Real Estate

The Official Mortgage Rates Thread

Member
Oct 4, 2008
344 posts
83 upvotes
I plan to buy a vacant land or old home, and hire a general contractor/builder to build a new single home in Ontario. Is any mortgage agent here with construction mortgage experience? For example, qualifying requirements, application & draws processes, and fee if any, among banks, credit unions and specialized construction financing lenders?

Thanks
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Sep 13, 2011
4811 posts
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Shaidin wrote:
Dec 31st, 2018 11:29 am
I am getting closer to my first mortgage renewal time now. I was expecting renewal documents from CIBC, but when I called in they said they only send out 30 days in advance of renewal?
Anyways the early renewal rates they offered over the phone seemed pretty poor.

Renewal Offer from CIBC:
5 year variable 3.28% (Prime - 0.67%)
5 year fixed 3.74%
3 year fixed 3.64%

Property Info:
City: Oshawa
Purchase date: March 14, 2014
Original Purchase Price: $344,000
Downpayment: 20% (non-insured mortgage)
Current Market Value: ~$500,000 to $520,000
Mortgage balance at maturity: $192,792
Current mortgage: 5 year variable (Prime-0.5) with CIBC.
Renewal Time: March 14, 2019
Household Income: $180,000
Credit Rating: 879

The only reason I still consider CIBC at all is that I do take advantage of their doubled-up payment options. But not if the rates are that much higher, and I could still do 20% lump sum payments with other lenders.

What rates would I be looking at from a broker?
Lowest 5 year fixed rate would be 3.44% or 5 year variable at prime -1.24% (2.71%).

CIBC's prepayment privileges are nothing special and there are better out there actually, as they are with these options. It has full 20/20 prepayment privileges, meaning you can increase your payments by up to 20% and/or pay up to 20% of the original mortgage balance per year, over and above your scheduled payments. You can do any combination of both and can max out each. There is no limit to how many times you can make lump sum payments, as long as they fall on a scheduled payment date. So technically, you could pay your entire mortgage off in as little as 4 years (on paper).
Paul Meredith
Mortgage Broker, Author
CityCan Financial Corp (lic. 10532)
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Dec 23, 2012
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RICHMOND HILL
Mike15 wrote:
Dec 31st, 2018 10:17 am
How? If you put down 5% instead of 20% you're taking on an extra 4% onto your mortgage principal balance.

Simple math $500K scenario (you need 10% down on the portion of purchase price above that):
$500K
5% down = $25K
Base mortgage $475K
4% CMHC Premium on base mortgage = $19K
Total mortgage $494K @ 3.34%
$75K earning 3.75%

vs.

$500K
20% down = $100K
Total mortgage $400K @ 3.54%

The arbitrage on the $75K comes nowhere close to covering the $19K insurance premium you're adding to your mortgage.
Yeah you're right I miscalculated :D
Member
Jan 7, 2013
417 posts
176 upvotes
Oshawa, Ontario
PaulMeredith wrote:
Dec 31st, 2018 11:37 am
Lowest 5 year fixed rate would be 3.44% or 5 year variable at prime -1.24% (2.71%).

CIBC's prepayment privileges are nothing special and there are better out there actually, as they are with these options. It has full 20/20 prepayment privileges, meaning you can increase your payments by up to 20% and/or pay up to 20% of the original mortgage balance per year, over and above your scheduled payments. You can do any combination of both and can max out each. There is no limit to how many times you can make lump sum payments, as long as they fall on a scheduled payment date. So technically, you could pay your entire mortgage off in as little as 4 years (on paper).
Thank you Paul!

If you increase you monthly payments by 20%, are you still able to later reduce the payments back to the original amount if required (due to change of life circumstances, etc)?
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Feb 2, 2014
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maho wrote:
Dec 31st, 2018 11:35 am
I plan to buy a vacant land or old home, and hire a general contractor/builder to build a new single home in Ontario. Is any mortgage agent here with construction mortgage experience? For example, qualifying requirements, application & draws processes, and fee if any, among banks, credit unions and specialized construction financing lenders?

Thanks
I've financed quite a few construction loans. IMHO Scotia has the best one. I would use them.
Kevin Somnauth, CFA
Owner/Principal Broker - First Toronto Mortgage - Mortgage Architects (#13176)
Real Estate Salesperson - Century 21 Innovative
President's Club Award Winner At The Mortgage Architects
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Mar 4, 2007
389 posts
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Calgary
PaulMeredith wrote:
Dec 31st, 2018 8:23 am
It NEVER makes sense to put down less money and pay an insurance premium, just to get a lower rate. So many get so caught up on getting the lowest rate and they forget about the most important thing. Cost. Rate is meaningless by itself.
If you were purchasing for $650,000 and you were offered a rate of 3.34% if you were to put down 19.99% and pay the insurance premium, vs a rate of 3.54% by putting 20% down, the lower rate option with the premium would cost you $10,819.31 more. It's not even remotely close. Rate would have to be around 0.75% lower with the insured mortgage, and that would just be to break even.

As you can see, it doesn't make sense. Wherever possible, put down 20%.
Just trying to wrap the head around the math. So you're saying over a 25 year ammort, there would be a total of $10,891 more in interest payments in the scenario you described? That would be interesting because the spreadsheet shown to me shows that with the lower down payment(15%), the cumulative interest was less than the 20% DP after 25 years.
Member
Mar 4, 2007
389 posts
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Calgary
CdnRealEstateGuy wrote:
Dec 30th, 2018 6:55 pm
If you need the money to build the home, you need to get construction financing.
Building with a reputable builder, not building on our own.
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Feb 2, 2014
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Siralex wrote:
Dec 31st, 2018 8:14 pm
Building with a reputable builder, not building on our own.
So you own the land and hiring a builder to build?

You need construction financing for money to pay for construction.
Kevin Somnauth, CFA
Owner/Principal Broker - First Toronto Mortgage - Mortgage Architects (#13176)
Real Estate Salesperson - Century 21 Innovative
President's Club Award Winner At The Mortgage Architects
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Sep 19, 2012
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PaulMeredith wrote:
Dec 31st, 2018 8:23 am
It NEVER makes sense to put down less money and pay an insurance premium, just to get a lower rate.
Are you saying we can’t be ahead financially if we reduce our down payment (DP) and pay the insurance premium? If yes, I disagree because the result will be dependent on what the foregone DP will be used for and on the delta in “conventional vs non-conventional” rates.
Mike15 wrote:
Dec 31st, 2018 10:17 am
Simple math $500K scenario (you need 10% down on the portion of purchase price above that):
$500K
5% down = $25K
Base mortgage $475K
4% CMHC Premium on base mortgage = $19K
Total mortgage $494K @ 3.34%
$75K earning 3.75%

vs.

$500K
20% down = $100K
Total mortgage $400K @ 3.54%

The arbitrage on the $75K comes nowhere close to covering the $19K insurance premium you're adding to your mortgage.
Over what period? Assuming a 4% insurance premium, a 20bps spread between insured and uninsured rates, and setting for mortgage payments to be equal, when I run the math over an 5 year period I need to earn ~6% on the $75k to break even. As the time horizon expands that rate becomes smaller and smaller (for example, over 8 years I need ~4.5%). You have to run the math based on the expected period over which you'll have a mortgage loan.
Member
Mar 4, 2007
389 posts
34 upvotes
Calgary
CdnRealEstateGuy wrote:
Jan 1st, 2019 10:26 am
So you own the land and hiring a builder to build?

You need construction financing for money to pay for construction.
A little confusion here. We are purchasing a new home from a builder but we get to decide what furnishings go in there. Hope that clarifies.
Newbie
Dec 25, 2018
2 posts
Mississauga, ON
Hi folks,

Currently with First National, approaching renewal.

Property Info:

City: Mississauga
Purchase date: May 2014
Original Purchase Price: $500k
Downpayment: 13% (insured)
Current Market Value: ~$650k
Mortgage balance at maturity: $350k.
Current mortgage: 5 year fixed 3.09% First National.
Renewal Time: May 31, 2018
Household Income: ~160k.
Credit Rating: 800+

Received an offer from Td for a 3.17% variable.
Appreciate any feedback on the better rates you have access to.

Thanks
Newbie
Jul 14, 2008
52 posts
16 upvotes
My mortgage (standard and not insured) isn't up for renewal until June but I have a couple of questions regarding rates and LTV. My current LTV (and when I will renew) is in the 65% to 80% range.

If I were renewing now, I'd be going with the 5-year variable. With the rates that have been posted recently, it appears to me that the variable would be roughly 0.19% cheaper if my LTV were less than 65%.

Assuming that differential is still the same within 90 days of my mortgage renewal, can I get a rate hold for a LTV<65% option and then use my prepayment options to reduce LTV right before my renewal date?

Secondly, is the house value used for that the LTV calculation always based on the appraisal when the mortgage was first financed or would it be based on a new appraisal with a new lender?

Thanks for your help.
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Nov 24, 2013
5683 posts
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Kingston, ON
ahlaker wrote:
Jan 1st, 2019 11:30 am
Are you saying we can’t be ahead financially if we reduce our down payment (DP) and pay the insurance premium? If yes, I disagree because the result will be dependent on what the foregone DP will be used for and on the delta in “conventional vs non-conventional” rates.

Over what period? Assuming a 4% insurance premium, a 20bps spread between insured and uninsured rates, and setting for mortgage payments to be equal, when I run the math over an 5 year period I need to earn ~6% on the $75k to break even. As the time horizon expands that rate becomes smaller and smaller (for example, over 8 years I need ~4.5%). You have to run the math based on the expected period over which you'll have a mortgage loan.
The person I responded to was comparing to a 5yr GIC rate with a small differential. Now you're comparing to investing in ??? to get a 6% return, and introducing risk into the equation. You also mention setting the mortgage payments to be equal, but if you're trying to leverage your mortgage to make a higher return, you'd want to calculate investing the ~$420/mo differential in mortgage payments ($2,431 vs. $2,011 using the numbers above) at that same rate of return.

Rate at renewal is unpredictable, but running with today's 5yf rates (for lack of better alternative) and your 6% return scenario for 25 years gives you the following outcome:
Mortgage $494,000 @ 3.34% * 300 payments = $729,267.98 paid
FV of $75,000 @ 6.00% = $334,872.74
vs.
Mortgage $400,000 @ 3.54% * 300 payments = $603,325.67 paid
FV of $419.81/mo @ 6.00% = $290,924.21

Basically paying $126k less on your mortgage over 25 years, investing that cash flow instead at 6%, comes out $44k behind the scenario of investing the $75k upfront. At 5%, the numbers are $250k vs. $261k, or only $11k behind on the long-term time horizon. At 4.5%, investing the $420/mo instead of the $75k upfront comes out ahead (by ~$1,600 future dollars). Looking at GIC rates or looking at a snapshot earlier in time, the lower mortgage and having the free cash flow to invest comes out ahead (your mortgage balance will be lower at any point in time). So sure, there's a theoretical scenario with a high rate of return over a long enough time that investing the $75k up front wins out, but it's not a risk-averse option. It's also assuming you have $75k upfront of tax-free or tax-deferred investing room, otherwise it changes the outcome even more.
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Feb 2, 2014
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Siralex wrote:
Jan 1st, 2019 5:25 pm
A little confusion here. We are purchasing a new home from a builder but we get to decide what furnishings go in there. Hope that clarifies.
That is why I asked if you are building a home or buying a new home. You are buying a new home, not building it.
Kevin Somnauth, CFA
Owner/Principal Broker - First Toronto Mortgage - Mortgage Architects (#13176)
Real Estate Salesperson - Century 21 Innovative
President's Club Award Winner At The Mortgage Architects

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