What You Can Expect When Locking in a Variable Rate

CoryVance • Mar 27, 2019

If you have a variable rate mortgage, and recent economic news has you thinking about locking into a fixed rate, here is what you can expect will happen.

Firstly, your lender will be very happy as they will now make considerably more money off you. Not only will your interest rate increase, but the cost of breaking your mortgage will increase as well.

Now, each lender has a different way of handling this process, but it’s very safe to say that regardless of which lender you are with, you will end up paying more money in interest, and potentially way more money if you have to break your mortgage.

Higher Rates

Fixed rates are always higher than variable rates. If you’re a variable rate mortgage holder, this is most likely the reason you went variable in the first place. The perception is that fixed rates are somewhat “safe” while variable rates are “uncertain”. It is true, as the variable rate is tied to prime, it can increase (or decrease) within your term. However, there are controls in place in Canada to ensure that rates don’t take a roller coaster ride. As the Bank of Canada has scheduled rate announcements, 8 times per year, and they rarely move more than 0.25% per move, it’s impossible for your variable rate to double overnight.

Increased Penalty

Obviously each lender has a different way of calculating the cost to break a mortgage, with the Big Banks being absolutely the worst, but a general rule of thumb is that breaking a variable rate mortgage will cost roughly 3 months interest or roughly 0.5% of the total mortgage balance, while breaking a 5 year fixed rate mortgage will roughly cost 4% of the total mortgage balance. So on a $500k mortgage balance, the cost to break your variable rate would be roughly $2500, while the cost to break your fixed rate mortgage could be as high as $20,000, eight times more.

Reasons People Break Mortgages

Did you know that 6 out of 10 Canadians will break their current mortgage at an average of 38 months? As we’ve discussed, locking in your variable rate to a fixed rate will increase the cost of breaking your mortgage. Despite our best intentions, sometimes life happens, and we need flexibility.

So here is a list of potential reasons you might need to break your mortgage.

Sale of your home (you have to move).
Purchase of a new home.
Access equity from your home.
Refinance your home to pay off consumer debt.
Refinance your home to fund a new business.
Because you got married (you combine assets and want to live together in a new home)
Because you got divorced. (you need to split up your assets and access the equity in your home)
Because you (or someone close to you) got sick.
Because you lost your job or because you got a new one.
Because you got relocated for work.
You want to remove someone from the title.
You want to pay off your mortgage before the maturity date.

Essentially, locking your variable rate mortgage into a fixed rate is voluntarily paying more interest to the bank, while giving up some of the flexibility to break your mortgage.

If you would like to discuss your personal financial situation, regardless if you have a mortgage or not, I’d love to talk with you. Please contact me anytime!

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CORY VANCE

403-614-9211

cory@coryvance.ca

Older Canadians Have Mortgage Options

By Cory Vance • 07 May, 2024

Although it’s ideal to have your mortgage paid off by the time you retire, that isn’t always possible in today’s economy. The cost of living is considerably higher than it has ever been, and as a result, many Canadians are putting off retirement, hoping to make just a bit more money to add to that nest egg. So if you find yourself in the position where you’re considering your mortgage options into retirement, you’ve come to the right place. The advantage of working with an independent mortgage professional instead of a single bank is choice. When you work with an independent mortgage professional, you won’t be limited to an individual institution’s products; rather, you will have access to considerably more options. Here are some options available to older Canadians as they plan for mortgage financing through their retirement. Standard Mortgage Financing If you’ve got a steady income, decent credit, and equity in your home, there is no reason you shouldn’t qualify for standard mortgage financing, which usually comes at the lowest interest rates and best terms. Some lenders use pension and retirement income to support your mortgage application even if you’ve already retired. Reverse Mortgage Financing A reverse mortgage allows Canadian homeowners 55 years and older to borrow money from their homes with no proof of income, no credit check, and no health questions. A reverse mortgage is a fabulous mortgage solution that has helped thousands of older Canadians enhance their lifestyle. Home Equity Line of Credit (HELOC) A line of credit secured to the equity you have in your home is an excellent tool to allow you to access money when you need it but not pay interest if you don’t need it. Many older Canadians like the idea of rolling all their expenses and income into one account. Private Financing If you happen to be in a bit of a tight spot, you have a plan but need a financial solution; private financing might be the answer. Indeed not the first choice for many because of the higher interest rates. However, private financing can provide you with options where a traditional bank can’t. If you have any questions about securing mortgage financing for your retirement, please connect anytime. It would be a pleasure to work with you and walk you through all your options.

What You Need To Know About Online Mortgage Calculators

By Cory Vance • 23 Apr, 2024

You’d think an online calculator is a pretty straightforward device, one that you should be able to place your confidence in, and for the most part, they are. Calculators calculate numbers. The numbers are reliable, but how you interpret those numbers, not so much, especially if the goal is mortgage qualification. If you rely on the numbers from a “What can I afford” or “Mortgage Qualification” calculator without talking to an independent mortgage professional, you’re going to be misinformed. Don’t be fooled. Even though an online mortgage calculator can help you calculate mortgage payments or help you assess how additional payments would impact your amortization, they’ll never be able to give you an exact picture of what you can afford and how a lender will consider your mortgage application. While mortgage calculators are objective, mortgage lending isn’t. It’s 100% subjective. Lenders consider your financial situation, employment, credit history, assets, liabilities, the property you are looking to purchase. Then, they will compare that with whatever internal risk profile they are currently using to assess mortgage lending. Simply put, they don’t just look at the numbers. An online calculator is a great tool to help you run different financial scenarios and help assess your comfort level with different payment schedules and mortgage amounts. However, if you rely on an online calculator for mortgage qualification purposes, you’ll be disappointed. The first step in the mortgage qualification process is a preapproval. A preapproval will examine all the variables on your application, assess your financial situation, and provide you with a framework to buy a property based on your unique circumstance. Securing a preapproval comes at no cost to you and without any obligation to buy. It’ll simply allow you the freedom to move ahead with confidence, knowing exactly where you stand. Something a calculator is unable to do. Please connect anytime if you’d like to talk more about your financial situation and get a preapproval started. It would be a pleasure to work with you.