Unimor Capital Corporation

Tag: interest rates

  • Unlocking Mortgage Mysteries: 5 Things You May Not Know

    Unlocking Mortgage Mysteries: 5 Things You May Not Know

    Securing a mortgage is a significant milestone for many Canadians, whether it’s for purchasing a dream home, investing in real estate, or refinancing an existing property. While mortgages are familiar territory for most, there are several lesser-known aspects that can impact your financial decisions. In this article, we’ll uncover five key insights that might surprise you about mortgages.

    1. Mortgage Penalties: When obtaining a mortgage, borrowers typically focus on the interest rate, term, and monthly payments. However, it’s crucial to be aware of potential mortgage penalties. If you break or alter the terms of your mortgage agreement prematurely, lenders may charge penalties. These penalties can be substantial and vary depending on the mortgage type and the lender’s specific terms. It’s essential to carefully read and understand the fine print before committing to a mortgage to avoid any unpleasant surprises down the road.

    2. Mortgage Prepayment Options: Most Canadians are aware of the importance of paying down their mortgage faster to save on interest payments. However, not everyone realizes the different prepayment options available. Many mortgage products in Canada offer prepayment privileges that allow borrowers to make additional lump-sum payments or increase their regular payments. Taking advantage of these prepayment options can help you save thousands of dollars in interest over the life of your mortgage.

    3. Mortgage Portability: Life is unpredictable, and sometimes circumstances may require you to move before your mortgage term expires. In such situations, mortgage portability can be a valuable feature. Porting your mortgage allows you to transfer your existing mortgage to a new property without incurring penalties. While not all mortgages are portable, understanding this option can provide you with flexibility and potentially save you money when you decide to relocate.

    4. Mortgage Stress Test: To ensure financial stability and protect borrowers, the Canadian Government implemented a mortgage stress test in 2018. This test assesses a borrower’s ability to make mortgage payments at a higher interest rate than the one they’re applying for. It ensures that borrowers can afford their mortgage even if interest rates rise in the future. While the stress test may limit your borrowing capacity, it promotes responsible lending practices and safeguards against excessive debt.

    5. Mortgage Brokers:     When searching for a mortgage, many Canadians turn to their local bank as their primary source. However, working with a Mortgage Broker can offer several advantages. Mortgage Brokers are licensed professionals who have access to a wide range of lenders, including major banks, credit unions, and alternative lenders. They can help you navigate the complex mortgage market, compare various options, negotiate on your behalf, and potentially secure more favorable terms.

    Understanding the nuances of mortgages is essential for making informed decisions and ensuring a smooth homebuying experience. By delving deeper into the lesser-known aspects of the mortgage world, you can better navigate the complexities and potentially save money in the process. From being aware of potential penalties and prepayment options to understanding mortgage portability, stress tests, and the benefits of working with a Mortgage Broker, these insights will empower you to make sound financial choices on your mortgage journey.

  • Interest Rate Hikes: How it Could Impact Your Finances

    Interest Rate Hikes: How it Could Impact Your Finances

    What is the policy interest rate?
    The policy interest rate is the fixed interest rate set by a financial institution for a country or group of countries. This determines how much it will cost to borrow money from a central bank. In our case, the Bank of Canada is the one that is regulating, among other things, the country’s economic activity. Once the Bank of Canada sets the policy interest rate, other financial institutions use it to set the interest rate on a variety of loans (personal, mortgages, etc.) offered to clients. The current increase is an attempt to counteract inflation, which is rising in Canada and the US.

    What is inflation?
    Inflation is an overall increase in the average price of goods and services. When inflation is low and predictable, it means that the economy is doing well, and the overall value of money is stable. Long story short, it means you have more money in your pocket.

    When inflation is too high, consumers, businesses and investors lose purchasing power. This means overall economic development suffers. When this happens, the Bank of Canada will usually step in with a policy interest rate hike to try and stabilize the economy.

    How does an increase in the policy interest rate affect my finances?
    Most people will be affected by a policy interest rate increase. This means that they’ll pay more interest on their loans. Households and businesses are more likely to reduce their expenses when this happens. Demand for goods and services is expected to decline and their prices may stabilize in the future:

    • New homebuyers may have to pass a mortgage stress test at a higher rate. Currently, the mortgage stress test is at the higher of 5.25%, or the mortgage rate plus 2%.
    • If you have a variable rate mortgage, your monthly payments will increase. Fixed rate mortgages will only be affected when you renew.
    • This could be an opportunity to make new investments. While the market is down right now, it could be the right time to buy low on interesting stocks. Also, investments such as GIC’s or bonds see their interest rates rise in a period of rising rates.
    • If your mortgage term expires in less than 6 months, an early renewal may be the key to helping you secure a lower rate before the next rate increase without penalty. If your term expires in more than 6 months, you’ll need to consider the penalty fee when making a decision on early renewal.
    • While food, gas, and furniture cost more than this time last year, now’s the right time to readjust and evaluate your budget.

    Policy interest rate hike: do I need to review my financial plans?
    If there’s a policy interest rate hike, take some time to think about your current projects and future plans, and make informed decisions. You might save money by postponing a major project rather than tackling it now. Alternatively, now be the time to consolidate your debt and get your ducks in a row before rates increase further.

  • Why These Homeowners Needed a Private Mortgage

    Why These Homeowners Needed a Private Mortgage

    Most of us don’t give much thought to private mortgages.  We are vaguely aware they exist, but perhaps have the impression they are mortgage solutions for financial derelicts, but that is not true.  Often, they are needed when bad things happen to good people.

    Private mortgages and B-lender mortgages are the fastest-growing segment of the Canadian mortgage industry.  One reason is because it’s much harder to qualify for an A-lender mortgage now than at any time in recent memory. High home prices, in major cities particularly, result in large mortgage requirements, and the mortgage stress test can put qualification out of reach for homeowners who previously had no such concerns.

    In addition, there are several situations people find themselves in which are not attractive to regular mortgage lenders.  These problems require solutions, but a different type of lender needs to step forward and help the homeowner get on track. Let’s look at three such situations.

    • This homeowner has too many debts, and his credit score is low. Notwithstanding lots of equity in his home, the banks have said no.
    • These homeowners are in the middle of a consumer proposal. The doors to the banks are firmly closed, yet they need to finance a car purchase, and they would like to improve their monthly cash flow.
    • This homeowner has large CRA debt. Banks and other A-lenders do not like refinancing to pay off CRA debt.

    1) Too Much Debt and Credit Score Too Low
    This person has been living proud and mortgage-free for several years, but meanwhile has racked up credit card debt that just won’t go away.  At first, people believe they can manage it, but the crippling high interest rates of 19.99% or more makes it difficult.  And when the cycle starts, they tap into other available credit to pay off the credit cards that are giving them a problem.  He has a nice town home with no mortgage, but $115,000 of unsecured debt and a credit score of 557.  The minimum monthly payment on the credit card debt was not much less than his take home pay from his job.

    The Solution
    We could see his credit score would zoom upwards once all the debts were cleared and no remaining balances.  A private lender would be happy to lend a new first mortgage on very favourable terms.  An annual mortgage interest rate of 5.99%, and a mortgage fully open after three months.  This means as soon as he is ready, he can refinance to an A-lender without penalty.  And when that happens, all the ugly credit card debt will be scrunched up into a mortgage at roughly 3% interest, with a monthly payment of around $500.  This is a game-changer compared to the $3,000 per month or so he was paying before.

    2) A Consumer Proposal
    These homeowners both have decent jobs and more than $200,000 equity in their home.  Three years ago, they both had to file a consumer proposal after a new business venture failed and left them with lots of consumer debt.

    They reached out for three reasons:

    1. Their bank, which holds their first mortgage, has told them they will not offer a renewal in late 2020.
    2. Their car lease is expiring in January 2020, and they want to exercise the buy-out option. They are being quoted high interest rates on a car loan.
    3. They are finding it tough, paying $1,300 each month towards the proposals, on top of their car payment, mortgage, taxes and utilities.

    The Solution
    The solution here is a one-year, private second mortgage for around $60,000.  Interest-only payments at a rate of 12%, and the monthly payment is only $600, which is half of what they are paying now on their consumer proposal.

    This small new mortgage will pay off their proposal completely and allow them to buy the car when it comes off lease.  After their proposal is paid off, they can rebuild their personal credit histories.  In late 2020, when their first mortgage matures, they won’t have to worry about the renewal.  They can refinance both mortgages into one new mortgage with a different lender.

    3) CRA Debt Problem
    This homeowner only owes $70,000 on his first mortgage, but he had neglected filing corporate taxes for a few years, and now owes CRA a significant amount of money.  There was a judgment against him for $49,000, which had been registered as a lien against the family home.  And another one looming for $133,000.  He had also accumulated a large amount of unsecured debt.  If you are self-employed and owe a lot of money to CRA, your borrowing options are very slim in the world of conventional mortgage lenders.  Occasionally, homeowners have tax debt that is so large it cannot be readily paid.  The result is a debt that can’t be negotiated away, with a creditor you can’t afford to ignore.

    The Solution
    The solution was either going to be a very large, disproportionate private second mortgage at a high interest rate (close to 12%) or to refinance the small first mortgage to a new private first mortgage at only 6.99%.

    He decided to take the first mortgage approach; paid off the CRA liens and all other personal debts.  As a bonus, the lender allowed him to partially pre-pay the mortgage payments in advance, so that the monthly payment for the new mortgage would be roughly what it will be when they refinance down the road – avoiding payment shock.  He contacted Equifax Canada to confirm the tax liens had been cleared and waited for his credit score to climb, unencumbered by a high debt load.  Sure enough, it all came to pass, and now he is refinancing the private mortgage into an A-lender, only six months later.

    These are three scenarios why a person may need a private mortgage, there are many other reasons.  It is important to remember that a private mortgage is a short-term solution to get you out of a tough financial situation.  It does not mean that you’ll be black-listed in the world of mortgages.

  • Homeowners Worried About Paying Down Debt as Rates Increase

    Homeowners Worried About Paying Down Debt as Rates Increase

    Younger homeowners have never experienced a significant rise in interest rates.  Many Canadian homeowners are worried about rising interest rates and how they will impact their budget, a new CBC Research survey finds.  Thanks to years of access to cheap money, household debt has ballooned in Canada.  Now that interest rates are rising, there are mounting concerns over how people will continue to pay down mountains of debt.

    Out of 1,000 Canadian homeowners surveyed online between October 5 -11, almost three-quarters of those with debt on their home, mainly mortgages, confessed they’re worried about rate hikes.  It won’t take much for most of them to feel the pinch: 58% of respondents said an increase of more than $100 in their monthly debt payments would force them to change their spending habits to make ends meet.

    Certified financial planner Shannon Lee Simmons says many people who come to her for help are in a similar predicament.  “I see that on a daily basis from clients who make relatively normal living wages, but everything is just budgeted to the dollar,” she said.

    “If you were to ask them, ‘Can you save $100 bucks a month?’ they might fail at that.”  Simmons says part of the problem is some homeowners have never experienced a significant rise in interest rates.  If you’re 40 right now and you bought your house at 30, you’ve pretty much had a decade of relatively low rates and that’s all you’ve experienced.

    Certified financial planner Shannon Lee Simmons says homeowners need to prepare for the true cost of rising interest rates.  Indeed, a 40-year-old would have been a toddler in 1981 when Canadian banks’ prime lending rate shot up above 20%. Conversely, since 2009, it has ranged between 3.70 and 5.75%.  Banks use the prime rate as a base to set their lending rates.  Failing to budget for heftier mortgage payments could lead to even more hardships, such as homeowners digging into their savings or turning to credit cards to make ends meet.

    The CBC survey findings come at a time when the Bank of Canada has already hiked the key interest rate four times since July 2017, from .50 to 1.50%.  The key rate influences the rate that banks charge for consumer loans and mortgages.  Many homeowners likely haven’t yet felt the full effects of the rate hikes because they’re still locked into a fixed mortgage, the most common type in Canada.  When their mortgage is up for renewal, ‘they might be in for a bit of a shock,” Simmons said.  The market expects another rate hike sometime in October, and some economists predict three more rate hikes in 2019.

    Bank of Canada governor Stephen Poloz says he believes Canada’s debt risk can be managed successfully.  Meanwhile, the amount of debt Canadian households owe has been on the rise for about three decades, totalling just over $2 trillion in August.  Mortgages make up close to three quarters of that debt.  For years, the Bank of Canada has expressed concern over rising household debt levels.  In 2011, Federal Finance Minister Jim Flaherty tried to temper borrowing habits with tighter mortgage rules.  They included lowering the maximum amortization period and requiring borrowers to qualify for a five-year, fixed-rate mortgage, even if they chose a variable mortgage with a lower rate. But interest rates remained low and Canadians continued to pile on debt.

     According to credit agency TransUnion, Canadians owed an average $260,547 in mortgage debt in the second quarter of 2018 — a 4.76% jump compared to the same period in 2017.  In the CBC survey, 36% of respondents said they had no debt on their home. 42% said they owed between $50,000 and just under $400,000 when combining both a mortgage and lines of credit.  Most respondents said they are very or somewhat comfortable with their current monthly payments.  However, as the survey shows, for many, that level of comfort diminishes when faced with the prospect of higher rates.

    And the impact could be more severe than some people think: When presented with a couple mortgage scenarios, less than a quarter of respondents were able to correctly estimate the added cost of a 2% interest rate hike.  Take, for example, a $400,000 mortgage with a 20-year amortization and a fixed five-year rate of 3.3%. With just a 2% rate increase, monthly payments would go up by about $400 a month.

    Simmons says many people find making the calculations daunting, but that homeowners need to understand the true cost of rising rates.  “Everyone is aware they’re going up, I just think that people aren’t necessarily prepared for how that impacts their daily life.”  It’s important to note that even with a projected rise in interest rates in 2019, they’ll still be relatively low compared to previous decades.  The Bank of Canada raises the country’s key interest rate to keep inflation in check, but governor Stephen Poloz, said in May that the bank will make rate decisions cautiously, considering the amount of debt households are still carrying.

  • You Might Pay More Than Expected to Renew Your Mortgage…

    You Might Pay More Than Expected to Renew Your Mortgage…

    New accounting rules adopted by the banks mean they’re paying closer attention than ever before to your financial situation and your home’s value when you renew a mortgage. Mortgage renewals used to be utterly routine – a virtual rubber stamp. Now, if your credit score has taken a hit or your home has fallen in value, you might not qualify for the best available rates. The new accounting rules are called IFRS 9; IFRS stands for International Financial Reporting Standard. One effect of these rules is to cause banks to pay close attention to early warning signs that clients may run into trouble paying their mortgage.

    “Let’s say the bank has noticed that your credit score went from 750 to 580 and/or your loan-to-value ratio has gone way up,” said Robert McLister, founder of RateSpy.com. “Anything that worsens risk in a lender’s eyes is going to potentially warrant a higher rate at renewal.”

    Mortgage brokers estimate that anywhere from fewer than 5% to 15% of borrowers may be negatively affected by the new rules. The borrowers most vulnerable to getting an elevated mortgage rate are in expensive cities, such as Toronto and Vancouver, where young owners must juggle expensive mortgages and daycare if they have children. It’s difficult to track what banks are actually doing because there don’t yet appear to be any standardized policies. But mortgage brokers report that banks are in some cases doing soft credit checks, which means peeking at your credit file to see whether your credit score has worsened. Banks may also do appraisals on renewal to ensure that the ratio of the amount of your outstanding mortgage to the value of your home is declining as it should be.

    The risk of having to renew at higher rates just keeps growing for these and other lenders. Well-discounted five-year fixed-rate mortgages are close to one percentage point higher than they were last summer. Also, we’ve seen the emergence of a trend where mortgage rates today are higher for some people than others. For example, someone with a down payment of less than 20% now gets a rate that on average might be 0.35 of a point better than someone who puts down 20% or more. Below 20%, the borrower is required to pay for insurance that protects a lender against default.

    Mortgage stress tests for borrowers also influence rates. The stress tests are designed to see whether you can afford mortgage rates that are higher than current levels. If you’re renewing a mortgage and want to move to a new lender, you must be able to pass the stress test. If you can’t do that, you’re stuck with a current lender that has no need to offer you its best possible discount. Today’s reality of home ownership is that that those financial struggles of home ownership matter. If your credit score drops or your home falls in value, there can be consequences.

  • What First-Time Home Buyers Need to Know

    What First-Time Home Buyers Need to Know

    With record-low interest rates that may go away in the distant future, many would-be first-time home buyers are considering their options with regard to buying a home. In preparing to purchase a home, it will help to know what lenders are looking for when buyers apply for a mortgage with them. There are four components: down payment, credit, income and assets, and appraised value of the property.

    Down Payment – Putting down at least 25% is ideal, in that buyers can avoid having to purchase mortgage default insurance on their loan. The higher the loan to value ratio, the more risk the lender is being asked to take on. This will result in higher interest rates for the buyer.

    Credit – There are several components to this, including total debt, recent payment history, and ability to manage credit over time. These items give the lender a picture of the buyer’s ability to manage obligations over time. Of the above items, recent payment history is probably the most important. Prior to taking on a mortgage, buyers who are having issues making monthly payments such as those on a car will face questions as to how they will be able to manage after they move into a home.

    Income & Assets – Lenders are looking for two to three years of stable employment history from borrowers. They use two ratios to determine if buyers qualify from an income perspective. The first is the GDSR, or Gross Debt Servicing Ratio. This is the ratio of total shelter expenses (mortgage, taxes, insurance) to gross income. Lenders are looking for this number to be in the 30% to 32% range. The second ratio is the TDSR, or Total Debt Service Ratio, which is the ratio of all financial obligations to gross income. Lenders here are looking for 40% to 42% maximum.

    Ideally buyers will obtain a mortgage in which the principal and interest components of the payment amount will remain constant for as long as possible.

    Should property values decrease, even if the income of the buyer remains the same, being able to refinance the mortgage at the end of the term could prove to be out of the question, at any rate. As far as assets go, the lender will want to know where the down payment is coming from, which could be from the buyer’s savings or perhaps via a gift from a close relative.

    Property Value – The lender needs to know if the property is worth what the buyer and seller think it is worth. If there is a difference between the appraised value of a property and the contract price, the lender will take the lower of the two.

  • Understanding GDS & TDS: What Can You Afford?

    Understanding GDS & TDS: What Can You Afford?

    When shopping around for a mortgage, there’s more to think about than simply finding the best mortgage rates. It’s important to also consider the terms and conditions of your mortgage, the size of your down payment, and whether or not you can afford the home (and monthly mortgage payments) you’re considering.

    While there are handy tools like a mortgage affordability calculator to help you figure out what you can afford, it’s a good idea to understand how lenders calculate your affordability and the formulas they use to do so.

    There are two standard measures of affordability lenders use to determine how much they’ll lend you. First, your Gross Debt Service Ratio (GDS) is calculated. This is the percentage of your income needed to pay all monthly housing costs: your mortgage, property taxes, heat, and 50% of your condo fees (if applicable). The industry standard for GDS is 32%, meaning you typically need a GDS lower than 32% to qualify for a mortgage.

    Calculating your GDS

    GDS = (Principal + Interest + Property Taxes + Heating + ½ Condo Fees) / Gross Income x 100

    Next, a lender will calculate your Total Debt Service Ratio (TDS), which is similar to a GDS but also takes into account your other monthly debts, like credit card payments, car payments, alimony, and loans. The industry standard for TDS is slightly higher than GDS at 40-42%.

    Calculating your TDS

    TDS = (Principal + Interest + Property Taxes + Heating + ½ Condo Fees) + Other Debts) / Gross Income x 100

  • What to Consider Before Your Mortgage Renews

    What to Consider Before Your Mortgage Renews

    Have you explored all your options?
    Once you receive your mortgage renewal statement, there’s nothing easier than simply signing on for another term. But while this may make sense in many cases, your family or financial situation may have changed. We can look for opportunities that could better meet your needs.

    Are you comfortable with your payments?
    If you’ve been feeling financially strapped each month making your mortgage payments, this could be the time to reduce them to a more manageable level. On the other hand, if you’re earning more, why not pay down your mortgage faster, saving thousands in interest!

    Do you need cash flow for other things?
    Your priorities may have shifted since you first bought your home, and your cash flow needs to shift too. Things like paying for a child’s education, planning a career change, or a major purchase may call for spending money on things other than your home. You may be able to refinance your mortgage to take this into account.

    Can you handle fluctuating rates?
    Some homeowners are nervous about any hikes in interest rates, while others are comfortable to go with the flow. Rates are tough to predict. It’s best to base your decision on your personal situation, not what you read in the news. We can help you decide whether to opt for fixed or variable rates.

    Will you sell soon?
    If you are likely to sell soon, consider a shorter term mortgage or one that has more flexible terms so you’re not penalized if you sell your house before the mortgage comes due.

    Are you thinking about a major renovation?
    You know that projects such as a new kitchen or an addition can make your home more valuable. But the cost of having the work done can tie up a lot of money. Before you renew, look at all your financing options, which may include getting an additional line of credit or keeping your mortgage payments low so you can have money on hand to finance the renovations.

    When do you want to be ‘mortgage-free’?
    If you’re planning extended time away from work or perhaps an early retirement, it may make sense to pay down your mortgage sooner, rather than later. While increasing your payments will raise your monthly payments now, ultimately you will save on interest and can prepare for that fabulous mortgage-free lifestyle!

    Could you use your home equity to fulfill other goals?
    Refinancing a mortgage can be one way to free up cash you need for other things, which could even include buying another property. Mortgage renewal time is an ideal occasion to review all your options.

    Have your insurance needs changed?
    If your financial situation has changed since you first took out your mortgage, review whether you need the same level of insurance in place to cover mortgage obligations.

    Are you getting the best rates & terms?
    In a competitive mortgage environment, your good credit history can make refinancing work to your advantage. We analyze mortgage markets daily to ensure you don’t miss any money saving opportunities.