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Bernadette Laxamana’s Mortgage Update – Tagalog Version
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Jan 18
Bank of Canada Update and New Mortgage Rules
Good day everybody! This is the first edition of our blog for 2011. We have two breaking news items for you today. The first item is good news. Governor Mark Carney of the Bank of Canada did not change its key lending rate this morning, meaning Prime rate remains at 3%. Prime has been stable since September 2010 and there are some talks that it may remain that way until maybe summer or fall of 2011. The next meeting will be on March 1 and you can count on us to give you an update on that day!
What this means is if you have a variable mortgage you can continue to enjoy the benefits of the lower rate but I strongly urge you to pay a higher amount than what’s required to pay down your principal at faster pace. This will allow you to be mortgage free faster!
The second news item is not so good. Yesterday, Finance Minister Jim Flaherty announced new mortgage regulations as follows:
- Maximum mortgage amortization will be reduced from 35 years to 30 years.
- The maximum amount Canadians can refinance their mortgages will be lowered from 90% to 85%. Please note that this applies only to refinances not purchases. For home buyers the downpayment requirement is still 5%.
- The government will withdraw government insurance backing on lines of credit secured on homes.
What does this mean to you?
The first rule will reduce your purchasing power. For example, under the current rule a family with a household income of $60,000 can purchase a home for 440K with 5% downpayment. Under the new rule the same family will only be allowed to purchase a home for a maximum of $410K – a $30K reduction. Also, for every $100,000 mortgage your monthly payment will be $35.00 more. Therefore if your mortgage is $300,000 then you will be paying about $105 more for the same mortgage. That extra payment will go towards principal (we cannot discount that) and yes it is a good thing however, to some families the extra $100 payment is a lot and they would want to use that for something else.
Of course that gap widens when rates increase, I am using a rate of 3.89% in my calculation.
My advice if you are pre-approved is it’s good to purchase sooner rather than later to take advantage of lower monthly payment and get better bang for you buck. A $30K price difference or more for higher income families can give you a much nicer home! It may mean more bedrooms, better location, and a bigger space.
The second rule has a bigger impact for homeowners, especially those who need to take some equity out for renovations, debt consolidation, improve net worth through investments and RRSPs and for those who want to reduce their mortgages into lower rates. Many clients opt to add the penalty to their mortgage and accelerate their payments thereby reducing their principal balance over their term, getting back the penalty they paid, saving thousands of dollars in interest cost and being mortgage free sooner. Imagine paying your mortgage 5-10 years sooner, that’s a lot of money!
If you have been sitting on the fence about whether now is the right time to refinance, it’s time to get off that fence and act now. If your home is worth $400K then instead of being able to borrow $360K then you can only borrow $340K. You have to leave the $20K instead of being able to use that for more urgent and important needs for your household. Imagine if your home is worth $500K then instead of borrowing $450K, you could only borrow $425K which is a $25K reduction in borrowing power! If you are a homeowner, please call me today to discuss your options…don’t delay.
The government said these rules will take into effect in March. In my experience the insurers implement the new rules well before the deadline, so it’s best to act now.
Please call me at 604 436 4600 to discuss your options!
Thanks for reading!
We welcome your questions and feedback.
Bernadette Laxamana’s Mortgage Update – English Version
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Mar 11
Mar 11
Good day everyone! There’s been a lot of changes since our last blog. The biggest change is the rules regarding qualifying for mortgage loans for those who wish to take a variable mortgage or a fixed rate mortgage with a term of less than 5 years. After April 19, the Finance Department wants the Banks to use the 5 year posted rate to qualify which currently is around 5.49%.
What does this mean? If you are a purchaser with a $50,000 income and you want a variable rate mortgage or maybe a 3 year mortgage, the maximum amount that you can buy with 5% downpayment will only be $230,000 after April 19. Before April 19, you can purchase for up to $300,000. What if you still want to buy for $300,000 after April 19? Then choose a 5 year fixed rate because that rate is lower and so you can qualify to purchase the amount that you want. If this is unclear please call me so that I can explain better.
Another change is how they use the rental income from suites and other properties that borrowers own. Before we could deduct 80% of the rental income from the mortgage payment, however, the new rule is after April 19, we can only use 50% of the rental income. Again this means that the approval amount on properties with rental suites and for purchasers with other properties will drop. If you have a pre-approval please call me after April 19 because we may have to adjust your pre-approval limits.
On a much more positive note, according to RBC’s annual RBC Homeownership study we will have another busy year in real estate. 91% of Canadians still believe their home is a good investment and 26% expect their home to be their primary source of income when they retire.
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent).However, combination mortgages had the highest increase in popularity this year, with 40% intending to take both a variable and fixed rate component, up from 32% last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
“Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road,” said Marcia Moffat, RBC’s head of home equity financing. “Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate.”
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
“The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it’s important that homeowners – especially first time buyers – get solid advice about what they can afford, not only today, but down the road,” added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. “Stress test” your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one – three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Contact me 4 months before your mortgage matures so that I can scout the market for the best options for you.
2. Consider a combination (hybrid) mortgage to manage your interest costs. If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today’s low interest rates on the variable rate mortgage portion.
Finally, if your current mortgage rate is 5% or more please contact me so that we can find ways of reducing your interest cost.
Bernadette Laxamana’s Mortgage Update – English Version
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