MORTGAGE SOLUTIONS

Are you taking full advantage of low interest rates?

While it's definitely satisfying to score an ultra-low mortgage rate, truly savvy homeowners will put the money they're saving back into their mortgages.

With five-year fixed rates currently sitting at 3.69% - and variable rates sitting even lower - the chances of seeing these rates again is slim-to-none. When it comes time to renew, you could be looking at significantly higher rates - remember, the posted average is somewhere around the 7% mark - so the lower your principle balance, the less of a shock that rate increase is going to be.

Let's look at an example. Say you took out a five-year fixed mortgage for $225,000 at 3.69%. If you pay biweekly payments on a 25-year amortization pay schedule, these are what the numbers will look like:

Payments: $528.51 biweekly

Balance at the end of 5-year term: $194,799.66

Interest paid: $7,251.64

Monthly payment upon renewal (at 7% interest): $628.72

Years until mortgage is paid off: 20

Alright, so say - instead - you made hay while the sun was still shining, and put as much money into paying down that mortgage while interest rates were low, and you were able to tackle as much principle as possible. One easy way to do this would be to opt for accelerated biweekly payments - so you're paying your your mortgage every two weeks, rather than twice a month. The second would be to either put a little bit extra towards your mortgage each month, or put a lump sum down once a year - say, around bonus time.

Payment: $573.02 (accelerated biweekly) plus an extra $100/month (or $1,200/year)

Balance at the end of 5-year term: $181,876.80

Interest paid: $6,831.82

Monthly payment upon renewal (at 7%): $636.95

Years until mortgage is paid off: 15

If you wanted to keep your payments closer to those that accompanied lower rates, you could always go back to biweekly payments, rather than accelerated biweekly. The bottom line being, it's better to tackle principle now - while it's affordable.

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Finding the best rate

Everyone wants to save money where they can – especially when it comes to their mortgage. So when the Big Banks promise to match any competitor's mortgage rate, it's no wonder people are willing to do the extra legwork to call around and find out what the best rate in the market is.

As mortgage brokers, we're on top of the best rates in the market on a daily basis – and we reveal these to our clients and potential clients right up front. We're baffled that banks don't do the same – and even more baffled that bank customers are willing to tolerate it.

When a bank says they'll "match any rate", they're well aware of the rates that are out there – just like we are. Why, then, do they send their clients on a wild goose chase to uncover what they already know? If they really value their customers' loyalty, shouldn't they offer their best possible rate right from the get-go?

Good mortgage brokers, like those at Axiom, will not only offer the best rates upfront, but they'll also introduce you to the best mortgage products for your needs – and potentially save you thousands down the road. Forgoing certain product features – like portability and prepayment options – may save you money on your monthly payment, but could end up costing you much more down the road, depending on your need for these features.

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The First-time Homebuyers' Tax Credit: Clarified

Most first-time homebuyers are aware of the First-Time Homebuyers' Plan - and Federal program that allows them to use a portion of their RRSP savings towards the downpayment of a house. Less, however, know about the First-Time Homebuyers' tax credit, another small government incentive to encourage people to embark on the home ownership journey. Below are a few frequently asked questions:

1) What is the first-time home buyers' tax credit (HBTC)?

The HBTC is a non-refundable tax credit for certain homebuyers who acquire a qualifying home after January 27, 2009, that is - closing after this date.

2) How is the HBTC calculated?

The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit will be $750. However, if the total of your non-refundable tax credits is more than your federal income tax, you will not receive a refund for the HBTC.

3) Who is eligible for the HBTC?

You will qualify for the HBTC if:

• you or your spouse or common-law partner acquired a qualifying home; and
• you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

If you are a person with a disability or are buying a home for a related person with a disability, you do not have to be a first-time home buyer to get the HBTC. However, the home must be acquired to enable the person with a disability to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.

For the purposes of the HBTC, a person with a disability is an individual who is eligible to claim a disability amount for the year in which the home is acquired, or would be eligible to claim a disability amount if we ignore that costs for attendant care or care in a nursing home were claimed as medical expenses on lines 330 or 331.

4) What is a qualifying home?

A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, as well as apartments in duplexes, triplexes, fourplexes, and apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possess, and gives you an equity interest in, a housing unit located in Canada also qualifies. However, a share that only provides you with a right to tenancy in the housing unit does not qualify.

Also, you must intend to occupy the home or you must intend that the related person with a disability occupy the home as a principal place of residence no later than one year after it is acquired.

5) Important things to remember

The home must be registered in your or your spouse's or common-law partner's name in accordance with the applicable land registration system.

You do not have to submit documents supporting your purchase transaction with your income tax and benefit return. However, you have to make sure that this information is available if the Canada Revenue Agency asks for it.

6) Where can I get more information?

For more information, go to www.cra.gc.ca/hbtc or call us at 1-800-959-8281.

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Fixed rates are falling!

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Don't become an orphan! Tips to ensure a mortgage renewal

While Canada may not have gone through a debilitating housing crisis like that in the U.S., the topic of "orphan loans" is one that has made it into the mainstream media and homeownership circles.

Between 2005 and 2008, before the credit crunch hit, a lot of U.S.-based subprime lenders made their way north of the border. These lenders offered an opportunity to  aspiring homeowners who couldn't qualify for a mortgage with the big banks. Individuals who had low credit scores, high debt ratios and small down payments could suddenly realize the dream of homeownership.

The problem is that when the credit crunch hit, those U.S.-based lenders either folded or scurried back south of the border, leaving many homeowners with subprime mortgages that no other lender wanted to touch. Now that those mortgages are coming up for renewal, those homeowners are threatened with having their dream taken away from them.

Some have failed to use the opportunity to increase their credit scores. Others have done everything right, but seen their property values plummet. Combine that with the change in mortgage rules – which have seen a minimum loan to value drop from 95% to 90% - many just don't have the equity available in their homes to renew their mortgage.

If you're at risk of becoming an orphan, there are things you can do. Below are a few of them:

Make sure your credit is in pristine condition.

Subprime loans were never designed to be a long-term mortgage solution, but rather a tool to get individuals back on their feet while simultaneously allowing them to enter the housing market. Make sure you've taken the necessary steps to eliminate your 'subprime' title – starting with ensuring your credit is up to snuff.

Get an appraisal now.

Real estate values differ drastically from one area to the next. If your mortgage is coming up for renewal in the next couple of years, and if you're concerned your value may have dropped, get it appraised today. Best case scenario, you have nothing to worry about. Worst case? You have enough information to implement a plan.

Reduce your mortgage as much as possible.

Under the new mortgage guidelines, the maximum mortgage you can take out on a property is 90% of its value. Once you know the value of the property, do what you can to ensure that you have at least 10% equity in it – whether it's by putting a lump sum down, or accelerating your payments. Some lenders, like National Bank, offer cash back mortgages which you can put towards your down payment. On the bank's 10-year term, for example, you can receive 8% cash back.

Be willing to compromise.

Unfortunately, if you're left with an orphaned mortgage you're stuck between a rock and a hard place. While lenders are willing to talk, you likely won't get the great rates that you're used to. If you're willing to have your mortgage insured under CMHC or Genworth, if the option is available, you'll likely become more appealing to lenders, although you'll have to cough up the extra premium. It will also be wise to cut down on your discretionary spending in the years leading up to the renewal to attempt to put a little bit extra against your mortgage. That being said, the compromises should be worth it if you're determined to remain a homeowner.

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