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Category: Mortgage Interest Rates

  • Looking to Buy a House?

    Our feature in Redfin’s latest article:

    11 Tips on How to Save for a Downpayment

    Owning a home is a milestone is a person’s life. However, it has not always been easy to accomplish. By learning some of the basics of home ownership and how to save for a downpayment, you will be able to make wiser decisions about owning a home. Whether you are looking to buy a condo in Miami or a home in Atlanta, each of these tips is important. Take a look at what we had to say about the most effective ways to save for a downpayment.

    Looking to Buy a House? 11 Tips on How to Save for a Downpayment

  • 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.

  • 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.

     

  • Should You Get a Home Equity Loan to Pay Off Debt Before Interest Rates Increase Again?

    How confident are you that you could survive another Canadian interest rate increase? If your answer is “not very” perhaps it is time to consider getting a home equity loan to pay off debt.

    Since July of 2017, the Bank of Canada (BOC) interest rate has increased from 0.5% to the current 1.5%. Although the BOC held off on increasing the rate again in September of 2018, economists speculate that rates could go up as soon as October 24, 2018 — the next scheduled BOC announcement.

    Throughout the remainder of 2018 and 2019, experts predict that interest rates could reach as high as 2.25%. If that happened, would you be able to cope?

    Increasing interest rates affect all forms of unsecured debt — credit cards, lines of credit, unpaid bills, variable-rate mortgages, and more. Even some secured debts, like a fixed-rate mortgage, could be affected when it is time for renewal as Canadian mortgage rates have also increased along with the interest rate.

    This means that if you owe $10,000 on a credit card and are paying 1.5% interest, you would owe $10,150 with the interest calculated. However, if the interest rate were to increase — say to 1.75% — you would owe $10,175.

    That may not seem like much of a difference, but credit card interest rates are rarely that low, so you may be paying even more in interest. In that case, even an extra $25 could be a big burden. And many people have more than $10,000 worth of debt. Some have hundreds of thousands worth of debt; 1.75% interest on a debt of $100,000 would be an extra $1,750.

    Plus, the longer it takes to pay off a loan, especially one like a credit card debt without a repayment schedule, the more interest you will be charged. Imagine that extra $25 multiplied by 12 months — suddenly you would be paying $300 more during the year than you otherwise would have. Even if you can afford it, couldn’t that money be put to better use elsewhere?

    The solution is to deal with your debt before interest rates increase again. And you may just be standing on a way to pay it off — literally.

    If you own a house, you could potentially access financing to pay off your outstanding debts by taking out a home equity loan or refinancing your mortgage. You would likely be left with one monthly loan that you would have to repay, but you would have a fixed-interest rate. This way you would know exactly what you have to pay every month, so you could plan for the expense.

    Some debt consolidation options available through your home equity include:

    By consolidating debt through a home loan or mortgage refinancing, you could protect yourself against future interest rate increases and make sure you stay financially well no matter what the BOC decides.

    At DebtCare, we offer one of the most competitive financial programs to help people no matter their credit or income. Bad credit? No problem. Self-employed? No problem.

    Contact us today for a free consultation to find out more about using a home equity loan to pay off debt.

    Call 1-888-890-0888 or visit https://debtcare.ca/financial-products/.

  • What the Bank of Canada Increase Means for Mortgage Interest Rates

    If you’re reading this blog, you likely already know that the Bank of Canada interest rate increased again on January 17, 2018, going up to 1.25 per cent. You likely also know that the Bank of Canada (BOC) interest rate hike affects all forms of debt — credit card, student loans, and, of course, mortgages.

    But what you may not know is just what the BOC increase means for your mortgage interest rates. That’s where we come in.

    Exactly how much the BOC interest rate increase will affect your mortgage depends on several factors. The first of these factors is what type of mortgage you have.

    There are two types of mortgages: fixed-rate and variable-rate. Fixed-rate mortgages have a standard payment that is made every month. The payment amount stays the same for the duration of your loan agreement and you always know what you will pay and when. For those who already have a fixed-rate mortgage, the BOC interest rate hike likely won’t affect you unless it’s time for you to refinance your mortgage (more on that in a minute).

    The second type of mortgage is the variable-rate mortgage. This is the mortgage type that is most immediately affected by increasing interest rates as the amount you pay monthly changes based on current interest rates. So, if you have a variable-rate mortgage and the BOC interest rate goes up by 0.25 per cent, your mortgage interest rate will be going up by 0.25 per cent. If you have a variable-rate mortgage, you may want to consider locking into a fixed-rate term instead. It’s still up for debate among economists how much money switching to a fixed-rate mortgage will save over the long run, but if interest rates continue increasing (which the BOC governing council has said they likely will) switching could result in bigger savings and, at the very least, a lot less stress.

    There is, however, a scenario where a fixed-rate mortgage could still be affected by the increasing interest rates: mortgage renewal. When the BOC interest rate increases, banks follow by raising mortgage interest rates, so if you are renewing your mortgage, you may be affected by the increased interest rates. Canada’s new mortgage rules also affect mortgage renewals. If you’re renewing or refinancing your mortgage, you may be subject to a stress test to make sure you can afford your mortgage. One way you can prepare for the stress test is to create a cushion in your savings and budget to ensure you can afford these slight increases.

    The combined interest rate increases and new mortgage rules could make it more difficult for potential homebuyers to purchase a house and obtain a mortgage from traditional big banks. There are other options available, though.

    At DebtCare Canada, our financing programs offer financial help to people with all types of credit and income. When the bank says no, we say yes. We can help with first mortgages, second mortgages, home equity lines of credit, and more, even for those with bad credit. Learn more about our competitive financial programs by calling 1-888-890-0888 or visiting www.debtcare.ca.