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Tag: interest rates

  • 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.

  • What a 1% Increase in Interest Rates Would Mean to Canadians

    We’ve been hearing reports for months now that the Bank of Canada is likely to raise the Canadian interest rate in the coming months, and just a few weeks ago it finally happened. As it stands, Canada’s interest rate is sitting at 0.75%. The previously low rate made it possible for many Canadians to enter a turbulent housing market that continues to grow. However, amidst speculation that the rate could be set to rise again in the near future, many are questioning their ability to hold steady financially.

    What many Canadians don’t realize is that a 1% rate increase, for example, does not signify a 1% increase in payments. The reality is far more troublesome. In fact, a 1% rate hike could actually result in a 10%+ increase in mortgage payments. For instance, if you have a $200000 mortgage, at 3% interest, you’re paying $6000 in interest per year. However, if that rate increases to 4%, the interest grows to $8000 per year, which means you’re actually paying 33% more.

    A recent study done by Manulife Financial highlights how worrisome an increase to interest rates could be for a large portion of Canadian homeowners. According to the study, nearly 75% of Canadian homeowners interviewed said they would have difficulty making their mortgage payments if those payments were to increase by more than 10%.

    A further 38% said they could handle a mortgage payment increase of between 1 and 5% before they would have financial difficulty, while 20% said they could sustain an increase between 6 and 10%, and an additional 14% said that any hike would be a problem.

    As you can see, the study highlights just how unprepared many Canadians are if their debt repayment responsibilities were to increase.

    Furthermore, the Manulife survey found that millennial homeowners would be in the most trouble. This group would have the most difficulty, with 45% saying making their mortgage payment would become impossible within three months or less if the primary income-earner in the family were to suddenly become unemployed.

    If these numbers are cause for concern, perhaps you’re best served by examining the options to reduce or realign your current debt. For example, refinancing your mortgage to consolidate debt while interest rates are still low can significantly reduce your monthly payments and make even a 10% increase far more manageable. With housing prices high, this results in significant equity, meaning refinancing is usually far more feasible. If housing prices drop, this equity will also drop.

    With interest rates already going up, there’s no telling what’s to come. If you’re worried that a further rate increase could drastically impact your financial situation, don’t wait – get things sorted now while the market is still in your favour.

    At DebtCare, we can help you discover how to best situate yourself for financial stability.

    Call us today to discuss a solution: 1 (888) 890-0888.

     

    Source: The Huffington Post, “Canadian Homeowners Would Be Screwed By 1% Interest Rate Hike: Poll,” http://www.huffingtonpost.ca/2017/05/24/canadian-homeowners-rate-hike_n_16782802.html.