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Mortgages for Investment Properties – What You Need to Know

Has the idea of buying an investment property ever crossed your mind?


Maybe you’d like a place to rent out and have someone else pay some or all of your mortgage while you build equity in a tangible real estate asset, or perhaps as a home for your child to live in.


Whatever your reason, investing in an additional property (or multiple properties) can be a good way to accomplish those goals, but there are also some key considerations before you dive in.


Aside from the potential challenge of finding a good tenant, there are some financing hurdles that you should be aware of.


Mortgage Rules for Investment Properties


While there are many Canadian lenders that will finance rental properties, the Department of Finance tightened mortgage lending criteria as part of its rule changes introduced in 2016.


That included eliminating mortgage default insurance, for certain mortgage types, including those for investment properties with less than 5 units.


As a result, you need at least 20% down to purchase a non-owner-occupied rental property. If you plan to live in one of the units, then you can put down as little as 5% (5% on the valued that is less than $500,000, and 10% on the portion above that amount).

Another factor to consider is the number of units the building has. Those with four units or less are typically zoned residential, so qualifying for a mortgage would be similar to the one on your principal residence. Multi-unit properties with five or more units are generally zoned commercial and involve a different type of qualification for a commercial mortgage, which I can advise you about.


Mortgage Rates for Investment Properties


Because the best mortgage rates are generally reserved for those putting down less than 20% or more than 35% of the property value, rates for investment properties (which require at least 20% down) are sometimes priced a little bit higher.


Most lenders will also upcharge at least 10 to 20 bps more for non-owner-occupied rental properties, as they entail some additional risk. For one, if the borrower came into financial trouble, they’re more likely to prioritize payments on their principal residence before payments on their rental property.


Fixed or Variable for an Investment Property?


This is probably the most commonly asked mortgage question for homebuyers, but it’s a particularly important consideration for investment property owners.


The majority of mortgage holders in Canada opt for the stability of a fixed mortgage rate—72%, or 4.45 million borrowers, according to the latest data from Mortgage Professionals Canada.


But many investment property owners will tell you that a variable rate is the way to go thanks to the flexibility they offer. One of the biggest advantages of a variable rate is a lower prepayment penalty of just three months’ interest should you need to sell or if you want to pay down your mortgage more quickly than the annual prepayment privileges permit.


I Can Help


Everybody’s situation is unique, and no advice applies to everyone equally. If you’re interested in exploring your options relating to buying an investment property, be sure to contact me and I can review your personal situation and offer custom-tailored solutions.


Call me today!

Deb Murdoch
(306) 222-7900
debm@mortgagegroup.com

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Mortgage Rates Are Rising. What Does it Mean for You?

Mortgage rates have spent the better part of the past year in near-freefall, with numerous terms setting fresh record lows.


But a couple of weeks ago, rates pulled a U-turn and have been starting to climb higher ever since. And here’s why. Since the beginning of February, 5-year Canada bond yields, which typically lead fixed mortgage rates, have surged. They’ve risen nearly 60 basis points over the past month to a 12-month high.


With funding costs being pushed up and margins being squeezed, lenders could no longer hold rates at those record-low levels.


As for why bond yields are rising—which often coincides with market optimism—the answer is multi-fold.


For one, yields have been soaring south of the border, and when U.S. bond yields move, Canadian yields often follow. Given expectations for rising vaccination rates and ultimately an end to lockdown measures and a return to normalcy, many see greater inflationary pressure ahead, which usually leads to rising interest rates to keep that inflation in check.

Bank of Canada Governor Tiff Macklem addressed rising bond yields in a speech last week. "To some extent, the back-up that we’ve seen in rates reflects the success of the fiscal stimulus, the monetary stimulus, combined with the rollout of vaccines,” he said.


Current Rate Increases Apply to Fixed Rates Only


It’s important to note that only fixed rate mortgage products are currently on the rise. Most lenders have increased rates on several key terms by anywhere from 10 to 30 basis points, again due to higher funding costs.


Variable mortgage rates, on the other hand, take their lead from prime rate, which rises and falls according to the Bank of Canada’s overnight target rate.


That rate is largely expected to remain as is for at least another year, or possibly two.

“We have committed to keeping our policy interest rate at the effective lower bound until economic slack is absorbed so that our inflation target is sustainably achieved," Bank of Canada Governor Tiff Macklem said last week. The Bank has repeated previously that it doesn’t see that happening until “into 2023.”


Keeping Things in Perspective…


Rates Are Still at Historic Lows


Despite the recent 10- to 30-bps rise in some rates that we’ve seen so far, it’s important to note that rates are still not far off their historic lows.


Consider that the lowest nationally available 5-year fixed rate was north of 3.00% just two years ago. Today, you can still find many terms available for under 2.00%.


Speak to a Mortgage Broker for More Insight


Are you considering refinancing or looking for a new mortgage and are concerned about rates trending higher? There are still plenty of options available to you, and I’d be happy to review them with you.


Call Deb Murdoch today!


Deb Murdoch

The Mortgage Group

306.222.7900

debm@mortgagegroup.com


www.debmurdoch.com




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Should I Refinance My Mortgage? - A note from Deb Murdoch

Should I Refinance My Mortgage?


I think we can safely say that 2020 has been a strange year. A year of lockdowns due to a pandemic, financial support from the government, and the lowest interest rates in recent history. This has led to a rise in the number of homeowners who are considering refinancing their mortgage. According to a recent poll, approximately 20% of Canadian homeowners say they plan to refinance their mortgage in the next 12 months.


Like all financial decisions, it’s important to look at the bigger picture, which includes reviewing your goals.


First Things First -- What’s a refinance?


A refinance alters the terms and conditions of your mortgage – it’s essentially a new mortgage. Specifically, you are increasing the amount of your mortgage, whether to pay off consumer debt, finance a renovation, invest, or to get a lower rate.


Here are a few reasons to opt for a refinance:


  1. Decrease your overall monthly debt payments by using the equity in your home to pay off those high-interest credit cards or unsecured loans.
  2. Lower monthly mortgage payments. A borrower may be able to lower their monthly payments by either securing a lower mortgage rate or by extending their loan term, which would spread their payments out over a longer time period. This can be important for those with a tight monthly budget and who are looking for additional financial breathing room.
  3. You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
  4. You could also take out some of the equity for investment purposes -- an option that many homeowners consider this time of year as they look ahead to the new year
  5. And there are more uses for your equity such as helping putting your kids through school.
  6. You can also finance a renovation or home improvements.

Repayment – What You Need To Know


Borrowing against your property is not free money – it’s a mortgage loan -- and like any other loan, it has to be repaid.


Speak to a Professional to Understand Your Options


There are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Let’s talk about your unique situation and the options available to you.


Call Deb Murdoch today!


Deb Murdoch

The Mortgage Group

306.222.7900

debm@mortgagegroup.com


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Revisiting Fixed Vs. Variable Mortgages

Revisiting Fixed Vs. Variable Mortgages


It’s the classic rate decision many mortgage shoppers are faced with. And it’s only been made more complicated since the start of the pandemic. Towards the latter half of 2019, variable rates were flying off the shelves with rates as low as prime – 1%. A lot has changed since then.


In March, fears over the COVID-19 pandemic and the subsequent lockdown forced most banks and other mortgage lenders to cut their fixed rates from 3.95% to 2.45% within the span of just one month. At the same time, variable-rate discounts were scaled back to just prime – 0.15% to 0.25%. By the summer fixed rates were setting historic lows. That led to a dramatic shift in mortgage selection by borrowers.


Why the shift in mortgage preference?


First, the fixed rate mortgage is among the most competitive mortgage products on the market. And many believe variable rates have no more room to fall, given that the Bank of Canada’s overnight target rate is holding at 0.25%.


Second, homebuyers are attracted to the stability that fixed-rates offer. They can lock in a rock-bottom rate for five full years.


The outlook


The Bank of Canada, in its recent Monetary Policy Report, suggested that rates won’t be rising until at least 2023, which is when inflation is expected to return to full capacity. Some forecasters, such as those at TD Bank, don’t expect the first-rate hike until 2024.

With forecasts like that both variable and fixed could be good options.


If you are in the process of shopping for a mortgage and are undecided whether to take a fixed or variable rate, I can help you understand the pros and cons and offer personalized solutions.


If you need additional information on this topic, please feel free to reach out to me at 306.222.7900 or debm@mortgagegroup.com



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Why it is important to get preapproved? Is preapproval the same as a ratehold?

Why it is important to get preapproved? Is preapproval the same as a ratehold?


Preapproval and ratehold are used interchangeably quite often but they can mean two very different things. It is dependent on how your mortgage broker manages them.
A true preapproval is complete when your income and down payment documents have been reviewed and your credit reviewed.


A ratehold is completed when the application is submitted to the lender. Sometimes, with rateholds, the income and down payment documents have not been reviewed.


Preapprovals with income and down payment documentation, have a much better chance of turning into an approval with the lender. It takes out the majority of the surprises in the deal. Part of our responsibilities as mortgage brokers is to review documents and look for any issues that might arise and to give advice on what is required in the documentation. There are even a few lenders that will actually underwrite the preapprovals which means they will review income and down payment docs upfront.


Being preapproved (correctly) will give you and your realtor the confidence to be looking in the correct range of purchase prices. It will alleviate wasting time looking at price ranges that are too high and reduce the stress at the time the offer has been submitted. Your documents for income and down payment will already have been collected and reviewed by the broker (and even perhaps the lender).


If you have been told that you have been preapproved but you have not provided any documents (income or down payment), then you need to ask what you need to provide in order to be confident that your income and down payment will be accepted.


If you need additional information on this topic, please feel free to reach out to me at 306.222.7900 or debm@mortgagegroup.com

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