Questions for a mortgage broker: Interest rates, stress test, mortgage options
With interest rates increasing and market conditions beginning to change, we asked mortgage broker Angela Calla three questions about what’s happening in the mortgage market today. Here’s what she told us.
What lending advice can you give as interest rates climb?
Advanced planning is the key to success. Over the last few months, we saw that those who got a rate hold pre-approval were able to secure fixed rates in the 2 per cent range compared to those who did not and now feel discouraged with fixed rates being over 4 per cent in a very short period.
No one can control the market, but you can protect yourself by being prepared and securing a formal rate hold when looking to buy.
Different options can also present different opportunities. Right now, borrowers will qualify for the highest amount if they take a variable rate. Remember, variable rate mortgages can be locked in at any time with no cost or need to re-approve.
Can you see the government adjusting the stress test and what impact would it have?
I don’t foresee that happening, but it’s likely that the federal government could implement the changes they suggested during their latest campaign:
- Raising the dollar cap of insured mortgages to $1.25 million (from $1 million); and
- Increasing the amortization period.
Both would present more opportunities for buyers to get more value for their money and offset the increase in rates. We saw the pendulum swing in this direction back in 2006/2007, when rates were still higher than they are today.
Some banks that specialize in extended ratios and don’t follow the insured guidelines are only accessible through mortgage brokers. They already have 40-year mortgage amortizations, which isn’t new, it’s just priced differently.
What opportunities does this lending environment create for consumers in a good financial position?
Looking at the Canadian landscape, over 30 per cent of homes owned are mortgage free. This presents an opportunity for multigenerational wealth planning so families can benefit from investing in real estate as early as possible.
The key is to start early. There are non-taxable ways for parents to gift funds to their children to purchase a home or income/vacation property without impacting their cashflow through reverse mortgages. Consumers can design the life they want to live, build their family legacy, and still enjoy life while supporting our economy.