Posted by & filed under Uncategorized.

…well not quite.

I know most of you have already heard that the Bank of Canada increased it’s Prime rate this morning for the first time in 7 years! The Bank of Canada Prime rate now sits at 0.75%, a quarter point higher than the 0.50% it was at yesterday. Most banks and lenders will be increasing their Prime rate accordingly. Currently bank Prime is at 2.70%, and we expect most to bump their rate to 2.95%.

Is now the time to panic?!

Absolutely not.

The quarter point increase to Prime will increase payments by a mere ~$13 / month for every $100,000 in mortgage amount, based on a 25 year amortization.

Here are a few personal opinions on the matter:

  • If you have followed our recommendations to this point and have already increased your regularly scheduled payment, congratulations! You, especially, should not be converting or locking in your mortgage. For those of you who have not increased your payment, now might be the time to consider it. If you were to convert to a fixed rate today, a 5-year fixed rate would range from 2.79% to 3.09%, depending on what your bank or lender is offering. Most of my clients on variable rates have interest rates in the low 2% range. Today’s increase in Prime will still keep your rate a far cry from where fixed rates are at. Rather than converting now, why not increase your payment to “mimic” the fixed rates? This will give you the same monthly payment, but you will still be paying less interest, while making a greater impact on your principal balance at the same time. Those of you who are subscribers of our Inflation Hedge Strategy will continue to follow the fixed rate market, making small, manageable increases to their payment over a 5 year period. I guarantee the effect this has on your balance at maturity will blow you away 🙂

 

  • In times of uncertainty we tend to look to historical data and evidence. For the past 50 years (since they began tracking this data) the variable rate has been the right choice in the long run – Every. Single. Time. We will definitely see highs and lows following this strategy, but I am a firm believer that the long run will pay off for those who are persistent. Especially if you are following the above strategies!

 

  • The Bank of Canada has increased Prime today mainly due to better-than-anticipated growth in the economy. In a nutshell, Prime is typically increased when the economy is doing good; and decreased when the economy is struggling. If you are a subscriber to the theory that our global economy is in for another “reset” in the near future (consider that the stock market is currently performing leaps and bounds ahead of where it was at pre-2008) then you can appreciate the fact that times of uncertainty continue to lie ahead. This means that in the medium-term, there will be as good a chance for Prime to decrease again, as there will be for it to increase.

 

  • Many of you have asked in the past, so I am sharing with all of you that I will NOT be converting or locking in my own personal variable rate mortgage. Life is variable; your mortgage should be too 😉

 

  • For those of you who want to completely take this off your mind and explore your conversion options, that is totally fine too. For a quote on your conversion options, please contact the servicing department of your lender or bank. Their contact info can easily be found on your customer portal or your lender’s website. Be sure to ask for ALL of the terms available to you on conversion, not just the 5 year term. Once you have your options, remember that many of you are eligible for our Ultimate Variable Rate Mortgage Guarantee, where we pay your penalty for you if your lender is not offering you their best conversion rates. So before you make that final decision, be sure to contact us to ensure you are getting the best options available to you.

As always, we remain committed to our promise to you in keeping you informed and updated on these types of changes. Please don’t hesitate to reach out if you would like to discuss your personal circumstances or bounce ideas off of us.

We continue to strongly believe in active mortgage management (bullet point 1) as we have seen the positive results that this has had on our clients. Your mortgage is the largest debt you will ever take on; but, if managed properly, it can become your greatest asset!

Thanks for reading.

Posted by & filed under Uncategorized.

Many of you are already aware, fixed rates have increased slightly over the last week and a half. I’ve received a few phone calls and emails from people who have seen news headlines dance across their screen calling for the financial world to collapse and the end of surging prices in Vancouver as we know it. Fear mongering at its best.

**If you want to skip forward to what this means for you, my client, head down to paragraph 7. If you’re interested in what has led us to these increases and some vented frustration on the matter, continue reading.**

Let’s take a step back a few weeks and review what has gone on in the world of real estate financing. October 17th was a rude awakening for all of us when the feds ushered in a set of new mortgage regulations that are among the strongest that we have ever seen. Yes, they have effectively cut the legs out from first time buyers with their new mortgage stress test guidelines, the effects of which remain to be seen. But what most people are ignoring is the fact that these new policies are also making it more expensive and difficult for many of Canada’s largest lenders to secure funds for the purpose of real estate lending.

We have three options in Canada for “AAA” mortgage business: Banks, credit unions, and non-bank lenders. The majority of you reading this email likely have a mortgage with a non-bank lender in our country. Over 400,000 Canadians, last year alone, received mortgages from our non-bank lenders. These guys are big, big players and offer superior products in many cases and keep the market competitive.

In the simplest of terms, these non-bank lenders and many of the credit unions too, are now having to find alternative sources to secure the funds they lend, which only makes things more complicated and more expensive for the consumer in the form of higher interest rates.

But here’s where things get even more frustrating. If you’re reading this thinking that the big 6 banks don’t have to secure their funds the same way and they will just undercut the rest of the market and steal all the business… you could not be more wrong. The big 6 have raised their rates quicker than the non-banks have, for two reasons. First, the big 6 actually secure a large portion of their funds the same way non-banks have for the past decade, which means their costs will increase as well on many of their products. However, for those products and mortgages that aren’t secured the same way, they’re simply increasing their margins and making greater profits off of you.

It is public knowledge that the big 6 banks in our country have been crying about their diminished spreads with the amount of increased competition in the lending space. There was nothing wrong with the system we had in place. In fact, it was the envy of the financial world since the 2008 financial crisis. These changes simply heavily favour their spreads and will only line their pockets even further.

This brings us to today where we have seen the prices on fixed rate mortgages jump by approximately 0.25%. This equates to approximately $13/month for every $100,000 in mortgage on a 25 year amortization. Hardly anything to be calling for a collapse of the Vancouver real estate market.

So, what does this mean for you, my clients?

If you are in a variable rate mortgage, in my opinion, now is not the time to be locking in. We have seen a slight increase in fixed rates due to policy changes, not market changes. The Prime rate (which is what your variable rate is based on) has not moved, and likely will not move any time soon. Prime is typically increased when the country’s inflation rate is surging. This is far from the case in our country, and given the extreme unknowns for our neighbours to the south, I think we will continue to see low inflation for a long time to come.

To put things in perspective, if you have a variable rate of Prime – .75 to Prime – .40, your current interest rate is between 1.95% and 2.30%. If you were to lock in to a fixed rate today, you would be increasing your rate to roughly 2.69%. Prime would have to increase fairly significantly before you are losing money on this dilemma.

If you are in a fixed rate, no need to panic either. For most of you it doesn’t make sense to pay a penalty to renew early at this point. If you think you might be a special circumstance, reach out and email me at Jeff@IngramMortgageTeam.com.

For ALL of my clients, this is an excellent opportunity to take advantage of the Inflation Hedge Strategy that we spoke about when setting up your mortgage. Take advantage of today’s low rates, and increase your payment slightly to “keep up with inflation and avoid payment shock”. As I eluded to above, it’s an increase of approximately $13 for every $100,000 of mortgage. This little increase will have an enormous effect on your amortization and balance owing at maturity. It is still a great time to take advantage of these rates and pay off as much debt as you possibly can!

About these changes… Should we be angry? Yes, we should be angry with the government for making these changes without any industry or public consultation. You can’t just turn a dial and marginally slow down a market that is mainly driven by a lack of supply issue. I anticipate that these changes will only slow the economy and hurt our first time buyers. I digress…

One thing remains for sure, is that now more than ever you will need a good Broker on your side!

Remember, I am here for you. I work for YOU. And always will work for YOU. If you have any questions specific to your circumstance, never hesitate to reach out.

And don’t forget, I love helping your friends and family as well. If they are not getting the attention they should be, I’d appreciate the introduction!

Posted by & filed under Uncategorized.

Most of us know that changing your mortgage payment from monthly, or semi monthly, to an accelerated bi-weekly payment instantly reduces your standard 25 year amortization by 2.58 years with today’s rates. (If you didn’t know that, you’re likely not working with the right Mortgage Broker).

Sometimes, however, an accelerated bi-weekly payment option might not be available to you. Either the lender does not offer it as an option with that particular product, or they may not allow you to set it up if the accelerated payment knocks your qualifying ratios out of line. Although these situations are rare, they do come up from time to time. Here’s a workaround for those that might find themselves in this situation.

Open up a separate chequing account from which ONLY your mortgage payment will be withdrawn.

Then, from the account where your paychecks are deposited, set up an automatic transfer from this account, to your new chequing account. The automatic transer will be every two weeks and for half of the amount of your monthly mortgage payment. This is the amount that your accelerated bi-weekly payment would equal out to.

Throughout the year you will continue to automatically transfer exactly half of your monthly payment into your new chequing account, every two weeks. Then, those two months each year where you receive your paycheck three times in one month, you will also transfer half of your mortgage payment into the new account three times this month. When your monthly payment is withdrawn by your lender, there will be a half monthly payment remaining in your new account. This will happen twice throughout the year, leaving you with one full monthly payment remaining in your new chequing account. This is the accelerated effect.

Once per year, take this remaining balance in your account and apply it as a lump sum towards your mortgage, which most mortgages allow you to do. This lump sum goes directly towards your principal balance, interest free, thus reducing your amortization the same as an accelerated bi-weekly payment would have.

It may not seem like much, but imagine no mortgage payments for the next two and a half years. Feels good, doesn’t it!?

Posted by & filed under Uncategorized.

 

Yesterday we received word of some major changes coming down the pipe from the federal government. Changes that are geared towards slowing the, already slowing, housing markets in Vancouver and Toronto. Everyone knew some sort of adjustment was coming, but no one expected to be blindsided like we were yesterday. Here’s what is changing on October 17:

  1. High-ratio borrowers (less than 20% down) will now be forced to qualify at the Bank of Canada’s posted rate for ALL mortgages and products. In a nutshell, this will reduce a borrower’s “buying power” by ~20% in some cases.
  2. Non-residents will no longer be able to claim the capital gains exemption.
  3. Rental properties and Business For Self mortgages will no longer be able to be insured by CMHC. This change will take effect November 30th.
  4. Conventional (more than 20% down) back-end insured mortgages will now have a maximum 25 year amortization, be forced to qualify at the posted rate (the same as point #1), and have a maximum purchase price of $1 Million. Conventional refinances will also no longer be permitted through insured mortgages.

This last bullet might be the strongest of them all.

In Canada, we have dozens of non-bank lenders who are all in the AAA lending business. Because they don’t have deposits from chequing and savings accounts like the big banks do, they have to sell off portfolios of mortgages to investors in order to raise more capital. In order to make these investments more attractive, the lenders “bulk” insure them through CMHC at their own expense. Most clients who put 20+% down on their purchase don’t even realize that their mortgage has been insured against default, just like a borrower who put 5% down, but in this case the lender pays the premium and not the client.

What this does is allow many really strong non-bank lenders to offer mortgage products to consumers and compete against the big 6 banks. It creates competition in the market, offers consumers choice and helps to keep interest rates low.

With the announcement of these changes, specifically point #4, many of our non-bank lenders will find it hard to compete in the AAA space for conventional, rental, and self employed business. Less competition in a marketplace results in less choice for the consumer and potentially higher prices (interest rates) for the consumer.

Housing values might slip a bit and mortgages will be more challenging to obtain.

Here is what I suggest:

  • If you already own your home, don’t panic. Just like any market cycle, values will rebound.
  • If you have a variable rate, don’t lock it in…. yet. I would like to wait and see some other external factors that are affected before predicting what it might do to interest rates.
  • If you were thinking of getting pre-approved soon, do it now! It’s in your best interest to know what you qualify for pre- and post-October 17 so that you can make informed decisions.
  • If you’re already pre-approved and are looking at homes, consider getting your offer in and accepted prior to October 17. As I mentioned above, these changes will affect buyers by reducing the amount of mortgage they qualify for by approximately 20%.
  • If you don’t already have an experienced Broker working for you, find one. Now, more than ever, will knowledge and expertise become your greatest asset.

As with any change, we will adapt and move forward. The best thing we can do is be knowledgeable about how we might be affected, and figure out what we need to do in order to come out ahead.

Please don’t hesitate to reach out if you have any questions pertaining to your specific situation.

Posted by & filed under Uncategorized.

The great majority of us are in mortgage contracts that contain a prepayment privilege of some sort. “Privilege” being the key word here. Not all mortgage contracts contain such privileges, but that’s a story for another day.

Those mortgages who do allow prepayment privileges, usually allow at least 15% of your mortgage to be paid down, interest and penalty free, each year. On a $300,000 mortgage, that is $45,000 that you’re able to put directly towards your principle balance. That’s more than enough for the average Canadian based on our saving habits.

But how many of you are actually taking advantage of even a portion of your prepayment privilege? For those of you who didn’t raise your hand, what are you waiting for?!

Never before has there been such a great opportunity to get ahead on the largest debt most of us will ever take on. We are paying less interest with each payment than we ever have before (just ask someone who owned a home in the ’80s). There’s never been a better time to increase your payments and begin knocking years off your amortization.

By simply adding $100 to your monthly payment on a $300,000 mortgage, you effectively reduce your amortization by almost 2.5 years!

Imagine what it would feel like to have no mortgage payments for the next two and a half years… Think of the things you could do or the savings you could accumulate in that time!

Now is the time to really chip away at our principle balance so that we can be in a financially stronger position when rates finally do begin to normalize. Odds are if you aren’t taking advantage of pre-paying your mortgage today, you likely won’t when interest costs are higher either.

Don’t wait any longer – make a lump sum payment today and enjoy the benefits tomorrow!

Posted by & filed under Uncategorized.

Finance Minister, Bill Morneau, announced changes to the minimum down payment required on owner occupied homes this morning.

Effective February 15th, 2016, homes between $500,000 and $1 Million will have a sliding scale utilized for the minimum down payment required. On the first $500,000 of purchase price, 5% down is still the minimum. On any amount between $500,000 and $1 Million, 10% down will be required on this portion. Anything over $1 Million requires a 20% down payment, a policy that has been in place for over a year now.

For example, a purchase price of $700,000 will now require a down payment of $45,000 (5% on the first $500k = $25k; plus 10% on the remaining $200k = $20k). This is a $10,000 increase to the 5% down payment currently required on a $700,000 home.

Min Down Payment Chart

Minimum required down payment by price point, before and after Feb. 15

 

“The changes are meant to reduce tax payer exposure while supporting long-term stability of the housing market”, according to the ministry.

Any purchase contracts currently in place, or entered in to prior to February 15th, will be subject to current policies and only a 5% down payment is required even if completion is after February 15th.

This is one of many changes to the housing market that we have seen rolled out since 2008. Only time will tell how this one will play out. The feds are stating that these changes will only affect approximately 1% of the market. In markets like Vancouver and Toronto, I believe that percentage will be slightly higher.

If you’re curious how these changes affect you, give me a call this week.

Posted by & filed under Uncategorized.

The difference between regular, or ‘non-accelerated’, bi-weekly payments and accelerated bi-weekly payments is that the accelerated payments give you an extra FULL payment each year that goes straight towards your principle balance.
Here’s the breakdown:
There are 12 months in a year, but not every month has exactly 4 weeks, so there are actually 26 bi-weekly pay periods per year. For a regular bi-weekly payment, you would take your monthly payment and multiply it over the 12 months and then divide it by the 26 pay periods. On a $2,000 monthly payment, your regular bi-weekly pay would be $923.08. This is evenly spreading your regular payment out over the 26 pay periods.
In contrast, the accelerated bi-weekly payment would simply be your monthly payment divided in half. In the example above, you would now be making $1,000 payments every two weeks, meaning that each time you make a payment $76.92 is going towards your principle balance, interest free.
You know those two months each year where you receive 3 pay cheques from your employer instead of 2? These are the same months where those extra payments are applied to your principle balance.
If you’re going to make your mortgage payments every two weeks, I would definitely suggest the accelerated bi-weekly option as it helps you pay your mortgage off faster.

Posted by & filed under Uncategorized.

Today, with the Internet, we all have an abundance of information literally at our fingertips. Despite the information available many homeowners have limited knowledge about the mortgage process and products. Their lack of knowledge can turn out to be costly. Homeowners should know the difference between a conventional mortgage and a Home Equity Line Of Credit (HELOC).

A conventional mortgage is a registered charge against your home. There is a set term – 6 months to 10 years and an interest rate can be either a fixed or variable rate. Payments include principal and interest. Many homeowners choose a fixed rate as it is easier to set budgets knowing the interest rate won’t change during the term chosen. Variable interest rates will change as Prime changes. With a solid strategy in place choosing an interest rate will be simple. If you have less than 20% down payment (equity) the maximum amortization is 25 years. More than 20% down and a 30 year amortization is available. You can purchase a home with as little as 5% down (maximum purchase price $999,999).

A HELOC is a secured line of credit also registered as a charge against your home.  This charge can be in first position but generally is added after the fact behind a conventional mortgage. Some lenders will not permit another charge on title. Like any line of credit, a HELOC is fully open and you can borrow and re-borrow. The interest rate is tied to Bank Prime and may fluctuate. Government regulations stipulate that a HELOC cannot exceed 65% of the value of your home, unless in second position, in which case you can borrow to 80% of the value and qualifying must be done using the 5 year posted rate (4.64%) with a 25 year amortization. Payments can be as low as interest only but that is truly the never-never plan for repayment. Any spikes in interest rates can throw off the most dedicated budgeters!

If used responsibly and with a sound strategy, a HELOC can have many advantages. Purchasing investments with a HELOC creates a tax deduction for interest paid. Renovating your home with a HELOC allows you to draw from it when you need it, only paying interest on the money used. Your children’s education, buying a boat or the down payment for a recreation property can all be facilitated with a HELOC. A HELOC can be a great tool for investments, renovations and short term financing needs. Anything longer term, however, is often cheaper to choose a conventional mortgage with a variable rate. The difference in the lower interest rate outweighs the flexibility of the HELOC.

Most people when buying a home take a conventional mortgage with a fixed term and rate. The astute homeowner understands the power of a conventional mortgage combined with a HELOC. Understanding your needs together with a strong financial strategy can turn your largest debt into your greatest asset!

Posted by & filed under Uncategorized.

In my opinion, of course…

1. The self-employed game is now played on a much different field than the one your self-employed parent(s) used to play on. If you are self-employed and buying a home is in your future, talk to a professional as soon as possible to ensure you are taking the proper steps to both maximize your tax savings, and be able to qualify for a mortgage at the same time.

2. No credit is bad credit. Some people think that paying cash for everything is the way to go. While their ability to avoid paying interest on anything is applauded, it doesn’t help them when it comes time to buying a home. Lenders want to see the history of your ability to repay loans and trade lines. This doesn’t necessarily mean borrowing money. Filling up your tank of gas with your Visa once a month and paying it off in full will not incur any interest charges and it will begin a record that reports to your credit bureau, helping you gain the positive credit score that is so highly regarded in the finance world.

3. Your condo might not be the perfect short term solution you are hoping for. With condo values in most cities seeing very little (if any) appreciation over the last 5 years, buying that first condo with 5% down with the hopes of selling and moving into something bigger in the next few years, might not be your most cost-efficient option. When it comes time to sell, a large majority of your initial 5% investment will be eaten up by CMHC fees and Realtor fees. This leaves many hopeful second time buyers with barely enough equity left from the sale to cover the legal fees on their next purchase.

4. Know what your costs are (on buying and selling) before you enter in to an agreement. This could cover a very wide array of subjects. As mentioned above, if selling in the near future is your plan, know what your selling costs will be before you enter in to your purchase agreement. When it comes to your mortgage, know what the cost to pay out your mortgage will be and know your options on portability, assumability, and early payout before you get googly eyed about the rate.

5. The old adage of “you get what you pay for” still usually rings true. Too many times I have heard clients complain about the Realtor that they ended up choosing because he or she was willing to discount their commissions in order to work with them. The same thing often happens when clients choose the absolute lowest rate they could find when shopping for their mortgage, only to find out later that there is no way out of this mortgage unless they sell their home. Often times the best professionals will tell you what questions you should be asking throughout the process. Know who these professionals are by asking for reviews and testimonials from your friends and family who have gone through the same process before.

Posted by & filed under Uncategorized.

Back in June 2012 OSFI (Office of the Superintendent of Financial Institutions) rolled out their B-20 Residential Mortgage Underwriting Practices and Procedures, in an effort to force banks and lenders to follow more prudent underwriting guidelines.

One of the most impactful changes was imposed on borrowers who want to take a Variable rate, or a term of less than 5 years. Prior to the B-20, we were able to qualify clients for these types of products using a 3-year discounted rate. To put that in perspective, current 5-year rates are between 2.99% and 3.09%, whereas 3-year discounted rates are between 2.49% and 2.79%. Now, the B-20 mandates the following:

If a client is taking a 5-year fixed rate product, we are able to qualify them using the contractual rate (ie, the discounted rate that their mortgage will be based on) and, as mentioned above, those discounted 5-year rates are currently available between 2.99% and 3.09%.

However, if a client wants a Variable rate, or a term less than 5 years in length, we are forced to qualify them using the Bank of Canada’s posted rate, which is currently 4.79%. What this does is increases the qualifying payment, and since approvals are essentially based on an income-to-debt ratio, said clients will essentially qualify for a lesser purchase price if they want one of these products.

Now, just to curb any confusion, the qualifying rate is not the rate these clients are actually paying. The contractual rate for Variable rates is currently between 2.40% and 2.50% and 2, 3, and 4 year fixed rates range between 2.49% and 2.99%. The purpose of using the Bank of Canada’s posted rate to qualify for these products is simply to prove that these particular clients could potentially handle their mortgage at a higher rate. In the event that rates eventually increase, OSFI feels more comfortable knowing that these clients will still be able to afford making their mortgage payments as they have qualified at a rate as high as 4.79%.

And thus the reason that when clients ask me what they qualify for, I am now having to give them two different price points. One price point that they qualify for on a 5-year fixed product, and a second, lower price point, that they qualify for if they want all of their product options available to them.