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Category: Canadian Mortgage Interest Rates

  • Affordable Housing in Toronto is Still a Major Problem

    Affordable housing in Toronto has been difficult to find for a while now — but despite hopes that it would get better, it is still a major problem for many.

    A recent report from Zoocasa determined that in the Greater Toronto Area, it would take 32 years for a household earning a median income to save a down payment for a typically-priced home.

    And for those renting instead of buying, affordable housing isn’t much better.

    The Canadian Rental Housing Index recently determined that in 20 Canadian ridings — including some in the Greater Toronto Area such as Willowdale, Thornhill, Richmond Hill, Markham-Unionville, University-Rosedale, and more — at least 25% of renters are spending 50% or more of their income on rent alone.

    At least 48% of renters are spending 30% or more of their income on rent.

    “Housing is typically considered affordable if a household spends less than 30% of its before-tax income on rent plus utilities,” the Index stated.

    See more of the Index results here: http://rentalhousingindex.ca/en/#intro

    With increases to home prices and rental rates, it’s no wonder that it’s getting harder and harder to make ends meet. It’s too expensive to live in the Greater Toronto Area and other major cities, and lenders know it.

    If you are in this situation, what can you do?

    While this is a tough situation to be in, the first thing to do is try to free up room in your budget. If you are using credit to balance the shortfall, you may find that doing away with the debt frees up the cashflow you need to pay rent or save more for a down payment.

    Debt can harm your budget in two ways:

    First, it can get in the way of your cashflow. If you are always making debt payments (like paying off your credit card balance plus interest) you’re spending money you could use elsewhere.

    Second, many lenders use your total debt service ratio (TDS) to determine how much you can afford to borrow — particularly when it comes to a mortgage. In addition, carrying too much debt can hurt your credit score, which makes it harder to be approved for low-interest loans. If you are hoping to get a mortgage in the near future, or renew an existing one, lowering your total debt-to-income ratio will only help.

    While getting out of debt won’t make Toronto’s home and rent prices drop, it can make it easier for you to balance your budget and save money at the same time.

    DebtCare Canada helps Canadians deal with outstanding debt. We’ve helped thousands of people reduce or restructure their debt, repair and rebuild credit, access financial help, and more.

    Contact us today for a free assessment to see how we can help you manage your budget while dealing with the lack of affordable housing in Toronto and the GTA.

    Call 1-888-890-0888 or visit www.debtcare.ca.

  • Don’t Wait Too Long to Refinance Your Mortgage – Get Ahead of Rising Interest Rates

    If you’re interested in refinancing your mortgage, it’s better to act sooner rather than later.

    Why? Let’s break down the reasons.

    1. New Canadian mortgage regulations are making it harder to access financing.

    On January 1, 2018, the Canadian government implemented new mortgage rules onto federally-regulated lenders (such as banks). These lenders now have to implement a mortgage “stress test” on potential homebuyers, and those seeking mortgage refinancing.

    What this means is that if you were to get a new mortgage, or refinance an existing one, a federally-regulated lender would need to test your ability to afford the mortgage against a higher mortgage interest rate.

    If you had a mortgage rate of 3%, they might have to test your ability to pay against a 5% rate, for instance. They are also required to take your total housing-related debt (Gross Debt Service ratio – or GDS) and your total overall debt (Total Debt Service ratio – or TDS) into account.

    However, non-federally regulated lenders, like credit unions and private mortgage lenders, are not subject to the mortgage stress test regulations. Unlike big banks, they aren’t required to stress test your mortgage refinancing or take your GDS and TDS into account – but that could be changing.

    Earlier this year, a Reuters article cited three unnamed federal sources who said that the Canadian government is considering extending the stress test regulations to private lenders. This means that non-bank mortgage lenders would be required to use the same measurements for extending mortgage financing as the big banks.

    Canadian Finance Minister Bill Morneau denied the rumours, but the possibility is still there – and if it does happen, you’ll want to be prepared. Which is reason #1 why it may be better to seek mortgage refinancing now, rather than later.

    1. Property values are declining.

    Reason #2 has to do with value of your property. If you’re refinancing, you likely want to access the most equity possible.

    Unfortunately, home prices are rising slowly, perhaps due to the impact of the mortgage stress test and Canadian interest rate increases. And less homebuyers are able to access the market.

    More than 100,000 Canadians have been kept out of the housing market due to the stress test regulations, according to Mortgage Professionals Canada.

    If you’re thinking of refinancing your mortgage and this trend continues, it might mean that your property value could drop, too. And if private lenders are subjected to the same regulations, it could mean even less people entering the housing market – and even further property value declines.

    1. Mortgage rates are rising.

    Five-year fixed rate mortgages reached their lowest point in late 2016, according to Rate Hub. Since then, mortgage rates have gone up about 0.5% per year. At the beginning of 2019, the lowest fixed rates were around 3.29%.

    Variable mortgage rates are also on the rise (and subjected to Canadian interest rate increases).

    “Even with discounting, the best five-year variable mortgage rates are still up about 0.75% since this time last year,” says Rate Hub.

    The moral of all this is that if you’re considering mortgage refinancing – don’t wait.

    At DebtCare Canada we offer first mortgages, second mortgages, home equity lines of credit, and more.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • What You Should Know to Be Financially Prepared for 2019

    Make a Personal Finance Plan for Higher Interest Rates, Mortgages, Line of Credit Payments, and More

    The new year is upon us. Do you have a personal finance plan for 2019?

    The Canadian economy is changing. We have already seen the effects of this in 2018. Canadian consumer debt is staying at high levels — Canadians owe more than $2.13 Trillion in debt —and interest rates are continuing to rise.

    The same tactics that used to work for managing your finances may not cut it for 2019.

    When interest rates were at all-time lows, if you wanted to renovate your house, it might have made sense to take out a purchase line of credit (PLOC). But rising interest rates mean both higher mortgages and line of credit payments, so this may not be a practical choice any longer.

    The housing market may continue to cool, so home value could decline — meaning it is possible that you will not be able to access as much home equity.

    Plus, if you are using lines of credit with variable interest rates, you may find yourself paying more over the long run, especially if you are already carrying other debts.

    Going into 2019, you should have a plan for your debt — a personal finance plan.

    First, ask yourself these questions:

    1. What debts am I currently carrying?
    2. Are there any that will fluctuate with interest rates (credit card debt, lines of credit, unsecured loans, etc.)?
    3. If so, is there a way that I can consolidate debt now before interest rates increase again?

    Then consider your home equity.

    And, finally, look at what is on the horizon for 2019 (and beyond):

    • What financial projects am I hoping to complete in 2019?
    • What big savings goals are coming up in the next five years? Ten years? (Retirement, kids going away to school, relocating, etc.)
    • How much will I need for those goals and what is the best way to finance them?

    When you know the answers to these questions, you can make a budget for the year ahead and stay on the right financial track.

    There have been several interest rate increases already, and economists are predicting even more in 2019. Waiting and seeing could prove dangerous if you are carrying a lot of debt.

    Even if you are not carrying a lot of debt, it may be in your best interest to think about big expenditures now rather than later. The new year is the perfect time to sit down and plan for the future. Be sure that your planning includes your personal finances!

    DebtCare Canada can help you make a personal finance plan that considers your entire financial position.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • Bank of Canada Staying at 1.75% for December 2018 – But Don’t Delay Dealing with Interest Rate Debt

    Good news for 2018: we won’t be seeing any more Bank of Canada interest rate increases this year.

    On December 5, 2018, the Bank of Canada (BOC) announced that the overnight interest rate would stay at 1.75% for the month of December.

    The next interest rate announcement is scheduled for January 9, 2019.

    What does this mean for Canadian consumers? It’s a positive if:

    • You’re carrying a lot of debt — this means your payments won’t be increasing yet.
    • You’ve been charging holiday purchases to your credit cards. While you’ll still have to pay for those purchases, and associated credit card interest rates if the balances aren’t paid in full, you won’t have an additional BOC rate hike.
    • You have a variable-rate mortgage. This means that your rate won’t be increasing this month.
    • You’re rebuilding credit. If you’re working on credit repair, it’s important to pay your bills in full and on time. If you have bills that are affected by changing interest rates (i.e. not a fixed cost), it will make it easier on your budget.

    What this doesn’t mean:

    • You should spend more this holiday season. Remember that whatever you charge will need to be paid off in full and on time if you want to avoid interest. If you’re racking up holiday purchases and are tempted to spend more because of the interest rate hold, proceed with caution.
    • Interest rates are done increasing. It’s possible the BOC will raise rates during the January 9 announcement. If so, this is a relatively small window. Make a plan now while there is a break in increases.
    • You can ignore dealing with debt. If it’s hard to make ends meet now, it will be even more difficult if rates rise again. Honestly assess your finances and ask if you could handle an increased rate. If not, it’s time to consider debt management options, like accessing home equity, applying for a debt consolidation loan, or filing for a consumer proposal or for bankruptcy.

    DebtCare Canada can help future-proof your budget against interest rate increases.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • Facing a 2019 Mortgage Renewal? 3 Things You Need to Know

    In a month-and-a-half, it will officially be 2019. What will the future bring for you? If you’re anything like almost 50% of Canadian homeowners, it might bring a mortgage renewal.

    The Bank of Canada estimates that 47% of residential Canadian mortgages with Big 6 banks will be up for mortgage renewals in the coming year, with another 31% coming due in the next one-to-three years.

    This is significant because economists are already predicting something else 2019 will bring — higher interest rates and, in turn, higher mortgage rates.

    Since July of 2017, the Bank of Canada (BOC) has increased Canadian interest rates five times going from 0.5% to 1.75%. Experts predict that interest rates could reach 2.5% by 2020.

    Plus, the beginning of 2018 saw new mortgage regulations introduced, which dramatically affected the Canadian housing market, shifting supply and demand.

    If you’re facing a mortgage renewal in 2019, here are the three things that you need to know:

    1. Mortgage stress tests and house prices are keeping many out of the Canadian housing market.

    Mortgage Professionals Canada found that 100,000 Canadians have been prevented from buying a home due to new stress test regulations. Resale activity in Canada has fallen by 12.5% compared to 2017 and is down 16.5% from 2016.

    The homeownership rate in Canada is slightly down, too, from 69% in 2011 to 67.8% in 2018.

    If you are up for mortgage renewal and planning to move, this could mean that selling your current home may be more difficult. It could also be harder to find another house in a similar price range to move into.

    1. Interest rates are on their way up.

    In July of 2018, mortgage renewal rates were still fairly standard. Mortgage Professionals Canada found that the average five-year fixed-rate mortgage renewed at 3.32% (vs. 3.31% in 2013). The average five-year variable-rate mortgage renewed at 2.50% to 2.75% (vs. 2.73% in 2013).

    While this wasn’t much of a difference in July of 2018, the gap could grow in 2019. Canadian interest rates are continuing to increase. This could, in turn, affect mortgage renewal rates.

    And some homeowners have been getting much higher rates on renewal, depending on their lender and the length of their term. For instance, one homeowner who had a seven-year mortgage term spoke with CBC News in June of 2018 and said that he had been given a significantly higher rate on renewal (2011 vs. 2018).

    Plus, small fees can add up. CBC News did the math and found that on a $300,000 mortgage, even a tiny rate hike of an extra 30 basis points on a 25-year mortgage at a fixed rate of 3.74% for five years can add an extra $15,000 in interest costs over the entire life of the loan.

    That’s an extra $50 per month. On larger mortgages, the increase would be even more.

    1. Mortgage renewals aren’t exempt from the stress test.

    Borrowers do not have to undergo the mortgage stress test on renewal if they stay with their current lender.

    But if you are considering switching lenders to get a better rate, then you would find yourself being subjected to the test.

    The stress test requires the borrower to prove that they could afford their mortgage at either the average of what the big banks currently offer as their five-year fixed term, or two percentage points higher than the actual loan.

    For example, if you had a mortgage rate of 3.25%, you might have to prove that you could afford a mortgage rate of 5.25%.

    If you cannot pass the test at a federally regulated lender, the lender cannot give you the loan, which would either force you into a smaller mortgage and a cheaper home, or even out of the market altogether.

    Alternative lenders and credit unions do not have to follow the stress test rules.

    If your mortgage is up for renewal in 2019, starting to plan now for these eventualities will leave you more prepared.

    • Look at your current mortgage rate and compare to other rates on the market.
    • Take a hard look at your current finances and debt levels to see if you would pass a mortgage stress test.
    • Ask how a higher mortgage rate would affect you — could you afford it?
    • When it comes time to renew, if you decide to switch lenders, shop around. Know your options. It may be more cost-effective to choose an alternative lender or credit union.

    At DebtCare Canada, we can help you manage your debt and finances to make sure that you can pass a mortgage stress test.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • Pros and Cons of Refinancing Your Mortgage Before Renewal When in a 5-Year Term

    Refinancing your mortgage can be a great way to consolidate debt and ease your financial standing, but there is one important consideration to make: the timing.

    If you’re thinking of refinancing your mortgage before your five-year term comes to an end to access home equity, you need to consider the pros and cons.

    Pros:

    Accessing home equity through a mortgage refinancing can allow you to put your debts into one payment. You can pay off your outstanding, higher-interest debts with your home equity, and then pay off your mortgage loan through one, monthly payment — likely with a lower fixed-interest rate.

    Cons:

    If you are breaking your current mortgage before the current term is up, it may not be cost-effective.

    When thinking about using home equity to consolidate debt, you have to consider:

    • The rate your mortgage is currently at vs. the current mortgage rates.
    • Prepayment penalties.
    • The amount you owe on your current mortgage in proportion to your debt.
    • The amount of equity you have and your credit standing.

    Let’s look more at these.

    A. The rate your mortgage is currently at vs. the current mortgage rates.

    Is the current lending rate higher than what you are paying on your mortgage? If it is, then it may cost more in dollars and cents to increase your entire existing mortgage by 1-2% to pay down debt.

    Mortgages are usually much higher than what most people carry in personal debt. If you already have a good mortgage rate, then refinancing for a higher rate may not be the wisest decision. You could be paying more in the long run.

    B. Prepayment penalties.

    These can get quickly get expensive if you are refinancing before your mortgage renewal.

    These penalties could include:

    • Mortgage prepayment penalty (normally the equivalent of three months’ interest).
    • Mortgage discharge fee. If you are switching lenders, you may be charged this. Fees are typically between $200 to $350.
    • Mortgage registration fee. This is typically around $70 but varies by province.
    • Legal fees. This can vary widely, but are, on average, between $700 to $1,000.

    Be sure to look at your current mortgage contract to see what the terms are and consider what the penalties may be if you were to refinance early.

    C. The amount you owe on your current mortgage in proportion to your debt.

    Consider this example: you have a $300,000 mortgage at 3% interest and 15 years of amortization left on your mortgage. You also have $40,000 in credit card debt at 14% interest. You’re considering refinancing to a new mortgage rate of 5% over a 30-year amortization.

    On the plus side, you’ll be getting rid of your high-interest credit card debt quickly, but on the negative side, you will be making mortgage payments for far longer than you otherwise would have if the amortization schedule hadn’t been extended.

    If you refinance your mortgage and have to make higher payments each month, you also risk the danger of defaulting on your mortgage if you can’t afford the monthly payments.

    D. The amount of equity you have and your credit standing.

    Do you even qualify for mortgage refinancing?

    New mortgage regulations and changes in the housing market may mean that refinancing is going to be more difficult than you may think.

    All Canadians now have to pass a stress test to make sure they can afford their mortgage. If you are refinancing your mortgage, you may have to qualify at the higher stress-test rates rather than your existing contractual mortgage rate.

    And, if your credit is bruised, you may not be eligible for refinancing, or you may not have enough equity available in your home.

    Solutions

    If you have home equity but don’t want to refinance your mortgage, a secondary financing product may make more sense. It would carry the same benefits — one payment and lower interest than credit cards — but it wouldn’t impact your first mortgage.

    If you think you can’t refinance because you don’t have enough equity in your home, you can still likely consolidate debt using other financial avenues. A good financial consultant can educate and arrange these for you.

    At DebtCare Canada we can help you weigh your debt consolidation options, whether you are refinancing your mortgage, considering a secondary financing product, or otherwise.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

     

  • Canada’s Second Mortgage Rate Increase in a Row – What Does it Mean to You?

    Back in September, for the second time this year, the Bank of Canada raised interest rates, leading to the inevitable mortgage rate increase at banks and lending institutions across the country. How does the latest BOC interest rate increase impact you?

    After seven years of historically low interest rates, analysts and economists predicted that a mortgage rate increase was in the cards. Experts predicted that the BOC would raise rates because of the unending growth of hot urban real estate markets like Vancouver and Toronto and the increasing levels of consumer debt carried by Canadians. They also noted that, despite all signs indicating weak inflation, the economy continues to exceed expectations.

    After months of speculation, in July the BOC finally posted the first overnight rate increase in what seemed like forever. But it was the most recent increase in September to a full 1% that really surprised some economists, many of whom believed that at least a few more months would be required to have the economy settle after the first rate increase.

    Macleans suggests that this will be the last rise for some time while the BOC monitors the “sensitivity of the economy to higher interest rates.” However, Business News Network put forward an argument that the BOC could just as easily justify rate hike number three as early as October. At the beginning of 2017, economists predicted rates would rise by 1.25% sometime in early 2018. Could it happen even earlier?

    Why are interest rates rising? In a nutshell, when economic growth is high, as it is in Canada currently, demand for money increases, pushing the interest rates up. And, with the overnight rate at 1%, the mortgage rates at the Big Five banks went up accordingly.

    Mortgage rates now range from 3.25% to almost 5% on a 5-year fixed-term mortgage. Compared to an average rate of 2.3% just a few months ago, such an increase could make obtaining a new mortgage more difficult, especially for anyone with outstanding debt. This is especially true if there’s going to be another rate hike this year.

    To improve your circumstances, whether you’re planning on seeking financing at those higher rates or just want to be prepared, you should tackle your overall debt. A great way to do this is by taking advantage of the equity in your home. Home equity loans allow you to borrow against the value stored in your home. They can be useful for borrowing large amounts of money, and they’re easier to qualify for than other types of loans because they are secured against your house.

    If your home is worth more than you owe on it, a home equity loan can provide funds for anything you want (you don’t just have to use it on home-related expenses, for example). A home equity loan is a type of second mortgage.

    After the recent mortgage rate increase, it may be time for you to take a good look at your financial situation before another one is announced. Whether tapping into your home equity, renewing or refinancing your mortgage, or getting a second mortgage, you could potentially save hundreds, even thousands, of dollars. With so many options available, it may seem impossible to decide which option is best for you.

    Before you make a decision, we recommend consulting a financial professional first, someone with your best interests in mind who can guide you to the best solution for you.

    At DebtCare, we can help you choose the best options to suit your needs and your budget.

    Call us today at: 1 (888) 890-0888.

  • Are You Ready for Canadian Mortgage Interest Rates to Go Up?

    Currently, Canadian mortgage interest rates are at record lows. This has been great for those looking to obtain mortgage financing over the last few years, whether first or second mortgages. However, as the saying goes, nothing lasts forever.

    Back in March, CTV News reported that experts are warning of a rise thanks to U.S. bond prices. According to the article, “Fixed rate mortgages, the most common in Canada, are tied to long-term Canadian bond prices, which are in turn tied to U.S. bond prices. Banks sell bonds to raise money to lend to mortgage holders and other borrowers. When the U.S. Federal Reserve raises rates, bond prices typically fall. As bond prices fall, banks tighten their lending, and mortgage rates rise.” This could mean hikes for Canadians looking to refinance their current mortgages.

    Read more on this here: http://www.ctvnews.ca/business/mortgage-expert-warns-u-s-fed-will-cause-rate-increases-in-canada-1.3322093.

    If mortgage rates rise, many Canadians could be in trouble, especially those with high levels of debt. For example, if five-year fixed rates were to rise from 2.5% to 3% on a $300,000 mortgage, that would result in an almost $80 increase to each monthly payment. An increase to 3.5% would represent almost $150 more per month. Can you afford an increase of $80 a month? What about $150?

    Using your mortgage to get your debt in order is a great way to prepare yourself should Canadian mortgage interest rates rise. Doing so can help get rid of the various monthly payments, leaving you with one monthly mortgage payment. This will greatly reduce interest and should help you better manage on a monthly basis. But you have to act quickly.

    Start by finding out what your home is actually worth and verifying how much equity you have to play with. These two numbers will help you determine the refinancing option best suited to your situation, be it a first mortgage, a personal line of credit, or a second mortgage.

    Even if you have bad credit, having enough equity could put you in a much better financial position, helping to restore your credit and getting rid of some of that stress caused by the debt.

    Using your home to refinance and consolidate debt is a great financial option, but you need to strike while the iron is hot. It is best to lock in at the current low rates before things get more expensive.

    DebtCare offers a free, fully-customized, property valuation report and mortgage refinancing advice to help you make the most prudent financial decision.

    Get in touch today by calling 1 (888) 890-0888.

     

     

  • Financial Focus: Canadian Mortgage Interest Rates Have Nowhere to Go But Up

    rsz_mortgage_interest_ratesA few weeks ago, we came across a CBC News article which discussed a recent TransUnion survey, and the results of that survey were quite startling. We’ve spoken before about low interest rates and the fact that many Canadians have taken advantage, but it is clear that those low interest rates have nowhere to go but up. What are the potential impacts of a rate hike? The CBC article enlightened us.

    According to the article, “Almost a million Canadians wouldn’t be able to handle even a one percentage point increase in the interest rate they pay on their debts.” Even more alarming is the fact that over 700,000 of those individuals wouldn’t be able to meet their monthly financial obligations if the interest rate went up by as little as 0.25 percentage points. That’s a staggering number.

    While the TransUnion study does show “an overall healthy situation for Canadian borrowers, where the vast majority are staying on top of their debts and could withstand modest increases in the rates they pay on them,” if you believe yourself to be in the minority, this may be cause for more than a little concern.

    Are you financially prepared if a mortgage interest rate increase is announced in the near future? Could you continue to comfortably pay all of your bills, on time, even if one of those (probably the largest one) went up?

    If not, you may want to start thinking about how you can work on getting to a place where you could. Perhaps it would be prudent to use some of your home equity to consolidate debt while rates are at all-time lows and get some of those bills off the table.

    Want to discuss your options? DebtCare can help. Call us today: 1-888-890-0888.