Renewing your mortgage? Ottawa has quietly made some regulatory changes that could save you big money

General Michael Distefano 15 May

Some money-saving updates to Canada’s mortgage rules could save you some loot if you’re renewing a mortgage.

Here’s what changed.

In October of 2016, the government banned refinances from being default insured. But regulators allowed lenders to keep insuring transfers. A “transfer” is when you switch lenders to get a better deal, but don’t increase your mortgage risk − as opposed to a “refinance,”in which you may increase your mortgage amount and/or amortization.

              

 Ever since, lenders have not been able to insure mortgages that were previously refinanced. That means you couldn’t get insured mortgage rates, which are often at least 20 basis points (bps) better than uninsured rates.

But now you can.

 On April 30, all three of Canada’s default insurers officially announced an end to this costly prohibition. Canada Guaranty, for example, stated:

“After additional consultation with the Department of Finance and the other mortgage default insurers, we have received clarification that if a prior uninsured loan has already been advanced with an Approved Lender, that loan may be switched to another Approved Lender and insured, regardless of the loan originally being a refinance, purchase or having an amortization greater than 25 years.”

Canada Guaranty explains that this is possible “provided the amount of the outstanding balance is not increased at the time of transfer and the amortization period does not exceed the lesser of the remaining amortization or 25 years.”

Long story short, if you refinanced your mortgage and now want to switch lenders to get a better deal, you get access to Canada’s very best rates (which are insured rates). On the average existing $200,000 mortgage, 20 bps of rate savings keeps almost $1,900 in your pocket over five years.

Here are seven more tips if you’re thinking about switching lenders:

 1. If your mortgage is already default insured at the time you change lenders, you’ll get the lowest rates of all.

2. A bunch of lenders now let you switch a mortgage and secured line of credit (a.k.a. a “collateral charge”) to a new lender and get the best insurable rates. This wasn’t common until recently. You’ll often have to pay about $1,200 in legal, appraisal and discharge fees to do this, but if you can save more than that in interest, you’re still ahead.

3. If you have a regular mortgage (a.k.a. a “standard charge”) and switch lenders, your new lender will usually pick up the legal and appraisal fee if you go for a three-year term or longer. But you’ll still be on the hook for your old lender’s “assignment” fee (about $250 or more in most provinces).

4. Here’s a simple mortgage rate comparison calculator to see if switching lenders will save you more than your closing costs.

5. Some lenders let you roll up to $3,000 of closing costs into the new mortgage, even if you don’t refinance. That way, you don’t have to be out of pocket for things such as appraisal fees, discharge fees and mortgage penalties.

6. If you switch lenders with an insured mortgage that you got before Oct. 17, 2017, “the mortgage rate stress test requirement does not apply,” CMHC says. In other words, some lenders will only make you prove you can afford payments based on their discounted five-year fixed rate (e.g., 3.49 per cent) instead of the Bank of Canada’s posted five-year fixed rate (e.g., 5.34 per cent). Mortgage brokers know who these lenders are.

 7. $1-million-plus properties usually cannot be default insured. But if you switch a mortgage on a home that was worth less than $1-million, and insured, and the property value subsequently rose to more than $1-million, you may still be able to get insured rates.

These “escape clauses” will result in big banks losing more insurable customers at renewal. As we speak, non-bank lenders are widely reporting spikes in transfer (“switch”) mortgage applications.

On the other hand, banks are retaining more uninsured mortgagors. I’m talking about higher-leveraged borrowers who are trapped because they can’t pass the Office of the Superintendent of Financial Institutions’ new uninsured mortgage stress test. That rule could keep about one in 10 borrowers at the mercy of their bank because they can no longer switch lenders to save money. This is possibly the most short-sighted mortgage regulation of all time, but let’s save that for a future column.

In the meantime, if your mortgage is coming up for renewal give me a call my tips may score you a better deal.  Happy switching…

Michael Distefano
Mortgage Agent and Manager of operations
DLC BTB Mortgage Solutions FSCO 12039
Niagara largest Mortgage Broker
106- 5017 Victoria Ave Niagara Falls L2E4C9
T 905 357 5366 F 905 357 6654 C 905 246 5363
APPLY ONLINE ANYTIME  https://www.beatthebankmortgage.ca

IMPROVING YOUR CREDIT SCORE

General Michael Distefano 11 May

Your credit score is a big factor when you apply for a mortgage. It can dictate how good your interest rate will be and the type of mortgage you qualify for.

Mortgage Professionals are experienced helping clients with a wide range of credit scores so we can find you a mortgage product even if your credit is far from perfect.

The good news about your credit score is that it can be improved:

  • Stop looking for more credit. If you’re frequently seeking credit that can affect your score as can the size of the balances you carry. Every time you apply for credit there is a hard credit check. It is particularly important that you not apply for a credit card in the six months leading up to your mortgage application. These credit checks may stay on your file for up to three years.
  • If your credit card is maxed out all the time, that’s going to hurt your credit score. Make some small monthly regular payments to reduce your balance and start using your debit card more. It’s important that you try to keep your balance under 30% or even 20% of your credit limit.
  • It’s also important to make your credit payments on time. People are often surprised that not paying their cell phone bill can hurt their credit score in the same way as not making their mortgage payment.
  • You should use your credit cards at least every few months. That’s so its use is reported to credit reporting agencies. As long as you pay the balance off quickly you won’t pay any interest.
  • You may wish to consider special credit cards used to rebuild credit. You simply make a deposit on the card and you get a credit limit for the value of that deposit. They are easy to get because the credit card company isn’t taking any risks.

Contact a Dominion Lending Centres BTB Mortgage Solutions Mortgage Professional if you have any questions 905 357 5366. www.beatthebankmortgage.ca

WHAT IS A REFINANCE?

General Michael Distefano 4 May

DLC BTB Mortgage Solutions  Niagara largest Mortgage Broker 106- 5017 Victoria Ave Niagara Falls L2E4C9
T 905 357 5366 F 905 357 6654 C 905 246 5363 FSCO 12039 APPLY ONLINE ANYTIME www.beatthebankmortgage.ca

Refinancing a home is one of those things where people understand what it is but have trouble explaining how it works. To put it simply, refinancing your home allows you to access the equity you have built up, by changing the mortgage amount.

Let’s say you bought a $300,000 condo and you paid 20% ($60,000) as your down payment and had a mortgage of $240,000. Over the next 4 years, you continue making payments and pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home- this is where a refinance could come into play.

What this means is you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a home worth $350,000, therefor your equity in the home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 is going to go from the lender to you. You are borrowing money from the lender, but adding that money back on top of your mortgage.

This is why people will refinance their home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest, because it is being added to the mortgage.

This is just one way people are able to use their home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity lines of credit, collateral charges, and purchase plus mortgages. Knowing this before you buy can be extremely beneficial, that is why it is important to work with a qualified Dominion Lending Centres broker. Give us a call at 905 357 5366 or visit us online at www.beatthebankmortgage.ca !

DLC BTB Mortgage Solutions FSCO 12039
Niagara largest Mortgage Broker
106- 5017 Victoria Ave Niagara Falls L2E4C9
T 905 357 5366 F 905 357 6654 C 905 246 5363

APPLY ONLINE ANYTIME www.beatthebankmortgage.ca

Researching renewals is imperative

General Michael Distefano 3 May

A surge in mortgage renewals, rising interest rates and new stress testing rules are conspiring to make refinancing your mortgage more complicated and more expensive.

Mortgage broker Kelly Wilson, co-owner of the Wilson Team mortgage brokerage in Ottawa, says a majority of Canadians renew with their same lender, but it’s still important to check out your options.

“If you can save yourself 30, 40, 50 basis points, it’s going to save you thousands of dollars over the next five-year term,” Wilson says.

Around 47 per cent of all existing mortgages will need to be refinanced this year, according to CIBC estimates, up from the 25 to 35 per cent range in what the bank says is a typical year. It attributes the increase to the unintended consequence of regulatory changes in recent years.

The surge in renewals comes as mortgage rates have started to move higher.

Several of Canada’s big banks have raised their posted rates for mortgages in recent days, while special offer rates have been trending higher since last summer.

Offers for five-year fixed mortgage rates have moved north of three per cent in recent weeks compared with under 2.5 per cent a year ago, according to rate-watching website Ratehub.ca.

Wilson says that means if you’re renewing at a higher rate than you’re currently paying it will mean your mortgage payments rise, assuming the amoritization period remains the same.

Homeowners with uninsured mortgages who stretched themselves to the limit when they bought their home and are looking to renew their mortgage may also face additional challenges.

Under the rules brought in at the start of the year, if they are looking to change their lender when they renew their mortgage they may have to face a new stress test.

That means, for some borrowers, it may not be possible to move their mortgage to a different bank, leaving them with less power to negotiate with their current lender.

Wilson also says if you have a home equity line of credit, it may cost you a little more if you want to move your mortgage, even if you don’t have an outstanding balance on the line of credit.

“You might save on the rate, but because of the fees you might not be able to move around,” she said.

Grant Rasmussen, CIBC’s senior vice-president of mobile advice, recommends you start doing your homework up to six months ahead of your actual renewal date.

He says that means talking not just with your lender, but also with your financial adviser to get an updated look at your expenses and income and how that may have changed since you first obtained your mortgage.

“It’s important to make sure you do the math and you feel like you’ve figured out how can I do the best for my family,” he said.

He notes that starting early may allow you to lock in a rate, which could save you a few bucks if rates continue to rise this year.

You will also have to weigh the decision of a fixed versus a variable rate mortgage. While the variable-rate offers are lower than the fixed-rate offerings, the Bank of Canada has raised its influential overnight rate target _ which affects variable rate mortgages _ three times since last summer and suggested it is on the path to higher rates.

“How comfortable are you with risk and how much peace of mind do you want? That’s a trade off,” Rasmussen said.

But whatever your situation, he stressed to start early.

“You don’t want to end of feeling time pressed and feeling like you have to make these decisions without really mapping out a plan.”

Researching renewals is imperative call our team for expert advise at 905 357 5366 Dominion Lending Centers BTB Mortgage Solutions 5017 Victoria Ave Niagara Falls www.beatthebankmortgage.ca  Niagara Largest Mortgage Broker !

Copyright The Canadian Press