Bank of Canada

You may have heard The Bank of Canada has decided to keep it's interest rate at one percent for the 17th consecutive time today. What does this mean for you?

 

The BOC (Bank of Canada) has control of the overnight rate, which determines the interest rate that major financial lenders and institutions lend and borrow one day funds between each other. When the BOC changes the overnight rate, it changes the cost of short term funds; this in turn will change the lenders prime rate.

 

The overnight rate also influences other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar. All variable mortgages are based on prime rate so if a any changes are made it may affect your interest rate.

 

Example:

BOC Overnight Rate: 1%

Bank Prime Rate: 3%

Your Variable Rate: 2.2% (prime -.8)

 

BOC decides to to increase overnight rate by .25%

 

BOC Overnight Rate: 1.25%

Bank Prime Rate: 3.25%

Your Variable Rate: 2.45% (prime -.8)

 

We don't expect any changes to the overnight rate until late 2013. The Bank of Canada has 8 scheduled meetings per year. To view upcoming meetings please check out their website http://www.bankofcanada.ca/monetary-policy-introduction/key-interest-rate/schedule/ .

 

The next scheduled meeting is December 4, 2012

 

Mortgage Loan Insurance

What is Mortgage Loan Insurance?

Mortgage loan insurance is required by lenders when homebuyers make a down payment of less than 20% of the purchase price. The mortgage insurance protects the lenders in case of default but allows homebuyers to get in with a lower down payment. When you are applying for a mortgage and planning to put less than 20% down, you will have to be approved not only by the lender but also the insurer. Currently, there are only three insurers in Canada which include CMHC, Genworth and Canada Guaranty.

It is important to note that although you may have been pre-approved, the approval is only based on your lender and not the insurer. The insurer will only review the application once you have an accepted offer on a home. They may require additional info such as an appraisal on the property or a co-signer. The lender and the insurer work together closely to come up with an approval based on your situation.

To obtain mortgage insurance there is an insurance premium that will have to be paid. The insurance premium can be included in your mortgage or can be paid upfront as a one time fee. The mortgage insurance premium is calculated as percentage of the loan and is based on the size of your down payment.

With the recent mortgage rule changes the insurers are taking more time to review files and being more thorough which is taking more time for an approval.
For more information remember you can always contact us or please take a look at the links below.

 

CMHC: http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

Genworth: http://www.genworth.ca/homeownership/index.asp

Canada Guaranty: http://www.canadaguaranty.ca/homebuyers/

Paying off your mortgage...quick!

Throughout the mortgage process, one question that will be asked is how you would like your mortgage payments set up. There are many options that you can pick from which include, monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly or accelerated weekly. We often find that clients put very little consideration into this. However it is a decision that could possibly save you thousands of dollars in interest charges and shave years off your mortgage. If you look at the chart below you will see the difference in amortization interest savings between paying monthly compared to accelerated bi-weekly. This is the first step to paying off your mortgage…quick!

Example: Mortgage $200,000

Term: 5 years

Amortized: 25 years

Interest Rate: 3.09%

	Monthly	Bi-Weekly	Accelerated Bi-Weekly
Payment	$955.76	$441.12	$477.88
Term Interest Cost	$28,588.80	$28,440.43	$28,059.05
Term Interest Savings	$0	$148.37	$529.75
Amortization Interest Cost	$86,723.96	$85,935.25	$75,521.26
Amortization Interest Savings	$0	$148.37	$11,204.21
Years	25	25	22.2

 

Next is taking advantage of the pre-payment options. Each and every time you put extra money onto your mortgage it goes directly to your principle. This means you are lowering your principle quicker and paying less interest in the long run.  Most lenders will allow you to make pre-payments in minimum increments of $100 up to 20% (varies depending on lender) of your total mortgage. As well, you have the option to increase your payments up to 20% (varies depending on lender).

Example: Mortgage $200,000

Term: 5 years

Amortized: 25 years

Interest Rate: 3.09%

	Minimum	Additional $25	Additional $50	Additional $100
Bi- Weekly Payment	$441.12	$466.12	$491.12	$541.12
Amortization Interest Savings	$148.37	$7,450.82	$13,693.71	$23,578.53
End of Term Balance	$171,243.20	$167,733.75	$164,223.47	$157,202.82

 

**This is a fictional example and numbers may be different depending on lenders. It’s worth it to sit down and review your mortgage with a broker and see how you can save money and shave years off your mortgage.**

 

 

Importance of a Pre-Approval

 

One of the first things you should do when you decide to buy a home, even before you start your search, is talk to a Mortgage Broker. Here’s why:

• With a pre-approved mortgage, you’ll have a better idea how much you can borrow, how much home you can afford and what your monthly payments will be.

• Mortgage Broker’s will lead you step by step through the purchasing process and familiarize you with the rules and costs associated to buying a home.

• If you choose a fixed interest rate, you are guaranteed that rate to be held for up to 120-days, so you are protected if interest rates should rise.

• When it comes time to make an offer, you’ll be able to act more quickly.

When you meet with your Mortgage Broker you will need to provide the following documentation:     

 

• A job letter from your current employer stating your wage, position and start date & a current pay stub. If you work over time or are self employed bring in the last 2 years of your income tax and notice of assessments.

• Proof of your down payment and legal fees (3 months worth of bank statements)

• Information on any other real estate you may own. (mortgage statement, property tax notice and rental agreement)

Every situation and mortgage is different so other documentation may need to be provided but that will be discussed in your pre-approval meeting. This will help prepare you for when you find a house and make the process stress free.