Should I lock in?

Leah's Bottom Line: If you are debating whether to lock in or not, ask yourself: What was the prime rate at when I chose this product a few years ago? Let's assume it was 2007 and you chose a prime minus 0.6% variable rate mortgage. At that point in time, prime rate was 4.75% (meaning your rate was 4.15%) and you clearly qualified with respect to your financial situation at that point in time.

While most of us have gotten used to incredibly low interest rates, this isn't the norm. Prime rate has been at 2.25% for the last 11 months so when we hear that it will rise, we generally panic. However, you need to ask yourself "are you comfortable in your current financial situation to sustain an increase in prime back to where it normally is?" If prime rate has averaged roughly 4.81% over the last 5 years, and you have a built in discount of say, prime minus 0.6% - that means your rate would be 4.2% on average. Translated into a monthly payment via any mortgage calculator on the web and see if you are comfortable with that figure. This is roughly what your payments would have started out at back in 2007 if we use the above example. If something has changed in your life and you are no longer comfortable with that figure or you feel more secure in a fixed rate, you may want to lock in.

Leah

ARTICLE from Canadian Mortgage Trends:

With people banking on the main interest rate going up in June, it seems like a good time to for homeowners to lock in their fixed-rate mortgages.

About 12 percent of mortgage holders with fixed-rate mortgages "locked in," or switched from variable rate mortgages, in the past year, , according to a report this month by Will Dunning, chief economist at the CAAMP , and another 10 percent had already switched from variable more than a year ago.

The rate for conventional five-year mortgages was at 6.25 per cent at the end of April, nearing the 5.25 per cent rate at the end of May last year - the lowest since 1973 when the Bank of Canada data began.

"As interest rates rise, expect home buyers to increasingly opt for fixed-rate loans, in turn leaving banks with more fixed-rate assets to hedge in the swap market" said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto.

Housing starts rose to a seasonally adjusted annual pace of 201,700 units last month.

Spring Fever Newsletter

Now that we are into May, Calgary is in full spring fever mode, despite our current weather not being anything spring-like! First time home buyers are abound, seeking deals before their rate holds expire, while variable rates are becoming more enticing with steeper discounts for those ready to take on the added risk.

There have been a multitude of changes over the last several weeks which have come into effect and may affect you in an upcoming purchase. To fully clarify exactly what these changes are, I'll devote this newsletter to explaining the latest changes and how they may affect you.

Higher Interest Rate Used to Qualify Clients

*These rules affect Hi-Ratio Mortgage Holders (ie: those with less than 20% down payment) Old Rules: Previously, if you signed on for a 3 year fixed rate term at 3.65%, I would have qualified you for the mortgage AT 3.65%. The only difference would have been a variable mortgage; those mortgages have always been qualified on higher rates to protect you again future rate increase and most commonly the 3 year POSTED bank rate would have been used to qualify you. New Rules: In order to eliminate a surplus of clients in the next several years who are no longer able to afford their houses as their renewal rate in 3 years is much higher, the new rule is that all clients are qualified on the "benchmark qualifying rate" unless you are signing on for a 5 year or greater fixed rate term, in which case you are qualified at that rate. For fixed rate mortgages with terms of less than 5 years as well as all variable mortgages, you are qualified based on the benchmark qualifying rate. What is the 'qualifying benchmark rate?' As of today, the rate is 6.10%. CMHC defines the benchmark rate as the Chartered Bank - Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series "V121764" each Monday. Refer to the official link for the most up to date rate information. Leah's BOTTOM LINE: Based on a higher qualifying interest rate, borrowers will need approximately 25% more income in order to qualify for the same home compared to the old rules.

Rental Properties

Old Rules: Able to purchase a rental property with 5% down payment. New Rules: Requires 20% down payment for rental properties. As of April 19th, CMHC will also be implementing changes to the calculation of a borrower's Total Debt Service Ratio where rental income is generated from the subject property. 50% percent of the gross rental income from the subject property may be included into the borrower's gross annual income for the purposes of calculating the borrower's Total Debt Service Ratio. Leah's BOTTOM LINE: This is a more complex matter to explain, so I invite you to contact me directly to review your situation or alternatively, please read the CMHC link for more specific information.

	Re-financing Your Home
Old Rules: Previously able to re-finance up to 95% of the value of your home. New Rules: May only re-finance up to 90% of the value of your home. Leah's BOTTOM LINE: This will keep an additional 5% worth of equity in the home than before.