The banks seem to be gearing up for a big push this Spring. Sales volumes (for mortgages) have been down as the housing market has continued to idle and the banks want to ramp up their business. This is great news for consumers, as it means new products are coming out that can save you money – for example, RBC is offering a quick-closing incentive for property closings that will occur in 60 days or less at a rate of 3.1% for a fixed 5-year term (more than 10% savings on interest from their posted rate of 3.44%).
For clients with less than 20% down, to avoid paying CMHC fees, lenders are building short-term equity lending programs. These programs essentially serve as a top-up to get borrowers over the required 20% downpayment. For example, RBC will loan up to 10% for a borrower with a 10% downpayment thus the borrower will not have to pay CMHC fees. This will result in significant net savings over time. These deals are subject to change and are conditional on receiving a credit approval but it gives a sense of the incentives that are coming down the pipeline.
Long story short, the banking sector is about to do some heavy lifting to help Canadians get closer to their real estate dreams.
Thinking about making a move? Or are you concerned that your housing dreams are out of reach? This is a good time to take a fresh look at the lending landscape – you might just find that your property goals are closer than you think!
Let’s review some mortgage FAQ
Q: What rates are offered?
Mortgages are offered at a variety of rates, lengths and terms allowing for various payment structures. Mortgage terms vary from 1 – 10+ years, and beyond in some cases. This variance allows the homeowner to stretch their payments and interest rate commitment to fit their long-term needs and goals. A financial advisor will review your current financial situation, and may even suggest a shift in your current portfolio that will allow for a lower payment schedule overall. It’s important to note that in Canada, mortgage rates are often amortized over long periods of time (20/25/30-year periods), but the rate is typically re-negotiated with the lender in 1, 3 or 5-year terms. This means that a loan offered today at 3.5% semi-annually, not in advance, may escalate at the end of the term. For example, if rates increased by 1.5% over a 5-year term on a 3.5% term loan, the term renewal might end up being 5%.
In all cases, ask your Mortgage Specialist for details and ask them to explain the benefits and drawbacks of going with a Fixed vs Variable rate product*.
Q: How are payments structured?
Payments can be structured monthly or semi-monthly which equates to the same number of payments over the course of a year, however, the semi-monthly plan will allow for the payments to coincide with your payday schedule. There is also a bi-weekly structure, which essentially works out to two extra payments a year reducing your overall balance by those two payments. To accelerate the payment of your mortgage, you can add to the amount you are paying down through the agreed-upon payment structure. Additional options include contributing the maximum allowable contribution each year which is determined based on the lending amount and terms. Some lenders offer a matching program where you can match one payment a month.
Q: How have lending rules recently changed?
Some of the lending rules have changed over the past twelve months, however, there are a variety of options still available to get you into the real estate market. It is advisable to have a 20 percent downpayment against the total purchase price of the property to ease the lending process, but if you don’t already have this, we can discuss sources of funding, and associated costs for having a high-ration/CMHC-backed mortgage product.
*Stay tuned for our next newsletter for more information on Fixed vs Variable mortgage products.
Shirriff Wells is a full-service real estate team that is here to help you. We specialize in buying and selling real estate for our clients in Toronto North, Aurora and Newmarket areas. Contact us today at www.shirriffwells.ca for all of your real estate needs. Follow us on Twitter, Instagram and Facebook under Shirriff Wells for daily updates – see you there!