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| Our Rate of the Day - 2.05% | ||
| TERM | OURS (oac) | POSTED |
| variable | 2.05% | 2.75% |
| 1 yr | 2.54% | 3.70% |
| 2 yr | 3.09% | 4.20% |
| 3 yr | 3.50% | 4.75% |
| 4 yr | 3.89% | 5.44% |
| 5 yr | 3.89% | 5.79% |
| 7 yr | 4.90% | 6.49% |
| 10 yr | 5.35% | 6.80% |
As expected, the Bank of Canada has increased the overnight rate from 0.25 % to 0.5%.
This means that if you have a Variable Rate mortgage your interest rate just increased by 0.25%. The Prime Lending rate is now 2.5%
We have some great rates from Lenders offering Prime -0.6%, which right now is only 1.9% interest. Still a great interest rate!
How will HST affect Buying or Selling a Home in Ontario as of July 1st?
The new tax will take effect on July 1, 2010. The HST tax will effectively combine the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new “harmonized” total tax of 13% percent. This new tax will be applicable to many real estate services which hitherto only had one or the other tax applied.
- there is no HST tax payable on the sale of a resale home (residential).
- home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.
In a nutshell, after July 1, 2010, if you are a seller, there will be a 13% percent tax payable on the real estate commission you pay – currently there is only the 5% percent GST payable on this fee. Your lawyer’s fee will also be subject to the 13% percent HST.
If you are a buyer, any Home Inspection you pay for will be subject to the 13% percent HST. And so will the cost of movers hired. In addition, the cost of the CMHC premium for “high-ratio” mortgages has traditionally been taxable for PST – this amount will now be taxable for the full 13% percent HST.
It will be interesting to see what the new HST tax does to our Housing Market in Ontario. Certainly affordability is going to be affected as legal fees, home inspection fees, mortgage insurance premiums, and real estate commissions will cost more. Add into the fact that the interest rates are on the rise, our market will inevitably be affected.
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The Bank of Canada announced yesterday that they would maintain their overnight rate at 0.25%.
This means that the Prime Lending Rate will remain for now at 2.25%. The next chance for the Bank of Canada to raise their rate is June 1st. It is expected at that time that they will start to increase the rate.
Variable Mortgage rates, which are tied to the Bank of Canada overnight rate and the Prime Lending Rate, remain unchanged as a result.
Lenders are currently offering 5 year Variable Mortgages at Prime – 0.5%. This means that you can lock in these terms for 5 years. The Interest Rate of 1.75% would be your interest rate now until the bank of Canada raises their rate. Then your interest rate would go up, probably by 0.25%. Your monthly (or weekly or bi-weekly) payment will also go up.
Current 5 year fixed rates are sitting at 4.39 %(best rate out of 30 lenders). Only if the Bank of Canada increased their overnight rate 10 times during the term (5 year), would you be paying equal to or more interest than a variable rate mortgage. Remember that a variable rate mortgage can always be converted to a fixed rate mortgage at any time during your term as long as you stay with the same lender.
Many people shopping for a mortgage are often confused about the advantages and disadvantages about a Fixed vs a Variable Interest rate on their mortgage.
By definition a Fixed Interest Rate does not change for the entire term of the mortgage. A Variable rate mortgage changes each time that the Lender’s Prime Rate changes. This is usually directly linked to the Bank of Canada Rate.
As of today, the Bank of Canada’s rate is 0.25, and the Prime Lending Rate is 2.25%. The next possible rate increase is April 20th. The Bank of Canada has 8 opportunities during one year to decide to raise their prime lending rate, or leave it unchanged. Experts currently are estimating that the Prime Lending Rate will start to rise by this summer.
Benefits of a Fixed Rate:
Easy to budget; your payment will remain constant for the term of your mortgage. Security; you can feel secure that your rate will not change for the term of your mortgage. This is usually the choice for First Time Homebuyers.
Cons of a Fixed Rate:
Potential loss of savings if you are paying more than the variable rate
Benefits of a Variable Rate:
Savings! Generally a Variable Rate mortgage will save you the most money in interest.
Ability to switch to a Fixed Rate; most variable rate mortgages are easily converted to a fixed rate at a point that the borrower chooses.
Lower penalty to break your mortgage; most Variable Rate mortgages have a penalty to break the mortgage equal to 3 months interest. Most Fixed Rate mortgages have a penalty that is the greater of 3 months interest or the Interest Rate Differential. Low fixed rates have been creating havoc in recent years where the Interest Rate Differential is costing borrowers thousands of dollars more to break their mortgage.
Cons of a Variable Rate:
Budgeting: your monthly payment may change, either go up or down, depending on the prime lending rate, so it is more difficult to budget your cash flow each month.
Risk; there is some level of risk if the interest rate rises. Thus it is important for a borrower who chooses a variable rate to be informed and watch the Interest Rates. You can also talk to your Mortgage Agent about watching the markets for you.
Most lenders will automatically offer you life insurance protection on your mortgage. This is different than Default Insurance. Default Insurance protects the lender if you do not meet your payments. Life Insurance is to protect the lender in case of death.
Life Insurance offered by the lender usually only will cover the amount owing on the mortgage, only benefits the lender (not your family), and decreases over time as your mortgage decreases (but your premiums stay the same).
Most mortgage and Insurance professionals agree that a better approach to protecting your estate in case of the untimely event of your death is to seek a Term Life Policy that will benefit your estate & your family, from which they can then choose to pay off the mortgage.
For more information on Life Insurance please visit the following pages for resources:
There are two types of Insurance to learn about relating to mortgages. The first one I am going to discuss is Mortgage Default Insurance. (also known as Mortgage Loan Insurance) This insurance is used by banks to protect themselves if you default (do not pay) on your mortgage payments.
The most common provider of Mortgage Default Insurance is “CMHC” The Canadian Mortgage and Housing Corporation. This is a government run company that supplies the Lender, usually at your cost, insurance on your mortgage in case you default. Default insurance is the “vehicle” that allows you to borrow up to 95% of the value in your home. Without access to default insurance, a lender will not go higher than 80% loan to value.
Other insurance companies in Canada that provide Mortgage Default Insurance include Genworth Financial, and AIG
Once a lender approves your mortgage; they then will submit it to an insurance company for acceptance. If the insurance company will not support the deal then it is likely the lender will turn it down.
Mortgage Insurance premiums are calculated on the total loan amount, and range anywhere from 0.5% to 6%.
On a $200,000 home with 5% down a typical CMHC premium would be 2.75%
Purchase Price $200,000
Downpayment $10,000 (5%)
Mortgage $190,000
CMHC Premium $5225
Total Mortgage Owing $195,225
You can save paying the Mortgage Default Insurance premium if you have 20% or more as a downpayment.
Effective July 1st, 2010 the Government is implementing the Harmonized Sales Tax in Ontario. This means that services that are currently NOT subject to Provincial Sales Tax of 8% will now be taxed. ….at a rate of 15% which is a combination of the current GST of 7% + Provincial Sales Tax of 8%.
Services that are part of the Home Buying process; Home Inspection, Appraisal, Real Estate Fees, Legal Fees, Moving costs etc; are currently only taxed at 7% GST. Starting July 1st these services will all be taxed at 15%. As a buyer you are going to be paying more for all of these services.
Buyers of new homes will receive a rebate of up to $24,000 regardless of the price of the new home.
This rebate ensures that buyers of homes priced up to $400,000 (about three-quarters of new homes built in Ontario) will, on average, pay no more – or possibly even less – tax than under the PST system.
For a full list of services that are affected CLICK HERE
Here are a few tips to keep in mind to ensure your credit is in good standing:
Pay your bills on time: always pay your credit cards, lines of credit, car leases, store credit cards etc. on time. Even if you make the minimum payment each month make sure you pay it on or before the due date. Never let any other items go into collections.
Check your credit report for accuracy and often-at least once a year request from Equifax or TransUnion a copy of your own credit report. Make sure that there are no items that you do not recognize. Unfortunately Identity Theft is a real problem in Canada; so you want to make sure that there are no accounts being opened in your name that you are not aware of.
Keep your credit card balances in check; never go over your maximum balance and wherever possible only use 75-80% of the available credit.
If you have no credit, or have a previous bankruptcy you will need to rebuild your credit score. But how can you do that if the bank will not approve you for a credit card? You can actually get a pre-paid credit card that will help you rebuild your credit. Ideally you want to have a few credit cards/store cards with approx $2000-$2500 of available credit which you are making the monthly minimum payments each month on time for about a year after bankruptcy to then start thinking about a mortgage.
Policy Changes to CMHC Self-Employed
CMHC is also announcing policy changes to the CMHC Self-Employed Product Without Traditional Third Party Validation of Income. Effective April 9, 2010, self-employed borrowers with more than 3 years in the same business and commissioned-income borrowers will be required to confirm their income and will not be eligible for the Self-Employed Product Without Traditional Third Party Validation of Income. This product is intended for a small portion of borrowers who find it very difficult to document income – in particular, recently self-employed borrowers. For the majority of self-employed borrowers, income validation is readily available through financial statements, contracts, T4s and other third party income validations. The changes will ensure that self-employed borrowers with third party income validation will benefit from a lower premium. Furthermore, the maximum loan-to-value ratio available under the CMHC Self-Employed Product Without Traditional Third Party Validation of Income will be reduced from 95% to 90% for purchase transactions and from 90% to 85% for refinance.
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