Residential Mortgage Rates

With the latest Bank of Canada 25 basis point drop, it is a good time to discuss rates again. Remember that the rate announcement ONLY directly affects variable-rate mortgages. Fixed interest rates do not automatically change, as these are directly affected by daily bond yields. Since the media does not focus on these, they fly under the radar even though they fluctuate daily.

What Rates Apply to Your Transaction?

Before COVID, rate discussions with our clients primarily involved deciding between 5-year fixed or variable mortgage rates. The lending landscape has dramatically changed since then, and rate conversations are now (and should be) more about “Mortgage Strategy” based on individual circumstances and transaction type. Not everyone will qualify for the same rates as lending guidelines and pricing have become more complex and transaction-specific.

Details That Impact Mortgage Rates

Client Type: Are you a new or existing client with the lender?
Amortization Length: Are you taking a 25-year amortization or longer?
Property Type: Owner Occupied or Investment, # of Units, Usage, Size
Number of properties held
Back-End Insurance: Can the lender insure (securitize) the mortgage at their cost to reduce your rate?
Income Qualification: Are you qualifying using declared taxable income?
Debt Servicing Ratios: Do they exceed the standard levels?
Credit Profile: Both credit score and history.
Loan Amount: The size of the mortgage.
Mortgage Type: Is it a first or second mortgage?
Property Location: The property’s geographical area
Registering a property in a personal or corporate name

There are many other additional factors, too, making the days when we could provide a fast, accurate rate quote obsolete.

Online Interest Rate Marketing

Remember that the lowest possible rates are generally what you will see marketed online. Then, in small print somewhere on the page, something along the lines of conditions apply, or these rates apply only for default insured purchase transactions.

You will generally see a different rate if you do anything other than an insured purchase. An insured transaction means that the lender is protected in case of default. Therefore, they offer the best pricing as their risk is reduced.

Still, though, while rates are important, it’s only one piece of the puzzle. The wrong mortgage strategy (or product) with the lowest rate will often disappoint and eliminate any savings you hope to realize.

Always consider the importance of:

Mortgage Strategy
Full-Featured Product with No Restrictions
How the Lender Calculates Penalties
Amount of Mortgage Charge Registered on Title VS Loan Amount
Service Level as Your Time is Worth Money and Better Service = Less Stress

The person arranging your financing needs to understand your situation and goals to offer you the best possible options. Working with the right people ensures that you are well-equipped to navigate the complexities of the mortgage market and secure the best possible outcome.

Growth of Alternative Lending (B-Tier)

The alternative lending industry continues to grow significantly as banks and other A-tier lenders increasingly turn away new and existing clients for various reasons. B Tier lending offers more flexible lending guidelines in exchange for a higher cost of borrowing. In some cases, B lending is a long-term play, and in other cases, it is used as a stepping stone until the client can once again qualify for the best financing terms. Nobody wants to pay more for the money, but it often makes sense if it gets the job done.

Growth of Private Lending (C-Tier)

Private lending is another financing option when neither A nor B-tier lending is possible. The offering, once again, offers even more flexibility for a higher cost of borrowing. Depending on the situation, private lending can also be the financing solution of choice.

(Many High-Net-Worth Clients with Perfect Credit Use Both B Tier and Private Lending)

You always want to work with an experienced, skilled professional who can explain when and why this lending makes sense.

Interest rates and setup fees should be factored into the cost of borrowing.
Renewal Options – Will the lender renew if needed, and what will the cost be?
Open and Closed Terms – Is paying this off flexible, and what will that cost?
Exit strategy – Is there a realistic plan to transition out of private lending?

As with any lending, you want to ensure you compare apples to apples when comparing lending offers- especially with Private Lending. You want to make sure you know about all the costs associated with the transaction to reduce the chance of being told on closing that you are short funds to close, as this happens all too often due to all kinds of fees that can be added.

Private lending should always be a short-term lending solution (max 1 year)

A Tier Clients Being Pushed to the B or C Side

Investors with investment property portfolios face unique challenges today with traditional banks, as lenders deem investment properties risky for the following reasons.

Potential tenant payment issues.
Vacancy
Higher interest rates reduce property cash flow.
Tenants that don’t maintain the properties create expenses for the owner.

These are all common reasons banks want to limit how many investment property mortgages they have on the books. It has become increasingly common for clients to be told that their bank will not finance any further investment properties. Lenders will even decline to renew existing mortgages for clients with long-term relationships upon maturity, forcing these clients to explore alternative options.

Lending regulations and processes continue to become more complex and often frustrating. Our role is to help you navigate the options, make suggestions and set you up for success.

Remember, there is NEVER any sales pressure; it’s not how we do things.

Discussions are always calm, and all questions get answered, even those you may not think to ask. Once the transaction closes; we are still there to help when needed too.