How This New Mortgage Trend Could Affect You
The mortgage lending rules are continuously changing, and with sudden highs and lows in the economy, some of these guidelines can have a tremendous impact on a buyer.
Subsequently, in recent years the stress test, qualifying rate, and benchmark rate were imposed by the Federal Government. They were brought in to ensure that if rates were to suddenly rise rapidly, which is inevitable at some point, homeowners would still be able to afford their homes.
However, some of the mortgage qualifying criteria needs to be revisited. What may have seemed like a protective measure in previous years is now more of a financial hindrance.
For instance, the goal of the qualifying rate was to protect the buyer in the future, but it comes at a heavy cost today. With historically low-interest rates, one must qualify at a rate that is 3% higher than the current offered rates.
Therefore, clients would pay the lower offered rate but must still qualify at a much higher rate. It could result in a difference of hundreds of dollars per month in borrowing power, which could even mean that many home seekers would miss out on qualifying for a mortgage.
Consequently, given that one must qualify at the higher qualifying rate, it would make sense to top up your monthly mortgage obligations now. For example, if your payment gets set at $1150 but your qualifying payment was $1400, consider making higher payments today so you don’t have the payment shock when rates rise.
It will help pay down your mortgage faster and allow you to take advantage of low rates where you’re gaining equity and eliminating large amounts of interest. You can always go back to your scheduled payments should you run into issues.
Keep in mind that as of January 2021, the government has not provided any information on when the current qualifying rate of 4.79% will get lowered. It makes it even more essential to have your credit and payments as solid as possible before applying for mortgage financing.
On a final note, remember, that what your friend qualified for last year may no longer be applicable, or maybe the rate was better based on their particular circumstances. So, you will have to make educated decisions based on your unique situation and the information at your disposal.
Therefore, working with a licensed professional mortgage broker can provide clear and precise information. They will guide you on how to best position yourself to renew, refinance, or receive the keys to your dream home.
So if you need assistance with any aspect of the mortgage process, give me a call today. With twelve years of experience, Leanne Gould Mortgage Broker in Alberta will help you with your mortgage needs.
My services include construction/draw mortgages, renewals, refinancing, and home equity line of credit. I also offer self-employed mortgages, rental property finance, reverse mortgages, and organize alternate/private lenders for clients.
I serve clients across Alberta and Canada wide, including Wetaskiwin, Ponoka, Bashaw, Lacombe, Blackfalds, Rocky Mountain House, Sylvan Lake, Red Deer, Stettler, Innisfail, Bowden, Olds, and Didsbury.