16 Apr

Purchase Plus Improvements


Posted by: Sarah Makhomet

Searching to find the right home is quite challenging.  There are a lot of things to consider – is it a good neighbourhood, are there good schools close by, shopping, close to work, or parks.  Once you’ve found the right neighbourhood, finding a great home can be more of a challenge, as often the homes in great shape have multiple interested parties (which can drive up the price). 

Many people will not look at homes that require work, as coming up with the down payment is hard enough – they don’t have the additional funds for any renovations the house may require. 

What if there was a way to buy this home & build the majority of you home improvement costs into your mortgage?

Something which is not talked about very often is a purchase plus improvements loan.  This type of loan is available through many mortgage lenders, as it’s a program supported by CMHC and other mortgage insurers.  This will allow the home buyer to purchase a house in need of some upgrades, and following completion of certain stages of the renovations, the majority of the costs will reimbursed by the mortgage lender, and build into the mortgage.  This program can be used for any renovations which increase the value of the house – which generally includes kitchen & bathrooms. 

Many banks do not promote this program, as they would rather offer you a high interest credit card or line of credit to use for these renovations.  This is a deterrent for many home buyers, as $10,000 on a credit card could run about $250 to $300 in additional payments (on top the mortgage payment).  To include this same $10,000 into the mortgage at current rates would cost less than $50 per month.

The same program could also be issued on a refinance.  This can be very helpful as current regulations cap refinances to 80% of the home value.  If you’re looking to refinance to complete renovations, yet this will run over 80%, this may be another way to access a little more money (as they may look at 80% of post renovation value).

It is important if you’re looking at purchasing a home, completing some renovations and using this program to discuss this with your mortgage broker at the time of application.

To discuss this or any other type of mortgage needs, please contact Sarah Makhomet or Jonathan Tillger at Dominion Lending Centres Mortgage Village – 416.901.7410.

2 Apr

What is better – a fixed or a variable rate mortgage


Posted by: Sarah Makhomet

Before talking about which is better, it’s important to first understand the difference between a fixed and a variable rate mortgage. 

With a fixed rate mortgage, your rate and payment remain the same for the term of the mortgage.  Since the interest rate does not change throughout the term, you know in advance the amount of each payment, and the amount of interest you pay during the term.

With a variable rate mortgage, both the interest rate and payment can change throughout the term of the mortgage.  At the start of a variable term, the rate is usually set in relation to the prime rate – for instance prime less 0.35%.  As the prime rate changes, the rate will change accordingly.  As an example, the current prime rate is 3.0%, so if the mortgage was set at prime less 0.35%, the current rate would be 2.65%.  If prime rises to 3.5%, the rate charge on the mortgage would change to 3.15%.

With a variable rate, the payment may remain fixed throughout the term, or it may change (depending on the policy of the lender).  If the payment remains fixed and the rate changes, what will then change is the percentage of payment which is applied to principle versus interest.


When you’re in the marketing for a mortgage and trying to decide whether a fixed or a variable rate will be better for you, there are a few things you may want to consider:


– Can you qualify for both a fixed and variable rate mortgage?

With recent changes in mortgage regulations, most mortgages that are either variable rate, or less than a 5-year fixed term, must qualify on the benchmark rate.  What this means is, despite the fact you’re getting a rate of 2.65%, you must qualify based on the payments being at the “benchmark” rate (currently 5.14%).  If you’re applying for a 5-year fixed rate however, you can qualify at the contract rate (currently around 2.89%).  Based on the mortgage size, some clients will only qualify for a 5-year fixed term.


– Are rates likely to rise, fall or stay the same over the term of the mortgage?

In either a falling rate environment or en environment where rates are flat, a variable rate mortgage will typically save you money.  In a rising rate environment, fixed rate will typically do better.


– Am you likely to sell my home or refinance mid term?

It’s important to look at your penalties to break your mortgage.  With most variable rate mortgages, the penalty is usually set at 3-months interest.  With most fixed rates, it’s the greater of 3-months interest of the Interest Rate Differential (IRD).  IRD can be quite significant, especially in a falling rate environment.  Before signing a fixed rate mortgage contract, it’s important to understand how IRD is calculated, as every lender calculates it different, and some can be quite severe – even in a rising rate environment.


– What is the current spread between the fixed and variable rate?

With a variable rate mortgage, you typically get a better rate (at the start of term), however the trade-off is less stability and the opposite for a fixed rate mortgage.  At the time you’re applying, how much of a rate premium do you need to pay for the rate security of a fixed rate mortgage?


– Are you comfortable with fluctuations in rates and payments, or do you want to know exactly what you’re paying every month?

Most people would feel great if their rate and payment were to decrease, but how would you feel if it increased, and now more money had to go toward your mortgage payment?


What are we currently recommending to our clients – based on current market conditions, many clients who are traditionally variable rate clients, are proceeding with fixed rate mortgages, for a few main reasons:

– There is very little (if any) spread between the variable and fixed rate

– In the short term (1 year) rates are anticipated to remain relatively flat.  In the mid to long term, it’s anticipated that rates will rise.


As for which is better, a fixed or variable rate – there is no right answer.  It’s important to understand  the pros and cons of each, so you can make an informed decision that is right for you.