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

Currently, all borrowers in Canada need to qualify for a new mortgage at the current Bank of Canada Benchmark Qualifying Rate or at their approved mortgage interest rate plus 2.0%, whichever is higher.

For more than a year, this Bank of Canada Benchmark Qualifying Rate has been 5.34%. Now, for the first time in 3-years, the Bank of Canada has decreased that Qualifying Rate to 5.19%, a 0.15% decrease.

What does this mean?

The Bank of Canada Qualifying Rate is essentially a lender’s Stress Test Rate. If a borrower has an annual gross income of $60,000, they can qualify for a $265,000 purchase price with a 10% down payment at a 5.34% qualifying rate.

By changing the qualifying rate to 5.19%, that same borrower qualifies for a $269,000 purchase price at 10% down payment. This is a $3,700 increase in borrowing ability.

A borrower with $80,000 of gross annual income and a 20% down payment qualifies for a $455,000 purchase price at the 5.34% Bank of Canada Qualifying Rate. Change it to 5.19%, it increases to $462,000. A $5,600 increase in borrowing ability.

The ironic part of this is that the Stress Test was implemented to protect consumers against rising interest rates. The government’s  concern was that borrowers would not be able to cover their monthly payments when they came up for renewal.

Highest 5-year interest rate since January 2010? 3.79%.

Highest 5-year fixed interest rate in the past 5-years? 3.24%.

Last time someone had to pay an interest rate above 5%? For one month in 2009 and before that, summer of 2008.

Food for thought! If you have any other questions regarding the Bank of Canada qualifying rate or the mortgage Stress Test rules, please do not hesitate to contact me!

Cash back mortgages are typically a 5 year term and you receive a percentage of the mortgage financing back in cash, after the mortgages is disbursed. The percentage of cash back received varies from 1% to 5%, in most cases. Funds can be used to build a fence, landscape, buy window coverings, etc. The idea behind the cash back mortgage is to use the money to help assist with purchases/costs that are not covered by down payment or closing costs when purchasing a home. The following are a few points to consider when taking a “cash back” mortgage:

1. There are several lenders who have cash back mortgages. Do not sign up for the first one that you look into; they all have different terms and conditions.
2. Interest rate given is the banks “posted” rate, not a discounted rate.
3. The cash back portion received is basically a loan on top of the mortgage. In most cases you will have paid the “cash back” and more by the end of the term. Remember, lenders do not give money away for free and the cash back repaid can sometimes be twice as much as what is received in cash.

Most cash back mortgages are a 5 year term. The average Canadian historically moves every 36 months, therefore be very careful when trying to terminate the mortgage contract prior to the end of the term. With a cash back mortgage you are required to pay a penalty as well as a prorated portion of the loan given. For example, when 36 months into a 60 month mortgage term you are required to pay back 2 years worth or 40% of the cash back; In some cases the lenders require 100% repayment of the cashback portion of the mortgage.

Before signing for a cash back mortgage do your due diligence and speak with a professional mortgage advisor; we can provide alternatives that could potentially save a lot of “hard earned money”.

dcarlson@jencormortgage.com
403-245-3636 x 2027

Getting a coffee at the lowest price is usually not going to give us a coffee that meets our needs. We want quality beans, flavour, extra features like a shot of caramel, maybe make it a macchiato, froth on the top, an alternative milk option, and the list goes on.

The same goes for mortgages. Lowest rate mortgages may come with a lack of portability (moving the mortgage from one property to another upon the sale of a home), the inability to make extra payments, and you may be locked into a good rate today without the flexibility for better rates in the future. They may be the lowest rate without the lowest monthly payment amount, they may be for term lengths that are too long and have significant penalties when the mortgage needs to be broken.

The lowest rate mortgage may be a collateral charge mortgage that allows a bank to foreclose on your property because you were delinquent on your credit card payments. The 4 strategic priorities that every mortgage needs to balance are: low risk, low cost, a payment that makes sense and maximum flexibility

The next time you apply for a mortgage, try not to fixate on the best rate but ask how you can get the best mortgage that meets your needs.

dcarlson@jencormortgage.com

403-245-3636 x2027

Consistently I have people ask why so much documentation is required for mortgage financing. Along with an employment letter, you are asked to provide a copy of the offer to purchase/sale agreement, MLS feature sheet, a pay stub, your most recent Personal Tax Notice of Assessments (NOA), T4’s, confirmation of down payment, etc. “Why is this required, doesn’t the employment letter satisfy this condition”? Unfortunately the employment letter is not sufficient.

A pay stub confirms what was written in the employment letter along with year to date earnings, overtime, special allowances/bonus/commissions received, etc. T4’s confirm previous years earnings and Personal Tax Notice of Assessments (also know as NOA’S) confirm taxes have been filed for previous years income and no personal taxes are owing to Revenue Canada. No taxes owing to Revenue Canada is important as Revenue Canada can place a lien on a property for taxes in arrears, ahead of the mortgage claim on title.

A realtor will provide an offer to purchase/sale agreement and MLS feature sheet. The purchase agreement confirms the financial agreement and what is included with the house while the MLS provides property details required by the lender; this enables the lender to establish whether or not one has paid fair market value for the property.

Finally, a lender will ask for a 30-90 day (depending on whether or not the mortgage is insured or uninsured) history of where down payment has originated to confirm it is from own sources and not borrowed. This process is required by the government due to anti money laundering laws, which require the confirmation of the source for all funds used for down payment.

Before shopping for a home contact me to have yourself pre-approved so that you can go out shopping, search for the home of your dreams and confidently make an offer. dcarlson@jencormortgage.com

403-245-3636 x 2027

Bank of Canada Qualifying Rate Changes

Yesterday’s announcement indicated the Bank of Canada Qualifying rate decreased from 5.34% to 5.19%. This is the first decrease that we’ve seen since September 2016. What does the decrease mean?

The change would increase a client’s buying power…marginally.

“For a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

• Someone making $50,000 a year can afford $2,800 (1.3%) more home
• Someone making $100,000 a year can afford $5,900 (1.3%) more home
• (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)
• For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:
• Someone making $50,000 a year can afford $4,000 (1.4%) more home
• Someone making $100,000 a year can afford $8,300 (1.4%) more home

(Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

dcarlson@jencormortgage.com

403-245-3636 x 2027

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2. Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4. Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
   a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
   b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
10. Interest Rate – This is the monthly principal and interest payment rate.
11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14. Open / Closed Mortgage
    a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18. Title – The documented evidence that a person or organization has legal ownership of real property.
19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

dcarlson@jencormortgage.com

403-245-3636 x 2027