Ultra-Low Interest Rates
Diane Gogar • September 2, 2020
Chances are if you’ve been paying attention to the news as the Canadian economy continues to work through the COVID-19 pandemic, you’ve heard that interest rates are at an all-time low. And it would appear that they will remain low for a while. In fact, the Bank of Canada recently hinted that they don’t expect rates to go up until at least 2023. That’s good news if you need to borrow money!
So what does this mean for you?
Well, if you are borrowing money for really any reason, you’ll most likely be paying lower interest for the foreseeable future, including any secured line of credits, car loans, student loans, and personal loans. As for mortgage financing, you’ve got options!
If you’re an existing variable rate mortgage holder, the prime rate is currently 2.45%. You are paying that, plus or minus a component to prime. The variable rate spread is presently coming down at several lenders, so if you’d like to have a look at your mortgage to see if a refinance makes sense to save you money, please contact me anytime.
If you’re a fixed rate mortgage holder,
this means there could be a pretty significant penalty for breaking your existing mortgage. However, depending on the time remaining on your current term, and the rate you are currently paying, it might make sense to break your existing mortgage, pay the penalty, and refinance into a lower rate. There is no cost to run the numbers. If we can save you money in the long term on your mortgage, it might make sense to refinance. Now, depending on the terms of your mortgage, it might make sense to wait a year or two to refinance, but we won’t know that until we look at the details. I am more than happy to provide you with several financial scenarios.
If you’re currently looking to purchase a property
and you’re seeking new mortgage financing, you should know that although interest rates are at an all-time low, the government of Canada forces you to qualify at what they call the qualifying rate which is currently 4.79%. So while you can find a five year fixed rate around 2% now, you have to prove that you can afford double that amount in interest. The idea here is that it protects you against a rate hike when your term is complete. Unfortunately, it leaves you qualifying for a considerably lower mortgage amount now.
So is now a good time to refinance or buy?
Well, that depends on your financial situation. But there is nothing wrong with taking a look and putting together a mortgage application to assess your situation. I would love to work with you so that you can take advantage of these low interest rates. Please contact me anytime!
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.
Divorces are challenging as there’s a lot to think about in a short amount of time, usually under pressure. And while handling finances is often at the forefront of the discussions related to the separation of assets, unfortunately, managing and maintaining personal credit can be swept aside to deal with later. So, if you happen to be going through or preparing for a divorce or separation, here are a few considerations that will help keep your credit and finances on track. The goal is to avoid significant setbacks as you look to rebuild your life. Manage Your Joint Debt If you have joint debt, you are both 100% responsible for that debt, which means that even if your ex-spouse has the legal responsibility to pay the debt, if your name is on the debt, you can be held responsible for the payments. Any financial obligation with your name on the account that falls into arrears will negatively impact your credit score, regardless of who is legally responsible for making the payments. A divorce settlement doesn’t mean anything to the lender. The last thing you want is for your ex-spouse’s poor financial management to negatively impact your credit score for the next six to seven years. Go through all your joint credit accounts, and if possible, cancel them and have the remaining balance transferred into a loan or credit card in the name of whoever will be responsible for the remaining debt. If possible, you should eliminate all joint debts. Now, it’s a good idea to check your credit report about three to six months after making the changes to ensure everything all joint debts have been closed and everything is reporting as it should be. It’s not uncommon for there to be errors on credit reports. Manage Your Bank Accounts Just as you should separate all your joint credit accounts, it’s a good idea to open a checking account in your name and start making all deposits there as soon as possible. You’ll want to set up the automatic withdrawals for the expenses and utilities you’ll be responsible for going forward in your own account. At the same time, you’ll want to close any joint bank accounts you have with your ex-spouse and gain exclusive access to any assets you have. It’s unfortunate, but even in the most amicable situations, money (or lack thereof) can cause people to make bad decisions; you want to protect yourself by protecting your assets. While opening new accounts, chances are your ex-spouse knows your passwords to online banking and might even know the pin to your bank card. Take this time to change all your passwords to something completely new, don’t just default to what you’ve used in the past. Better safe than sorry. Setup New Credit in Your Name There might be a chance that you’ve never had credit in your name alone or that you were a secondary signer on your ex-spouse’s credit card. If this is the case, it would be prudent to set up a small credit card in your name. Don’t worry about the limit; the goal is to get something in your name alone. Down the road, you can change things and work towards establishing a solid credit profile. If you have any questions about managing your credit through a divorce, please don’t hesitate to connect anytime. It would be a pleasure to work with you.
