Real estate and rates post Brexit and OSFI tightening

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The uncertainty created with Brexit, in which Britons voted to leave the European Union, will keep interest rates low in the U.S. and Canada well into 2019 according to most economists.  The impact on Canada for both its real estate markets and interest rates looks bright.  Foreign money, in search of stable, safe havens for housing assets will naturally gravitate to Vancouver and Toronto now that Britain looks riskier. A continued low interest rate environment for many years will allow buyers outside of those areas to purchase with confidence, knowing that rates will remain low and affordable for some time.

The Office of the Superintendent of Financial Institutions (OSFI) on July 7^th released a letter to all federally regulated financial institutions (FRFIs) to engage in prudent mortgage underwriting.  They are clearly concerned these low rates will continue to fuel the housing market, and want FRFIs to place increased focus on verifying borrowers’ income (particularly for sources outside of Canada), have greater scrutiny of loans to borrowers with high debt or low credit scores, and ensure borrowers can make mortgage payments if rates rise. As a result, mortgage applications will become subject to more scrutiny and requests for increased documentation. It has never been more important to deal with an experienced mortgage professional who has access to as many options as possible, including lenders not subject to federal regulations, and will work with you to ensure your situation is clearly represented with your lender.

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Which mortgage features are the most important?

It’s easy to look online for a mortgage rate. But rate is only one aspect of saving money on your mortgage over the long term. It’s essential that you also consider mortgage features. Here are the big ones –

Early Payout Penalties. There are lots of reasons why it makes good financial sense to break your mortgage, even though you can expect to pay a penalty. But not all lenders calculate penalties the same way, and the differences can amount to thousands. Life happens, so make sure you choose a lender that has a fair prepayment penalty. And watch out for no-frill mortgages that don’t let you get out of your mortgage at all, unless you sell or the term is up.

Pre-Payment Privileges. You want the ability to put lump sum amounts on your mortgage and increase your payments so you can pay down your mortgage faster and save on interest. You should always consider having this flexibility even if you don’t think you’ll use it; your situation may change that gives you the ability to pre-pay. This flexibility can also help you reduce an early payout penalty.

Collateral charge mortgage. This type of mortgage can be difficult to transfer to another lender and cost you legal fees if you do. You are more locked in, which means your lender may not offer you the best rates if you need to refinance or at renewal.  Watch out!

Porting Flexibility. This is important if there is a chance you’ll move i.e. job change, growing family. You’ll want to take your mortgage to your new place to avoid penalties.  But make sure your lender lets you increase too should you buy a more expensive home.

Blended Mortgage. If you move or refinance, a blended mortgage allows you to blend the rate of your current mortgage with the rate on the additional funds. This way, you don’t break your current mortgage and incur the penalty. Some lenders blend and extend to a new 5 year term, others blend only to the remaining term, or offer both.

There is definitely more to getting a mortgage than just rate. Contact the team at MiMortgage.ca to speak to an expert now. It’s our job to help you find the right mortgage with the rate and flexibility you need to be a happy homeowner.

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Happy Canada Day!!

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