Looking Beyond Mortgage Rates

It's easy to get caught up in the idea that comparing mortgage rates will guarantee you get the best bang for your mortgage buck. While this may be true for particular situations, there are many scenarios where this strategy is not effective. Following are three reasons why it doesn't always pay to make a decision based solely on rates.

Reason #1

Your long-term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate. For instance, there are cases where lenders will offer lower rates for insured mortgages. With insured mortgages, however, you're charged an insurance premium, which is usually added to the mortgage amount. But if you're not planning on keeping the property for a long enough time to offset that cost, it may be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate may still be less than what you may pay in insurance premiums. As another example, if you prefer to budget for a consistent payment and can't handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least five years, it may be wise to also opt for a mortgage with a longer term.

Reason #2

One of the biggest mistakes people make when merely comparing mortgage rates is failing to consider important factors such as prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, early payout penalties, or what fees are involved. It's not enough to simply compare mortgage rates because you have to know what "clauses" are contained within the mortgage deal. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even provide you with cash-backs after closing.

Reason #3

Lenders can change their rates at any time. As such, if you're shopping for rates with one lender and then approach another that gives you a lower rate, it's quite possible that the first lender has also dropped its rates. This is why it's important to get pre-approved with a lender once you find a mortgage that fits your needs. In some cases, you can secure your rate and conditions for up to 120 days. These are just three reasons why it's not enough to merely compare mortgage rates. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. In order to get the best mortgage deals, you need to have solid credit.

Mark Kupina - 905.730.4782

Massive Hamilton Downtown Renewal Project

A much anticipated multimillion-dollar development project in Hamilton's core is under way. The first of four new buildings that will bring as many as 600 condo units, two hotels and 20,000 square feet of retail space to the core has been rising on George Street near Caroline since the summer, bringing a swell of hope for the core with each new floor. The brain child of developer Darko Vranich, the $125-million project has been on the drawing boards for the past decade as he slowly assembled a huge chunk of the city's core.

Read More

Mortgage Options for the Self-Employed

If you're self-employed, you may have a more difficult time obtaining financing for your real estate purchases than you encountered just 18 months ago, thanks to the recent recession. And as of April 9^th, 2010, Canada Mortgage and Housing Corporation (CMHC) raised the required down payment amount, as well as decreased the percentage at which you can refinance an existing mortgage if you're self-employed. To add to the confusion, there are also new rules for those who have been self-employed for more than three years. Still, if you can prove your income, show you're up-to-date on your taxes and you have solid credit, your chances of being approved for a mortgage are greatly improved. There are essentially two types of self-employed or business-for-self (BFS) borrowers – those who can prove their income and those who cannot, and must instead use a stated-income mortgage product. But, if you have been self-employed for more than three years, you can no longer use a stated-income product. By providing the required documentation, you are more likely to be approved for a mortgage if you qualify based on your income. The trouble is that if you cannot prove your income, you pose a higher risk in the eyes of lenders. CMHC currently offers default mortgage insurance for people who have been self-employed less than three years through a stated-income mortgage product up to 90% loan to value (LTV) – meaning the down payment can be as low as 10% of the purchase price. But prior to April 9^th, 2010, the maximum LTV for self-employed individuals was 95% for purchases – meaning the down payment would have only been 5% instead of the current 10%. And if a BFS individual wishes to refinance an existing mortgage, the maximum loan amount was reduced to 85% from the previous 90% of the home's value. Regardless of the maximum LTV, however, the income amount you are stating has to make sense based on your occupation. This is important, because the chances of finding lenders to fund this type of deal are significantly boosted if the mortgage is insured. Lenders and insurers are well aware of the tax write-offs that BFS borrowers can leverage, but these deals are accepted or declined based on average incomes for specific fields, as well as your credit rating. It pretty much goes without saying that those with credit blemishes will have a tough time obtaining mortgage financing if they're self-employed.

Getting Pre-Approved

While BFS mortgage financing is viewed on a case-by-case basis, if you work with a licensed mortgage professional to obtain a pre-approval, you can be confident you have access to mortgage financing and you will know how much you can spend before you head out shopping for a property. It's important to note, however, that there is a significant difference between being pre-approved and pre-qualified. In order to obtain a pre-approval, the lender fully underwrites the deal whereas, with a pre-qualification, only the most basic details are considered. Remember that many banks will only issue a pre-qualification. Should a pre-approval and/or mortgage default insurance be unobtainable, the maximum mortgage amount you are likely to qualify for is between 50% and 75% – meaning you will need a much larger down payment.

Alternative Financing

If you do not qualify for traditional financing all is not lost, since you may be eligible for alternative – or private – funding. Mortgage professionals often have access to private investors who are willing to lend money to BFS individuals looking to obtain mortgages. Although you will pay a higher interest rate – on average about 12% – this route may enable you to acquire funds to purchase a home. It is also important to note that there are added fees involved with private funding because the deals involve a higher degree of risk. The combined lender/brokerage fee will depend on the specific deal and the risk it poses, but the figure will be disclosed upfront so you know exactly what you'll be expected to pay for these services. Another key point to consider is that private financing is equity based, meaning that the lender's decision will be based on a specific piece of real estate. Private lenders want to know that the property is marketable and that they will be able to easily sell it should the mortgage go into foreclosure. For any assistance contact a Kupina Mortgage agent. Our service and advise is free...we are here to help.

Katarina | 289.456.9149 | katarina@kupinamortgage.com

Gord's Lawn Care and Maintenance

We often have clients who are looking to downsize homes due to property maintenance or move to a condo because yard work is getting difficult. While this may be a very good reason to move it is not your only option. Often time we like to suggest our clients look into a property maintenance service as an alternative option. Moving homes is an expensive venture as often realtors, lawyers, financial institutions and moving companies need to be paid. Sometime the cost of a property maintenance service is a mere fraction of the expense associated with moving homes. To our clients we refer our friends at Gord's Lawn Care and Maintenance. Owner Gord MacIsaac has years of experience working for small and large landscaping companies and has learned how to please his customers. Gord is all about customer service and wants every customer satisfied which is why we refer Gord when it comes to your landscaping projects.

Service:

• * Lawn Care for spring, summer and fall
• *Gardening and garden maintenance
• *Trees, Hedges and shrub maintenance
• *Eaves trough cleaning, raking leaves and pruning
• *Snow Removal Services
• *Commercial Property maintenance

Gord's Lawn Care and Maintenance is a great solution for your property maintenance. Rather then moving homes due to lawn and garden maintenance or spending your precious free time working around the house, call our friends at Gord's Lawn Care and Maintenance.

Contact information:

Gordon MacIsaac - Business Owner - (289)208-3275 Katie Braithwaite - Business Manager - (905)407-8229 Email: gordslawncare@hotmail.com Web: www.gordslawncare.com

Disappearing Variable Rate Discount

The days of discounted variable rate mortgage are over again. With prime at 3% at most financial institutions, discounted variable rates could be seen as low as 2.1% this passed year. However, in the last 10 days what was left of that discount — has disappeared at all of the major banks.

You have to head back to the credit crisis of 2008 to find a similar period where the discount disappeared. At the time, consumers were paying a 100 basis point premium above prime for the privilege of a floating rate. The new reality is expected to reshape the mortgage market in the coming months, reversing a strong trend that had seen consumers roll the dice on interest rates, confident in the belief they were not going up. Canadian Association of Accredited Mortgage Professionals says 37% of consumers opted for variable rate mortgages over the last year, bringing the total percentage of those with a floating rate to 31%.

Currently, you can borrow at 3.29% if you lock in for five years or 3.09% for four years.  These rates are extremely low for piece of mind of a locked in rate. Another key advantage for a term five years or longer is you get to use the rate on your contract to qualify for a mortgage as opposed to the current five-year posted rate of 5.39%. The difference means you'll qualify for a larger loan by locking in.

Clearly there is no discounting how dependent the housing sector has become on cheap money but times have changed. If you are currently at a variable rate discounted from prime, enjoy the cheap money and pay off as much principal as you can.

Over the last number of years we have advised clients to choose the variable rate but now we are suggesting fixed.

It Can Pay to Break Your Mortgage

With mortgage rates still hovering near historic lows, chances are you've considered breaking your current mortgage and renewing now before rates rise any further. Perhaps you want to free up cash for such things as renovations, travel or putting towards your children's education? Or maybe you want to pay down debt or pay your mortgage off faster? If you've thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give me a call to discuss your options.

In some cases, the penalty can be quite substantial if you aren't very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term. People often assume the penalty for breaking a mortgage amounts to three months' interest payments so, when they crunch the numbers, it doesn't seem so bad. In most cases, however, the penalty is the greater of three months' interest or the interest rate differential (IRD). The IRD is the difference between the interest rate on your mortgage contract and today's rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months' interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead.

Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a "cash back" mortgage can influence penalties. While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you'll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate com [...]

info@kupinamortgage.com | 1.888.955.9011

Variable Discounts Turn to Premiums

In the last few days, RBC and Scotiabank have eliminated their advertised variable-rate discounts.
They’re now promoting variable mortgages at prime + 0.10%, twenty basis points more than their previous “special offers.”

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. Far and away, the main reason variable rates are worsening is that banks’ costs are rising. At the moment, there are multiple factors at play:

Higher risk premiums are compressing margins.
- We have Europe to thank for the that.
- The TED spread, a measure of interbank credit risk, just made a new 2½ year high. As volatility increases, banks have to factor that into their funding models.
- Another reflection of risk is the most recent floating rate Canada Mortgage Bond (which some lenders use to fund variable-rate mortgages). It was issued at a 15 basis point premium over the prior issue in August.

Margin balancing is an underlying bank motive. 
- Banks have publicly stated their desire to even out margins between profitable fixed rates and low-margin variables, and they’re slowly doing just that.
- Back in September, RBC Bank exec David McKay put it this way: “…Given the dislocation between fixed and variable, the very, very thin margins (of variables), we felt we needed to move prices up in our variable rate book.”

New regulations (e.g., IFRS) have boosted the amount of capital required for mortgage lending. 
- That has lowered the return on capital for mortgages, and thus influenced rates higher.

Status Quo for prime rate doesn’t help margins. 
- Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.
- Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.
- When expectations changed three months ago to suggest that prime rate will fall or stay flat (instead of rise like expected), it was bad news for some deposit-taking lenders. That’s because they now have no spread improvement to look forward to in the near-to-medium term.

MBABC President Geoff Parkin says that until recently, “lenders have been prepared to accept low (VRM) profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages.” As it turns out, the inevitable is taking longer than the market expected.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/12/variable-discounts-turn-to-premiums.html

info@kupinamortgage.com | 1.888.955.9011