Tips to Start the New Year Off Right
January 28, 2016 | Posted by: Mike Garganis
Prime Rate Unchanged
The Bank of Canada has maintained the overnight lending rate at 1/2 per cent.
Prime rate remains at 2.70%. Even though there was no reduction, still good news for variable rate mortgage holders.
Quick review of benefits and features of a variable rate mortgage:
- Historically has outperformed the fixed rate over a 5 year term.
- Ability to break the mortgage with little to no charge and lock into a fixed term. Example, 2 years into a 5 year term, you can switch to a 3 year fixed.
- Unlike fixed mortgages, variable charges 3 months interest penalty versus Interest Rate Differential (IRD).
- Benefit if Prime rate goes lower. Your payment will reduce, or you can continue the same payment and pay down your mortgage faster.
- Up to 20% annual lump sum payment of the original mortgage, up to 20% increase of the monthly payment, or double your payments.
- Fixed or variable?
- Open or closed?
- Short term or long term?
- Saving thousands in interest and penalties.
- Paying off your mortgage sooner.
- Increasing your monthly cashflow.
Mandatory Increase in Downpayment Effective February 15, 2016
We heard about this in late fall. A reminder if you didn't read it previously.
The federal government is expected to tighten mortgage rules in an effort to cool the red-hot housing markets in Toronto and Vancouver.
The new regulations will increase the minimum down payment required to buy a home for more than $500,000, with portions beyond that amount requiring a 10% down payment. The down payment on the first $500,000 will remain at 5%.
For example, a home costing $700,000 would require a $45,000 down payment – a 5% own payment on the first $500,000, added to a 10% down payment on the remaining $200,000.
I don't see this being a huge impact at this price range.
For some good news to start off the new year
Even though rates have been climbing the past few months, there are some good alternatives.
- 3 year fixed rate 2.24%
- 4 year fixed rate 2.49%
- 5 year fixed rate 2.59% - this is a 45 day quick close.
Let me secure a rate for you as we are in a current time of uncertainty.
- The Chinese stock market halted trading due to massive selloff and a 7% drop in less than a day.
- North American stock markets also fell but not as much.
- Canadian Dollar is at it's lowest levels in over 10 years.
- Price of oil is below $30/barrel. Lowest level in 12 years.
One thing I reiterate to my clients is never ever feel pressured in buying a home because you feel obligated and never waive the finance condition.
Tips to Pay Down Your Mortgage
Besides winning the lottery, there are small changes to paying off the mortgage sooner and saving thousands in interest in the process.
- Set payment frequency to biweekly. 52 weeks in a year equals two extra payments a year. Thousands in interest are saved. For example, the mortgage will be paid off in 22 years on a 25 year amortization.
- Increasing payments. Example - Increasing monthly payments by a $100 will save $13,000 and two years on a $300,000 mortgage.
- Lump sum payments. Everyone works towards savings, but the mortgage is the biggest debt for most. A tax refund, or even save a $1,000 put towards your mortgage annually, will save $30,000 in interest and another 4 years off the mortgage.
- Get the right mortgage. I don't just take a number, I put together a plan based on your needs and future goals.
- Programs. I mentioned this above, worth mentioning again. CMHC and Genworth offer great programs that work for you. Planning a reno? See a fixer upper? Let's talk how we can add value to the home.
Contact me if you are doing any of the following:
- Selling or Buying: I can hold a rate for up to a year. No need to rush. Find the home that's right for you.
- Renovating: I have access to programs that will add value to your home and save you money.
- Buying a fixer-upper: Again, the banks don't advertise or don't offer these programs, but I can instantly add value to your dream home.
- Overwhelmed with debt?: Stop living paycheque-to-paycheque. Let me put all your debt into one low interest payment.
- Get a second opinion. The right product (and possibly a better rate) will save you thousands.
I want to give you options, I want to save you money.
Feel free to contact me for a review and the latest rates.