Should you consult a mortgage broker when the key interest rate goes up?

What type of mortgage rate should you choose when the Bank of Canada (BoC) raises its key interest rate? The answer may not be as simple as you think. Fortunately, mortgage brokers can offer sound advice.

Mortgage brokers: Market experts

Brokers can find and negotiate the conditions, term, and rate that best fit your needs and the state of the economy. These experts have access to products from over 20 financial institutions. Given their high business volume and knowledge of the market, they can offer lower rates than those generally posted by these institutions. In a bullish market, brokers can help mitigate central bank increases and maintain payments that work with your budget.

What’s more, if you plan to buy a property in the next six months, a mortgage broker can get you preapproved for a mortgage, which guarantees (locks in) the interest rate and provides you with short-term protection from rate fluctuations. This type of commitment, negotiated by the broker, gives you the freedom to shop around without having to worry about changes made by the central bank or shifts in the market.

Fixed and variable rates

In a bullish market, should you choose a low but changeable variable rate or a higher but stable fixed rate?

A variable rate mortgage will go up or down depending on changes in the key interest rate. As a borrower, you’ll benefit from rate decreases but pay more if the BoC raises its rate. Some financial institutions offer other types of variable rates that appear to provide payment stability, but be careful. Your mortgage broker will be able to explain the pros and cons of such products.

Fixed rates, on the other hand, protect you from rate hikes for the duration of the contract. They provide a certain amount of stability, in that your monthly, bimonthly, or weekly payments will never change. Not surprisingly, two-thirds of borrowers in Canada opt for fixed rates, especially at times when the key interest rate is constantly changing.

Of course, everything comes at a price. Fixed rates are slightly higher than variable rates because they include a premium that guarantees peace of mind. Once again, your mortgage broker can determine whether a fixed or variable rate would be best for you.

Assessing your risk tolerance

Before making a decision, you need to assess your tolerance for uncertainty—especially if the key interest rate is likely to go up, as it is this year. Your mortgage broker can help.

For example, if you had a mortgage of $300,000, every 0.25% increase would cost you hundreds of dollars each year. If you were both psychologically and financially ill-equipped to handle such significant monthly fluctuations, your broker would recommend choosing a fixed rate: more expensive, perhaps, but also more stable.

Establishing a borrowing profile

Your mortgage broker can also help you make sense of your borrowing profile and determine your payment capacity. For instance, if you are just starting out in life and have little in the way of finances, your broker might recommend a product and term suitable for someone with limited funds.

Compared to fixed rates, variable rates are typically lower and more profitable over the long term. This makes them popular among individuals with a high risk tolerance and the financial breathing room to take market upswings in stride. A good mortgage broker will advise you on your borrowing capacity and avoid contracts that would push you to your limit.

Whether you are looking to finance a new purchase or wish to refinance or renew a mortgage, your mortgage broker will make sure to submit the right applications on time, present you with different product options, and take care of all of the paperwork.

Mortgage broker expertise

Mortgage rates are determined by financial institutions in response to the rise and fall of the key interest rate set by the BoC and bond rates. They comprise a dynamic market influenced by several aspects of the Canadian economy: international trade, unemployment, and inflation.

Mortgage brokers use their extensive knowledge of this market and the economy to gather all the right information and analyze it for the benefit of their clients. Their insight is all the more crucial given that the BoC has already warned Canadians of the dangers of debt—a sign that the key interest rate is likely to go up over the course of the year.

Before focusing on what you think the central bank’s governor plans to do, sit down with your broker and take a close look at your personal and financial situation. Keep in mind that our brokers have access at all times to more than 20 lenders and can offer you diversified products with conditions that meet your needs. What’s more, you don’t pay a cent for their services, as they receive a commission from the financial institution.

A step-by-step guide for first-time home buyers

by Multi-Prêts Mortgages, in collaboration with National Bank.
Buying your first house is an important life step. When you become a property owner, you take on all kinds of new responsibilities. To help you prepare, we’ve listed nine key steps to buying your first property. The timeline is provided as an example only and may vary depending on your situation.

Day 1 – Make your budget

Before you start visiting potential homes, it’s important to take stock of your current financial situation. Make note of your income and expenses as accurately as possible. Try to be honest with yourself. Fight the temptation to include potential sources of income such as inheritance money, lottery winnings, or a salary increase.

Next, subtract your expenses from your income. Is the total a negative number? Since owning property generally costs more than renting, you might not be ready to make the leap. Before investing in property, try to reduce your spending and pay off your debts. If your total is positive, however, you’re probably ready to take the next step.

Day 2 – Calculate your borrowing capacity

Your borrowing capacity is the maximum amount you can borrow for your house. Creditors generally use two indicators to determine what kind of mortgage you can afford: gross debt service (GDS) and total debt service (TDS).

The GDS is used to check whether your housing costs, which include your mortgage payments, school taxes, municipal taxes, and heating costs, fall within the accepted range of 32% to 39% of your annual income for an insure mortgage.

With the TDS, creditors determine the percentage of your total loans and debts in comparison with your annual income. This amount, which must not exceed 44% for an insure mortgage, includes your total mortgage loan, as well as any car loans and credit card interest charges.

In addition to these two ratios, you need to work out the amount of your down payment. It must be at least 5% of the value of the property you intend to buy. For first-time buyers, coming up with this sum can be daunting. Of course, you can choose to dip into your personal savings. However, you also have the option to withdraw up to $35,000 of your RRSP as part of the Home Buyers’ Plan (HBP).

To calculate your borrowing capacity, make an appointment with a Multi-Prêts broker for assistance.

Day 3 – Calculate additional expenses

Buying property comes with inevitable extra expenses. In addition to property inspection and assessment fees, you need to consider notary fees, tax adjustments, moving fees, and the infamous transfer tax (welcome tax). Don’t get caught unawares! Make sure to plan ahead and save up for these extra expenses. If you don’t have the required funds, you might need to delay your homeownership project by a few months.

Day 4 – Get your mortgage pre-qualified

There’s one final, important task that you need to complete before you can start visiting homes: getting your mortgage pre-qualified. A pre-qualified loan gives you a better idea of how much you can afford to borrow. You’ll be more credible in the eyes of potential sellers and have a clearer idea of your ideal property. For example, if you’re pre-qualified for a $300,000 loan, you definitely won’t be visiting homes valued at $500,000.

Plus, the qualification process only takes a few minutes and can be completed in the comfort of your home. At Multi-Prêts, we have an online tool that allows you to get the best deal among 20 mortgage lenders.

Day 5 – Find your dream home

Do you want to live in a bustling urban neighbourhood or a quiet suburb? Are you looking for a single-family home, a duplex, or a bungalow? Would you like a brand-new property or a fixer-upper? Do you want to live near public transportation, schools, or grocery stores?

List your main criteria and start house hunting. Make sure to keep your budget and borrowing capacity in mind during your visits. You might also need to make a few sacrifices to get the house of your dreams.

If you don’t know where to start, a real estate agent can help you with your search.

Day 35 – Make a promise to purchase

Have you found your dream property? It’s time to sign a promise to purchase agreement. By doing so, you inform the seller of your intention to purchase their property under certain conditions. The document sets out the names of the parties, the price offered, the items included in the transaction, a description of the building, the amount of the down payment, and the date you’ll take possession of your new property.

Sellers usually have 10 days to respond to your offer. They may counteroffer with a higher price. It’s up to you to decide whether or not to accept.

Overwhelmed at the thought of drafting a promise to purchase yourself? You can ask your notary to draw it up for you.

Day 45 – Get a mortgage

Congratulations! Your promise to purchase was accepted. Now’s the time to apply for a mortgage. You can submit your application to a financial institution or a mortgage broker.

Working with a broker is particularly useful if you’re a first-time buyer. These mortgage experts are equipped to guide you through every step of the process. They’ll help you calculate your borrowing capacity and put your loan application together. Most importantly, they’ll find the best possible mortgage rate and terms for your situation. 

Do you want a fixed or variable interest rate? A mortgage term of one, two, or five years? An amortization period of 15, 20, or 25 years? There are many questions to consider with your broker that depend on your risk tolerance and budget.

No matter what you decide, remember to bring them all the necessary documents, including your pieces of identification, promise to purchase, and proof of income. Once your application has been submitted, you should receive a response within three business days.

Day 50 – Make two appointments with your notary

Break out the bubbly! Your application has been accepted by a mortgage lender. You can now make an appointment with a notary. Two visits are usually necessary: The first is to sign the deed of loan. You’ll then need to wait 3 to 10 business days before seeing your notary again. During the second meeting, you’ll sign the deed of sale in the presence of the sellers and the legal advisor. 

Day 60 – Move in and enjoy your new home!

The big day has arrived! It’s time to take possession of your property. Don’t forget to update your address with government agencies and your utility providers.

Once this final step is done, you can finally sit back and enjoy your new home.

Key takeaways

• Before you start visiting properties, make a budget and calculate your borrowing capacity so you don’t get slammed by surprise expenses.
• Contact a mortgage broker for help applying for a mortgage, even if you don’t plan to make an offer for several months.

Cohabitation agreements for unmarried people

Common-law union. Two unmarried people become common-law spouses when they share the same roof for over a year, or from the moment they have a child together. Regardless of the length and stability of their relationship, Quebec law does not grant them the same protections as it does to married couples.

Preferring to manage their household more freely, more and more couples in Quebec are opting for a common-law union. Indeed, cohabitation is more flexible than marriage when it comes to managing the family unit.

And yet, should the couple part ways, there’s a legal gap when it comes to the effects on their financial estate.

The purpose of a cohabitation agreement

After a separation, the common-law spouse has no right to the protection of the family residence, to the separation of assets or alimony.

They do not automatically inherit anything after the other person’s death, unless it has been arranged for ahead of time in a will.

Yet, in Quebec, nearly 40% of couples are in common-law unions, and two thirds of children are born outside of marriage. Many families therefore find themselves in a financially precarious situation following a break-up. That’s why it’s recommenced that common-law spouses plan dispositions regarding the eventual split of family assets.

The shape of the document

A cohabitation agreement can include all sorts of dispositions, as long as they are in agreement with the law. The document can be notarized or done through private signature. It’s recommended to get it notarized, however, as it will be harder to contest and will remain preciously inscribed in the notary’s minutes. As for the substantive laws, the same conditions apply as for a contract.

Two types of conventions are preferred, autonomist and participative. The former generally allows the common-law couple to decide which specific goods they wish to share (house, cottage, furniture, vehicles). The latter states that all assets acquired by the couple during their cohabitation will be separated in half, thus amounting to a matrimonial regime for married couples.  

Clearly, it is recommended to call upon a notary to prepare a cohabitation agreement.