PURCHASING/QUALIFYING FOR A MORTGAGE
1. Should I wait to purchase till things settle down?
While we saw home sales reduce (lowered supply AND lowered demand), in Vancouver for the most part, this has not yet impacted home prices. If you are in the market to purchase, particularly for a home for yourself (versus a rental that involves speculation), we recommend getting pre-approved and being ready to move quickly if a home comes up for sale that fits your criteria. Rates are at near record lows after initially increasing in March as a reaction to the pandemic.
2. Will rates come down?
While it is certainly possible, rates are at near record lows. In terms of overall costs, waiting for potential rate decreases may mean a higher cost overall if you have to spend more on a potential home if prices have increased while you wait for rates to decrease.
3. Should I consider a variable mortgage now that rates are so low?
This mostly depends on your priorities/needs and what offers are available at the time. The main benefit of variable mortgages is they are often lower than fixed rates and the penalty for breaking your mortgage term early is a lot less compared to a fixed term, in most cases. You can also lock into a fixed term with most lenders if rates begin increasing. Currently, the rate options for variable terms aren’t as strong as they were a few months ago (ie. Prime – 0.20% compared to Prime – 0.80%), but because Prime rate is so low, currently 2.45%, the rate you receive is very enticing (Prime – 0.20% = 2.25%). The expectation is Prime rate will remain low for the foreseeable future, so variable rates are worth considering if they fit your needs.
4. Are lenders looking at mortgage applications differently?
Lenders are looking closer at income. While it doesn’t mean you won’t qualify if you are currently not working (but expect to be back at work soon), it may mean they want to see confirmation up front that you are returning to work, or have returned to work. It’s good practice to have your documents reviewed up front regardless, so this hasn’t really resulted in any change to the general process for most Mortgage Brokers.
PAYMENT RELIEF/MORTGAGE DEFERRALS
5. Should I request a mortgage deferral, even if I don’t need it?
A mortgage deferral is exactly that, interest continues to accrue and the amounts deferred will be added on to your mortgage balance. It is best to continue to make payments if you are able to do so. In some cases, it may make sense to defer, for example we had one client who deferred her payments and used the $12k to do a home improvement that will bring in additional revenue (rental suite). As her mortgage interest rate is < 3% it made sense to do this rather than borrow money from other sources with higher interest rates.
6. Will deferring my mortgage payment (or credit card payments) impact my credit rating?
Lenders have advised that the credit ratings for clients who request deferrals due to COVID will not be impacted. The same applies for student loans and credit cards (if you have formally requested a deferral).
7. Are all lenders automatically offering a six month deferral? Should I take the full six months?
Be aware that you do not necessarily have to take six months, nor may need this much time. Some of the big banks have the online deferral automatically set to six months. They advise that, after your deferral is set up online, you can call in to request a shorter time. You may only want two or three months initially, and then decide if you need more time. There are increased wait times to reach some lenders which could impact your decision to make a deferral timeframe adjustment; however, it may be in your best interest to take less time now, if you will be able to restart payments sooner. Other lenders are treating each request individually and setting a specific time frame with you.
RENEWALS and REFINANCES
8. Will lenders expect me to qualify when my mortgage is up for renewal later this year/next year?
If you have made your payments on time, and are not changing your mortgage details (ie. amount, amortization, etc…), you normally do not have to re-qualify at renewal to stay with your current lender. However new rules brought in over the last few years mean you must re-qualify to move your mortgage to another lender. It is always worth it to explore this option to make sure you are getting the best offer at that time.
9. Should I early renew or refinance now? Is it worth it to pay the penalty and go into a new mortgage term?
Sometimes it may make sense to early renew or refinance, and pay the penalty to go into a new mortgage now at today’s low rates. This will depend on factors such as: what your current rate is, what today’s rate is and what the potential penalty is for breaking your existing mortgage term.