Canada’s mortgage market has changed a lot in the past few years and will no doubt continue to change even more in the years to come. Not surprisingly home financing options and qualification rules have also changed. As a result, home owners now have access to a vast array of specialized mortgage products.
Our expertise is shopping all of these products and providing you the best possible solution based on your specific needs. We understand the Canadian mortgage market and have the knowledge and expertise to make sure you get the best offer, every time.
SHOP AROUND AT RENEWAL TIME
When the term on your mortgage expires it is time to renew your mortgage.
At this time you will be able to re-negotiate your interest rate based on current market conditions.The bank or financial institution you are currently with will likely offer you a renewal. DON’T TAKE THE FIRST OFFER! It is estimated that over 65% of Canadians simply re-sign their mortgage with the same lender at renewal time. The rate and terms offered are rarely questioned as most people choose to avoid the hassle of renegotiating. Lenders know this and therefore won’t offer the lowest rate or best terms available. A mortgage is typically the largest expense you will ever have and making this mistake will cost you thousands!
Remember that you do not have to renew with the same lender and should always consult with your mortgage broker prior to accepting any offer. In doing this you will ensure yourself the most competitive rate and terms at renewal time.
It is also possible to renew your mortgage early. You may opt to renew early if the current interest rates are much lower than your existing interest rate. There can be drawbacks to renewing your mortgage early such as payout fees, but these fees are often far less than the money you will save at the new lower interest rate.
If you are not sure if it makes sense to renew early, contact us and we will be glad to run the numbers for you.
GET PRE-APPROVED FOR YOUR RENEWAL IN ADVANCE
It is always wise to get pre-approved 4 months before your renewal date. This will allow you to hold a rate (see Rate Holds/Rate Lock) and ensure the most competitive rate and term leading up to your date of renewal. If you arranged your mortgage with Axiom, we will be sure to contact you 4 months in advance and help you make the right decisions.
To renew your mortgage Apply Here
It always wise to get pre-approved for a mortgage before you start looking to purchase a home. A pre-qualification will give you the peace of mind in knowing that you can qualify and more importantly the amount you qualify for. After all, there is no point looking at houses out of your price range or getting your heart set on a property that you can’t afford.
Another key advantage to getting pre-approved is the rate hold. A rate hold allows you to secure an interest rate at today’s current rates and keep this rate for up to 120 days before buying. If interest rates drop during the time you are shopping for a home you will automatically qualify at the new lower rates. If, however, rates go up then you will be safe with the rate at which you were pre-qualified.
There are many reasons you may decide to refinance your property. Perhaps you want to take advantage of lower interest rates, make some investments, buy a second property or start a business. Whatever the reason, borrowing against your home is an excellent way to access money as mortgage interest rates are significantly lower than conventional means of borrowing.
Interest rates in Canada are at one of the lowest points in decades, but that doesn’t guarantee they’ll stay there. If you have been considering refinancing your property, It may be the right time to do so. By refinancing your mortgage now, you may be able to:
Mortgage refinancing is without a doubt one of the best ways to borrow money because of the lower interest rates offered on mortgages. If you would like to explore your options and determine whether or not a refinance makes sense for you, give us a call. We are always happy to discuss your options and may be able to suggest some additional cost-saving strategies.
Home Equity Loans
A home equity loan is a type of mortgage where you use the equity in your home as security for a loan.
Equity is the difference between the value of your property and the amount you owe on the property.
Property Value – Amount of Mortgage = Equity
A home equity loan often requires no qualifying as the loan is based strictly on the value of the home and amount of equity rather than on the borrowers themselves.
Home equity loans are sometimes structured as second mortgages. This means the loan is registered on the title of the property in second position behind the existing first mortgage. There can be some advantages to borrowing money in this way; mainly the first mortgage can remain in place without incurring any penalties for breaking the existing term.
If a home equity loan is structured as a second mortgage you will usually see a higher interest rate. This is due to the increased risk of loss associated with being second payable in the event of a default or foreclosure.
Self Employed Loans
Today more and more Canadians are opting to work for themselves or go on contract with their existing companies rather than receive a salary. There are certainly some advantages to being business-for-self. Perhaps the greatest being the ability to write-off many personal expenses and ultimately pay less income tax. The downside to this is showing less income on your tax return and as a result qualifying for less or not qualifying at all.
It can often be difficult to get a mortgage through the chartered banks as they typically will not “read between the lines” or evaluate Self-employed individuals with a common sense approach. This does not have to be the case.
Fortunately, there are options and we offer loan programs specifically for the Self employed. Approvals are based on factors such as good credit, length of time in business, and the property type and location rather than business financials or tax returns alone.
At Avenue Financial, we pride ourselves in being experts when it comes to arranging self employed or business-for-self mortgages. If you are Self employed, we have a mortgage for you!
Fixed vs. Variable Rate Mortgage
WHAT IS A VARIABLE RATE?
An adjustable rate mortgage (ARM) or variable rate mortgage (VRM) is a mortgage where the interest rate is subject to change. Most of these products are set up as 5 year terms and use a formula based on the Canadian prime interest rate. (Prime interest plus or minus a percentage)
For example, if you choose an ARM with a rate set at Prime – 0.50% then your rate would be calculated at any given time using this formula. If prime were 3.00% then the interest rate on your mortgage would be 2.50% or if prime were 6.00% then the interest rate on your mortgage would be 5.50% and so on.
Adjustable rate mortgage products have been very popular lately as prime interest is still near an all-time low and has remained consistently low for the last few years.
WHAT IS A FIXED MORTGAGE?
A fixed rate mortgage is just as it sounds. The rate of interest on your mortgage is fixed at the beginning of your term and is not subject to change. If, for example, you selected a 5 year term with a fixed rate of 4.25% then all of your payments would be calculated using a rate of 4.25% for the full 5 years of your term.
THINGS TO CONSIDER
Variable rate and fixed rate mortgages both have their advantages and disadvantages. Historically speaking, homeowners have typically had lower payments with variable mortgages, but these mortgages are also vulnerable to fluctuations in the market. Variable rate mortgages are tied to the Bank of Canada’s prime rate (which is announced eight times per year) and as such are subject to change. Fixed rates, on the other hand, are often initially higher than the offered variable rate, but because the rate is consistent throughout the term of the mortgage, they can prove to be lower if the prime rate goes up.
Below are a few questions to help you determine which type of mortgage is right for you:
CAN I AFFORD TO TAKE A VARIABLE RATE MORTGAGE?
There is some risk associated with a variable rate mortgage, so if you decide to go this route, you must be confident that you can afford the increased payments when the prime interest rate goes up.
One method of protecting yourself involves initially setting your payment to a higher fixed amount. For example, setting your payments based on the current five year fixed rate will allow you to provide a buffer in the event that rates rise and because you’re paying more than the required minimum amount, you’ll be paying more principal off as well.
Opting for a 25-year amortization but paying the 20-year amortization-sized payment is another way to protect yourself from increasing rates. If rates get too high for comfort, you can gear down to the lower 25-year amortization payment until rates decrease again.
DOES VARIABLE RATE MORTGAGE FIT MY RISK PROFILE?
Once you have decided you can afford a variable rate mortgage, the next thing to assess is whether a variable rate mortgage fits your personality, lifestyle and comfort zone. If you’re the type of person that can’t sleep at night knowing that your rate may change by 0.25%, then a variable rate mortgage may not be the best option for you.
WHAT TYPE OF VARIABLE RATE MORTGAGE SHOULD I CHOOSE?
There are three main factors to consider when choosing a variable rate mortgage:
- Payment Frequency – Make sure you are aware of the options available before deciding. Some lenders may not allow certain variations of payment frequency (eg. accelerated biweekly or weekly payments)
- Rate Changes – Some lenders change their variable rates in line with the Bank of Canada – eight times per year – while others adjust them quarterly
- Conversion To Fixed Rate – Does the lender allow the mortgage to be converted to a fixed rate mortgage at any time without penalty? If so, what rate are you guaranteed on conversion – the best-discounted rate or the posted rate?
Purchase Plus Improvements (Renovation Mortgages)
If you have your eye on a fixer-upper, or are thinking about building your dream home, financing your endeavours may be easier than you think.
“Renovation Mortgages” give homeowners the ability to renovate a newly-purchased or refinanced home and roll the cost of the improvements into the balance of the mortgage. This allows the homebuyer to benefit from the low interest rate associated with their mortgage. It also provides the simplicity of one mortgage payment and requires less than 20% of the home’s ‘as if improved’ value for a down payment.
To acquire this type of mortgage a buyer must first make the offer conditional using a renovation mortgage program such as CMHC’s ‘Purchase Plus Improvements’ program. The next step is to acquire at least three quotes from contractors to determine the cost of the renovations. CMHC will approve a loan of up to 95% of the ‘as if improved’ value of the home, or the value of the newly constructed home, provided the money you’re putting into the home does, in fact, improve the value.
There are a few rules to remember. Newly constructed homes may receive up to four monetary advances before the home is completed. Refinanced or newly-purchased homes will only get one advance for 95% of the original value. In this scenario, you must be prepared to finance the renovations and improvements up front, keep all your receipts, and await reimbursement after the renovations are complete. The lender will have to evaluate the “newly improved” value once all the work is done.
If you’re thinking about doing renovations on a new home but you’ve put down more than a 20% down payment, consider taking advantage of a Home Equity Line of Credit (HELOC). This is a low-interest line of credit that is secured against your home.
|Usual way of financing|
|Purchase Price||$ 300,000.00|
|Less 5% down payment||$ 15,000.00|
|Financing Required||$ 285,000.00|
|Plus 3.15% Insurance Premium||$ 8,977.50|
|Total Mortgage||$ 293,977.50|
|Mortgage Payment @ 3.5%||$ 1,467.74 per month|
|Purchase Plus Improvements|
|Purchase Price||$ 300,000.00|
|Proposed Improvements||$ 20,000.00|
|AS IMPROVED VALUE OF HOME||$ 320,000.00|
|Less 5% of “IMPROVED” value||$ 16,000.00|
|Financing Required||$ 304,000.00|
|Plus 3.15% Insurance Premium||$ 9,576.00|
|Total Mortgage||$ 313,576.00|
|Mortgage Payment @ 3.5%||$ 1,565.59 per month|
Like most of us, you probably have a car payment, some credit cards, retails cards, and maybe some personal loans. The month to month cost of all these debts combined can make it very difficult to get ahead, as all you end up doing is paying the interest or “minimum balances” of the loans.
Using the money in your home to consolidate all of your debt is a winning solution. Combining all of your debts and adding them onto your mortgage, also known as refinancing, has several advantages.
For one, the interest rate and amount of interest you pay is lower overall. Interest paid on credit cards can range from 10% to as high as 29% interest! This rate is compounded monthly as opposed to the semi-annual compounding period you get with a mortgage.
Perhaps the biggest advantage though is the monthly payment. By adding your debts to you mortgage, you can capitalize on a very low monthly payment. This can often give you the breathing room needed to put a plan in action and really start paying off your debt.
Here is an example of what refinancing can do to your monthly payments:
|TYPE OF LOAN||CURRENT PAYMENT||NEW PAYMENT|
|Car Payment||$ 350.00||$ 0.00|
|Line of Credit||$ 300.00||$ 0.00|
|Credit Card #1||$ 150.00||$ 0.00|
|Credit Card #2||$ 200.00||$ 0.00|
|Mortgage Payment||$ 850.00||$ 0.00|
|Total Payments||$ 1,850.00||$ 739.00|
*This example is based on a total debt of $142,000 refinanced on a fixed rate mortgage set at 3.9% and on a 5 year term.
By consolidating your debts you can save thousands each year in interest alone. You will keep your credit rating in good shape by not missing any payments and eliminate late fees and penalties.
With interest rates still near an all time low, it just makes sense to consolidate all of your debt.
Interim financing, also known as bridge financing, is temporary financing required to complete the purchase of a new home before your existing home has sold.
If you will be using the money from the sale of your existing home as a down payment on a new home, but do not have these funds available then you will need Interim financing to bridge this gap. This type of financing is available but can be expensive, so it is always best to have the sale of your existing home and possession of your new home coincide.
Some lenders offer interim financing directly, while others will leave it up to you to find the funding required elsewhere. It is important to know before you get into this situation that interim financing can be reasonable if handled properly, but in some situations it can be very expensive!
Secured Credit Cards
If you have had some credit issues in the past, or are trying to build a credit history, you may want to consider applying for a secured credit card. Secured credit cards allow you to establish or re-establish a solid credit rating which is essential when you are applying for a mortgage.
A secured credit card is much the same as a normal credit card. The only difference is that these credit cards require a security deposit for eligibility. The security deposit can range anywhere from $200 to $10,000 and your resulting credit limit will be equal to this amount. This deposit also earns interest, as long as your card is open and in good-standing. Once you have established a solid credit history with your credit card company, you can request to have them release your deposit over time. However, you could look at it as a savings account maybe even set this security deposit aside to use as a down payment on a home!
Understand that a secured credit card is not the same as a prepaid credit card. Your Secured card will have a revolving credit limit and If you charge something you will have to make a minimum payment every month. A pre-paid credit card, on the other hand, is more like a gift card and is not attached to your personal name. As such, It does not help you rebuild your credit rating.
HOW WILL A SECURED CARD IMPROVE YOUR CREDIT?
As you use your secured credit card on a regular basis and continue to make consistent payments you will develop a history. The credit card company will report your usage to the credit bureau agencies on a monthly basis and your credit history will improve.
If you are working to rebuild your credit, most mortgage lenders want to see at least 2 years of perfect repayment history on two credit facilities (credit card and car loan, for example).