Getting the best mortgage rate when rates start to drop

Mortgage rate drops

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Spring has arrived and with it comes a significant drop in mortgage interest rates.

Over the last few months, when I’ve chatted with clients who are renewing or planning to buy in the spring market, I have said in almost every conversation that by mid-March rate wars tend to start.

Regardless of what is happening in the interest rate environment as a whole, it seems by the third week of March lenders start sharpening their pencils.

Over the last two weeks, I started to see lender bulletins trickle in advertising quick-close rate specials (ie: for mortgages finalizing within 60 days) and rate drops across the board. One day last week, I had updates from six different lenders — before noon.

Why is that important to you? Not all lenders have the same policies with respect to dropping their rates once your mortgage has been approved. When you go into a holding pattern after your mortgage has been approved but before it has finalized, rates can change. If they go up, you are covered by the rate you have in place.

If they go down, how does your lender deal with your file? Some lenders won’t drop your rate. Some lenders will drop it once. Some maybe twice. There are a few lenders that will drop your rate an unlimited number of times up to a few days before your mortgage finalizes.

When I am choosing a lender for my clients, that is absolutely one of the most important things I consider. All things being equal, if I can place a mortgage with a lender that offers unlimited rate float downs I will.

I watch my calendar of upcoming closings and proactively reach out to those lenders to request better rates for my clients. It’s a win to be able to get the benefit of falling interest rates without having to change lenders.

If you are buying a home, renewing your mortgage or looking to refinance this is a key question you should ask your mortgage person. Find out whether they will adjust the rate on your mortgage and what the process is (do you have to request it?).

At the same time, find out how many times they are able to reduce the rate for you.

Regardless of the answer, I suggest touching base with your mortgage person or lender periodically up to the time your finalize your mortgage to confirm you are receiving the lowest rate they have available for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Read the fine print when buying into a strata property

Home-buying homework

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After a few recent escapades with condo purchases, I want to talk about doing your homework when purchasing a strata property.

Strata properties can offer the convenience of shared maintenance costs, security, benefits like pools and workout rooms and in some cases, a more attractive price point. For people with busy schedules who don’t have the desire to spend time on yard work or shovelling snow, strata properties can be a great fit.

Strata properties are usually managed by strata councils. There are legal requirements with respect to meetings, finances and insurance, record keeping, maintenance and upkeep, as well as bylaws and rules.

But not all strata properties are created equal. People don’t realize the importance of taking the time to read through the strata documents when they are considering buying a strata property.

From a financing perspective, there are several pieces that lenders look for. Lenders and insurers (CMHC, Genworth, Canada Guaranty) will read through strata documents, particularly meeting minutes, financials and depreciation reports. They are looking to see if the building(s) have been well maintained and if there are adequate funds in the strata’s contingency reserve fund (CRF) to cover any upcoming projects or unexpected issues.

They will look to see if the strata has planned and budgeted for ongoing maintenance and updates to ensure the buildings stay in marketable condition. Lenders also look to see if there is a rental pool or if there are rental restrictions. They are looking to see if there are any age restrictions.

So how does this affect you as a potential buyer? If buildings have not been properly maintained or have had significant structural issues, they are sometimes flagged by mortgage default insurers. That means those insurers won’t cover new mortgages for people trying to buy into the complexes until those issues have been rectified or remediated.

If the building has been flagged, it can mean that you are unable to find mortgage financing to purchase a unit in that building. It can also mean increased strata fees to cover big repairs. That may also lead to special assessments. Special assessments are used by stratas to raise significant funds relatively quickly to deal with major expenses.

Over the last year, I’ve talked to clients who have had to deal with special assessments of $23,000 and $10,000 respectively. Neither client was in the position to come up with the cash, so they are both on payment plans. In both situations the additional monthly payment has created financial distress.

Increased strata fees and special assessments can happen in any strata complex but if you are looking at purchasing a unit in a complex that has ongoing issues or minimal funds in the contingency reserve fund, you need to think about what that may look like down the road for your finances.

Having said that, just because a building has had issues in the past does not mean you should cross it off your list of potential purchases. Do your homework. Check to see if the strata has dealt with any outstanding issues, and if it has documentation to confirm that.

I was recently able to obtain approval in a complex that insurers flagged. For more than two years the building was flagged due to maintenance issues. In that case, any units sold were sold to cash buyers as lenders wouldn’t touch the complex. Major work was done and an engineer’s report was ordered to confirm the damage had been dealt with.

Both the lender and the insurer went through all of the documents and approved the financing because all issues had been dealt with and the strata has taken steps to rebuild its contingency fund and ensure necessary maintenance was planned for in the future.

It felt a bit cautionary. The intent of this information is not to scare you off of purchasing a specific property but rather to encourage you to do your homework and learn about the strata you are buying into. Your realtor will be able to help you find answers to your questions, and it is important to have your lawyer or a notary review the strata documents before you move forward with your purchase.

The spring market appears to be picking up. If you are looking to get into the housing market, a strata property might be the ideal fit.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Sometimes a second pair of eyes helps solve a mortgage problem

A fresh perspective

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Part of what we do as mortgage brokers is explore options for clients.

Recently I worked with two families whose financing was declined by their banks as the numbers didn’t work. In both cases, the families had already sold their existing homes and written offers to purchase new homes. Both did well on their sales and had significant equity to work with. They were shocked to learn they didn’t qualify for similar size mortgages.

Sometimes a fresh perspective makes all the difference. When I reviewed the first application, I took a look at the outstanding debt. Since they bought their previous home, they had purchased two vehicles and were carrying about $12,000 on an unsecured line of credit. The vehicle payments were $457 and $692 respectively.

For context, your mortgage borrowing power decreases by about $100,000 for every $475 you have in payments for consumer credit (loans, credit lines, credit cards, etc).

Looking at the family’s situation, I suggested using some of the equity from the sale to pay off their truck loan and line of credit. That reduced their monthly payments by $1,052 ($360 towards the credit line plus $692 for the truck) and it meant the numbers worked for them to move forward with their purchase.

That was a small tweak but it made all the difference.

My preference is that people put their equity back into a new purchase as opposed to paying off consumer debt. However, that decision needs to be made carefully by the clients as they are the ones ultimately responsible for paying the bills each month. In some cases it is the only way to qualify for a new mortgage.

The second family’s application involved a slightly different tweak. When I calculated the funds they had available for their down payment and closing costs, it looked like they had $100,000 available for their down payment. The purchase price on their new home was $549,000.

We discussed increasing their down payment to $109,800 which would be 20 per cent of the purchase price. They spoke to her parents and the parents agreed to gift them $10,000 to make up the difference.

What that meant for the clients was they were able to get an approval with a 30-year amortization. With the increase in amortization and slight reduction in the mortgage amount (additional down payment plus no default insurance fee), they qualified for the new mortgage they needed.

Again, my preference is to see clients stick with shorter amortizations whenever possible.

This family chose to have one parent stay at home while the children are young, so the smaller mortgage payments are a good solution for the short-term. We talked about options for increasing their payments once the children are in school and the dad is back to work.

Each family and situation is different and often we are able to look for creative options to help find the right mortgage. Sometimes a second set of eyes is all it takes.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Working mortgage 'miracles' at the last minute

Finding mortgage financing

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Last week, I had a panicked call from a realtor I work with on a regular basis. One of her sellers had a sale that looked like it was going to collapse. The seller was counting on the sale of the home for the down payment of her next home.

The realtor called at mid-day last Wednesday. The sale was supposed to complete on Friday.

She asked if I could talk to the purchaser and potentially arrange financing for her.

Before you read the next part, this is not intended to single out any particular bank or mortgage person. It could just as easily be a mortgage broker or a branch employee.

The back story is the purchaser had been working with a mortgage specialist from one of the chartered banks since mid-December. The specialist gave the client the go-ahead to remove her financing subject on Jan. 17.

The specialist then said they needed to extend the closing date by a week and then, by another week. Then she told the client she would have to come up with 20 per cent for his down payment. The client scrambled and came up with the additional money needed for her financing to be approved.

I might not have believed this story except I did see the email chain. So what actually happened? My guess is the mortgage specialist did not have an approval in place with the insurer or her bank when she gave the client the OK to remove her financing.

The client had not seen, nor signed, any mortgage paperwork before removing her financing subject. She trusted her mortgage person had things well in hand, being as she was told she was approved and things were fine. The buyer in this case a first-time home buyer and did not know anything different.

I have pulled off the odd miracle in my days but I had serious doubts about being able to help this client in one day, especially as she was buying in a smaller remote community so we had fewer options.

We were working on her application and at 6 p.m. on Wednesday received word that the bank she was originally working with had come through and would send mortgage instructions to the lawyer the following morning (we were now at the day prior to closing).

When you are purchasing a home and applying for mortgage financing, I feel it is so important to work with a team of professionals who have your back.

As someone who has never bought a home before, or maybe hasn’t done so in many years, it’s important to do your homework and understand the process. If you think things are going sideways with your financing, please make sure you ask questions to better understand what’s happening. If you have a feeling that something is really wrong, don’t wait until you have no other options.

When you choose a mortgage professional to work with (and a realtor for that matter) do a bit of homework. Ask your friends who they have used and what their experience was like.

Buying a home is stressful enough on a good day but what this poor client went through could have been avoided had she had a better idea of what the home-buying process was supposed to look like.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.