Category: Mortgage Information

The Bank of Canada is expected by many economists to raise short-term interest rates in June or July, prompting many Kamloops home buyers and mortgage holders to ask whether a variable-rate mortgage or a fixed-rate mortgage is best for them.

How, exactly, are mortgage rates offered by lenders determined?  Many Canadian mortgage holders are surprised to learn that the pricing for variable-rate and fixed-rate mortgages are determined by two different means.

First, let’s look at the pricing of variable-rate or “floating rate” mortgages.  The rate for these mortgages is tied directly to the Prime rate, which is set by the Bank of Canada, usually through regularly scheduled announcements.  A competitive variable rate mortgage is now commonly available at Prime (now at 2.50%) minus 0.60%, or even lower in some cases.  Those with variable rate mortgages need to keep an eye on the Prime rate and should keep in contact with a mortgage professional, who can explain interest rate trends.

Pricing for fixed rate mortgages follows a separate dynamic, and is a bit more complex.  Fixed-rate mortgages are priced in relation to the bond markets, as bonds are the main competing investment to mortgages for investors.  Mortgages are priced higher than bonds, usually between about 1.20% and 1.90%, to account for higher risk of default and administration costs incurred by investors who hold mortgages as opposed to relatively hassle-free bonds.

The most popular type of mortgage in Canada is currently the five year fixed-rate mortgage.  Discounted rates for this type of mortgage (available through a mortgage broker) have been trending upwards in recent weeks and currently stand at about 4.29%.

With rates for both variable and fixed mortgages relatively low, consumers must decide based on their own preferences and unique circumstances. A mortgage broker can help consumers evaluate their mortgage options and make an optimal choice.

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. ac.sivninull@namlocadnerb W. www.BrendaColman.ca

Will the new mortgage regulations affect Kamloops real estate? On February 16, 2010 the Government of Canada announced a series of regulatory changes to support the long-term stability of Canada’s housing market.  The Government has now provided the following details in relation to these changes.

Effective April 19, 2010 Qualifying Interest Rate Guidelines Will Change

• Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages: applications will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate**, or the actual customer rate (inclusive of any customer discretion).
• Fixed Rate Mortgages of terms 5 years or greater: applications will be adjudicated based on the actual customer rate.
• This change applies to both conventional and insured mortgages.

The three key changes associated with this announcement are:

• Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
• Investors, who want to buy a home that they don’t plan to live in, will have to make a minimum down payment of 20%.
• Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%.

The good news is that buyers still can purchase a home with 5% down and can still go up to a 35 year amortization.  The reason for the changes is the Government of Canada is wanting to make sure that if interest rates go up, purchasers will still be able to afford their mortgage payments.  With regards to refinancing your home, the Government of Canada is trying to discourage people from borrowing against their home for a quick fix for their financial problems.  They are trying to have home owners use their home as a savings tool and not just an easy way to keep consolidating their debt.

Please call me if you have any further questions on the changes or if you would like to go through a free no obligation mortgage information session.  We can look at pre-qualifying you for a mortgage, rate hold guarantees, even refinancing or renewing an existing mortgage.  I look forward to hearing from you!

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. ac.sivninull@namlocadnerb

**The Bank of Canada Benchmark Rate is defined  as the Chartered Bank – Conventional Mortgage 5-year Mortgage rate, published by the Bank of Canada each Monday.

Purchasing a home in Kamloops is one of the biggest purchase most of us will ever make, and a mortgage can also be a powerful financial tool. No surprise then that a growing number of Canadians have started to ask some smart questions about their mortgage when considering purchasing real estate. In fact, more than 40% of all Canadian mortgages are now arranged through mortgage brokers. Why?  Read on;

Choice. A broker has access to mortgages from a huge range of lenders – so their clients have by far the best choice of rates and mortgage options.  With partners in a vast network of over 30 lending institutions, including banks, credit unions, trusts, national and regional lenders, and non-traditional lenders, your broker can help design the perfect mortgage for you.

Independence and objectivity. A mortgage broker actually works for you, not for any one lender. That kind of objectivity means that you – the client – are the focus. They fit the mortgage to the client, not the other way around.  You’ll get the best rate for your situation.

Promotions. You may not realize it, but there are sales and promotions in the mortgage world, too. Lenders often offer special rate promotions, for example. Your broker will know about these special offers, and whether they might work in your situation.

Expertise. With 35-year amortizations, re-advanceable mortgages (mortgage combined with a line of credit), no income documentation products for the self employed, credit repair and debt consolidation solutions, today there are mortgages for almost any situation. And your independent mortgage broker knows them all.  That’s what you want: someone who’s focused on the mortgage marketplace and your needs.

Rates. Getting a lower rate can potentially save you thousands of dollars. That’s why more homeowners are more likely to call a mortgage broker to check out their options for their first mortgage and at renewal. Call early; your mortgage broker can usually guarantee an interest rate for 90-120 days.

One credit inquiry. Rate-shopping on your own can actually be hazardous to your credit. Every time a lender checks your credit, the credit bureaus take notice. Too many inquiries and your credit rating can weaken, possibly affecting the rate and terms of your mortgage. Your broker does one inquiry only, regardless how many lenders you’re looking at.

No cost to you (o.a.c). As a rule, the winning lender pays compensation to your broker for the services and solution provided.

Personal attention. You need a mortgage plan that is a custom fit for you, and a broker who keeps in touch with you during your mortgage years. Keep in mind that their business is built primarily through referrals from satisfied customers, so your positive mortgage experience is essential for their ongoing business growth.

Your mortgage is a big decision and a powerful financial tool.  For your next mortgage contact me anytime. I am a local Kamloops mortgage broker who is trained and ready to help you achieve your financial and home ownership goals.

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. ac.sivninull@namlocadnerb W. www.BrendaColman.ca

Are you thinking about buying a home in Kamloops and are wondering what role your credit score plays? I have included some information below regarding credit scores and mortgage financing and how it will affect your real estate purchase.

Your credit score, also known as a beacon score, is generated by 2 main organizations in Canada; Equifax and Trans Union. They have a system which tracks any personal loans, credit cards or lines of credit that you have. The system gives you a score somewhere between 300-900, with 300 being the worst and 900 being the best.  In order to obtain the very best mortgage rates, you generally need to have a score of 660 or better, however exceptions are made when it makes sense. If your credit score is not this high, there are a whole other group of lenders willing to help you out, but generally at a higher cost.

What determines your score?

All of your creditors will report monthly to Equifax or Trans Union. They report how much you owe, what your monthly payment is, and whether you have made your payment on time.  A record is kept for as long as you have the debt, showing how many times you have ever been 30 days late, 60 days late or 90 days late. It will also show if the account has ever been sent to a collection company. The longer that you have had credit reporting to the credit bureau without late payments, the higher your score will climb. Also, if you have credit cards or lines of credit, try to keep your outstanding balance under 50% of the limit. Points are deducted for high balances in comparison to the limit, late payments, collections, and too many inquiries for credit.

Important things to note:

• Your utility bills, cell phone, gym membership, car insurance, etc., do not give you credit for paying on time. They will never show up on the credit bureau unless you don’t pay them. If you plan on arguing or disputing a charge with one of these companies, expect it to show up as a collection on your credit bureau and drastically lower your credit rating. It’s generally better to just pay the amount owing and dispute your case after the fact.
• Unless your mortgage is with a credit union, it probably doesn’t report to the credit bureau either.  So, even though you might pay your mortgage perfectly for 5 years, you won’t have any credit score at all unless you have established some unsecured personal credit. (ie..credit card, car loan, personal bank line of credit, etc)
• Bankruptcy and Credit Counseling programs make it near impossible to qualify for a mortgage until you have been finished with the program for at least a year or two, and reestablished some new credit for another year or two. If you are considering one of these options, don’t just take your trustee’s advice. Make sure to talk to a mortgage broker about how this will affect your ability to purchase a home.

It is always important to be conscious of your borrowing habits as they will affect your credit score. Buying a home in Kamloops is a big commitment and you want to make the process as easy and as inexpensive as possible. Feel free to post any questions here about mortgages or contact me directly. I would be happy to help you out.

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. ac.sivninull@namlocadnerb W. www.BrendaColman.ca