Category: Mortgage Information

While some mortgage rates have been increasing in recently, overall, interest rates are the lowest we’ve seen in a generation.  Kamloops homeowners and first-time buyers getting a mortgage in the months ahead will likely enjoy a rate that will keep their borrowing costs low for the next few years.  Indeed, borrowers who have renewed or refinanced a mortgage in the past year now pay interest rates that are nearly one point lower than their previous rate, according to an April report by the Canadian Association of Accredited Mortgage Professionals (CAAMP).

While securing an attractive interest rate may be the top priority for most borrowers, some low-rate mortgages available today offer limited flexibility. For example, “no frills” mortgages offer favourable rates, but may limit your ability to pay off your mortgage sooner. In addition, “quick close” financing deals offer attractive rate discounts, but many require a closing date within 30 days. This may not provide enough flexibility for sellers or buyers.

When it comes to choosing a mortgage, getting a good rate is just the tip of the iceberg. To ensure smooth sailing, you have to be aware of all the other features that may lie below the surface.

The features of a mortgage should fit a homebuyer’s personal goals, both now and down the road.  Borrowers need to understand what they’re signing up for – a mortgage is the largest debt most consumers will ever take on.

Below are five tips prospective mortgage holders may consider when choosing a mortgage:

1. Consider an assumable mortgage

A few years from now when you decide to sell your home, your low-rate mortgage could provide an extra selling point. If your mortgage is assumable, meaning it can be transferred to another borrower, it allows the purchaser to take on your mortgage’s terms and payments as part of the sale. This can be an attractive incentive, particularly in a higher rate environment.

2.  Review refinancing penalties

Given the low rates available today, many homeowners are weighing the benefits of refinancing. When choosing a mortgage, keep in mind that penalties are often the equivalent of three months’ mortgage payments, or based on an interest rate differential, which is the difference between your current rate and the new rate.  If you consider refinancing, a mortgage broker can help you decide whether the long-term savings outweigh the up-front penalties.

3. Evaluate pre-payment options

Many borrowers are taking advantage of low interest rates by accelerating payments on their mortgages. For example, many lenders allow you to double up payments periodically, or make lump-sum payments of up to 20 per cent of the principal once a year. When negotiating your mortgage, make sure you understand the size and frequency of payments your lender allows.

4. Review skip-a-payment options

Some lenders offer an option to skip a payment without penalty, which may come in handy in today’s economy.

5. Consider portability

Many mortgages have a portability feature that allows you to transfer your existing mortgage over to a new property, but not all portability terms are the same. Some lenders allow as long as 120 days to transfer the mortgage, but others only allow for a few days or a week.

Choosing the right mortgage involves considering where you are now, and where you may be three to five years from now.  Working with a mortgage professional can help you make sense of the many options available to you.

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. [email protected] W. www.BrendaColman.ca

You’ve saved for your down payment, you’ve crunched the numbers and you’ve decided on the Kamloops neighbourhood where you want to live – but are you really ready to start shopping around?

Buying your first home is one of life’s most exciting milestones, but there are lots of steps on the way to crossing the threshold as an owner for the first time. To make sure this process goes smoothly, you’ll need to get financing advice right from the get-go and do some work in advance.

Get your down payment and deposit ready. A down payment must come from your own resources, and in most cases must have been held in your account for at least 90 days. Using a gift from your parents or other family member for a down payment?  You’ll need a letter stating that it is actually a gift and does not need to be re-paid. These funds will likely need to be deposited in your account two weeks before your purchase closing date.

The Home Buyers’ Plan is another financing option for first-time buyers. It allows you to withdraw up to $25,000 ($50,000 per couple) from your RRSP to buy or build a home.

Keep in mind that when placing an offer, a deposit is usually required. It can be all, or part, of a down payment.

Figure out what you can afford. The best way to do this is by talking to a mortgage expert and getting pre-approved for a mortgage. A mortgage consultant can provide examples of what monthly payments and home buying costs will be, to eliminate surprises.

Get in touch with the professionals. Think of home buying as a team sport – a mortgage consultant can help you find a good real estate agent, real estate lawyer, home inspector and home insurance agent. Be sure to get in touch with these professionals early in the buying process to avoid last-minute scrambles.

Come up with an offer strategy. It’s easy to get caught up in the emotion, so it is important to decide on a maximum price before bidding and to stick to it.

Choose your mortgage strategy. Ask yourself: Do I want the stability of a fixed-rate mortgage or am I comfortable with the potential rewards and risks of a variable-rate loan? A mortgage expert can help you decide which one makes the most sense for your financial situation, as well as help you understand your payment options and the other features of various types of mortgages.

Get ready to close. When buying a home, it pays to learn about closing costs, which can represent up to 3 per cent of the purchase price, including land transfer tax, lawyer’s fees, appraisal fees, title insurance and home inspection fees.  A mortgage professional can help estimate how much these will cost and offer ideas for how you can cover these costs.

A lot of first-time buyers can’t wait to get out there and house hunt, but they need to understand that this is not a decision to enter into lightly. But with careful planning and expert advice, you can make your first home – and your first mortgage – work well for you in the long term.

Brenda Colman, Mortgage Consultant, Invis Kamloops

P. 250-318-8118  E. [email protected] W. www.BrendaColman.ca

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. [email protected] 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. [email protected]

**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.