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What Nobody Is Telling You About Fixed Rate Mortgages

My father keeps the news on constantly. It’s like an addiction, and CP24 is his drug of choice. It hurls bad news all day and all night. Not because it’s helpful, or even that interesting – but because it keeps his eyeballs on the screen. My father isn’t alone. CP24 and other 24-hour news sources are tattooed onto screens across the country.

Unfortunately, a lot of that bad news has to do with the housing market. It seems as though there’s a constant parade of “experts” telling you that we’re in a bubble. To sell now and rent until the market corrects itself. To avoid “risk” and go with a fixed rate mortgage. 

This last myth in particular has gone viral and needs to be dispelled.

Continue reading “What Nobody Is Telling You About Fixed Rate Mortgages”

Don’t Fall For Low Fixed Rates

The fixed rate versus variable rate debate has never been more heated. With fixed rates currently averaging historical lows of roughly 2.25%, a lot of people are left wondering, “why wouldn’t I choose a fixed rate mortgage?” Fair enough – it certainly appears to be a safe bet on the surface. Lock in a low rate. Maintain it for the entirety of your term. Never worry about rates going up.

This belief is fuelled by the big banks spreading hysteria that variable rates are sure to shoot up. Why risk it when you can go with a record low fixed rate? Here’s the truth: The banks are pushing 5-year fixed rate mortgages because they’re more profitable for them. A variable rate mortgage isn’t the gamble it’s made out to be. In fact, it’s by far the more prudent move. 

Continue reading “Don’t Fall For Low Fixed Rates”

Despite Uncertainty, Canadians Are Keeping Up With Mortgage Payments

You might have heard some sensationalist news stories over the past year about Canadian homeowners over-borrowing. With the employment rate so low, and mortgage debt so high, how could Canadians possibly keep up with their payments? Headlines spewed dire warnings that once payment deferrals expired, borrowers would default in droves. 

Except that isn’t what happened at all. 

Continue reading “Despite Uncertainty, Canadians Are Keeping Up With Mortgage Payments”

Canadians Are Paying Down Their Non-Mortgage Debt

In so many ways, the pandemic has been devastating for Canadians. Between layoffs, supply-chain shortages, and healthcare challenges, the last year and a half has tested us in ways we never could have imagined a decade ago. And yet, in the midst of adversity, some silver lining has come to light: Canadians have actually been very smart with their money. 

We know that Canadians have never had more disposable income. Lockdowns physically limited our ability to shop and dine out while CERB payments padded our pockets for months. But people weren’t running out and buying Teslas. In fact, they were using their excess cash to pay down expensive debt

This happened almost immediately. Less than two months into the first lockdown, May 2020 saw the first decline in non-mortgage debt in decades. By January 2021, non-mortgage debt had plummeted by more than $20 billion, including a whopping decline of $16.6 billion in credit card debt. Now able to pay down their Visa bills, Canadians were able to incur more practical debt: mortgage debt.

Mortgage Debt in the Pandemic Era

As non-mortgage debt evaporated, mortgage debt ballooned. Almost $99.6 billion between the start of COVID and January 2021, to be exact. Why? Mortgage rates fell. The stock market soared. Extra disposable income made it a little easier to save for a down payment. But more than anything, the stay-at-home orders forced Canadians to really value their living spaces. 

The Bottom Line

Canadians are trading in their bad debt for good debt. What’s the difference? Bad debt is spent on inessential items that don’t retain or accrue value, while good debt can enhance your net worth over time. In my opinion, mortgage debt is good debt.

Real estate values in Canada have only increased over the last 25 years. So when you take out a loan on a home, you’ll almost certainly see a return. Having debt tied to a tangible asset that appreciates in value is prudent, whereas having debt tied to an overcharged Amex card is not. The trend towards good debt is an indication that Canadians are getting more savvy at managing their money. 

But it’s also a huge indication that Canadians value homeownership. You can even see it in how much they’re spending on home decor and renovations. With home values on the rise and rates remaining stable, it’s very likely that we’ll see mortgage debt climb even more than we already have.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca

Will I Be Offered a Mortgage Renewal?

If you’re nearing the end of your term, you might be wondering if your lender will offer you a mortgage renewal. Mortgage renewals are a great way to reassess your needs and potentially even get a better rate than the one you have now. But not getting a mortgage renewal means you have to pay your balance in full – so it’s no wonder so many feel anxious towards the end of their term. Inflammatory headlines about the dangers of mortgage renewals floating around the internet certainly don’t help either. 

The good news is you can relax. In Canada, you’re guaranteed a renewal offer from your lender provided you pay your bills on time and don’t have any outstanding balances with Revenue Canada. As long as you’re borrowing from a reputable financial institution, you should be in the clear. 

Where it gets tricky is when you borrow from a private lender. Private lenders aren’t federally regulated, so they have no obligation to offer you a renewal. However, for the vast majority of Canadian borrowers, a renewal offer is guaranteed.

A Bit of Background

There was a time when feeling antsy about your upcoming renewal was actually founded. In 2012, the Office of Superintendent of Financial Services (OSFI) almost made it mandatory for mortgage renewals to be re-underwritten. Thankfully, after some deliberation, they decided against it. The renewal process remains tipped in favour of borrowers.

The Bottom Line

The end of your mortgage term shouldn’t be fraught with uncertainty. If you’re borrowing from one of the banks, rest assured you’ll be offered a mortgage renewal. But don’t take whatever deal they throw at you. Use the opportunity to explore your options and make sure you’re getting the best mortgage product for you.

To do that, you should always consult a mortgage broker. Brokers don’t work for any one bank or credit union. They’re completely impartial experts acting purely in your best interest. Plus, they have access to wholesale pricing on mortgage products that the average person doesn’t. It’s that simple. If you’re not sure where to start, feel free to call my office any time. Just make sure you don’t miss the opportunity of a mortgage renewal to get the best deal possible.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca

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