This is our first video in our series on what you need to look for when shopping for a mortgage & we’re going to talk about prepayment privileges. repayment privileges are your tools to become mortgage free faster. When you buy your home, you do not want to be paying it off for the next 25 or 30 years.
With every mortgage, you have the ability to make more than your required minimum monthly payment. This goes directly to principal & can go a long way in shaving years off that mortgage & the amount of interest you will pay over the life of that mortgage.
The standard prepayment options you want to make sure you have are:
-15% Increase payment: this means increasing your monthly payment by up to 15%.
EXAMPLE: if your regular payment is $1000 / month, you could increase up to $1150 / month in year 1. In year 2, you could increase to 15% above that.
-15% lump sum payment: this refers to putting a large deposit on your mortgage.
EXAMPLE: if you have a $200K mortgage, you could put up to $30K in lump sum payments per year.
-double up payments: on any payment date, paying up to double that amount.
EXAMPLE: $1000 / month payment. You could pay up to $2000 as a one-off payment.
Now these options are not mutually exclusive. You could really utilize all 3 if you wanted to & really, you should use all three. The thing you want to watch out for, is that some lenders will offer you a “low rate” mortgage, where they give you a discounted rate, but slash your prepayment options to 5%/5%, or 10%/10%. Don’t be fooled, it’s not necessary to sacrifice your prepayments to get a low rate.
The other thing you want to watch for is some banks will only allow you to make prepayments on the mortgage anniversary, once / year. I can’t stress enough how much of a pain in the butt this is. For 365 days a year you have a plan how much you’re going to put down on your mortgage. If you end up putting too much or not enough, you have to live with that decision for the next 365 days. It’s far more convenient to make a $1000 lump sum payment every 3 months, than it is to plan for a $4000 lump sum once per year.
So the important thing with prepayments are 15% / 15% / Double up & you want to make sure you can make those prepayments throughout the year, not just on the anniversary.
Ryan Zupan
Mortgage Planner
Ryan@citywidemortgages.ca
604.250.6122
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2015-06-03 11:23:122015-06-03 11:24:10How to shop for a mortgage – Part 2 (Prepayment Options)
Today we’re going to talk about the most important concept to think about when coming into the mortgage transaction, and that is, mortgages are not all the same. From one bank to the next & even within that bank, from one mortgage to the next, there are a lot of little differences that can have a huge impact on how much that mortgage is going to cost you.
It’s very similar to buying a car, you don’t just decide you want an SUV just walk to the nearest dealership & start haggling on price. You want to do your homework, you have to shop around, look at the fine print & weigh the pros/cons of the products out there & then make your decision. Some cars have better gas mileage or their maintenance is cheaper, or they have a higher safety rating & so on. It’s very similar with mortgages.
All banks calculate their penalties differently. All banks have different prepayment privileges. Some banks make you pay for a CMHC insurance premium even if you have more than 20% down. The list goes on. It all boils down to how this mortgage fits into your overall financial picture & your goals with the property.
My point here is that you need to look at more than just interest rate, but a lot of ppl get so obsessed with getting the lowest possible interest rate that they forget about all the other factors that make up a good mortgage. You NEED to see the bigger picture.
I’ll give you an example. On a $200K mortgage, the difference between 3.09% & 2.99%, is $10 / month. This surprises a lot of people. $10 / month is of course important, I mean, over 5 years that’s $600 saved, but it’s not something that should cause you to sacrifice good prepayment options or go with some small financial institution that may not be in business in a few years.
When I first sit down with a client, the first thing we go over is the 3 main things you want to look at when shopping for a mortgage:
These three differences can go a long way in determining how much this mortgage is going to cost & they’re very important.
In my subsequent videos, we’ll delve into each of these topics, explain why they are important, & outline how they can be worth more than the rock bottom lowest rate.
Thanks & tune into my next video to learn about how prepayment privileges differ.
Ryan Zupan
Mortgage Planner
Ryan@citywidemortgages.ca
604.250.6122
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2015-06-03 11:21:432015-06-03 11:21:43How to shop for a mortgage – Part 1 (intro)
Following today’s Bank of Canada’s announcement that it will hold overnight rates steady at 0.75%, Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, says the outlook is unclear for the Canadian economy and the prospects for a potential rebound in the second half of 2015 are still uncertain.
The Canadian economy has experienced a substantial slowdown in recent months due to drops in the price of oil, and Dr. Cooper expects that any changes to the nation’s economic performance will likely be a result of an improvement in non-energy sectors emanating from the weakness in the Canadian dollar.
“While March employment in Canada improved substantially, business investment remains disappointing,” added Dr. Cooper. “The Bank of Canada has suggested that we will see a transition towards positive growth in exports and capital spending by non-energy producers—both boosted by the depreciating Canadian dollar, but in the near-term, incoming data will likely confirm continued weakness in the manufacturing sector, particularly in autos, and only modest growth in retail sales.”
Dr. Cooper reiterated her confidence in the Bank of Canada’s monetary policy strategy for 2015, despite the current weakened status of the Canadian economy: “I am cautiously optimistic that the Bank has got it right, but I continue to believe that the risks are on the downside for the economy and inflation. My forecast for Canadian growth this year is 1.5 percent–below the Bank’s 1.9 percent forecast. Much hinges on the U.S. economy.”
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@citywidemortgage.ca
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2015-04-15 10:05:432015-04-15 10:05:43Bank of Canada Rate Announcement
One of the more common questions I get asked is fixed or variable? Which is better? Well, qualifying for the 2 is not the same so the first question you should ask is, do I qualify for both fixed & variable because it is more difficult to qualify for a variable than a fixed rate.
A variable rate mortgage has more risk than a fixed rate. Because your rate & payment fluctuates, the bank wants to make sure that, when rates go up, you have enough income to cover that increase. So when you qualify for a variable, instead of basing the formula on that juicy low variable rate of 2.2%, they’re going to use the 5 year qualifying rate, which is 5.49%.
That’s quite a difference in rate. I want to give you an idea of what those numbers mean, so let’s say you earn $60,000, have no debts &, for illustrative purposes, we’re going to ignore the costs of ownership like taxes, heat, strata fees, etc.
Qualifying with today’s best 5 year fixed of 3.69%, <20%, on a 25 year, you would be eligible for a mortgage of roughly $340,000. Now, using those same numbers, going with a variable & using the qualifying rate of 5.49%, that same client is eligible for a mortgage of around $285,000 – 15% less.
So this is important to know. If you’re looking at homes in the north end of your affordability range, you may not have a choice. A 5 year fixed may be the only way you can purchase.
Now, you do get a break if you have 20% down or more. Because you have more equity in the home, most lenders allow you to qualify using the 3 year posted rate, not the 5 year, which will improve your qualification limit.
To find out how much you qualify for going with a fixed or variable, contact me.
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@mortgagecentrebc.com
https://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.png00adminhttps://ZupanMortgage.com/wp-content/uploads/2020/05/Citywide-logo.pngadmin2011-06-21 11:12:112011-06-21 11:12:51Why you qualify for less going with a variable: Qualifying for fixed/variable
Hi, Ryan here with the Mortgage Centre City Wide. I know we’re really going through the basics here & breaking down the topics of these videos to their most basic form, but a fixed rate mortgage is really, well, very simple. Your interest rate & mortgage payment are fixed throughout the length of your term. Of course, you can fix your payments at a higher level, but that minimum monthly amount & the rate that’s based off of are fixed for your term.
So, I think a better topic here is explaining what drives your fixed rate mortgage, or, how do banks determine their 5 year mortgage rate. Remember, in my video on what controls your variable rate, we learned that the Bank of Canada is in the drivers seat. Well, fixed mortgage rates are determined by the market & are based off of government bond yields. Why?
After mortgages are arranged, they are packed up & sold on the markets as Mortgage-Backed Securities (MBS). These investments are similar to government bonds and actually compete against each other as low-risk investments. So when the yield on the 5 year bond increases, investors are attracted away from Mortgage Backed Securities to the corresponding bond because, now, the bond has a higher yield. To become more competitive, then, lenders will increase fixed rates & vice versa.
So the final question we have here is why do bond yields increase or decrease? The coupon for the bond, or the income that bond produces, is fixed, so why would someone want to pay more or less for that fixed income?
Well it’s driven by supply & demand. When the stock market is in turmoil, people want a safe place to put their money, so they may go after bonds. The more people wanting to buy bonds, the higher the price increase &, in turn, the more the yield decreases.
This is probably getting into another topic but bond yield & price have an inverse relationship. All you really need to know is when the markets are volatile, the yield on bonds decrease & therefore fixed rates will decrease. On the other side, when the markets are strong, investors are attracted away from bonds, their price decreases, yield increases, as will fixed rates.
Now typically, the spread between the bond yield & the corresponding fixed rate is 1.2 — 1.4%, but fixed rates are kind of like gas prices, they’re quick to go up but slow to trickle down. So if you want to get an idea of when 5 year fixed rates are going to increase, keep an eye on the 5 year bond yield. Or call me.
Last week, we went over what is a variable rate. Today we’re going to go one step backward & explain where that variable rate comes from.
Going with a variable, you are opening up your mortgage to a lot more risk than with a fixed rate. Of course, because your rate changes throughout the year, there is no limit to how high this rate could go throughout the term. So, it’s very important for those going with a variable, to understand who or what controls Prime Rate & how they can get an idea of where their rate is going throughout the term.
Your variable, remember, is tied to the bank’s prime rate, so what determines prime rate?
Prime rate is controlled by the Bank of Canada’s overnight rate; they are directly related. 8 times per year, the Bank of Canada announces whether they will increase, decrease or leave target for the overnight rate unchanged. This is an important announcement for those with variable mortgages because this will tell you what’s going to happen to your mortgage for the next month or two.
Why would the Bank of Canada change the overnight rate, or in turn, Prime Rate?
This is really a tool the Bank of Canada uses to control inflation & the economy. When the economy is strong & the price of goods is increasing, inflation begins to happen. To try to slow down inflation, the Bank of Canada will increase this rate to get the economy under control. Higher interest rates means it’s more expensive to borrow. When it’s more expensive to borrow, you can expect less borrowing to happen, so less stimulus to the economy.
On the other hand, when the economy is slow, as we saw the Great Recession beginning 2007, the Bank of Canada wanted to encourage borrowing to ignite the economy. In this case, they lowered the target for the overnight rate to make it more attractive to borrow. Lower interest rates means it costs less to borrow. If I’ve been holding off on buying, when the government lowers that rate, it might just be enough incentive for me to take out that business loan, or buy a house, or whatever; it’s more attractive for me to borrow.
So with your variable rate mortgage, Prime Rate is not some magic number your bank uses to punish you or anything like that, it is determined by the Bank of Canada, which is basing its decision on the economy.
If you’d like to know more information on this topic or if you’d like to know where economists are predicting prime rate to go over the next 2 years, contact me.
How to shop for a mortgage – Part 2 (Prepayment Options)
/in Misc. /by adminThis is our first video in our series on what you need to look for when shopping for a mortgage & we’re going to talk about prepayment privileges. repayment privileges are your tools to become mortgage free faster. When you buy your home, you do not want to be paying it off for the next 25 or 30 years.
With every mortgage, you have the ability to make more than your required minimum monthly payment. This goes directly to principal & can go a long way in shaving years off that mortgage & the amount of interest you will pay over the life of that mortgage.
The standard prepayment options you want to make sure you have are:
-15% Increase payment: this means increasing your monthly payment by up to 15%.
EXAMPLE: if your regular payment is $1000 / month, you could increase up to $1150 / month in year 1. In year 2, you could increase to 15% above that.
-15% lump sum payment: this refers to putting a large deposit on your mortgage.
EXAMPLE: if you have a $200K mortgage, you could put up to $30K in lump sum payments per year.
-double up payments: on any payment date, paying up to double that amount.
EXAMPLE: $1000 / month payment. You could pay up to $2000 as a one-off payment.
Now these options are not mutually exclusive. You could really utilize all 3 if you wanted to & really, you should use all three. The thing you want to watch out for, is that some lenders will offer you a “low rate” mortgage, where they give you a discounted rate, but slash your prepayment options to 5%/5%, or 10%/10%. Don’t be fooled, it’s not necessary to sacrifice your prepayments to get a low rate.
The other thing you want to watch for is some banks will only allow you to make prepayments on the mortgage anniversary, once / year. I can’t stress enough how much of a pain in the butt this is. For 365 days a year you have a plan how much you’re going to put down on your mortgage. If you end up putting too much or not enough, you have to live with that decision for the next 365 days. It’s far more convenient to make a $1000 lump sum payment every 3 months, than it is to plan for a $4000 lump sum once per year.
So the important thing with prepayments are 15% / 15% / Double up & you want to make sure you can make those prepayments throughout the year, not just on the anniversary.
Ryan Zupan
Mortgage Planner
Ryan@citywidemortgages.ca
604.250.6122
How to shop for a mortgage – Part 1 (intro)
/in Misc. /by adminToday we’re going to talk about the most important concept to think about when coming into the mortgage transaction, and that is, mortgages are not all the same. From one bank to the next & even within that bank, from one mortgage to the next, there are a lot of little differences that can have a huge impact on how much that mortgage is going to cost you.
It’s very similar to buying a car, you don’t just decide you want an SUV just walk to the nearest dealership & start haggling on price. You want to do your homework, you have to shop around, look at the fine print & weigh the pros/cons of the products out there & then make your decision. Some cars have better gas mileage or their maintenance is cheaper, or they have a higher safety rating & so on. It’s very similar with mortgages.
All banks calculate their penalties differently. All banks have different prepayment privileges. Some banks make you pay for a CMHC insurance premium even if you have more than 20% down. The list goes on. It all boils down to how this mortgage fits into your overall financial picture & your goals with the property.
My point here is that you need to look at more than just interest rate, but a lot of ppl get so obsessed with getting the lowest possible interest rate that they forget about all the other factors that make up a good mortgage. You NEED to see the bigger picture.
I’ll give you an example. On a $200K mortgage, the difference between 3.09% & 2.99%, is $10 / month. This surprises a lot of people. $10 / month is of course important, I mean, over 5 years that’s $600 saved, but it’s not something that should cause you to sacrifice good prepayment options or go with some small financial institution that may not be in business in a few years.
When I first sit down with a client, the first thing we go over is the 3 main things you want to look at when shopping for a mortgage:
1) Prepayment privileges
2) Penalties
3) Registration
These three differences can go a long way in determining how much this mortgage is going to cost & they’re very important.
In my subsequent videos, we’ll delve into each of these topics, explain why they are important, & outline how they can be worth more than the rock bottom lowest rate.
Thanks & tune into my next video to learn about how prepayment privileges differ.
Ryan Zupan
Mortgage Planner
Ryan@citywidemortgages.ca
604.250.6122
Bank of Canada Rate Announcement
/in bank of canada, Rate Accouncement /by adminApril 15, 2015
Following today’s Bank of Canada’s announcement that it will hold overnight rates steady at 0.75%, Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, says the outlook is unclear for the Canadian economy and the prospects for a potential rebound in the second half of 2015 are still uncertain.
The Canadian economy has experienced a substantial slowdown in recent months due to drops in the price of oil, and Dr. Cooper expects that any changes to the nation’s economic performance will likely be a result of an improvement in non-energy sectors emanating from the weakness in the Canadian dollar.
“While March employment in Canada improved substantially, business investment remains disappointing,” added Dr. Cooper. “The Bank of Canada has suggested that we will see a transition towards positive growth in exports and capital spending by non-energy producers—both boosted by the depreciating Canadian dollar, but in the near-term, incoming data will likely confirm continued weakness in the manufacturing sector, particularly in autos, and only modest growth in retail sales.”
Dr. Cooper reiterated her confidence in the Bank of Canada’s monetary policy strategy for 2015, despite the current weakened status of the Canadian economy: “I am cautiously optimistic that the Bank has got it right, but I continue to believe that the risks are on the downside for the economy and inflation. My forecast for Canadian growth this year is 1.5 percent–below the Bank’s 1.9 percent forecast. Much hinges on the U.S. economy.”
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@citywidemortgage.ca
Why you qualify for less going with a variable: Qualifying for fixed/variable
/in fixed vs variable /by adminOne of the more common questions I get asked is fixed or variable? Which is better? Well, qualifying for the 2 is not the same so the first question you should ask is, do I qualify for both fixed & variable because it is more difficult to qualify for a variable than a fixed rate.
A variable rate mortgage has more risk than a fixed rate. Because your rate & payment fluctuates, the bank wants to make sure that, when rates go up, you have enough income to cover that increase. So when you qualify for a variable, instead of basing the formula on that juicy low variable rate of 2.2%, they’re going to use the 5 year qualifying rate, which is 5.49%.
That’s quite a difference in rate. I want to give you an idea of what those numbers mean, so let’s say you earn $60,000, have no debts &, for illustrative purposes, we’re going to ignore the costs of ownership like taxes, heat, strata fees, etc.
Qualifying with today’s best 5 year fixed of 3.69%, <20%, on a 25 year, you would be eligible for a mortgage of roughly $340,000. Now, using those same numbers, going with a variable & using the qualifying rate of 5.49%, that same client is eligible for a mortgage of around $285,000 – 15% less.
So this is important to know. If you’re looking at homes in the north end of your affordability range, you may not have a choice. A 5 year fixed may be the only way you can purchase.
Now, you do get a break if you have 20% down or more. Because you have more equity in the home, most lenders allow you to qualify using the 3 year posted rate, not the 5 year, which will improve your qualification limit.
To find out how much you qualify for going with a fixed or variable, contact me.
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@mortgagecentrebc.com
What controls fixed rates?
/in fixed vs variable, Mortgage Basics /by adminHi, Ryan here with the Mortgage Centre City Wide. I know we’re really going through the basics here & breaking down the topics of these videos to their most basic form, but a fixed rate mortgage is really, well, very simple. Your interest rate & mortgage payment are fixed throughout the length of your term. Of course, you can fix your payments at a higher level, but that minimum monthly amount & the rate that’s based off of are fixed for your term.
So, I think a better topic here is explaining what drives your fixed rate mortgage, or, how do banks determine their 5 year mortgage rate. Remember, in my video on what controls your variable rate, we learned that the Bank of Canada is in the drivers seat. Well, fixed mortgage rates are determined by the market & are based off of government bond yields. Why?
After mortgages are arranged, they are packed up & sold on the markets as Mortgage-Backed Securities (MBS). These investments are similar to government bonds and actually compete against each other as low-risk investments. So when the yield on the 5 year bond increases, investors are attracted away from Mortgage Backed Securities to the corresponding bond because, now, the bond has a higher yield. To become more competitive, then, lenders will increase fixed rates & vice versa.
So the final question we have here is why do bond yields increase or decrease? The coupon for the bond, or the income that bond produces, is fixed, so why would someone want to pay more or less for that fixed income?
Well it’s driven by supply & demand. When the stock market is in turmoil, people want a safe place to put their money, so they may go after bonds. The more people wanting to buy bonds, the higher the price increase &, in turn, the more the yield decreases.
This is probably getting into another topic but bond yield & price have an inverse relationship. All you really need to know is when the markets are volatile, the yield on bonds decrease & therefore fixed rates will decrease. On the other side, when the markets are strong, investors are attracted away from bonds, their price decreases, yield increases, as will fixed rates.
Now typically, the spread between the bond yield & the corresponding fixed rate is 1.2 — 1.4%, but fixed rates are kind of like gas prices, they’re quick to go up but slow to trickle down. So if you want to get an idea of when 5 year fixed rates are going to increase, keep an eye on the 5 year bond yield. Or call me.
Ryan Zupan
Mortgage Planner
What controls variable rates?
/in fixed vs variable, Mortgage Basics /by adminLast week, we went over what is a variable rate. Today we’re going to go one step backward & explain where that variable rate comes from.
Going with a variable, you are opening up your mortgage to a lot more risk than with a fixed rate. Of course, because your rate changes throughout the year, there is no limit to how high this rate could go throughout the term. So, it’s very important for those going with a variable, to understand who or what controls Prime Rate & how they can get an idea of where their rate is going throughout the term.
Your variable, remember, is tied to the bank’s prime rate, so what determines prime rate?
Prime rate is controlled by the Bank of Canada’s overnight rate; they are directly related. 8 times per year, the Bank of Canada announces whether they will increase, decrease or leave target for the overnight rate unchanged. This is an important announcement for those with variable mortgages because this will tell you what’s going to happen to your mortgage for the next month or two.
Why would the Bank of Canada change the overnight rate, or in turn, Prime Rate?
This is really a tool the Bank of Canada uses to control inflation & the economy. When the economy is strong & the price of goods is increasing, inflation begins to happen. To try to slow down inflation, the Bank of Canada will increase this rate to get the economy under control. Higher interest rates means it’s more expensive to borrow. When it’s more expensive to borrow, you can expect less borrowing to happen, so less stimulus to the economy.
On the other hand, when the economy is slow, as we saw the Great Recession beginning 2007, the Bank of Canada wanted to encourage borrowing to ignite the economy. In this case, they lowered the target for the overnight rate to make it more attractive to borrow. Lower interest rates means it costs less to borrow. If I’ve been holding off on buying, when the government lowers that rate, it might just be enough incentive for me to take out that business loan, or buy a house, or whatever; it’s more attractive for me to borrow.
So with your variable rate mortgage, Prime Rate is not some magic number your bank uses to punish you or anything like that, it is determined by the Bank of Canada, which is basing its decision on the economy.
If you’d like to know more information on this topic or if you’d like to know where economists are predicting prime rate to go over the next 2 years, contact me.
Ryan Zupan
Mortgage Planner