How to Navigate The Mortgage Rate Wars

You may have heard that rates are changing, and that is true. They don’t call it war for nothing and you need an expert by your side!

Think of mortgage brokers as your loyal soldiers. What we are seeing is exactly what we anticipated when prime rate goes up and discounts go down. Confused? Don’t be, variable rates are based on prime and both Bank of Canada Prime and Bank Prime are different.

What the new discount means is what it means – they anticipate prime to go up higher.

With current regulations, borrowers qualify for more mortgages on a variable rates! This is a shift from the previous policy where more Canadians were having to take fixed rates to qualify for the most.

These new discounts on new mortgages getting taken out there discount is lower off of the bank’s prime rate- this does not apply to an existing mortgage

Did you notice earlier I said the bank’s prime rate, you would think they are all the same… right?

This is not the case. In November of 2016 one Canadian lender broke the trend of their counterparts and raised their internal prime to immediately impact their existing customers by adding to their amortization. This discount below was for new clients they increased the discount so it looked bigger.

It’s important to note – each lender has unique criteria to be met to get these offers: some only for purchases, some only with switches, some only certain amortizations, and some only certain property types. The list goes on!

Remember your broker shops all these lenders without bias, while protecting your credit score to assist you in finding the best one. It’s important that we evaluate the following criteria with these lenders- here is an example of three lenders:

Lender one

• Bank has a higher Prime than anyone else
• No change to payment
• Increases amortization  which can put into effect a trigger clause- cash call in on mortgage or forced pre-payment and other costs such as appraisal at your expense
• Not portable
• Does have a 12 month penalty payback if getting a larger mortgage at new rates! Best one!
• Have to go to branch to lock in and then be subject to their IRD (usually 3-5% of balance pending where you are in your term).
• Based on history this lender is generally the first to raise their rates and last to decrease

Lender two

• Prime rate consistent with all lenders
• Change to payment so amortization doesn’t increase
• NO trigger clause
• Have to go to branch to lock in and face large IRD between 3-5%
• Not portable but will refund you within 6 months if the mortgage is larger and will get rate available at that time

Lender three

• Prime consistent with all lenders
• Change to payment so amortization doesn’t increase
• NO trigger clause
• lender will pay back penalty within 3 months of getting a larger mortgage with them
• your mortgage expert can assist you with lock in
• If you lock in they have the lowest penalties in the country to break your mortgage in the future, generally 1-1.5% of the balance

With seven-in-10 mortgages breaking before the term is over, this should be weighted very carefully.

Let me demonstrate the following:

A mortgage that gets locked in with first or second lender above at $500,000, by the third year the cost to break a mortgage will be between $15,000 and $25,000. With the third lender the cost would be between $5,000 and $7,500.

What to do with this info?

These new wars apply to new mortgages. If you have a mortgage with a discount less than .50, a renewal upcoming, looking at accessing your equity for home renovations or to consolidate debt and you have a variable rate, it may be time to run the numbers to see if taking a new variable rate mortgage is beneficial for you. One of the significant benefits of having a VRM is to get out at any time with only three months interest penalty (unless a restrictive product was taken for a better rate or had a sale only clause).

As you can see we have only scratched the surface in terms of the differences. There are many other differences and mainly you have to consider as a consumer, do you want to be calling a bank branch and play Russian roulette with the education level and sales goals of the person who guides you through deciding what to do with your biggest asset? Or would you rather have a Dominion Lending Centres mortgage professional who is in the front lines proactively guiding you and assessing the economic factors to give you personalized advice based on their experience and knowledge of the mortgage industry.

Depends on what you value most!

– by Angela Calla

Fixed Versus Variable Interest!

Fixed Interest Rates

This is usually the more popular choice for clients when it comes to deciding on which type of interest rate they want.

There are many reasons why, but the most unsurprising answer is always safety. With a fixed interest rate, you know exactly what you are paying every month and you know that the amount of interest being charged for the term of your mortgage will not increase and it will not decrease.

Fixed interest rates can be taken on 1-year, 2-year, 3-year, 5-year, as well as 7 and 10-year terms. Please note, term is not meant to be confused with amortization. When you have a 5-year term but a 25-year amortization- the term is when your mortgage is up for renewal, but it will still take you the 25 years to pay off the entire debt.

The biggest knock on fixed interest rates when it comes to mortgages, especially 5-year terms, is the potential penalty. If you want to break your mortgage and pay it out, switch lenders, take advantage of a lower rate, or anything like this and your term is not over, there will be a penalty. With a 5-year term a fixed rate penalty can be anywhere from $1,000- $20,000 or more.

It all depends on the lender’s current rates, what yours currently is, the length of time remaining on your term, and the balance outstanding. The formula used is called an IRD (interest rate differential) and the penalty owed will either be the amount this formula produces or three month’s interest- which ever is greater.

Fixed interest rates, especially 5-year terms can be the most favourable. They are safe, competitive interest rates that you will not need to worry about changing for the term of your mortgage. However, if you do not have your mortgage for the entire term, it could hurt you.

Variable Rate Interest

The Bank of Canada sets what they call a target overnight rate and that interest rate influences the prime rate a lender offers consumers. A variable rate, is either the lender’s prime lending rate plus or minus another number.

For example, let us say someone has a variable interest rate of prime minus 0.70. If their lender’s prime lending rate is 5.00% in this example, they have an effective interest rate of 4.30%. However, if for example the prime rate changed to 6.00%, the same person’s interest rate would now be 5.30%. Written on a mortgage, these interest rates would look like P-0.7.

Variable interest rates are usually only available on 5-year terms with some lenders offering the possibility of taking a 3-year variable interest rate.

When it comes to penalties, variable interest rates are almost always calculated using 3-months interest, NOT the IRD formula used to calculate the penalty on a fixed term mortgage. This ends up being significantly less expensive as breaking a 5-year term mortgage at a fixed rate of 3.49% with a balance of $500,000 will cost approximately $15,000. That is if you use the current progression of interest rates and broke it at the beginning of year 3. A variable interest rate of Prime Minus 0.5% with prime rate at 3.45% will only cost $3,800. That is a difference of $11,200.

You can expect to pay this kind of amount for the safety of a fixed rate mortgage over 5-years if you break it early.

Which one is best?

It completely depends on the person. Your loan’s term (length of time before it either expires or is up for renewal) can be anywhere from a year to 5 years, or longer. A first-time home buyer typically has a mortgage term of 5 years. Within those 5 years, the prime rate could move up or down, but you won’t know by how much or when until it happens.

Recently, variable rates have been lower than fixed rates, however, they run the risk of changing. With fixed interest rates, you know exactly what your payments will be and what it will cost you every month regardless of a lender’s prime rate changing.

If you go to the site www.tradingeconomics.com/canada/bank-lending-rate you can see the 10-year history of lender’s prime lending rate. Because lenders usually change their prime lending rate together to match one another (except for TD), this graph is a good representation.

As you can see, from 2008 to 2018, the interest rate has dropped from 5.75% to 2.25% all the way back up to 3.45%.

Canada has had this prime lending rate since 1960, and in that time it has seen an all-time high of 22.75% (1981) and all-time low of 2.25% (2010) (tradingeconomics.com). Whether you want the risk of variable or the stability of a fixed rate is up to you, but allow this information to be the basis of your decision based on your own personal needs. If you have any questions, don’t hesitate to contact a Dominion Lending Centres mortgage broker.

– Ryan Oake

Why we chose a DLC mortgage broker – Our House Magazine

Cindee and Dwayne Roy had always planned to get back to country living. The Alberta couple had done the big city and small town thing, but always had one eye on the simple life. After five years of searching, they finally found their dream home outside of Wainwright, Alta. It was a sprawling property, featuring 10 acres of land and a 1,600-square foot, modern home. At a purchase price of $445,000, they snapped it up last August.

“For me it was where it was situated. It just seemed very peaceful,” Cindee told Our House Magazine. “It’s kind of like coming home again. It’s so nice to get up in the morning and look out your kitchen window and you’re not looking in your neighbour’s yard.”

And when it came time to make the big purchase, the Roy’s decided to try something different. On the advice of friends, they chose to use a Dominion Lending Centres mortgage professional for their mortgage rather than using a bank. And it couldn’t have worked out better.

Q: Why did you choose a mortgage broker?

A: Actually, our broker was referred to us by one of our friends. We never really thought of it. You just go along and you get used to using a bank. We started to get a little upset with the way things were going with the bank and the way we were being treated and so one of my friends said, ‘You need to talk to our broker.’ We thought, what the heck, why not give it whirl? We phoned her up and instantly within in the first couple seconds, I thought this is our girl. So personable and friendly. She really goes to bat for you whereas I find with the bank they almost feel like they’re lending you the money out of their own back pockets. It was nice to work with someone who is rooting for you and fighting for you along the way.

Q: How was your experience working with a mortgage broker?

A: Absolutely wonderful. If we ever need to do a mortgage again we would always go back to our broker for sure. I keep telling my friends and family, ‘Don’t go to a bank. Use a mortgage broker.’ It’s a way better experience, more pleasant and little more personal. It was great.

Q: What advice would you give someone in your situation?

A: For anybody who has a had a few bumps along the way or struggled with whatever bank they’re using or feeling like you’re just a number, then definitely a mortgage broker is the way to go because you don’t feel like a number. You feel like you matter and it’s such a personal experience.

– Jeremy Deutsch

A few reasons why you should consider a Variable Rate Mortgage

Five-year fixed mortgage rates continued their upward march last week as the five-year Government of Canada (GoC) bond yield they are priced on hit its highest level in seven years. Meanwhile, five-year variable-rate discounts deepened, further widening the gap between five-year fixed and variable rates.

When I started working in the mortgage industry in 2005, variable rate mortgages saved you more money than fixed rate mortgages 95 out of the past 100 years. First time home buyers were worried about what their home costs would be and avoided variable rate mortgages (VRM’s) because of the risk of rates going up higher than the fixed rate, but experienced home owners often took a VRM at mortgage renewal time.

However, in the past 5 years, most people have gravitated towards fixed rates because the gap between fixed and variable rates was small enough that the cost of uncertainty outweighed the potential reward for most borrowers.

Once again , the gap is widening. While fixed rate mortgages are going up due to the bond yield, variable rate mortgages have moved in the other direction.  Two years ago a VRM would be offered at Prime rate + .20%,  but later it reverted to Prime – .30% . In recent months, rates have dropped even further with some lenders offering Prime -1.0% !  You now have a choice between a 5-year fixed rate of 3.44-3.59% depending on the lender and a variable rate with a discount that calculates out to 2.45% . With a gap this large, it’s worth considering if you are risk tolerant enough to have a VRM.

Even if you are skittish, you can ask your Dominion Lending Centres mortgage broker to notify you if rates are going up and switch you to a fixed rate if they go above a certain percentage. Will your bank do that for you? I don’t think so. Be sure to have this discussion with your broker when your mortgage comes up for renewal or if you are considering a home purchase.

– by David Cooke

A tailor-made solution for some borrowers

Recently, two of my lenders came out with new products – Interest only mortgages. We have had these available from private lenders for many years but at much higher interest rates. They are useful for real estate investors and people who have consolidated debts and need six months to a year to get back on their feet. These new mortgages are not meant to be short term solutions but they are meant to be used for a minimum of two years and preferably for five years.
So who in their right mind would want a mortgage for five years where the principal doesn’t go down?

1- real estate investors- some investors are looking for cash flow; this is a perfect product for them. They want to keep monthly payments to a minimum so that they ca use the extra cash to buy other properties, or for income to live on. They will eventually sell the properties for a lot more cash when they are ready to retire.

2- Seasonal workers- Lobster fisherman, lumberjacks , oil patch workers and workers in the trades who have to go back to school every year for three years are the people who this product works for. During spring break-up when the oil patch closes for several weeks , the bills don’t stop coming. Working with your Dominion Lending Centres mortgage broker you can design a mortgage to help you through the periods when there’s no income coming in. The best strategy for you may be to step up the mortgage as interest only and then have the broker calculate what a normal amortizing mortgage payment for you would be. During your period of no income, you pay the minimum payments and then when you get back to work, you bump your payment up to normal or even slightly higher to make up for the shortfall.

These interest only mortgages are available with a variable rate, a fixed rate , a variable interest only plus a fixed amortized rate or a combination of any of the above rates. This allows you and your broker to customize mortgage payments to make the best mortgage for your particular situation. It’s like a tailor-made suit. It’s exactly what you need. Contact your local DLC mortgage broker for more information.

– by David Cooke

Want to Buy Rural Property? 6 Things to know before you buy!

Living in the country has extreme appeal for some people. Space, peace and quiet, big home, big yard, place to raise your family… the list goes on. If you are considering buying a rural home, there are a number of things to consider, not the least being how different it is to get a mortgage.

When lenders are considering your mortgage file it’s always about managing risk. Higher risk, higher rates. The risk that you’ll pay them back as agreed and they don’t have to seize the asset and sell it to recoup their investment.
• Mortgage lenders don’t really want to own your property, because foreclosing on your property means it will take time and effort to get the homeowner off the property, list it for sale, then actually get it sold where they can finally get (some of) their money back.
• With rural properties, depending on remoteness of location and condition of the property, it could take months to sell when compared to the quicker sale for a home in an city where there is much more demand.

Mortgage lenders don’t like waiting years to get their money back on a non-performing loan, so they have implemented special rules related to rural properties to reduce their risk.

A rural property, for most lenders and their home appraiser, includes only one house, the garage and 10 acres in the valuation, any additional buildings will not be considered. This policy applies to both conventional and insured mortgages.

Here are 6 things to think about before plunking down your hard-earned cash on a country home.

Hire a real estate agent knowledgeable about rural properties and local zoning laws. The names of the zones and the related details are determined by each local government so there may be variation between communities throughout each province.

Many lenders will not mortgage properties that are zoned agricultural.
• Why? Lenders are all about risk.
o If you buy a rural property and you default on your mortgage, the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away, so the government has implemented many obstacles to prevent this.
• Provided you are not planning to grow crops or raise animals for sale, financing a home in the country can be similar to financing an urban home.

Water & Septic – In order to live in a house, you need to be able to drink the water and flush the toilet. In the country you need to take care of these yourself. When buying, if you are not on municipal water, your water will probably come from a well.
• Many lenders will ask for a potability and flow test for the well because a house without water is very hard to sell.
• Chances are your sewerage may be in a septic tank. You need to have the septic system inspected by a qualified septic inspector. At a minimum, ask the homeowner to agree to a warranty clause in the agreement that the system has been in good operating condition and it will remain that way until closing.
• Both the well equipment and septic system can be very expensive to repair or replace. Thus, when you buy in a rural location, be sure you include these with your conditions.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land, anything above this amount will not be considered in the mortgage.

Appraisal – Your lender will want to see an appraisal to ensure the value of your land. The appraised value may come in lower than expected, because rural properties do not turn over as quickly as city properties.
• Be prepared for the inspection to cost more than it cost you in the city, since the appraiser needs to travel farther to see the property.
• If you LOVE the place and have to have it, be ready to have to come up with the difference between the selling price and the appraised value of the property.

Wood Energy Technology Transfer (WETT) – If there’s a wood stove or wood-burning fireplace, you make want to make your offer conditional on receiving a satisfactory WETT inspection report, which confirms the safeness and correct installation of the wood-burning unit.

Buy (or Check Into) Title Insurance – Many buyers don’t realize that farmland, particularly larger, more remote tracts of land, may have been used as a dump-site for toxic chemicals.
• Buying title insurance, or checking the title for the specific property, will let you know if the property has been listed as a toxic dump-site, or a hazardous waste site.
• Your insurance company may insist on a copy of title insurance before they agree to issue a policy.

House/Content/Fire insurance – Lenders want to ensure you have insurance in place to protect their investment. If you can’t get insurance – it has the potential to be a serious problem, since your mortgage company may not advance the closing funds.
• Living in the country is nice, however you are also far from fire hydrants and fire stations, you will pay more for home insurance.

If you are considering buying a home in a rural area, you need to have a frank discussion with your realtor, Dominion Lending Centres mortgage broker and lawyer before submitting your offer.

– Kelly Hudson

The 3 Steps that take you from Pre-Approval to Your New Home

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the 3 steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL

This should actually be the step BEFORE house-hunting. Visiting your broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:

• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information and documents when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, 2 years notice of assessment, T4’s, a void cheque, and a number of other potential documents (click HERE to see our article outlining what you might be asked for).

Once you are pre-approved it’s house hunting time for you! The benefit to having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.

When you do find just the right home for you, it’s on to step 2…

STEP 2: APPROVAL

If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here! You may have to supply a few pieces of updated information (such as an updated paystub or bank statement) but otherwise it’s up to your mortgage broker and lender to do the hard work at this point.

Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once the lender confirms that the property aligns with their guidelines it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.

Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step #3.

STEP 3: FINAL STEPS

Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:

• Void Cheque
• 2 forms of ID
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.

All that’s left is to hand you the keys to your new home!

As one final step, keep asking questions at each stage of the mortgage process. You should check in with your Dominion Lending Centres mortgage broker if you have any questions along the way-they are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

– by Geoff Lee

What Is a Monoline Lender?

What usually follows once someone hears the term “Monoline Lender” for the first time is a feeling of suspicion and lack of trust. It’s understandable, I mean why is this “bank” you’ve never heard of willing to loan you money when you’ve never banked with them before?

In an effort to help you see the benefits of working with a Monoline Lender, here is some basic information that will help you understand why you’ve never heard of them, why you want to, and the reason they are referred to as lenders, not banks.

Monoline Lenders only operate in the mortgage space. They do not offer chequing or savings accounts, nor do they offer investments through RRSPs, GICs, or Tax-Free Savings Accounts. They are called Monoline because they have one line of business- mortgages.

This also plays into the reasons you never see their name or locations anywhere. There is no need for them to market on bus stop benches or billboards as they are only accessible through mortgage brokers, making their need to market to you unnecessary. The branch locations are also unnecessary because you do not have day-to-day banking, savings accounts, investment accounts, or credit cards through them. All your banking stays the exact same, with the only difference of a pre-authorized payments coming from your account for the monthly mortgage payment. Any questions or concerns, they have a phone number and communicate documents through e-mail.

Would it help Monoline Lenders to advertise and create brand awareness with the public? Absolutely. Is it necessary for them to remain in business? No.

Monoline Lenders also have some of the lowest interest rates on the market, the most attractive pre-payment privileges, and the lowest pre-payment penalties, especially when compared to a bigger bank like CIBC or RBC. If you don’t think these points are important, ask someone whose had a mortgage with one of these bigger banks and sold their property before their term was up and paid upwards of $12,000 in penalty fees. An equivalent amount with a Monoline Lender would be anywhere from $2,000-$4,000 in fees.

Monoline Lenders are not to be feared, they should be welcomed, as they are some of the most accommodating and client service-oriented lenders around! If you have any questions, contact your local Dominion Lending Centres mortgage professional today.

– by Ryan Oake

It’s not all about the rate: Amortization & Renewals

Have you spoken to a mortgage broker lately? When it’s time to renew your mortgage you have the freedom to do a number of things that are not possible at any other time without a financial penalty. Renewal time is an opportunity.

Have you looked at your mortgage amortization lately? Let’s say that you started your present mortgage 10 years ago and you had a 30-year amortization. You now have 20 years left on your mortgage but your situation has changed. Your children have grown up and one is ready to leave for college and another one will follow in a couple of years. An easy way to help the kids out would be to refinance your home. However, the rules have changed and if the value of your home has not risen a lot and you have not paid down the balance, you may not have the 20+% you need to withdraw the equity.

Another possible solution would be to use the amortization on your mortgage to help you achieve your financial goals.
You can extend the amortization and lower your monthly payments thus freeing up cash flow.

Here’s an example. With a balance of $400,000 on your mortgage:

By adding 5 years to your mortgage you can lower your payments by $320 a month. If that’s not enough and you have more than 20% equity , in other words, your mortgage is less than 80% of the value of the home, you can extend your mortgage to 30 years with most lenders.

This will free up $520 a month. When your children graduate you or your mortgage broker can contact the lender and have your amortization lowered again. Note that changing the amortization can result in costs. Check with your Dominion Lending Centres mortgage broker before you make any changes to your mortgage.

– by David Cooke

My First Home-Our House Magazine

We all remember our firsts. Our first day of school, our first bicycle and our first love. It’s no different for our first home. And I remember mine like it was yesterday.
I bought my first home shortly after turning 19 in the late 1980s. It was a single-family home in the River Springs neighbourhood of Port Coquitlam B.C. I paid $83,600. I took advantage of a government program at the time that let me use my RRSPs to come up with part of the down payment. I also needed two roommates to help make the mortgage payments, so it ended up feeling a bit like a frat house. Being a typical starter property for the time, all the homes on the quiet cul-de-sac were like little Hobbit houses, scrunched together.
But I sure was proud of my little home. I kept my yard in great shape; the driveway was always swept, and I filled the house with plants and hosted dinner parties.
Even as a teenager, I couldn’t wait to buy my first home. Not only did I want to impress my mother, but I figured homeownership would give me a sense of independence and accomplishment.
A year later, I decided to sell. Not because I’d grown tired of the home, but prices had skyrocketed in the area. I sold the home for $113,000. Not too bad for one year. I figured the property value had risen so quickly, I was never going to make that kind of money again. The house today is probably worth 10 times what I originally paid.
I’m often asked, when is a good time to buy? We know the last few years, especially here in B.C. and in Southern Ontario, home prices have really taken off. And in recent months a cooling off period appears to have set in. Watching the markets closely can make a prospective buyer question the right time to jump into the market.
I’d say it was the best time 10 years ago, it’s the best time now and it will be the best time in 10 years from now.
I believe everyone should make an investment in their first home as soon as they possibly can.
You have to pay for shelter anyway, and homeownership is the best form of forced savings.
So if you decide to take the plunge into home ownership this year for the first time, enjoy it. I can tell you first hand, it’s something you’ll never forget.

– by Gary Mauris