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Lower Bond Yields Mean Lower Fixed Mortgage Rates

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Lower Bond Yields Mean Lower Fixed Mortgage Rates Mortgage debtors may finally see some relief after months of steadily increasing rates. Five-year fixed mortgage rates have declined modestly over the past week in response to falling bond yields. Moreover, economic indicators suggest we may have already seen our last price peak. Bond yields on Canada’s five-year government issue have dropped below 3% again, to 2.8% as of January 18th. That’s a drop of 61 basis points from the last day of December, and a change of 22 basis points in just one week. The best mortgage rate in Canada has dropped to 4.39% from 4.54% last week. This has happened as a result of this trend among several financial institutions to reduce their fixed five-year rates. Of course, a difference of only 15 points may not seem like much. However, in the current high interest rate climate, it’s encouraging to see any glimmer of respite. In addition, if the economy continues on its current path, fixed-rate borrowers may see further rate stabilisation. The Canadian mortgage rate should be at or near its high right now, according to BMO Senior Economist Robert Kavcic’s research paper. The Bank of Canada is widely anticipated to increase rates by another 25 basis points next week. This may halt the ongoing rise in variable mortgage rates. Canadian five-year bond rates have fallen below the lows reached in December. This is due to the recent recovery in the U.S. Treasuries and Government of Canada bonds. The current interest rates are far higher than the 1.5–2% range that was accessible a year ago. He further says that the “pause in upward momentum should help at the margin, and offer some comfort that the worst of the rate shock is behind us.” A drop in bond yields Bond yields are currently falling due to optimistic inflation data due out this week. Moreover, due to the rising views that the Bank of Canada is finishing its rate hike cycle. Reason being, changes in the economy are immediately reflected in the yields. Demand for government bonds tends to rise when economic conditions are favourable. Thus, driving up bond prices and reducing bond rates. Let’s examine the bond market in more detail to help you understand it. What is a bond? Bonds are a sort of investment whereby the investor receives a return (sometimes called a yield) in exchange for investing funds for a specified period of time (the most popular are two-, five-, and 10-year terms). When a bond matures at the end of its term, the investor gets their initial investment back plus any interest accrued. Bonds compete with one another based on the amount of interest income they provide. Any bonds issued following the interest rate increase will be worth more than the existing bonds. That’s because current bonds lose value whenever the Bank of Canada raises interest rates, forcing sellers to cut prices. Bond yields need to rise as bond prices fall so that they can continue to attract buyers. They have risen by approximately 350 basis points from their lows due to the Bank of Canada’s decision to raise its benchmark interest rate by 4% between March 2022 and December 2022. Thus, bringing its Overnight Lending Rate to 4.25% today. The effects of inflation on bond prices Bond yields are lowered by inflation because of the erosion of purchasing power caused by rising consumer prices. The persistently high rate of inflation, which reached a 40-year high of 8.1% this June, has contributed to a rise in bond yields for the year 2022. But the most recent CPI in December indicated inflation rise had slowed to 6.3%. Further suggesting that the Bank of Canada would pause its rising cycle or delay any rate movement in its upcoming January 25th statement.  This has lifted bond demand (and hence lowered yields). To give you an idea of how inflation affects bond yields, consider that in September 1981, when Canada’s CPI was a stunning 12.47%. Moreover, the country’s highest ever five-year yield was 18.78%. In contrast, the lowest yield ever recorded was in March of 2020, when it hit a record low of 0.276 percent due to tepid price increases (0.9 percent). This was due to widespread panic over a potential pandemic. Why do yields have such an impact on fixed mortgage rates? Bonds issued by the Canadian government are widely regarded as a safe and lucrative investment option. This is due to their high liquidity and low risk profile. As such, consumer lenders use them to establish the benchmark cost for fixed-rate borrowing products. Typically a spread of 100 to 200 basis points above the five-year yield (the best five-year rate as of today is 4.39 percent, 159 basis points above the yield). If yields continue to decline, borrowers can anticipate even more substantial reductions in their fixed mortgage rates from their financial institutions. Conclusion Today’s fixed mortgage rates are still higher than they were a year ago. However, there is growing hope that inflation’s slowdown will help them stabilize or slightly decrease in the near future. This is wonderful news for anyone in the market for a mortgage. Borrowers should do their due diligence in the coming months. This is to ensure they are receiving the best rates possible. It is because rate conditions can change rapidly in response to shifting economic conditions. Free of charge, you can stay abreast of market shifts by establishing contact with a mortgage broker. 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Denied mortgage renewal: What happens next?

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Denied Mortgage Renewal:What happens next? If you want to keep paying down your mortgage after the current term ends, you’ll need to renew it. You will have to repeat this procedure several times before your mortgage is paid off. Lenders typically issue renewal offers a few months before a term ends. A new mortgage rate and a slip to sign and return will be included in the offer. The new rate and term length will match your present mortgage. This may be more convenient, but it doesn’t guarantee acceptance. The long-term costs can add up, so it’s best to look into other options when it’s time to renew your service. So, what happens if your application to renew your mortgage is denied? Don’t freak out right away; there are things you can do. If you have been denied a mortgage renewal, please follow these steps. The Reasons Your Mortgage Renewal Was Denied First, depending on who you’re dealing with, there are two potential reasons your mortgage renewal application could be rejected. Lender refuses to renew the loan The fact that your present lender doesn’t have to re-qualify you is a positive factor in remaining with them (for example, determine your debt service ratios and require you to pass the mortgage stress test). If you have been making your mortgage payments on time and haven’t missed any throughout your current term, your lender shouldn’t have any reason to refuse your renewal application. However, your lender will still look at your present financial circumstances to see if you have accumulated more debt than it thinks you can afford to repay, if your credit score has taken a hit, or if your work situation has changed for the worse. Your present lender has the right to not renew you if it has any worries about your financial situation. Using our mortgage payment calculator is a great idea before your renewal date rolls around. Your mortgage renewal could be denied if you have a hard time seeing how you’ll be able to keep up with payments given the present interest rates. The new lender will not approve the renewal. You can try to renew your mortgage with a different lender if your present lender refuses to do so, or if you just wish to compare rates (you can contact a mortgage broker or mortgage agent to help you find a new lender). To make matters worse, switching lenders actually increases your likelihood of getting rejected for financing. This is because renewing your mortgage requires a fresh application. After reviewing the renewal slip provided by your current lender, the new lender will learn nothing about your financial status other than the outstanding balance of your mortgage. Therefore, it is necessary that you pass a mortgage stress test in addition to having your income and credit verified before it can approve your application. If you’ve been late on mortgage payments or otherwise ruined your credit, you may have a hard time getting approved by a new lender. In that situation, you may choose to stick with your present lender as it doesn’t have to re-qualify you. If you’re in the market for a new mortgage and have some time until your current one expires, check out our mortgage affordability calculator to get a sense of how much you might be able to borrow. Keep in mind that the best fixed and variable rates on the market today are both higher than 5.25%, so you should run that scenario when determining what you would be able to pay as a new applicant in order to pass the mortgage stress test. You can expect this information to be used by a potential new lender in making a decision about whether or not to extend you credit. Steps to Take If Your Renewal of Your Mortgage Is Refused If your application to renew your mortgage was rejected, what should you do now? Let’s imagine you tried to find a better deal by approaching a new lender, but were turned down. If you want to keep paying your mortgage, the first step is to talk to your lender about renewing your loan. For those who have been turned down by their present lender: In the event that your existing lender refuses to renew your mortgage, or if a new lender declines to do so, you will need to find another lender or pursue alternative options. If your mortgage renewal was declined by your existing lender, you have several choices, listed from best to worst. Locate a class B lender. Talk to B lenders about your position if your first mortgage was with an A lender like a bank or credit union. Institutional lenders with a B rating are often trust businesses or those who specialise in lending to those with poor credit. People with poorer credit scores and/or higher debt loads are more likely to receive a loan from them than they would be from a lender with a grade of A. Make contact with a private lender. Your chances of getting approved by any lender are slim if your credit score is below 620. A private lender is an option if this situation arises. This is not an ideal situation because private lenders typically offer the highest mortgage interest rates available. Put your house up for sale. You might have to sell your home if you can’t acquire a mortgage that works for your budget. Since you’ll have to sell your home and relocate quickly, this is the worst conceivable scenario. You might not have enough time to consummate the sale and renew your mortgage before the term ends. To get by, you may need to get a short-term or open mortgage, whether from a B lender or a private lender. Related posts 21 January 2023 Denied mortgage renewal: What happens next? Denied Mortgage Renewal:What happens next? If you want to keep paying down your mortgage after the current… 19 January 2023 Canada’s Bank Regulator Wants Tighter Real

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How to determine the mortgage I can afford?

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How to determine the mortgage I can afford? Real estate purchases financed by mortgages typically represent the single largest investment most people ever make in their lifetimes. What you can afford to borrow is based on a number of factors beyond just what a bank is willing to lend you. You should take stock of your values, as well as your financial situation. Most would-be homeowners can afford a mortgage equal to about two to two and a half of their annual gross income. Knowing what the banks and other lenders are ready to offer is one thing, but knowing how much house you can afford is another. While the TDS and GDS ratios are certainly helpful, they are focused on averages rather than specific individuals or households. If you want to know what you can afford each month without feeling like a pauper, it’s best to make a precise budget.  You need to add up all of your monthly expenses, from groceries and cell phones to entertainment and gas. There are a number of other considerations that must be made before settling on a particular piece of real estate. To begin, it’s helpful to have an idea of the lender’s estimate of your financial capability. Second, you need to do some soul-searching to determine the type of house you can acceptably live in. It is also important to know the types of consumption you are willing to forego (or not forego) in exchange for staying in your home. How Do Mortgage Lenders Figure Out How Much to Loan? Every mortgage lender has its own set of affordability guidelines.  The following are the most important considerations when determining whether or not you will be approved for a loan. Moreover, what conditions you will be granted. In the end, a mortgage lender will consider the borrower’s income, debt, assets, and obligations. This will determine whether or not they are able to finance the purchase of a property. Lenders are interested in knowing not just how much money an applicant makes. They also want to know how much pressure will be put on that income in the future. Base eligibility for financing is determined by income, down payment, and monthly expenses. The interest rate for financing is determined by credit history and score.

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Fixed mortgage rate vs. Variable mortgage rate: How do they work?

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Fixed mortgage rate vs. Variable mortgage rate: How do they work? Canadian mortgage applicants can select either a fixed or variable interest rate. The overall interest cost of a mortgage will be affected by the interest rate structure chosen. Your interest rate will either be locked in (called “fixed”) for the duration of your mortgage or it will be variable (called “floating”). We can show you how the differences between fixed and adjustable mortgage rates over the course of five years stack up. Five-year fixed mortgage rates Five-year fixed mortgage rates guarantee that your interest rate and monthly payment won’t change for the length of your contract. Fixed rates are more stable than variable ones, but they also tend to be more expensive. Your mortgage contract will be in place for the whole five years, as suggested by the name, with a five-year fixed-rate mortgage. Mortgages in Canada typically run for five years, but can be taken out for as little as six months. Mortgage interest rates are fixed for the duration of a fixed-rate mortgage loan. This means that your mortgage payments will remain stable until your current mortgage contract expires and you need to negotiate a new one. This is why many people prefer fixed-rate mortgages over adjustable-rate mortgages for peace of mind. Mortgages with a variable interest rate have interest rates that may change periodically over the course of the loan’s duration. As the overnight rate set by the Bank of Canada fluctuates, so too do prime rates set by individual banks. Right now, the prime rate stands at 5.45%. Mortgages with a fixed interest rate can, at long last, be open or closed. When a mortgage is open, extra payments can be made on a regular basis or in a lump sum without incurring any fees or penalties. A general rule of thumb is that closed mortgage terms have lower interest rates than open mortgage terms since they limit the borrower’s options Five-year variable rate mortgage When market interest rates are low, as they have been for the last several years, five-year variable-rate mortgages in Canada are a great option. Variable-rate mortgages, which have historically been less common in Canada than fixed-rate mortgages, might save money for borrowers who are willing to deal with some interest rate volatility over the course of a five-year loan. A five-year variable-rate mortgage, as the name implies, is issued for a period of five years. You can get a mortgage for anything from six months to ten years in Canada, with the average being five years. Your interest rate on a variable-rate mortgage will change throughout the course of your loan’s term in response to fluctuations in the prime rate set by your lender. Contrast this with fixed-rate mortgages, which don’t fluctuate throughout the course of the loan’s initial five years. For instance, if you have a mortgage with a variable interest rate, you might see a phrase like “prime plus” or “prime minus” followed by a percentage. With a “prime plus 0.5%” mortgage, your interest rate will be 3% if the lender’s prime rate is 2.5%. Your interest rate is currently 3.5%, but it would be 3.75% if the prime rate were to climb to 3%. How this affects your mortgage payments is conditional on the specifics of your variable-rate mortgage. In the case of some mortgages with a variable interest rate, the monthly payment won’t vary even if the rate does. Instead, it calculates the interest and principal components of each payment. When the interest rate on a loan drops, more of each payment goes toward paying down the loan’s principal. As the percentage used to calculate interest on your balance changes, the impact of an increase in the variable rate grows. Even if your monthly payment remains the same, the length of time it takes to pay off your mortgage increases as interest rates raise. Other types of mortgages, known as variable rate mortgages, feature payment adjustments (these are sometimes called adjustable-rate mortgages). If you have a mortgage with a variable interest rate, your monthly payments will fluctuate as the interest rate does. The amount you owe is calculated by multiplying the lender’s prime rate by the margin you agreed to in your mortgage contract (often a percentage point or two)

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