Banks and other Mortgage lenders reduced their mortgage qualifying rate last week from 5.34% to 5.19%. The main reason for this was to stay within the 2% range which is now added to the average discount rate for qualifying mortgage borrowers. A conventional mortgage fixed rate is now averaging 3.19% and the High Ratio mortgage (CMHC Insured) fixed rate is averaging 2.79%. At 5.19% the qualifying rate stays roughly at 2% above the average discount rate to stay in line with the new mortgage qualifying rules. Does this make much of a difference to a borrower? Roughly $8000.00 in extra borrowing power.

There are many misconceptions surrounding reverse mortgages. Since the most common misconceptions center around interest rates, here are some “interest-ing” facts to help educate your clients:

Interest rates are only slightly higher than a home equity line of credit.
For those having trouble qualifying for a line of credit through a financial institution, this difference in rates can become negligible. Income requirements are often a barrier when seeking approval for a HELOC – since the CHIP Reverse Mortgage is specifically designed with retired Canadians in mind, qualifying is much easier.

Interest rates on credit cards are significantly higher.
Not only do these products charge significantly higher interest rates, but regular payments on principal and interest are required. With a CHIP Reverse Mortgage, no monthly mortgage or interest payments are required – payment is only due when the clients no longer live in their home.

Interest is compounded. While the interest is compounded semi-annually, HomeEquity Bank also provides homeowners with the option to make interest payments to help keep interest from accruing.

Compounded interest will mean owing more than the home’s value when the loan is due. This is not true. The CHIP Reverse Mortgage has a no negative equity guarantee. Should the loan amount exceed the property sale amount, HomeEquity Bank covers the difference between the sale price and the loan amount.

Mortgage Renewal and Options

Renewing your mortgage can be very straight forward especially if you just stick with your existing lender.  If you are not adding on any extra money or a secured/Home line of credit to your mortgage (this is a refinances) a straightforward renewal involves signing your renewal papers and that is it.  The downside however or challenge with renewing with your existing lender is that they do not always offer you their best terms.  You are there client already so why bother?  Switching your mortgage to a New Lender on a renewal requires a bit more paperwork, typically an update of income, credit and signing new loan papers however there are no appraisal or legal costs involved so very straight forward.  For an extra 45 minutes work you could save yourself thousands of dollars by looking at other options.  Speak with your Mortgage Broker and have them to the research.  It is always good to start the research 4 to 5 months out from the renewal date because most lenders can lock in your rate 120 days before closing.

Robert Clancy

Residential and Commercial Mortgage Agent

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SAFEBRIDGE Financial GroupBroker License #10524

Direct Line | 416-899-1467

Fax | 1866 385-4049

Facebook: https://www.facebook.com/bestratesmortgages/

E-mail | robert@safebridgefinancial.com

Website|www.bestratesmortgages.ca  

Some simple tips.

Here are three examples that show the power of accelerated payments and adding an extra few bucks to your mortgage payment.  Most people think they need to pay thousands against there mortgage each year to pay it down aggressively and therefore never do anything.

Here is a typical situation.  Let’s take a $500,000 mortgage over 25-year amortization period with an average rate of 3.25%.  (we know through the terms rates will change.).   Taken a regular monthly payment of $2430.83 over 25 years, your total interest paid will be $229,248.96.

So, let’s say you took a biweekly or weekly accelerated payment which means you pay every two weeks or every other week.   It is still the same monthly payment amount broken down into 2 payments or 4.  Your total interest paid is $200,056.46 and you pay down your mortgage in 23 years  so, 2 years sooner.

Let’s take a biweekly accelerated payment and add $100.00 to each payment or if you took a weekly payment that would be $50.00 to each payment.  Your total interest paid $176,742.08 and you pay down your mortgage in 18 years or 7 years sooner.  WOW.  So, by taken an accelerated payment and adding an extra $100.00 every 2 weeks you pay down your mortgage in 18 years and pay $52,506.00 less in interest then if you stuck with a regular monthly payment.

What is a mortgage refinance?. This is an existing property owner who has a mortgage and wants to increase that mortgage loan amount or owns a home with no mortgage and wants to put one on there. The new funds can be used for so many purposes. Borrowers can use for a down payment on a new property purchase. Borrowers can use to consolidate debts into a lower rate mortgage therefore increasing their cash flow and paying down their debts more efficiently. Borrowers can use to renovate their home or even help a child pay for Tuition. Their are many ways to tap into the equity in your home through a mortgage refinance.