Inflation is up - what about my Varible Rate Mortgage?

With the price of oil affecting other items in the consumer price index, can we expect the overnight lending rate to rise on May 31?  The overnight lending rate has an impact on the a bank's prime rate, directly effecting variable rate mortgages.

If you have a variable rate mortgage - don't panic!  If the bank of Canada raises rates at the end of May, the benefit of locking into a fixed-rate mortgage may not be the best choice. Remember that the economic indicators that affect the prime rate, don't directly affect fixed-rate mortgages.  Over the last week, we've actually seen a slight decrease in the bond market, which impacts fixed rate mortgages.

Stay-tuned to find out if you should fix your mortgage or keep it floating with the prime rate.

65 and I still have a mortgage

If you own a home in Guelph, often a goal is to have your mortgage paid-off by the time they reach 60.  What I'm noticing in my mortgage practice is more and more people over the age of 55 require the assistance of a mortgage agent because they haven't yet paid their mortgage off. 

There are a few consistent reasons that have come up recently on why a mortgage balance still exists (even after the age of 60):

- overspending on grandchildren (not wanting to let their own children know that they are having problems making ends meet on a retirement income, so the overspending happens on credit cards to "treat" grandchildren)

- unexpected job loss (given we're still in a recession, many older employees have been "let go" close to retirement.  The unexpected job loss and the reduced income means a change in lifestyle, which is often a difficult transition)

If you're in this situation and are wondering what your next course of action is...please don't hesitate to contact me directly.  I'll also be writing a few articles on this topic over the next week.

Using your home’s equity to “get ahead”

If you’re in your 40’s or 50’s and have looked at your investments and thought, “How can I generate more revenue?” – this article is for you. Using the equity in your home for good investments can help you spring ahead financially.


This can be a smart financial move, but you need to work with individuals who are experts. Seek the advice of a professional who has first-hand experience on using home equity as a financial tool. I always recommend getting a referral from someone you know and trust.

There are specialized mortgages available that allow you to easily access the equity in your home for cash investments or real estate. They allow you to convert equity in your home into money and then use that money to invest.

What kind of investments?

Whenever you use your home’s equity to invest in non-RRSP investments or real estate, that portion of your mortgage becomes a tax deduction. Often called “leveraging”, you’re essentially using someone else’s money to make money for yourself. By having a plan of action and a goal in mind, leveraging can help you increase your net worth and help you become financially-free sooner.

I’ve had many clients come to me who had good net worth and ask, “How can I purchase an investment property when all my money is tied up in RRSP’s?”. Often the best place to look is your own home. If you’ve done a good job at paying down the mortgage on your principal residence there is equity that you can access. Financial institutions will allow you to easily access the equity in your home to 80% of the appraised value. This is normally done through a secured-line-of-credit (SLOC). However, not all secured-lines are the same.

What features should I be looking for?

There are certain nuances in the repayment terms and how the interest is charged that you can be a benefit or detriment. An example of a feature that benefits you financially on a SLOC would include having a bank account tied directly to the secured line. When using the SLOC for real estate investing, you can deposit your rent cheques directly into the account, thus making your payment on the SLOC.

Another important feature may be having third-party access to the SLOC. In this case if you’re using your money to buy dividend-paying investments, then the dividends can go directly into paying the interest on the SLOC.

There’s more to mortgages and SLOC’s that can help you become financially free sooner. Ask the advice of someone who has first -hand experience and that you know and trust.

New mortgage rules in place for March 18, 2011

New mortgage-lending rules will be in place on March 18, 2011.

These new changes are two-fold:

1.       People looking to buy a home with less than a 20% down payment will be allowed to have a maximum amortization of 30 years (down from 35 years).  How this impacts first-time home buyers is that it will decrease their borrowing capacity by about $25,000 in purchase price.  This is less than 5% of the total market for first-time home buyers.

2.       People looking to refinance their mortgage to consolidate dept will have the options to refinance to 85% of the value of their home (down from 90%).

How will this impact you personally if you’re looking for your first home?

If you’re looking for your first home, you may need to consider a lesser value home.  In Guelph, the majority of first-time buyers purchase in the price range of less than $250,000.  I find the majority of first-time homebuyers understand the maximum amount of mortgage they can be approved for, and how that differs from what their budget can manage.  Most first-time buyers who I see don’t want to be house poor. 

How will it impact you personally if you’re carrying high-interest credit debt you’d like to consolidate?

If you’re looking to consolidate debt into your mortgage, you will be limited to how much debt can be wrapped into your mortgage.  Once you’ve looked at better ways to manage your debt, your mortgage broker can also show you how to set up a budget to help pay down the debt that you could not consolidate.

How will these changes impact the market?

Remember, the media often publishes stories to sell papers and create buzz. For instance, there have been some recent reports that the housing market will tumble by 25 percent.  There have also been reports that say the exact opposite.  With so many opposing views, what will actually happen?  Locally, the Guelph market has been protected by the downturn in the housing market that some other Canadian cities have experienced.  On average, price appreciation in Guelph will plateau compared to previous years.  When speaking to realtors, they note that we are in a “seller’s market”, which means that there is more buyer demand than houses available to purchase. On the other hand, buyers are being more picky about prices and the types of home they are buying.

Look at getting your pre-approval rate "locked-in" as fixed-rates jump up

The Bond Market affects the pricing on fixed-rate mortgages.  With unemployment figures holding steading, and jobs being added to the economy, bond yields are up and are putting pressure to mortgage lenders to move fixed-rates up.

If you're thinking about buying or selling a home in the next 4 months, one of the best ways to ensure that you'll get a five-year fixed rate below 4%, is to reset your pre-approval rate. You may also want to consider having a second opinion on your pre-approval considering that there will be major changes occurring to mortgage-lending starting on March 18th.

Not only does a mortgage pre-approval help you secure an interest rate for 120 days (4 months), it also can ensure that when you do find a house that there will be no issues with solidifying the mortgage-financing.  Ensure that your mortgage professional has pulled a credit score and asked for income confirmation by way of an employment letter and pay stub.  Credit score and income confirmation are necessary to issue a full pre-approval.  Many banks are getting lazy and only pre-qualifying their customers, which can lead to problems when you've finally found a home.

Beware: Your bank may not be thorough in their mortgage pre-approval

At least once a week, my office receives a call from a panicked customer who thought they where pre-approved for a mortgage, only to find out they weren't.  The reason why the person is often panicked is because the pre-approval for the mortgage was in fact only a pre-qualification.

Here's the main difference between a pre-approval and a pre-qualification for a mortgage.  Protect yourself from any unexpected surprises and ensure that a thorough pre-approval is done before you decide to sell your home and move or even if you're buying your first home.

Also, it's extremely important to speak to you mortgage broker before you list your home (I'll cover this topic in another posting).

Credit Check
Your mortgage broker can pull your credit report almost instantly once you've completed an application.  The broker will review your credit history and accounts to confirm balances on your credit cards and lines-of-credit and car loans.  A credit bureau will also show if there are any collections including any spousal support or child support payments outstanding.  I've also found that in cases where people have common names, there may be errors on the credit history (e.g. someone else's credit can appear mistakenly on your credit history).

Employment letters
If you're an employee an employment or job letter is always a good thing to have when you're applying for a mortgage.  The job letter states the length of time you've been with your employer and how you get paid.  If you've just started a new job, and plan on buying a house, try and negotiate a no probationary period for your employment.  Getting a mortgage approved while your on a probationary period at work can be tricky because technically the individual is not employed "full-time"

Beware: Banks scare customers into not talking to mortgage brokers (part 1)

Just this week, I've spoken to two clients who came to me despite their banks advice, which was "don't go to a mortgage broker for your mortgage".  I asked them why they still decided to shop around for their mortgage and visit a mortgage broker after the banker told them not to.  They both answered in a similar way, "I wanted to see what all the bankers anxiety was about".

The realty is that the majority of people who need to revisit their mortgage because they are moving or refinancing, normally go to their bank and then a mortgage broker.  I suggest it's two hours of time well spent (one for the bank and one for the broker) considering it's the largest debt that most people have and the largest household expense.

I'll be writing a series of articles on the bankers' myths about mortgage brokers:


It's not a good idea to shop around for your mortgage because it hurts your credit score.

For most people who have good credit history, having a few credit inquiries in a short period of time is the normal course of doing business for them and it will not be detrimental to your credit history. 

In fact, I've found that banks have become lazy in qualify people for mortgages and don't necessarily do a credit check until there is an actual mortgage to process.  This could be detrimental for the client who's looking to buy a house.  That's because if there are any issues that the client is not aware of regarding their credit history, and the credit history is not checked before an offer is made on a house, the client may be disappointed to find that the mortgage they thought they could qualify for, is not in fact the case.

At my office we receive about one referral each week from either the bank directly or the client where this has happened.  The client is normally angry or in tears that the proper credit history checks were not completed by their bank. When I do a pre-approval for my clients, we ensure a credit history is done immediately so there are no surpises.

Also, mortgage brokers can shop your mortgage to multiple lenders with one credit history.  If you where to do the same, each bank would (hopefully) do a credit check.

Regardless, when someone does a credit check on you ensure you give them authorization to do so.

More to come on the facts around mortgage brokers...stay tuned.