man dangles his legs sitting on a cliff

Stay Variable or Go Fixed

Stay Variable?

If you’re currently in a variable rate term, you may be hoping that rates stay lower than fixed over the next few years. However, if inflation doesn’t get under control by the Bank of Canada quickly, they may raise throughout your term. This will leave the possibility open that your variable rate could be higher than the fixed one you passed up. The upside is that if your variable rate ends up higher than expected, it may still turn out cheaper over a 5-year term. So when making your decision to go with a fixed or variable, make sure the math supports both scenarios.

or Go Fixed.

Fixed rates can be a great security to make sure your payments are static over the duration of a term. But they come at a cost. With a variable rate, you’re taking on a risk. What if it turns out that the fixed rate was better? If the Bank of Canada’s plan to control inflation and spending is successful and they don’t continue to raise, then the variable may not end up surpassing the fixed any time soon. On the other hand, if it takes longer than expected to regulate spending and inflation, then rates will have to rise further. Ultimately, meaning that those with the variable rate may have to pay more than their counterparts with fixed mortgages. That being said, many savvy consumers opt for variables because even if the market rises over their term, their five year average rate could still end up much lower than those who chose fixed.

In Conclusion

When five-year variable mortgages became a popular choice in 2021/2022, it has become challenging to know if now is the time to switch to fixed. With BOCs recent rate hikes, those who chose a variable rate are wondering if now is the time to switch. Evaluating a few scenarios can help dictate if it is time to lock into a fixed rate. Consider your concern about payment increases and your need to stay on top of the markets in order to gain insight into how the BoC’s rate mandate could eventually tame inflation. If this uncertainty creates stress or anxiety, it may just be the right time to switch over to a fixed-rate.

Depending on your financial goals, you may be feeling the strain of constantly varying payments. Fixed-rates have higher penalties for breaking the term and some lenders may not even allow it. However, there isn’t a cost tied to locking in at your best fixed rate. Therefore, you’ll want to consider all your options before deciding what’s right for you.

paint tray with roller and white paint

Purchase Plus Improvements Mortgage

Hey, did you know there’s a way to buy your dream home—and spruce it up at the same time? It’s true! Enter the Purchase Plus Improvements mortgage. This program allows you to borrow the cost of renovations (up to a certain percentage) and add it to the home price. All rolled into one easy-to-manage mortgage payment. That means once you take possession of your new home, you can start the upgrades immediately. What could be more convenient?

How Does a Purchase Plus Improvements Mortgage Work?

The first step is to get pre-approved for a Purchase Plus Improvements mortgage. When applying for this product, lenders need estimates from you in order to determine how much money they will lend. For example, they might ask for quotes from contractors who will be doing the work on your new home. This is so they can make sure that all costs associated with the renovation are accounted for. Once approved, lenders will provide funds for both the purchase of your home and the improvements that need to be made.

The Benefits of a Purchase Plus Improvements Mortgage

One of the major benefits of this type of mortgage is that it eliminates the need for two separate mortgages—one for purchasing your home and one for making renovations or improvements. Instead, everything is rolled into one loan with one simple monthly payment. This makes budgeting much easier since you don’t have to worry about managing multiple payments and keeping track of different due dates or interest rates. Additionally, this type of loan also allows borrowers to access funds needed for renovations without having to take out a second loan or use their own savings account.

Another great benefit is that these types of mortgages often come with lower interest rates than other types of loans. (such as traditional personal loans). That means more money in your pocket over time as opposed to spending extra on interest payments each month! Last but not least, this type of loan offers flexibility. You can decide what kind of work needs done on your new home. All while still staying within budget and paying off only one single loan payment each month!

Conclusion:

A Purchase Plus Improvements mortgage does offer an attractive option if you’re looking to buy a new home and upgrade it right away without having to juggle two separate mortgages or dip into personal savings accounts. By providing lenders with quotes from contractors doing work on your property, you can secure funds needed for both purchase and improvement with only one single monthly payment at an attractive interest rate—which adds up big time in terms of savings down the line! So what are you waiting for? Start shopping around today and find out if a purchase plus improvements mortgage is right for you! Start your Application today.

Banker Secrets They Don’t Want You to Know

Banker Secrets They Don’t Want You to Know. If you are looking to pay off your mortgage faster, here are some tried-and-true tactics to get you to financial freedom that much sooner!

  1. Make a Double Mortgage Payment: A double payment once a year can shave over four years off the total life of the mortgage! Better yet, if your mortgage allows for double-up payments, another option is paying an extra $100 into your mortgage – per month. This can save you over $26,000 in interest on a 5.5% fixed-rate, 25-year amortized mortgage.
  2. Increase Your Payment Frequency: Changing your mortgage from monthly to bi-weekly accelerated payments can shave over three years off your mortgage. At $2,000 a month, three years of no payments is worth $72,000 (not to mention the interest saved!).
  3. Increase Your Payment: Did you know? A one-time 10% increase can shave four years off the mortgage. That’s $96,000 in savings! Imagine if you bumped the payment 10% every year from the get-go. You would be mortgage-free in 13 years—start to finish! Can’t do it? How about 5% every year? You would be mortgage-free in 18 years! You can also consider increasing the payment by the amount of your annual raise.
  4. Lump Sum Payments: This is another option to become mortgage-free even faster! Even just one extra payment a year equivalent to one monthly payment will give you similar results as #2 above. Annual work bonuses or other extra-income is a great option for this.
  5. Renegotiate When Rates Drop: Revisiting your mortgage is a good idea when rates drop. However, it is always best to get expert advice from a mortgage broker to ensure it makes sense for you. If so, the benefits can be huge! For instance, a 1% reduction on a $300,000 mortgage will save $250 a month—times five years, that’s $15,000.
  6. Maintain a High Credit Rating: Even if you have already qualified for the mortgage you want, don’t let your credit rating slip. Pay your bills on time and keep balances low in relation to limits on credit cards, lines of credit, etc. Ideally, using 30% or less of your available credit will garner the highest results (assuming you pay the balances in full every month). Even if you’re filling your card to its credit limit max and paying it off in full each month, it will look like you are maxing out your credit limit and your credit score will drop accordingly.
  7. Increase Your Mortgage: Increasing your mortgage for the purpose of debt consolidation can be helpful for paying off credit card debt, line of credits, car loan and so on for a better rate and a set payment plan.
  8. Make an RRSP Contribution: By making an RRSP contribution, you can then use your income tax refund to pay down your mortgage!
  9. Switch to a Variable Rate: Switching your mortgage to variable-rate while keeping your payments the same as if on fixed can help you pay your mortgage faster. Since variable rates are typically lower, you will be paying more to your principal loan versus the interest.
    • Caution: Variable rates are not for everyone. Always be sure to seek the help of a mortgage broker to find out if variable-rates are the best choice for you.
  10. Take Your Mortgage With You: When you move, switch your old mortgage to the new property to avoid a penalty or higher rate on a new mortgage. This is called “porting”, however not all mortgages have this feature so be sure to ask! It is not widely known but could save you a ton of money.
  11. Set Up Automatic Savings: Even setting aside $10 per paycheck can help! When your extra savings reaches the amount of one mortgage payment, apply it to the mortgage! This concept goes nicely with #4.
  12. Unhook From The Money Drip: Stop paying with your fancy points credit or debit card. These make it way too easy to overspend. Go old school, go off the grid and pay cash. It works and can help you stay on track!
  13. Don’t Buy on Layaway: You know, those don’t-pay-for-six-month “deals”, well a lot can change in six-months and you’ll still be on the hook. If you cannot afford it now, don’t buy it. Wait until you are financially able to make the investment.
  14. Downsize Your House: Are you living in a 5-bedroom family home but your kids are grown up and moved out? Consider downsizing to a smaller house. It will save you money on your mortgage payments and maintenance fees in the long run!
  15. Rent Out the Basement: Not ready to move? Consider converting spare rooms to rental and use the income to pay down debt.
  16. Make Your Mortgage Tax-Deductible: If you are self-employed, own rental property or have investments, this is likely possible. Check with us at Prime Mortgage Works to see if this option is right for you!
  17. Prioritize Your Payments: Define your various debts by category. This can help you see where you spend your money and also help you pay off your debt faster.
  18. Start With the Highest-Interest Rate: Pay off loans with the highest interest rates first, as these are the ones eating into your extra income!
  19. Leave Tax-Deductible Until Last: Pay the non-tax deductible loans first and fastest and leave tax-deductible debt to the end.
  20. Focus on Ugly Debt First: Debt such as credit card balances are the worst on your credit rating. Pay these off first.
  21. Pay Off Bad Debt Next: Debt for items that depreciate in value, such as car or boat loans, should be the next on your priority list.
  22. Clear Good Debt Last: Loans such as mortgages or investments for assets that should appreciate in value are the least harmful to your net worth and can be paid out last.
  23. Buy a New Car – Outright! Finance it if you have to but don’t lease, unless you are self-employed in which case leasing makes more sense.
  24. Use Your Secret Stash: If you have $20,000 in a bank account for a rainy-day or vacation and yet owe $20,000 on a line of credit, you need to reconsider. The bank account is paying you next to no interest (which is taxable income) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for a rainy day. Make it the secret line of credit that you have but never use.
  25. Give your Banker More Money: No, really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. Some banks charge a fee for transactions and nothing, zero, zilch, zip if you keep $2,500 in the account. Let’s see, $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No-brainer here. Oh yeah, if you need more than 25 transactions a month, see #12 above.

Let’s face it, your financial future will not get any brighter if you continue to run deficits forever. Unlike a bank or big company, you won’t get a bailout! Stop procrastinating and take charge of your own finances with the above tips!

If you are looking for expert advice about your mortgage and how to pay it down faster, contact us to discuss YOUR situation and options.

BORROWER BEWARE:

It is always important to take things with a grain of salt. This is especially important when it comes to too-good-to-be-true, ultra-low-rate mortgages. These “no frills” mortgages are often loaded with restrictions such as pre-payment limitations, fully-closed terms, stripped-out features or unusual penalties. If you’re not looking at what you’re giving up, you may regret it in the future. These Banker secrets alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

New to Canada Mortgage Approval

Canada has seen a surge of international migration over the last few years. In 2019, we welcomed a total of 313,580 immigrants to the country! This is an increase of 40,000 individuals when compared to 2017 numbers. According to planned immigration levels, it is estimated that Canada will receive 341,000 permanent residents in 2020. In […]

Read more

Understanding Interest Rate Changes

Read more

Common Myths About Credit Scores

How is a credit score calculated? It is a complex answer and, as such, common myths persist. Today, we will help you get a better understanding of your credit score and how to make the grade by busting the most common credit score myths!

MYTH #1: TOO MANY CREDIT CARDS WILL HURT MY CREDIT SCORE

The reality is that cancelling healthy, active cards or accounts hurts more than having too many. When you cancel a card, all your payment history is lost as well as the type of credit granted. While you may think having a couple credit cards is extreme, the average Canadian has TEN credit sources. What many Canadians don’t realize is that lenders want to see a history of credit; they want to see payments made on time. In addition, lenders also want to see balances maintained at no more than 70% of your credit limit in use. So, if you have a $10,000 credit card, you don’t want to owe more than $7,000 on it at a time.

MYTH #2: AVOID USING CREDIT CARDS IF YOU WANT TO BUILD CREDIT

It is easy to think that different forms of credit matter more than others, but that is simply not the case. In fact, all lenders want to see is a history of credit and payments made on time. This is what builds your credit score and, eventually, give you the ability to qualify for financing. A history of on-time payments and manageable balances shows the lender that you are a promising investment and not likely to default.

MYTH #3: PAYING MONTHLY UTILITIES BUILDS CREDIT

Unfortunately, paying utilities does not build credit. In fact, these providers only check your credit score to determine creditworthiness. These don’t report your payment history to the bureau, unless you are late to pay. The other organizations that only report on default are municipalities and insurance providers, so make ensure these are current. Be sure to pay any traffic tickets and bylaw infractions too!

MYTH #4: I CAN’T DO ANYTHING ONCE A PAYMENT IS LATE

Don’t be discouraged. Lenders understand that you are only human and, in many cases, they will work with you if there is a late payment. If they are notified within a timely manner, a late payment can be easily reversed. Just be careful not to make a habit of it.

MYTH #5: CHECKING MY CREDIT SCORE WILL DECREASE IT

No exactly. There are two types of credit inquiries: soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull this type of inquiry when marketing pre-approval offers. Soft inquiries do not affect your credit score.

A hard inquiry, on the other hand, is triggered by the applicant when submitting a loan or credit card applications. As a result, hard inquiries will affect your credit score slightly as they are included in the calculation done. Recording the number of inquiries a consumer has on the credit report allows lenders to see how often consumers applied for new credit. This can be a precursor to someone facing credit difficulty. Too many inquiries may mean that a consumer is deeply in debt and is now searching for loans or new credit cards to bail themselves out. Another reason for recording inquiries is for preventing identity theft. Hard inquiries not made by you could possibly be from a fraudster trying to open accounts in your name. Therefore, only individuals with a specific business purpose can check your score.  The inquiry only appears on the credit report that was checked.

In addition, hard inquiries remain on all credit reports for two years, then these are removed. Soft inquiries appear only on the report that you request from the credit bureaus and will not be visible to potential creditors.

Credit score plays a vital role when it comes to potential financing for car loans, mortgages, or even personal loans. It is important to maintain good credit habits now for a higher credit score today, and better chance of financial approval in the future.

Birds eye view of city scape

Mortgage Approval Roadblocks

Read more

Moving on UP the Home Buying Purchase Ladder

Read more

Key Steps Home Sweet Home

Key Steps to Home Sweet Home. There is nothing more exciting than moving into a new home. Whether a new building or re-sale property, there are a few things you can do as soon as you take possession in order to make it your own. Invest a weekend or two into warming up a featureless space or refreshing someone else’s old homestead.

Key Steps Home Sweet Home you can do to own your new space:

  1. Change The Locks :Secure your home by changing the locks as soon as you take possession. Even DIY beginners can change a deadbolt lock. A replacement deadbolt set can be installed in place of the current lock with just a screwdriver— no drilling required. Another option is to rekey the lock. Purchase a rekeying set from the same manufacturer as the existing door lock, and reset it for a new key
  2. Consider a Professional Deep Cleaning: Hiring a professional cleaner to deep-clean and detail your home before you move your possessions in can make your new home feel that much more YOU! It will be easier without any furniture to work around, allowing them to access to every nook and cranny. Yes, you’ll have to clean again after moving day, but the heavy lifting will have already been done!
  3. Clean Out Your Pipes: Years of dust, pet dander and detritus collect in the hidden workings of any home. One of the most effective ways to refresh a new home is to get right into the guts of it! Have your ducts, furnace and air conditioning unit professionally cleaned and be sure to change the filters as required to maintain that clean, fresh air.
  4. Apply a Coat of Paint: Painting provides the most bang for your home-improvement buck! Whether the walls of your home are dingy or you’re simply not feeling the magic of beige, it only takes a few hours to repaint your space with a colour that makes you feel at home.
  5. Freshen Up Your Floors: Much like worn-out walls, old floors can really put a damper on that new-home buzz. If your hardwood has seen better days, consider hiring professionals to re-do it or tackle the project yourself. For carpet, a deep steam clean can do wonders! For laminate, you can get that extra shine with a special laminate floor cleaner. Although if any of your floor coverings are lifting or have holes in them, time to replace it. You can further personalize your new space by adding floor runners or area rugs!
  6. Neutralize Odors: Any re-sale home can benefit from a deep-clean refresh to eliminate any lingering odors from previous tenants. While some of the above steps will dramatically reduce any lingering smells, stubborn aromas require spot treatments such as:
    • Putting dishes of activated charcoal (also known as activated carbon) in a musty, damp basement. These can be found at aquarium stores.
    • Running a dehumidifier during the spring and summer.
    • Placing a sock filled with dry coffee grounds or baking soda in closets, refrigerators or freezers to absorb stale odors.
    • Pouring white vinegar down a stinky drain. 
  7. Enjoy the View! Dirty windows and screens can make rooms feel dark and dingy. A thorough cleaning will have your windows shining, and your indoors will feel brighter and fresher too. If your home came with the previous owner’s window coverings, be sure to clean or launder them; it’ll remove allergens as well as reduce any lingering odours. Or consider replacements with colors and patterns more suited to your style!
  8. Lighten Up! A well-lit home is immediately warmer and more inviting than its darker counterparts. If your rooms feel dim, replace the existing bulbs with bright, energy-saving LED or CFL bulbs for more light and cost-savings! Dated lighting fixtures can also foil your redecorating efforts, so consider replacing them with something more your style.
  9. Time for a Switch: Replacing your switch plates only requires a screwdriver but you would be surprised how much swapping out old lighting switch plates can refresh your space. With a little DIY expertise, screwdrivers, pliers and a voltage tester, you can install energy saving dimmer switches instead.
  10. Display Your Art: Once you have deep-cleaned your new home and organized it to your heart’s content, it is time to dress up your walls with your favourite artwork and family photos! Get your kids’ kindergarten masterpieces onto the fridge and deck out your mantel with family photos.

Moving into a new home is one of the best times to make your space perfect for you! With a clean slate and empty floor space, now is the time to include all the things that make your house a home – to you! Start your application TODAY

How the CHIP Reverse Mortgage Can Help You Support Your Adult Children

A CHIP Reverse Mortgage is a great answer for seniors with Canada’s recent housing market boom.  According to the Canadian Real Estate Association (CREA), between April 2020 and April 2021, the average house price rose by a 41.9%. The average purchase price rising to $696,000 and data from previous years is similarly impressive.

This is, of course, great news for homeowners, but perhaps not such great news for those trying to get in on the property ladder. This has led to a boom in older Canadians helping their adult children with the funds or a down payment. According to a recent Bank survey, 31% of Canadians would help their adult child pay for a new home.

If this is you, it’s important to ask yourself how you will access the funds to help your child. You too can do the same while maintaining your own financial security. Check out the CHIP Reverse Mortgage Calculator to find out how you can access home equity

Withdrawing from Investments

Some people turn to savings and investments when they want to access a large sum of money. However, this may not always be the best idea. Cashing in investments has the potential to trigger taxes and OAS and CPP clawback. This could also as push up your marginal tax rate. Because it can also damage your overall portfolio, this may also have a negative effect on your future retirement income.  Therefore, with more and more Canadians at risk of outliving their retirement savings this is very important to bear in mind.

Using the Equity in Your Home

In order to avoid the downsides of withdrawing from investments, you can use your home’s equity to help your adult children, that way they also benefit from Canada’s red-hot housing market and the equity it’s enabled you to build up.

HELOC

One way of accessing the cash in your home is through a home equity line of credit (HELOC). This revolving line of credit secured against your home that allows you to borrow up to 65% Loan to value. A HELOC can be a good way of accessing cash. With more 55+ borrowers having their applications denied simply because they lack a regular income due to being retired. Another drawback to the HELOC is the fact that the debt must be serviced monthly, which can eat into your monthly income.

The CHIP Reverse Mortgage

Another way of accessing the cash in your home is with the CHIP Reverse Mortgage. The CHIP Reverse Mortgage allows you to access up to 55% of your home’s value in tax-free cash. This can be used to gift an early inheritance to your adult children. Therefore helping them get into the property market and help the entire family.

The money you receive won’t damage your investment portfolio and won’t trigger taxes or OAS/CPP clawback. What’s more, since you only pay back what you owe once you leave your home, there are no monthly repayments adversely affecting your retirement income.

The CHIP Reverse Mortgage is a product that’s designed specifically for Canadian’s 55+ with an approval process to fit. This means we don’t discriminate against retirees or those without a regular income, all you have to do is own your home.

If you’d like to find out more about how the CHIP Reverse Mortgage can help you support your adult children, contact us at Prime Mortgage Works today!