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Victoria SJ Deters Mortgage Broker 250.208.4239 What affects mortgage rates? Government policies to protect the economy during the pandemic resulted in exceptionally low mortgage rates for both fixed- and variable-rate mortgages. As we start moving towards recovery, fixed rates have started to edge upwards. The prime rate, which variable rates are based on, has not increased. So why did fixed go up but not variable? Let's look at the mechanics of both. How are variable rates set? The chartered banks set the prime lending rate (the rate they offer their best customers). They base their decisions on the Bank of Canada's overnight rate because that's the rate that influences their own borrowing. There are approximately eight times a year the Bank of Canada makes rate announcements. Variable mortgage rates and lines of credit move in conjunction with the prime lending rate, with most lenders currently offering variables at prime minus a certain percentage. The Bank of Canada in their most recent announcement did not increase the overnight rate and did not mention when they foresee the need to increase rates. How are fixed rates set? Fixed-rate mortgages are a little different. Banks predominantly use Government of Canada bonds to raise money for fixed-rate mortgages. In the bond market, interest rates can fluctuate more often since they're subject to the changing moods of traders and bond investors as they try to figure out how fast the economy will grow and where inflation is headed. That's why you watch the bond market for clues on where fixed mortgage rates will go next. Recently the yield for 5-year government bonds went up, causing fixed mortgage rates to follow suit. Why are there so many different mortgage rates? Fixed and variable are not the only factors affecting rates. There are rate premiums for certain situations i.e., rental properties, 30-year amortizations. There are different rates for insured, insurable and uninsured mortgages. Rock-bottom online rates often come with restrictions and high penalties. The rate you qualify for can be very different from what your neighbour got. That's why it is so important to get in touch for unbiased professional advice when you need to determine the best mortgage and rate applicable to your situation, whether it's for a purchase, renewal, or refinance. Knowledge is power! This chart clearly shows just how low rates are on a historical basis. Note: My 5-year fixed rates are typically in the range of 1.5% above the 5-year bond, significantly lower than Bank posted rates. The stress test, introduced in 2016, is based on the Bank posted 5-year rate.

VICTORIA SJ DETERS Mortgage Broker 250.208.4239

Invis Inc. 420 - 2100 Derry Rd. W, Mississauga, ON L5N 0B3

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What affects your mortgage rate
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When to check in on your mortgage Article

By Kimberly Greene16 JAN 2017

A new year brings new resolutions, best intentions, and a larger-than-normal burst of optimism . . . so what better time of year to check in on your mortgage? Now that the seemingly endless stream of holiday parties and end-of-year commitments at work has slowed down and you’re no longer preoccupied with shopping and out-of-town house guests, you can focus on your plans for the year ahead – and that includes taking a hard look at your mortgage. Doing so could be just as important as all of your other duties, but how do you know if it’s time? First of all, you might be wondering what a mortgage check-up is, and how to know whether it’ll be useful for you. A mortgage check-up is a review of your existing mortgage terms to ensure that they’re not only the best rates available offered by lenders, but also to see if the terms of your mortgage still meet your needs. Think of checking in on your mortgage like a method of preventative care; the earlier you catch anything that might become a problem, the more you can prepare for it down the line.

  1. Time for renewal

If your mortgage is going to be renewed this year, then it’s absolutely time for a mortgage check-up. You want to give your mortgage broker enough time to shop your mortgage around to different lenders and compare different mortgages, which means not waiting around until the last minute. Depending on your lender, you can start the mortgage renewal process as early as six months before the expiry of your current mortgage. It’s not always beneficial to lock in that rate early, or to stay with your current lender, but if you can at least get a rate from your current lender, you’ll know how it compares to others in the marketplace.

  1. You want to lock in your rate

Performing a mortgage check-up isn’t just about you and your personal finances (although that’s a big part of it). It’s also about relating your personal situation to what’s happening in the marketplace. If interest rates are starting to creep up and you think they’re going to start edging even higher, look and see when you can lock in your current rate in order to avoid paying a higher interest rate than is necessary. This is especially true if you have a convertible mortgage that allows you to switch to a long-term, closed mortgage at any time.

  1. Your life has changed

If you got your mortgage six months ago, then reevaluating it might not be necessary. But if you got your mortgage three years ago, a lot may have changed between now and then. You may have switched to a more stable career or gotten a salary bump, for example, in which case you may be more willing to take on a bit of risk with a variable rate mortgage and the lower interest rates that may accompany it. If you think that your income or employment prospects may change for the worse in the near future, then you might want to do the opposite and lock in your mortgage just so you know exactly how much your payments are going to be and that they won’t change for the set term. Any big life change could have an impact on your finances – and, as a result, your mortgage – so it’s a good idea to reevaluate after each one takes place.

  1. You need to break your mortgage

Most homeowners don’t plan to break their mortgage before the term has expired, but the fact remains that hundreds of thousands of mortgage holders will end up breaking their mortgage before the first term has ended. Breaking your mortgage isn’t just relegated to failing to make payments and going into default; it could mean switching lenders, making additional large payments, refinancing – anything that deviates from the specific terms and conditions outlined in the agreement between you and your lender. Sometimes breaking your mortgage is unavoidable or preferred compared to the alternative, like a big life change that renders you unable to make your mortgage payments. Another consideration is whether or not you’re planning on selling your home in the near future. You may have bought the home with the intention of staying there until retirement, but a birth, a death, a divorce, or a job transfer could have you needing to leave your home before you’d planned. If renting isn’t a viable option because your home is in a soft rental market (or if you just don’t want to be a landlord), then breaking your mortgage may be your best option. If you see the writing on the wall in advance, talk to your mortgage broker and discuss timing. If you’re able to swallow the penalty costs, then it may not be a bad idea, but you could save thousands if you could work out an arrangement to get you to the end of your term.

  1. You want to refinance

People refinance for all types of reasons. It does count as breaking your mortgage, but breaking your mortgage isn’t always a bad idea; in fact, most people break their mortgage to refinance and take advantage of lower interest rates than those that they received when they first got their mortgage. Other homeowners break their mortgages in order to tap into their home equity and make home repairs or improvement. Some people refinance in order to finance a higher-level degree or consolidate debt. Whatever your reason for refinancing, timing is key, just like with any time you break your mortgage. If you refinance and rates are low, then you can make up what you’re going to pay in penalties in just a few years. If rates are about the same and you’re only a year away from renewal time, then it might be best to hold off on that home renovation until then, when you can act without penalty fees. On the other hand, if you have a special offer on a credit card that’s about to expire and you’re going to end up paying 21% interest on a credit card, then now may be the time to get your hands on some of that cash to end up saving you money at the end of the day.

Generally speaking, unless you’ve gotten your mortgage very recently, it’s always worth doing a yearly check to make sure that your mortgage aligns with your personal and financial goals. Even if you decide that your current circumstances don’t require you to change your mortgage at all, or if you decide that whatever issues you wanted to address by changing your mortgage terms can wait until it comes up for renewal, you’re still keeping aw are of your options. Having a brief conversation with your mortgage broker can also help you to understand how the mortgage market is changing and how that could affect you now or when your mortgage comes up for renewal. Either way, taking the time to be an informed consumer and keep track of your mortgage is well worth the time and effort.



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