I’ve said it before and I’ll say it again - your mortgage broker is one of the most important connections you have in regard to home ownership. Their entire job is to make sure that you, the homeowner, get the best rates and terms to suit your financial needs. This is why you shouldn’t even think about buying OR selling until you’ve sat down with a mortgage professional.
Beyond that, your mortgage broker is also someone that you should stay in regular communication with. Most Canadian homeowners will have to renew a mortgage at least once during the course of owning a home and, as we have seen in recent years, the qualification process has changed dramatically. Between lenders and the federal government, the qualifying process has become more stringent than ever, so waiting until the last minute to renew your mortgage could be a costly mistake.
With the introduction of the “stress test” in January of 2018, renewing mortgages can be more complicated. The “stress test” means that you have to qualify for a mortgage based on a higher rate than what the banks offer. The stress-test level is set at either two percentage points above the actual mortgage rate, or whatever the average five-year posted rate is at Canada's major banks (according to the calculations of the Bank of Canada) — whichever is higher. You may not be required to pass the stress test when renewing, but finding out in advance is definitely in your best interest.
What does this mean for you? Long and short of it is, you might not be qualified under today’s regulations for the same size mortgage that you took out just a couple of years ago. Clearly, it’s named the “stress test” for a reason - it can add stress to anyone with a mortgage, or looking for a new one!
Here’s why all of this matters:
1. Thinking about buying a new car? That monthly payment can adversely affect your ability to qualify for home financing. Sure, that new SUV may be a great deal, but that $700 (or more) monthly payment can throw a wrench in your mortgage plans. Before signing for that new ride, make sure that your mortgage broker has crunched your numbers.
2. Are you changing jobs? Great news if your annual income is going up - but if you’re leaving a corporate career to a more entrepreneurial life, your current mortgage lender may view you differently. With no guaranteed paycheque you may seem like more of a risk, especially if your income has shown wide swings from year to year. Your mortgage broker may recommend re-financing now, even if your mortgage term isn’t up in the near future, to lock you in while you get your sea legs in your new career.
3. Taking maternity leave? Your position may be guaranteed until you return to work, but your paycheque will not be representative of your normal annual income. If you are a family with two incomes and need to qualifiy with both your salaries, don’t wait. Call your mortgage broker and let them know of your changing situation.
4. Illness? Family leave? Like maternity leave, both of these situations can affect your bottom line. If you are off work for an extended time - or you anticipate this being an issue - pick up that phone if your mortgage renewal is anywhere in the near future - and by that, I mean within the next year.
Even if none of the previous points affect you, your mortgage broker is an invaluable resource. You may not be following interest rate changes, but they are. It may be in your best interest to think about renewing early, even if the end of your mortgage term is a year or two away. Your broker can also find you loan products that may better suit your ongoing needs - perhaps you want the ability to make large lump sum payments on your outstanding mortgage balance? Some mortgage products limit that ability - your broker can find a lender to fit those requirements.
Finally, if you’ve had any bumps in your credit history, your broker might be able to help you improve your situation. Don’t be embarrassed to ask for a credit run down from your mortgage broker. The better your credit, the more favourable terms and rates you will receive. Don’t wait! At the end of the day, a mortgage broker is someone that can help you pay down your mortgage faster, establish better terms, and find you the best rates. An ongoing relationship is always going to benefit your personal bottom line.
Sarah Daniels is a top selling realtor in Greater Vancouver, who has been licensed since 2003. She appears regularly as a real estate expert on shows like “The Marilyn Denis Show on CTV”, as well as local radio and television. Sarah has written two books; “Welcome Home: Insider Secrets to Buying or Selling Your Property" and "Buying and Selling A Home For Canadians For Dummies". She also developed and co-hosted the show “Urban Suburban” on HGTV Canada. She works at Macdonald Realty Ltd., in White Rock, BC.