We are currently in a very unique situation when it comes to 5-year fixed and 5-year variable interest rates. For the first time in almost a decade, the lowest 5-year fixed interest rate is more than 0.30% lower than the lowest available variable interest rate for new mortgages. For some, their current variable rate is 0.80% higher than what a new 5-year fixed interest rate could be.

Why is this important?

Variable mortgage penalties are only equivalent to 3 month’s interest. On a $400,000 mortgage with a net variable rate of 3.10%, the penalty would only be $3,100 ($775 per $100,000 of mortgage debt).

What are the savings to switching to a lower rate?

The following is an example to consider and assumes leaving your existing lender and transferring the existing mortgage balance, term and amortization to a new lender at a lower fixed rate:

$2,152.76 current monthly payment
$437,857.16 current outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$3,800 approximate penalty to break mortgage including discharge fee (legal fees and appraisal covered)

$2,061.88 new monthly payment on 5-year fixed rate
$437,857.16 new outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$90.88 savings per payment

Interest paid with current lender for remainder of term: $50,847.29
Principal paid with current lender for remainder of term: $52,485.19
Remaining balance at end of term: $385,371.97

Interest paid with new rate for remainder of term: $44,025.53
Principal paid with new rate for remainder of term: $54,944.71
Remaining balance at end of term with new rate: $382,912.45

For $3,800, this client has the potential to save almost $6,800 in interest, save $90.88 a month, while at the same time owing less on their total balance at the end of their term.

Now, this might not be for everyone. Variable, as you know, can go up and down. Locking into a 5-year fixed rate also takes away your ability to get out of your mortgage for only 3 months interest penalty compared to staying in a variable rate. For some people, maintaining the variable for an opportunity of having that rate drop below current 5-year fixed rates is worth waiting too.

There is no right or wrong decision. It is how you want your monthly payments structured and how much risk you want to allow for, both in rate variances and potential penalties.

To find out what kind of savings you could see with moving your variable rate into a fixed rate, please feel free to contact me.

dcarlson@jencormortgage.com

403.245.3636 x 2027

Let’s take a closer look at how a Refinance Plus Improvements mortgage can get you the extra cash you need to get your renovations completed.

The Standard Refinance

An everyday refinance allows the home owner to access up to 80% of the fair market value of the home. The value is typically determined by a Market Appraisal on the home. Here is how it would look:

• Current Appraised Value of the home: $250,000.00
• Max New Mortgage Amount: $200,000.00 ß 80% of present value
• Your current Mortgage Balance: $190,000
• Equity Available to you for the renovations: $10,000.00

*Note: some of the equity will cover closing costs (it is a new mortgage after all, so a new registration and fund advance needs to happen. If you are breaking a current mortgage, there could be a pre-payment penalty as well)

The remaining equity can be used towards your improvements. But what happens if it’s not enough to cover the improvement costs? You’re now stuck with either making sacrifices to your dream reno, covering the additional costs out of pockets, use a higher interest line of credit or not doing the renovations at all. None of which are a great options.

The Refinance Plus Improvements Mortgage

Here is how the Refinance Plus Improvements mortgage can make all the difference.

For argument sake, let’s assume for a moment that the home owner is thinking about renovating their kitchen and main bathroom. These are in no way a small improvement. They are quite significant improvements…new flooring, cabinets, counter tops and paint in the kitchen along with a full gut and renovation in the main bathroom.

After sitting down with a Mortgage Broker to determine mortgage affordability, the home owners next step is getting estimates for the renovations. After having multiple contractors quote on the work, the home owner settles on a contractor that has quoted $20,000.00 for the job (Labour and materials costs, all in, turn key project). Let’s also assume for a moment that the renovations are going to increase the value of the home by $30,000.00 (side note: Kitchen and Main Bathroom Renovations can have the biggest impact on the value of a home). Here is how it would look:

Refinance Plus improvements:

• Current Home Value: $250,000.00
• Post Renovation Home Value: $280,000.00
• New Max Mortgage Amount: $224,000.00
• Your Current Mortgage Balance: $190,000.00
• Equity Available for the renovations: $34,000.00

See the difference? The refinance plus improvements in this scenario can get the home owner access to an additional $24,000, far exceeding the improvements planned for home. No sacrifices required. No unsecured higher interest financing required. No need to tap into personal savings. Just a nice new mortgage with a low interest rate and one simple payment.

If you have questions about how a refinance plus improvements mortgage can make all of the difference with your renovations plans, please feel free to contact me. I am always happy to discuss mortgage strategy with you.

Happy Renovating!

dcarlson@jencormortgage.com

403.245.3636 x 2027

Mortgages are complicated but there are steps a homebuyer can take to make the process smoother and obtain a mortgage product that is in your best interest and not in the banks best interest!

1. Use a Qualified Mortgage Broker

Obtaining a qualified mortgage broker should be the first step you take when obtaining a mortgage! Enlisting a trusted broker to work with can help secure a mortgage that is in your best interest. This is one of the biggest (if not the biggest) purchase you will make in your lifetime. Working with a professional will make a difference.

2. Budget, Budget, and Budget

Budgets aren’t the most glamorous element of homebuying but, they are a necessity as you can often overlook costs that can “make or break” the purchase of a home. A few things to be considered are:

• Property transfer taxes
• Legal fees
• Home inspection/appraisal fees
• Down payment
• Mortgage insurance…and the costs don’t stop once you own the home.

3. Understand the Importance of the Down-Payment

• Many home-buyers simply focus on setting money aside for the down payment. While this is crucial, there are other considerations.
• How big of a down payment can you make
• You must meet the federally mandated minimum down payment: 5% for all mortgages up to $500,000, and 10% on any portion above $500,000 up to $999,999.99.
• Insured mortgage loans are only available on properties valued under $1 million.
• The size of the down payment will reduce the interest you pay out over the life of your mortgage.
• The size of the down payment will reduce the amount of mortgage insurance required.
• Take advantage of the Home Buyer’s Plan to withdraw up to $35,000 tax free from their Registered Retirement Savings Plan (RRSP).
• Leave plenty of time to move down payment funds from whichever source you are taking them from.
• You will need to leave adequate time to obtain a certified  cheque or bank draft to take to the lawyers office when you meet with them, before taking possession of the property.

4. Do NOT Become Fixated On the Interest Rate

The interest rate is important, but do not be hasty and jump into a mortgage purely based on the interest rate. Consider other areas such as the terms, i.e. penalty to break the mortgage, amortization, porting a mortgage to another property, etc. A good mortgage broker will help you understand the “ins and outs” of a mortgage.

Considering the above points will help you be more prepared when beginning the home buying process. If you would like guidance to ensure you are obtaining a mortgage product that is in your best interest with minimal stress, please do not hesitate to email or call.

dcarlson@jencormortgage.com
403.245-3636 x2027