There’s something about September that signals a fresh start. It’s a perfect time to get serious about saving money on your mortgage. So get out your notebook: here are five surprising mortgage facts that can save you money over the long term!
Fact #1: Your credit score matters even more
Lenders are beginning to review client files prior to renewal, which means if your credit score has slipped, you may be offered a higher rate at renewal, even if you have never missed a payment. Regardless of where you are in your mortgage term, it is very important to always pay your bills on time, use only 30% of your credit limits, and monitor your credit score regularly.
Fact #2: Refinancing is still one of the best ways to get debt under control
If you’re holding too much high-interest debt and you have enough equity, consolidating all of it into a low-interest mortgage can save you thousands in interest, lower your monthly payments, boost your cash flow, and eliminate the stress of multiple debt payments. It can also improve your credit score!
Fact #3: Interest-only mortgages are once again available for those with more than 20% equity in their homes
While not a product for everyone, this can be a great financial strategy for those who want to minimize their mortgage payments to free up cash flow for other uses like investing, business needs, post-secondary education, maternity leave or other life situations. Lump sum payments can be made when the time is right for principal paydown.
Fact #4: Variable mortgages are popular
While fixed rates are higher today than they were a year ago, many lenders are offering exceptionally low rates on their variable rate mortgages. In addition to offering the ability to save on interest, a variable mortgage can be significantly less expensive if you need to get out of your mortgage later.
Fact #5: Insured mortgages get the best rates
If your mortgage is not insured, it’s possible that you weren’t eligible for the best rates available at that time. Some uninsured mortgages can now be switched at renewal to a new lender that will offer an insurable rate, a move that could offer huge savings. Not sure if your mortgage is insured or not? I can find that out for you.
If you have any questions about your current mortgage strategy, are thinking of refinancing, or getting closer to renewal, get in touch. I’m here to help you, your family and friends understand which mortgage facts are the most important at any given time.
Click here to book a no-obligation chat with PureMortgage to discuss your mortgage options: https://calendly.com/ronlefebvre
Blog Post Written for: Ron Lefebvre
Last Updated: Sept 18 2018
Down-Payments: They come in all shapes and sizes! Gone are the days of $0 down mortgages… But contrary to the media hype, you can still put down LESS than 20% while having access to fantastic products and rates.
In fact, there just so happens to be a sweet spot for how much to put down and why. Let’s unpack this now:
There are three different types of rates, insured rates, uninsured rates, and ‘insurable’ rates.
- Pro: This is where that sweet spot comes in! Insured will get you access to the lowest rates
- Con: Prop value must be under 1 million
- Con: Cannot be a rental (only primary or secondary homes)
- Con: Up to 25 year amortization (no access to 30 year amortization)
- Pro: you can put more than 20% down
- Pro: better rates than uninsurable
- Con: rates not as low as insured, (unless you put 35% down then you may get back in to the ‘insured rates’ again)
- Con: Cannot be a rental (only primary residence or secondary homes)
- Con: Up to 25 year amortization (no access to 30 year amortization)
*The borrower doesn’t pay insurance, however the lender might.
(Any mortgage that cannot be insured falls under this category.) Note: just because a rate is ‘uninsured’ doesn’t mean it’s scary. A big pro of uninsured rates is that there is obviously no CMHC cost AND you have access to a wider range of products like HELOCs, access for non-canadian residents, rental properties, etc.
- Con: highest rates
- Pro: for other needs like rental properties, refinances, etc.
While the rates themselves are typically a bit higher when uninsured, they typically aren’t so much higher to make it not worth considering putting the 20% down. 20% is still a good goal to have, it’s just not the be all end all it used to be when rates were the same across the board.
Here’s where it gets interesting…
Even if you have diligently saved more than 20% down on your home, it doesn’t mean that you will get the best rate or product for your mortgage! If you are considering how much to put down, it’s important to look at the cost of the CMHC insurance itself. If the lower rate you can get access to, due to having an insured mortgage, saves you enough money to cover the cost of the insurance itself, then you have a winner. On the flip side, if the insurance cost is higher than the savings you will get from the lower ‘insurred rate’, then you’re likely to be better off going with the higher ‘uninsured’ rate.
You can think of it this way if you want to look at rate alone:
- BEST RATES – Insured rates
- Second best rates, ( or second tier) – Insurable rates
- HIGHEST rates – Uninsured rates
Sometimes just because you have saved 20% (or more) doesn’t necessarily mean you should use all of it as your down-payment. This mysterious sweet spot I am referring to happens to be 10%. With 10% down, you’re likely to gain access to the lowest rates available. You can then use the other 10% you had saved for other investments, renovations, or something else productive for you, or your family. (Note: in most cases – if you’re considering a rental, or the property you are buying has some kind of restriction like an adult-only complex, this might not apply)
There is so much more to consider than just the ‘interest rate.’ Among the many other considerations, it is important to examine the purpose of the property, “true cost of financing” and cash flow – You have to look at the overall bigger picture. What it really comes down to is having the right, professional mortgage advice to help you consider all the other elements of mortgage financing.
Would you like to chat and see what your down-payment sweet spot is? Connect with me for a chat anytime! https://calendly.com/ronlefebvre
The Globe and Mail released an article containing a pole demonstrating why they believe the cooling of Canada’s real-estate market will be expected to continue.
Interested in how this may affect the market?
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For many Canadians, their home is a terrific repository of wealth. Home equity can build nicely by chipping away at payments and through increasing home values. Accessing home equity through a refinance (min 20% home equity) has for years been an easy, low-cost way to get needed funds. Various new mortgage rules and “stress-testing” has made refinancing more complicated, but it’s a strategy that continues to make good financial sense for certain homeowners that qualify.
Here are five reasons why:
- Fresh start. If you have too much high-interest debt, you may be able to roll everything into one manageable monthly payment on a low-interest mortgage. Then you get a financial re-set, and can potentially save thousands of dollars in interest.
- Dream home. If you’ve found the perfect cottage, chalet, or the retirement home of your dreams, refinancing may be the way to make that purchase happen now if you’re not quite ready to sell your primary residence.
- Renovate. Renovating your home is often a less expensive option than moving. And the right renovations can improve the quality of your life and increase the value of your home.
- Wealth building. A rental property can give you a great wealth building opportunity and a source of retirement income. Or you may want to invest in a new business venture.
- Large expenditures. You may be able to get the funds you need for major expenses (tuition, wedding etc.): a much better strategy than loading it all onto high-interest credit cards.
I have access to dozens of lenders, including alternative lenders that are not subject to the new rules and have less stringent qualification guidelines. If you are interested, I can provide you with a personalized analysis so you can determine whether a refinance makes sense. My job is to help you pay down debt, build wealth, create financial security, and enjoy life to the fullest!
Staying home throughout retirement with a mortgage that pays
Some retirees still believe that sometime during retirement, they must leave the home they love. But it is possible to stay home and have the mortgage they’ve paid all their lives start paying THEM. That’s the concept of a reverse mortgage, a potential route to financial freedom. There are no payments required, and ownership of the home is always maintained. The tax-free cash received from a reverse mortgage can be taken over time or in one lump sum, which can create a financial cushion and help manage ongoing bills, or can provide the funds needed to pay off debts, purchase a second home, start a new business, fix up the home, travel, or help a loved one buy a home. If you – or someone you know – is age 55 or over and is exploring their retirement options, get in touch for more details and a personal analysis.
CBC states, ‘Trade ‘front and centre’ in Bank of Canada’s call to hold interest rate.’
The new rate announcement released last week by the Bank of Canada maintained its target at 1 ½ percent. CBC says, that the Bank of Canada’s decision to leave its key interest rate unchanged was largely due to the unknown consequences of the ongoing trade tensions.
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