Are Ultra Low Rate Mortgages Here to Stay?

Melissa (R) signing mortgage documents with Angela Baker (L)

Since the late 1980s, mortgage rates have been on a downward trend but are the ultra-low rates we are currently seeing here to stay?

Angela Baker, Mortgage Associate with Enrich Mortgage Group shares rates are currently in an extremely low environment and there is no indication that they will change any time soon. “I don’t see it changing in the foreseeable future and they certainly won’t change quickly. We saw an unprecedented three interval rate drop in March of 2020 which has never occurred before. Rates have remained low since those drops have happened. The reason the drops happened, was to try and encourage Canadians to continue to afford to buy.”

If the economy becomes ‘hot’, rates will follow suit says Baker, but in reality, COVID has created a whole new world of economic uncertainty.  “Certainly, on the mortgage front there has been a lot of changes, and this year has been quite different than any other year as far mortgage qualifications go. Not only are we contending with the ‘stress-test’ that was implemented, but there have also been some more stringent rules that were assessed in July by CMHC.  These restrictive rules affect people who are putting 5 percent down or less than 20 percent down as down payment.”

Even though there are two other mortgage insurers besides CMHC, Baker encourages borrowers to do their homework before looking for their dream home. “Borrowers need to do pre-approval work and get pre-qualified. Gather the documentation that you will be asked to produce as quickly as possible  because it is not only required to get you approved but also to fund your purchase.”

Working together with a qualified mortgage professional is vital, shares Baker, because approval, is definitely, a team effort. “Working together with a partner who you have really good communication with is important and tackling it together as a team, is my best advice.”

In many cases, you should also avoid the jargon of ‘quick approvals’ shares Baker, and instead work with a  trusted, knowledgeable, experienced professional who is capable of getting you through to the finish line. “I often don’t use the word pre-approval but instead pre-qualification. I find pre approval can be incredibly misleading. There are many people out there touting that they have a pre-approval but what they have, is not worth the paper it is written on. There are so many intricacies and challenges that often occur during a mortgage application, particularly surrounding people’s income and what is accepted. It is one of those processes that requires user input rather than relying on a computer generated result. If the data inputted wasn’t accurate, neither will the result.”

When it comes to choosing whether a fixed or variable rate is your best choice, Baker says it depends. “Personally, I am a variable borrower all day long and I can give you many reasons why that is, but a lot of people prefer the comfort of a fixed mortgage. Right now, rates are extremely attractive on either front. What borrowers may want to consider is what penalties are attached to their mortgage contract because there is a significant difference between a variable rate penalty and a fixed one. Buyers, in general, are only focused on getting into the home, not so much on getting out. Although it may seem strange to consider this at the time of your purchase it should be talked about.”

Lastly, if you are already a homeowner and not looking to buy, you may want to still re-evaluate what your current terms are, states Baker. “One hundred percent. I have been doing many transactions for people who aren’t necessarily buying, but they took their last mortgage rate two or three years ago when rates were in the mid-3s. I recently completed a transaction where my client opted to pay the penalty to break her fixed-rate mortgage and get into a variable. In her circumstance, with low rates and the possibility of looking to sell mid-contract, the best way to reduce her penalty payment was to go variable so she could save thousands in interest. In her case, the 3000-dollar penalty she would have to incur would completely pay for itself within the first year and after that, it was purely cash savings. There are a lot of opportunities right now to look at your existing rate, while potentially still taking advantage of a lower rate by paying the penalty and signing a new contract.”

If you have any questions about rates, pre-qualification criteria, or paying a penalty to break your contract, contact Angela Baker at angelabaker@enrichmortgage.ca

Below is a document checklist, Baker has put together to assist you in the process of pre-qualification approval. 

CHECKLIST FOR BORROWERS- DOCUMENTS NEEDED​

PURCHASE:
  • ID for all applicants (Driver's License/Passport/PR Card)
  • Completed mortgage application- signed by all applicants
  • Privacy Agreement
  • Agreement of Purchase and Sale of subject property including all waivers/schedules
  • Realtor Listing Sheet
  • Verification of Income including letter of employment, two recent pay stubs, most recent Notice of Assessment (NOA) or two if income fluctuates, recent T4/T4A with bank statements, copy of lease agreement or full T1 Generals for rental income, separation agreement (if applicable)
  • Solicitor's full contact details
  • VOID Cheque/PAD Form
  • Verification of downpayment and closing costs
REFINANCE/RENEWAL
  • ID for all applicants (Driver's License/Passport/PR Card)
  • Completed mortgage application- signed by all applicants
  • Privacy Agreement
  • Original Purchase details (date/purchase price/mortgage amount)
  • Verification of Income including letter of employment, two recent pay stubs, most recent Notice of Assessment (NOA) or two if income fluctuates, recent T4/T4A with bank statements, copy of lease agreement or full T1 Generals for rental income, separation agreement (if applicable)
  • Current mortgage balance
  • Property Tax Statement
  • Solicitor's full contact details
  • VOID Cheque/PAD Form