Looking at Purchasing that New Home, Needing a Mortgage,
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If you’ve got a variable-rate mortgage, need a new mortgage, or want to consolidate debt at the lowest cost funds, it’s great news that we are finishing 2014 with the Bank of Canada keeping the overnight rate unchanged. The prime rate stays at 3%.
The overnight rate has held steady for more than four years. In its interest-rate announcement, the central bank noted that the rate is “appropriate” given the “balance of risks” in the economy.
Whether you are looking to purchase, refinance, or renew, we can help you decide whether a fixed or variable-rate mortgage will work best for your situation. Call today!
At Invis, we are always aware of the current environment and resulting implications, so at any time we can recommend a mortgage that gives you an edge and meets your current needs and future goals.
We regularly receive short-term rate promotions that are not posted online, which means our rates change frequently. Please contact us for these unpublished rate specials.
Rates are subject to change without notice. OAC E&OE
5 yr variable
Whatever your need is today – first or next home, renewal, refinance, renovation financing, equity take out, business–for-self mortgage, investing in property or a second/vacation home, contact us for a review of your situation, and the advice you need to achieve your homeownership dreams. After all, the right mortgage can build your wealth and save you thousands of dollars
Every single day we’re making homeowner dreams come true. And we’re here to help you.
Imagine you’ve applied for a five-year fixed-rate mortgage. Then, before you close, the lender drops its best five-year fixed interest rate. You’d expect that new lower rate, right?
Most people in this position would. But with some lenders, that’s not the way it works.
If you’re going mortgage shopping, take a minute to understand your lender’s rate-drop policy before you send in your application. Too many people don’t and it ends up costing them.
How rate drops normally work
Typically, if you’ve been approved for a mortgage and the lender drops its rates before your closing date, the lender will lower your rate as well. Every lender has its own policies, though. For instance:
· Some lenders allow you only one rate drop. Others allow multiple.
· Some lenders only permit rate reductions up to seven days before you close. Others give you their best rate right up until your closing date.
· Some lenders automatically lower your rate. Others require your banker or mortgage broker to manually request the rate adjustment. In this latter case, you better have a reliable mortgage adviser or keep tabs on rates yourself.
The best-case scenarios are those lenders with “look-back” policies. This means they’ll look back and give you their lowest rate from the time you applied until the time you closed. Those lenders are few and far between but any good broker knows who they are.
How other lenders operate
More and more lenders are adding “no-float-down” clauses to their fixed mortgage rates. This is particularly true with certain non-bank lenders.
“No float down” means your rate cannot be adjusted lower if that lender comes out with a better deal. Those lenders make those lower rates available for “new business only.”
Now, you may be thinking, “I’m a good client, why should a new customer get a better rate than me?” The answer, lenders say, is profitability. When you get a fixed mortgage, the company funding your mortgage generally “hedges” that rate, meaning it pays for an expensive form of rate insurance. This ensures the lender doesn’t lose big if rates jump and it has to honour the lower rate it promised you.
If rates fell and the lender didn’t have a “no float-down” clause, it would incur the cost of that rate hedge and have to give all of that rate savings back to you, the customer. But with mortgage competition so fierce and margins so tight, some lenders can’t afford to do that anymore.
When rate drops matter
If fixed rates are rising or going sideways, “no-float-down” policies shouldn’t hurt you. If fixed rates are in a downtrend, however, it pays to have that rate-drop option, other things being equal.
I say “other things being equal” because float-down privileges are rarely the deciding factor when choosing a mortgage. A lower upfront rate or better mortgage features can often negate the disadvantage of no-float-down restrictions.
Moreover, the odds of rates dropping decline the closer you are to your closing date.
In case you’re curious, fixed mortgage rates drop from one month to the next about 38 per cent of the time. That’s been the case since 1951 at least, according to Bank of Canada data.
Historically when rates have dropped – versus the prior month – the average decrease has been 0.23 percentage points. Even if you ignore 1973 to 1993, a volatile period of surging and plunging rates, the average decrease was still 0.17 percentage points. On a $200,000 five-year mortgage, a 0.17 percentage point rate drop would save you about $2,500 in interest.
If your mortgage does come with a rate-drop feature, contact your mortgage adviser about 10 days before you’re scheduled to close. Don’t take it for granted that someone will notify you automatically if rates are lowered. Ask if your lender has offered cheaper rates since you applied for your specific term and rate hold period. (Those last three words are important because lenders generally don’t let you have their lowest 30-day “quick close” rate if you originally applied for a 60, 90 or 120-day rate.)
Make it a point to understand your lender’s rate-drop policy. Every tenth of a per cent matters and you never know when interest costs will dip.
There are 300-plus lenders to choose from in this country. If you pick one with a “no-float-down” policy, be sure the rest of the mortgage terms make up for it.
The Bank of Canada has kept the key interest rate steady and banks have been quietly cutting their rates for fixed and variable mortgage rates. They are also fighting for a shrinking pool of borrowers so it sounds like a great time to renew your mortgage.
Yet many Canadians simply sign their mortgage renewal papers. A 2011 Manulife survey found that almost two out of three Canadians surveyed stayed with their current mortgage provider and didn’t negotiate.
“I don’t know why,” says independent mortgage broker Christopher Molder. “I guess money grows on trees. People are busy, their lives are busy, mortgages aren’t on their mind, the maturity dates comes and goes and they just sign back whatever is offered.”
If you are renewing your mortgage, here are five things to keep in mind before you sign that document.
The posted rate isn’t the best rate
Think of the posted rate as the opening offer in a negotiation or as certified financial planner Shannon Lee Simmons says, “Banks use the posted rate to provide a value proposition to their clients. They often start with the posted rate and then offer discounts to preferred clients. Consumers need to educate themselves and shop around. Even if you get the secret or discounted rate, if you only get rates from one financial institution, you may still be paying a premium compared to other lenders.”
“Canadians really trust Canadian institutions, especially banking institutions,” says Molder. “The banks play on that a little bit. They’ll play dumb, offering the posted rate and leave it up to the borrower to negotiate and play the game.”
Shop around before you negotiate
Do your research before you begin negotiations and always ask for a better rate. “Of course, if a borrower asks, they’ll get a better rate,” says Molder. When it comes to researching mortgage rates, Molder says it’s very easy – just go online and check the rates offered by various lending institutions.
Once you know the rates offered for your preferred mortgage term (fixed or variable) , then talk to your current provider and ask them to provide a competitive offer. “In all cases,” says Molder, “Unless it’s a crazy low interest rate that has been requested, they will come down. They always come down. There’s always room for renegotiation.”
Bank or broker?
The general belief is that brokers can offer a better rate than banks due to their access to multiple lenders. The Bank of Canada survey found that using a broker can result in getting a lower rate. Part of that is due to them getting multiple quotes from various institutions.
Being good and loyal to your bank makes no difference to your rate
Are you paying down your mortgage and cutting years off your amortization? That’s great but it won’t make a difference when renewing your mortgage.
Are you a loyal customer? Have you been with your bank for years and do everything with them? That also doesn’t count when it’s time to renew your mortgage. A 2011 Bank of Canada paper found that loyal customers may not get as good a deal with their bank as they would if they went to a different bank as a new customer. So if you’re looking for a better deal, considering going to a different lending institution.
Check the terms before you sign
The cheapest rate may not be the best rate so always read the small print before you sign. Make sure the rate you choose offers other options such as the ability to pay extra on your mortgage and clearly defines any penalties should you decide to break your mortgage early.
Simmons says, “Start shopping around about four months before renewal – don’t leave until the last moment.”
Maximizing your renewal can take on many forms, I strongly urge those with renewals to explore their options and get the mortgage advice they need. Too many times I see borrowers staying with their existing lender just because it is “easier”. Like a good fitness plan, a little bit of pain goes a long way to your financial well being.