There has been a lot of mortgage changes in the past few years, and the more recent changes are affecting anyone who is looking at refinancing or purchasing a home with a more than 20% down payment.
Here are the highlights of some of the most important changes and how they can affect you:
The new mortgage changes came into effect on January 1st and only applied to federally regulated institutions. It has not affected provincially regulated institutions such as credit unions. However, some credit unions have started implementing their own “stress test”. Therefore, if you are looking at refinancing or purchasing a new property as your principal residence or investment property I would recommend that we explore your options now before more changes occur.
Fixed interest rates have started to move up, they are still relatively low compared to what interest rates were back in 2005 at 5.35% for 5 years. For this reason, lenders have started now to re-introduce 7 and 10-year terms.
The Bank of Canada has increased the overnight rate 3 times since July 2017. Before then it had not been increased in seven years. Economists are predicting that there could be a few more increases this year, although it will depend on what happens with NAFTA and the world economy.
Due to the mortgage changes there have been adjustments on the different interest rates offered by lenders based on different situations. The lowest rates that you see advertised and posted are the ones where you are purchasing with less than 20% down payment, and it moves up from there. The next tier is purchases or transfers with more than 20% down payment and the loan to value will also have an impact on the rate. The following tier is for refinances and then for rentals.
Now more than ever your credit score will have an impact on the interest rate you get. Lenders consider a credit score of 680 or higher a good score. If you want more information on credit, please let me know.
Handy tip: Even though interest rates have moved up, it might still be worth it to look at refinancing to pay credit card debt, improve your cash flow or look at refinancing to purchase an investment property.
Here is an example on how you can improve your monthly cash flow:Monthly bill
AmountMonthly
payments
Current rateMortgage
$273,000.00$1,215.70
2.59%Visa Gold Card
$8,000.00$240.00
9.90%*Mastercard
$3,500.00$105.00
18.99%*American Express
$4,700.00$141.00
19.75%*Unsecured line of credit
$23,000.00$243.42
12.70%*Retail store credit card
$2,200.00$66.00
29.90%*Total
$314,400.00
$2,011.12New mortgage
$320,000.00$1,466.03
3.69%Total savings per month:
$545.09
Even though their mortgage interest is higher than what they originally had by consolidating their debts, the clients were able to improve their monthly cash flow by approximately $545.09, saving hundreds of dollars on higher credit card interest rate. Now, they have started paying down their debt instead of just making interest only payments. In addition, with the extra funds they started savings money on a monthly basis. Source: For illustration purposed only, E&O exempt, the mortgage was rounded up to include estimated pre-payment penalty, legal fees and appraisal. Final approval will be given once an application, credit report and final approval has been given by the lender. * Refers to interest only payments and no principal is paid down.
Understanding all these changes can be confusing: how it can impact your ability to qualify for, what value of home you can purchase, or if you are able to refinance. It is critical now more than ever, buyers and homeowners need an expert that can lead you through the maze and provide you with advice and options, so you can be confident that you are making the right decision. I am delighted to help!
Feel free to call me or email me here: http://bit.ly/2VcSnXC