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Tag: Bank of Canada

  • How to Combat New Mortgage Rules and Interest Rate Increases

    The past year has been a rocky one for Canadian homeowners. The Bank of Canada announced interest rate increases starting in July of 2017. Since then, the interest rates have increased three times, going from 0.5 per cent to 1.25 per cent. While all this was happening, Canada’s new mortgage rules also came into effect, starting January 1, 2018. These rules add an additional stress test onto uninsured mortgages (those with a down payment higher than 20 per cent) and also put added restrictions onto lenders.

    If you’re a homeowner, or were already struggling with debt, it can seem like a lot to take in all at once. Your financial security can play a large role in your well-being and if you don’t know your financial position or aren’t sure what to do about the interest rate increases or new mortgage rules, it’s understandable. However, there is a way that you can combat these changes and come out financially stronger.

    Let’s start by looking at the new mortgage rules. These are most likely to affect you if a) you’re a new homebuyer, or b) you are up for mortgage renewal or are considering mortgage refinancing.

    If you’re planning to buy or refinance a house, the new mortgage rules could mean that you have to spend less, even with a down payment of more than 20 per cent, if you’re going through a federally regulated mortgage lender.

    If you’re up for a mortgage renewal or considering a mortgage refinancing, it could also mean that you’ll be subject to the same “stress test” and other lender regulations, too — particularly if you were to switch to a different federally regulated lender.

    Under the new mortgage rules, lenders are encouraged to look at more than just the loan-to-value ratio (LTV), which is the amount of the mortgage lien divided by the appraised value of the property. Lenders will also be looking at two other factors — your gross debt service ratio (GDS) and your total debt service ratio (TDS). The GDS is the percentage of your income needed to pay all of your housing-related costs, including the mortgage, taxes, and utilities. Your TDS is the percentage of your income needed to cover all your debts. This can include student loans, lines of credit, credit cards, and more.

    This is where the interest rate increases come in. If you are carrying a large amount of debt, your GDS and TDS will likely be affected as you may be paying more in interest on the amount owing.

    The way to combat both the new mortgage rules and the interest rate increases then is to assess your debt levels. Take stock of your finances: how much debt do you carry? How close to the limit are you with your monthly payments? How far away are you from being unable to manage? Once you know the answer, you can create a plan to make sure that you are in a secure financial position.

    If your debt is seeming overwhelming and that pain point is looming too close for comfort, there is help available. A debt consulting organization, such as DebtCare Canada, can help you assess your situation and find the financial solutions that are right for you.

    If you’d like to buy a house or are up for mortgage renewal, another option you can take is to explore other lender routes besides the federally regulated big banks. DebtCare Canada offers competitive financial programs to help people no matter their credit or income.

    Call DebtCare Canada to find out more at 1-888-890-0888 or visit www.debtcare.ca.

  • 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.

  • BOC Interest Rate Jumps to 1.25%

    Higher interest rates for Canadians are continuing in 2018. On January 17, 2018, the Bank of Canada (BOC) announced an interest rate increase to 1.25 per cent. The BOC interest rate affects all forms of debt, including student loans, home equity lines of credit, credit cards, and more.

    The strong economy, job growth, and business investments were all cited as reasons for the January increase.

    The first BOC interest rate increase came in July of 2017, taking the rate from 0.5 per cent to 0.75 per cent. The second increase happened in September of 2017, going up to 1 per cent. The January announcement is the third increase; however, more are expected to come in 2018.

    “While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target,” the BOC said in a press release.

    The BOC isn’t the only one increasing rates. After the BOC announcement, Canada’s major lenders are raising their prime lending rates, which will affect variable-rate mortgages, home equity lines of credit, and personal loans.

    The BOC acknowledged Canada’s record-high household debt, but said that it predicts consumer spending will go down with increased interest rates and new mortgage rules.

    The next BOC interest rate increase is scheduled for March 7.

    Does the BOC interest rate increase have you worried about your debt levels? Higher interest rates can make outstanding debt that much more difficult to pay off. But there is debt relief available.

    One of the best ways to find debt relief is to work with a qualified financial professional to know your options and make the wisest choice. DebtCare has debt relief programs that can help you cope with this BOC interest rate increase and any future ones, too.

    Call DebtCare today at 1 (888) 890-0888.