Your Mortgage Solutions Group

Help you save time and money with your mortgage needs


Leave a comment

How Much Does Mortgage Rate Really Matter?

A great discounted rate on your mortgage is worth nothing if it’s going to cost you thousands in penalties down the line. As seen in REW.ca.

More often than not, borrowers are fixated on their mortgage rate because it’s the one aspect of their home financing they know to ask about. But it’s important to look beyond the mere rates and look into the bigger picture surrounding what is significant when it comes to your specific mortgage needs. It is important to compare apples with apples.

If we dollarize the difference between 2.99 per cent and 3.04 per cent, for instance, it works out to an additional $2.66 in your monthly payment per $100,000 of your mortgage. Over the course of a five-year term, this culminates into just $159.60 per $100,000.

While “no-frills” mortgage products typically offer a lower – or more discounted – interest rate (like the 2.99 per cent used in the example above), when compared with many other available products, the lower rate is really their only perk.

The biggest problem with looking at rate alone is that you may end up paying thousands of dollars in early payout penalties if you opt for a five-year fixed-rate mortgage, for instance, and then decide to move before the five years is up.

No-frills mortgage products won’t let you take your mortgage with you if you purchase another property before your mortgage term is up – for example, portability is not an option with this product. Portability is an important option that could save you money over the long term if the home of your dreams is within your reach before your mortgage term is up and rates have risen, which they have a tendency to do over a five-year period.

This type of product is only plausible for those who have minimal plans to take advantage of benefits that will help pay off your mortgage faster – such as pre-payment privileges including lump-sum payments and increase your mortgage payments between 15 and 20 per cent without penalties.

imagesQ8W8929HOther things to consider is whether you are getting into a collateral mortgage or a conventional mortgage. Unfortunately, many people don’t realize they have a collateral mortgage until it comes time to renew and they don’t have the flexibility they need.

It’s understandable why these products may seem appealing. After all, not everyone feels they have the extra cash to put down a huge lump-sum payment. And who needs a portable mortgage if you’re not planning on moving any time soon?

But it’s important to remember that a lot can change over the course of five years – or whatever term you choose for your mortgage. You could get transferred, find a bigger house, have children, change careers, separate from your spouse, etc. Five years is a long time to be anchored to something.

Many people won’t sign a cell phone contract for longer than two years that they can’t get out of, so why would they then sign a mortgage for five years that they can’t get out of?

The thing is, you can still obtain great mortgage savings without giving up the perks of traditional mortgages. For starters, many lenders are willing to offer significant discounts if you opt for a 30-day “quick close.”

And there are many other ways to save money. For instance, by switching to weekly or bi-weekly mortgage payments, or by obtaining a variable-rate mortgage but increasing your payments to match those of the going five-year fixed rate, you will be ahead of the typical discount of a no-frills product before you know it and you won’t have to give up on options.

Banks don’t give anything away for free – they are there to make money. That’s why it is essential to discuss the full details surrounding the small print behind the low rates. It’s also important to take into account your longer-term goals and ensure your mortgage meets your unique needs now and into the future. As mortgage experts will help you find that balance by finding the best mortgage for you.

Advertisements


Leave a comment

Do I Really Need Mortgage Pre-Approval Before House-Hunting? – conclusion

Mortgage pre-approvals are often recommended for would-be homebuyers – but there are exceptions to every rule. As seen in Rew.ca

Q: I’m beginning my search for a new home. Is it really necessary to get pre-approved for a mortgage first, especially with interest rates going down?

A: Last month we explained the difference between getting pre-qualified and pre-approved for a mortgage. We often recommend that buyers get pre-approved for a mortgage (not just pre-qualified) before they start house-hunting, to put them in the best possible position when that perfect home comes up. But of course, there are exceptions to every rule.

preapproved1Whether you get pre-approved or not, it’s very important to figure out how much you can afford to pay before you start looking. Most home buyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there is no quick and dirty way to translate that monthly payment into a specific maximum mortgage amount. Other factors have to be taken into consideration such as down payment amount, closing costs, mortgage default insurance, property taxes, strata fees (if applicable) and heating costs. And you might be qualified to borrow more or less than you think, depending on your income, debts and credit history.

As discussed last time, obtaining pre-approval on a mortgage can offer advantages, particularly in terms of locking in a great rate for up to 120 days. However, it isn’t always advantageous, depending on the situation.

For example, we recently had a client who had a considerable sum to put as a down payment on a new home. With the price range he was looking at, the loan to value (LTV) ratio would have been close to 50 per cent. As previously mentioned, the most important thing is what you are comfortable paying on a monthly basis, not what you qualify for. This client wanted to keep his payments only a little bit above what he had been paying in rent. He had a great job and income, so he would have been able to qualify for a lot more. He had no credit card debt, no loans or lines of credit but had an established credit history.

Therefore, in this case, we didn’t get him pre-approved, because we knew there would be no problem getting him a great mortgage when the right time came. But we did do an in-depth analysis of his financial situation so he would know what his mortgage payment would be on the price range he was looking at, and also the maximum amount he would qualify for so he would have a wider price range to work with if necessary.

In addition, as interest rates were going down, there was no need to lock in a rate from a lender. However, if we had noticed that interest rates would be moving up again during his house hunting, we would have obtained a pre-approval. As mortgage experts, we do a lot of work behind the scenes to ensure we have the best options for our clients and provide them with the best mortgage available.

It is also important to remember that getting pre-approved doesn’t mean that your mortgage has been fully approved. The final approval is given once you have an accepted offer, your application has been submitted to the lender, and the lender has received and approved all the outstanding financing conditions outlined in a commitment letter.

Purchasing a home can be an emotional and time-consuming process as you want to make sure you find the right home for your needs. Knowing what you qualify for is critical when you start working with your real estate agent, as it shows you are a well-qualified buyer who is serious about purchasing a home. In fact, some agents won’t even show properties to buyers who haven’t talked to a mortgage expert or bank.

Talk to a mortgage expert to find out how much you qualify for and get you started on the road to homeownership.