Rising Interest Rates? Do Not Panic!

Mortgage Tips Trish Pigott 27 Jun

With the recent changes in interest rates by the Bank of Canada, variable-rate mortgage holders have started to panic. We wanted to address these concerns, to assure you that the sky is not falling. Despite what you see in the news, you do not need to panic! There is still lots of opportunity in this market.

Inflation across North America is affecting everyone.  On June 15th, the U.S. Federal took an aggressive step of boosting its interest rate by 0.75%.  Federal Reserve Chair, Jerome Powell, also indicated there could be more, bigger-than-normal, increases in the future.

The U.S. increase follows a 0.5% rate increase by the Bank of Canada at the beginning of June.  Both central banks are engaged in a serious fight to bring inflation back to a 2% target.  Right now, inflation is nearly 7% in Canada and almost 9% in the U.S.  This month’s hike by the U.S. Fed is leading many to believe that Canadians may see another 0.75% increase sometime this year.

This information does not help relieve anxiety from homeowners here in Canada, as a recent survey from Manulife suggests more than 20% of Canadians expect rising rates to have a negative effect on their mortgage, debt, and financial situation. Few Canadians “feel prepared for rising rates.”

However, these fears may be the result of a lack of knowledge rather than any real risk.  This survey conducted by Manulife also reveals that nearly a third of respondents admit that they do not understand how inflation or interest rates work.  Many do not have a household budget or a written financial plan.  This is critical in planning for the future of rising rates in your household.

Want to understand more about our economy and inflation?  CLICK HERE to check out this report from Dr. Sherry Cooper, our Chief Economist.

Here are 5 tips to help plan for the future:

1. First, contact us if you would like your mortgage reviewed.  We can quickly spot different ways to help improve your monthly cash flow including changing your payment frequency or extending your amortization.

2. Consider a debt consolidation – this can save you thousands  in unsecured debts with high-interest by rolling them all into one monthly payment.

3. Prepare a monthly household budget – This is lacking in the majority of Canadian households!  CLICK HERE to get started on tracking your expenses and ensuring your hard-earned income is going to the right places.

4. Hold off on unnecessary purchases for now.  No matter how big or small, now is the time to reign it in.

5. Increase your payments to absorb rising rates if you are in a variable rate mortgage and worried about future payment increases.

Please share this with your friends, family or coworkers who are feeling worried about the rate changes and their current financial situation. We can help put them at ease! And don’t hesitate to contact us with any questions.  When in doubt, call us at 604-552-6190 and we will help ease your stress!

Preparing for Property Taxes

General Trish Pigott 24 Jun

It’s that time of year! Property taxes are due on July 4th, 2022 – You must claim your Home Owner Grant (if eligible) by then as well!

Home Owner Grant

The easiest way to apply for your Home Owner Grant is online. This grant is a credit of $570 that will go towards the total amount owing on your property taxes. To get started, you’ll need the jurisdiction and roll number for the property you are applying for. This can be found on the notice that was mailed to you last month, or on your BC Assessment that was mailed in January. Once you have this information, you can use this link here to get started.

If your property taxes are included in your mortgage payments and paid by your lender, you still need to apply for your Home Owner Grant. Your lender cannot do this on your behalf. If you do not claim your grant, you will face a penalty of 5%. If there are still any unpaid balances or unclaimed grants after Thursday, September 1, 2022, you will be charged a second 5% penalty. 

You can learn more about property taxes and the Home Owner Grant here.

If you have questions, we encourage you to call our office at 604-552-6190. We’re always happy to help!

Are You Ready For Home Ownership?

General Trish Pigott 21 Jun

If you think you’re ready for home ownership then this post is for you! Owning a home requires more than stable employment and money for a down payment – Here are a few additional things to consider.

1. You Can Afford Your Down Payment & Ongoing Costs

Once you have the down payment, it is important that you can also manage the monthly mortgage payments and ongoing maintenance that comes with home ownership. Our “My Mortgage Toolbox” app has a great calculator to help you determine what you can afford on a monthly basis. And we are here to help with that as well!

2. You Have Good Credit

Credit scores play a major role in qualifying for the financing to purchase a home. If you have a good credit score (at least 680) you have nothing to worry about! However, if your credit score is below this, it is more likely that you will be paying higher interest rates or not be able to qualify. Working with a mortgage professional can help get you on the right track as quick as possible. Sometimes all that’s needed is debt consolidation or a few subtle changes.

3. No Other Large, Upcoming Expenses

Do you plan on buying a new vehicle in the next two years? Are you thinking of starting a family? Are you considering going back to school? Although you may think you can afford to purchase a home right now, you have to be honest about your future plans. What does your life look like in one year? Five years? Ten years? Incurring big expenses is something that you need to factor into your budget.

4. You are Disciplined to Budget for Home Ownership

One of the most important factors for purchasing a home is budgeting. You have to know what you can afford and stick with it! It is easy to be tempted by a gorgeous six bedroom home with a backyard pool in a private community – but at what cost? If going all-in is going to leave you scrambling each paycheck or derail any plans of future financial stability, it is worth rethinking. Understanding the difference between what you NEED in a home versus what you WANT is important.

Thank You to Our First Responders

General Trish Pigott 17 Jun

Do you know a First Responder? Perhaps it’s yourself! As a thank you for serving our community, we have teamed up with other industry professionals to help save you money around the costs of purchasing a home or refinancing your current one. Contact our office at 604-552-6190 to find out about our amazing First Responders Program today!

First Responders Program

 

When Was Your Last Credit Check-Up?

General Trish Pigott 14 Jun

A few simple steps to healthy credit…

Just like you have a physical every year to make sure you’re healthy, you should do the same for your credit score. Here are a few things you should be looking for.

Mistakes

Make sure your personal information is correct and up to date. This includes your date of birth and any other identifying information.

Errors

Even creditors make mistakes, so carefully look over any negative information to confirm that it’s true. They will be required to change any errors that you find.

HINT: If you find an error, send a letter to the credit bureau to make them aware and then send a copy to the credit agency that incorrectly reported it. This will ensure it is taken care of in a timely manner.

Outdated Information

Credit agencies are required to remove information after a specific number of years. For example, if you fall behind on your payments and then correct it, the history showing this is to be removed after 6-7 years. However, it’s important to be proactive and follow up to make sure it gets done.

Fraud

We all know someone who has had their identity stolen and nothing destroys a credit score more than this. Often, it may be someone you know such as a family member or a friend. Make sure you keep your credit information protected, as they may suggest that they just “borrowed” it.

Why do errors on your credit report matter?

Even minor errors like a misspelled name or wrong address can lower your credit score and keep you from getting a loan. This is why it’s important to review it every year and keep it “healthy”. We suggest choosing a day that will be easy to remember, such as your birthday or the day you file your taxes.

 

Have questions about your credit score? Reach out to us here!

How Bridge Financing Works

Mortgage Tips Trish Pigott 9 Jun

In life, things rarely go as planned. This is especially true when it comes to real estate, so we have bridge financing to help us. When it comes to buying a new home, most of us would like to take possession of it before having to move out of the old one. This makes moving a lot easier and allows time for painting or renovating prior to moving in. Unfortunately, the transition is not always that smooth.

What is Bridge Financing?

Most people need money from the sale of their existing property to come up with a down payment for the new purchase. This is where bridge financing comes in. It allows you to ‘bridge’ the financial gap between the firm sale of your current home and the firm commitment to purchasing your new home.

What are Bridge Loans?

Bridge loans are short-term solutions that range from 90 days to 12 months, with an average of six months in length. This allows you to access some of the equity in your existing property and put it towards the down payment of your new home. However, to be eligible for a bridge loan, a firm sale agreement MUST be in place on your existing home. This means that all subjects have been removed. A purchase agreement for the new home will also be required to verify the amount needed.

If you have not yet sold your home, you will not be eligible for bridge financing, as the lender needs to accurately calculate how much equity you have available and if you can afford your new home.

If you have a firm sale and are considering bridge financing, it is important to understand that unless you can qualify and pay for two mortgages, you should always sell your existing home first. There are a couple of reasons for this:

1. Property values are constantly changing. You won’t know how much money you have until you sell your home. Past sales and future guesses don’t count!

2. You need the proceeds from your existing home to help pay for the down payment on your new home, as well as renovations, moving costs and to determine the size of mortgage you qualify for.

If you have sold your existing home but the closing date is after the one on the new property, bridge financing will likely be your best option. However, not all lenders allow bridge financing. It is important to consider whether or not you think you need it so you can ensure you sign with the appropriate lender. We will help you find a lender that provides the options you need.

Costs of Bridge Financing

It is important to mention that bridge financing typically costs MORE than your traditional mortgage. It is best to expect the prime rate plus 2-4%, as well as an administration fee. In some cases, if you require a loan over $200,000 or a loan for more than 120 days, your lender may register a lien on the property until the loan is repaid. In order to remove this lien, you will need to consider the added costs of paying for a real estate lawyer.

Private Financing

If you have purchased your new home and are closing the deal, but your existing home has not yet sold, you would not qualify for bridge financing but could consider a private loan. Private financing is expensive, but is generally a more affordable option. Often, if you need to sell your property first, you may be pressured into reducing the sale price and losing thousands.

Private loans do have a much higher interest rate than traditional mortgages, which averages anywhere from 7-15%. The costs associated with a higher interest rate is in addition to an up-front lender fee and potential broker fee. These amounts will vary based on your specific situation with consideration to the loan term, amount, loan-to-value ratio, credit bureau, property location, etc.

When it comes to bridge financing and private lending, don’t waste time trying to figure it out on your own. Give us a call and we will help you determine your best option!

June 1st Interest Rate Update

Latest News Trish Pigott 3 Jun

Bank of Canada Announcement

On Wednesday, the Bank of Canada (BoC) increased it’s prime interest rate by 0.50%.  As mentioned in our previous blog post, this has been widely expected since April.  This change affects variable rate mortgage holders, home equity lines of credit and any loans that are attached to the bank’s prime lending rate.  If you have a fixed rate mortgage, this will not impact your current rate or mortgage payment.

As our economy recovers from the pandemic and inflation across the country becomes higher than expected, the BoC’s rates will continue to increase until inflation falls back to a reasonable level.  There is speculation that we will see further rate hikes throughout the rest of the year until consumer spending is under control.

Here is an example of how the new prime rate of 3.70% affects mortgage payments:

Current Prime Rate at 3.20%
$100,000 Mortgage amount
3.20% Prime rate
25 year Amortization
$483.57 per month

New Prime Rate at 3.70%
$100,000 Mortgage amount
3.70% Prime rate (increased by .50%)
25 year Amortization
$509.88 per month

Payment will rise by $26.31 per month for every $100,000 in mortgage.

If you have a discount off of the prime rate for your mortgage, you will still get that discount off of the new rate.  For example, if your mortgage rate is currently prime minus 0.50%, your new rate would be 3.20% (prime of 3.70% – 0.50% = 3.20%).

It’s easy to panic when you hear this all over the news and social media, but rest assured, you are still in a great position with a variable rate mortgage. If you do feel like you want to look at locking in a fixed rate mortgage, please reach out to us.  Right now, lock in rates for a five year term are around the mid 4% range; This depends on your down payment and equity.

Another option is to set your payment as if you are in a fixed rate. This allows you to not be as heavily impacted by future rate increases, while paying down your mortgage quicker and saving on interest.

It’s important to note that 73% of Canadians break their mortgage term at the three year mark, triggering a penalty that can be very large.  By remaining in a variable rate, you would only be subjected to a 3-month interest penalty which is about a quarter of the penalty when in a fixed rate.

Unfortunately, no one has a crystal ball to predict what will happen in the next 12 – 24 months, but we do know that the government will make every attempt possible to curb spending and bring our inflation back to a more reasonable effort.

While we are in a transition state, here are a couple of tips to follow:

  • Round your payment to the nearest $100 if possible
  • If you want to be more aggressive, set your payment like you have a fixed rate
  • Think twice before making large purchases
  • Budget ahead of time rather than make spontaneous spending decisions
  • Reduce debt in as many cases as you can
  • If you have to make a large purchase (such as real estate), be sure to run all scenarios to ensure affordability and qualification, and make sure you have a professional representing you

If you want to read the full report from our very own economist Dr. Sherry Cooper, please CLICK HERE.

The next interest rate announcement from the Bank of Canada is July 13, 2022.  Feel free to share this information with your friends, family or coworkers, and don’t hesitate to contact us with any questions at all!