make any unexpected changes, like breaking your term early, that will cost you. Or if interest rates don’t move as you planned, your term affects how long you are overpaying or underpaying on interest.

It is important to research your term options and ensure you are thinking of your future when making a decision. It is easy to find the best rate on the internet; it is harder to ensure you are taking a term that is right for you. See below for a brief review of the terms available to you today.

Most Popular Fixed Terms

1-year fixed: A short fixed term provides a comparable alternative to a variable rate as long as rates rise as economists expect. Because it is only a 12 month term, at the end of the year, you can move into another 1 year term or consider a variable rate- keep in mind, variable rates may have deeper discounts available a year from now.

2-year fixed: Assuming prime rate increases by 1.75% in the next 2 years, two-year terms are mathematically a little more attractive than a variable or 1-year fixed term. If you think prime is going to stay low, then go with a 1-yr fixed term.

3-year fixed: Second most popular term to a 5-year fixed. Reason being, 3-year rates are lower than 5 year rates today and when compared with other terms in an internal rate simulation, the 3-year term wins! If I had to pick a 5-year strategy for myself, I would choose a 3-year fixed term followed by two one-year terms. Be aware, with a 3-year term, the majority of the risk is in years 4 & 5.

4-year fixed: We affectionately call this the presidential term, because historically, Canadian & American interest rates tend to take a bit of a dip before a US Presidential election. If the 4-year term end doesn’t line up with an election, then 4-year rates don’t make sense unless you’re planning to break your mortgage in 4 years.

5-year fixed: This is the most popular term in Canada, and the term we get asked about the most. Great thing is, rates are still at an all-time low, making 5-year terms very appealing to anyone wanting security against rising rates.

Longer Fixed Terms

7-year fixed: Not sure why we have these as I have never had a customer take a 7-year term. If you are worried about interest rates, take a 10 year term and get 3 more years of payment security.

10-year fixed: This is the term for you if you’re not overly concerned about interest rate savings and you want to know what your mortgage payment will be for the next 10 years. That being said, statistics show that 90% of the time, 10-year fixed terms cost more than 2 consecutive 5-year terms.

Variable Terms

5-year Closed Variable: Historically, variable rates have prevailed over 5-year fixed rates. 77% of the time you will see savings with a 5-year variable rate versus a 5-year fixed rate term. If you believe that history will repeat itself, than a variable rate may be the way to go.

That being said, every major economist expects prime rate to continue climbing over the next year. If Prime rate goes up by 1.5% over the next 2 years, 5-year fixed rate terms will have an edge over the usual interest saving variable rate terms.

3-year Closed Variable: The average homeowner changes the terms of their mortgage on average every 3.5 years. The advantage of a 3-year term is you can renegotiate your mortgage terms earlier, than say the popular 5-year term. It is also attractive If you think variable rate discounts will get deeper in the next 3-years. Keep your eyes out for no-frills discounted rates, some restrictive conditions may garner you better variable discount.

1-year Closed Variable: 1 year fixed rates are lower than the 1-year variable rate. Take a fixed rate so you don’t have to worry about prime rate rising.

5-year Capped Variable: I am not sure what the appeal of this term is and I have yet to find out.

5-year Open Variable: An open mortgage is just a temporary band-aid, its main purpose is for short term funds. You are paying higher interest rates for the flexibility an open term offers. So keep in mind, when comparing an open to a closed term, closed variable terms are portable and they only have a 3-month simple interest payout penalty. So, if cash-flow is king, the closed variables are offering better rates than the open terms.

Other Terms and Features

Open HELOC (Home Equity Line of Credit): HELOCS are fully open products right around the 4% interest mark today. A HELOC is like a credit card with a really big limit, so be aware you are using it responsibly. If you absolutely need interest only payments, or are planning to pay off the HELOC quickly, or want to use it for interest offsetting, than a HELOC may be an option in that case.

Hybrids: A hybrid mortgage is part fixed term and part variable term. It is ideal for the borrower who can’t decide, it’s like diversifying your mortgage term. These aren’t the most popular products out there, mostly because the projected benefits are very dependent on what interest rates do in the next 5-years. If you don’t want to commit to a 5-year hybrid mortgage, take a look at a 3-year fixed term, which is somewhere right in the middle.