These days, mortgage broker Birgit Holm finds herself telling some clients not to worry too much. Interest rates are rising, and that is generally not welcome news for homebuyers applying for a loan and homeowners with existing mortgages.
Holm has been a mortgage broker for 13 years, and she understands the positive underlying reason why interest rates are going up after having stayed at historic lows for many years.
“The economy is improving,” Holm told the Georgia Straight in a phone interview. “So I tell my clients the fact that rates are going up is a good sign.”
Major banks have boosted their prime lending rates to 3.2 percent, following a move by the Bank of Canada on September 6 to raise its trendsetting rate for the second time this year. There is much speculation that a third increase may occur before the end of 2017 because of the strong performance of the economy.
“When I started, rates were in the five-percent range,” Holm recalled. “Now they’re a lot lower, and they’re creeping up again and people think, ‘Oh no. They’re so high,’ and I say, ‘No, they’re not high. It’s still really low.’ ”
To those looking to purchase their first home, Holm suggests building a long-term relationship with an experienced mortgage broker to guide them through such things as paying down some debt and improving credit.
Holm also shared some of her other thoughts.
Best way to avoid long-term trouble with a mortgage
“Have a plan. Work with an experienced mortgage broker who will help you plan for the long term—maybe set you up in a mortgage with a 30-year amortization, but pay as though it is at 25 years. If you come into tough times, you can always go back to the smaller payments. Have a budget in place. Plan to make extra payments annually that will go directly towards your principal. Know in advance what the possible penalty could be for breaking the mortgage. Sometimes those ‘low rate specials’ have extra costs in the fine print, such as hefty penalties. Lowest rate is often not the best choice.”
Best story for saving for a down payment
“More often than not, parents these days are helping out and gifting their kids a sizable down payment. Many of my clients have chipped away month to month, putting savings away. As equity has grown in their home, some clients have been able to tap into that equity to get the down payment for the next purchase. I have clients that now have three properties that I have helped them purchase over the years by using this technique.”
Best way to pay off a mortgage
“Set your payments to the highest amount comfortable for you. Make at least two extra lump-sum payments per year. Make use of those prepayment options. Ask your broker what the prepayment allowance is.”
Best neighbourhood to retain home value
“Anything in the Lower Mainland. Best to ask a realtor.”
Best emerging Vancouver neighbourhood
“Near my hood in Strathcona—the East Hastings corridor.”More