Refinancing Your Home.

One of the best parts about life is that it is ever-changing. This is one of the reasons that mortgages are available on short-term contracts (such as the standard 5-year) so that you can adjust your mortgage over time to best suit your needs. However, in some cases you cannot wait until the term is up. In fact, roughly six out of ten homeowners with the standard five-year fixed rate mortgage break their terms within three years.

There are a variety of reasons to refinance your mortgage such as wanting to leverage large increases in property value or get equity out of the home for renovations. In some cases, you may be unable to wait until the term is up due to life events such as divorce, a new relationship, kids going off to college or needing to consolidate debt.

Before you refinance, it is important to understand that if you do this during your term you will be breaking your mortgage agreement and there are penalties that come with that. If at all possible, it is best to wait until the end of the mortgage term before refinancing.

If you cannot wait, it is important to understand how your lender is going to calculate the penalty if you break a fixed-rate mortgage. Canada’s big banks calculate mortgage penalties based on the discount you were given from the posted rate at the time that you signed your mortgage agreement. The bank firstly takes their new posted rate for whatever time you have left in your mortgage – if you break a five year contract on year three, this would be two years – and apply the same discount they first gave you. The difference between the two shows them the amount of interest they would lose for the rest of the term based on your current balance. This is what then becomes the penalty for breaking your fixed-year term and, in many cases, can be quite hefty. Other lenders such as credit unions and monolines will use the interest rate differential or a flat three-month interest penalty.

Beyond the penalties, there are a few other points to consider before refinancing:

• You can tap into 80 per cent of the value of your home
• You cannot qualify for default insurance which can limit your lender choice
• You would have to re-qualify under the current rates and rules – including passing the “stress test” again

So what can you do? There is an option to sign a fixed rate for a shorter term, such as three years, or you can also consider a variable rate as the penalties for breaking these mortgages are much lower.

Talking to a mortgage broker about refinancing can provide you access to even greater rates and mortgage plans to best suit your needs and what you are trying to accomplish through your refinancing strategy.

BENEFITS OF REFINANCING

Regardless of why you are looking to refinance, it can come with a host of great benefits when done properly!

1.   A Lower Interest Rate

Depending on where you are in your mortgage term, you could refinance to get a better rate – especially when done through a mortgage broker. On average, a mortgage broker has access to 90 lenders and is able to find you the best rate versus traditional banks which only have access to their own rate.

2.   Consolidating Your Debt

When it comes to debt, there are many different types from credit cards to lines of credit to school loans to mortgages. However, many types of consumer debt have much higher interest rates than those you would pay on a mortgage. Refinancing can free up cash to help you pay out these debts. While it may increase your mortgage, your overall payments could be far lower and would be a single payment versus multiple sources. Keep in mind, you need at least 20 percent equity in your home to qualify.

3.   Modifying Your Mortgage

The beauty of life is that it is ever-changing and sometimes you need to pay off your mortgage faster or change your mortgage type. Maybe you came into some extra money and want to put it towards your mortgage or maybe you are weary of the market and want to lock in at a fixed-rate for security. It is always best to do this when your mortgage term is up, but talk to a mortgage specialist about potential penalties if waiting is not possible.

4.   Utilize Your Home Equity
One of the biggest reasons to buy in the first place is to build up equity in your home. Consider your home equity as the difference between your property’s market value and the balance of your mortgage. If you need funds, you can refinance your mortgage to access up to 80% of your home’s appraised value in cash!

If you are considering refinancing your home, or wondering if it is the best option for you, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today for expert advice!

There is a lot of questions about rising interest rates and what that mean for you the home buyer. Basically as anticipated the Bank of Canada raised the overnight rate by a half a percent in an effort to control the soaring inflation rate. Variable mortgage rates will increase as well as rates on lines of credit and credit cards. This could translate into higher monthly payments for thousands of Canadians. This could make monthly cash-flow tight, but all is not lost a Mortgage Professional, like myself, can help you navigate the rough waters and can help whether you are trying to buy your first home and not sure what you can afford now, or you find yourself in a little bit of a debt bind and are wondering if its time to consolidate debt with a refinance. Mortgage Professionals are there to help. So today I’m going to let you in on my Best Chocolate Cake Recipe instead of add to any stress related to interest rate fears.

Here we go……

• 2 cups (250g) all-purpose flour
• 1 3/4 cups (360g) sugar
• 3/4 cup (70g) unsweetened cocoa powder
• 2 teaspoons baking soda
• 1 teaspoon kosher salt
• 2 large eggs
• 1 cup sour cream
• 3/4 cup canola oil
• 2 teaspoons vanilla extract
• 1 cup strong coffee
• Preheat the oven:

  to 300°F. Butter and flour a 9 x 13-inch cake pan. Set aside.

• Sift the dry ingredients:

  In a large bowl, sift together flour, sugar, cocoa powder, and baking soda. Whisk in the kosher salt. (honestly though I rarely sift…I just mix them all together)

• Whisk the wet ingredients:

  In a medium bowl, whisk together eggs, sour cream, canola oil and vanilla extract until it looks homogenous and creamy.

• Combine the wet and dry ingredients:

  Pour the wet ingredients into the dry ingredients. Stir together with a stiff spatula. The batter will be thick like frosting.

• Add the coffee:

  Pour in the piping hot coffee. The batter will look like mud pies in a muddy lake. Keep stirring until all the liquid is incorporated and its a smooth batter

• Bake the cake:

  Pour the batter into the prepared pan. Place in the oven and bake for 50 to 55 minutes or until a toothpick poked in the center comes out clean.

• Cool the cake:

  Take the cake out of the oven and set it on a baking rack to cool. After about 30 minutes spread the frosting on top. I prefer a butter cream

  …..eat cake and enjoy your day!

Do you understand your interest rate and what may affect it and how it affects you? Ask a Mortgage Broker for details

Understanding Your Mortgage Rate.

When it comes to mortgages, one of the most important influencers is interest rate but do you know how this rate is determined? It might surprise you to find out that there are 10 major factors that affect the interest you will pay on your home loan!

Knowing these factors will not only prepare you for the mortgage process, but will also help you to better understand the mortgage rates available to you.

credit score

Not surprisingly, your credit score is one of the most influential factors when it comes to your interest rate. In fact, your credit score determines if you are able to qualify for financing at all – as well as how much. In order to qualify, a minimum credit score of 680 is required for at least one borrower. Having higher credit will further showcase that you are a reliable borrower and may lead to better rates.

loan-to-value (ltv) ratio

This ratio refers to the value of the amount being borrowed as a percentage of the overall home value. The main factors that impact LTV ratios include the sales price, appraised value of the property and the amount of the down payment. Putting down more on a home, especially one with a lower purchase price, will result in a lower LTV and be more appealing to lenders. As an example, if you were to buy a home appraised at $500,000 and are able to make a down payment of $100,000 (20%), then you would be borrowing $400,000. For this transaction, the LTV is 80%.

insured vs. uninsured

Depending on how much you are able to save for a down payment, you will either have an insured or uninsured mortgage. Typically, if you put less than 20% down, you will require insurance on the property. Depending on the insurer, this can affect your borrowing power as well as the interest rates.

fixed vs. variable rate

The type of rate you are looking for will also affect how much interest you will pay. While there are benefits to both fixed and variable mortgages, it is more important to understand how they affect interest rates.  Fixed rates are based on the bond market, which depends on the amount that global investors demand to be paid for long-term lending. Variable rates, on the other hand, are based on the Bank of Canada’s overnight lending rate. This ties variable rates directly to the economic state at-home, versus fixed which are influenced on a global scale.

location

Location, location, location! This is not just true for where you want to LIVE, but it also can affect how much interest you will pay. Homes located in provinces with more competitive housing markets will typically see lower interest rates, simply due to supply and demand. On the other hand, with less movement and competition will most likely have higher rates.

rate hold

A rate hold is a guarantee offered by a lender to ‘hold’ the interest rate you were offered for up to 120 days (depending on the lender). The purpose of a rate hold is to protect you from any rate increases while you are house-hunting. It also gives you the opportunity to take advantage of any decreases to your benefit. This means that, if you were pre-approved for your mortgage and worked with a mortgage broker to obtain a ‘rate hold’, you may receive a different interest rate than someone just entering the market.

refinancing

The act of refinancing your mortgage basically means that you are restructuring your current mortgage (typically when the term is up). Whether you are changing from fixed to variable, refinancing to consolidate debt, or just seeking access to built up equity, any change to your mortgage can affect the interest rate you are offered. It is always best to discuss your options with a mortgage broker to ensure you are making the best choice for your unique situation.

home type

Among other things, lenders assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.

secondary property (income property/vacation home)

Any secondary properties or those bought for the purpose of being an income property or vacation home, will be assessed as such. The lender may deem these as high risk investments, and you may be required to pay higher interest rates than you would on a principal residence. This is another area where a mortgage broker can help. Since they have access to a variety of lenders and various rates, they can help you find the best option.

income level

The final factor is income level. While this does not have a direct affect on the interest rate you are able to obtain, it does dictate your purchasing power as well as how much you are able to put down on a home.

It is important to understand that obtaining financing for a mortgage is a complex process that looks at many factors to ensure the lender is not putting themselves at risk of default. To ensure that you – the borrower – is getting the best mortgage product for your needs, don’t hesitate to reach out to a DLC Mortgage Broker today! Mortgage brokers are licensed professionals that live and breathe mortgages, and who have access to a variety of lenders to ensure you are getting the best rates. Mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success!