Fixed or Variable-Rate Mortgage?
If you are rate shopping, you’ll notice that the lowest available rate will be for a variable mortgage, which is why we’re often asked “what does variable mean and how is it different from a fixed-rate mortgage?”
With a variable mortgage, your mortgage rate will move in conjunction with your lender’s Prime lending rate, which in turn tracks the Bank of Canada’s benchmark rate, and will typically be quoted as Prime minus a specified percentage. It can be difficult to predict our economic future so you won’t know for sure what kind of rate ups and downs might be ahead of you.
With a fixed-rate mortgage, your payments are fixed for the term of the mortgage, which offers stability. Fixed-rates are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. Ask yourself these questions: Do you like or need to know exactly what your payment is going to be over a longer period of time? Do you want to avoid the need to consistently watch rates? Do you have less than 20% down? If you answered “yes” to all or most, a fixed-rate mortgage could be the better choice for you.
A variable-rate mortgage is best suited to people who have a flexible budget and can tolerate slightly more risk. Ask yourself these questions: Do you watch market conditions? Can you handle any rate increases that could increase your payment? Do you have more than 20% equity in your home? If you answered “yes” to all or most, a variable-rate mortgage might best suit your needs. Most variables allow you to exercise an option to “lock in” a fixed rate at any time for the remaining portion of your mortgage term or longer. You can also set up your payments at what they would be if you took the higher rate, which helps you pay down your mortgage faster, and creates a financial buffer for you if rates rise later.
If the uncertainty of a variable rate is going to give you sleepless nights, you’re in good company. Many Canadians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly… with no financial surprises. However, lower-rate variable mortgages with a strong Prime minus offer give you the potential to save a lot on interest. And, if your circumstances change and you need to get of out of your mortgage, you will appreciate the lower penalty to get out of a variable versus a fixed-rate mortgage.
Your best option is to get professional and personalized advice. The team of experts at MiMortgage.ca would be happy to help you determine which option is best suited to your needs. Contact us at 1.866.452.1100 to speak to an expert now.
This is what the federal budget means for homebuyers
The recent federal budget included Housing Affordability Measures that may be applicable to your situation, now or in the future. There are three key measures intended to help: an incentive for first-time homebuyers, an increase in the amount of RRSP funds first-time buyers can access for a downpayment, and allowing divorced individuals to use their RRSP funds under the Home Buyers Plan. Let’s take a closer look at each:
First-Time Home Buyer Incentive (available Fall 2019)
This new measure is basically a shared equity program designed to reduce mortgage payments for first-time buyers with the minimum 5% downpayment. The Canada Mortgage and Housing Corporation (CMHC) will provide 5% of the cost of an existing home, or 10% of a new home in what amounts to an interest-free loan that isn’t payable until you sell the property. The extra encouragement to purchase a newly built home is expected to boost home construction and help address a housing shortage in many areas.
There are a few caveats. If your household income is more than $120,000, you aren’t eligible for the program. And your total borrowed amount (including the incentive portion) can’t be more than four times your household income. With a 5% downpayment and a household income of $120,000, the maximum purchase price would be approximately $505,000.
The program is expected to be launched this Fall. We’re still waiting for some details on how the incentive is paid back, and how increases or decreases in equity will be handled. Stay tuned! In the meantime, we can certainly run some numbers to determine if this is something you, or someone you know, may want to take advantage of later this year.
Bolstering the Home Buyers’ Plan (available now)
The Home Buyers’ Plan (HBP) has allowed first-time buyers to withdraw up to $25,000 ($50,000 per couple) from their RRSP to help with downpayment and closing costs, without having to pay tax on the withdrawal. HBP withdrawals are not added to a person’s income when withdrawn, but instead must be repaid over a 15-year period. The budget increased the maximum withdrawal amount to $35,000 per qualified buyer, which is effective immediately.
Divorced individuals eligible for Home Buyers’ Plan (available 2020)
The budget also proposed that those experiencing the breakdown of a marriage or common-law partnership can now participate in the Home Buyers’ Plan. This measure will be available for withdrawals made after 2019, and is great news. After all, a financial plan that starts with homeownership can help both parties make the best possible start on a new path.
The bottom line on budget 2019? There are some good measures for some homebuyer groups that needed a boost. The new first-time buyer incentive program has certainly added another layer of complexity to the already complicated mortgage world that includes two different stress tests. Getting expert advice throughout your mortgage years is more important than ever. Got a homebuying dream? Feel free to get in touch with the experts at MiMortgage.ca for a review of your situation at any time!
What’s a monoline lender and how is it different from a bank?
We’re often asked about monoline lenders – who are they, what benefits do they offer, and how do you get access to a monoline lender anyway?
Good questions. “Mono” means “one”. So it’s a “one-line” lender that doesn’t do anything else except mortgage lending. They won’t be asking you to do your banking with them, or try to cross-sell you investments. They do one thing: mortgage lending. They’re an important factor in the mortgage market here in Canada because they improve consumer choice and ensure that our Banks remain competitive!
How do you access a monoline lender? Our only job is to get you the perfect mortgage – a combination of rate and features that allows you to live comfortably with your mortgage and save money in the long term. To do that, we work with most of the major banks and credit unions, private lenders, and we work with several monoline lenders. There are a few reasons why a monoline lender might be the perfect option for you.
- Lower penalties. A monoline lender’s penalty to break a fixed-rate mortgage is typically much less than what Banks charge. If your circumstances change and you need to get out of your mortgage, this could save you thousands.
- Easier to transfer. A mortgage with a monoline lender is registered on title as a “standard charge” rather than a “collateral charge”. That means it can be easier and cheaper to transfer your mortgage to another lender at renewal for a better deal.
- Great rates. Monoline lenders do not have bricks and mortar branches so they can keep their overhead costs low and focus on competitive interest rates.
Most monoline lenders are only available through mortgage brokers, which is one of the reasons so many Canadians are turning to mortgage brokers for their purchases, refinances and renewals. Get in touch with the experts at MiMortgage.ca for a review of all your lender options for your next mortgage.
Some of the monoline lenders we deal with – Merix, First National, MCAP, RMG, CMLS
Co-signing a mortgage: things to consider
It’s quite common for parents to co-sign loans for their children who have yet to build a strong enough income or credit history to buy a home. Grandparents and other close relatives are also helping when they can. This can certainly provide a critical helping hand, but it is an emotional decision so it’s very important to weigh all aspects of this request and the effect it could have on your own financial situation. Be sure you can afford to pay the debt if the borrower defaults, and remember that this loan will appear on your credit report. If you yourself need to take out a loan in the near future, you may not want to co-sign if it could affect your chance of approval. Additionally, review the mortgage paperwork and be sure you understand the terms fully before agreeing. If you have confidence in the borrower’s ability to repay the loan, co-signing can be a generous way for you to help that will be appreciated for years to come.
Contact the team at MiMortgage.ca at 1.866.452.1100 to speak to an expert now!
Homeownership trend – buying with a friend
An interesting new homebuying trend emerging among millennials is home purchases that are completed with a friend. It’s a creative solution to the housing market given tough qualifying rules and high prices. Pooling your resources is a great way to take you from the fringes of homeownership to landing what you really want and getting a start on wealth building.
Here are a few of the things you’ll want to talk about before you get started:
- Detached, condo or something else? How many bedrooms/bathrooms and what amenities do you both want? Are you the fixer-upper types or do you want move-in ready?
- What can you both afford? Remember to factor in closing costs including lawyer’s fees. Put a budget together that includes property taxes, any condo fees, heat and hydro, internet, cable, anticipated maintenance costs, and household expenses.
Next, talk about how co-ownership will work, and consider getting legal advice and a legal agreement outlining roles and responsibilities, including:
- whether ownership is divided equally among the buyers, or by some other percentage based on what you bring to the purchase and ongoing costs;
- how you plan to divide and use the space within the home, and any mechanism for dealing with conflicts;
- how you are going to divide ongoing and one-off expenses;
- how you want to handle household chores, repairs and maintenance;
- what happens if one co-owner wants to sell their share for any reason? Will the other owner(s) have first right of refusal to buy their share? And how will you establish a fair market value for that share?
- what if one person is unable to afford to continue to pay his/her share of the mortgage for any reason?
Today many young millennials are getting their money working for them early through property partnerships with friends. Contact the team at MiMortgage.ca at 1.866.452.1100 to speak to an expert about mortgage financing. A little pre-planning and you could be hosting your joint housewarming party!
6 reasons to work with an expert on your mortgage renewal
Given the large financial commitment of a mortgage, it’s surprising that so many homeowners sleepwalk through the mortgage renewal process and don’t look at all their options in the marketplace. Many accept whatever their lender offers or just have a short negotiation to shave a few points off. While it’s tempting to choose what is easiest, it’s so important to have a mortgage expert working for you as early as 9 months prior to renewal. Here’s why:
- We have access to over 50 lenders so we can make sure you are being offered the best deal possible.
- Having a good credit score is important if you want to switch your mortgage to a new lender for a better deal. You current lender may also take your score into consideration at renewal. You have more control over your credit score than you think, and you may want to discuss credit improvement strategies.
- If you have enough equity in your home, you may be able to move high-interest debt to your lower-rate mortgage, improving cash flow and saving on interest. Renewal is the perfect time to do this. We can run the numbers to see if this strategy makes sense for you.
- Taking on new debt or leaving your current employment prior to renewal can affect your ability to move your mortgage to another lender. We can discuss the potential impact of changes to your personal situation.
- If your mortgage isn’t insured, we can help determine if you can switch to a lower-rate insurable mortgage that offers long-term savings.
- If you need to free up cash flow for specific needs or life situations, a 30-year amortization might be an option for you to consider (20% or more in equity required).
Remember, we work for you. With access to dozens of lenders and hundreds of mortgage options, our goal is to help you make informed decisions so you always get the best package of rate and features that best fits your needs. Contact the team at MiMortgage.ca to speak to expert now!
First-time buyers – take advantage of the RRSP downpayment boost by March 1
Using your RRSP money for your downpayment is a great strategy for some first-time buyers. It may help you achieve the 20 per cent downpayment needed to avoid mortgage default insurance premiums, or simply give you a financial boost when you need it most. First-time homebuyers can withdraw up $25,000 per person under the Federal Home Buyers’ Program (HBP). If you have saved $25,000 and have enough RRSP contribution room, you can contribute that amount to your RRSP by the March 1 deadline. Then after 90 days, you can redeem those funds under the HBP. Since your contribution counts as a tax deduction, you may get a nice tax refund this spring to further assist you with your homebuying plans. You will however need to pay the withdrawn funds back on a 15-year repayment plan. Contact the experts at MiMortgage.ca at 1.866.452.1100 to for more information on how you can access your RRSP money for a downpayment for your first home.
Eight tips you won’t get from your bank in 2019
If you’ve got a mortgage – or plan to get one this year – you probably know that it’s more complicated than it used to be just a few short years ago. That said, we have many tips and strategies that can help you get the mortgage you need, tweak the one you have, or help you plan for renewal. Here are our top eight:
- To get the best deal, you need options. When you go to your bank, you’re talking to one lender. Their best deal might not be THE best deal. It’s also difficult to qualify at a bank if you are self-employed, have past credit issues or finding the stress test a challenge. Credit unions, alternative and private lenders are increasingly helping people get into new homes or refinance their mortgage.
- Best-rate quotes are often meaningless. Mortgage rule changes have thrown mortgage pricing up in the air. Your actual rate depends on a whole slate of factors, which is why you can only get an accurate rate quote after an in-depth assessment of your personal situation.
- The devil is in the details. People tend to focus on rate, but you can save thousands by making sure you get a mortgage that has fair penalties, allows you to prepay, and ensures you will also be treated fairly at renewal. Don’t end up paying exorbitant fees, or be forced to take a high rate at renewal.
- An insured mortgage might be a smart move. If your mortgage is “uninsured” and you want to switch to a new lender for a better rate at renewal, that lender will qualify you using a “stress test”, which may affect your ability to move your mortgage, and giving your lender no incentive to offer you the best rates. It’s possible that you can switch your mortgage to a lower-rate insurable mortgage that has more flexibility.
- A 30-year amortization can give you wiggle room on cash flow. A longer amortization (20% or more in equity required) allows you to minimize your mortgage payments and free up cash flow for uses like investing, business needs, post-secondary education, maternity leave, home maintenance, or other life situations. You can keep your payments at a shorter amortization and only use this flexibility if the need arises.
- Monitor your credit score. The best rates go to borrowers with the best credit scores. Lenders are also paying closer attention to any warning signals that clients may have trouble paying their mortgage. If your credit slips and your lender feels your risk has increased, you may be offered a higher rate at renewal.
- A rental suite can be a sweet mortgage helper. A home with a rental suite could help you buy a single-family home instead of a condo, get you into that neighbourhood you love, or help you offset mortgage payments in the house you’re in so you can become mortgage free sooner or have the freedom to channel money into other areas.
- Plug your biggest money leak. If debt is choking your cash flow and you have enough equity in your home, you may be able to move that debt to your lower-rate mortgage and save thousands. Using home equity to pay down debt is one of my specialties!
It’s a New year. A New chance to make sure your mortgage strategy is working for you and helping you build wealth. Get in touch with the experts at MiMortgage.ca for a review of your situation. Contact us at 1.866.452.1100 to speak to an expert now!
A big thank you to all our clients, lender and referral partners for your support & patronage, to make 2018 another successful year for Mortgage Intelligence-Oshawa. We wish you all the very best for an amazing 2019!