Are You Caught In the Rate Trap?

Getting a mortgage can be a very stressful time in a person’s life and since it is 

such a huge amount of money, it’s easy to get trapped into the idea that finding 

the lowest possible rate will get you the best bang for your mortgage buck.  A 

recent 2.99% 5-year fixed rate special was the lowest advertised 5-year fixed 

rate in Canadian bank history, but super low rates are not without restrictions. 

Everyone’s situation can be very different so a bare bones, no frills, low rate 

mortgage may work for some, but not be the best strategy for you. Ask yourself 

these crucial questions:

1)  Could your circumstances change in the next 3-5 years?  

      - When it comes to term length, 70% of consumers move or refinance before

         a 5-year term matures.  You might find that a 3 or 4-year term is perfect for 

         you. If there is a possibility you might be moving before the mortgage term 

         is up, you're going to require something portable.  Portability allows you to 

         transfer your mortgage, interest rate and terms and conditions without 

         breaking the existing mortgage and paying hefty payout penalties. It is also 

         an ideal feature when you are moving to a new property and have an

         existing interest rate that is lower than current market rates.

2)  Would you like to try paying your mortgage off sooner?

      - If you'd like the flexibility to pay off your mortgage sooner, a full-privilege 

         mortgage is more preferable to a ‘no frills’ product. Most lenders 

         understand the importance of decreasing household debt-levels, and offer 

         mortgage products with amazing pre-payment privileges.  Some 

         advantages may include increasing your payment amount by 20% once per 

         year, or paying up to 20% of the original principal on any payment date.   

         Home-owners who are disciplined and determined to shorten the life of their 

         mortgage are encouraged to take advantage of these perks.   

3)  Do you have a good credit history?

      -Keep in mind that a major factor in the interest rate you qualify for is largely 

       dependent on your credit history and credit score.  If your beacon score is 

       above 650, you can expect lenders to offer you the very best interest rate 

       available.  Clients with beacon scores lower than 620 may be offered a higher 

       interest rate because their repayment history has been blemished, or they may 

       not qualify at all.  If you are a higher risk to the lender, the odds of getting 

       the lowest rate will likely be out of your grasp.

It is difficult to predict what life changes may occur in the future, and in most cases 

consumers are not willing to forego flexibility in order to save a few dollars each 

month.  Conversely, a `no frills` mortgage may make absolute sense for you and 

your family.  For this reason, it is important to work closely with your mortgage 

specialist who will help you investigate all your options, and will encourage you to 

identify and understand the extras you may be missing out on by getting caught in 

the lowest-rate trap.

Benefits of A Mortgage Pre-Approval

If you're ready to start looking for a new home, one of the first things you want to do is contact your
mortgage broker for a 'pre-approval'. Here are three great reasons to get pre-approved BEFORE
you start house-hunting:

1) Find out how much you can borrow.
    -Realtors often want to see a pre-approval in place prior to helping clients search for a home.
    -A pre-approval can save you and your realtor time by narrowing down the price-range you can
     afford and decreasing the inventory of potential homes to view.


2) Guarantee an interest rate while you shop.
    -A pre-approval will lock you into a rate for 90-120 days, and will bring you peace of mind
     knowing you can afford the houses you are looking at.

3) Put yourself at an advantage over other buyers.
    -In some cases, numerous buyers will be interested in the same property.  A seller is more
     likely to accept an offer from a pre-approved buyer because there is more of a guarantee that
     your offer will be financed over the buyer who has not taken similar steps. Showing the initiative
     to get a pre-approval from a lender will put you a step above the rest.

4) Speed up the conditions of financing process.
    -A pre-approval can speed up the financing process because a lender has already begun
     analyzing and researching your file.

Keep in mind that a pre-approval is not a complete guarantee that your loan will be funded. 
It really is just a preliminary check and the mortgage underwriter will still need to do an in-depth
analysis of all your documentation once your submit a LIVE deal.

Real Estate Frenzy of 2007: A Tragedy For Some in 2012???

It's January 9, 2012 and the fallout of 2007's real estate market frenzy is already peering it's ugly head!  Remember the bidding wars that almost always resulted in prospective home purchasers offering tens of thousands of dollars over the asking price just to outbid the other guy?  It was an exciting, but terrifying time for real estate clients who just wanted to get into the house of their dreams.

I met with a lovely couple this evening who, like so many others, purchased in 2007 at the height of the market. Their 5 year term is set to end in a few short months, and what they have discovered is that their mortgage balance now exceeds their 2011 assessed property value.  What now?  Refinancing and re-qualifying with a new lender may be out of the question. You may need to stay put (with your present lender) for another term and ride the wave.  Let's hope our economy proves to be more resilient than the United States' and that property values recover by summer.

Are you a victim of the "Frenzy of 2007-Tragedy of 2012"? What do you plan to do in the months to come?

Stricter Mortgage Lending Rules in Canada?

In the middle of December TD Bank CEO, Ed Clark, expressed his belief that mortgage rules for home
loans should be even more stringent than they already are (http://bit.ly/vbIcqD).  He would like to see federally insured mortgages go from a maximum of 30 years down to 25 years. 

What would that change mean for you, the consumer?  You would need to have very good credit and
would need to have 20% or more for a down-payment (on a purchase) or 20%+ home equity to
efinance if you wanted an amortization period of more than 25 years.  At present the maximum is 30
years amortization with less than 20% down.  Here is an example of what a change of this nature
would do on your monthly payments:


Loan Amt.           Interest Rate           Amort. Period         Term        Monthly Payment

$400,000                   3.29%                        30 yrs                 5 yrs          $1,744.71

$400,000                   3.29%                        25 yrs                 5 yrs          $1,953.00

With this scenario, you are paying approximately $208.29 more per month, $2,499.50 more per year
and a whopping $12,497.49 more for the term of your mortgage loan.

In January, 2011 the Canadian government, in an attempt to curb consumer debt/spending, decreased federally insured mortgages from a 35 year maximum to 30 years.  Do you feel even stricter home loan
rules would improve or hinder the overall state of the Canadian economy?