Debts / Downpayment / First Time Home Buyer / Insurance / New to Canada / Pre-Approvals / Pre-Payment / Purchase / Qualifying / Rates & Terms / Refinance / Rental Properties

This or That

Deciding is hard, here’s help!

We often receive inquiries from potential borrowers just looking for some preliminary pointers about all of the mortgage options available to them. We usually start out with a discussion about their specific mortgage requirements and home ownership goals as nothing replaces a custom solution. However, if they are not really sure what their requirements or goals are, we instead provide some general recommendations based on our experience. This week I want to share a really brief overview of the most popular questions we see along with some suggestions to help you decide which options may be best for you.

Buy now or wait

If you’re waiting for rates to go down, it’s likely not going to happen and if you’re hoping housing prices decrease, that “may” happen, however, based on economic conditions they are not expected to go down by much. If you’re thinking long term, now is a good time to buy as our local market is considered to be pretty stable. Short term home ownership goals under buy and flip strategies could be a bit harder to achieve if you’re depending on any quick equity growth as we’re not seeing property values go up at a quick pace these days. Qualifying for a mortgage could be more difficult in the future if we see additional mortgage rule changes so I say it’s a good idea to take advantage of your borrowing power sooner than later. I believe it’s a good time to be a homeowner right now as you benefit not only from low rates and a stable market, the vacancy rate is low too which affords an effective strategy if you’re thinking of renting out your property.

Increase your downpayment or pay off debt

Paying down your personal debts will most often allow you to qualify for a higher mortgage amount. If you do have a fair amount of personal debt, sometimes best to speak to the mortgage professional PRIOR to actually paying down the debt as they may direct you on exactly what debts are best to pay down first. If you are able to increase your downpayment, this will lower your high-ratio mortgage insurance premium (if applicable) and decrease your monthly mortgage payments. Though do keep in mind, as the mortgage is amortized over 25 years, sometimes more down doesn’t necessarily reduce the cost or payments by much. If you do decide to pay down debt versus putting a higher down payment than is required, you may see overall monthly payment obligations are reduced more than if you were to put more down on the house.

Fixed or variable interest rate

I recently wrote an entire article on this one, so consider this just a conversation starter leading to a more detailed discussion with your favorite mortgage professional. The pro of a variable rate is historically it has seen interest savings over its fixed counterpart. The con is fluctuating payments could also accompany a variable rate mortgage as the rate charged is dependent on what the prime rate is at. The prime rate is set by the Bank of Canada every 6 weeks. Alternatively, fixed rates offer an unchanging rate and a set monthly payment for the length of term you select. Also a notable difference between the two is a fixed term of 5-years or longer features a lower qualifying rate than that of a variable rate mortgage term.

Short or long mortgage term

With access to a large selection of term lengths do be advised the decision of which one to take at the time of a purchase may not always be yours to make. The reason why is if you choose any term longer than 5 years you are qualified at the rate in effect for that term, 5 year fixed these days is around 3.39%. Yet, if you choose a 4 year term or shorter or a variable rate term, you must qualify at the government set benchmark rate which is 5.14% today! And further to that it is important to have some forethought when it comes to choosing a term which is right for you given you face a potential payout penalty if you break your mortgage term early for any reason. You may be interested to know the majority of Canadians will make significant changes to their mortgages after 4 years.

Monthly or “accelerated” weekly or bi-weekly payments

That’s an easy one, the accelerated weekly and bi-weekly payment frequencies will work out the same as you making one extra monthly payment per year directly onto your mortgage principal. Monthly payments may be more convenient for you and if that’s the case, do try to utilize some of your allowable pre-payment privileges to lower your mortgage balance. Applying lump sums or increasing your monthly payment amount will bring about a lower mortgage balance come renewal time

Refinance now or wait until renewal

At mortgage renewal time, you can make any changes you like to your mortgage with no penalties. If you want to increase your mortgage amount or extend the amortization, whether it is in the middle of your term or at renewal time, it is considered a refinance. A mortgage refinance involves you having to re-qualify, provide a bit more documentation and there is a chance of a few out of pocket costs. The decision to break your term and refinance your mortgage is not always an easy one. If you are considering breaking the term early in order to secure a lower rate which will result in lower payments I think the new rate should be at least 1% lower than your current rate. If your goal is to access home equity in order to pay off high-interest debt and reduce overall payments sometimes the refinance before the renewal date makes perfect sense. Have your mortgage professional do up some amortization schedules for you so you are then able to make a decision based on the facts of exactly what it will cost you in the long run.

Even with the mortgage rule changes over the past few years, there are still a lot of mortgage options available to potential borrowers. If you’re thinking of getting a mortgage, the first step is to get your finances in order to determine your best financing eligibility. Then narrow down your mortgage choices to one that suits you best by prioritizing what’s important to you and lastly, have a conversation with your favorite mortgage professional.

If you’re looking for an experience mortgage broker, contact The Mortgagegirl at 780.433.8412 or info@mortgagegirl.ca. Stay in the loop by following on Twitter @mortgagegirlca.

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