After waiting in anticipation of a further cut to the overnight rate, the Bank of Canada announced last Wednesday that they were instead holding firm at 0.75%. Talk of a special announcement so shortly after January’s surprise cut, the first of its kind in five years, had the industry abuzz. We all assumed a further cut was in store, otherwise why the formal announcement? The BoC cited reasons for their hold strategy, specifically that the economy is performing as projected and no further corrective measures are needed at this time.
For the overall economy, this is certainly good news. But for owners of Toronto lofts hoping for a further reduction in mortgage rates, there was no doubt disppointement. Still, with mortgage interest rates already at record-lows, we can’t get too greedy.
But low rates aren’t an excuse not to do your homework. It’s important for all Toronto loft owners or those thinking about purchasing Toronto lofts for sale this year to stay on top of what’s happening with Canadian mortgages. James Harrison of mortgages.ca to tells us what this steadying of the interest rates means for mortgage holders and what you need to keep in mind in the coming months.
James tells us that because rates are already so low, we shouldn’t be deflated by the Bank of Canada’s announcement (or rather, “non” announcement). The reality is that banks may not have responded with further cuts of their own anyway–particularly, the big banks who were reluctant to respond to the last cut. They stepped up, eventually, but only after their hands were forced as they started to lag behind smaller lenders. The choice was clear–cut rates or lose customers.
But we’ve likely seen the most dramatic cuts already. If rates drop again, the differentials between big banks and smaller lenders is likely be less dramatic than in the initial round of cuts because there’s only so low lenders can go. That doesn’t mean there’s no marked differences between lenders however.
The trick in securing the best possible deal is not to accept posted rates on bank websites as the best rates. They are never best rates. Brokers’ sites like James’ at mortgages.ca on the other hand do typically show best rates and so make sure to read beyond the big five banks’ websites.
In terms of what a good rate is, if you’re set on fixed, James advises “not to accept anything above 2.69% for a 5-year fixed rate right now.” But James actually recommends clients go with a variable rate (see below) and to make payments as if it were a fixed product.
James reminds us to keep in mind though that the terms and conditions of the product are almost more important than the rate. If you don’t know much about mortgages, find a broker you trust to take you through those terms and conditions carefully.
Mortgage rates are highly unlikely to increase over the next few years. If anything, we could see a further cut before the year’s end if the Bank of Canada does decide to cut the overnight rate further. We have some clients asking us if they should wait until the last minute to secure their mortgage in case rates do drop again. In short, no.
Here’s the great news about buying a Toronto loft this year: rates are incredibly low. The bad news? It’s tougher to qualify for a mortgage. James advises his clients to get pre-qualified by providing income documents upfront before starting a loft search and to firm up your mortgage quickly after signing your purchase agreement. You don’t want to lose out on your dream loft because you can’t qualify for a mortgage nor do you want to lose out on a bidding war because you have a finance condition. And make no mistake, there are bidding wars happening on hot Toronto lofts. It’s not a phenomenon that’s isolated to Toronto houses.
James also reminds us that a signed agreement doesn’t mean that there isn’t room for further negotiation before the mortgage actually kicks-in. Most buyers are waiting anywhere from 30-90 days to take possession of their new home and if mortgage rates drop further during that time, you have the right to go back and re-negotiate with your lender. Ask your broker to do this for you if you’re using a Mortgage Broker.
With rates so low and projected to stay that way for several years, this is the time that most buyers should go variable. If you take the strategy of going with a variable rate but paying it down as if it were fixed, you can find yourself $5,000 to $10,000 ahead of the game before rates go up again. A small increase of just $100 a month goes a long way as it goes directly towards your principal instead of the interest.
The flexibility of variable also affords you more control over your mortgage. You can lock it in at any time or you can break the mortgage at any time with minimal penalty. Fees to break a variable rate mortgage are typically only three months interest penalty compared to fixed rate products where penalty fees can be into the tens of thousands. To learn more about what you qualify for and how you can save the most money while having the most flexibility, speak to a mortgage professional.
This one really comes down to dollars and cents. In some cases, it absolutely makes sense for you to break your current mortgage and switch in order to take advantage of low rates. In other cases, the math doesn’t make sense. You need to crunch the numbers to know for sure.
To start, find out how much it will cost you to break your current mortgage by reviewing your contract. Contact your lender if it’s unclear. Then, use any one of the online calculators available, including the mortgage calculator on our sister site condos.ca, to crunch various scenarios and see how much you’ll save over a new term at a new interest rate. And remember, you don’t necessarily have to switch lenders to switch your mortgage. James reminds us that:
“Your first step is to talk to a Mortgage Broker, then go into your bank to see if they’ll match the competitor offer and what they’ll charge you to make that switch. Negotiate a reduction in fees for staying with them and if they won’t reduce their fees, go back to that Mortgage Broker and work out your best option.
In most cases, a Mortgage Broker will save you thousands compared to your existing bank. And if you’re paying in full to break your mortgage anyway, you want to make sure that your new mortgage truly is the best available on the market.”
Image © njene from Shutterstock.
James Harrison, President of mortgages.ca, is an award-winning mortgage professional and one of the top mortgage brokers in Canada. His VIP status with all major Canadian lenders means that he’s able to leverage the best terms and rates for his customers. You can learn more at www.mortgages.ca and download the Mortgages.ca App for daily rate specials.