Author: Darin Bauer - Mortgage Architects

Mortgage Rates Dropping into 2024

The current mortgage rate environment in Canada is seeing bond yields decrease from their highs.  Recent action in the bond market has seen yields drop about 70 basis points from their highs of about 4.5%.  Translated to mortgage rates,  we’ve seen minor drops in the 5 year fixed so far as banks have not reduced mortgage rates in lockstep with bond yields falling. This is because banks and lenders have to hold more margin for risks in the market than usual. As time goes on in 2024 we should start to see some more reductions in the fixed mortgage rates side.

mortgage broker toronto

Later in 2024, the Bank of Canada is expected to reduce their lending rate which will lower bank prime rates. Inflation readings will be important in signalling when this may happen , along with any more GDP data regarding a potential recession. Current bank prime rate is sitting at 7.20% with the majority of lenders.  Some mortgage brokers in Toronto are offering variable rates at lenders up to 0.90% below prime or 6.30% currently. Borrowers are starting to favor variable rates for renewals and purchase or refinancing as they believe locking into higher fixed rates could be a mistake. This is because the belief is the prime rate could be around 1% lower at the end of 2024.

mortgage refinance

Fixed mortgage rates are currently at the higher end of the range over 6% and even over 7% for short term. Borrowers are looking at these rates versus variable rates and coming up with their own beliefs of which one may be a better choice into next year 2024. The trend is now starting to show that variable is getting much more interest than before as the Bank of Canada looks to cut rates sometime in the later half of 2024.

Competition among banks in Toronto is another vital factor influencing mortgage rates. With numerous financial institutions vying for customers, banks must stay competitive to attract borrowers. This competition can lead to lower mortgage rates as banks attempt to gain an edge over their rivals. However, it’s important to note that not all banks offer the same rates, as they may have varying strategies, cost structures, or risk appetites.

While these factors shape the mortgage rates in Toronto and the GTA, it’s important to note that individual borrowers’ creditworthiness also plays a significant role. Factors such as credit score, income, and down payment size can influence the rate offered by a lender. Those with higher credit scores and larger down payments typically pose lower risks to lenders, which may result in lower mortgage rates. Or in the case of mortgage refinancing in Toronto , borrowers with more equity and better credit scores are easier to approve.

In conclusion, mortgage rates in Toronto banks are influenced by various factors, including the Bank of Canada’s benchmark interest rate, economic conditions, inflation, competition among lenders, and individual borrower characteristics. Aspiring homeowners and buyers should closely monitor these factors and consider seeking professional advice to navigate the complex landscape of mortgage borrowing. By staying informed and proactive, borrowers can secure the most favorable mortgage rates in Toronto’s banking industry.

 

 

 

Mortgage Rates Increase in 2023

As you may have heard in recent news, mortgage rates are now at levels not seen since 2008.  The prime rate is now 6.70% , a huge jump from the 2.45% lows of early 2022. All fixed rates terms are up considerably higher from the low 2% range to over 5% on average. Borrowers are now having to deal with constrained qualifying ratios which are about 25% lower than a year ago. Incomes will be approved for much less of a mortgage amount than a year ago for example.  In early 2022 a $100k income would get about a $550k mortgage approved. That amount is now around $400k.

The current rate for a 5 year fixed mortgage is about 5.4% while the variable is 6.2%. Lenders are giving some extra discounts for larger mortgages where they will discount further but in general the rates are at these levels for most mortgages. If you have an upcoming mortgage renewal , talk to your bank or lender about extending the amortization back up to 30 years for example. This will help lower your payments as much as possible. Many borrowers are facing rate shock as the huge increase in mortgage renewal rates causes a big spike in payments unexpectedly. On average, mortgage payments have increased over 50% versus a year ago, whether for a mortgage renewal or a home purchase. Payments are up drastically across the range of different mortgage types.

 

If you are dealing with payment issues you can also look at refinancing your mortgage to payoff other debts such as credit cards, credit lines, car loans, etc. This could reduce your payments by hundreds of dollars, even over $1000 in many cases. Refinancing will typically cost a legal fee but in some cases that can be covered with promotional rebates, etc.  An appraisal of your home may be required although many lenders now do automated appraisal valuations. Expect a refinance to take about 2-3 weeks to close from start to finish.

If you are planning to purchase a home in 2023, make sure to get pre-approved with a mortgage broker and know your borrowing limits in this new higher rate market. It will be an easy process that only takes a few minutes to know what your maximum mortgage amount will be. All that is needed is your income or salary, current debts and any other property info.

 

 

Toronto Mortgage & Real Estate Update – 2022 February

The market in the GTA and Toronto continues to show above average levels of price increases and low inventory, causing buyers to encounter multiple offer situations.  Prices are now well above the average in 2017 when there was a spike before the foreign buyer tax was introduced and the mortgage stress test was put in place. Several media outlets and analysts are now predicting a government intervention will be coming soon to slow down the market.  There are many properties selling for 50% higher prices than in 2020, some even over 70% .

Possible new measures may include the following:

– A new tax on speculators who sell homes in a short time period, also known as “flippers”

– An increased empty home tax to get more properties onto the market

– A new mortgage borrowing rule regarding home equity lines of credit where the regulator OSFI will ban purchases of rental / investment properties using borrowed funds

– Potential to change the mortgage qualifying stress test has also been mentioned but not on the radar as significantly as the above points

Several mortgage brokers in Toronto  and real estate agents have expressed frustration with the government not acting on the very hot real estate market in Toronto and the GTA. They have indicated that the higher prices in such a short time period will cause a much more dangerous credit event in the future once rates start to rise this year and through 2024 as predicted by many analysts.  Payments for borrowers will swell significantly as the mortgages taken out now are at record amounts while rates increase steadily.

Speaking of rates,  it is still a great time to refinance a mortgage at these low rates, especially variable mortgage rates around 1.5% currently, many borrowers are choosing to do so now rather than wait.  A mortgage refinance can be a great way to lower overall high interest debt levels and consolidate payments. Contact us today for a quote.

Refinance a Mortgage in Toronto

Refinancing a mortgage has many benefits in a low mortgage rate environment. As today’s credit cards, credit lines and other loans can easily be over 14%, combining these into one low rate mortgage can
save thousands of dollars.  A typical mortgage refinance will combine your existing mortgage and these debts into a new mortgage at rates around 2.99% currently.  The maximum loan to value, meaning the maximum mortgage based on the appraised or market value of the home, is currently at 80% with all banks and mortgage lenders. The typical mortgage refinance in Toronto will cost about $1000 to $1500 in legal fees to arrange the mortgage as a lawyer has to discharge the old mortgage , meaning pay it off and remove the registration from the land title office and setup the new mortgage registration. The lawyer also has to gather all debt statements from the borrower to pay them off as agreed to with the new lender or bank.

Consider that doing a mortgage refinance will eliminate all those debts you have at 10% – 22% , the savings from having all of those debts in a mortgage are quite impressive.  The monthly payments for all of your debts combined are now in one easy to make mortgage payment. Your cash flow on a monthly basis will increase substantially , on an average mortgage refinancing in Toronto and the GTA,  over $1000 monthly. Besides cash flow is of course the big savings from not paying all of that interest. You can
now have all of your debts in a low rate mortgage refinance at around 3%.  Over time , the principal amount of your debts can be paid off much easier than with the minimum payments used by credit cards
and their high interest rates.

Another option for doing a mortgage refinance is to use the funds to renovate your home and make improvements that will increase the value. Rather than getting a line of credit at rates around 4.5% currently, a mortgage refinance can be the cheaper option and provide the funds you need at a much lower cost. Refinancing a mortgage can also benefit you when buying a second home or investment property. You can refinance to get the downpayment out of your existing home equity and use it to buy
a rental property with can be used as an investment strategy. Consider this option as a way to build up your net worth over time, besides using stocks and mutual funds. Buying an investment property is a way
to diversify your assets, which is always important.

To process a mortgage refinancing application you will need to gather some documents for a mortgage broker. The usual items will be an existing mortgage statement , recent property tax bill showing the annual levies, a recent paystub and T4 slip showing total income for the year. A mortgage broker will prepare the refinance application for the lender and submit it with your credit report. To qualify for best mortgage refinance rates , you will need a credit score of about 680 or higher with most banks and lenders. There are some exceptions made for slightly lower credit scores , but in most cases, you’ll need a score of 680 or higher.

 

 

Private Lenders in Toronto

Many mortgage borrowers in Toronto and the GTA are using private lenders if they are having difficulty qualifying for a mortgage with the banks due to increased qualifying measures brought in from the government mandated stress tests. Using a private lender can be a good short term choice to get the financing you need whether its a home purchase or refinance. 1st and 2nd mortgages are available from private lenders in Toronto.

A private lender will not have the same restrictions as the banks, as they are more concerned with the available equity in a property , rather than how much income a borrower has , what their credit score and history is and whether they are self employed and don’t show much income personally on their tax returns. Many private lenders in Toronto and the GTA also offer flexible mortgage terms if you need a short term solution such as a second mortgage in Toronto.

Second mortgages can have terms as short as 6 months or less , but typically have a term of 1 year. Rates can vary from 8% to 14% depending on the quality of the property, it’s location and other details of the borrower. After the term is over a second mortgage will usually be open at maturity to be paid off in full or the private lender will renew the mortgage for another 1 year term.  At this point it is also a good idea to look at the opportunity of refinancing both the 2nd mortgage and the existing 1st mortgage into a new 1st mortgage at the lowest rate possible.

Private lenders in Toronto can also offer a solution with a second mortgage if you need funds to catch up on a mortgage that is currently in arrears. Many banks and mortgage lenders will issue a power of sale notice after a few months have passed with late payments. You will need to consider a second mortgage and a private lender if you are behind on mortgage payments and want to stop a power of sale.
A mortgage broker , private lender and lawyers,  can work quickly to close a second mortgage, sometimes in less than  7 business days.

 

 

 

 

Income Documents for a Mortgage Application

We’ve all heard the Scout motto “Be prepared”. It’s great advice if you need a mortgage. Assembling everything your lender needs to verify your income is a critical component of mortgage success. A last-minute scramble for documents just adds to stress. Get a Mortgage Kit folder ready and begin collecting the verification you will need for your income type:

  1. FULL-TIME SALARY: Provide a recent pay stub and a “letter of employment” on company letterhead that confirms a) your position, b) your annual salary, and c) the length of time you’ve been in your position. If you’re a fairly new employee, lenders will want to know that your probationary period is over. And they will follow up. Commissions and bonuses can be supported by your last two notices of tax assessments.
  2. COMMISSION, CONTRACT, PART-TIME AND SEASONAL EMPLOYMENT: Company letter and paystub are required. Income must be consistent and can be proven with a two-year average of tax assessments or T4s. If the position is contract, a copy of the contract and any renewals is required.
  3. SELF-EMPLOYED: Assemble a) two years of tax assessments, b) business license or registration, or articles of incorporation, c) your T1 general tax returns for the last two years, OR the last two years of accountant-prepared financial statements (if incorporated). Lenders recognize that self-employed income is kept low, so some expenses on your statement of business activities can be added back. If income is difficult to prove, be sure to have a strong credit history and downpayment. Otherwise you may require an alternative or private mortgage lender in Toronto
  4. CHILD SUPPORT: A copy of the separation/divorce agreement and three to six months bank statements are typically required. This income should be less than 30% of total income.
  5. DISABILITY: A letter confirming permanent status along with a paystub.
  6. MATERNITY LEAVE: Some lenders use full employment income if the employment letter confirms a return date within one year.
  7. PENSION, RRIF, INVESTMENT INCOME: Most recent tax assessment, T4As for pension income. There must be sufficient funds in the investment for the income withdrawal.

Mortgage Brokers in Toronto

There are many mortgage brokers in Toronto but only a handful have the knowledge and experience you need. It is important to work with someone who has had years of experience working with different lenders and using multiple types of lending products. From straight forward deals known as “cookie cutter” to the more complex and difficult mortgages , a good broker will have knowledge of both sides of the business.  Different types of clients over the years gives a mortgage broker the experience to handle both sides of the client spectrum.

Find a mortgage broker that has good reviews as well, preferably posted on trusted sites. A good review is important in finding a quality mortgage broker who is professional and cares about their clients. A home purchase , mortgage refinance or mortgage renewal is an important transaction and you need the experience of the best mortgage broker in Toronto . Also keep in mind that experience brings trusted contacts for other professionals you may need such as a real estate lawyer, financial planner, accountant , real estate agent , etc. You can typically get good referrals from someone who has been in business for at least 10 years or so.

A mortgage broker will have many more product options and choices of mortgage products than a bank branch employee.  When you visit your bank, they only have that bank’s line of products and rates to serve you with. This limits your choices and is not an effective way to shop for your mortgage. A broker has many options available not just with mortgage rates , but with products, terms , features and benefits. A mortgage should be tailored to your needs and not to the banks. Think about shopping for a mortgage like shopping for a TV. Do you only want to be able to choose from one TV manufacturer? Or do you want a wide selection of products to compare ?  Using a mortgage broker gives you this advantage versus dealing with your own bank and only one set of mortgage options.

Mortgage consumers in Toronto and Canada are using mortgage brokers at an increased rate. They see the value of having the choice of multiple lenders and products. As well, the services offered are free of charge in almost all cases. Mortgage lenders will compensate the brokerage for sending them a new client. So you don’t pay for the services a broker provides you.

The best option in Toronto and the GTA is using a mortgage broker. Contact me today for more information and how I can help you .

 

Payoff Your Mortgage Faster

Pay Off Your Mortgage Faster

One of the highest financial priorities of Canadian homeowners is to pay off their mortgage as quickly as possible. Paying down extra principal in the early years can shorten the life of your mortgage
and dramatically lower the interest you’ll pay over the long haul. “Pay-Off Tips” below describes some of the most effective methods that you can apply based on your situation.

1. Mortgage payments made with After Tax Cash

More Canadians are becoming aware that since mortgage interest is not tax-deductible in Canada you are making mortgage payments of both principal and interest with money that you’ve already paid tax on “after tax dollars”. This makes it even more important to eliminate the drainage of disposable income as soon as possible!

2. Prepayments give great return on investment

For example, if you pay an average of 4% in mortgage interest, for each $1,000 by which you reduce your mortgage principal, you will save $40 in after tax cash every year. If you are paying taxes at a marginal rate of 40%, you have to earn $66.67 each year to pay the interest on every $1,000 of principal outstanding…a heavy burden, but also a tremendous implied benefit to reducing this balance. In fact, the example shows that the “return on investment” for making prepayments on your mortgage is 6.67% before tax and 4% after tax far better than most fixed return investments (bonds, GICs, etc.).

3. Increase your payment annually to the most you can afford

The upside is that most lenders will allow you to reduce it again to the previous level if it turns out to be too great a burden or your circumstances change.

4. Utilize your RRSP-driven tax rebate as a mortgage prepayment method

Even if you can only prepay annually, make sure these funds are set aside for that purpose. Many Canadians will borrow (at prime) to buy an RRSP to ensure the maximum rebate. When applied to the mortgage principal, this refund is a “gift that keeps on giving”. Combining the refund with the tax-free interest earned on the RRSP over the subsequent years will quickly outpace the short-term interest costs of the RRSP loan.

5. Increase the frequency of your payments

Make accelerated bi-weekly payments to get a “free” principal reduction equivalent to one full mortgage payment every year painlessly. Unless you are paid weekly it makes little sense to make weekly payments. All you’d be doing is making a smaller payment, and deferring the difference for a week.

6. Make use of double-up privileges wherever possible

Tell yourself that you will “skipa-payment” whenever necessary… then skip only when you absolutely must.

7. Round your payments up

By adding even a nominal amount of say, $10 per payment, the amount of interest you are saving will be unbelievable, and the extra money relatively painless to part with.

8. Pay a lump sum whenever possible

By decreasing the principal of the mortgage, your payments will not be allocated as much to interest in the future, thereby accelerating your freedom to mortgage-free life.

9. Keep payments the same when mortgage rates have fallen

If the payment amount has not been a problem so far, then keep it the same thus paying down the principal faster.

10. Raise payments in line with increased income on an after-tax basis

If your income increases, don’t keep your mortgage payments the same. Although the disposable income may be fun to spend on unnecessary luxuries in the short-term, the long-term benefits of being mortgage free faster and saving those interest payments will far outweigh the short-term curtailing — just pretend that your income did not increase and maintain your usual lifestyle.

Don’t waste your hard-earned money on interest! These methods have allowed many people to shorten their mortgage life by years in a very short period and enjoy a greater lifestyle for a longer period.
Pay Off Your Mortgage Faster

Mortgage Rates – Choosing a Fixed or Variable Rate Mortgage

Mortgage Rates – Choosing a Fixed or Variable Rate Mortgage

 

One of the most important aspects of choosing a mortgage is choosing a fixed rate, or variable rate loan. Most advisers will tell you to seek out fixed rate mortgages because they provide stability. With fixed rate loans, you will always know what your interest rates are going to be, which makes the size of your payments much more predictable over time. However, adjustable rate mortgages are, on occasion, lowered by lending institutions, which means that you are giving up the chance of paying a lower rate when you choose a fixed rate mortgage.

Fixed Rate Mortgages

A fixed rate mortgage has a set interest rate that will never change throughout the term of your loan. Your payment will always stay the same during this time period, even though the amount of principal can lower continually from one month to another. In fixed rate mortgages, the first years of the loan will typically be spent paying down your interest payments. Most fixed rate mortgages in Toronto start at 25 or 30 year amortizations.

Fixed rate mortgages are ideal because it gives you some stability, and allows you to protect yourself from sudden and unexpected rises in toronto mortgage rates. They are also much simpler for the average consumer to understand, which makes them ideal for those that are shopping for their first home. Although the interest rate of the loan is fixed, the interest that you end up paying will be directly influenced by the term of the loan. In a 30 year mortgage term, you will pay substantially more in interest than you would with a 20 year mortgage. So while it might seem ideal to choose the longest loan term as you possibly can in order to reduce your monthly payment, you will pay for that decision in the amount of interest that you pay over time.

Variable Rate Mortgages

A variable rate mortgage is a loan that has the interest rate change over time. These loans have interest rates that are typically set below the prime rate in Canada, but do not provide the stability and predictability that you will find in a fixed rate loan. Typically, most variable rate loans are going to have a period of time in which the interest rate does not change, and then after that time period, the rate may change.

This is beneficial for financial institutions and lenders because it allows them to change their interest rates over time to better reflect the value in the market. It also benefits borrowers because they receive an interest rate that is below market value for a set amount of time at the beginning of the loan (typically 5 years). The shorter the term or rate period, the lower the initial interest rate in most cases. This is an ideal situation for someone that is planning on paying off their mortgage quickly.

Whether you choose a fixed rate or a variable rate for your mortgage, the most important thing you can do is educate yourself on both systems and have a deep understanding of the benefits and issues with both. The type of mortgage that you choose should directly reflect your personal circumstances, and reflect your own fiscal situation.

Secured Line of Credit or HELOC

The secured line of credit has become a popular option in Canada besides a fixed or variable rate mortgage. This is because the main feature of the line of credit is it’s flexibility. Borrowers can use the available credit limit to purchase items or investments, etc. and then pay back the loan freely or without penalty. Interest is only charged on the balance owing , not the credit limit. The main disadvantage of a credit line is that it carries a slightly higher rate of interest than a variable rate mortgage or a fixed rate mortgage.

 

 

What a Toronto Mortgage Broker Can Do For You

5 Things a Mortgage Broker Does For You That Your Banker Can’t

 

When you decide to use a mortgage broker rather than dealing directly with the bank, you instantly gain access to their wealth of knowledge and information. Mortgage brokers in Toronto and Canada are there to provide assistance, advice and recommendations for their clients. Most people do not understand their mortgages or the interest rates, terms and options associated with them. By working with a mortgage broker, you greatly increase your chances of getting the lowest mortgage rate available and understanding mortgage products and terms better than before. Mortgage brokers know the ins and outs of the industry and as a client of theirs, you always know that you’re in good hands.

#1- Provide you with a greater understanding of mortgage rates and products

When purchasing a home or refinancing an existing mortgage, an experienced mortgage broker will assist you to make the process go smoothly.  Bankers typically don’t have the experience to inform their clients about the true loan process in Canada or the finer details of mortgage products .  Without talking to a mortgage broker, you risk not having all the info and advice you need to make an informed decision about your mortgage for a home purchase, refinance or renewal.  When you deal with a qualified mortgage broker, you will receive only the best information , important advice and tips. Better yet, it’s completely honest information because the broker values your business more than a bank employee.

#2 – Negotiating a better mortgage rate for you

Your mortgage broker will use your excellent credit history and employment record to obtain a lower rate mortgage for you from the lender. The negotiating process that the broker uses with a mortgage lender will save you a considerable amount of money, so you absolutely need the services of a mortgage broker. The consultation services a broker can offer you could literally save you thousands of dollars throughout the length of your mortgage.


#3 – An evaluation of your credit and employment history and what it means to the lenders

When you apply for a loan, your credit and employment history are essentially “put under the microscope.” They have to evaluate you as an individual and determine whether or not you are qualified for a mortgage and what the approved amount will be. Your mortgage broker will look over these facts with you and tell you what they mean. If you have a strong credit history, that can help you qualify for a larger loan, but your mortgage broker might not suggest using the full approval amount.  Mortgage brokers commonly run into banks that are negligent with their approval process and provide customers with loans that are well beyond their capacity to repay. The mortgage broker will examine your credit and employment history and determine what a realistic mortgage is for you.

#4 – A clear understanding of the mortgage options and strategies available to you

A mortgage broker has detailed information about the many types of lenders that can provide you a mortgage. This means a mortgage broker can provide you with more than one mortgage option. This is something that a banker cannot provide. When you consult with a banker, you are limited to the mortgage options of that specific bank. Mortgage brokers simply provide more options and that means better prices. By comparison shopping, your mortgage broker will find you the lowest interest rate mortgage loan. They can also offer you strategies for paying down your mortgage sooner and managing existing unsecured debt payments.

#5 – Review your mortgage every year and provide insight into refinancing, renewals, etc.

Refinancing is a way to reduce your mortgage payments and save money. Typically, a homeowner will refinance their mortgage when they can save money on interest or debts. If you currently have a higher interest rate than what you could obtain if you refinanced your home, then refinancing a mortgage might be a smart option for you. However, interest rates and terms can be tricky to understand and it’s a good idea to have a mortgage broker by your side to review the options for you.