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.