If your mortgage renewal is coming up, look at options now

Securing a better rate

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A significant percentage of Canadian mortgages are coming up for renewal in 2024.

Considering the low mortgage rates we’ve enjoyed for the last few years, clients are in for a bit of shock with where rates are now. Although the Bank of Canada held its prime rate steady with the last rate announcement, we are starting to see fixed rates trend down which is a relief.

Meanwhile, a significant change has been rolled out with how lenders are qualifying clients who are doing switches at renewal time (no new funds added). With the implementation of the stress test in 2016, we had to start qualifying clients at their “contract” rate (the interest rate the lender was offering) plus 2%, or the Bank of Canada “benchmark” rate, whichever was higher.

When mortgages that were in place prior to the new rules came up for renewal, we could qualify them at the contract rate or the benchmark rate, whichever was higher. Mortgages put in place after 2016, have come up for renewal for two years now and those clients were disadvantaged by the stress test calculation for switches at renewal time.

Many lenders have now adopted the recent change to the policy and we are again able to qualify clients at their contract rate or the benchmark rate, whichever is higher, without adding the 2% buffer to the contract rate.

Several clients I chatted with prior to the change were essentially stuck with what their current lender offered them for their renewal because they did not qualify anywhere else when we used current rates plus the 2% calculation.

Another positive note is what we are seeing with fixed-rate mortgage products.

Traditionally, I see lenders offering rate specials through November and December, during the slightly slower winter months and then popping rates up a bit as we start the new year. This year seems no different.

Over the last two weeks, I have seen rate reductions almost every day.

As a broker, one of the things I do for my clients is watch what interest rates are doing. When I am working with clients who are buying a home or refinancing, I choose lenders that are willing to continue to reduce my clients’ interest rates up until (shortly before) their closing date, if the lenders drop their posted rates.

What can that mean in dollars and sense?

Two years ago, some of my favourite clients were upsizing and buy a new home in Kelowna. Their new mortgage was going to be $700,000. Three weeks before their closing date rates started to drop. Three times the lender reduced its rate, so at closing time, its rate were 0.25% lower than the contract my clients originally signed. The lower rate meant a savings of $7,900 over their five-year term.

If you have a renewal coming up during next four months, I suggest looking into your options before we move into the new year. You should be able to have an interest rate held for 120 days, which will provide some stability should rates trend up again once we are into the new year.

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

Grants available when buying or retrofitting an eco-friendly home

Eco-friendly home grants

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Recently I attended a CMHC learning session about the enhancements to its Eco Plus program and the rollout of its Eco Improvements program.

If you purchase a home (with less than 20 per cent down payment) that meets specific energy efficiency guidelines, you may be eligible to receive a 25% of your default insurance premium back.

Building codes are constantly changing as we move towards creating more energy efficient homes. Many new homes are built to a standard that qualifies you for this rebate, so if you have purchased a new build (and have an insured mortgage) over the last few years it may be worth doing some leg work to see if you are able to take advantage of this program. It will likely mean connecting with your builder to determine the energy efficiency rating of your home.

What I found really exciting is CMHC’s new Eco Improvements program.

Sometimes clients will find an older home they love that needs updating. We can use a purchase plus improvements mortgage to help build funds into their mortgage to help them do the renovations upfront instead of picking away at them over time.

CMHC’s new Eco Improvements program offers a rebate of your insurance premium (again this only applies if you are purchasing a home with less than 20% down) if you use funds, either from a purchase plus improvements mortgage or your own resources if you use these funds to improve the energy efficiency of your home.

From the CMHC resource material, here are the high-level guidelines of the program.

A premium refund is available based on the following requirements:

Purchase of existing housing including individual residential condominium units in low-rise buildings.

An existing home is eligible if a minimum of $20,000 of intended improvement budget is allocated for energy efficiency improvements that fall within any of the following three main categories:

• Building envelope (e.g., insulation, windows, doors, roof, attic, air tightness and foundation)

• Mechanical systems (e.g., HVAC (heating, ventilation and air conditioning) and heat pump systems)

• Renewable energy systems (e.g., solar, wind, geothermal)

What’s even more exciting about this program is that you are able to access other grants and rebates for energy efficiency improvements to your home which will make these improvements much more affordable while lowering your utility bills for years to come. It’s a win-win.

There are specific steps you need to follow to access the rebates, so please make sure you do your homework to make sure you are able to maximize what you are able to take advantage of. Some research and legwork upfront could save you thousands of dollars.

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

What to know about your mortgage advisor

Work with mortgage advisor

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I received a call from one of my favourite realtors a few weeks ago asking if I could help her clients.

She told me the clients started with another broker but things didn’t seem to be going well. I told my realtor I would chat with her clients but would not compete with another broker. I know how much work goes into putting a file together and I won’t try to undercut another professional.

I did chat with the clients. Their broker had an approval in place and their closing date was less than three weeks away. They were getting extremely frustrated with the multiple requests for documents. They couldn’t understand why the broker kept coming back for more and more paperwork.

I asked a few questions about their particular situation then spelled out the list of documents I would typically ask for (specifically for their situation) upfront. They got very quiet.

It was almost exactly what their broker had asked for. In fact, the other broker also asked for all the documents upfront. The clients decided they would send bits and pieces based on what they felt like providing.

The other broker had the approval in place with a great lender and had a great package for the clients.

We discussed why lenders ask for the documents they do, and I told them they were actually slowing their broker down by not providing the information he needed right away.

I was entirely sure that they were happy with my thoughts but they did send the rest of the documents to their broker that same night. Their financing was signed off the following day. Problem solved.

The same realtor called last week with another set of clients who were struggling with their lender.

After listening to what was happening, I did end up working with these clients.

They shopped for the lowest rate online and reached out to one of the well-advertised discount brokerages. They had an accepted offer on their dream home.

The clock was ticking on their financing clause. I assumed they ended up working with a less experienced broker at the firm. They were told the incorrect amount for their minimum down payment, no discussion was had about closing costs, no documents were requested and they were told, in error, they would be exempt from the property transfer tax.

A week and a half of the time they had to line up their financing had already passed. They had four days left to finalize their financing. They are an amazing young couple who have worked hard to save their down payment and get their ducks in a row.

They sent me their documents within a day and we had an approval with all of the conditions signed off in two days.

There were two things to be learned from these situations:

1. When your mortgage person asks for specific documents, it makes the process go much smoother for you if you send what they’ve requested. Taking a few minutes to make sure your documents clearly show your name is important. Sending all pages of the documents key.

2. Work with a mortgage professional. Much like most other industries, there are mortgage providers with different levels of knowledge and experience, and different personalities. Working with someone from a smaller firm (compared to a high-volume discount brokerage) often means you will have someone who is far more attentive to your needs. It is wise to do your due diligence to make sure the person you are working with knows their stuff and is a good fit with you personality-wise.

Longer time in the industry does not necessarily mean more knowledge or experience. Some people who are newer to the industry take ongoing learning and work with mentors to offer their clients amazing service.

Buying a home is a huge investment and commitment. It is very challenging to qualify for a mortgage right now, so working hand-in-hand with your mortgage person will help the process go much smoother for you.

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

The ins and outs of mortgage insurance

Insuring your mortgage

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First off, some happy news. It sounds like insurance companies are back to offering home insurance policies in our area.

This is still on a case-by-case basis and, of course, depends on the location of your home. If you are one of the people whose home purchases were put on hold over the last few weeks, I’d suggest connecting with your insurance broker today to see if they are now able to offer you a policy. I connected with the company I refer my clients to and it said Monday it has several policies in place in Kelowna.

I’ve touched on mortgage insurance before, but after a few conversations over the last two weeks, I feel it is worth revisiting.

When you are working on your mortgage, there are two types of insurance your mortgage professional will talk about (three if you include the home insurance policy you will need at closing).

The first is mortgage default insurance, which is often referred to as “CMHC insurance.” There are actually three organizations in Canada that provide this insurance—CMHC, Genworth, and Canada Guaranty.

Mortgage default insurance protects the lender in the event that the borrower defaults on their mortgage payments. That insurance is mandatory if you put down less than 20% when you buy your home.

It is a one-time premium which is added to your mortgage up front. It is calculated on a sliding scale, so the more of a down payment you have the lower your premium will be. This premium can be ported from one property to another, subject to certain criteria, which can save you thousands of dollars.

The premium protects the lender, so if your home goes into foreclosure, it does not have to absorb any loss.

The second insurance that will be discussed with your mortgage professional is mortgage protection insurance. That is commonly life and disability insurance that protects you as the borrower. Banks and brokerages offer different coverages, so it is important to understand a few key differences.

This optional insurance is generally paid monthly, and in most cases can be cancelled at any time.

In my early days, I didn’t spend much time discussing the insurance coverage we offer. At the time, we had a different product that (in my opinion) was very expensive and didn’t offer great coverage. Over the years, I’ve heard many stories about how clients’ lives have been impacted by either having, or not having, insurance coverage in place.

Within two months of each other, two of my clients had very close calls. At the same time, our firm changed the insurance product we offered. The (new) product is far more reasonably priced, is portable and flexible to meet client needs.

As a broker I must offer my clients optional life and disability insurance coverage. The product our firm offers is Manulife Protection Plan (MPP). Clients have the option of waiving all together or taking life and/or disability coverage.

Most lenders offer coverage a second time when clients either sign documents in the branch or at the lawyer’s office at the time of closing. A key difference between what we offer up front and what is offered by the lender is the portability option.

MPP can be ported from one lender to another in the event you choose to switch lenders down the road. It can also be ported from one home to the next when you sell.

Most lender products only cover this particular home and their own mortgage. If you switch or sell down the road, you will need to re-qualify based on your age at the time, which means your premiums will likely go up.

I am a firm believer in having insurance in place to protect yourself and your family in case something unfortunate happens. I am not a licensed insurance professional, so when I discuss insurance with my clients I always ask if they have coverage in place.

Part of our discussion includes my recommendation to discuss coverage with a life insurance professional as there may be products out there that are a better fit for their particular situation.

MPP insurance is free for the first sixty days, so if I have clients who plan to look into more detailed options, I suggest they opt in and cancel down the road after they’ve made the time to meet with an insurance professional. This product kicks in the from the time the application is submitted and is fully underwritten up front.

Some people have strong opinions one way or the other about the value of insurance. Based on my experience I feel strongly that it is important to review your options with a professional to ensure you are adequately protected.

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