Securing a mortgage rate hold

Lower mortgage rates

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It’s no secret the mortgage market is constantly fluctuating – rates go up and down, making it difficult to predict the best time to buy a house or secure the rate for your mortgage renewal or refinance.

This week, we are seeing many lenders cut their fixed-term mortgage rates as the bond market declines.

The bond market has a direct effect on fixed-term mortgage rates in Canada, along with a few other factors. When bond yields rise, it means investors are demanding a higher return on their investments, which in turn pushes up the cost of funds for lenders. As a result, lenders must increase their mortgage rates to cover the increased cost of borrowing.

Similarly, when bond yields fall, the cost of funds for lenders declines, which allows them to offer lower mortgage rates to borrowers. With the current market conditions, it is especially important to consider securing a mortgage rate hold when rates are declining which they are right now.

A mortgage rate hold is essentially a guarantee from a lender that it will not raise the rate on your mortgage, regardless of what happens to interest rates in the market. This means that even if interest rates go up, you can still get your mortgage at the same rate you were promised when you first applied.

For those looking to buy a home, getting a mortgage rate hold during times of declining rates can be an extremely valuable tool. It can give you peace of mind, knowing that you won’t be affected by any changes in the market with rising rates.

As mentioned in a previous article, many banks are contacting their mortgage clients well in advance of the renewal date to offer an early renewal. No doubt you will be facing a much higher interest regardless so an early renewal offer might be tempting to consider. You may no doubt have concerns that interest rates may be higher if you wait until your renewal date.

However, renewing your mortgage early can actually be a costly decision. Interest rates are constantly fluctuating, and if you renew your mortgage early and rates go down, you could end up paying more for your mortgage in the long run and lose the current lower rate you have on your mortgage immediately as they will not hold the new rate until your renewal date. As a mortgage broker I can hold the new lower rate until your mortgage renewal date within a certain window.

If you are purchasing a new home this spring or your mortgage is due for renewal between now and July you should take advantage of today’s lower mortgage rates by securing a rate hold along with a mortgage pre-approval. No one knows how long these lower rates will be available as at some point as the bond market will always settle back to its long term average and rates will start to increase again. Right now there is a window of opportunity.

As a mortgage broker I can hold rates for up to 120 days and if rates go lower we then can adjust accordingly to ensure you receive the lowest rate available for your situation.

Please reach out if you would like to discuss your current mortgage renewal or if you are considering purchasing a home this spring and need a pre-approval.

You can also book a time for a chat here on my calendar at www.calendly.com/april-dunn

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

The impact of trigger rates on your mortgage

Mortgage trigger rates

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In recent years, variable rate mortgages (VRMs) became increasingly popular with borrowers, since they had lower interest rates than fixed-rate mortgages and also generally lower prepayment penalties should the mortgage have an early payout.

The Bank of Canada estimates about three-quarters of variable-rate mortgages have fixed payments. At the end of October 2022, the Bank of Canada estimated 50% of variable rate mortgages had hit their trigger rate with more hitting the trigger rate early in 2023.

However, one factor many borrowers may not be aware of is the potential for their mortgage payment to change due to something called a “trigger rate.”

Let’s take a look at what trigger rates are, and how they can affect your mortgage.

A trigger rate is a predetermined interest rate that is set by the lender when the mortgage is initially taken out. This rate acts as a “ceiling”, meaning that if the mortgage rate increases above this rate, the lender can automatically adjust the mortgage payment to the trigger rate. The trigger rate is typically set at a rate that is higher than the current market rate, so that if the market rate rises, the lender can protect itself from losses.

Variable rate mortgages (fixed payments) unlike adjustable rate mortgages (payments adjust according to the increases or decreases in the lender’s prime lending rate) have trigger rates to ensure homeowners are always building equity with their payments, especially as interest rates rise.

Each lender has a different way to calculate the trigger rate but generally the trigger rate is when your interest payments exceed your total payments and there is no longer a reduction in the amount you owe on your mortgage with your payments only covering the interest charges.

The balance of your mortgage would actually start to potentially increase. At a certain point, you may be required to adjust your payments, make a prepayment, or convert to a fixed rate mortgage.

Some lenders may allow for negative amortization, where the interest payment is permitted to exceed the total mortgage payment. Principal payments are therefore negative, so the balance owed on the mortgage increases from month to month.

The best way to avoid your mortgage trigger rate is to be proactive about your payments and make sure you are aware of how much interest you are paying.

If you can, try to make larger payments to keep ahead of rising interest rates or prepayments when possible so that you can pay off your mortgage faster.

It’s important to understand how trigger rates work before taking out a VRM, as they can have a significant impact on your mortgage payments. Be sure to speak with a qualified mortgage broker to ensure that you understand the terms of your mortgage, including any potential trigger rates.

These rising payments on a fixed payment variable rate mortgage may be unexpected and have an adverse effect on a household’s already tight budget that why being proactive is important. We may see another rate increase again on March 8 which is the next Bank of Canada rate announcement.

If you would like to review the current status of your variable rate mortgage and possible strategies to navigate this rising rate environment, please reach out. You can email me at [email protected] or if you would like to chat, please book a time here on my calendar and we can review possible strategies to keep your mortgage working for you and not vice versa.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Reverse mortgages can be viable options for some homeowners

Tapping a reverse mortgage

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As the economy continues to undergo changes, many Canadians are dealing with the effects of runaway inflation and are finding that very challenging.

With the current economic situation, it may be more important than ever for homeowners to be able to access their home equity to cover basic costs of living.

For more and more Canadians aged 55 and older, a reverse mortgage has become a very popular financial solution.

A reverse mortgage is a great way to access the financial resources homeowners need to get through this difficult economic period. It allows homeowners 55 and older to convert up to 55% of their home equity into tax-free cash without having to sell or move out.

The benefits of a reverse mortgage are clear. Homeowners have the flexibility to customize the loan to meet their needs, whether it be a regularly scheduled advance or a lump sum. Additionally, there is no need for monthly payments, so homeowners can access their cash without having to worry about a large financial burden every month.

It provides homeowners with the opportunity to protect their investments for longer. This is a great option for those who need to access their home equity in an efficient and secure way. It also provides a sense of security that homeowners will not be left in a financially unstable situation if their home’s value decreases.

One of our reverse mortgage lenders offers a “no negative equity guarantee,” which ensures the amount owed on the due date will not exceed the fair market value of the home, allowing clients to remain in their home without having to worry about owing more than it is worth. All of reverse mortgage lenders are extremely conservative in the amount they will lend, so the odds of that happening are very slim.

Interest rates on reverse mortgages are typically higher than on traditional mortgages due to the higher risk associated with these types of loans. These loans are generally considered to be riskier because they allow the borrower to access the equity in their home without making payments, and if the home is not maintained, the lender could be left with little or no collateral.

Additionally, the loans are usually more expensive to administer due to the need for ongoing monitoring and evaluation of the borrower's financial situation.

Working with a mortgage broker who is experienced in reverse mortgages can provide you with multiple advantages. As a mortgage broker, I have access to all of the reverse mortgage lenders in Canada, allowing you to compare different options and find the best solution.

I also have the expertise to help you understand the complexities of the process and guide you every step of the way. Furthermore, I can provide personalized advice that is tailored to your specific needs, helping you make an informed decision.

If you would like to see if a reverse mortgage might be a solution for you, please book a time on my calendar for a call or you email me at [email protected]

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Changing rules have an impact on real estate

Real estate rules

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Both the federal and provincial governments have introduced several new legislative changes that will impact the real estate market for homeowners, homebuyers and investors.

Most of these new measures have been put in place to temper the Canadian real estate market that has been growing at unprecedented rates for more than 20 years and has caused major home affordability issues for most Canadians.

Here’s what’s new:

Foreign buyers are now banned from buying Canadian residential properties for two years

The foreign buyer ban came into effect Jan. 1 and carries a large penalty of $10,000 for anyone found breaking the rules or even assisting with breaking the rules.

One of the ongoing narratives behind the rapid appreciation in Canadian home prices is that Canadian real estate attracted foreign buyers and investors. When foreign investors purchase properties, it creates more competition for Canadian residents and citizens (and Canadian investors) so after trying, and failing, multiple times to levy additional taxes to discourage foreign buyers, there is now a total ban on foreign buyers for a two-year period.

Now, only Canadian permanent residents and citizens can purchase residential properties. However, there has been a growing list of exemptions to exclude foreign workers, some students, and even certain property types from the ban.

New anti-flipping tax

Reality TV series have been showing us for years how you can buy a property, fix it up and sell it for a profit within a short period of time. But in Canada, the Canadian Revenue Agency has been keeping a close eye on home flippers.

In the past, flippers and investors may have been able to use tax loopholes such as declaring profits from a flip as capital gains or even using the personal residence exemption, which is intended to give homeowners a tax break when selling their primary residence, Under the “anti-flipping tax” rules, the CRA will now consider all profits generated from selling a property owned for less than 365 days as personal income.

Also, under the new rules, if you have owned the property for less than 365 days, you’ll pay taxes on the full profits, at your personal tax rate. Some exceptions may apply, of course.

Cooling-off period for homebuyers

B.C. is the first province to introduce a “cooling-off period” for homebuyers. Homebuyers will now have a three-day grace period where they can change their mind after their offer has been accepted.

The three-day period isn’t meant for buyers to just walk away from a deal (in hindsight they do not like), and walking away won’t come for free. If a buyer decides to walk away during the three-day cooling-off period, they will still owe the seller 0.25% of the selling price as a “breakup” fee.

I highly recommend anyone who is looking to purchase real estate enlist the assistance of the a professional – a mortgage broker, a realtor, a real estate lawyer or an accountant.

If you have any questions regarding how the new changes will affect your mortgage qualification, please reach out to me at [email protected] or you can book a time for a chat at www.calendly.com/april-dunn.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.