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Mortgage-Matters

It's best to get pre-approved for a mortgage when home hunting

Mortgage rate holds

With many of the experts predicting mortgage rate increases in the coming months, many homebuyers are rushing to try and buy now before that happens. This is no doubt putting more pressure on housing demand.

A mortgage rate hold will potentially provide some security should rates increase but that’s all it is— a rate hold for up to 120 days. No documents are reviewed by the lender and only the basic criteria is reviewed. There is no confirmation that in the end you will even qualify for that rate or even mortgage financing.

What you really need is a full mortgage pre-approval with a rate hold that is entirely different than the rate hold you may have received from your financial institution.

Is a mortgage pre-approval important? The short answer is yes. It is definitely important so you have the confidence to move forward with your house hunting. A pre-approval is for you and not the lender.

We are going to review your income documents and confirm the source of your down payment funds. You will know if there are any areas of concern and we will discuss a plan to move forward.

A mortgage pre-approval can give you the confidence to know that you fit within the guidelines of a mortgage lender and also a mortgage insurer if you require an insured mortgage for your purchase. It will also establish a realistic budget for your new purchase.

Here are the benefits of getting pre-approved.

• You will know your price range before you start house hunting.

• Your realtor will know exactly what type of property you should be looking at so that can save you both time and also narrow down your home search.

• Being pre-approved can give you an edge over other buyers as you may be able to close quicker and that might be important to the seller.

• There aren’t going to be any surprises as you will already know how much you require for a down payment, closing costs and how much your monthly mortgage payments are going to be.

• A pre-approval also gives you the benefit of securing your interest rate for up to four months. This is a great benefit, especially because interest rates are predicted to increase.

Here’s another tip—you don’t have to wait for an appointment to obtain a mortgage pre-approval. The first request I often receive is for a meeting and I am always happy to accommodate my clients but an in-person meeting is not required for a mortgage pre-approval.

Most are happy to find out that we can complete the process via a secure online portal, telephone and email, including collecting the required documents. This is generally more convenient for my clients and a great time-saver which can result in the pre-approval being completed in one day most times. It’s a simpler process than most think. I can complete your pre-approval most likely before you even get to an appointment with your bank.

Once you have a pre-approval and rate hold in hand, you can start your home hunting with confidence.

If you are thinking about a new home purchase this spring, please reach out so I can secure you a rate hold with your full mortgage pre-approval.



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Is it time to lock-in your variable mortgage rate?

Lock-in your mortgage rate?

Amid soaring inflation, the Bank of Canada has hinted that the first interest rate hike could take place as soon as the April-to-June quarter of 2022. Analysts had previously expected rates to begin rising from record lows in the second half of 2022.

You may be wondering if you should lock-in your variable rate mortgage now. There is lots of chatter in the media about the rate increasing again over the next year—up to another four times, so you may have some concerns.

The first question you should ask yourself is why you chose a variable rate mortgage in the first place.

Was it because it had a lower rate than a fixed term mortgage or did you have a plan to take advantage of that lower interest rate?

Historically, a variable rate has been a better option by just comparing rates but those rates can change. Potentially and depending on whether you have a variable rate mortgage or an adjustable rate mortgage, more of your payment will be going toward interest rather than principal if your payment isn’t adjusting accordingly as rates increase.

Another important consideration with variable rate mortgages is that they have lower prepayment penalties generally than a fixed rate mortgage should you decide to break your mortgage early. Statistics support that this happens more often than not.

Instead of trying to guess where rates are headed, consumers would do better to think about their own situation. They should evaluate their personal balance sheets and risk tolerance. The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand increases in mortgage payments.

For some currently in a variable rate mortgage, it could take up to 10 rate increases of 0.25% to not save money with your variable rate mortgage as the rate generally only increase by 0.25% at a time.

You need a plan with a variable rate mortgage. The best thing is to do a review with a mortgage broker to determine your personal tolerance to rate increases and determine a strategy for managing your mortgage to reduce your overall cost of borrowing.

Something to consider about locking in your mortgage is that not all lenders are going to offer you the very best fixed rates. You are also hedging your bet that at some point your fixed rate is going to be lower than a variable rate mortgage.

No one can predict where rates are headed. Even the experts get it wrong. Your decision to lock-in to a fixed rate mortgage should not be based on what you read in the media.

If you are at your maximum purchasing power or you’re a worrywart, lock-in, forget about it, and enjoy life.

If you would like a no obligation review and financial analysis for your personal situation please let me know. We can compare your current variable rate mortgage to a fixed term option and even compare it to another variable rate mortgage that might have a deeper discount.

That way you can make an informed decision as to whether locking in is the best option for you.



Using money from your RRSP, tax free, to buy your first home

Home Buyers' Plan

Are you considering purchasing your first home next year?

If so, before March 1, 2022 could be the best time to implement this strategy if you are thinking about buying this spring.

If you need a source for your down payment, the Home Buyers’ Plan (HBP) will allow you to withdraw up to $35,000 from your RRSP to use in assisting with the purchase of your first home, tax-free. If you are purchasing with someone who is also a first time home buyer, that amount can be increased to $70,000, $35,000 each.

You can use any amount up to $35,000 to add to any down payment amount you may have saved or use towards other expenses for purchasing a home.

To help Canadians maintain homeownership, individuals who experience the breakdown of a marriage or common-law partnership are also permitted to participate in the plan, even if they do not meet the first-time home buyer requirement.

The amount you have withdrawn from your RRSP must be paid back into your RRSP account in annual payments and you have 15 years to repay it but if you don’t make your annual payment then it will be added to your annual income and you will be taxed accordingly.

If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax return as taxable income.

So what if you don’t have any RRSP savings? You can get your savings working for you in a tax free and efficient way. This strategy might be right for you. If you have room under your RRSP contribution limit you could secure a RRSP loan and contribute those funds and then later use them towards your down payment. If you have funds sitting in unregistered savings you could also move those into a registered account. Please check with the financial institution regarding their policies for withdrawing for the HBP prior to the loan being paid in full.

Any tax refund generated by contributing to your RRSP could also be put towards your down payment funds.

If you aren’t sure whether you have room to contribute, check your notice of assessment for last year. Each year you are allowed a percentage of your income to contribute to a RRSP and the amount is carried forward and added to the next year’s total either partially or in full if you haven’t contributed.

It’s important to note that the funds you plan to withdraw and put towards the purchase of your home, must be in your account for 90 days prior to your withdrawal.

You do not need to use the withdrawn funds for only your down payment as they may be used for any purpose that assists with the purchase of your first home – closing costs, paying off outstanding debt, renovations, etc. You must have a written contract in place agreeing to purchase a home and the home must be owner-occupied within one year.

If you have used the HBP in the past but have not owned a home for four years, you may qualify to withdraw from your RRSP again as long as you or your common-law partner or spouse did not occupy a home that either of you owned in that four-year period.

If you would like more information on the RRSP Home Buyers’ Plan, please give me a call at 1-888-561-2679 or email [email protected] and I can give you some guidance and help you decide what is right for your situation.





Divorce or separation does not have to mean selling your home

Spousal buyout mortgage

You might be going through,, or considering, a separation or divorce. But the end of a relationship does not necessarily mean that you will have to sell your home.

Your home may be able to give both partners a new start.

For many people their home is their largest asset and where most of their net worth has accumulated. There are mortgage products available that can allow you to buyout the other party while enabling you to stay in your home. A divorce or separation doesn’t always mean you will have to sell your property.

You will require a finalized separation or divorce agreement as that is required by the lenders and the agreement needs to clearly detail the asset allocation and any joint debts that need to be cleared.

The mortgage funds can only be used to buyout the other party’s equity in the home, unless it is clearly laid out in the separation agreement that some joint debts need to be paid out to a maximum of 95% of the value of the property. The property must be your primary residence.

Sometimes friends or siblings have bought a home and live together in the property. This program may be used in that circumstance too but this will require an exception for an approval by the mortgage insurer.

There are insured mortgage programs available that could help you stay in your home in the event of a separation, divorce or dissolution of a relationship by purchasing the home from your ex-spouse or partner for up to 95% of the home’s value.

To qualify for this program you must be able to afford the mortgage payment on your own along with your other liabilities. Not only must the lender approve your application but also a mortgage insurer. Both parties must also be on title on the home prior to the separation.

There are some differences between two of the programs.

With the first mortgage insurer the funds can only be used for a spousal buy-out or the dissolution of a relationship. This could be friends, relatives, etc. There cannot be any matrimonial debts or pre-payment penalties or fees included in the new financing.

With the other mortgage insurer the funds can only be used for a spousal buy-out and no other relationship breakdown but the new financing can include matrimonial debts if they are listed on the separation or divorce agreement. They will also allow pre-payment penalties and fees to be included.

To qualify for both of these programs you must have good credit and earn sufficient income to support the mortgage payments.

It is important to seek the advice of a mortgage broker very early in the process, as he or she can guide you along the way to a successful separation and you can both have the best possible outcome going forward.

If you already have a separation agreement in place, a mortgage broker can show you how the value in your home can make it work for you both.

If you have any questions on this program please give me a call at 1-888-561-2679 or email [email protected]. All inquiries are kept strictly confidential.



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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