Bank of Canada Rate Change – Should I lock in?

First Time Home Buyers Nathan Lawrence 13 Sep

This past week the Bank of Canada increased their lending rate for the 2nd time in as many months.  The changes in the Prime Lender Rates means that those with a variable mortgage rates will have seen that their mortgages rates adjusted alongside the changes to Prime Rate.  For those of you with variable rates, the first thing that probably crossed your mind was “should I lock in?”

 

Even though your interest rate may have increased, it does not mean that you should immediately lock into a fixed rate mortgage.  An associate of ours from B.C, Dustan Woodhouse had this to share earlier this week about the increase:

 

“If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a really great place to be.

 If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider converting to a fixed rate, BUT…

Keep in mind the penalty to prepay (i.e. refinance or sale of property) a variable early is ~0.50% of the mortgage balance, whereas if in a (4yr/5yr or longer) fixed rate mortgage the penalty can be closer to 4.5% of the mortgage balance ***depending upon which specific lender you are with and how long of a term you lock in for.

It is usually to the lenders greater benefit that you lock into a fixed rate, rarely is it to your own benefit.”

 

I could not have summarized it any better myself, so I won’t try.

 

So what should you do?

The first thing that you should be doing is avoiding the immediate draw or feeling of “I need to lock in”.  There are several different aspects of your mortgage and personal financial situation that should be considered prior to locking in.  There are many questions to ask yourself prior to locking in and most of which the lenders are unlikely to ask you. Your lender is re-active, not pro-active – you need to be pro-active. And sometimes being pro-active results in no action being taken at all.

Simply because the Bank of Canada increased interest rates twice, this does not immediately mean that they will do it again.  There are many economic factors outside of their control that will impact their decisions regarding future potential increases.

Presently, the key is not to react quickly.  If you have questions about your specific situation and how the increase may impact you, feel free to give us a call to chat about things in more detail.  Allow us the opportunity to ask the questions that need to be asked prior to making a quick switch.

 

Food for thought…

Back in 2010 rates increased 0.25% three times, and that sat stagnant for nearly five full years before two 0.25% decreases back downward.

In other words the last time Prime was pushed as high as it stands today, it sat there for five full years. And was then cut.

 

The next Bank of Canada meeting is October 25, 2017.

I will be watching and waiting.

 

Renovating? Consider a Refinance Plus Improvements

Refinance Nathan Lawrence 30 May

In previous posts (links shared below) we have discussed in detail both refinances and purchase plus improvement mortgages.  Both of which are tools that can help either a current home owner (refinance) or a home purchaser (Purchase Plus Improvements) structure the mortgage in a such a way which allows the client to roll the cost of improvements into the home.

This post is going to take the idea of refinancing to access equity for home improvements one step further…Introducing the Refinance Plus Improvements Mortgage.  Similar to the Purchase Plus Improvements Mortgage, it allows you to access more money for home renovations which increase the value of the home.  The refinance is based on the future (or post improvement) value of your home.  Basing the refinancing on the future value of the property allows the borrower to access additional funds compared to a standard refinance.

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.

In a future post, we will cover the particulars regarding how the refinance plus improvement funds are advanced and a few other details that you are going to want to know.  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 connect with our team.  We are always happy to chat mortgage strategy with you while at the same time shopping the market and rates on your behalf!

Happy Renovating!

Purchase Plus Improvements – You just Found your Dream Home!! Sort of …

5 Reasons to Refinance Your Mortgage

 

5 Reasons to Refinance Your Mortgage

Interest Rates Nathan Lawrence 24 May

Every year our team recommends a quick review of your mortgage and overall financial picture.  The majority of those annual reviews lead to quick and simple changes such as a payment increase to tackle your mortgage debt quicker, making a one time lump-sum payment or a change to the payment schedule to better line up with payroll dates.  However, sometimes the conversation changes to discussions around the options available for refinancing your mortgage.

In short, a refinance is the restructuring of your mortgage to access equity which has built up over the years of the client making their mortgage payments in combination with regular growth in the value of the home.  That equity, can be accessed by the client through a refinance process.  A refinance can happen during the current term of your mortgage or on renewal date.  Understanding which option is best comes down to a benefit/cost analysist to ensure that the refinance will improve your overall financial picture.

NOTE: A refinance is not always the answer and may not put you in a strong financial position.  Its important to review what your needs are and balance those with the potential costs of breaking a mortgage term vs. the savings that you will generate.  A great Mortgage Broker will make sure you understand all of this before proceeding.

 

Here are some of the most common reason a mortgage holder would consider a mortgage refinance.

  1. Reduce Your Monthly Mortgage Payments

Sometimes life will throw us a curve ball; a strike at work, job layoff, sick family member, the list is endless.  Those curve balls might make your current mortgage payments a bit more than you can handle.  By refinancing your mortgage, you can re-amortize the payments for a longer term, reducing the minimum monthly commitment that you have to make each month, freeing up your cashflow to address everyday living expenses.

  1. Consolidate credit cards, loans, or other unsecured debt into a new low interest rate mortgage

If you find yourself in a position where you are paying a significant amount in interest payments every month on your unsecured debt, then refinancing might be a great solution.  Credit cards often come with interest rates around the 19% range and unsecured lines of credit tend to be around the Prime + 4 range or higher.    These high interest rates can make it difficult to actually tackle the debt and the add additional monthly payments into your personal budget.  Accessing the equity in your home by way of a refinance can allow you to pay off those debts and consolidate them into one, low interest, mortgage payment.

  1. Finance home renovations

Perhaps you need to complete some much-needed home renovations that are either planned or unplanned but you currently do not have enough money set aside for the projects.  Rather than using a line of credit (or worse a credit card) you can refinance your home, pull out the equity, and cover the cost of the renovations using the home equity. This debt would then be worked into your new mortgage at a much lower interest rate, while at the same time you’re increasing the resale value of your home.  Ask us about how a Refinance Plus Improvements mortgage might work well for you.

  1. Planning for a big purchase.

Thinking about buying a car, an rental property, investing money in a business, early inheritance to family, covering education costs for a child or grandchild?  The list is endless.  The equity you have in your home can be used for anything like this and can be much cheaper than financing a similar plan by way of unsecured debt.

  1. Finding a new Lender

Not all mortgages are created equal, the rates are always changing, some are no-frills, and some have great features.  Or, maybe you are simply frustrated with the service that you are receiving from your current lender.  Depending on what you are looking for, refinancing may put you in a better position to take advantage of lower interest rates or the ability to pay off your mortgage faster.

 

With mortgage financing, it all comes down to finding the right plan and product to fit you needs.   Take the time annually to review your financing and if you think that one of the above refinance reasons hits close to home, give our team a call.  We are here to review those options with you, discuss the pros/cons and help guide you to a solution that meets your household needs!

Financial Stress During a Marriage Breakdown

Mortgage Tips Nathan Lawrence 3 Feb

When a marriage comes to an end, both individuals are left trying to pick up the pieces of their lives and find themselves feeling emotionally, physically, and mentally drained. People often describe feelings of fear, anxiety and hopelessness.  When children are involved thoughts about their future, lifestyle impacts and coping with loss can also play out in your mind. All of these feelings can become overwhelming without the right support systems.  One of the significant stresses that comes along with a marital breakup is having to deal with the financial affairs that require attention for both parties to move on.

During a marriage breakdown the biggest asset to address tends to be the matrimonial home.  The end of a marriage does not mean the end of homeownership.  A Mortgage Broker can help separating couples explore options:

The first option involves one of the partners taking over the current home and buying the other individual out of the property.  This can be done by refinancing the house to pull out some or all of the home equity.  Many people are not aware (mainly because not all banks/lenders offer the options), but by working with a Mortgage Broker you can gain access to lenders that allow refinances back up to 95% of the value of the home when going through a separation.  This can make taking ownership of the family home much easier.

The second option would be to reassess both of your application, sell the current home and then utilize the equity from the sale of the home towards the purchase of two smaller homes.  Giving both individuals the opportunity to gain a fresh start.

If you are facing a marriage breakdown, it is important to know that you are not alone and support is available.  The tough part sometimes is making the first step by picking up the phone or send off that email.  Our team of Mortgage Professionals understand the financial stresses that exist during a marital breakdown and we are here to help by providing timely and accurate advice on how to best handle your mortgage transition.

You wouldn’t mow your lawn with a snowblower … Right??

Refinance Nathan Lawrence 28 Jan

Refinancing is just one financial tool that you have at your disposal as a home owner that can be leveraged to help strengthen your financial position.  In any good financial tool box, you will have a number of different tools at your disposal, which if utilized correctly, can help you save on interest, build wealth, or achieve your dreams.  Those tools can include things like:

  • A Financial/Investment Broker
  • RRSP, Mutual Funds, Tax Free Savings Accounts.
  • Life/Disability Insurance
  • Everyday Bank Accounts
  • Your Accountant – Tax Planning
  • Your Mortgage Broker – Mortgage Planning
  • Your Real Estate Agent – Property Investments

SO HERE’S THE TRICK…Just like any everyday tool, you should always use the right tool to for the right job…. you likely wouldn’t use a snow blower to mow your lawn…you would likely end up being very disappointed with the end results.

The same logic applies to finances and most of the time we forget that.  When you’ve used the right tool to do the right job, you’re likely to be very happy with the outcome.

Step 1 (which many of your might have already done): Build a team of trusted professionals that are focused on your best interests.

Step 2:  Book annual reviews with each of those trusted advisors.

Step 3: With your trusted advisers, discuss your plans, build a plan and implement that plan.

When it comes to refinancing your mortgage, a good advisor will look at saving you interest.   A GREAT Mortgage Specialist with take it deeper than that.  A GREAT Mortgage Broker will dive into your application and build a mortgage strategy to put you in a great position moving forward.

Do you need to or want to…

  • Save interest on your overall debt portfolio?
  • Improve monthly cash flow?
  • Put yourself in a position to buy investment property?
  • Leverage the low interest rates to invest for the years ahead
  • Have an expected large expense in your future?
  • Have a number of tax planning or life planning decisions that you need to make?

If you answered yes to one or more of these questions, then meeting with your GREAT Mortgage Broker is something you need to do.  That Broker, at the very least, will help save you interest, balance the savings vs. the costs of making the change and improve your monthly cash flow.

At the end of the day, your GREAT Mortgage Broker will never simply get you an approval because you booked a meeting with them.  A Great Mortgage Broker will advise you if at that moment, a mortgage refinance is the right tool for you at that moment in time.