How the Bank of Canada’s Interest Rate Hike Will Affect You and Your Mortgage

On July 12, we saw the first rate hike from the Bank of Canada. The rate was raised 0.25% from 0.5% to 0.75%. This was the first increase since September 2010 and more will come this year.  What do these increases mean for your fixed or variable rate mortgage? 

Mortgages

Your home may be the biggest purchase of your life, and anything that could affect the amount you are paying each month is important.

 

For a Fixed Rate Mortgage:

  • Payments for current homeowners stay the same
    • The interest rate on this type of mortgage is fixed so no matter what the Bank of Canada does, your rate will not change until your mortgage is up for renewal.
  • Increase at mortgage renewal
    • If you are at the end of your mortgages’ term, you will have to renew and your rate will change accordingly. This is not all bad news as the rate that you initially had at the start of your term (typically 5 years) may have been higher than the current rate is—even with the rate increase. To check what your future mortgage payments might be, I suggest using GLM Mortgage Groups’ Mortgage Calculator.
  • Higher Rate for Prospective Homebuyers
    • First-time home-buyers may have a higher rate if they are applying for a mortgage. Remember that the Bank of Canada will raise their rates in small increments (0.25%) at a time. Also, each increase translates into around $13 per $100k—an increase that most people can afford (though it may mean sacrificing a coffee run or two per week).

 

Variable Rate Mortgages

  • Your Payments Will Increase
    • A variable rate mortgage moves up or down with the general level of interest rates in the economy. This recent Bank of Canada hike means your mortgage payments will go up, but the amount you will be paying will be affordable, working out to around $13 per 100k
  • Should you switch to a Fixed Rate?
    • Deciding to lock into a fixed rate mortgage, depends on your ability to handle an increase in interest rates over time.  Historically, borrowers who stay in a Variable Rate Mortgage (VRM) tend to save more money over the course of the term. It is important to make an informed decision and to understand how Variable Rate Mortgages work.  Locking into a fixed rate may cost you more money than what an increase in your VRM would be.

The Mortgage Payment Calculator can show an estimated mortgage payment based on a new rate.

So there is no need to panic about these interest rate increases. It is important to stay informed and to budget for them.  The effect these increases will have on the real estate market remains to be seen.  This increase was the first one since 2010 but as we continue to get information we will keep you updated!  If you have any questions, please contact Young Real Estate Group and we can put you in touch with the best professionals out there to help you navigate these mortgage rate changes.

BC HOME Partnership Program

This new program for first time homebuyers called the HOME Partnership Program may be able to help them! In a nutshell the program breaks down as follows:

  1. Offers qualifying home buyers loans of up to $37,500, interest and payment free, for five years.
  2. The province has started accepting applications, started on January 16, 2017.
  3. To qualify, buyers must:
    1. be buying their first home
    2. obtain a high-ratio, insured first mortgage for at least 80 per cent of the purchase price
    3. have a combined gross household income not exceeding $150,000
    4. have saved a down payment amount at least equal to the loan amount
    5. be a Canadian citizen or permanent resident for at least five years
    6. have lived in BC for at least the full year preceding their application.
  4. The loans will be due in full if the buyer defaults on a payment, ceases to use the home as a principle residence or resells the home.
  5. The Facts:
    1. The loans will match a home buyer’s contribution to a down payment up to five per cent of the home’s purchase price
    2. The maximum purchase price to qualify for a loan is $750,000 (excluding taxes and fees)
    3. After five years, buyers can either repay their loan or enter into monthly payments at current interest rates
    4. Loans through the program are due after 25 years.
  6. The Application:
  7. Applicate/purchaser applies for loan
  8. Expected fees are $560.00
  9. Expected turnaround time is 5 days
  10. Housing Loan Approval is good for six months *** Pre Approval Certificate is required from a Bank before applying for the BC Housing Loan for Down Payment ***
  11. Applicants selects a home and writes offer.
  12. Lender approval and final contract to be sent to BC Housing minimum 14 days prior to closing date
  13. BC Housing will send instructions to lawyer/notary 4 days before closing date
  14. Please allow extra time if your client is applying for the program for subject removals.

For easy reference, please view the PDF Flow chartpower point, and scenario’s.

If you or someone you know has questions about this program, please contact me. I would be delighted to help!

What is Renovation Mortgage Financing

You’ve found your dream home, but the only problem is that it’s a dump! Fear not, homebuyer! There are many options available to help you finance the renovations, so you can stop dreaming and start living. One of the most popular options for new homebuyers is the renovation mortgage financing, where you assume the costs of the renovations into your mortgage.

You’re probably wondering – how does it work? Sometimes, you don’t even know everything that needs to be taken care of until you begin a large renovation project. According to the Canadian Mortgage and Housing Corporation:

CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment of 5%.

Essentially, at the time you apply for your mortgage, you will also estimate all of the costs associated with your renovations and add those to the mortgage.  For first-time homebuyers this can be an extremely smart option as they may not have enough saved up to  purchase the house and then immediately take on a huge renovation project. However, whenever undertaking any renovation project, whether financed yourself or through a mortgage, you should always put aside some extra for the “unknown”. This might even just be upgraded appliances or furniture when the renovations are through, but having some money set aside is never a bad thing!

But, what if you already own a home and want to renovate? 

Mortgage refinancing is an option that many look into if they do not want to obtain funds in other ways (lines of credit, loans, etc.). Mortgage refinancing takes into consideration how much left you owe on the house, and allows you to borrow up to 80% of the appraised value.

Refinancing your mortgage allows you to undertake the renovations, but spread the payment out over a longer period of time with generally less interest than a credit card or personal loan rates.

To find out what the eligibility criteria looks like, Genworth has created an information sheet highlighting many of the applicable scenarios. It is important to recognize that in order to qualify for renovation mortgage financing, the renovation cost must make sense based on the properties value or potential value.

Whether your undertaking renovation costs in your mortgage, or simply just looking to increase the ROI, it’s important to know what areas of your house are worth investing in. Understanding the best renovations for the greatest ROI will help you prioritize your to-do list. It’s also good to do some research and understand what types of remodelling mistakes can actually lower your homes value as well.

So the next time you walk into a home that needs work, don’t get scared off right away if you don’t have the funds readily available to renovate. Whether you use renovation mortgage financing or borrow against an existing mortgage, your dream home may be more achievable than you think.

Looking to enter the market, or understand the current value of your home? Contact a local RE/MAX Agent to help get you started.