It’s no secret that the interest rates have jumped quite significantly this year. With no end to rising rates in sight, we thought now would be a great time to talk about the mortgage products on the market today that can help you qualify more easily and provide you with more options.
Whether you’re looking to buy a home this year or get ready to switch your mortgage when the interest rates start to go back down, it’s good to know about the available mortgage options out there that will help you to qualify more easily, boost your borrowing power and even save more monthly. Let’s look at the 3 best products on the market today that will help you do that.
No Stress Test Options
If you’re stressed about the stress test, you’ll be happy to learn that you might be able to skip it altogether. Mortgage brokers work with lenders that qualify their clients on the contract rate and not the federally regulated stress test. These lenders also have larger debt servicing ratios which means more borrowing power.
This real life example showcases a client qualifying for a home with an income of $150,000 and monthly debts of $1000 (credit card payment and car payment), who was hoping to purchase a property in the GTA
- For calculation purposes, this scenario uses annual taxes of approximately $5000 and typical heating costs)
- Non-B20 Compliant lender – is a lender that is not required to follow the federal regulations that set out the stress test qualification.
|Federally Regulated Lender – Big Bank, Monoline||Non-B20 Compliant Lender – Credit Union, Alternative Lender|
|Term||5-year fixed||5-year fixed|
|Debt Servicing Ratio||GDS – 39% / TDS – 44%||GDS – 45% / TDS – 50%|
|Mortgage Amount (Max qualification)||$579,459.08||$826,791.69|
As you can see, the difference between the two is a much easier qualification and a boost in GDS/TDS ratios that would also allow for a significantly higher mortgage amount.
- Qualify on contract rate vs. the greater of 5.25% or 2% plus contract rate.
- Non-B20 compliant lenders often have higher GDS/TDS ratios allowing you to qualify for larger mortgage amounts
- Multiple lender options offering different rates and terms
- Alternative lenders require a minimum 20% down payment
- Slightly higher interest rate likely vs. a prime lender option
- Some lenders may charge a fee, but there are options with no fee so speaking with a mortgage broker can help
Want to learn which lenders offer these programs? Connect with a Pineapple mortgage broker today.
Cash Back Options
Since most buyers put all of their money into the down payment, this option can be a big help if you plan to renovate, purchase furniture, or upgrade some of the features. A cash back mortgage can provide you with a lump sum of money right when the mortgage closes. How much can you receive? Between 1 and 7%.
If you’re hoping to buy an $850,000 home and you have a $170,000 down payment, you could qualify for:
- A mortgage amount of $680,000.
- 5% cash back amount of $34,000 at closing.
This cash back amount is tax free and automatically included in the mortgage payment, so each monthly payment you make will go to paying it back. The only down side is that it comes with a slightly higher rate, usually 1 to 2% higher than a non-cash back fixed-rate option.
What happens if you decide to break your mortgage contract early (before it is paid off)?
You’ll be required to pay a portion of the amount back. For example, if you arranged a 5-year term and would like to switch to a different lender on your third year, you would be required to pay back $13,600.
$34,000 x 24/60 = $13,600.
The good news is you will likely be able to restructure your refinance to include this amount so you don’t have to pay anything directly out of pocket.
- Lump sum of money after closing.
- Pay back your mortgage and the cash-back loan at the same time with the monthly mortgage payment.
- Multiple lender options offering between 1 to 7% so you can shop around with your Pineapple mortgage broker for the best rates and terms.
- Slightly higher interest rates than a standard fixed rate mortgage.
- Often require solid employment and a good credit score to qualify.
- Fixed rate mortgage option only – no variable option – and lenders will have max cash back limits.
A mortgage broker can calculate the numbers for you to show you whether it’s better for you to use a cash-back mortgage vs. a standard one based on your current and future needs.
If another lender is offering a better rate and terms, you can move your current mortgage balance and remaining amortization over. When you do this, the new lender will pay out the older lender and register a new mortgage. If your mortgage is not yet up for renewal, there will be a prepayment penalty and other fees involved, such as a discharge fee, legal fees and appraisal costs. However, some lenders will reimburse you for these fees as an incentive to earn your business.
How does it work?
Below is a real life example of a client with a 1-year term on a 25-year amortization period loan with a high interest rate of 3.89% who took advantage of switching to a lender with a lower rate option through a switch/transfer promotion.
|Old Lender||New Lender|
|Original Loan Amount||$112,000|
|Amortization Remaining||24 years||24 years|
|Term||1 year fixed||5 year fixed|
|Fees to switch||$0|
On maturity so no penalty
$3000 promo amount available. Appraisal, discharge and legal fee was paid out of this $3,000 allowance.
- Take advantage of lower interest rates and save thousands of dollars over the term of the mortgage.
- To obtain better terms than your current mortgage, for instance, porting options, lower IRD penalties, 3-months interest rate penalty, etc.
- To get access to better prepayment privileges such as higher payment increases, double up options, and higher lump sum payment options.
- It is not the same as a refinance – you cannot change the amortization or amount of the mortgage.
- Slightly higher interest rate vs. a prime lender option.
- Some lenders may charge a fee, but there are options with no fee so speaking with a mortgage broker can help.
Not all lenders offer switch/transfer promotions. Find out which ones have the best options by connecting with a Pineapple broker today.
Pineapple is here to simplify the mortgage process and ensure you’re always in the best product for your financial goals. Speak to one of our brokers today who will help guide you in the right direction.