Government of Canada tweaks rules on mortgage qualification

Earlier this week, a few changes to mortgage qualification in Canada that would be implemented on April 19th, 2010 were announced by Finance Minister Jim Flaherty. These changes include an adjustment in the qualifying rate used in mortgage qualification, a reduction in the amount of equity Canadian Homeowners will be able to pull out of their homes, and an increase in the down payment requirement for those looking to purchase rental/revenue or investment properties.

Here's an explanation, and my take on these changes:

1. Borrowers will need to qualify using a 5-year fixed rate regardless
of what term they choose. If you want a 1.95% variable rate, for
example, you will need to show that you can afford payments at the
lender's 5 year rate. Since banks use their posted rates(normally at
least 1% higher than what you eventually get down to after
negotiating) to qualify potential borrowers, this change will have a
much greater effect on them as opposed to some of the lenders
available through mortgage brokers(who only have 1 fully discounted rate
available). While it has not yet been clarified as to whether ALL mortgage lenders will be required to use the same rate, my understanding is that each lender will be using their own posted bank rate.

2. No longer will you be able to refinance your home to 95% of it's
value. 90% will be the new refinance maximum. The bad thing about this
change is that homeowners will no longer be able to replace as much
high interest credit debt with relatively lower interest mortgage
debt. The good news is that upon sale, you will be more likely to have some equity left in the home.

3. People buying non-owner occupied rental properties will need to put
down 20% to get an insured mortgage, versus 5% previously. The idea
behind this move is to reduce speculative purchasing in the Canadian
Market, and provide more breathing room to investors in the event of market property value swings.

Keep in mind that these changes will only take effect on April 19th,
2010 --meaning buyers still do have a little time to get into a
home/refinance/buy an investment property before things change. One
thing of note however, is that most mortgage lenders in Canada are
likely to implement these changes BEFORE April 19th in order to ensure
that all files are being underwritten in accordance with the new
legislation on the effective date of change.

For more information regarding these changes, call one of the qualified mortgage professionals at Alberta Mortgage @ 780-479-2222 or visit www.albertamortgagecentre.com today.

Fixed Rates Continue Downward Trend

Five Year Fixed Rate mortgage interest rates continue to fall this week down to 3.89%,* further increasing affordability for existing and prospective Canadian home owners. Similarly, recent downward pressure on the Variable Rate side has led to the resurrection of the "Prime -" mortgage.

As the Canadian economy continues to recover from the economic downturn, look for even more competition in the Variable Rate market, further increasing affordability for Variable Rate Mortgage holders. However, many are forecasting that a recovered market will also mean significantly higher fixed mortgage interest rates. For more information about interest rates, and to get pre-qualified, contact one of the qualified mortgage professionals at Alberta Mortgage at 780-479-2222 or Apply Online @ www.albertamortgagecentre.com
.

* subject to qualification criteria.

Protect the Equity in Your Home

With real estate values having declined by as much as 20%, some Albertan home owners are finding themselves carrying mortgages that are equal to and in some cases even larger then their property values. In this type of scenario it is very important for home owners to bring down the principal portion of their mortgage as fast as possible in order to create some equity in their homes in order to build a nest egg or even refinancing opportunities for the future. There are many strategies that home owners can use to quickly and effectively bring down the size of their mortgages. Below, we will outline a few simple strategies that can pay dividends for years to come.

1. Increase the frequency of your payments
When choosing a payment scheme, make accelerated bi-weekly payments in order to get a "free" principal reduction which would be equivalent to one full mortgage payment every year, painlessly.

2. As income rises, raise your mortgage payments.
While disposable income is fun to spend, putting it towards your mortgage will save you a lot of money in interest payments which will be even more fun to spend in the future.

3. Round your payments up, instead of down.
Over time, by making even extra nominal payments of $20 to the principal, the amount of interest that you will be saving yourself from will amaze you.

4. If mortgage rates fall, don't reduce you payment scheme
If so far, you the payment amount has not been an issue of concern, then there is no benefit in reducing the payment amount. However there is a downside to reducing your payment being that interest payments will grow.

By taking advantage of these easy to use options available in most mortgages (as well as some other simple strategies)arranged by the mortgage professionals at Alberta Mortgage, home owners can save themselves hundreds and even thousands of dollars in interest on their mortgages. In addition to these simple strategies, with the help of one of a qualified mortgage professional at Alberta Mortgage you can save tens of thousands of dollars in interest without making any significant changes to your existing spending patterns. To find out more, call one of the mortgage professionals at Alberta Mortgage at 780-479-2222, or visit www.albertamortgagecentre.com.

Do Fixed and Variable Rate Mortgages Move in Unicen?

As we near the announcement of the Canadian Federal Budget next week, many potential and existing homeowners are expecting interest rates to drop --significantly. Accordingly, many people are similarly predicting mortgage interest rates to drop comfortably. While this prediction may come true, it is possible for the Bank of Canada to decrease its Prime Lending Rate without having any impact on Fixed Mortgage Interest Rates.

The reason a drop in the Bank's Prime Lending Rate does not necessarily equate to a drop in Canadian Mortgage Lenders' available Fixed Rate Mortgages is because the two are generally affected by a different set of factors, are designed to accomplish somewhat different objectives, and are controlled by an altogether different set of parties.

The Prime Lending Rate is a reflection of the Bank Canada's Overnight Lending Rate --which is the rate at which financial institutions are able to access short term funds. The Bank of Canada works with the Government of Canada to achieve targeted objectives set out by the Minister of Finance and Parliament. As a result of this relationship, the Prime Rate is often set in a way to maximize its positive effect(s) on the economy.

In contrast, Fixed Rate Mortgages are based on the Canadian Bond Market and therefore functions in response to market fluctuations and activity. As a result of this discrepancy between Fixed and Variable Rate Mortgage Interest Rates, it is possible for both to be moving in opposite directions --such as when the Government is looking to curb inflation while companies are seeking out capital investment.

For more information about Fixed and Variable Rate Mortgages, contact one of the qualified Alberta Mortgage Professionals or visit www.albertamortgagecentre.com or call 780-479-2222.

Debt Consolidation Mortgages: How do they work?

What is debt consolidation?

Debt consolidation (in the context of a real estate) is when an individual converts their high interest, short term debt (credit cars, personal loans, unsecured loans, car loans, etc) into a lower cost loan in the form of a mortgage or secured line of credit. The money that is used to replace the high interest debt comes in the form of a loan registered against the borrower's property for the value its existing equity. Through debt consolidation, individuals can drastically reduce their monthly payments and overall cost of debt and simplify their lives by replacing a multitude of payments with a single monthly pre-authorized mortgage/interest payment.

Can anyone get a debt consolidation mortgage/line of credit?

Debt consolidation mortgages and lines of credit are only available to individuals who already own real estate, and have some established equity in the property. If you own your own home and have some existing equity, you can possibly qualify for a debt consolidation loan --regardless of your current credit situation. If you own a home, you can qualify!

How does a debt consolidation mortgage/line of credit really work?

Lets say that you as an individual have $312,000.00 in debt ($250,000 mortgage, $40,000 in car loans, and $22,000 in credit card debt), which has a total monthly payment of $2913.67

After consolidating the same debt with a new mortgage at even 5.75%, the same $312,000.00 of total debt would have a mortgage payment of $1950.07

By consolidating your debt in this example, you save $963.60 each month without making any changes to your lifestyle or spending patterns! If you were to set aside $500.00 of the $963.60 saved each month, by the end of your 5 year mortgage term, you will have saved $30,000.00 without making any spending cuts, and actually having an additional $463.60 to spend each month!

With these savings in hand, you can not only save money each month on payments, but you will also be protecting your credit rating, reduce your interest expenses and have the ability to better your lifestyle and save for the the future.

If you own your own home, these savings can become a reality!

For more information about debt consolidation and mortgage refinancing, call one of the mortgage brokers at Alberta Mortgage at 780-479-2222 or visit www.albertamortgagecentre.com

Tips for minimizing the cost of your mortgage in today's economy: (renewals)

If your mortgage is coming up for renewal, there are a variety of strategies that you can and should employ in order to minimize the cost of your mortgage at the time of renewal. This article will provide you with a pair of simple strategies to employ at renewal time that will help you save money, and get a mortgage that will best meet your needs.

1. Learn about the available mortgage rates and products. Perhaps the most important thing to do at renewal time is also the simplest --shop around. Most Canadian Homeowners simply renew their mortgage with their current mortgage holder without first finding out what other rates or products are available to them. As a result, homeowners may end up with a higher interest rate, or with a mortgage product that does not provide options that will best meet their needs. When renewal time approaches, being educated it is just as important as it was when you first got your mortgage.

2. Assess your own financial and personal situation and determine whether this would be a good time to refinance, instead of simply renewing. Most Canadian homeowners have mortgages with closed terms because they generally offer lower interest rates. However, one drawback with closed mortgages is that they often have prepayment and payout penalties attached to them --meaning that when you refinance, sell your home or otherwise pay off your mortgage, you pay a fee. This means that when you want to take out equity from your home, you may have to pay these costs. However, at the time of renewal these penalties often do not apply. As a result, you save the cost of a payout penalty.

By using the strategies discussed above, you can save yourself money and get a mortgage product that will best meet your needs and satisfy your financial aspirations. To learn about more money saving mortgage strategies, consult a mortgage broker or visit www.albertamortgagecentre.com.

What is going on in the financial market, and how will the present situation affect the average existing/prospective mortgage holder?

The financial world is a constantly evolving context, in which both economic factors and pure human emotion can enrich or impoverish the lives of millions. At present, the world financial markets are in a state of panic as the World's investors are extracting their funds from the marketplace, holding on to the denominator in which they trust --cash. As investors flea, money markets shrivel, and the financial world experiences the phenomenon we've all been hearing about: The Credit Crunch.

So what is the Credit Crunch?

When millions of investors extract their money from the market (over 2 trillion dollars), businesses become unable to secure funds for doing business. In the case of banks, investment firms, mortgage companies and the like, when they become unable to secure market funds for doing business, they are forced to search out investors who demand higher rates of return, and demand more oversight over the use of their funds. As the cost of funds increase for lenders, the costs of funds are passed along to borrowers. Increased costs, and more stringent guidelines mean less borrowers can qualify for loans and therefore less money goes into the market to again be borrowed and lent. As a result, credit continues to become more and more difficult to secure, and borrowing costs continue to go up until funds become available. Knowing this, central banks around the globe have made recent efforts, injecting what will end up being trillions ($24 billion and $700 billion in Canada and the United States alone, respectively) into the market and lowering prime lending rates in an effort to make lending money easier and cheaper once again.

What does all of this mean for the mortgage of the average prospective/existing homeowner?

As the availability of credit dries, fixed mortgage interest rates swell due to the increased cost(s) of lending. However, cash injections by central banks around the globe should help re-establish security in lending markets and hopefully limit further increases in fixed mortgage interest rates. Even with significant cash injections, I believe that fixed mortgage interest rates will continue to rise as lenders attempt to recoup 2007/2008 losses. In contrast, with prime lending rates dropping variable rates become increasingly affordable with one exception --most lenders are pausing, postponing, increasing or altogether eliminating variable rate mortgages from their product offering lineup. If you already have a variable rate mortgage at Prime - (0.00 to 0.90)% then I think you are safe, and will be enjoying what are and will be historically low mortgage interest rates as central banks continue to lower the Prime lending rate in attempt to bolster cash strapped economies. Those who have a variable rate mortgage should be in good shape --even while the road ahead may be full of bumps of anxiety. At the same time, many lenders are eliminating variable rate mortgages from their product line --therefore inhibiting many prospective/exisiting homeowners from taking advantage of potential Prime rate decreases in the near future.

Even with recent increases, fixed mortgage interest rates remain historically low. While fixed mortgage interest rates have increased by nearly 1% since August of 2008, they remain competitively priced, allowing for Canadians to comfortably afford the cost of credit. The market is still well capable of providing Canadians with the ability to afford owning real estate, and will continue to be among the leaders in the world financial marketplace in quality product offerings, consistency, and rate competition.

For more information about any of the above discussed mortgage topics contact one of the edmonton mortgage brokers at Alberta Mortgage @ (780)479-2222 or visit www.albertamortgagecentre.com.