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Mortgage-Matters

BofC rate increase

As predicted, 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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Buying a vacation home

Are you dreaming of a summer cottage on the water for weekend getaways?

According to a recent Re/Max market survey, retirees and baby-boomers are driving vacation property purchases but here in B.C., professional couples and families are also buying vacation homes.

Many are accessing equity in their primary residences to make these purchases, but there is also a great insured mortgage program available to make your dream of owning a vacation property a reality with a little as a five per cent down payment required.

Here are the types of properties that can be covered under this program.

Type A Properties:

  • Must be owner-occupied or occupied by an immediate family member
  • Located in good marketable areas with evidence of re-sale demand.
  • The property value must be less than $1,000,000
  • The maximum mortgage amount allowed is $600,000 for most of Canada
  • Maximum of one unit
  • For properties valued up to $500,000 a minimum down payment of five per cent is required.
  • For properties valued over $500,000 and less than $1,000,000 – five per cent down payment is required up to $500,000, with an additional 10 per cent down payment on the portion of the home value above $500,000

As a side note, this program can also have other uses. Perhaps you are considering a place for your children to live while they attend university, a condo in the city to avoid the hectic commute or to help buy a home for your elderly parents who are on a fixed income.

This is possible as long as the family members are living there on a rent-free basis.

Up to 95 per cent financing is available for owner occupied properties all across Canada. (A quick note here: These programs are not available to purchase investment properties, time-shares or similar properties that offer rental pools for the owners.)

Type B Properties:

The same details are required for these properties as above except for the following:

  • The property does not need to be winterized
  • Seasonal access is permitted (IE: road not plowed during the winter)
  • A minimum of a 10 per cent down payment is required for these types of properties.
  • Properties located on an island must have year-round bridge or ferry access.

There are many financing options available through a wide range of lenders. T

he requirements for mortgages on secondary and vacation home properties can vary greatly from lender to lender so you will want to make yourself aware of all of the choices available in the mortgage marketplace.

You’ll want the best possible financing options for your new real estate investment. 

Instead of waiting many years to save enough to purchase a vacation home, you may be able to access the equity in your principal residence to finance the purchase. This involves a cash-out refinance of your property and there again are many options available.

Other down payment options may include a second mortgage on your current property, personal savings or gifted funds (Type B property purchases do not allow for gifted down payments.) 

With our current interest rates very low, now might be the time to get serious about your dream to own a vacation property. If you would like to explore your options so you can enjoy a new vacation home this summer please give me a call to discuss.



Reverse mortgage FAQs

Reverse mortgages are quite often misunderstood and there are always lots of questions.

Here are some of the most frequently asked questions with the answers.

How does a reverse mortgage work?

A reverse mortgage is secured by the equity in your home. Unlike a traditional mortgage in which you make regular payments, no monthly payments are required.

The big advantage with a reverse mortgage is that you do not have to make any regular mortgage payments for as long as you or your spouse lives in your home.

Who is it for?

A reverse mortgage is designed exclusively for homeowners age 55 and older. This age qualification applies to both you and your spouse.

How much can I get and how is it calculated?

You can receive up to 55 per cent of the value of your home. The specific amount is based on your age and that of your spouse, the location and type of home you have, and your home’s current appraised value. You can contact me and I can quickly give you an estimate of how much you may be approved for.

How do I receive the money?

You can choose how you want to receive the money. A reverse mortgage gives you the option of receiving all the money you’re eligible for in one lump sum advance, or you can take some now and more later, or you can receive planned advances over a set period of time.

Will the homeowner owe more than the house is worth?

The homeowner keeps all the equity remaining in the home. In my many years of experience, over 99 per cent of homeowners have money left over when their mortgage is repaid. The equity remaining depends on the amount borrowed, the value of the home, and the amount of time that’s passed since the reverse mortgage was taken out.

Will the bank own the home?

No. The homeowner retains title and maintains ownership of the home. It’s required for the homeowner to live in the home, pay taxes on time, have property insurance, and maintain the property in good condition.

What if the homeowner has an existing mortgage?

Many of our clients use a reverse mortgage to pay off their existing mortgage and debts.

Should reverse mortgages only be considered as a last resort?

No. Many financial professionals recommend a reverse mortgage to supplement monthly income instead of selling and downsizing, or taking out a conventional mortgage or a line of credit.

What fees are associated with a reverse mortgage?

There are one-time fees to arrange a reverse mortgage such as an appraisal fee, fee for independent legal advice as well as a fee for administration, title insurance, and registration. With the exception of the appraisal fee, these fees are paid for with the funding dollars.

What if the homeowner can’t afford payments?

There are no monthly payments required as long as the homeowner is living in the home.

If you are interested in more information about a reverse mortgage, we have a new website resource at reversemortgage-experts.ca where you can request The Complete Reverse Mortgage Guide. 



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Good debt vs.bad debt

Until recently, there was no such thing as good debt or bad debt; all debt was bad debt.

Owing money for any reason wasn’t a good thing and it was important to focus on paying off everything.

But now, we are hearing about having good debt and having bad debt. So what’s the difference?

Good debt is considered to be funds that you borrow to purchase an appreciating asset. Something that may grow in value such as real estate, a business or investments or a student loan to provide education which will result in earning a higher income.

Bad debt would be money you borrow to purchase a depreciating asset — cars, boats, clothes, consumables — or something that you can’t afford. Something that quickly loses value or doesn’t generate any revenue. It is most likely at a higher interest rate and even if the rate is low today you should also factor in a higher rate to ensure that you can afford it in the future.

High interest rate credit card debt is considered bad debt. Credit cards are not evil if they are used prudently and balances are not carried over.

Mortgages are considered good debt because real estate generally appreciates over time although there are no guarantees. You are also borrowing at lower interest rates.

Home Equity Lines of Credit, which are a type of mortgage, can be either good debt or bad debt depending upon what they are utilized for.

If you are using your Line of Credit to purchase depreciating assets or using it for your day-to-day expenses, it would be considered bad debt. Consolidating your high interest credit card debt into a Home Equity Line of Credit would be ‘good’ as there would be a significant lowering of the interest rate.  

Car loans would be bad debt as you are purchasing a depreciating asset but unfortunately the reality is that this is the only way that most people can afford a vehicle.

The best thing to do is pay cash or as much cash up front for a car as possible. Does everyone really need a fancy, new car?

Pay-day loans or cash advance loans are definitely bad as the interest rates and fees are astronomical.

In reality, it can be argued that no debt is good debt, but used in moderation and with an educated approach, debt can assist in many things.



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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