NOW 80% IS THE NEW CONVENTIONAL
** The Federal Legislation requirement for mortgage **
insurance has changed from 75% LTV to 80% LTV
** Available for all Purchases and Refinances **
Not pertaining to No Income Qualifying Mortgages
Why should I use a Mortgage Broker?
** The Federal Legislation requirement for mortgage **
** Available for all Purchases and Refinances **
Not pertaining to No Income Qualifying Mortgages
For most of us, our ideas about mortgages have been instilled by years of past experience with traditional products in traditional institutions. Long-held beliefs sometimes include the idea that mortgage brokers are only for people who have bad credit or were turned down by a bank. Unfortunately, anyone with this kind of outdated thinking could be losing thousands of dollars! All homebuyers and homeowners can save time and money by enlisting the services of a broker.
A mortgage broker has access to many competing lending institutions, including banks, pension funds, trust companies and even private individuals. Since mortgage brokers do not have to sell the products of any one lender, they can be completely unbiased in recommending a mortgage that has the most attractive rate and features for their clients. While you may arrange a mortgage every five years, a mortgage broker and his or her firm are completing thousands of mortgages each year. This enables them to negotiate better interest rates based on that volume, which can be passed on to their clients.
There are other potential cost savings. On any given day, a particular lender may have a special rate offer for a specific mortgage term. If you are rate shopping on your own and don’t know who is sponsoring the offer, you can’t take advantage of the special pricing.
At renewal, many homeowners take the renewal quote and choose a term and rate offered by the lender without realizing that a mortgage broker may be able to save them up to one percentage point off the posted rate. This can translate in thousands of dollars in savings over a five-year term. To ensure you get the best rate, it’s best to contact a mortgage broker at least four months before you renew or consider a new home purchase. Starting early can be a money saver because your broker can usually guarantee an interest rate for 90-120 days. Should rates drop in the meantime, you would of course get the lower rate.
If your credit rating is important to you, then you also need to consider that when you shop from lender to lender, there is an accumulation of inquires on your credit bureau report, affecting your credit rating and ultimately the rate and terms of your mortgage. This isn’t the case with a mortgage broker who only does one inquiry yet can still get many competing lenders to quote on your business.
And finally, an important misconception that should be discussed – fees. Some people think that using a broker will be costly, and that there will be an upfront fee. In most cases, there is no fee because the lender that provides the mortgage pays the mortgage broker a fee for originating and negotiating the mortgage. As you would expect, a fee may still be charged to clients with impaired credit, or when private money is used, although this compensates for the time and effort required to negotiate the mortgage.
To find out more, visit the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) Web site. www.cimbl.ca.
“Wow!” you say to your spouse as you hit the brakes on the car. “Did you see the mortgage rate those guys are advertising?” Your worries are over, you’re thinking. Just lock in a rate like that for the next ten years, and you’ve got it made. “Lower than prime,” you heard someone say. Like most Canadians, you were probably first skeptical and then confused. We tend to think of the prime lending rate as the invisible “floor” of lending rates. The very best customers can get very close to that floor. It is theoretically possible, we reason, to actually be ON the floor, but not possible to be below it. Nevertheless, Canadian lenders offer mortgages at prime plus .80% or 1.00% So the floor isn’t the lowest you can go. There’s something under the “floor”. The rate known as “Prime” has been the popular benchmark for lending in While “prime” is a set rate which is offered to a lender’s best customers, the Banker’s Acceptance is the rate which financial institutions use to lend money to one another. And it’s typically well below the prime rate. Look for the “Money Rates” section of your favourite newspaper, and you can compare Prime with the Banker’s Acceptance rates for yourself. “Interesting,” you think, “but why does it matter?” Well, as new lending institutions begin to offer a slate of innovative new loan options, a new mortgage has emerged that is based on the Banker’s Acceptance rate: offering a mortgage rate of 1% over the 3-month Banker’s Acceptance. If you compared the rock-bottom prime-based variable mortgage rate – prime plus .80% or 1.00%with the new adjustable BA-based rate, you would find that the BA-based rate would have delivered significant savings over the past several years, as rates were dropping. There are two reasons for this. Firstly, the BA-based rates have historically been considerably lower than prime. Secondly, the prime rate tends to be “stickier” in an environment where rates are falling. Often, the more fluid, market-based BA rates deliver the rate change more quickly. Any variable- or adjustable-rate mortgage is an excellent option when interest rates are either dropping or stable. Not surprisingly, they’ve been a very popular choice in the past few years. There are some rumblings now that rates may begin to increase, but flexible-rate mortgages still remain an excellent choice for those looking to save some interest. As always, you should consult with a mortgage professional to find the mortgage that suits your personal financial needs. An independent mortgage broker can provide you with information on a broad range of mortgage options from a wide variety of lending institutions, so you can compare features and options at a glance. And remember, it’s worth taking some time to look beyond prime and explore what’s “under the floor” in mortgage options! Fixed or variable-rate mortgage?
Not so fast. That rate may not be the one for you. Typically, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable-rate mortgage. That rate has the potential to be like a roller coaster. The posted variable or adjustable rate is the rate you’re getting today. Unless you have an economic ouija board, you won’t be able to predict what kind of ups and downs are ahead of you.
Let’s take a closer look. A lender will offer different rates for different types of mortgages. The rates are determined based on financial risk – to the institution and to you. When a customer is willing to take on the risk, he/she is rewarded with a lower rate. If the lender is taking on the risk (that is, the customer is promised a particular rate… regardless of what happens in the future), the rate is higher. The longer the term, the higher the risk for the financial institution.
So how do you decide? Fixed-rate mortgages, because they require a low risk tolerance, are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. Ask yourself these questions: Do you like or need to know exactly what your payment is going to be over a longer period of time? Do you want to avoid the need to consistently watch rates? Do you have less than 25% down? If you answered “yes” to all, or most of these questions, a more conservative fixed-rate mortgage could be the better choice for you.
A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can tolerate higher risk. Ask yourself these questions: Do you watch market conditions? Can you handle any sudden rate increases that could increase your payment? Do you have 25% or more equity in your home? If you answered “yes” to all, or most of these questions, a variable or adjustable-rate mortgage might best suit your needs.
Some lenders offer a special promotional rate for the first few months of a variable-rate mortgage, which you should discuss with your mortgage broker. Also discuss what your rate will be based on – prime plus .80% or prime plus 1.00 or on Bankers’ Acceptances (BAs) plus 1%. The latter being a new kind of adjustable-rate mortgage that has recently been introduced to the marketplace. Most variables or adjustables allow you to exercise an option to “lock in” a fixed rate at any time for the remaining portion of your mortgage term or for a longer term.
If the uncertainty of a floating rate is going to give you sleepless nights, you’re in good company. Many Canadians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly… with no financial surprises. But if rates do drop… and drop… and drop… you are committed to the “promise” that you have made. Your best option - have a professional help you decide which option best meets your needs.If mortgage rates can fall through the “floor” of the prime rate… what else is under the floor?