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4 Ways Home Buyers Will Be Affected By the New Mortgage Rules

4 Ways Home Buyers Will Be Affected By the New Mortgage Rules

Feeling stressed about the new “stress test”? Here’s what you need to know…

As of January 1st, 2018, all home-buyers will be required to undergo a new “stress test” – regardless of your down payment amount.

This will not only reduce how much financing you qualify for on your next purchase, but it will also limit affordability on the refinance of your existing home. In fact, some scenarios show Canadians will be able to afford 20 percent less house once the new rules come into effect.

Securing your mortgage before the January 1st deadline could potentially save you tends of thousands of dollars.

The question is: how do the new rules affect you and your financial goals?

While the industry is undergoing a massive shift, you always have options. We’re happy to walk you through them. In the meantime, here are four reasons you may want to take action before the new rules set in…

Reason #1:

You’re a few months away from buying your first home.

For years now, you’ve been working hard to cut down on expenses and save up for that down payment. The fact is, you’re tired of paying someone else’s mortgage and you’re ready to start investing in your own financial future. If you’ve been thinking about purchasing a home in the coming year, you may be closer to your goal than you realize.

Wondering how much house you can afford? We break it down in the chart below. For more specific numbers, try using our savvy calculator to determine affordability based on your current income and budget.

 rent-vs-buy

Of course, these numbers are all about to change. As of January 1st, 2019, your maximum mortgage affordability will drop. We summarize the impact in our affordability chart here.new-mortgage-rules

Wondering if this is the time to make the leap into home ownership? Fill out our online application to determine if now is the time to buy your first home.

Reason #2:

You have some debt to pay off (or large expenses coming up).

Perhaps your kids are heading off to university, or you are looking to free up some extra cash to cover home renovation expenses. Refinancing allows you to tap into your home’s equity to pay off debt while taking advantage of lower interest rates. In fact, you can refinance up to 80% of your home’s value to pay off unsecured debts, renovation debt, or to simply access cash.

If your debt is weighing you down, this may be your best opportunity to make a change. Fill out our quick and easy online application form and we’ll help you determine if refinancing before the January 1st deadline is the right option for you.

Reason #3:

You’re ready to upgrade.

As your family grows, so does your lifestyle. Right now, mortgage rates are at a historical low – we’re talking 1.99% for a variable five-year mortgage rate in Ontario. At this rate, a family buying a home for $500,000 with a $125,000 down payment could expect to have a monthly mortgage payment of $1,743.

But as of January 1st, that same buyer will have to undergo a stress test prior to qualifying in order to ensure they can afford to pay their mortgage at two percentage points higher (3.99%). This means they would have to show they can afford to pay a mortgage of $2,165 per month. That’s a difference of $422 a month – or $5,064 a year!

(Refer to “Chart B” above for the full breakdown of the impact on affordability). If you’ve been thinking about making a move, it may be in your best interest to secure a mortgage pre-approval before the new mortgage rules kick in.

Reason #4:

You’re looking to make an investment purchase.

 

By now you know, it’s about to become tougher to qualify for a mortgage. No matter how you look at it, your purchasing power will decrease when the new rules come into effect January 1st.

If you’ve been considering financing an investment property, doing so before the deadline could mean the difference of owning up to 20 percent more house (as opposed to waiting until 2018 to purchase). Take a few minutes to fill out an online mortgage application today, and we’ll get back to you right away with the answers you’re looking for.

While the January 1st deadline is fast approaching, we want you to remember: it’s not just about the numbers. Even if you’re not in a position to purchase before the January 1st deadline, you still have options.

We’re here to discuss your short and long-term financial plan, so we can help you make the decisions that are right for your personal situation. And we promise we would never make a recommendation we wouldn’t suggest for our own family members. Get started by filling out an online mortgage application, and we’ll take it from there.

Rent Vs. Buy

Renting Or Buying: How Do You Determine What’s Right For You?

There’s a social pressure in western culture to become a homeowner. As kids, we live with this expectation that we’ll “grow up” and buy a home of our own one day.

While owning your own home can provide security, improve quality of life, and offer a solid financial investment, it’s certainly not your only choice. It may come as a surprise to hear this from your mortgage broker, but…

Owning a home isn’t for everyone.

In some cases, it might make more financial sense to rent.

There are a multitude of variables that come into play when you’re making the decision to purchase. The real estate market is an obvious one, but your personal situation is equally imperative.

This is why we always consider the bigger picture when meeting with clients to discuss their mortgage options. It’s important to know your goals – both personally and financially – so you feel equipped to make the best decision moving forward.

 

Reasons to Continue Renting

Just as there are some compelling reasons to become a home-owner, there are also plenty of good reasons to continue renting:

  • Renting represents mobility. Want the freedom to satisfy your nomadic lifestyle? Renting may be best for you.
  • You’ll have fewer responsibilities. No need to fret about the water heater breaking, or replacing shingles damaged by raccoons.
  • You’ll have more financial flexibility. You don’t need to worry about selling in order to access cash.
  • You don’t need to worry about expensive renovations or interior decorating. You’re less likely to spend your money on sprucing up your rental unit.
  • It’s easier to come up with first and last month’s rent than a down payment on a home.
  • You won’t have to worry about the market dictating the value of your property.

Advantages of Home Ownership

If you are considering making the transition from renting to buying, here are some of the benefits home-ownership can bring:

  • Your home can offer financial security. A home can be one of the greatest investments you’ll make, bringing the opportunity to safeguard your financial future.
  • Your home can be an effective tax shelter. It’s an asset that won’t incur capital gains tax.
  • You can renovate or decorate however you choose.
  • You could earn money by renting out extra space.
  • Your home equity can be used to finance another investment.

Are You Ready to Buy?

How do you know if or when you’re ready to commit to a mortgage?

First, you want to consider the fees, taxes and monthly payments. How much can you really afford? Remember to consider closing fees (like land transfer tax) and additional ongoing bills when you’re calculating the total cost of home ownership.

If you’re not sure just how far your budget can stretch, connect with us and we’ll get you started.

Open vs. Closed Mortgages

Open vs. Closed Mortgages: Which Option is Best For You?

Despite the abundance of information available online in regards to mortgages, there’s a lot of confusion around the different terms. We’re here to make it easier on you…

While fixed and variable mortgages refer to the way your interest rate is calculated and applied, open and closed mortgages refer to the flexibility you have in paying off your mortgage debt.

Our number one goal is to help you become mortgage free faster, and the choice between open and closed mortgages is an important factor for many to consider in this process. At the end of the day, we want to make sure you feel confident and comfortable in any financial decision you make.

So let’s break it down…

What’s an Open Mortgage?

An open mortgage can typically be paid off in full, at any time, without any penalty. It can be an appropriate choice for those who prioritize flexibility in their mortgage. Perhaps you’re planning to sell your home relatively soon, or you’re expecting to come into a large sum of money, which can be used to pay off your entire mortgage. If this is the case, an open mortgage may be the right fit for you.

What’s a Closed Mortgage?

With a closed mortgage, you are allowed to make limited, penalty-free lump-sum payments, and there is a penalty if your mortgage is repaid in full before the end of its term. Many Canadians prefer the simplicity of a basic closed mortgage with fixed interest payments. They’re relatively easy to understand and you don’t have to worry about any surprises.

Which Option is Best For You?

An open mortgage is tempting for borrowers who fear mortgage penalties, but this doesn’t mean it’s necessarily the best option. In fact, in many cases, a close variable-rate mortgage still ends up being a cheaper alternative. Not only are you getting a lower rate (with small payout penalties), you can still make lump-sum payments of at least 20% on your original mortgage balance every year with no penalty.

Here’s what it comes down to: using an open product (whether an open variable-rate mortgage or a line-of-credit loan) is most effective as very short-term financing, and if used for any other reason it can end up costing you a surprising amount of extra money.

Where Should You Go From Here?

The only way to know for sure what option is best for you is to take the next step and secure your mortgage application. By doing so, you’ll have access to our honest feedback, and you can count on us to cut through the jargon and provide expert advice.

We make the process really easy, too. Just follow the steps we’ve outlined at the link below and our team will get started right away on finding the best mortgage product for you.

How Much Can You Afford?

How Much Can You Really Afford to Invest In a Home?

Stretching your finances too thin can lead to unnecessary stress. Your mortgage is a tool that’s meant to support your financial goals, not hinder them. The key is to know your numbers and find a solution that works within your means.

Here are some factors to consider when determining how much you can afford to borrow for your mortgage:

1.Down Payment

The minimum down payment you can make in Canada is 5% of the first $500,000 and 10% of the amount above $500,000.

What if you are putting less than 20% down?

If you make a down payment of less than 20%, your mortgage is considered high-ratio. This means you’ll be required to:

  • Pay mortgage insurance premiums.
  • Choose a mortgage amortization period that’s no longer than 25 years.

How much does mortgage insurance cost?

The cost of your insurance payments will vary, depending on the size of your mortgage. You can choose between two insurers: Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada.

What does mortgage insurance do?

Mortgage insurance is designed to protect the lender in cases where a borrow defaults. It can be paid in a lump sum upon closing, or in installments over the length of the mortgage.

What if you have a down payment of 20% or more?

A mortgage with a down payment of 20% or more is considered a conventional mortgage. This means you can:

  • Choose a mortgage amortization period of up to 35 years.
  • Avoid paying for additional insurance.

2.Closing Costs

Closing costs can add up to anywhere from 1.5 to 4% of the purchase price of a home. These are one-time transactions that commonly include: inspection fees, realtor fees, lawyer fees, and land transfer tax.

3.Additional Ongoing Costs

Of course, becoming a home-owner means incurring a range of ongoing costs that must be considered separately from the purchase price and closing costs involved. Common additional costs include: home insurance, payment protection insurance, strata fees (monthly fees paid on the purchase of a condo), utility fees (such as hydro and water), and property tax.

How to Calculate What You Can Afford

Once you’ve considered all of the factors involved, you can compare these numbers to your income to determine exactly how much you can afford to borrow. Here’s how:

 

Why You Should Run the Numbers with Us

No matter what situation you’re in, it’s a good idea to run through your numbers with one of our mortgage specialists. Together, we’ll help you determine your closing costs and prepare you for the financial transaction you are planning to make.

 

At Mortgage Savvy, we would never put you in a situation we wouldn’t want for our own family members. No matter your financial background, we’re here to offer sound advice and guide you through the decision-making process.

Fixed vs. Variable

Fixed vs. Variable: Which Mortgage Rate Is Best For You?

Selecting your rate is one of the first steps to achieving your dreams of financial freedom.

There are many factors involved when shopping for your mortgage. Of course, rates are top of mind for everyone involved, but the lowest rate isn’t always the most important factor.

Here’s what you should know about fixed and variable rates…

Fixed Rates

With a fixed rate mortgage, your mortgage rate and payments are fixed, meaning the amount you pay each month will stay constant for the term of your mortgage.

 

Pros

  • You can essentially “set it and forget it,” without having to worry about fluctuations month to month.
  • This makes budgeting a breeze, as the numbers falling under your mortgage will stay the same every month.

 

Cons

  • You may end up paying a premium for the stability protection of a fixed rate.
  • If the difference between a variable and fixed rate is significant, any premiums you’re paying may not be worth it.

 

Variable Rates

With a variable rate mortgage, the mortgage rate will change with the prime lending rate, as set by your lender.

 

Pros

  • Historically, variable rates have proven to be less expensive over time due to lower interest charges.
  • With a variable rate, you’ll only be charged 3 months interest at any given time, should you choose to break your mortgage during the term.

 

Cons

  • Variable rates come with a level of financial uncertainty and can mean unpredictable payments.
  • A significant increase in the prime rate will increase your interest payable, and if you’re unprepared for this change, it can lead to financial burden.

 

These are just a few key points to keep in mind as you consider fixed versus variable rates, and what the differences could mean for your monthly mortgage payments.

At the end of the day, our main objective is to help you become mortgage free, faster.

You can trust us to read the fine print and cut through the jargon for you. We’re here to provide you with clarity and expert insight, so you feel equipped to make a sound financial decision.