11 Aug

What is a 2nd Mortgage, and why are they so popular?

General

Posted by: Adam Sale

2nd Mortgages are rising in popularity

Over the last 2 months I’ve had several conversations with homeowners interested in finding alternative ways to unlocking their home equity to either purchase a rental property, or consolidate debts.

When rates were significantly lower last year it made sense for homeowners to refinance their property, take out equity, and take advantage of a lower rate. But now that fixed rates are at 4.59% or greater, it doesn’t make financial sense to refinance a property: pay the penalty for breaking a mortgage, and end up paying a much higher mortgage payment.

This is why 2nd mortgages and Home Equity Lines of Credit in the 2nd position are increasing in popularity. These mortgages are a cheaper option for homeowners to tap into their equity without having to pay a penalty or disturbing their current low monthly payment.

They operate like this:

Original Purchase Price $600,000
Original Mortgage amount $556,000
Current Home Value $750,000
Current Mortgage amount $500,000
Available Equity – (*80% of Current Home Value – Current Mortgage) $100,0000
  • When adding a 2nd mortgage or a Home Equity Line of Credit, we are only required to stress-test the new funds.
  • Generally, this makes the 2nd mortgage an available option as long as the value of the property has increased enough.

What is a 2nd Mortgage?

A second mortgage is like a regular mortgage except it is considered to be in the “2nd position” on the property’s title. Which means should the property be foreclosed on, the original mortgage would be paid out first, the leftover funds (if any) would go towards paying off the 2nd mortgage and then finally all the remaining funds would be distributed to the owner.

Because the 2nd mortgage is paid out after the original mortgage, the lender is assuming additional risk so they lend these funds out at a higher interest rate.

Even with the higher interest rate, a 2nd mortgage or a Home Equity Line of Credit in 2nd position is often a much cheaper option than the current costs to refinance a property.

If you are interested in exploring your options to tap into your home equity to either purchase an additional property or consolidate debts and increase your monthly cashflow please don’t hesitate to reach out.

Adam Sale Mortgages

778-215-4121

13 Jul

Key Points of Bank of Canada’s 1% interest rate increase

General

Posted by: Adam Sale

Key Points from Bank of Canada’s 1% Rate Increase

As I’m sure you’ve heard by now, the Bank of Canada increased they’re overnight rate by 1%, this will increase the Prime interest rate to 4.70%.

Below is a snippet of the monetary policy report & key points

Tiff Macklem discusses the Bank’s strategy 10:55 – 14:20

Key Points from the Report

  1. The Canadian economy is in excess demand and short supply, this is causing inflation to increase.
  2. To bring inflation back to the 2% target the Bank is raising interest rates to reduce demand.
  3. The previous strategy to raise rates over a 2-year period would’ve lead to prolonged inflation and the need to raise rates even further.
  4. Bank of Canada has decided on a new strategy to “Front-Load Interest Rates” in an attempt to stifle demand and allow supply to catch up.
  5. The Bank was not prepared for the global economy to rebound from covid so quickly, which lead to excess demand for fuel and created many supply chain complications.
  6. Once demand is reduced, this will alleviate stress on fuel & supply chains and we should see inflation come back down.
  7. Expect a few more months of inflation in the 8% range before it begins decreasing.

Looking forward:

The Bank considers the neutral range of the overnight lending rate to be between 2% & 3%. Today’s rate increase is putting us right in the middle at 2.5%.

Tiff Macklem has said in the report he is considering raising the rate again to the upper bound (3%) or even slightly higher (3.25%). In the future I think its safe to say we can expect another (0.50% – 0.75%) rate hike.

Where’s the Opportunity?

If you have clients looking to purchase, renew or refinance the best mortgage rates are still being found at the Credit Unions for Fixed Rates and Monoline lenders for Variable rates.

Prospera Credit Union is still offering their 1-3 years fixed interest rates in the 4% range, and a 5-year fixed special at 4.99%

First National Financing has the best variable rate on the market at Prime – 0.90% for an insured mortgage.

If you would like to know more, lets connect!

Adam Sale Mortgages
778-215-4121

13 Jun

5% Fixed Mortgage Rates on the Horizon

General

Posted by: Adam Sale

Fixed Mortgage Rates Continue to Climb

Fixed interest rates keep climbing and they are not showing any signs of slowing down. The bond yield determines the movement of fixed mortgage rates and as you can see from the image below the yield is increasing.

As of last week, we broke through the 3% level and are now charging towards bond yields of 3.60%.

If the bond yield maintains this level throughout the week we will see a sharp increase in mortgage rates by Friday and into next week.

Expect rates to move into the low 5% range across all fixed mortgage products.

The best rates on the market are being offered through credit unions. Credit Unions tend to be slower in increasing their interest rates when compared to the big banks.

Big Banks – TD, Scotia:

  • Insured: 4.84%
  • 3-yr:       4.64% – 4.69%
  • 4-yr:       4.74% – 4.84%
  • 5-yr:       4.84% – 4.99%
  • Variable: Prime – (0.20% – 0.40%)

Credit Unions – Coast Capital & Prospera:

  • Insured: 4.23% – 4.64%
  • 3-yr: 4.33% – 4.59%
  • 4-yr: 4.43% – 4.74%
  • 5-yr: 4.48% – 4.84%
  • Variable: Prime – (0.36% – 0.50%)

Are you thinking about purchasing or renewing your mortgage before October 11, 2022?

You can secure today’s low interest rate for the next 120-days. For more information let’s connect!

 

19 May

Mortgage Strategies for a High-Rate Environment

General

Posted by: Adam Sale

Mortgage Strategies for a High-Rate Environment

Mortgage rates have risen sharply across all mortgage products and lenders. Identifying the correct strategy and opportunity between lenders will get you a fair mortgage rate without paying additional interest.

Banks Vs Credit Unions – Over the last 4 months of heavy rate increases I’ve noticed the Big Banks are increasing their mortgage rates much quicker than credit unions.

As of May 19, the big banks are advertising their insured 5-year fixed rates around 4.39%-4.45% while Credit Unions are still offering their 5-year fixed insured mortgage rates at 3.68% – 4.04%.  

Short-Term Strategy – Depending on the borrower’s risk tolerance, there are great fixed mortgage rates in the 1-year & 2-year terms when compared to 5-year terms. These shorter terms give the borrower the benefit of a lower fixed payment, but compels them to come to market and renew their mortgage much sooner.

For borrowers believing interest rates wont go much higher than what they are currently at, or they believe rates will smooth out by the time they need to renew, then these short-term mortgages are an excellent priced option.

Credit Unions are pricing the insured 1-year & 2-year fixed at 2.98% & 3.30%

Variable Rates – Over the last 4-months we’ve seen the discount on Variable rate mortgages decrease from Prime -1% to about Prime -0.70%, and as low as Prime -0.35%.

The Prime rate is currently at 3.20% and is expected to increase throughout this year and next year. If the borrower likes the idea of being able to exit their mortgage with minimal penalties this could be a suitable option for them.

Personal Opinion – If I were purchasing a property and expecting to live in it for the next 3-5 years I would strongly consider a credit union first and then look at either a 2-year or 3-year fixed term. In the past, rate cycles generally lasted 24 to 36 months.

Do you have a mortgage question? Let’s connect!

13 Apr

Bank of Canada Increased Overnight Rate by +0.50% → Still below 2019 rates

General

Posted by: Adam Sale

Bank of Canada Increases Overnight Interest Rate

Where’s the best deal? Where do we go from here?

Bank of Canada Increases Rates by 0.50% → Still lower than 2019 rates – Watch Video

Bank of Canada increased their overnight lending rate to 1.00%, this is still 0.75% lower than pre-pandemic levels.

This rate hike will increase the lenders’ Prime rate from 2.70% to 3.20%. The pre-pandemic Prime-Interest rate was 3.95%.

Even with the future anticipated rate hikes, the variable rate mortgage is still an excellent deal when compared with the current fixed rate mortgages. Some lenders are still offering variable rate mortgages @ Prime – 1.00% (3.2% – 1.00% = 2.20%)

For those clients wanting a great mortgage rate as well as a fixed payment there are options available with a shorter term (2 & 3-year) fixed-rate mortgage, or consider a Capped Variable Rate Mortgage.

Fixed-rates reclaimed pre-pandemic levels last week and are finally showing the first signs of resistance from raising higher.

It is worth noting that the Bank of Canada’s goal is to reach an average inflation target of 2% over a 5-year period. It is possible we will see one more aggressive rate hike in the near future, but I am anticipating the bank will wait to see the affects these rate hikes have on the economy. It takes 3-6 months for the economy to absorb a Bank of Canada rate hike.

I am available for any financing and strategy questions.

Best,
Adam Sale Mortgages
778-215-4121

8 Apr

What are Government Bonds? How do Bonds affect Mortgage Rates?

General

Posted by: Adam Sale

What are Government Bonds?

Government bonds are essentially I.O.U’s issued by the government to fund their public programs. These I.O.U’s provide a great option for investors with excess cash looking for a safe place to park their money to generate a return on their investment (rate-of-return). Because bonds are backed by the Canadian government and the government has never defaulted on their debt, these bonds are considered to be risk-free.

  • A bond is sold in various durations, from 1-year up to 30-years.
  • The rate-of-return a bond provides is called the bond’s yield.
  • The bond’s yield is determined by two components: the bond’s price, and the bond’s coupon rate.

The bond’s price is the amount an investor will pay for the bond, and the coupon rate is the amount of interest the bond will pay the investor annually. When you account for the bond’s price and the coupon rate, we have the rate-of-return the bond provides, also known as the bond’s yield.

When inflation is higher than the bond’s yield, a smart investor will not purchase the bond because they understand their money’s purchasing power is decreasing with this investment.

For a bond to be competitive in a high inflation market, the bond yield needs to exceed the rate of inflation. To achieve this, the bond’s price needs to decrease, or the bond’s coupon rate needs to increase, or both.

How do Government Bonds affect Mortgage Rates?

Over the last 6-months (November 2022 – April 2022) we’ve noticed inflation exceeding Bank of Canada’s average target inflation rate of 2%. The bond market is reacting accordingly and bond prices are dropping which is causing bond yields to increase. Since fixed mortgage rates are positively correlated with bond yields, any increase to bond yields means an increase to fixed mortgage rates.

Links to Current Bond Yields

28 Mar

How to Keep Your Purchasing Power!

General

Posted by: Adam Sale

How I help my clients keep their purchasing power even during increasing stress-test requirements!

If you know anybody doing a pre-approval and is looking to qualify for the largest amount possible, please have them speak with me to avoid qualifying at the increasing stress-test requirements.

Fixed mortgage rates have exploded over the last month and now the DREADED stress-test is rearing its ugly head and is once again decreasing borrowers’ purchasing capabilities.

Quick Recap: the stress-test requires a borrower to qualify for a mortgage using the benchmark rate of 5.25% or the mortgage rate + 2%, whichever is greater.

5-year fixed mortgage rates have increased by 0.75% in the last 2-months and range from 3.49% to 3.79%. If a borrower wants a 5-year fixed mortgage they must now qualify at a 5.49% – 5.79%.

A few ways for your clients to avoid decreasing their purchasing power is to get pre-approved for:

  1. A variable rate mortgage
  2. A shorter-term mortgage (3-years or less)
  3. Use a credit union that is not required to comply with the federal stress-test guidelines.

This is just one of the ways I help my clients navigate the mortgage process!

3 Feb

Increase Your Client’s Rental Property Purchasing Power Instantly!

General

Posted by: Adam Sale

Increase Your Rental Property Purchasing Power Instantly!

Purchasing a rental property is an excellent way to create wealth in real estate, and finding the best mortgage solution is necessary in making this investment a success!

To qualify for a rental mortgage the borrower is relying upon rental income to offset their expenses on their new purchase. The amount of rental income allowed in the calculation depends on the bank.

Typically, most banks allow only 50% of rental income to be used in the mortgage calculation.

However, there are a select few lenders allowing 80%, and in some cases even 90%, of rental income to be used in the calculation!

On a property expecting to earn rental income of $2,600/m, increasing the allowable rental income from $1,300 (50%) to $2,080 (80%) will increase the average borrowers purchasing power by over $100,000.

This is a massive increase in purchasing power, and could give you a competitive advantage when writing offers on properties.

If you’d like to learn more about these lenders and explore your maximum lending amount you can contact me via email or by phone @ 778-215-4121.

8 Dec

Bank of Canada holds benchmark interest rates steady in final decision of 2021

General

Posted by: Adam Sale

Bank of Canada holds benchmark interest rates steady in final decision of 2021

The Bank of Canada made its eighth and final (scheduled) interest rate decision of the year and for the eighth time, left its overnight benchmark unchanged at 0.25%.

Outlook: Stimulus continues

The Bank continues to expect CPI inflation to remain elevated in the first half of 2022 and ease back towards 2% in the second half of next year.

The Bank’s Governing Council noted that in view of ongoing excess capacity, the economy continues to require “considerable monetary policy support.” Accordingly, it remains committed to holding its policy interest rate at the effective lower bound until economic slack is absorbed so that the Bank’s 2% inflation target is sustainably achieved.

In the Bank’s October projection, the inflation target would be sustainably achieved “sometime” in the middle quarters of 2022. It did not provide further updates to this timing. Consequently, the market is left to speculate about when rates will rise.

The Bank did note, however, that it will continue to provide the “appropriate degree of monetary policy stimulus” to support the recovery and achieve its inflation target.

Time to borrow?

With the benchmark rate unchanged – for now – but signs of a coming shift in monetary policy, it pays to think proactively about your property financing plans for 2022.

Please note this article has been condensed for quicker reading from First National Ltd. To view the full article please visit First Nationals Bank of Canada Update

29 Sep

How to Purchase a 2nd Home with a 5% Down-Payment

General

Posted by: Adam Sale

How to Purchase a 2nd Home with a 5% Down-Payment

Did you know you can purchase a 2nd home or a vacation property with as little as a 5% down-payment?
That’s right, these mortgage products are available to home-owners, renters and first-time home buyers!

Why don’t more people take advantage of this program?

Lack of knowledge on insured mortgage programs. Of the 3 mortgage insurance companies, Sagen is the only company actively promoting their 2nd home mortgage program.
Most people are unaware this program exists, or are misinformed and were told mortgage insurance products are reserved only for first-time home buyers.

Is there a catch with this program?

There is no catch, but adhering to mortgage insurance policies can be stricter than banking policies.

For example, these are Sagen’s policy requirements:
  • Maximum amortization is 25-years
  • Maximum purchase price is $1 Million
  • Minimum down-payment: 5% on first $500k, 10% on $500k – $1 million
  • Income must be able to debt-service both homes (Mortgages, property taxes & heat)
  • Rental income is not allowed in the mortgage calculation

Affordability Strategies

To unlock additional mortgage qualifying room for this program it may be necessary to re-arrange outstanding debt obligations. Two well used strategies are:

  • Refinancing your current mortgage to take advantage of lower rates and/or extend the amortization
  • Consolidating car loans, credit cards or outstanding lines of credit into a single low-interest debt payment.

Want to learn more about this program?

Contact Adam Sale Mortgages @ 778-215-4121 or adamjsale@gmail.com