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How to reduce payment shock at renewal time By Barb Eglauer – one of our preferred service providers

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How to reduce payment shock at renewal time     By now, “trigger points” should be in the vocabulary of nearly every variable rate mortgage holder. 

There’s been a great deal of coverage lately about trigger points due to the rise in interest rates so far this year. 

Put simply, it’s the point where variable-rate mortgage borrowers with fixed mortgage payments are no longer paying down the principal, as 100% of their payment is going towards interest. 

In most cases, the lender will reach out to affected borrowers to arrange an increase in their monthly payments.

And in the meantime, as rates have been rising, so too have amortization periods for borrowers with variable rate mortgages with fixed payments, since the mortgage balance is being paid down at an increasingly slower pace. That is, until renewal time, when the mortgage may renew at a higher rate with higher payments to bring the mortgage amortization back to the maximum number of years permitted. 

The benefits of making mortgage prepayments

Rather than waiting for your mortgage to renew, impacted borrowers can take pre-emptive action and increase their mortgage payments in advance to soften the impact at renewal time. 

If you’ve currently got a variable-rate mortgage with fixed regular payments, consider reaching out so we can review your options available.

Just as compounding interest can work wonders for growing savings, making additional payments to your mortgage–which always go directly towards paying down the outstanding balance–can have a surprising long-term impact and potentially shave years off your amortization. 

Even if you have a fixed-rate mortgage, it’s an option that should also be considered to help mitigate any higher payments at renewal time.  

Give me a call

If you’d like to know more about the benefits of making prepayments or increasing your monthly payment amount–and if it’s the right decision for you–please don’t hesitate to call me. I’ll be happy to walk you through the math and show you the long-term impact on your mortgage. 
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Bank of Canada Raises Rate by 75 bps By Barb Eglauer One of Our Preferred Service Providers.

The Bank of Canada raised its key lending rate by 75 basis points this morning, bringing it to 3.25%.

In its statement, the Bank said, “short-term inflation expectations remain high” and that inflation risks becoming “entrenched” the longer it remains elevated. As a result, the Bank says interest rates “will need to rise further.”

“As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target,” it added.

What happens now?

In the coming days, banks and other financial institutions are expected to follow the Bank of Canada’s lead and hike their prime lending rate, which is used to price variable-rate mortgages and personal and home equity lines of credit (HELOCs). 

Fixed-rate mortgage holders will see no change to their rates. 

This is the fifth consecutive rate increase from the Bank of Canada. If you have any concerns about this rise in borrowing costs, I encourage you to reach out so we can discuss your personal situation and options. https://uandimortgage.com/

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Bridge loans: What are they and how do you use them? With Barb Eglauer one of our preferred service providers

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Anyone who has bought and sold a home in the past knows it can sometimes be tricky to get the closing dates on both deals to line up perfectly. 

This is often crucial for a buyer since they normally rely on all or part of the proceeds from the sale of their current home to make the down payment on their next purchase. 

But when that’s just not possible, a bridge loan–or bridge financing–can be a useful solution. 

Below I’ll explain in detail how bridge financing works and some things to keep in mind should you consider it. 

What you should know about bridge loans

“Bridge” loans get their name since their purpose is typically to bridge the gap between when a homeowner sells their current property and closes on their new home. 

This loan allows them to make their down payment on the next property while they wait for their pending sale to close. For this reason, bridge financing is intended to be a temporary solution, generally ranging from a few days  to a few months. 

But there’s a cost for that convenience. Because of their short term, bridge financing is priced higher than typical mortgage rates. Some lenders may also charge an administration fee and, depending on your situation, legal fees may also be involved. 

While most lenders, including all of the Big Six banks, offer bridge loans, not all lenders do. If you think you may require bridge financing, it’s important to contact me ahead of time to ensure the option is available. 

The pros and cons of bridge financing

There are a number of reasons why bridge financing could be an ideal solution. For one, bridge loans are generally easier to qualify for compared to standard mortgages. This is because the lender knows you will have the money to repay the loan once your sale is finalized. 

It can also open up additional purchase options, as you won’t be as limited by tight closing deadlines. Not having to worry about lining up closing dates can be a huge stress relief and bring peace of mind knowing your down payment for your next property is already in hand. 

And, because the loan will likely be in place for just a couple of months or so, it ends up being a reasonably cost-effective option, even with the higher interest rate.  

This isn’t to say there are no risks. A bridge loan is still a substantial financial obligation for the borrower, which hinges on the sale of their property being finalized. 

If you want to know more about bridge financing, I can help you explore the available options. Call me today! 

Bank of Canada Raises Rate by 100 bps – By Barb Eglauer One Of Our Preferred Service Providers

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Bank of Canada Raises Rate by 100 bps

The Bank of Canada raised its key lending rate by 100 basis points, bringing it to 2.50%.

The Bank said inflation is “higher and more persistent” than what it had forecast in April, and will likely remain “around 8% in the next few months.”

In its statement accompanying the decision, the Bank said, “With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates…”

What happens now?

In the coming days, banks and other financial institutions are expected to follow the Bank of Canada’s lead and hike their prime lending rate, which is used to price variable-rate mortgages and personal and home equity lines of credit (HELOCs).

Fixed-rate mortgage holders will see no change to their rates.

We, as well as many economists, are surprised by the 100 bps increase as expectations were for 75 bps, and understand it may come as a surprise to you as well. I encourage you to reach out so we can discuss your personal situation. 

Your Mortgage Renewal Questions Answered 

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Many homeowners dread mortgage renewal time, especially when interest rates are rising as they are today.

It means you’ll likely be resetting your mortgage at a higher rate, with higher monthly payments. 

But as always, you have options. Should you renew early to avoid even higher rates? Or perhaps refinance to lower your monthly payments? 

We’ll answer these questions and more to ensure you can face your next mortgage renewal with confidence. 

How early can I renew my mortgage?

You’re generally advised to start thinking about your mortgage renewal at least six months before the end of your term. This ensures you have ample time to speak with me about your situation and shop around if you’re not happy with your current lender’s renewal offer. That said, some lenders allow you to renew early by as much as six months. That means, depending on the lender, we can start the process and secure your rate as much as 10 months out, which could be very valuable if rates continue to increase.

Should I renew early to beat rising rates?

If you’re hoping to lock in at today’s rates early—more than four months in advance of your renewal date—to beat any further rate increases, you could face a prepayment penalty for terminating your contract early if the lender doesn’t have an early renewal option. In this case, we’ll need to do the math to ensure the move makes financial sense.

Should I accept my lender’s renewal rate offer?

Anyone with negotiation experience knows to research the first offer you receive. While it may be tempting to simply sign the dotted line and avoid further hassle, you’ll potentially be leaving money sitting on the table, with a better renewal rate possible with a little bit of haggling. 

Just make sure your lender can’t call your bluff. Due to government regulations, should you choose to switch lenders for a better rate, you will need to be stress-tested at the minimum qualifying rate, which is currently 5.25%, or the rate offered by your lender plus 2% – whichever is higher.

If you plan to shop around, be sure your financial situation hasn’t changed and that you’ll be able to re-qualify with a new lender. 

Does it make sense to refinance?

If you are facing a significantly higher rate at renewal and are worried about the increase in your monthly payments, refinancing your mortgage is another option and can be done on your renewal date without penalty in most cases. You’ll be taking out a brand-new mortgage, complete with a new rate, new term and possibly a new amortization period. Extending the amortization can allow you to withdraw funds for renovations, investments, etc., or lower your monthly payments to improve cash flow.

Allow me to help

If you’re feeling stressed about the possibility of your payments increasing or your mortgage is coming up for renewal in the next 12 months, let’s review your options. I’ll be happy to explain all of the above options in further detail and help and guide you through the entire process.

Rate Hikes Are Coming – What Should You Do? With Barb Eglauer – one of our preferred service providers

The Bank of Canada may not have raised rates at its recent January meeting, but it’s clear that interest rates are headed higher tout suite. 

Those with a variable-rate mortgage may be understandably on edge these days, despite the fact many will still come out ahead of a fixed rate, even after several Bank of Canada rate hikes. But I get it, nobody likes paying more in interest. 

So, what can those with a variable-rate mortgage do to mitigate the effects of any forthcoming rate hikes? Let’s look at a few options. 

  1. Ride the wave. Variable-rate mortgages have historically come out ahead vs. fixed rates over the long run. Of course, there are circumstances where this isn’t true. However, as far as history can be a guide to the future, in the Bank of Canada’s last four rate-hike cycles, it has raised interest rates by an average of 144 basis points. The latest market forecasts have the Bank of Canada hiking rates up to five times by the end of this year, or 125 basis points. And an average of big-bank forecasts expects an overnight target rate of 1.75% by the end of 2023…so 150 basis points above today’s rate. With a current average spread between fixed and variable rates of 150 basis points (averaging high-ratio and conventional rates), the likelihood of you breaking even is pretty high.
  2. Lock into a fixed rate. Those who value a restful night of sleep may feel more comfortable locking into a fixed rate before variable rates start to rise. However, nobody can perfectly time interest rate movements and fixed rates have also been rising steadily over the past year. The premium you may end up paying to convert to a “safer” fixed rate could eat away at your expected savings. You’ll also want to review your personal situation with me beforehand, as locking into a fixed rate if you plan on selling or refinancing in the future could trigger a higher prepayment penalty than if you stayed with your variable rate.
  3. Use prepayments as a hedge. For those willing to ‘ride the wave’ and stick with a variable rate over the course of whatever rate hikes may come, you can mitigate rising interest costs by paying down your mortgage more quickly. Prepayments are extra payments in addition to your scheduled mortgage payments, or increases to your regular payments, and are directly applied to your principal balance. One approach is to use fixed rates as a guide and set your payments as if you were paying a higher fixed rate mortgage, thereby accelerating your principal repayments. However, you need to be cognizant of your lender’s prepayment restrictions, which are typically 10% to 20% of your mortgage balance per year. Maximizing these prepayment privileges can be an excellent way of hedging rising rates, as you’ll be reducing your interest-cost, potentially more than any increase as a result of rising rate. 

Whether you’re considering riding out the coming hikes, prepaying your mortgage or thinking about locking into a fixed rate, please give me a call and I’ll be happy to review your situation to help you make the right decision.

Making Sense of All the Rate-Hike Predictions- By Barb Eglauer One Of Our Preferred Service Providers

There’s been a lot of talk in the news lately about where mortgage rates are headed. 

We know the obvious direction from here is up, but what we don’t know is how high and how quickly. Nobody, not even the experts, can accurately predict this. But they try.

Scotiabank came out with a headline-grabbing forecast recently, saying it expects the Bank of Canada to deliver eight quarter-point hikes (totalling 200 basis points, or 2%) by the end of 2023. This would cause the prime rate to rise, likely by the same amount, which is used by banks and other lenders to price their variable-rate mortgages and Home Equity Lines of Credit (HELOCs).

Seeing predictions like this may be concerning to many borrowers. But keep in mind that few other experts share this outlook. For one, housing analyst Ben Rabidoux, President of Edge Realty Analytics, says the fear of rate hikes is overblown, and that eight hikes in the next two years is close to a “pipe dream.” 

To keep things in perspective, the other big banks expect anywhere between one and three Bank of Canada rate hikes by the end of 2023.

Keep in mind that economist forecasts change constantly and are often proven wrong. Rather than focusing on these predictions, it’s more important to take a more general view when making your financial decisions.

What Should You Do?

One of the biggest questions for any mortgage shopper is whether to go fixed or variable. This isn’t always an easy decision in the best of times, and can be particularly overwhelming given the current economic volatility. 

With the prospect of higher rates ahead, many new mortgage shoppers and those with existing variable-rate mortgages are asking themselves if now is the time to lock into a fixed rate. This may sound tempting, particularly for the peace of mind fixed rates offer, not to mention they’re still not far off their historic lows. But it’s also important to consider some implications of locking in right now. 

Without getting too caught up in precise timing, we know that fixed mortgage rates are rising due to a run-up in bond yields (which typically lead fixed rates). And we know variable rates, which take direction from the Bank of Canada decisions, aren’t likely to start rising until the second or third quarters of next year, most likely to be followed by a modest pace of hikes in the years following.

This means the spread between fixed and variable rates could widen even further in the coming months, increasing the interest savings of a variable rate in the short term. Most variable rates are currently over a full percentage point less than comparable fixed rates right now.

Even if variable rates rise in the coming years to be in line or even slightly higher than today’s fixed rates, you could still come out ahead thanks to the savings realized in the early part of the term. But as I mentioned above, there’s much more to take into consideration than just interest cost. 

The good news is this isn’t a decision you need to make alone. Call me today and let me analyze your situation so, together, we can make the right choice for you.

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A Look at the Government’s Housing Commitments – Barb Eglauer One Of Our Preferred Service Providers.

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A Look at the Government’s Housing Commitments 

Not much changed following last month’s federal election. However, the governing Liberals now have an opportunity to deliver a fresh slate of housing policies designed to create stability and assist first-time homebuyers in the marketplace.

If implemented, some of these policies could impact potential future homebuyers.

I’ve summarized the government’s key housing promises below…

Housing Supply

The Liberal Party proposes to build, preserve or repair 1.4 million new homes in four years. They plan to achieve that target through some of the following initiatives:

  • Housing Accelerator Fund
    • Invest $4 billion in a Housing Accelerator Fund to build 100,000 new middle-class homes by 2024-25.
  • $2.7 billion for the National Housing Co-Investment Fund 
  • $600 million for office and retail space conversion to housing
  • A temporary ban on foreign ownership
    • Foreign citizens would be barred from purchasing Canadian housing for the next two years, unless it’s proven to be for future employment or immigration within the proceeding two years. 
  • “Anti-flipping” tax
    • Applicable to residential properties sold within 12 months of purchase. 


Mortgage Qualification Policies

  • Changes to the First-Time Home Buyer Incentive (FTHBI)
    • In 2019, the government introduced the FTHBI, a shared-equity program where eligible first-time buyers can receive up to 10% of their down payment. Through the Canada Mortgage and Housing Corporation (CMHC), the government participates in any gains or losses in home value, until the loan is repaid, either when the home is sold or after 25 years.  
    • Under the new plan, participants could choose between the shared-equity arrangement or opt instead for a loan that is repayable only at the time of sale.
  • Increase mortgage insurance eligibility cap to $1.25 million
    • This is an increase from the current cut-off of $1 million. The cap would also be indexed to inflation.
  • Reduce CMHC mortgage insurance premiums for new buyers by 25%
    • The Liberals said this could save the typical buyer $6,100.


Financial Assistance

  •  Tax-free First Home Savings Account
    • This fund would allow Canadians under 40 to save up to $40,000 towards their first home. The money could be withdrawn tax-free, with no requirement to repay it, and used to purchase a first home. 
  • $1 billion for rent-to-own projects
  • Multi-generational home renovation tax credit 
    • Provide a 15% tax credit of up to $50,000 for homeowners who add a secondary unit to their home for the use of immediate or extended family.
  • Double the First-Time Home Buyer Tax Credit to $10,000 from $5,000


Miscellaneous

  • Home Buyer’s Bill of Rights 
    • Some of the proposed measures include: 
      • ban blind bidding
      • ensure banks and lenders offer mortgage deferrals of up to six months in the event of a job loss or major life event
      • ensure transparency on the history of recent home sale prices
      • establish a legal right to a home inspection


There’s no doubt the government has its work cut out if it wants to move forward with all the above proposals—especially given minority government status. 

And what ultimately ends up as law could be quite different from what was proposed during an election. 

barb.eglauer@mortgagegroup.com

What May Happen if You Miss a Mortgage Payment?

What May Happen if You Miss a Mortgage Payment?

For the majority of mortgage borrowers, missing a single mortgage payment is not a concern. 

But have you ever wondered what would happen if, for some reason, you couldn’t make your payment?

Below I’m going to share with you the process that would follow, and also some options that are available to folks to hopefully avoid ever missing a payment. 
As I mentioned, most borrowers are very diligent and go to great lengths to make sure their mortgage payments are made each month. 

For many, that means using the same account their paycheque goes into or setting up automatic transfers the day before their payment to ensure the funds are always available. Even those who experience difficult times typically do everything possible to make their payments, including using lines of credit or even temporary loans from family members to get them through the tough times. 

But for some, hard financial times or a forgotten transfer do result in missed mortgage payments. 

When a payment is missed, your lender will generally call or send a letter notifying you of the missed payment and remind you of your contractual obligation to ensure it gets paid. 

In the case of a forgotten payment, as long as you can send your payment within 30 days of when it was due, you’ll generally get away with a warning and a late fee from your lender. 

If you don’t have the funds to continue your payments or are late by more than 30 days, more serious consequences can follow. This may start with a downgrade to your credit score, followed by collection efforts by the lender.  

But it doesn’t need to get to this point. 

Talk to Your Lender, there are Options Available to You

If you foresee financial issues on the horizon that may prevent you from making your mortgage payments, whether due to a job loss or illness, etc., the best course of action is to contact your lender right away and explain the situation. 

Many lenders offer an annual skip-a-payment feature, allowing you to miss one payment annually. For some financial situations, lenders can offer solutions such as interest-only payments, amortization increases or mortgage deferrals. 

By reaching out to your lender as soon as possible, you increase the chances of being able to work out a solution that avoids late payments and negative impacts on your credit score, or worse yet, a potential foreclosure. 

We’re all human and understand that unexpected events can and do happen. But being proactive about the situation always results in a better outcome vs. avoiding or delaying an inevitable missed payment. 

Should you find yourself in a similar situation and need advice on how to proceed, please don’t hesitate to reach out. I’ll be more than happy to assist in finding a solution.

Call me today!

Barb Eglauer

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Mortgage Pre-Approvals: What Are They, and Do You Need One? – Barb Eglauer One Of Our Preferred Service Providers.

Mortgage Pre-Approvals: What Are They, and Do You Need One?   There’s a common misconception among some homebuyers that if you’ve got a pre-approval, your mortgage is basically guaranteed. 

But this isn’t always the case. Having a pre-approval doesn’t automatically mean the lender will fund your mortgage. 

Below, we’ll explain what a mortgage pre-approval is and whether it’s worth getting one.

A mortgage pre-approval is a conditional approval granted by a lender based on a preliminary review of your financial situation and creditworthiness. While this preliminary approval usually requires a credit check, information about your debts and income are based on details you provide to your broker, which are then shared with the lender. A pre-approval is often based on that information alone, without the lender verifying the documents or knowing which property you’re going to buy.

For these reasons, a pre-approval isn’t binding until a lender has a chance to do its own due diligence and fully verify your financial information. It will also have to review details of the property you plan to purchase, which can include requiring an appraisal and/or inspection. Of course, as your broker, I can give you a much better understanding of what will and won’t be accepted. 

Pros and cons of a pre-approval Pro: They let you know roughly how much you can qualify for based on the preliminary financial information you provide to the lender.  Con: Not all lenders offer pre-approvals, which could limit rate options somewhat for those wanting a pre-approval. Pro: The process is generally quick and can often be performed online.   Con: Some pre-approvals can come at a cost, potentially adding anywhere from 15 to 25 bps to your rate. Lenders that offer pre-approvals are hedging their offers and must honour the rate they quote if they go forward with funding the mortgage. This can result in potentially higher funding costs, which is why many rates with pre-approvals are priced at a slight premium.    Pro: Peace of mind while house-hunting. Having a pre-approval in hand can give you greater confidence when shopping for your house, as you can set an appropriate budget based on the mortgage you can qualify for. Pro: Lock in a rate. If you’re concerned about mortgage rates rising during the home-buying process, getting a pre-approval is a good way to lock in a rate, which lenders will typically hold for up to 90 or 120 days.  Should you get a pre-approval?

Pre-approvals are often a good starting point when shopping for a mortgage. Let’s talk about your unique situation and whether a pre-approval is right for you. 

Call me today!
Barb Eglauer
(780) 720-5185
barb.eglauer@mortgagegroup.com
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