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The-Mortgage-Gal

How risky do you feel?

There has been a lot of talk regarding fixed and variable rate mortgages and which one is best for you.

Prior to the new regulations introduced by FICOM on Oct. 19, most first-time buyers were encouraged to take a five-year fixed term because it allowed them to qualify at the discounted rate. 

Any mortgage that had a term of less than five years or a variable rate (floating rate) had to be qualified using the prescribed or posted rate of interest which was often two percent higher.

Since the new rules came into effect, many mortgage applicants—including conventional mortgages—are being qualified using the prescribed rate which is currently at 4.64 per cent.

This new change allows clients some flexibility in the term they select. 

The current five-year discounted rate is about 2.69 per cent for a five-year fixed while a variable rate is at prime minus-0.65 per cent, or 2.05.

The payment on a $100,000 mortgage at 2.69 per cent amortized over 25 years would be $457.48, while the payment on a variable rate would be only $425.87.

The decision should be based on your comfort level with risk as most economists are certain that interest rates will rise as opposed to drop or remain at the current lows. 

If you were to use the savings every month to pay extra on your mortgage, this would be a worthwhile as the savings would compound with the extra payments.

There are a couple of questions that you can ask yourself to help you determine which rate is best for you:

Do you need to know exactly what your payment is going to be over a longer period of time?

Do you consistently watch rates and market conditions?

Can you handle any sudden rate increases that could increase your payment?

If you answered “yes” to the first question, then a fixed rate is better for you.

If you answered “yes” to the last two questions, then you may want to consider a variable rate.



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Hike your credit score

How to Increase Your Credit Score

Good credit translates into lower interest rates for the borrower.

Here are just a few quick tips that can help put you in a better position under the discerning eye of an underwriter.

HOT TIP! Do you have past due balances that have been neglected? If they are showing up on your credit report and you want to purchase a home, make sure you bring them up to current status whenever possible.
 
HOT TIP! Do you have outstanding debt that you can afford to pay off right now? Try to get these accounts down to a zero balance, or at least a lower balance. If your cash on hand doesn’t allow you to do this, try to distribute the debt among other open credit cards.

You can also consider opening a new line of credit and transferring part of the balance off a card that is close to being “maxed out.” If you can get the resulting balances below 50 per cent of the available credit, you’re on the road to improving your credit score considerably in most cases. 

HOT TIP! Do not close existing credit card accounts, even if you don’t want to deal with the company any more… Believe it or not, the credit history is a good thing to have.

HOT TIP! When married couples keep separate credit card accounts, some or all of the balances can be transferred to one spouse’s list of accounts. This gives the other spouse an opportunity to increase their credit score and designate him or herself as the sole borrower on the mortgage loan.

Ownership of the home can sometimes remain in both names.
 
HOT TIP! See if your credit provider will increase your available lines of credit. This can, in turn, reduce the overall debt ratio, but only do this if your credit card company can do that without a hard credit inquiry. 

HOT TIP! Do you have past dues and charge-offs within the last two years? Pay them off now, if you can. Past dues older than two years will have little to no impact on your credit score if they are paid, but can possibly bring the score down, which is something we don’t want to do... Focus on that two-year time frame. 
 
HOT TIP! Do you see errors in your report? Request the credit bureau delete any outstanding debt that is incorrectly charged to you, or things that should have been removed that you have already paid. They have an obligation to reconcile this within 30 days.

If you see items on your report that are less than two years old and you have the money to pay it off now, mark the back of your payment cheque with the following notation: 

"Accepting this cheque is evidence that the transaction is complete and this charge will be deleted from my credit record.”

If necessary, you can use this cancelled cheque as proof of the transaction in the event the outstanding debt is not removed promptly and interferes with the closing of your mortgage.

If you need help with understanding or improving your credit report please call 250-862-1806 or email [email protected].



CMHC premiums rising

CMHC is raising the cost of mortgage insurance effective March 17. 

This increase will mean an extra $5 per month on average.


Here are the new premiums:



The increases will not only affect buyers with less than 20 per cent down, premiums are also increasing on mortgages for buyers who have 20-35 per cent down. 

For a mortgage with 20 per cent equity, the CMHC insurance premium will almost double from 1.25 per cent of the mortgage amount to 2.40 per cent.

The increase to premiums are a result of the new capital requirements set by the Office of the Superintendent of Financial Institution (OSFI) on Jan. 1, 2017 that requires mortgage insurers to hold additional capital.

This requirement protects against potential losses and helps the stability of the financial system over the long term.

Here are some of CMHC's findings:

  • the average CMHC mortgage was about $245,000
  • the average down payment was eight per cent
  • the average gross debt service ratio (GDS) was 25.6 per cent to qualify for CMHC insurance, a homebuyer's GDS should not exceed 32 per cent of their total monthly household income

CMHC's senior vice-president says these changes are not being done to cool the housing market and he does not feel it will affect competition in the market place. 

Monoline lenders, those that offer only a mortgage product, strongly disagree. These higher premiums have caused monoline lenders to charge .25 per cent more on rates for mortgages with more than 20 per cent equity. 

The major financial institutions in contrast do not need to insure the mortgage for securitization.   

This advantage allows them more flexibility in pricing. The average homebuyer is losing out on some preferable products in the marketplace.

If you would like to know more about how these changes will affect you please call 250-862-1806 or email [email protected].



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Home-owner plan criteria

I have received a number of inquiries about the new B.C. Home Owner Mortgage  and Equity Partnership, so thought I would write a follow up to clarify what is required. 

Here are some requirements for anyone who appears on the title of the home:

  • Be a Canadian citizen or permanent resident for the last five years
  • Have lived in British Columbia for at least the full 12 months preceding your application.
  • Be a first-time homebuyer who has not owned an interest in a principal residence anywhere in the world at any time and has not received a first-time homebuyer's exemption or refund
  • Purchase a home that is $750,000 or less
  • Be eligible for a high-ration insured mortgage for the home
  • The combined, gross household income of all individuals on title must not exceed $150,000
  • The home being purchased must be used as the principal residence of all individuals on the title for the five years after purchasing.

To confirm Canadian citizenship, the applicant is required to provide a birth certificate, permanent resident card or a Canadian citizenship card. 

The applicant is also required to provide a valid secondary piece of identification which includes a photo. 

This may include a driver's licence, passport, BCID or secured certificate of Indian status. 

A copy of the most current Notice of Assessment from Canada Revenue Agency will be required to confirm that the household income is less than $150,000.

Residency can be confirmed from the B.C. drivers licence or from Notice of Assessments. 

The applicant is to be a first time homebuyer who has not owned a principal residence anywhere in the world.  A search will be conducted by the lawyer to confirm for the lender.

To qualify for an insured mortgage the applicant will need to fill out an application. This can be done online or in person. The online application should be secure because the applicant will be required to provide  personal information. 

The purchaser will need to show accumulation of the downpayment over the last 90 days for the matched five year interest free loan. 

Employment will need to be confirmed with a current employment letter, paystub and possibly the last two years Notice of Assessments. 

A credit report will be obtained to check credit rating and confirm balances and payments on any outstanding debt.

The property that is purchased will need to be less than $750,000 under this program. If the property is over $500,000, then the purchaser will need half of five per cent  of $500,000 ($25,000) plus 10 per cent of the balance. 

For a purchase of $750,000 this would be half of  $25,000 plus 10 per cent  of $250,000 or $25,000. 

The province will provide the other $25,000 in an interest free loan for 5 years registered as a second mortgage. The interest rate will be half or a per cent over the one year rate at the time of the advance starting in the sixth year.

If you require more information on this program or would like to be prequalified for the new provincial loan please call 250-862-1806 or email me at [email protected].



More The Mortgage Gal articles

About the Author

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business since 1991 and a broker since 1997. 

As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products.

Laurie has a Bachelor of Education degree from UBC.

Contact Laurie at 250-862-1806 or visit:
http://www.okanaganmortgages.com

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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