Refinancing in 2018

General Kristin Woolard 19 Mar

We are in a rising interest rate environment and it would be wise to consider where you are in your current term and where rates may land at maturity. What are the implications of refinancing now for a better rate? 

If you are 3-4 years into a 5-year mortgage term you still have 1-2 years left. If rates keep going up the way they have been you could be looking at rates at 4.5-5% when you’re up for renewal. They are currently at around 3.64% for a refinance. 

Let’s look at the two methods lenders have for determining your penalty if break your mortgage. They will either charge you 3-months of interest or an Interest Rate Differential (IRD). 

The first is fairly straight forward but an IRD is calculated if you pay out your mortgage and the bank has to lend that money back out at a lower rate. They will charge you the difference in interest on your remaining balance for the rest of the time remaining in your current term so they don’t lose any money.  

In a declining rate environment an IRD penalty can be quite hefty. But with rates on the rise the bank can lend that money out at a higher rate and make money so they can only charge you 3-months of interest. This can make breaking your mortgage and refinancing a lot less expensive.   

So, if penalty is not prohibitive then it would be prudent to consider tapping into your equity to accomplish goals such as consolidating higher-interest debt (credit cards, lines of credit, loans etc.), taking money out for investments or even home renovations. 

By refinancing now and securing a new rate for another 5-years while they’re still near historical lows could keep you sitting pretty while rates go up to their highest point and you could be in another declining rate environment when you get to the end of your new term. 

Definitely something to consider before that option is off the table. As always, I can do a free mortgage analysis for you to weight the costs vs. benefits. You can contact me here if you need any help. 

First Time Homebuyer Privileges

General Kristin Woolard 1 Mar

So, you’ve decided to jump into the real estate market – good for you! It will be extremely beneficial to start paying your own mortgage instead of a landlord’s.

If this is your first home purchase there are some definite advantages available to you.

There is a national program called the Home Buyer Plan where the Government of Canada will allow you to draw up to $25,000 from your RRSP for your down payment without having to pay the taxes on it. You will have to repay the amount you withdraw over the next 15-years by annual instalments. This program is available to all Canadians who haven’t owned a home in the previous 4-years.

The Province of BC a program for First Time Homebuyers (FTHB) as well. You can get an exemption from having to pay thousands in Property Transfer Tax (PTT) as a FTHB as long as you are a Canadian citizen, have lived in BC for the last 12-months and have never owned a home anywhere in the world.

PTT is calculated as 1% of the first $200,000 and 2% of the rest. So on $500,000 as a FTHB you will save $8,000.00! If your purchase is between $500,000-$550,000 you can still get a partial exemption.

If the home you are purchasing is brand new and you are buying it from a builder or developer you don’t have to pay PTT on a purchase up to $750,000. That’s even more savings.

There is also the BC HOME Partnership Program available until March 31, 2018 where the BC Government will match your down payment to a maximum of $37,500.  It is an interest free loan for the first 5-years and while it sounds great there are only a few circumstances where I’ve found it to be beneficial to my clients.

You will still have to come up with your minimum 5% down payment and 1.5% of the purchase price in addition to cover closing costs. Closing costs include legal fees, Title Insurance, Land Title registration, possible appraisal fee and pre-payment of some, if not all, property taxes for one year.

The overall costs of a home purchase can vary but if you’d like more information on what you can expect to need for your ideal home purchase just give me a call, I’d love to help.