How Interest Rates are Like Gas Prices

Michael Hallett • Dec 03, 2019
Have you ever noticed that just like gas prices, interest rates seem to go up and down for no reason at all?

How come it feels like right before you are ready to buy a property, rumours of interest rate changes will start to flood the media? Or why do gas prices always seem to go up right before the long weekend (when you are heading out of town)? You could spend a lifetime trying to figure these things out. However, knowing why these things happen isn't as important as knowing what to do when they happen!

How to Protect Yourself from Rising Interest Rates!

Allow me to share a few things you can do to protect yourself from rising interest rates if you are looking to purchase a property in the near future.

Be Prepared. Know Your Mortgage Options

Unlike most gas stations where gas is gas regardless of where you fill up, not all mortgage products are created equal. Just because a mortgage product has a lower sticker price attached, doesn't mean it's necessarily a better deal. You really have to understand the fine print in order to make the best choice for you.

As your unbiased mortgage professional, I can help you understand all the products available to you and how the fine print will impact the overall cost of the mortgage. I can help you understand the difference between fixed and variable rates, the impact of shorter vs longer terms and amortizations, prepayment privileges, and potential mortgage penalties.

By understanding your options, you can make a decision that is based on your financial situation and goals rather than based on fluctuating interest rates. Protect yourself emotionally by not placing such a high value on an arbitrary "sticker price" (rate) instead focus on finding the best mortgage product available for you at the time you are purchasing.

Be Prepared. Get a Pre-approval With a Rate Hold

If you are shopping for a property, not only should you be pre-approved for the mortgage, but you should have a rate hold in place as well.

A pre-approval is a lender's written commitment to offer you a mortgage assuming the details in the application are proven accurate. A pre-approval is not a guarantee that you will get the mortgage, just that they have looked at the initial application and believe you are a enough of a qualified applicant to proceed once you have found a property to purchase.

The pre-approval process consists of the following:

  • A mortgage application - to assess your financial situation (employment, credit and downpayment).
  • Collection of documents - to support the application.
  • Submission of the application - for lender review.
  • A response from the lender - indicating they will consider lending to you based on a set purchase price limit, specific product, and acceptable property.
  • A rate hold - the time you have to close the mortgage while they will guarantee it at a certain rate.

So as part of the pre-approval, it's really the rate hold that protects you against rising interest rates. A rate hold is a lender's commitment to hold a certain rate on a certain product for a certain time frame. For example, if you like the 5 year fixed term (product), and a lender is offering 2.64% (rate) a rate hold can be secured that will guarantee the rate anywhere from 30-120 days (time frame), this is the time you have to take possession of the property.

Some lenders offer more aggressive rates (lower rates) but limit the hold to a shorter time period, usually 30-60 days. This is why some banks, lenders, or brokers advertise "Rate Specials". However it should be noted that not all rate specials come with a rate hold. Some rates are only available for applications where an offer to purchase has been accepted on a property.

If your rate hold expires, it is easy enough to get another one in place with an updated application. Also, if rates drop while you have a hold in place, and you find a property to purchase, typically we are able to drop the rate for you at closing. It's as easy as that!

Now... if you made it this far and you're looking for advice on how to get the best price at the pump, unfortunately I can't help you out there, that is a mystery to everyone! But if you want to know more about securing a pre-approval and a rate hold, please contact me anytime.

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MICHAEL HALLETT
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Bridge Financing and Deposit Lending

By Michael Hallett • 24 Apr, 2024
Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.

Understanding the Recent Housing Affordability Measures in Canada

By Michael Hallett • 18 Apr, 2024
In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.
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