Be the Better Borrower - How the BoC Interest Rate Announcement May Impact You.
Well, what a day Wednesday July 13th was, most of the financial industry (including the best economists in the country) was caught off guard by the Bank of Canadas move of raising its policy interest rate by 100-basis points. Most were confidently predicting a 75-basis point hike (like the move the US Federal Reserve made in June), but the Bank of Canada shocked most of us with a full 1% hike, the largest single hike in over 20 years. And why pull out the big guns? To fight inflation of course as most of us are now well aware, but instead of fighting what was originally considered transitory inflation, the concern now is that if inflation becomes entrenched (meaning we all believe it is here to stay for a while), it can put upward pressure on wages and we then run the risk of a wage/price spiral. Not good, and theoretically quite likely a worse outcome than a recession. And speaking of a recession, there are many now predicting that a recession is inevitable and along with it coming a decline in interest rates as attempts at that point will need to be made to jump start the economy. Good news in some ways I suppose in that forecasting declining rates somewhat tempers the current headlines of impending doom, but truly crystal ball stuff and apparently mine has a crack in it! So, what does this mean for you as a borrower? Well, if you are currently in a fixed rate mortgage product, it doesnt have any immediate impact on you. Your monthly payment remains the same however, depending upon your situation and when your current term is up for renewal, you could be facing the prospect of higher interest rates at that point and for some, that could mean some pretty good sticker shock. If on the other hand you are in a variable rate mortgage, in most cases, your monthly mortgage payment will be (or in my opinion should be) going up. The reason I say should be is because some lenders have a variable rate mortgage product with a fixed payment meaning your payment will remain the same for the term of your mortgage with the monthly split going to principal and interest, and ultimately your amortization, changing in the background. With this type of variable rate product (again in my opinion) it is beneficial and prudent to consider voluntarily increasing your monthly payment to realistically reflect the market conditions and retain your current amortization. And lastly, like a variable rate mortgage, if you have a home equity line of credit (HELOC), your monthly payment will also be going up. So, what does going up mean for those with a variable rate mortgage and anyone with a HELOC? At this stage its good to understand the basic math. For every 25-basis point increase in the Bank of Canada policy rate, borrowers can expect their payment to increase by about $13/month for every $100,000 borrowed. Given that last week the BoC raised its policy rate by 100-basis points, this then represents four times that amount which is about $52/month more. Accordingly, that $100,000 balance on a HELOC will now cost about $52/month more than it did a month ago, and a $500,000 variable rate mortgage will cost about $260/month more. And its important to point out here that those same monthly payments go down in times of declining interest rates and is why, based upon historical trends, there are many who believe a variable rate mortgage strategy will save you money over time. What can be said is that while this may be true, it is not true 100% of the time and so the choice between a fixed rate or variable rate mortgage is a personal decision based upon comfort levels. The final word? If youre not 100% certain of your mortgage details (and any other debt for that matter), dont stick your head in the sand. Do a review to ensure youre doing all you can to minimize your costs in terms of servicing your debt. This may mean making some changes, or perhaps even doing nothing at all, but at least know your situation and ensure youre on course. And for those who perhaps have drifted a little off course maybe that HELOC was a little too convenient and the balance is higher than you want, or your credit card balance is a little high due to some pandemic spending check in with me to see if a plan to utilize some your home equity makes sense to consolidate any expensive (and stress inducing!) debt you may have.READ MORE
Be the Better Borrower - Reverse Mortgages. Let's be Clear!
Reverse Mortgage. There, I said it. Almost feels like theres an elephant in the room now, doesnt it? In my opinion, no other mortgage product seems to garner more negative feedback, or has a greater negative stigma, than that of a Reverse Mortgage. Bring it up with friends or family and its often met with oh, those are bad or cant you lose your home with one of those? Just Googling the term Reverse Mortgage can yield a list of peoples previous negative searches indicating the general dislike or misunderstanding of what I believe to be a very good product in the right situation. In fact, just now I typed Reverse Mortgage into my Google search bar and Reverse Mortgage Horror Stories comes up in the list of options Im given to complete my search! Its too bad really, but perhaps understandable as there likely were a few horror stories that the media chose to sensationalize in the early days of reverse mortgages which made it easy to conclude that these types of mortgages perhaps were indeed and forever bad. However, fast forward to today and we now have a product that has evolved, especially in Canada, with protective features and safeguards that many of us conservative and polite Canadians might expect! While its clear of course that reverse mortgages are not for everyone, what cant be overlooked is that there is a very real and growing segment of the population today that is retired (or about to retire), that is on a fixed income, and that perhaps has not managed to save enough for retirement or have some sort of pension plan in place. And these good folks, while perhaps not the best of prepared for retirement, like many boomers they are potentially healthier and more active than previous generations, they would prefer to age in their current home, and they could benefit from tax free access to the equity in that home. Reverse mortgages are on the rise in Canada and in my opinion, this is a clear indication of the need for the product as well as its market relevance. In the UK, the product is called an Equity Release Mortgage (a term I personally prefer to that of Reverse Mortgage) and there they have a penetration rate of 5:1 compared to Canada (on per capita basis), which is a further indication of the strong relevance of this product in another arguably sophisticated market. If you, or someone that you know, would like to explore the options with respect to a Reverse Mortgage, Id be happy to help. And full disclaimer, I dont treat this product lightly and as something to necessarily rush into. I believe in exploring all options and likely even engaging a financial adviser to ensure it is the best plan/option for my clients.READ MORE
Be The Better Borrower - Five Sound Reasons to use a Mortgage Broker
I couldnt help myself. Almost daily, I find myself in conversations where I need to let people know the benefits of working with a Mortgage Broker. As there many reasons in my opinion, to keep it tight, here are my 5 go tos No cost to you the borrower. On a typical residential mortgage transaction, 99% of the time there is no cost to the borrower as brokers are typically compensated with a finders fee from the lender. Unbiased advice. Mortgage brokers are independently licensed and have access to products from multiple lenders, thereby allowing for a broad range of options and tailored solutions. This contrasts with mortgage advisors that may work only for a specific lender and only have access to that lenders suite of products. Preferential Rates. Based upon being part of a national network and achieving large volumes with multiple lenders, mortgage brokers have access to preferential rates that are often lower than those that a borrower could negotiate on their own. Solutions for unique situations. Self-employed? Bruised credit? Sometimes borrowers dont tick all of the boxes with a bank so where do they turn? A mortgage broker may be the best option for a solution. Committed. A good mortgage broker is committed to their clients real estate investment journey and has a vested interest in their long-term success. In the end, as I like to say, its an absolute no-brainer to work with a mortgage broker. Or at least speak with one. A good mortgage broker will ALWAYS be helpful, whether it be helping you develop a mortgage strategy tailored to your needs or confirming that your options with your existing lender are best for you to stay with. Its on us to provide sound advice and direction that best suits the client.READ MORE
Be The Better Borrower - A Mortgage Broker? Sign Me Up!
I suppose its fair to say that I continue to be both disappointed and surprised with respect to the lack of knowledge people seem to have when it comes to mortgage brokers. What is it that you do exactly? or Oh, I didnt know that! are things I often hear and while perhaps disappointing, the upside is that it certainly creates an opportunity for discussion and for me to enlighten! Ancient History? Somewhat ironically, my father worked for one the big banks and years ago when I ventured out to purchase my first condo, he instructed me to drop into the local branch, speak to Barb (name made up because I dont recall!) and shed get me looked after. Now to be clear, while I wasnt likely going anywhere else when my father was employed by that bank, nor was I getting any special treatment as I needed to qualify just like anyone else, it was just what we did back then. Our parents had relationships at the banks or credit unions, and we often followed suit. We used the branches for our daily banking, for car loans, for getting our credit cards, and the list goes on. Its not your parents bank anymore. Fast forward to today and the local branches are a different place. The convenience of online banking, among other things, means were no longer reliant on the physical store fronts like we used to be and as a result, relationships such as those our parents had with their financial institutions are less likely to develop for us. As a mortgage broker, I have dropped into numerous branches to introduce myself to their mortgage specialists (sometimes their clients dont tick the boxes and they can refer them to me for a solution), but I seldom find them. Thats because they are either mobile because people dont drop in as they once did, or they cover multiple branches. I know what I would do. Given the choice between working with the apparent convenience of an anonymous online platform that can pre-approve me (really?) in 3 minutes, or work with a mortgage broker who can be an ongoing resource for me, help me understand my options and strategize ways to potentially save my hard-earned dollars? I would choose a mortgage broker. Given the choice of working directly with a single lender and only the products they offer, or working with a mortgage broker that has access to multiple lenders and perhaps can even represent me at my own financial institution? I would choose a mortgage broker. And finally, given the choice of trying to negotiate my own rates, or work with a mortgage broker who, based upon lending volumes and discounts, has access to all the best rates with lenders that want to compete for my business? I would choose a mortgage broker. Oh, and perhaps THE most important consideration. A mortgage broker can do all of this and in 99% of circumstances it comes at no cost to me? Sign me up!READ MORE
Be the Better Borrower - Who Doesn't Love a Great "Before & After"?!
I know I do, and anyone that knows me well, knows that Im a sucker for a great renovation. You know, the interior renovation that once complete, makes you think it was always meant to be that way, or the exterior renovation that makes you wonder how a house that is 40 years old, can look like it was built last year. In my opinion, those are the best, and the most satisfying renovations in so many ways! The challenge with such renovations however is that they can be somewhat costly and if youre like most, you dont put aside enough money to tackle such a project when the time comes to do it. And thats where I come in. As a mortgage broker I get the best of both worlds in that not only I can help you arrange the necessary financing for your renovation project, but I also get to feel the satisfaction helping someone on their path to a better home. Heck, I enjoy the renovation process so much, a client might even have trouble keeping me off the crowbar in the demolition phase! And theres that word I used above. Financing. A single word that can conjure up some negative emotions as we recall the cheesy ads inviting us to borrow for things (generally depreciating assets) that we dont immediately have the money for. But in my opinion, this is different. What Im referring to here is the intelligent use of some idle equity to reinvest in, and ideally increase the value of, what is likely your most valuable asset. Not to mention, get even greater enjoyment out of that asset which is almost priceless. If you have owned your home for several years, it is likely that the value of your home has increased quite significantly, and this is where the potential to put that idle equity to good use comes in. Accordingly, there are four potential options we can explore Conventional Refinance Most lenders will allow you to refinance up to 80% of the value of your home. Reverse Mortgage I prefer the term Equity Release (more on that in another post!) but if youre 55 years of age or older, you can turn the equity in your home into tax free cash. Home Equity Line of Credit (HELOC) You can use this to access the equity in your home and its different than a conventional mortgage in that it doesnt have an amortization period, so you only pay the interest if you use it. Second Mortgage If the cost to break your first mortgage is prohibitively high and you would like the money before your existing mortgage renews, perhaps a second mortgage can be the solution. If you are contemplating a renovation, get in touch with me as Id love to help you explore your options. And who knows, with the cost of selling, moving, and buying, perhaps staying put and investing funds in your existing home is the way to go!READ MORE