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Mortgage-Matters

Rising interest rates

The Bank of Canada increased the overnight lending rate by 0.25 per cent on Wednesday.

The overnight rate determines what rate banks lend money to each other and any changes in this rate gets passed along to consumers by changing the rates on some of their lending products.

Variable rate mortgages, home equity lines of credit (Heloc), unsecured lines of credit and student loans all have interest rates that are based on a lenders prime lending rate.

When this happens, it typically means that your rate is going to increase as well, but not always by the same amount.

It can also mean that not every lender will adjust their prime rate the same way - even now we have one of the major banks prime rate being 0.15 per cent higher than everyone else's on a variable rate mortgage.

By the time you read this, many lenders will have already announced an increase in their prime lending rate so keep an eye out for further updates on your lenders’ prime rate and what date any rate changes will affect your mortgage rate.

The best advice I can give if you currently have a variable rate mortgage . . .

Don’t panic!

Get some independent advice from your mortgage broker (not your lender), on what this increase means for you and your personal situation.

Lenders and the media can create a panicked frenzy which might encourage you to think about locking in now in fear of rates going up even further. This could mean more profit for the lender, a longer commitment from you and difficultly breaking that mortgage later!

Make a Plan:

You need to do a financial benefit analysis based on what your short and long-term plans are.

If you are planning to move in the next few years, then a variable rate might still be a better option with the lowest penalty, but if you are in your forever home and have a key focus on being mortgage free by a specific timeline such as retirement or sooner, then a fixed term mortgage may be more suitable.

Everyone’s situation is different, so having a customized mortgage that meets your needs, and not the lenders’, is always the way to go!

Do the Math:

A lender might be calling you to get you to lock in your amazing variable rate so don’t base your decision on fear. Let’s review the math, the facts and then decide what is right for you.

It’s important to note that the prime rate and, in turn, your variable rate mortgage and fixed term mortgage rates are impacted by two different sets of economic drivers.

Therefore, increases in fixed rates don’t mean the same increase in prime rates and vice versa.

Please reach out if you would like an independent complimentary consultation.



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Investing in real estate

Buying and investing in real estate has always been attractive for those looking to generate additional income and benefit from the wealth created with increases in property values over time.

Is investing in real estate right for you?

The Attraction

Diversification is key to anyone’s investment portfolio whether you are talking about mutual funds, TFSAs, stocks, bonds, RESPs, RRSPs, etc.

Diversification helps balance risk and provides a level of confidence that your investments are still going to be there when you are ready to liquidate them, such as at retirement, etc.

Some would consider adding real estate, other than their principal home, to their portfolio to ensure full diversification.

A real-estate investor can still use a relatively small amount of down payment or capital to purchase a property, and this can provide an attractive return on investment (or ROI). This return is generated from a combination of monthly income and property value increases.

The monthly income is generated by taking the rent collected from tenant and then deducting all the expenses. To ensure that there is a positive cash flow, smart real estate investors work with a mortgage broker and REALTOR® that can assist with the analysis.

Equity is built in the property by way of appreciation of value over time as well as with each mortgage payment.

With mortgage interest rates at record lows and an abundance of potential tenants in many areas, there is a high demand for real-estate investors to take the plunge.

Here’s another way to look at it as well. Real estate investment is also beneficial for those who have a hard time saving money, as it can act as a sort of forced savings account.

Essentially, as you pay down the principal of a mortgage, you're reducing debt and building equity. Then, when you go to sell the property, the money you receive back from the sale is considered your forced savings.

So What is the Risk?

Like any investment, there is risk and it is possible to lose money in real estate, albeit relatively low.

Real estate has shown to appreciate steadily over the long term, and has for the past 25 years, so the chances of someone losing money on a purchase are pretty slim.

However, keep in mind that doing your due diligence before an actual purchase is key.

You must take into consideration certain factors when choosing a property, such as:

  • desirability of location
  • stability of the market in that area.

Financing Options and How do I get started?

One more attraction is the fact that it really only requires part of your time, is flexible, and the skills can be learned.

The process is relatively easy, and I’ll walk you through that step by step. The first step is to build your Real Estate Investment Plan, which would include talking about your acquisition and exit strategies.

Call me for more information on how to see if you are ready to purchase a rental property and build your investment plan.



Online discount brokers

Discount mortgage broker rate sites have been making an appearance online during the past few years.

While these rate sites and discount mortgage brokers appear to be making offerings that are significantly lower than what the big banks are offering or even a local mortgage broker, there are a few points to consider before you decide to apply online.

Many of these low-rate mortgages are no-frills or low-frills and are packed with restrictive conditions and potential land mines.

If you commit to one of these products without reading all of the fine print, which most often happens, you could find yourself in a difficult situation in the near future since 60 per cent of Canadian mortgage holders break their mortgage around the 38-month mark.

Don’t assume that online rates are better than “offline” rates. Your local mortgage broker can shop the market and secure the best deal and also has the products available that are being advertised.

We will review all the pros and cons with you to ensure that the product is the best fit for your circumstances and you can live with the restrictions.

Many online brokers are long distance and if you have a problem with your application, it could prove challenging to resolve.

These online brokers work on volume, so there could be a lack of service to you and your mortgage. They are working with many clients at one time and may not provide the personal service that you require.

Don’t apply to too many. For each application you zip through online, you generate another inquiry on your credit report. Too many of these could cause a lender to reject you.

When you use the services of a local mortgage broker, generally only one inquiry is made no matter how many lenders review your application.

First-time homebuyers, or people who have limited knowledge about mortgages, are better off consulting a “live” mortgage broker that is close to your area, someone you can “touch and feel” and most of all trust. 

As a first-time buyer, you likely don’t know what you don’t know and that’s why you should be consulting someone who can walk you through the process.

Mortgages are complicated, so it’s important to ensure that not only do you get a great rate, but also ensure you can live with the terms and conditions of the mortgage.

If you would like a review to make sure a mortgage is a good fit for you please give me a call.



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First-time homebuyer tips

If you are a first-time home buyer, then buying your first home is an exciting time, but it can also be stressful and you will have lots of questions:

  • What can you afford?
  • What type of mortgage should you get?
  • And so many more.

This will most likely be the largest financial transaction you will make in your life time and it can be overwhelming, so here are some quick tips to make the home buying process go smoother.

The trick is to take it step by step and in the correct order.

  • Take some time to think through the advantages and disadvantages of owning your own home compared to renting. Are you ready for the responsibilities of home ownership?
  • Before you begin searching for a home — and also so you don’t end up being disappointed or wasting the time of a realtor — speak with an experienced mortgage broker. I can review your financial situation to determine how much you can afford and the maximum price that you should be considering. 
  • You may believe you have been pre-approved by your bank, but if there has been no documentation collected and your credit has not been checked, then that pre-qualification is really just a discussion. There is so much that can go wrong with just a pre-qualification. True pre-approvals are based on verified financial information and a credit check. If everything has been checked upfront then you should only need to be concerned about the lender approving the property you wish to purchase.
  •  A pre-approval can also speed up the process when you do find a home although there is no guarantee that the lender will accept the property but it is best to be prepared especially during a sellers’ market. It can also guarantee you a fixed mortgage rate for a certain period of time while you are looking for a home.
  • Ensure that your credit is in good shape and you are maintaining your credit rating by making your loan and credit card payments on time. You might not have realized this but your cellphone payment record is now being reported on your credit report too so it is important to pay that on time each month.
  • There are so many benefits to using a mortgage broker during the home buying process. We have access to many different lenders and can guide you through the process ensuring a greater chance of success starting will a pre-approval. We will show you all of your mortgage options through multiple lenders to help you choose a mortgage that is right for you.

If you would like some assistance getting started on your journey to home ownership please give me a call.



More Mortgage Matters articles

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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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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