Getting a Mortgage in Calgary / Edmonton Alberta?
You’ve come to the right place. Dan Heon and the Canadian Mortgage Team Alberta has three decades of collective experience in local real estate investment. Below you’ll find answers to your questions about securing a mortgage in Alberta.
Why You Need a Mortgage Broker
More money in your pocket. It’s that simple.
Of course, there’s more to it. For starters, a broker will often get you a better rate than the bank. A bank will quote rates that bring them the greatest return. A broker on the other hand has access to discounted rates because they deal with multiple lenders in bulk. This affords them discounted mortgage rates (and concessions) which get passed on to you.
A broker also works for you, not the lender. You get a tough negotiator in your corner that will be more accessible through the entire home purchase process and beyond. Learn more on 4 Reasons Why You Need to Use a Mortgage Broker.
How and Why to Get Pre-approved for a Mortgage
Pre-approval does not guarantee you a mortgage, so should you bother? Absolutely! With no cost and no obligation, there are numerous benefits of a pre-approval, including the following:
- Assesses your qualifications (credit, etc.) as a prospective buyer.
- Determines how much you can afford.
- Provides a clear picture of your down payment, monthly payment, and ongoing financial strategy.
- Can lock in your 60, 90 or 120 day rate (assuming good credit continues).
- Provides the intent-to-buy that sellers and agents need to see to take your interest seriously and places negotiating power in your corner.
OK, you’re in. So how do you get pre-approval? That’s the easiest part. Simply complete this mortgage application form and someone from the Canadian Mortgage Team Alberta will follow-up with you within 24 hours. From there, the Dan Heon team will walk you through your pre-approval.
Choosing Between a Fixed and Variable Rate
While there are benefits of both sides, we tend to lean to variable rates. That being said, we want you to have all of the information. So let’s look at each.
Benefits of Variable Mortgage Rates:
- Historically, variable rates are lower. A York University study found that over the past five decades, nine out of ten Canadians paid less interest with variable rates.
- You can lock in a favorable (low) variable rate by converting it to a fixed rate when dealing with a lender who allows it (also known as an open variable rate).
- Lower penalties for breaking a mortgage.
- You can fix payments (with some lenders) so that only the amount towards your principal changes with a shift in the prime rate.
- As of October 2016, five-year fixed-rate buyers have to pass a stress test that ensures they will be able to carry their mortgage if rates rise. This now puts fixed rates in the same space as variable, but without the lower rate benefit. The one thing that set fixed rates apart has now been diminished.
Benefits of Fixed Mortgage Rates:
- Your interest rate (and thus mortgage payments) won’t change until it’s time to renew your mortgage. This provides a sense of comfort for buyers who don’t like risk.
Brokers expect the gap between fixed and variable rates to continue to widen this year and in the future. There are two reasons for this. For one, bond yields (the main financing cost of fixed-rate mortgages) are rising which will continue to hike up fixed-rate mortgages. Then there is the Bank of Canada’s benchmark interest rate (affects variable rates) which shows no sign of moving, leaving the prime rate in a prime position for you.
Difference Between a Closed and Open Mortgage
An open mortgage is a loan secured for a property that can be paid off without penalty at any time before its date of maturity. You can make unanticipated mortgage payments of any amount at any time without having to pay any sort of compensation. These mortgages traditionally carry higher interest rates. However, the flexibility that may cause you to pay the prime rate plus premium also allows you to move into a normal fixed rate mortgage if you decide variable rates aren’t a good match.
A closed mortgage is less flexible, in that you cannot pay off the loan without incurring a financial penalty. However, the interest rates are often lower as is the cost of borrowing. This is often an attractive option for those that embrace consistency. However, how comfortable are you in your current position? If a forced relocation or sudden change of career is a real possibility you may end up with far less money than anticipated because high break fees may eat up your equity.
Pros and Cons of a Reverse Mortgage
A reverse mortgage allows a homeowner to borrow against their home’s equity, while still maintaining ownership of the home. The practice allows seniors aged 62 and over to receive payments from the lender in the form of a lump sum, monthly installments, or via a line of credit. It is repaid when the borrower permanently moves from the residence, the property is sold, or the owner passes away.
Pros of a Reverse Mortgage:
- Provides a powerful source of non-taxable income for one’s retirement years.
- No monthly payments due during length of the loan. Fees (insurance premiums, interest charges, lenders service fees, etc.) are only due when the loan is paid off.
- Income can be applied to refocus other elements of recipient’s investment portfolio.
- Lenders cannot go after heirs for repayment of the loan if the home sells for less than what was borrowed.
Cons of a Reverse Mortgage:
- Fees (interest rate, loan origination, insurance, appraisal, title insurance, closing costs, etc.) are traditionally higher than standard mortgage fees.
- Traditionally decreases the equity of one’s estate, leaving less inheritance to heirs (where applicable).
While a homeowner remains responsible for paying property taxes, homeowner’s insurance, and maintaining the home, a reverse mortgage provides retirees with an opportunity to receive income that would otherwise be unattainable.
How to Decide Whether to Refinance a Fixed Rate Mortgage
Why would you want to refinance your fixed rate mortgage? If interest rates drop, you may want to do so to reduce your monthly payments. Makes sense. However, there are things you need to consider first:
- Closing costs will increase your principal. This is often 3% to 6% of the loan’s principal. Every time you redo anything on your mortgage new fees come into play. The lender, appraiser, and practically everyone else involved will charge some sort of refinancing fee which gets tacked on to the loan principal. However, your broker may be able to negotiate to your benefit. In fact, a broker may be able to get you lower-than-normal interest rates on your refinancing too.
- When you plan to sell is very important. The money you save on reduced monthly payments may not recoup what it cost you to enter into the new loan, especially when you consider that your first few new payments almost exclusively go to interest. If you plan on selling your home within two years of refinancing, you may actually owe more on the loan than you did in the first place.
- Do you trust your spending habits? Many people refinance to consolidate their debt. Replacing high-interest debt with a low-interest mortgage can be a good idea IF you are smart with your finances. If you can look at your monthly savings as just that, and not an opportunity to put that money back into the debt stream, then it makes sense. You will need to take a good look in the mirror if you are refinancing to reduce your overall debt.
Before making the decision to refinance your fixed rate mortgage, talk to the Canadian Mortgage Team Alberta.
Do you still have questions about securing a mortgage in Calgary, Edmonton, or anywhere else in the surrounding area? Contact Dan Heon and the Canadian Mortgage Team Alberta today!