Monday, April 19, 2010

New Rules in Effect Today

Effective April 19, 2010, Qualifying Interest Rates guidelines will change as follows:

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 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, and can be found at http://www.bankofcanada.ca/en/rates/interest-look.html

3 key changes associated with this announcement are:

1. Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
2. 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%.
3. Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%.

Tuesday, April 13, 2010

Don't Lose Sleep Over Your Mortgage

Has the 'variable/fixed' debate -and the threat of rising interest rates - kept you awake at night lately? If so, you're not alone.


Approximately 33 per cent of homeowners have complained that they lost sleep due stress associated with their mortgage, according to a new BMO survey conducted by Harris-Decima.

The Harris/Decima online poll was conducted from February 16th to 22nd, 2010 and is based on a sample of 1,000 Canadians between the ages of 25-45 years, who are either current home owners (who currently have a mortgage on their home) or are planning on purchasing their first home in the next 12 months, and at least share in their household's financial decisions.

If you're thinking about buying a new home - or if you're thinking about renewing your mortgage - I can't stress enough how important it is to get preapproved. While rates are likely going to be rising over the next year, a preapproval allows you to lock into today's low rates for 120 days. If rates go down, you still benefit from the lower rate.

In terms of the fixed/variable debate, many experts predict Prime will rise to 1.25% by the end of the year, compared to 0.25% today. To determine whether you should lock in or not, it's important to do the math ahead of time and determine how much of an influx you can comfortably withstand.

Remember that when you lock in, you're taking the rate of the current five-year fixed mortgage, so it's best to keep an eye on those as well if you're getting close to your threshold.

Variable rates increase in accordance with the Bank of Canada's prescheduled Prime rate announcements - so a hike isn't going to come out of the blue. Fixed rates, however, fluctuate with the bond market which is much less predictable.

Don't lose sleep over this. Instead, give me a call. I can assist you with a preapproval or analyze your financial situation and help you make the decision that is right for your specific needs.

Monday, April 5, 2010

What to do about the rise in rates

There's been a lot written in the media lately about upcoming hikes in fixed rates. While it's true many of the big banks have increased their posted fixed rates, if a new mortgage is on your horizon, there's no need to panic.

As of right now, there are still many lenders who are offering rates near historic lows. If you're thinking about buying or renewing in the near future, your best bet is to take advantage of a 120 day rate hold. This feature, offered by many different lenders, allows you to get prequalified at today's low interest rate. If rates go up, you're guaranteed today's rate. If they go down, you get the lower rate.

When it comes to locking in your variable rate mortgage, that question is a little trickier to answer. Many experts believe the Bank of Canada will start increasing its Prime rate in the near future by approximately 25 basis points. If you're in a financial situation where an increase in monthly payments is going to be tough for you to handle, it's probably wise to lock in now. When you lock in, it's important to remember that you're locking into the current fixed rates.

If you can withstand small increases in your mortgage rate, you might want to stand pat with your variable rate mortgage for now. Increases don't come out of the blue – since they're tied to the Bank of Canada's prescheduled announcements – so it's best to tackle as much principle as possible while you can afford it.

Whatever you choose to do, take note that lenders are particularly swamped right now as homeowners try to acquire a rate lock - or a mortgage – before rates really start to increase. If you're buying a home, make sure you give yourself at least seven days to acquire financing.

If you would like advice on the options that make the most sense for your particular situation, please feel free to give me a call.