Mortgage Rate Increases Upcoming? What Do I Do?

Latest News Shaun Serafini 7 Jul

You may have heard rumblings of mortgage rate increases recently. As a mortgage broker, I can always tell when media have published their frequent “Lock in your Rate or Doom” headlines. We have received quite a few calls and emails over the past week or so from clients concerned that their mortgage rate / payment could be on the rise. It’s actually no wonder there’s so much concern. One flip to Financial Post this evening and I was ready to liquidate all of my personal belongings and head for my panic room. Luckily I know how media sells papers (there are still things called newspapers for sale right?) / clicks and it’s not by publishing “Nothing to Worry About Today” headlines.

I did feel however that there’s been enough concern raised by our variable rate clients that I wanted to get in touch and ease some concerns. Before doing something rash such as switching your current (likely awesome) variable rate mortgage into a more stable (boring /more expensive) fixed option, it’s important to remember why we opted for variable on your mortgage in the first place. It wasn’t just a short term solution to capture rates lower than fixed at the time. It was to set-up the mortgage that should improve your net worth position over the LONG TERM. There was much more strategy that just grabbing variable because it was half a point or more lower than fixed when we set up your mortgage.

Most of the rumblings that you are hearing right now about rates going up are due to increased bond rates which affect fixed mortgages not variable, which are attached to prime. In fact, we’ve already seen most fixed mortgage rates increase in the past week anywhere from .10-.25%. Prime rate hasn’t moved. That means your variable mortgage looks even better in comparison to fixed right now. I’ll say that again — the rate increases that we’re seeing right now are increases to FIXED mortgages. Since fixed rates don’t change over the life of the mortgage, the only folks directly exposed to these changes are those who are currently in need of a mortgage right away and who haven’t been told or convinced of the virtues of variable over fixed anyways (IE they need a better mortgage person in their lives).

Now I will say this — there has been some speculation that we could see the Bank of Canada increase the prime rate for the first time in over four years in the next few months. This is much earlier than most economists predicted at the start of the year but the rumblings certainly appear to becoming more pronounced. So realistically, I don’t want to rule out an increase to Prime & subsequently variable mortgages & Home Equity & personal Lines of Credit by the end of the year. This is much more likely to happen than we were led to believe 3-4 months ago. Remember though, even if Prime was to increase, your variable mortgage would still be substantially lower than the current rates of fixed and it’s extremely unlikely that an increase will be more than .25% at any one time.

Let’s consider these #’s:

An increase to the prime rate (if/when this happens) would probably change your payment $20-$35 a month (a .25% increase to prime will raise your payment approx $12 per $100,000 of mortgage). Locking into a new fixed-rate at the current market prices would increase $50 plus (you’d be taking a rate of 2.94 or higher by locking in in most cases. So it’s not as though a change in the prime rate is going to affect your budget considerably and certainly not more than flipping into fixed.

 

A few more points if what you have read so far isn’t enough and you still have thoughts of locking into fixed:

1) You have to choose a mortgage term equal to the time you have left or longer.

2) You would be locking into current fixed rates not the one that was available when you agreed to on your existing mortgage. That means you effectively pay a higher interest rate presently as a stable payment insurance policy where the added premiums go into your lender’s pockets. Why wouldn’t you just take that extra money that you’d be paying and pay down extra principle on your mortgage to rapidly decrease the overall mortgage balance. Then when/if rates do go up, your mortgage balance is reduced so the increase isn’t as noticeable. That’s effectively what you are doing with the variable mortgage. Heck we could even increase your payments to exactly what they’d be if you were to flip into a fixed and pay down even more principle in the mean time.

3) Fixed mortgages can carry far more substantial early payout penalties due to the dreaded Interest Rate Differential calculation that only comes into play with fixed mortgages. (See my additional link below for more info on this)

Long story short I struggle to see many situations that would see our variable clients benefit by flipping into a fixed mortgage in anticipation of dreaded mortgage doom that we’ve been hearing about for seemingly the past decade. I now have a saying that I borrowed from a colleague — “life is variable — your mortgage should be too”.

In conclusion: I’m not worried about a slight shuffle of variable rates whenever they do come and I’m on variable with my personal mortgage as well. We knew there could be adjustments to the rate when we set up the mortgage in the first place. It wasn’t meant to abandon ship at the very first rate change ripple. The ONLY clients I ever recommend being on a fixed mortgage are those with very narrow budgets where any payment change could cause distress or when they simply do not qualify under variable underwriting.

PS — Now’s probably a good time to highlight a blog that I published a while back in regards to why I side with Variable mortgages more often than not these days in the first place. http://bit.ly/VariablevsFixed

As always, please reach out if you have questions / concerns or want us to review your specific scenario to ensure it’s still a good fit. Click here to get in touch

4 Signs You’re Ready For Homeownership

Mortgage Tips Shaun Serafini 22 Jun

While most people know the main things they need to buy a home, such stable employment and enough money for a down payment, there are a few other factors that may help you realize you’re ready, perhaps even earlier than you thought!

As a Lethbridge mortgage broker serving the city and the surrounding areas, it is my job to ensure that each one of my clients is getting the best service I can provide. Part of this means educating as much as possible when it comes to buying a home, which is why I’ve put together a list of 4 signs that may tell you that you are ready to become a homeowner.

  1. You should have more funds available than the minimum of a down payment

This one may seem obvious, but it’s something that people may not realize until they actually think about it. It’s very difficult to afford a home if you only have enough money for a down payment and then find yourself scrambling for day-to-day living after that.

If you have enough money saved up (more than the minimum needed for a down payment), you may be ready to start house-hunting.

  1. Your credit score is good

This might seem obvious at first glance, however, if you don’t have a good credit score, chances increase that you could be declined altogether or stuck with a higher interest rate and thus end up paying higher mortgage payments. If you have a less-than-optimal credit score, working with a mortgage professional can help you get on the right track in the shortest time possible. Sometimes a few subtle changes can bump a credit score from “meh” to “yahoo” in a few short months.

  1. Breaking the bank isn’t in your future plans

Do you plan on buying two new vehicles in the next two years? Are you thinking of starting a family? Are you considering going back to school?

Although you may think you can afford to purchase a home right now, it’s extremely important to think about one, two, and five years down the road. If you know that you aren’t planning on incurring big expenses that you need to factor into your budget anytime soon, then that’s something that may help you decide to buy a home.

  1. You are disciplined

It’s easy to say, “it’s a home, I’m going to have it for a long time so I may as well go all-in!”. While that would be nice, that’s rarely the case!

You must have a limit that you’re willing to spend. Sitting down with a mortgage broker or real estate agent and analyzing your finances is crucial. It’s important that you know costs associated with buying a home and what the maximum amount is that you can afford without experiencing financial struggles. IMPORTANT: This is not the amount that you are told is your max!

This is the amount that you calculate as your max based on your current monthly budget and savings plan. It’s quite frequent where I have clients tell me that their max budget is, say, $1200  and then when I run the numbers they could actually be approved for much more. Low and behold suddenly these guys are looking at homes that are hundreds of dollars a month higher than their initial perceived budget. It is up to you (with my help or pleading, when necessary) to reel things back in and make sure that you aren’t getting into something that affects the long-term livelihood of a well thought out budget or savings plan.

Conclusion

These are just four signs that you may be ready to purchase a home. If you’re seriously considering buying or selling, talking with a Lethbridge mortgage broker, such as myself, can help put you on the right path to a successful real estate transaction.

To learn more about your mortgage, contact me today!

Source: http://www.businessinsider.com/signs-you-can-afford-to-buy-a-home-2016-10

 

Should You Refinance Your Mortgage?

Mortgage Tips Shaun Serafini 20 May

As a trusted Lethbridge mortgage professional serving Lethbridge and the surrounding areas, I am frequently asked by clients whether they should refinance their current mortgage. People typically ask this question because they have heard that they can lower their monthly payments or that mortgage rates have fallen and they’d like to take advantage of the lower rates available.

While these are valid reasons for wanting to refinance, there is a bit more to this decision than just paying less money per month.

First, let’s take a quick look at what refinancing is. When someone refinances, they are essentially paying off their current loan and swapping it for a brand new one. While it can be extremely beneficial to refinance your mortgage, there are usually some costs involved and doing so can also work against you. This is why it is important to talk to a mortgage professional who will help you determine if it makes sense to refinance.

Here are three of the main reasons that you SHOULD refinance your mortgage.

Locking in a lower interest rate

This is the most obvious reason, and it’s also the most common reason people refinance a mortgage. The general rule is that if you can save just 1% by refinancing, then it’s a no-brainer to do it. Doing so can help save you money and boost the rate that you build equity in your home. I have seen examples where as little as .5% of a difference still equals better long-term standing through a refinance.

You can pay a lower monthly amount by switching your mortgage when there is a lower interest rate available, or you can keep your mortgage payment the same as you are currently paying and rapidly advance the timeline of which your mortgage is paid off.

Consolidating Higher Interest Debt

Another common reason that people choose to refinance is to pay off current high-interest debt by using money built up through equity in their home. Although this may seem like a great idea in the beginning, this reason for refinancing should be carefully planned out with your mortgage broker & financial planner (if necessary).

For example, a good time to refinance to consolidate debt would be when you are certain that once your debts are paid off, you’ll be able to keep them that way. It can hurt you in the long run if you pay off debts via a refinance only to have the debts reappear. It’s quite tempting to start spending again once you see you are clear of debt, so be aware! Deflecting the additional cash streams that you were once paying towards debt into your mortgage or better still, into a diversified investment (TFSA or RRSP) could compound your savings / net worth position dramatically! That’s where your financial planner comes in. I work with a great Lethbridge Financial

Deflecting the additional cash streams that you were once paying towards debt into your mortgage or better still, into a diversified investment (TFSA or RRSP) could compound your savings / net worth position dramatically! That’s where your financial planner comes in. I work with a great Lethbridge Financial planner team that I’m always confident in referring if clients don’t already have someone managing their savings.

Changing from Adjustable-Rate to Fixed-Rate and Vice Versa

If you first set-up your mortgage under a fixed-rate, you may now be open to switching to an adjustable (variable) rate mortgage as it could save you considerable money over time.

Each option has its own benefits and drawbacks. It depends on what type of person you are and the financial situation you see yourself in both presently and over the term of your mortgage. I actually run into many people who are quick to dismiss adjustable mortgages because they don’t fully understand how powerful they actually are and how much money can be saved long term. (These mortgages aren’t nearly as risky as most people think).* This is where advice and planning from your mortgage broker can help you determine what is best suited to your specific situation.

Conclusion

By carefully considering why you want to refinance and talking it over with your mortgage broker, the opportunity is there to drastically save money / improve a family’s financial position down the line.

If refinancing is something that you think you may be interested in, contact a Lethbridge mortgage professional like myself and learn everything there is to know about refinancing!

*Here’s a link to a blog that I published in regards to the Variable vs Fixed mortgage debate – http://bit.ly/VariablevsFixed

Source: http://www.investopedia.com/articles/pf/05/033005.asp

 

No Doesn’t Always Mean No in Lending

General Shaun Serafini 10 May

No Doesn’t Always Mean No in Lending

– Lethbridge Mortgage Blog

 

Last week, new clients of mine took possession of an awesome new home for their family. Despite being sound in all aspects financially, these guys had been told “No” on a mortgage by several banks and brokers alike. The main factor was that one of them became self-employed just over a year ago. Most bank policy these days specifies that unless you have 2 full years history of self-employment, they can’t consider the self-employed income.

 

My clients were told by a friend to give it one more shot. “Call Shaun just to be 100% sure before you give up!”.

 

When they called initially, they were reluctant – confused and almost exhausted. How, despite doing so many things to prepare for this next step (including selling their previous home and moving in with family to save a strong downpayment), was it that they weren’t considered worthy of a mortgage? Becoming self-employed improved their financial situation immensely. They now earned more and had less overhead expenses because of the income tax benefits afforded to self-employed!

 

This story isn’t meant to pump my tires. It’s meant to demonstrate how mortgages and all lending really is entirely subjective. Some deals might not meet the black and white wording of lender policy manuals. That doesn’t make them bad deals – it means the broker/lender might have to position the file differently or request different info that helps to support the area of concern. As a Lethbridge mortgage broker, I work on mortgages EVERY SINGLE DAY. For that reason I know how best to look & position at all types of mortgage files, not just the black & white salaried employment deals.*

 

This is exactly what I did with this particular file. I positioned the strengths, explained the merit of the clients. I also chose a lender partner that I knew would work to welcome the clients as strong future customers on both the mortgage as well as the personal & business banking side.

 

Unfortunately hearing “No” on a loan application can be a huge deterrent and cause many people to give up entirely. I’ve seen people go out and spend the downpayment money they had saved because “banks clearly don’t think we are worth lending to!”.

 

Lethbridge Mortgage

 

Sometimes in lending, a no does actually mean no – for the time being at least. When you work with an experienced Lethbridge mortgage professional, however, the “No” doesn’t have to mean permanently. It’s an opportunity to realign some priorities and try again (sometimes in a very short period) with the added expertise of years of making deals work.

 

My clients took possession of their new home yesterday despite hearing “No” over and over. All these “No’s” eventually led them to me. I’m very grateful for the opportunity to be the one to give them the “Yes” they worked so hard for.

 

*Self-employed files are particularly ones that banks and inexperienced mortgage specialists can stumble over. Here’s a link to one of my colleague’s articles about qualifying for a mortgage while self-employed: https://dominionlending.ca/news/get-mortgage-self-employed-canada/.

 

Please contact me anytime for unbiased mortgage advice. We are located in Lethbridge but can provide Canada-wide mortgage service!

 

Mortgage Decision Making: Embrace, Don’t Fear the Variable

Mortgage Products Shaun Serafini 31 Mar

Ah yes, the age-old ‘Fixed vs Variable’ debate when it comes to mortgages…

Analysis from one of our top lenders:

“There is the notion that the big, trend-setting lenders will be looking to move (fixed) rates up to bolster profits. As well, Bank of Canada Governor Stephen Poloz has hinted he might be willing to let inflation run in order to avoid hiking the policy rate. That would put upward pressure on government bond yields (Also affecting fixed rates). As for variable-rate mortgages, the betting is there will not be a Bank of Canada increase, holding variable rates in place for the foreseeable future.”

You read what the above quote is essentially saying right? Fixed rates are where banks etc. can turn to and manipulate to boost profits. Profits are good if you are a shareholder of a bank. Profits aren’t as cool if you happen to hold a borrowing instrument from one of those same banks. There’s a big reason that most banks aren’t rushing to market and push variable rate mortgages even though almost every one of them definitely has this in their arsenal. The reason is because variable mortgages typically favor the customer, or at least aren’t AS profitable as the fixed rate option.

Here’s an informative blog that a colleague of mine wrote: https://dominionlending.ca/news/top-4-reasons-why-a-variable-rate-mortgage-can-put-you-further-ahead/

In particular, the point that I find most relevant is the penalty calculation, usually a point that isn’t even brought up in the original mortgage application process. On a variable rate, the maximum penalty that can be charged is 3 months interest, in your guys case likely less than $2000 and a pretty basic calculation. A fixed penalty is a different beast altogether. The penalty on a fixed is the GREATER OF 3 months interest or a dreaded Interest Rate Differential (IRD) calculation. The IRD can be very punitive (I’ve seen over $20,000) and very difficult to calculate as it is based on bank posted or bond rates which change daily.

Here’s another colleague blog post that I like as it’s short, sweet and to the point: http://bit.ly/ARMvsFixed

My summary – Don’t believe media fear mongering suggesting to “lock in now or else!” whenever these headlines pop up. A variable rate strategy can be a very strong move to hammer down principal on your mortgage over the next 12-18 months.

Consider the strategy where we set your payment to what you’d pay on the higher fixed rate — all that extra money goes direct to principal. Net result, when / if rates rise, your balance is significantly lower and your budget already fits the rate increase. Despite what some publications would have you believe, rate increases are gradual and should not drastically affect most people’s cash flow situation. Sure your rate could be higher than present day fixed rates years down the road. This is no different than saying putting your money in GICs could produce a better result than investing in Apple stock. I’m willing to bet (and I have with my own personal mortgages) however, that the savings / net worth improvement that can result in the next 12-18 months plus added flexibility in reduced costs/penalties related to variable mortgages wins out over fixed in almost all circumstances. Decades of financial data on mortgage rates in Canada support variable mortgages consistently beating fixed, often by a large margin: (NOTE: Blue=fixed / Red=Variable)

Mortgage product selection is one small aspect of the value that an independent mortgage professional can offer clients. A licensed mortgage professional should bring more to the table than simply an approval and a low rate. By reviewing our client’s entire financial picture and outlook, we help build a plan that best aligns with the individual borrower’s goals & saves the most money overall on your mortgage, now and in the future.

Using a HELOC to Enhance your Financial Position

Mortgage Products Shaun Serafini 13 Mar

Do you have a large amount of equity built up in your home? Are you looking to further enhance your financial position? A HELOC may be just the type of financing that you are looking for.

HELOC is an abbreviation for Home Equity Line of Credit. Basically, a HELOC is a credit account that is secured by property that a person owns. This account can be drawn against for any number of reasons, such as paying bills, consolidating debt, making a large purchase such as vehicle, additional property, financing a new business venture, investing for retirement etc.

The HELOC option when used properly, can be a very powerful tool when looking to enhance one’s financial position. In most cases the interest rate offered on a HELOC is much lower than an unsecured credit line and funds available can be much higher because the line of credit is secured by valuable property. The interest rate on HELOCs typically sits at/around Prime rate, whereas unsecured lines usually are offered at Prime plus anywhere from 2 to 5%. Considering that retail credit cards often pack interest rates of up to 29.9%, you can see why it makes a lot of sense to have the option of a HELOC, especially for large purchases.

Aside from interest rate, there are several other attractive options that a HELOC can provide:

Interest Only payments –most Home Equity Lines allow for interest only payments, meaning your monthly obligation would be less than on a mortgage of the same amount. There is no amortization schedule or commitment to pay back principal required. This feature can prove very useful for cash flow management and is a major component of my investment property strategy for clients.
Fully-open – unlike a mortgage, there are no early payout fees if you decide to pay-off the line of credit. This option is very attractive to investors who are in the “Fix & Flip” or short term investment business.
Revolving Credit – The amount that you have registered for your line of credit is at your disposal for as long as you own the property. If you have a $200,000 line, you can use up to that amount at any time. That means no more having to wait for approval from a bank or lender in the future on large purchases.

A Home Equity Line also can work to enhance investments other than real estate such as RRSP purchases. If a person has $45,000 in RRSP room on their income tax available, wouldn’t they like to know that they have the option of making this max contribution if they feel it’s in their best interest? By setting up a home equity line and consulting a financial planner, one may be able to set up a plan that satisfies both short term and long term tax and investment strategies.

Think of these scenarios and imagine the benefits of a HELOC in each case:
• We’re renovating our house (improving our living and our asset)
• I’m consolidating my debt so I can get it paid off sooner
• I’m financing my own business
• We’re buying a revenue property and are concerned about cash-flow from rent / vacancy
• I’m clearing my credit cards to lower my borrowing costs
• We’re finishing our basement as a rental suite (to earn more income)
• I’m sending my daughter to university
• I’m reinvesting my mortgage to reduce my taxes
• We’re planning and paying for a wedding
• We would like to put a HELOC on our rental property so we can pay off the mortgage on our personal home.

 

As mentioned, a HELOC can provide many strong options to investors who have equity built up in a home. Homeowners can typically borrow or set-up a HELOC up to 80% of the value of a home.

Despite the advantages of flexibility and convenience, HELOC’s are not for everybody and require a higher level of financial management than a typical mortgage loan. For this reason, the requirements for obtaining a Home Equity Line of Credit are much tighter than on a traditional loan. In most cases, HELOCs are reserved for customers who display very high credit ratings and strong credit history. The interest rate on this type of account is tied to prime meaning that as interest rates go up, so too will monthly obligations.

As with any financial decision, it is always recommended that you consult with a professional. A mortgage professional specializes in consultation with clients in regards to mortgage and loan options and knowledge of all products available. It is our job to align you with the mortgage product that best fits your financial scenario / situation.

Please feel free to contact me for questions on HELOC’s or any home financing related questions.

If you’d like to apply for a new mortgage, click HERE to start with our secure online application. 10 mins is all it should take to get us working on your behalf.