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In July 2019 the Bank of Canada released a statement anticipating stabilization within the national housing and mortgage market. It also confirmed it was maintaining the targeted 1.75% interest rate despite some future uncertainty, particularly around international trade.

During periods of stabilization like this, many homeowners take advantage of a second mortgage as a means to improve or repair their homes. Increasingly these mortgages are taken out with an interest-only repayment schedule.

Homeowners who are intending to sell their property in the short-term future take a second mortgage to pay for any work required. They pay a monthly interest payment on the full loan amount rather than a larger payment towards the interest and principal debt. Then, when they sell their upgraded property, they can pay off the loan with the extra value the improvements have brought.

Whenever a second mortgage or home equity loan is being sought for, one of the key decisions a borrower will have to make beforehand is whether they want their interest rate to be fixed, or to be variable.

Holding Steady

A fixed interest rate is exactly what it sounds like - the rate of interest paid on the principal is fixed for the term of the loan.

For borrowers, fixed rates offer consistency and a predictable payment timeline when rates are rising. No matter how much the Bank of Canada’s rate rises, they know they are locked in at the lower interest rate. Over time the total debt reduces, and the interest payment declines with it, this makes budgeting and saving money easier but doesn’t allow a borrower to benefit when interest rates go down.

For lenders fixing an interest rate also protects them against variances in financial markets. No matter what happens to the Bank of Canada’s benchmark interest rate, the rate they have on this loan stays the same. Lenders tend to prefer the dependable nature of fixed rates as an alternative to trying to forecast what will happen with the interest rate over the life of the loan.

Periodic Change

As an alternative, variable interest rates change over time. The loan will be based on an indexed rate, such as the Bank of Canada’s rate, or another benchmark interest rate such as LIBOR. The rate payable on the loan is equal to the benchmark rate plus a margin amount. So, for instance, a loan may be based on a benchmark rate plus a 2% margin. So, when the benchmark rate is 2% the loan rate is 4%.

When it comes to mortgaging, most lenders offer a product that has an initial period of fixed rates, say five years, followed by the rest of the schedule being paid according to interest rate fluctuations. The payments for the latter period are usually recalculated, or “reset”, based on the underlying interest rate every 1-5 years.

Variable rates offer borrowers a chance to make the most of their money. While interest rates are low the potential for additional payments is higher. Additional payments come off the principal loan, so when rates rise, borrowers are not as badly affected.

For lenders, variable rates offer a form of guarantee as loans come with a margin, while rates may go down over the life of a loan, they are still guaranteed to be getting more than the benchmark rate in interest payments.

Growing Interest

Depending on what you want a second mortgage for, it can be a huge influence on the kind of rate you have. If it’s for improvements to your home prior to sale, debt consolidation, or any other reason, the interest rate is an important factor in getting the best value loan.

Our independent experts have access to hundreds of lenders and their products. With decades of experience, they can find the right financial product for you and ensure that the product has the right interest rate structure for you. Their independence empowers them to find the product that best suits your needs rather than sell you whatever product their employer is incentivizing them to sell.

Contact Canadalend.com today to find out more about what options might be available to you and to speak to someone whose interest is in finding you the best financial product they can.

Contact us to learn more about the Fixed or Variable Rate Second Mortgage options available and experience The Canadalend Advantage today!

When your mortgage’s repayment terms are no longer suitable for you, it may be time to refinance. Fortunately, if you’ve been waiting for the right moment to do it, the moment has come. As of October 2020, mortgage rates are incredibly low. To the shock of many, this drop has been continuing for months. Rates may drop even further, or at least remain this low into 2021.

Good News For Homeowners & Homebuyers

As a reaction to the economic damage of the COVID-19 pandemic, the Government of Canada has focused on lowering interest rates to encourage spending. National interest rates have been lowered, and negative interest rates are seen as a possibility.

The goal of the government response is to encourage spending amid a time of economic challenges. For homeowners that are still overpaying for their mortgage, this is very good news. Amid rising rent prices, renters can also take advantage of low rates to end up spending less on housing.

Is Refinancing A Good Choice?

Refinancing your mortgage isn’t always the right option. There are a few reasons for you to consider doing so. Like your first mortgage, a refinanced mortgage is a serious, long-term financial commitment. So, you’ll want to make sure you have a good reason to apply.

If you’re about to make a serious investment such as a major renovation or buying a new property, refinancing your mortgage is a good idea. You can also use mortgage refinancing as a means to consolidate your other debts. 

The most straightforward reason to refinance your mortgage is to simply save money. If current interest rates are significantly lower than they were at the time you secured your first mortgage, refinancing will lower your mortgage expenses.

Low Interest & Refinancing

The logic behind refinancing your mortgage when interest rates are so low is clear. You simply save more money on monthly payments and end up paying less for your mortgage overall. But there are still other factors you must consider at the same time. Low interest rates will serve you even better if you have:

  •  A high credit score

  •  A low debt-to-income ratio

  •  A stable income

Refinancing with the above while interest rates are low is a great financial choice.

What Should I Do?

If interest rates and your personal qualifications are ideal, you have several mortgage refinance options you could take.

Bank Refinanced Mortgage

Banks are typically willing to refinance a mortgage with a balance that’s less than the property’s appraised value. Each bank will have a slightly different offer, but they all lend money based on the same criteria. With an attractive financial situation and lower interest rates, you can take a new mortgage to pay the first off and spend less money in the end.

Government Loans

The CMHC offers guides for government-issued loans. 

Mortgage Brokers

You don’t need to go directly to a bank to get a mortgage. Many professional mortgage brokers can help you get the loan you need. It’s their job to assess your credentials and match you with a mortgage that meets your needs at the lowest cost.

HELOC

You can leverage your property’s value to secure a more flexible financing option. A Home Equity Line of Credit (HELOC) is, as the name suggests, a line of credit secured by your home’s equity.

While you can use a HELOC for any expense, it makes more sense to take advantage of low interest rates and take them to pay for expenses that increase your property’s value. Because HELOCs are secured with equity, they typically offer competitively low rates.

Conclusions

It’s best to strike while the iron is hot. If your current mortgage isn’t satisfactory, it’s a great time to look for the refinancing option that will make homeownership less of a hassle. With the right choice, you can achieve:

  •  Lower interest payments

  •  Some cash-in-hand

  •  Lower monthly repayments

  •  A longer repayment term

For more information, contact the Mortgage Refinancing Experts at Canadalend today at 1-866 iCAN LEND or better yet, Apply Online and one of our agents will call you!