Bank of Canada reveals latest interest rate decision

Interest Rates - Bank of Canada London Community Mortgage Movement

The Bank of Canada has raised its benchmark interest rate by a quarter of a point. This is the fifth time since last summer that the Bank of Canada has pushed up the cost of borrowing for Canadians.

The central bank’s target for the overnight rate is now set at 1.75 per cent.

The cost of loans linked to the big bank prime rates are headed higher in the wake of the Bank of Canada’s decision to raise its key interest rate target by a quarter of a percentage point. The Canadian banks each raised their prime lending rates to 3.95 per cent from 3.70 per cent, effective Thursday, October 25, 2018.

The increase followed governor Stephen Poloz’s first policy meeting since Canada agreed with the United States and Mexico earlier this month on an updated North American free trade deal. It was the bank’s first rate decision since Canada agreed with the United States and Mexico earlier this month on an updated North American free trade deal.

So far, the Bank of Canada has stated that Canadians have been making spending adjustments in response to earlier rate hikes and stricter mortgage policies — and credit growth continues to moderate. Household vulnerabilities — while still elevated — have edged down as a result.

Consumer spending is expected to continue expanding at a “healthy pace,” thanks in large part to the steady rise of incomes and the strength of consumer confidence. It projects exports to keep growing at a moderate clip, even though they will face limitations from several factors — including transportation capacity constraints, global trade uncertainty and stiff competition, particularly from the U.S.

Known as the target for the overnight rate, the benchmark is what Canada’s big banks charge each other for short-term loans. It filters down to consumers, because it affects the rates the banks offer their customers for things like variable rate mortgages and savings accounts.

The bank says households have already made spending adjustments in response to earlier rate hikes and stricter mortgage policies _ and credit growth continues to moderate.

Why Use a Real Estate Broker?

Why You should Use a Real Estate Broker

Plan on buying a home soon? Did you know that there are plenty of ways that a real estate broker can help you achieve your goal by finding the best home that meets your needs, all while ensuring your peace of mind?

Below you find some of the main tasks a real estate broker performs for their clients that will be a buying a home:

 

Evaluate Your Needs

This will include the type of property you are looking for, what type of area or neighbourhood you want to live in, if you want a new home or one that might require some renovations be made to it, how many bathrooms and bedrooms you might want to have. Your real estate broker will help you identify which essential elements should be included in your future home.

 

With their in-depth knowledge of the market, your broker will help to ensure that your budget corresponds to the type of property you’re looking for and the neighbourhood you’re interested in. Your broker will also encourage you to get a pre-approved loan from your bank, this helps to speed up the buying process and makes you credible with sellers.

 

Give You Choices

Your broker will present you with properties that match what you are looking for. They help organize visits to these potential properties, as well as give you an honest opinion about each property. They can also provide you with various options that have not been considered. When you finally find a real winner, your broker will advise you on the strategy for submitting the promise to purchase.

 

Ask Questions For You

The broker will also attend the inspection of the home, ask questions and help you understand the inspection report on the property. Your broker will also follow-up on the fulfilment of conditions and act as an intermediary for the delivery of various documents, these can include bank drafts, etc.

 

Remember that if you do have any questions, your broker will answer them during the buying process. If you’re buying a condo, for example, they will analyze the essential documents with you, such as the minutes of condo meetings, the condo’s financial statements, etc.

When all the conditions have been met, your broker will accompany you to the notary for the signing of the documents that formalize the transaction.

As you can see from the above that your broker is involved at almost every step of the home buying process, why would you miss out on their guidance and expertise?

Things Not To Do Before Closing

Things not to do before closing a sale

You have worked to secure financing for your mortgage, you have a great rate and terms for it. Everything is good, all you must do is wait for advancement of funds.

Sometimes you might suffer a lapse in judgement when it comes to the closing the sale of your home. It is sometimes a stressful time when it comes to these types of events, especially if it is your first time purchasing a home.

A mortgage lender might suggest a simple course of action, however sometimes this is misinterpreted by the buyer. Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender advances funds).

Don’t do anything that would reduce your income

When it comes to your employment don’t do anything that would jeopardize your employment or income with your existing employer. Getting a raise is fine but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt service ratios on your application and you might not qualify.

Do not close any credit accounts

Even if you realize that you never use a certain credit card, for example, cut it up if you must, but do not cancel that line of credit while you are waiting to close the purchase of your home.

Don’t apply for new credit

if you find yourself at shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage. It is best to wait until everything is finalized before going out and buying new furniture for the house.

Do not buy anything with your closing cost. Nothing.

This means not one thing. Yes, you might need a washer and dryer, but wait until you close to order it. Don’t take a salesperson’s word that they’ll just write it up and hold it for you, because somebody will enter it into the store’s computer by mistake. Typically, the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage.

Should you get a shorter-term mortgage, make extra payments or something else?

Mortgages London Ontario

When getting a home mortgage, if you can afford higher payments, often there is an option for a 15-year loan instead of one of 30-years. This can be very enticing, since you will be free of a mortgage in half the time and pay a lot less in interest.

Let’s use a $200,000 mortgage as an example the payment (P&I, Principal, and Interest, not including escrow for taxes and insurance) is approximately $955 at a 4% mortgage interest rate.  You’d pay a total of $343,739 over that 30 years. Using the same rate, a $200,000 mortgage over 15 years would require a P&I payment of $1,479 at the same interest rate, and you’d pay a total of $266,288 over the life of the loan.

If you can make those higher payments, you would be saving around $80,000 over the life of the mortgage of 15 years. There is also another option when it comes mortgage payments. You can cut your mortgage time by five or more years if you have your lender set up bi-weekly automated payments. This means that you would be paying every two weeks instead of one monthly payment. Since some months may have 5 weeks instead of 4, you end up paying an equivalent of an extra payment each year. This is an easy way to help save money while paying off your mortgage sooner.

Something Else

This is looking at your other debt, especially credit cards, store credit or signature loans. There is an average of $6,500 to over $9,000 for average credit card debt per household. Along with that, multiple sources report the average credit card interest rate rose to 15.59% in 2018.

Going back to the comparison between the 15 and 30-year mortgages, the difference between the two payments is around $500. One plan might be to pay off that credit card debt using this money. This could help get rid of credit card debt in around a year and then you could start working towards making extra payments toward your mortgage.

While you could be paying off your short-term higher rate debt, then using that money towards paying off your mortgage.

 

Mortgages and Entrepreneurs

Mortgages and Entrepreneurs London Ontario

When we are talking about mortgages, most of us assume it is about families and having a stable income that can pay off the mortgage after a certain time. What is rarely talked about is mortgages and entrepreneurs and their plans; as we know being self-employed means your salary can vary monthly, versus being an employee at a company with stable pay.

Back in July of this year, the CMHC announced the implementation of new mortgage lending rules designed to help the self-employed secure mortgages and maintain their position in Canada’s housing market. This will all take effect on the 1st of October this calendar year!

Self-employed Canadians have faced many obstacles when trying to obtain loans, primarily due to their variability of incomes. Since those that are self-employed are not on a payroll, lenders required a more rigorous proof of income, including but not limited to requiring at least two years of proof of income, audited financial statements, a good credit history, regular and stable patterns of income, and a large deposit for the home they are seeking to purchase. Sounds complicated, right?

One of the most difficult barriers to overcome in securing a mortgage is the very reasonable inclination of a small business owner (and their accountant) to do everything legally possible to reduce taxable income to reduce the amount of tax paid by the self-employed. In the case of obtaining a mortgage, the self-employed ideally needs to demonstrate the largest possible income to help to secure a loan. The two purposes are conflicting, with no clear solution.

To address the inequities and difficulties faced by the self-employed, the CMHC has proposed the introduction of several new, more flexible factors that can be used by lenders to assess the mortgage application of a self-employed person. Lending institutions will now be able to include factors such as enough cash reserves, the acquisition of an established business, and their training, education, and previous employment experience, including for businesses that have been operating for less than two years.

With these new changes, these will greatly assist not only self-employed Canadians, who according to the CMHC represent 15 percent of the workforce, also young entrepreneurs seeking to enter the housing market for the first time.

Bridge Financing, What Is It?

Bridge Financing London, Ontario Mortgages

What is Bridge Financing?

It is a useful tool made available to borrowers when the closing date of the home they are purchasing is before the closing date of the home they are selling. This is generally common in a seller’s market, buyers often explore the idea of making a firm offer without conditions, even if they have their own house to sell.

Bridge Financing means that the lender is comfortable making an interim loan between the closing date of the new purchase and the closing date of the buyer’s own firm sale. Basically, it is closing the gap between the two firm closing dates that do not coincide.

Bridge financing is not the same as being able to carry two separate properties.

However, bridge financing is not applicable if your home is not sold firm, you are talking about carrying two properties (owning two homes). Carrying is when the buyer owns two homes simultaneously for any length of time. They are also qualified to carry the total sum of the two mortgages.

So, what is required to set up bridge financing? Your lender will ask you for a copy of your firm purchase agreement and firm sale agreement.

This is a great stress reliever and helps with leaving a buffer of time for the buyers to get settled into their new home before their own purchasers will show up on their previous home’s doorstep looking for a clean and empty property. This also give the buyer some flexibility when it comes to accepting an offer on their own home, that firms

Bridge financing is quite common and a wonderful option but its a conditional on your own home have a firm offer in place.

When it comes down to it, you should make it clear with your lender whether you are looking to mortgage two homes or bridge the gap between 2 firm sales before you firm up your financing.

Why The Best Mortgage Rate May Not Always Be The Lowest

Mortgage Rates London Ontario

Just like when looking for a car, it isn’t always the best option to choose the cheapest one you find, it is the one that is best suited for you and your lifestyle. So just like when looking at mortgages, choosing the one with the lowest interest rates might not be the best option for you, as it could end up costing you more.

How can it cost me more?

One of the reasons why some of the interest rates are low, is that they come with restrictions and sometimes aren’t that flexible. While lenders can entice you with low fixed rates, they might be able to get that money back further down the road with penalties and fines if you were to adjust or change your mortgage. This is not an uncommon practice, similarly insurance companies do this by offering us less for insurance but charge us a higher deductible if something were to happen with our car.

Just like interest rates with additional features and flexibility, these can cost a bit more than a fixed, low interest rate. By paying a little bit extra in interest rates, you can have a little bit of breathing room when it comes to an unexpected change in events and you may need to change your mortgage.

Some Considerations

Here are some questions you should ask yourself when you consider locking in your next mortgage:

  1. What if I need to refinance due to an unexpected job loss, break-up, unexpected home repairs, etc.?
  2.  Can I put extra money down to pay off the mortgage? If so, how much and when?
  3. Are my closing dates flexible? What happens if they aren’t?
  4. What if I move and sell my house before the mortgage is up?

So, what is the best rate?

Life is unpredictable! We may not be able to foresee our future, especially when signing our first mortgage. A no-frills, low-interest mortgage that can end up penalizing you for adjusting or breaking your mortgage can be devastating! The last thing you want is to be penalized a substantial amount on fees and penalties in unexpected charges.

We’ll sit down with you and go over your present situation, as well as discuss your future needs. We can go over all the options available and choose the best options that will suit your needs.

 

My Mortgage Application Was Denied, Now What?

Mortgage Application was denied, now what?

Owning your home is not only a dream but a financial goal for many in Canada. However, factors like housing prices, interest rates, and new mortgage rules that came into effect have made it a little more difficult to get a home.

If you have recently had your mortgage application denied you may be wondering about some of the next steps you can take. Before you put your dream on hold, here are a few things to consider

Why was your mortgage application denied?

The first thing to consider after your mortgage application was denied, was why it was rejected in the first place. Your credit report or credit history may be one of the reasons. A low credit score can sometimes act as a warning sign to your lender. It would be a good idea to check your credit report to see whether it is accurate and then get to work on improving that credit score.

Proof of income might be another reason why you may not get that mortgage. For those that are self-employed or business owners, it may be a little more difficult to get approved for a mortgage, as lenders most often associate them with unpredictable income and are a higher risk.

The amount of debt you have can also affect your ability to get approved. Lenders will look at something called your debt service ratio when considering your mortgage application. Your Total Debt Service Ratio (TDS) is calculated by adding your family’s monthly mortgage payments, property taxes, and other debt payments, then dividing it by your family’s gross monthly income.

Is it really time to buy?

If your mortgage application was denied and you have considered the reasoning behind it, it is probably a good idea to double check to see if it is an appropriate time to buy a home. If right now you find that you have a lot of debt and are having difficulty paying some bills on time, it may be worth it to pay off some of that debt and set up a budget to put towards your home purchase. If you have however gone through your finances and figured that right now is a good time to buy, you can consider other available options.

What other options are available?

It is a big misconception when it comes to big banks and mortgage loans. There are other lenders available. Not only are there other lenders out there, some of them include: mortgage companies, insurance companies, trust companies, loan companies and credit unions.

Mortgage Brokers can help

If your application was denied, an experienced mortgage broker can work with you to help determine if it is indeed a good time for you to buy a home. They can help investigate some of the alternative options available Mortgage brokers negotiate on your behalf and have relationships with various lenders. Meaning a mortgage broker can help get you approved, even if your first application was denied.

5 Important Tips for First-time Home Buyers

first time home buyer tips

The cost of buying a home is the biggest investment you will ever make. Buying a home is one of the biggest decisions you will ever make. It can also be a bit complex, especially if you don’t know what to expect. The rising home values and stricter guidelines can also make it difficult for first-time buyers. From mortgages to tax credits, here are some tips to consider if you are a first-time homebuyer.

1) Research the area and the market

Most people looking to buy a home know which neighbourhood or community they would like to live in. Unfortunately, it isn’t really a practical option when it comes to a value-cost perspective. While you are looking at the neighbourhood it is great to check out the local amenities, quality of the neighbourhood and consider what the travel to and from work will be like. Research the area thoroughly and decide what the right compromise might be, given your lifestyle, budget and needs.

2) Work with a broker

Fewer Canadians are going straight to their bank. Instead they are heading to mortgage brokers for a better set of options that are available. There are more than just the five major banks when it comes to the mortgage industry and there is a good chance that a smaller lender will provide you with a better rate. Brokers work on your behalf and look through the market for the best rate for your situation, this isn’t always possible when using a bank.

3) Make use of government programs

There are several first-time buyer governments grants available to help make your home buying experience easier. The Homebuyers Plan allows you to purchase your first home with as little as a 5% down payment. This is a great opportunity to become a homebuyer and start building equity at a younger age. The RRSP homebuyers’ plan also allows you to withdraw up to $25,000 from your RRSP account to buy or build a qualifying home.

4) Don’t feel rushed

Certain markets can create a sense of urgency to buy a home, one that may not even meet your criteria. While it is important to have a sense of purpose when buying a home, there will always be new listings popping up each and everyday. If you set your criteria wide enough, you’ll be sure to find something that suits your needs in a reasonable time frame.

5) Calculate all the costs of homeownership

In addition to your mortgage payment, you also need to factor utilities (heat, hydro and gas), insurance and property tax. When it comes to closing costs, there are also costs associated with buying a home, luckily first-time buyers in Canada save the Land Transfer Tax and get a nice tax refund.

Breaking Your Mortgage Early

breaking your mortgage early

Sure, it started out great, it got you the home you dreamed of and met your financial needs… back then. But things have changed, now you are probably looking to start a brand-new mortgage and end this one.

Why break it?

Mortgage break ups can happen for a variety of reasons. Life changes, things happen in your life, maybe you need a bigger home to accommodate your growing family? Maybe you need to move for your new job (which is in a new city). These are some common reasons why people may need to break their mortgage before the five years are up. A decrease in interest rates, while giving you the ability to save some money is also another common reason to break your mortgage early.

Why you may want to break it

When interest rates drop, it may be tempting to see what other options are out there for your mortgage. A lower interest rate means that your mortgage payments will be reduced each month and you’ll save money in the long-run. On the opposite end though, if you do stay with your mortgage you may be able to pay off your mortgage earlier.

You should be careful when you are looking at your options. There are some qualified professionals to go to (like myself) that can help you determine which route you may want to go. It is important that you are aware of the negative impacts of breaking your mortgage early. there are penalties and fees attached when you decide to break your mortgage contract that could mean that you end up not saving any money at all. Don’t forget that you may now need to pass the new mortgage ‘stress test’ to qualify for a new mortgage.

So, what happens when you decide to break your mortgage early?

So, you decided it is time to break your mortgage. Typically, penalties for breaking a mortgage agreement vary depending on the type of mortgage and the type of lender. In many cases, a smaller lender and a variable mortgage have lower penalty fees that bigger lenders and fixed-rate mortgages.

When it comes to paying the penalty, the penalty amount you will need to pay is calculated using something called an interest rate differential. You’ll likely end up paying the interest for the remainder of the term on the remaining balance, or the amount of three months’ interest on the remaining balance – whichever is greater.

Still unsure about if you should break your mortgage? Contact me today and I will go over all the options you have!