Tips To Paying Your Mortgage Down Faster

Everyone knows they should make extra payments on their mortgage, but life tends to get in the way and make it a low priority on the overall budget.  Most of us will have something they could pay towards the mortgage, yet it doesn’t seem like much compared to the balance, so we spend it on other things…and let’s face it, paying down your mortgage isn’t sexy!

So is it important?  Let me show you an example of the impact of even small extra payments on your mortgage.  For example on a $250,000 mortgage over 30 years at 3.99%, 2 years into the mortgage if you were to start making $100 extra payments alone, you would knock 3.7 years off your mortgage and save $23,468!

So how do make this happen?

One of the easiest ways is to have your Bank or Credit Union deduct a small amount from your pay and have it automatically added to your mortgage or a savings account.  This makes it easier than having to remember every time you get paid to make that extra payment.  If your mortgage is with another institution, you will likely have to use the Savings account to save it up and then contact them to have the money transferred to the mortgage.  Most lenders can take out the extra payment automatically from the account your normal payments come out of.
The other way is to ask the lender to increase your payment amount by $x amount…obviously this is a more permanent solution.

What about Biweekly Payments, or Weekly Payments?
The sooner you make your payment the better.  As well, by paying in an accelerated manner, more money is being paid onto the mortgage, reducing your principal and interest costs.  For example:
$1,000 x 12 (monthly payments) = $12,000/year
$500 x 26 (biweekly accelerated) = $13,000/year
$250 x 52 (weekly accelerated) = $13,000/year
If you can manage this, it makes a significant impact on your mortgage!
Here we see just changing from Monthly to Biweekly accelerated alone knocks 4.1 years off of a 30 year mortgage!

Please note!  Some Bank’s offer weekly & Biweekly payment options which are not accelerated!!  This is useless, as it does not reduce your principal any more than Monthly payments…beware!
Other ways to pay down your mortgage faster!

•    Use your tax return to pay down your mortgage…this can make a big impact on your mortgage over the long term!
•    When you get a pay increase, increase the payment on your mortgage by the same amount.
•    If you receive any “extra” payment or gifts, put them on your mortgage asap!
•    Instead of gifts or presents on your Birthday, your spouse’s Birthday etc, pay extra down…a free & clear home is a much better gift!
•    Check with your lender consistently and ask for a new Amortization Schedule based on your new balance and payments…when you start to see the end date is getting closer (What we call Mortgage Freedom Day!) you will be able to focus on it more.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Top 7 Mortgage Tips For Newcomers

After you have immigrated to Canada, making the decision to buy a home can be an exciting but perhaps unfamiliar journey. As a mortgage broker who has worked with many newcomers, here are my “top 7 tips” to help you on your way to home ownership:

1. If you have not done so already, apply for credit. It is very important that you establish a credit report. When considering a new mortgage application, Canadian lenders will look at your credit standing.

2. Gather relevant overseas documents. Depending on your immigration status, you may need to provide copies of your work visa/permit. Make contact with your overseas bank in the event that you may need to provide a bank reference letter.

3. Get organized. Canadian lenders will need a job letter, pay stub or other forms of proof of income like income tax documents. If you are planning to transfer money from overseas for your down payment, you should also allow plenty of time to complete this.

4. Become informed. Research the basic procedures of buying real estate in Canada. For example, are you aware of the rules when buying a stratified property like a condo?

5. Create a budget. Housing costs in Vancouver and Toronto, for example, can be high. A financing budget can ensure your anticipated housing costs are manageable.

6. Get pre-approved. By providing a short application, a banker or mortgage broker can let you know exactly how much of a mortgage you can qualify for. the loans officer will review the mortgage payments, the interest rate and a closing cost budget with you in advance.

7. Use professional services. Rely on professional guidance, not the advice of friends or family members. Buying your first home can be time-consuming and frustrating at times, and the right guidance from realtors, mortgage brokers/lenders and lawyers/notaries can reduce some of the stress and the risks.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Mortgage Rates Stay Flat to Begin Busy Week

Mortgage rates stayed in line with recent 4-month lows today.  In some cases, there was a slight movement in the closing costs associated with prevailing rates, but the rates themselves didn’t change.  The most prevalent Conforming 30yr fixed quote (best-execution) remained at 4.125%.

Every day since last week’s jobs report has been relatively calm for mortgage rates.  Even then, there was reason to believe that we could be lacking some direction until the next major round of economic data came in.  That culminates in next week’s jobs report (which is occurring so close to the previous report due to shutdown-related rescheduling), but the current week can certainly play a role.

Economic data is an important factor in mortgage rate movement for 2 primary reasons.  First, there’s the basic deductive logic that a stronger economy can support higher interest rates, thus stronger economic data tends to push rates higher, all other things being equal.

The second reason has to do with the Federal Reserve’s current role in bond markets.  While market participants no longer expect the Fed to reduce asset purchases soon, the longer-term assessment of Fed policy still affects rates.  If markets think the Fed will continue to push back the eventual end of their buying program, it gives rates more room to stay or move lower.

These two factors both suggest the same movement in the same circumstance, i.e. weaker data suggests lower rates and stronger data suggests higher rates.  But as far as the Fed policy component is concerned, some of the economic data is significantly more important than others—namely the big jobs report next week.

That’s not to say that the other data can’t have an impact, but it has to be fairly unified in its suggestion or the report has to be one of the more important ones.  Tomorrow’s Retail Sales data is a good example of a non-employment-related report that has the power to move markets.  It’s joined by several other reports that together, stand a much better chance to ensure we don’t end tomorrow in relatively unchanged territory for a 5th straight day.

Loan Originator Perspectives

"Good start to the week, auction today was well received, overall lack of any action is a net positive. Keep a close eye on the data Tuesday and Wednesday, auctions, and earnings for some of the big boys this week. FOMC on Wednesday is probably the most important piece of the week.  Safe to stay floating as long as you are closely monitoring the data.  Rates at multi month lows warrant strong consideration to lock." -Constantine Floropoulos, Quontic Bank

"Plethora of data unfolding this week, from Fed Statement on Wed to weekly unemployment, housing starts, and ADP’s October unemployment report (Labor Dept’s report released next week). Will be interesting to see Fed’s take on the DC drama’s impact on the economy and housing. By week’s end, we should have a decent indication on whether our two month bull bond market will continue." -Ted Rood, Senior Originator, Wintrust Mortgage

"Nothing has changed with my current outlook. I like floating loans and only locking when within 15 days of funding. Today’s rates opened pretty similar to Friday and MBS have gained since the weak housing data at 9am. I recommend to float all loans over night, unless your lender has repriced better today, then I would lock if within 15 days." -Victor Burek, Open Mortgage

Today’s Best-Execution Rates

30YR FIXED - 4.125%
FHA/VA - 3.75-4.0%
15 YEAR FIXED -  3.25-3.375%
5 YEAR ARMS -  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

• Uncertainty over the Fed’s bond-buying plans and more recently over Fiscal Policy has been making for a tough interest rate environment.

• A lack of data due to the government shutdown caused rates to experience moments of paralysis while headlines suggesting the shutdown might/might-not end, as well as a seizing-up of short term funding markets caused unexpectedly high volatility—enough to be felt in longer term rates like mortgages.

• After a deal was reached to avoid going over the debt ceiling, funding markets thawed and rates returned to the same ‘wait and see’ range that existed before the Fiscal drama. 

• Markets continue to be most interested in economic data and it’s suggestions about the longer term trajectory of the economy.  This will shape expectations for Fed policy in the coming months, and thus inform the direction of interest rates.

• The stronger the data the more likely the Fed is seen as reducing asset purchases.  Rates would rise under this scenario, but the most recent FOMC Meeting (and more importantly, the Fed’s decision to hold off on tapering) suggests that they’ll attempt to keep the pace of rising rates moderate as long as inflation isn’t adversely affected.  The delayed release of the September jobs numbers on October 22nd helps confirm that.

• (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Falling Rates, BoC’s Stand Put Housing Spotlight on Flaherty

For the past few years, the Finance Minister has been trying to prevent Canadian house prices and consumer debts from rising too quickly – without causing a major slump in the real estate market that would hurt the economy. Four times, he has changed Ottawa’s rules governing mortgages to reel in overheated home prices.

It was expected that higher interest rates would do the rest of the work. But that’s now in question, after the Bank of Canada pushed out the timeline for raising short-term rates. Longer-term rates are falling too: The yield on five-year government bonds has fallen from 1.9 per cent to 1.72 per cent in the past 10 days.

If that trend continues, mortgage rates will eventually fall, giving yet another push to a housing market that already has a lot of momentum. The average price of houses that sold over the Multiple Listing Service in September was $385,906 nationally, up 8.8 per cent from a year ago, in large part because pricey cities, such as Toronto and Vancouver, are rebounding from steep sales declines a year ago.

So will Mr. Flaherty be forced to intervene for a fifth time? “While we continue to monitor the housing market, we have no plans for further action at this time,” he said Thursday.

In any event, it’s not clear what tools he has left. Mr. Flaherty has already made most of the easiest changes, such as shortening the maximum amortization period on government-insured mortgages to 25 years. And his favourite tool – verbal warnings to consumers that rates will ultimately rise – are losing traction in light of the central bank’s decision to remove its bias towards higher rates.

“Housing has been the big driver,” says Jim Murphy, head of the Canadian Association of Accredited Mortgage Professional. “If you slow the housing market, what’s going to take its place in terms of the domestic economy? It turns out it’s not the export sector, and now they’re predicting lower growth. If we keep slowing housing and slowing housing, will that just make things worse overall?”

Still, Mr. Flaherty does have some options. Those range from the small tweaks to the standards that consumers must meet in order to qualify for mortgage insurance – which is mandatory for buyers whose down-payment is less than 20 per cent – to more severe changes, such as increasing minimum down-payments.

But it is unlikely that policy-makers will take any action this. Economists and experts have been in wait-and-see mode, because the general view has been that much of the market’s strength in recent months stems from buyers jumping into the market earlier than they otherwise would have in order to beat potential mortgage rate increases.

It will take at least two more months of housing data to properly assess whether the market’s rebound is temporary or has legs. “They really have to wait at least until November or December,” said Canadian Imperial Bank of Commerce economist Benjamin Tal.

There are some minor moves that Ottawa is already planning that could have a bit of a cooling impact on the market. Sources say the Department of Finance has circulated a discussion paper on portfolio insurance. It proposes some changes such as limiting portfolio insurance to terms, such as five years, rather than having it be for the full life of the mortgages, and taking away the ability of banks to substitute one mortgage for another within a portfolio. Changes such as these would further reduce Ottawa’s exposure to the housing market.

And the Office of the Superintendent of Financial Institutions is still putting together a set of underwriting guidelines for mortgage insurers that could place new restrictions on the way they do business.

OSFI has also been weighing the possibility of tightening the mortgage underwriting guidelines for banks, something that would have a larger impact on the housing market. The regulator has been exploring the prospect for a while and decided not to take any action in the spring, at a time when the market was still climbing its way out of the slump that ensued after Mr. Flaherty tightened the mortgage insurance rules in the summer of 2012. (That set of rule changes, which included cutting the maximum amortization of insured mortgages to 25 years from 30, was the fourth that Mr. Flaherty has made in the past five years in an effort to curb consumer debt loads and house prices.)

OSFI has been monitoring the market again this fall, and collecting more data from banks. If it decides to change the lending rules it will hold public consultations first. The possibilities open to the regulator include tightening the rules around uninsured mortgages, for instance by cutting the maximum amortizations of such loans to 25 years, to bring them inline with the rules for insured mortgages.

Any moves that policy-makers might take will potentially have other consequences that must be weighed. For instance, if OSFI alters the rules that govern the big banks and other federally regulated lenders, it could tip the playing field in favour of credit unions and other provincially regulated lenders.

More broadly, any significant moves that bite into the market will slow economic growth. Bank of Canada Governor Stephen Poloz noted Wednesday that “extra growth in the housing market” helped pull the country through the recent period without a major downturn.

And if the finance department continues to make it harder for first-time buyers to get into the market, “it will cause some issues that may have a longer-term impact,“ said Royal Bank of Canada economist Robert Hogue.

“What we’re missing is rising rates,” Mr. Murphy said. “Rising rates would solve the problem.“ That is the opinion of Bank of Nova Scotia CEO Rick Waugh, who spoke out last month saying that if policy-makers are concerned about house prices then the Bank of Canada should raise interest rates. Rather, the central bank decided to remove its bias towards higher rates as it worries about sluggish exports and continuing struggles in Europe.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Canadian Home Sales Edge Higher in September

Ottawa, ON, October 15, 2013 – According to statistics released today by The Canadian Real Estate Association (CREA), national home sales posted a small month-over-month increase in September 2013.

The number of home sales processed through the MLS® Systems of Canadian real estate Boards and Associations and other co-operative listing systems edged up a modest eight-tenths of one percent on a month-over-month basis in September 2013.

Sales improved on a month-over-month basis in just over half of all local markets, with gains in Greater Vancouver and Greater Toronto offsetting declines in Calgary and Montreal.

Actual (not seasonally adjusted) activity remained roughly on par with the 10-year average in September. The 18.2 per cent increase compared to year-ago levels reflects weakened activity at that time.

Sales were up on a year-over-year basis in about 75 per cent of local markets, led by gains in Greater Vancouver, Calgary, Edmonton, and Greater Toronto.

“Year-over-year increases in the sales over the past couple of months highlights how activity softened across much of the country following the introduction of tighter mortgage rules last summer,” said Gregory Klump, CREA’s Chief Economist.

“While the momentum for sales activity began improving a few months ago, it may be losing steam after having only just climbed back in line with an average of the past 10 years,” Klump added. “Even so, one can see large year-on-year changes when comparing activity to a month like September 2012, when sales dropped to the lowest level for that month in more than a decade.”

Some 340,980 homes have traded hands across the country so far this year. That stands 1.8 per cent below levels recorded in the first three quarters of 2012.

The number of newly listed homes declined by 1.4 per cent on a month-over-month basis in September. Slightly more than half of all local markets recorded declines, led by Greater Vancouver, Fraser Valley, Calgary, Greater Toronto, London & St. Thomas, Ottawa, and Montreal.

The small monthly increase in sales activity combined with a decline in new listings pushed the national sales-to-new listings ratio to 56.1 per cent in September compared to 54.8 per cent in August. While the national housing market has firmed in recent months, it remains in balanced market territory where it has been since early 2010. Based on a sales-to-new listings ratio of between 40 to 60 per cent, about three of every five local markets were in balanced market territory in September.

“Sales activity across much of the country has improved in recent months following a slow start to the year and new listings in some areas have not kept pace,” said CREA President Laura Leyser. “Depending on where they are, there may be a bit more competition among buyers for limited inventory in the months ahead. Because all real estate is local, your REALTOR® remains your best resource for understanding how the housing market is shaping up either where you live or might like to.”

The number of months of inventory is another important measure of balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity. There were 5.8 months of inventory at the national level at the end of September, down from 5.9 months one month earlier. As with the sales-to-new listings ratio, the current months of inventory measure marks a slightly firmer but still well balanced national market.

The actual (not seasonally adjusted) national average price for homes sold in September 2013 was $385,906, an increase of 8.8 per cent from the same month last year. Year-over-year average price gains in recent months reflect the decline in sales activity recorded last year in some of Canada’s larger and more expensive markets which caused the national average price to drop.

If Greater Toronto, Greater Vancouver, and Calgary are removed from the national average price calculation, the year-over-year increase is 4.3 per cent. A better gauge of what’s going on with prices is the MLS® Home Price Index (MLS® HPI), which is not affected by changes in the mix of sales the way that ‘average’ price is. Canadian Home Sales Edge Higher in September