Remember, there is more to a mortgage than just the rate!

In Canada, when applying for a mortgage, the Office of the Superintendent of Financial Institutions (OSFI) requires that borrowers undergo a stress test to ensue that they can continue to make payments if mortgage rates were to increase. To do this, the lenders use an interest rate of 5.25% or your mortgage interest rate plus 2%, whichever is higher to calculate your payments. The calculated payments would is then compared it to your annual household income to make sure it fits into the allowed debt servicing ratios (a topic for another blog post).

For example, lets say today you could get a fixed rate mortgage 3.75%. You would have to qualify at that rate plus 2%, or 5.75%. However, if you could get into a variable rate mortgage at 2.2%, the stress test would be 5.25% (because 2.2% + 2% = 4.2%, and so 5.25% is higher).

This can make a difference to how large a mortgage you can qualify for. If you were hoping for at a fixed rate, but due to the stress test the value of the home you were hoping to buy is unattainable, looking at a variable rate may allow you to afford the home of your dreams.

Using an example of an annual household income of $100,000, the amount you can qualify for could be around $25,000 less with a fixed rate vs a variable rate using the above example rates.

If you have any questions or want some guidance with what value mortgage you can qualify for, please reach out.

When it comes time to making your mortgage payments, there are various options to chose from:
• Monthly
• Bi-Weekly
• Weekly
• Accelerated Bi-Weekly
• Accelerated Weekly

When you are completing your mortgage documents after the purchase of a home, you must select your payment option, but how do you know which to chose?

Here is a quick explanation of each option:
Monthly – This is one of the most common methods when your payment is withdrawn from your account the same day every month (eg the 1st or the 15th). You make 12 payments per year.
Bi-Weekly – This is another common payment method where the payment is withdrawn every 2 weeks. This works well for people who are paid on a bi-weekly schedule because you can line up mortgage payments with your paycheck. This is calculated by adding 12 monthly payments and then dividing by 26 pay periods. The total amount paid for the year is the same as a monthly payment.
Weekly – Similar to bi-weekly, this is the monthly payments added up for the year and divided by 52 weeks. The total amount paid for the year is the same as a monthly payment.
Accelerated Bi-Weekly – The monthly mortgage payment is divided by two, and then paid on a bi-weekly basis. The payment is slightly higher than the regular bi-weekly payment, and therefor the mortgage is paid off over a shorter period of time.
Accelerated Weekly – The monthly mortgage payment is divided by four, and then paid on a weekly basis. The payment is slightly higher than the regular weekly payment, and therefor the mortgage is paid off over a shorter period of time.

The accelerated payments are not that different from a regular payment, but you end up making roughly one extra mortgage payment per year which will provide a significant saving on interest payments and will allow you to pay your mortgage of potentially years early. There are also other ways that you can increase payments and speed up the process further.

If you have any questions or want some guidance with what choice to make, please reach out.

Refinancing your mortgage refers to the process of renegotiating your current mortgage agreement for a variety of reasons. Essentially, allowing you to pay off your existing loan and replace it with a new one that better suits your needs.

When done properly, mortgage refinancing can result in a host of great benefits to further your financial success.

Some reasons you might consider refinancing include, but are not limited to, the following:

• You want to leverage large increases in property value
• You want to get equity out of the home for upgrades or renovations
• You are looking to consolidate your debt
• You have kids headed off to college
• You are going through a divorce
• You want a better interest rate
• You want to convert your mortgage from fixed to variable (or vice-versa)

Not only can refinancing help to reduce financial stress and help get you back on track for your financial future, but additional benefits include:

1. 1. Access a Lower Interest Rate: One reason to refinance your mortgage is to get a better interest rate. While a low interest rate isn’t everything (you also want to consider your mortgage terms, penalties, etc.), there is no harm in looking around! As your dedicated mortgage professional, I have access to dozens of lenders and can shop the market for you to see if there is a better mortgage product to fit your needs!
   2. Consolidate Your Debt: There are many different types of debt from credit cards and lines of credit to school loans and mortgages. But, did you know that most types of consumer debt have much higher interest rates than those you would pay on a mortgage? Refinancing can free up cash to help you pay out these debts. While it may increase your mortgage, your overall payments could be far lower and would be a single payment versus multiple sources. Keep in mind, you need at least 20 percent equity in your home to qualify.
   3. Modify Your Mortgage: Life is ever-changing and sometimes you need to pay off your mortgage faster or change your mortgage type. Maybe you came into some extra money and want to put it towards your mortgage, or maybe you are weary of the market and want to lock in at a fixed-rate for security. It is always best to do this when your mortgage term is up, but talk to a mortgage specialist about potential penalties if waiting is not possible.
   4. Utilize Your Home Equity: One of the biggest reasons to buy in the first place is to build up equity in your home. Consider your home equity as the difference between your property’s market value and the balance of your mortgage. If you need funds, you can refinance your mortgage to access up to 80% of your home’s appraised value in cash!

   While refinancing can help you tap into 80% of your home value, it does come with a price. If you opt to refinance during your term, it is considered to be breaking your mortgage agreement and it could end up being quite costly. It is always best to wait until the end of the mortgage term before any refinancing is conducted, but make sure you’ve planned several months in advance so you have to time to weigh your options before you need to renew.

   In addition, refinancing can prevent you from qualifying for default insurance which in turn can limit your lender choice. Lastly, you’ll be required to re-qualify under the current rates and rules (including passing the “stress test” again) to ensure you can carry the refinanced mortgage.

   If you are stuck or wondering if mortgage refinancing is right for you, please don’t hesitate to reach out to me today! I would be happy to review your current mortgage, financial goals and future plans to help determine the best solution to fit YOUR needs.