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Category Archives: Purchase

Bank of Canada Announcement

 

Good morning

The leaves are falling, but the sky is not! As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

As predicted, the Bank of Canada has increased their Overnight Rate by 0.25% today. When this happens, it typically means that your Prime Rate is going to increase as well, but not always by the same amount. It can also mean that not every lender will adjust their prime rate the same way. Keep an eye out later today for further updates on your specific lenders’ prime rate.

The recent conclusion of trade talks with the United States has put Canada in a more solid position for the economy. This rate increase is not a surprise as at the beginning of the year the Bank of Canada indicated that there would be a number of increases this year. You have to admit that we have had it good for a long time and we can still continue to benefit from low rates but don’t panic!

Last year we saw two rate increases, each of 0.25%, and this is our third rate increase of 2018. The Bank is attempting to get interest rates back to their traditional average. You might be concerned about your cash flow and budgeting at this point and might be considering moving over to a fixed term mortgage. Fixed term interest rates have increased slightly with a range of X.XX% to X.XX% for a five-year fixed term.  Don’t forget that if you want to lock in you can take a shorter term that will typically have a lower rate attached to it.  If the net interest rate on your current variable is the same as or higher than the current fixed term rates right now, even though the prime rate will still remain low for a while now, it might be time to chat about your options including potentially converting to a fixed term.  Converting to a fixed term isn’t right for everyone as other factors are to be taken into consideration such as payment change, income and future plans such as renovating, moving etc.  Call me so I can calculate what your new payment would look like and also if it is suitable for you.

To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:

“The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon. The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment. However, trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices. Financial market volatility has resurfaced, and some emerging markets are under stress but, overall, global financial conditions remain accommodative. The Bank will be monitoring the extent to which the USMCA leads to more confidence and business investment in Canada.

The Canadian economy continues to operate close to its potential and the composition of growth is more balanced. Despite some quarterly fluctuations, growth is expected to average about 2% over the second half of 2018. Real GDP is projected to grow by 2.1% this year and next before slowing to 1.9% in 2020.

Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies. In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.”

Based on this outlook, the Bank is optimistic about the future of the Canadian economy now that the new North American Trade Deal has been finalized. Remember, taking advantage of these low rates is a great way to pay down your mortgage faster!

Currently variable rate products are still lower than current fixed term rates, however if concern regarding impending rate increases is going to affect your monthly budget, locking in now might be a good option. Call me to book a pro bono consultation and let’s discuss your current financial situation. I’ll be in touch again for the next announcement on December 5, 2018.

I wonder if I can ask a favour, going with my theme of “Let the sun set and the leaves fall along with Canadian consumer debt with our help”if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them.  In either of these cases, would you mind passing my contact information on to them – this is very much appreciated.

Yours truly,

Eva Neufeld
Accredited Mortgage Professional
Mortgage Tailors
Phone:  780-244-0505
Email:  eva@mortgagetailors.com
Web:  www. Mortgagetailors.com

 

 

You Can’t Live in Your Car!

When qualifying for a mortgage, your income and debts that you have determine what purchase price you are able to buy at.  I hear quite often from clients that they have worked hard to build and maintain great credit, saved a down payment and are ready to make the leap into home ownership.  However, after I review their eligible income and debts they may be carrying, it is very sad to have to inform them that the price point they were hoping to buy is not achievable due to carrying either a large vehicle payment or credit card debt. I thought I would go over the basics of mortgage qualifying in today’s world.  If you have a desire to buy a home whether now or in the near future, think twice about buying a new car or adding credit card debt to your plate.

When calculating what one can qualify for we use two formulas and apply them to your specific financial profile.  You need to keep these in mind when starting to prepare for your mortgage pre-approval.

GDS Ratio – Gross Debt Service

We are allowed to use 34% of your gross income (39% if your credit score is great) to account for your housing costs such as your mortgage payments (principal and interest), property taxes, heat and condo fees if applicable.  We do however have lenders that have exceptions to this however expect the interest rate to be a little higher than a traditional bank.

The income coming into your home that is acceptable varies between lenders,  some lenders allow income such as Child Tax Credit to be used for qualifying while others do not.  This extra income can increase ones purchase price.  If you are self-employed, lenders calculate income completely differently, some allow add-backs, some allow your income to be increased by 15% which is why working with an experienced mortgage professional who has access to many lenders can make all the difference in what price point you may be able to qualify for.

TDS Ratio – Total Debt Service

 These ratio’s allowed by lenders can vary from 40 – 44% depending on credit and the product you are applying for.  This must account for your total housing costs (GDS) as noted above plus any other consumer debt you may carry such as student loans, credit card debt, personal loans and car payments.  This is where a high vehicle payment or other debt payment can affect or lower the mortgage amount you qualify for.

Simply, the higher your income, the less that car payment will affect your mortgage qualification.  Here are a few tips I’d like to share to help you qualify for a mortgage.

Timing is very important, if you plan to qualify for a mortgage now or in the distant future, think twice about taking on any new debt. This includes credit card debt, auto loan payments, lines of credit and “don’t pay for a year” borrowings. It is all about the payments so if you have to take on new debt, try and keep the monthly payments as low as possible.  You can always pay extra toward any of the above debt but having your payments set as low as possible means your purchase price potentially could be higher.

If you currently carry high consumer debt (credit card debt) sometimes acquiring a debt consolidation loan to restructure your payments into a longer amortization will lower your monthly payments as well as lower the amount of interest you have to pay to the bank to pay it off.

It’s kind of a double-edged sword because while you need debt to build credit, yet too much debt can have a negative effect on your mortgage application.  If you are thinking of buying a home, consult with a Mortgage Professional to discuss your options.

Here is a tip to keep in mind:

  1. For every $20,000 in income you earn you roughly qualify for $100,000 in mortgage money
  2. For every $14,000 you carry in credit card debt cancels out $100,000 or mortgage money.
  3. For every $450.00 in vehicle payments cancels out roughly $100,000 in mortgage money.

So pay close attention to this as you move forward and think twice about buying that new car or taking on more credit card debt.  Buy the home first, then buy the car.

Do you have mortgage questions?  Contact Eva Neufeld, Accredited Mortgage Professional at (Mortgage Tailors) at 780-244-0505 or by email to eva@mortgagetailors.com