The clock is ticking for buyers and homeowners who want to grab a low mortgage rate in 2014. But if you stay on top of your game, keep your finances in order and act quickly, you can still grab attractive mortgage deals.
These 10 mortgage tips can help you with your mortgage decisions in 2014.
1. Document your finances. Lenders will be extra diligent when underwriting home loans in 2014, as new mortgage regulations went into effect in January. The rules put pressure on lenders to verify that borrowers have the ability to repay their loans.
Keep good records of your finances, including bank statements, tax returns, W-2s, investment accounts and any other assets you own. Be ready to explain any unusual deposits to your accounts. Yes, the $500 that Grandma deposited in your account for Christmas could delay your loan closing if you can't prove where the money came from.
2. Lock a rate as soon as you can. Rates will likely climb in 2014 as the Federal Reserve is expected to reduce the pace of the economic stimulus program that has long helped keep rates low. If you are planning to get a mortgage, lock in a rate as soon as you are comfortable with the numbers.
3. Refinance now - if you still can. Many homeowners lost the opportunity to refinance at a lower rate when rates jumped in 2013. But those who are still paying more than 5 percent interest on their home loans might still have an opportunity.
If you think you may be able to save with a refinance, but you are not sure, it doesn't hurt to try. Speak to a loan officer and take a look at the numbers to see if refinancing still makes financial sense for you after you consider how long it will take to break even with the closing costs.
4. Buyers, use your bargaining power. As mortgage rates climbed, lenders lost a big chunk of their refinance business. In 2014, they will turn their attention to homebuyers and will fiercely compete for their business. Buyers should take advantage of bargaining power they gain with that increased competition. Shop around for the best deal and look beyond the interest rate on the loan.
5. Learn your rights as a borrower. Mortgage borrowers will get many new rights as consumers this year when new mortgage rules created by the Consumer Financial Protection Bureau go into effect in 2014. If you run into issues with your mortgage servicer in 2014 or fall behind on your payments, make sure you are aware of your rights and put them to use.
6. Take good care of your credit. It's nearly impossible to get a mortgage without decent credit these days. That will continue to be the case in 2014. If you are planning to get a mortgage, monitor your credit history and score until your loan closes. The best mortgage rates usually go to borrowers with credit scores of 720 or higher. You may still get a mortgage with a score of 680, but lower scores will mean higher rates or higher closing costs.
7. Don't overspend. Lenders don't want to give out loans to borrowers who will have little money left each month after they pay their mortgages and other debt obligations such as credit cards and student loans. If that becomes the case, the lender will tell you that your DTI, or debt-to-income ratio, is too high and you don't qualify for a loan. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43 percent of your income.
8. Consider alternative mortgage options such as ARMs. Mortgage rates are rising, but there are alternatives to grab a lower rate, depending on your plans.
A homeowner planning to keep a house for seven to 10 years could take advantage of lower mortgage rates by choosing a seven- or 10-year ARM instead of the 30-year traditional fixed-rate mortgage. Rates on adjustable-rate mortgages can be as much as 1 percentage point lower than on fixed-rate loans.
If you are not sure for how long you plan to keep the house, a fixed-rate loan is probably the better choice.
9. Considering an FHA loan? Reconsider. FHA loans have long been popular among first-time homebuyers because they require low down payments and have somewhat less strict underwriting standards than conventional loans. But they come at a price. Mortgage insurance premiums on FHA loans are likely to continue to rise in 2014, and after recent changes, the borrower is now required to pay for mortgage insurance for the life of the loan. Try to qualify for a conventional loan before you apply for an FHA mortgage.
10. Don't panic. Yes, mortgage rates will likely climb in 2014. But don't panic, thinking you have to buy a home now to grab a low rate. If you are shopping for a home, do your best to move quickly, but remember that this is one of the biggest financial decisions of your life. Get your mortgage and buy your home when you feel ready.
Will Foreign Investors Leave Vancouver
The federal government may just has answered the prayers of many B.C. residents and their real estate professionals with its move to put the kibosh on a controversial program tying immigration to investment.
Still, Vancouver real estate agents say property prices could take a serious hit after Canada eliminates a program allowing wealthy immigrants to bypass the visa process.
Originally launched in 1986, the Immigrant Investor Program offered visas to foreign investors with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government for investment across Canada for a term of five years.
However, the program was temporarily halted in 2012. This was due to a huge backlog of applications from wealthy investors from mainland China hoping to immigrate to B.C. and actively invest in its real estate. Now, the federal government announced it will scrap the incentive outright, eliminating 59,000 applications backlogged worldwide.
Losing the foreign investors could potentially be damaging to B.C.'s real estate markets, particularly Vancouver, which is often reliant on interest from foreign buyers. This, in turn, could also be damaging to Vancouver's economy.
"When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that's down," immigration lawyer Richard Kurland told CBC News.
But the move is just as likely to help the market as hurt it, say Canadian property investors and homebuyers long concerned that wealthy foreign buyers have inadvertantly driven up prices, particularly on B.C.'s Lower Mainland and in Toronto.
Still, Vancouver real estate agents say property prices could take a serious hit after Canada eliminates a program allowing wealthy immigrants to bypass the visa process.
Originally launched in 1986, the Immigrant Investor Program offered visas to foreign investors with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government for investment across Canada for a term of five years.
However, the program was temporarily halted in 2012. This was due to a huge backlog of applications from wealthy investors from mainland China hoping to immigrate to B.C. and actively invest in its real estate. Now, the federal government announced it will scrap the incentive outright, eliminating 59,000 applications backlogged worldwide.
Losing the foreign investors could potentially be damaging to B.C.'s real estate markets, particularly Vancouver, which is often reliant on interest from foreign buyers. This, in turn, could also be damaging to Vancouver's economy.
"When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that's down," immigration lawyer Richard Kurland told CBC News.
But the move is just as likely to help the market as hurt it, say Canadian property investors and homebuyers long concerned that wealthy foreign buyers have inadvertantly driven up prices, particularly on B.C.'s Lower Mainland and in Toronto.
How Higher Rates Might Affect Your Mortgage
Interest rates have been so low for so long that we barely raise an eyebrow about the warnings of higher rates ahead. But long-term interest rates might tick upward this year as the U.S. Federal Reserve cuts back on its economic stimulus which has kept rates low.
For the past five years, the Fed has been buying U.S. Treasury bonds every month by creating the money. It writes a cheque to buy the bonds which has expanded consumer credit, making it cheaper to borrow money.
The impact of the Fed’s action on Canadian homeowners is a gradual increase in long-term mortgage rates. This includes the five-year fixed rate mortgage, now among the most popular. In 2013, 82 per cent of new mortgages were fixed rate terms, according to the Canadian Association of Accredited Mortgage Professionals.
“We expect long-term rates to rise later this year, which will impact five- and10-year mortgage rates in Canada,” said Benjamin Tal, deputy chief economist at CIBC.
A homeowner who chose a five-year mortgage in 2012 would have paid 2.99 per cent. In 2013, the average was 3.29 per cent. That’s why it’s a good idea to take a look at how you might be affected by higher rates, especially if your mortgage will soon come up for renewal.
The idea is to prepare for the worst, says Robert McLister, editor of Canadian Mortgage Trends.
“At the very least, folks should run a couple of rate hike scenarios through a stress test calculator,” McLister said.
The goal is to ensure you can afford payments at that higher rate come maturity time.
“If the results look ominous given your budget, the time to strategize is now, well before maturity,” he said.
Here are some examples:
If you have a $300,000 mortgage at 3.49 per cent and rates rise by two points at renewal time it will cost you $274 more a month. At $400,000 it’s $365 more per month.
Here are some options if your payments are too high for you to carry at renewal:
Refinance: If you have to, extend the amortization. If you’ve worked it down to 20 years, say, increase it. This option generally requires at least 20 per cent equity in the home and it means you’ll be increasing your interest bill over the life of the mortgage. It’s a last-ditch thing to do, McLister says, but “it’s better than defaulting on your mortgage.”
Take a payment vacation: Some mortgages have a skip-a-payment feature. This is an alternative to extending your amortization.
Go shorter: Choose a shorter term with a lower interest rate and payment. That assumes you can handle the risk of rising rates when it comes time to renew again, but if you’re having cash flow problems, there’s a good chance you can’t.
Downsize: A last resort, maybe. But consider selling or renting out a portion of your home.
McLister says that if you find yourself in this position then maybe it’s time to sell and avoid the stress.
“If your budget is stretched, something will happen to stretch it further. It’s Murphy’s Law of borrowing,” he said.
While long-term interest rates may finally head up this year, the Bank of Canada remains committed to keeping short-term rates low. As the spread between long- and short-term interest rates widens, variable rate mortgages become more attractive.
“When long-term rates rise, more and more people look at variable rate mortgages,” said Tal.
For the past five years, the Fed has been buying U.S. Treasury bonds every month by creating the money. It writes a cheque to buy the bonds which has expanded consumer credit, making it cheaper to borrow money.
The impact of the Fed’s action on Canadian homeowners is a gradual increase in long-term mortgage rates. This includes the five-year fixed rate mortgage, now among the most popular. In 2013, 82 per cent of new mortgages were fixed rate terms, according to the Canadian Association of Accredited Mortgage Professionals.
“We expect long-term rates to rise later this year, which will impact five- and10-year mortgage rates in Canada,” said Benjamin Tal, deputy chief economist at CIBC.
A homeowner who chose a five-year mortgage in 2012 would have paid 2.99 per cent. In 2013, the average was 3.29 per cent. That’s why it’s a good idea to take a look at how you might be affected by higher rates, especially if your mortgage will soon come up for renewal.
The idea is to prepare for the worst, says Robert McLister, editor of Canadian Mortgage Trends.
“At the very least, folks should run a couple of rate hike scenarios through a stress test calculator,” McLister said.
The goal is to ensure you can afford payments at that higher rate come maturity time.
“If the results look ominous given your budget, the time to strategize is now, well before maturity,” he said.
Here are some examples:
If you have a $300,000 mortgage at 3.49 per cent and rates rise by two points at renewal time it will cost you $274 more a month. At $400,000 it’s $365 more per month.
Here are some options if your payments are too high for you to carry at renewal:
Refinance: If you have to, extend the amortization. If you’ve worked it down to 20 years, say, increase it. This option generally requires at least 20 per cent equity in the home and it means you’ll be increasing your interest bill over the life of the mortgage. It’s a last-ditch thing to do, McLister says, but “it’s better than defaulting on your mortgage.”
Take a payment vacation: Some mortgages have a skip-a-payment feature. This is an alternative to extending your amortization.
Go shorter: Choose a shorter term with a lower interest rate and payment. That assumes you can handle the risk of rising rates when it comes time to renew again, but if you’re having cash flow problems, there’s a good chance you can’t.
Downsize: A last resort, maybe. But consider selling or renting out a portion of your home.
McLister says that if you find yourself in this position then maybe it’s time to sell and avoid the stress.
“If your budget is stretched, something will happen to stretch it further. It’s Murphy’s Law of borrowing,” he said.
While long-term interest rates may finally head up this year, the Bank of Canada remains committed to keeping short-term rates low. As the spread between long- and short-term interest rates widens, variable rate mortgages become more attractive.
“When long-term rates rise, more and more people look at variable rate mortgages,” said Tal.
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