||How are higher rates affecting your mortgage payments?
The July and September rate hikes by the Bank of Canada have increased variable mortgage rates by a total of 0.5%. If your variable rate was 1.95%, it is now 2.45%.
While there are institutions whose mortgage payments will stay the same, regardless of the change to the Prime, most lenders` payments will change as rate increases.
A $100,00 mortgage, with an amortization of 25 years, would have seen an increase of around $25 monthly, or $300 annually.
If your mortgage has a balance of $350,000, a net increase of 0.5% would hit your wallet by $85 monthly, or $1,020 annually (rough estimate).
The next scheduled dates for announcing the change to the Prime rate are October 25h and December 6th.
If you have a variable rate and would like to discuss your options, please call me!
||Purchase or refinance now before rules change in January!!
If you`re looking to buy and will have more than 20 percent down, or if you are considering refinancing, then you might want to do so before January 1, 2018. Why?
On October 17, the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for residential mortgage underwriting at all federally regulated financial institutions. Beginning January 1, 2018, a new "stress test" will be applied to all new conventional mortgages - and not just those mortgages that require mortgage insurance (downpayment or equity of less than 20%).
The so-called "stress test" is designed to protect homeowners should interest rates rise. Lenders will be obligated to qualify all new conventional mortgages at the greater of the Bank of Canada`s five-year benchmark rate (currently 4.89%) or the contracted rate plus 2%. So if your contract rate is 3.29%, you will be qualified at 5.29%.
||Why You Should Refinance Now
If you are considering a refinance for any reason - to consolidate your debt, pay for your kids` education, renovate your home or buy an investment property - you should consider doing it now.
New mortgage rules include stress testing for conventional mortgages which, when implemented on January 1, 2018, will make refinance more difficult for many Canadians.
The present day reality is as follows... If you wanted to refinance your mortgage, your broker or bank could approve you for the maximum amount that your income can carry, based on on the contract rate of your mortgage (let`s call it 3.29%) and 30 years amortization.
This will roughly approve you for a mortgage that is 5 times your salary. In other words, your income of $100K will approve you for a mortgage of $500K.
The new mortgage rules will lower your "qualifying power" by at least 20%, since the "stress-test" will be using the higher of posted Bank of Canada rate (currently 4.89%) and 25 years amortization or contract rate + 2%.
Practically speaking, that $100K income could lower your maximum approved mortgage below $400K.