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The-Mortgage-Gal

Gauging impact of the Bank of Canada's lending rate change

Prime rate drop impact

On June 5, the Bank of Canada announced it was dropping its key policy rate.

In practical terms, that meant the prime rate dropped by a quarter of a per cent. I’ve had many conversations since the announcement about how that affects (or does not affect) my clients’ mortgage rates.

Fixed rates change based on many criteria. The key factor I watch is the overnight bond yields. When that figure drops, ideally fixed rate mortgage products drop too. A key to note is that means new mortgages may be offered at lower rates. If you are already locked into a fixed rate mortgage, your rate stays the same until your mortgage reaches its renewal date. If you are in a variable rate mortgage this will affect you in one of two ways.

If you have a static payment on your variable rate mortgage (the payment does not change based on changes to prime until there has been a dramatic increase to the prime rate) the change to the prime rate means more of your payment will be going towards the principal of your mortgage and less to interest. If your variable mortgage has an adjustable payment, that means your payment should go down next month because you will be paying less interest.

For the last few months it has felt like many people have been waiting for this announcement. It has been interesting to see what has happened to the fixed rates offerings from lenders since the change to prime.

Coincidentally the overnight bond yields have been dropping for the last few weeks as well.

We are seeing rate drops and specials from multiple lenders. I feel like that has created a flurry of activity with home purchases from clients who have been sitting on the sidelines waiting for positive news.

If you have been shopping and have a pre-approval or rate hold in place, I suggest you connect with your mortgage person to see if there is a better rate available for you.

•••

If you are already a homeowner, make sure you claim your Home Owners’ Grant to ensure your property taxes are calculated correctly for this year.

If you purchased a home over the last year and your lender is collecting your property taxes, check the upper right corner of your property tax bill to confirm your lender is listed. If the lender’s name is not there, reach out to your lender directly to make sure they are set to pay your taxes appropriately. Sometimes, with the first year, there can be a disconnect.

It’s easier to be proactive and catch this before you get a surprise bill with a penalty for not paying your taxes on time.

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



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'No' doesn't always mean 'no' but sometimes it does when it comes to mortgage applications

Mortgage applications

So, I ran into an odd situation recently.

I worked with clients whose application is not completely straightforward. Their credit was squeaky clean and they had their down payment well in hand but they faced two significant challenges:

1. One borrower had only rental income reported (some lenders are not keen on this as the only source of income.)

2. The other borrower is self-employed and showed minimal income on her tax returns.

Another broker actively worked the file without any luck, so their realtor asked if I would take a look with fresh eyes before they collapsed their offer.

Once I started working on the file, I decided to take a different approach and use the business for self-stated income program.

For borrowers who are self-employed and have a minimum of 10% down, we are able to consider what they report on their taxes compared to industry standard income for the same type of work. We also look at what they wrote off as expenses and present a slightly higher income (provided its reasonable).

That is a very simplified explanation but the program worked brilliantly for many of my clients.

I restructured their application and submitted it to one of my favourite lenders. The key pieces all lined up with respect to income, down payment and the community the home was located in.

But there was a plot twist. The insurer declined the application due to marketablility of the home.

What does this mean? In the event a mortgage ever goes into foreclosure, and a sale is forced, both the bank and the insurer (ie: default insurer/CMHC, Sagen or Canada Guaranty) want to make sure they are dealing with a home that would appeal to a wide number of potential purchasers.

After all of the hoops the couple jumped through trying to have their mortgage approved, this was something we did not see coming. We do have an approval in place now with a local credit union but I will say it was a roller coaster of a week.

Why am I sharing this? As I sat back after a particularly challenging week of working on the file, I realized not everyone realizes that “no” doesn’t always mean “no.” But sometimes it might.

Sometimes, it may be well worth your time to explore your options with an experienced mortgage broker if your bank says “no.”

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



When it comes to mortgage rates, it pays to shop around

Finding the best rate

Mortgage rules have changed and evolved over the years.

I was chatting with one of my broker friends to clarify one of the newer guidelines and she sighed and said how hard it it is to stay on top of the policies when they shift so often.

With the introduction of the “stress test” in 2016, we were qualifying clients for either the Bank of Canada benchmark rate (which changed multiple times) or the clients’ interest rate plus two per cent. Most of my clients whose mortgages were coming up for renewal had to qualify at 4.94% or even 5.25%. Interestingly, that was in the ballpark range of where interest rates with many lenders now sit.

I discussed his upcoming renewal with one of my favourite clients. His current lender offered him a renewal rate he was not happy with. Because I had consent from the client, I called the lender to double check if they could do any better than their initial offer. They could not. Because of their internal policy, and the terms of the client’s mortgage, it truly was the best they could offer him.

Because of a fairly recent change to qualification guidelines, other lenders are able to offer far more attractive rates because of the amount of equity he has in his home and the initial purchase price of his home five years ago.

His particular lender is one of my favourites and is usually highly competitive at renewal time. I was very surprised about the loophole in their policy.

Making a long story short, we will be switching to a different lender and saving my client 0.8% on his mortgage rate, which in his case equates to a savings of $21,315.00 over the next five years.

While rate isn’t always the deciding factor, it really pays to do your homework at renewal time.

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



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Dealing with last-minute mortgage glitches

Read mortgage fine print

Read your mortgage paperwork.

I am sharing this situation as a reminder of the importance of reading the fine print. I have been working on a refinance at renewal for a couple in northern B.C. They tried to sell their home but their acreage is unique and they did not have any offers. Their home sat on the market for more than a year and their mortgage was coming up for renewal.

In the meantime, life happened. They were at their limits on multiple credit cards and credit lines and were stretched pretty thin. Work slowed for a bit so his income was down and they had a new baby and she was on maternity leave.

They did have a significant amount of equity in their home, so the plan was made to consolidate their debt to improve cash flow for the short-term. We got an approval with a great rate. So far, so good.

The approval stipulated most of their credit cards and lines of credit would be closed. I submitted the application specifying which ones were to be left open and which were to be closed. When the mortgage commitment came from the lender, I double-checked the list and all was in order.

The lender pulled the clients’ credit reports about two weeks before closing and came back with a few changes because they were now over limit on two more cards. The clients went to the lawyer and learned the new lender wanted an additional credit card closed. That particular card was one they used for rewards points, so they were not willing to close that specific card.

They discovered this change when they were signing with the lawyer two days prior to their scheduled closing date. I became aware of this the morning their mortgage should have finalized. Their lawyer told them it wasn’t an issue and she would sort it out, but the lender was unwilling to compromise.

The clients called me and were very frustrated. After several calls back and forth with the lender and the client, we were able to reconfigure their file a bit so that card stayed open and another credit line was closed.

So where does reading your mortgage paperwork come in?

Most people think once they sign their original documents from their mortgage person their financing is set in stone. In fact, there is always fine print that includes something to say any material change to the clients’ financial situation may cause the financing to be altered or cancelled.

A wise broker I know shared a list of 10 mortgage “commandments” with me in my early days. It laid out 10 things you should never do between the time your mortgage is approved and the time it finalizes. It includes things like not change jobs, buy a new vehicle, co-sign for any loans, spend your down payment, go over limit on your credit cards, etc.

At the time, I remember thinking to myself the list was so condescending I would never share it with clients.

After many years and interesting scenarios as a broker, I go over this list with almost every client. If you think no one would do those things, I can assure you I’ve seen it happen.

In this situation, we were able to sort things out and their mortgage funded the next day.

If you run into something similar at the last minute, loop your mortgage person in. They will likely have no idea things are happening behind the scenes and they are in the best position to help you navigate through it. Our goal is to help you have a smooth experience, so we are here all the way through the process.

Part of my practice is to connect with my clients’ legal representatives so they have my contact information in case anything like this pops up at the last minute.

Clients often don’t know they can reach out for help, and the lawyers may not think to ask.

Should something like this happen to you at closing time, take a deep breath and reach out to your mortgage person.

It may be very simple to solve when the right people are helping.

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



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About the Author

Tracy Head helps busy families get a head start on home ownership.

With today’s increasingly complicated mortgage rules, Tracy spends time getting to know her clients and helps them to better understand the mortgage process. She supports her clients before, during, and after their mortgage is in place.

Tracy works closely with her clients, offering advice and options. With access to more than 40 different lenders. She is able to assist with residential, commercial, and reverse mortgages in order to match the needs of her clients with the right mortgage package.

Tracy works hard to find the right fit for her clients and provide support for years down the road.

Call Tracy at 250-826-5857 or reach out by email [email protected]

Visit her website at www.headstartmortgages.com

Download her app: Headstart Mortgage Architects

 

 



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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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