Preapproval - High interest///Realtor with cash back.

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Jan 2nd, 2018 6:35 pm

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Jan 2nd, 2018 5:31 pm

vparvath [OP]: Jr. Member; Sep 23, 2014; 118 posts; 32 upvotes; Vaughan, ON

Jan 2nd, 2018 5:31 pm

Preapproval - High interest///Realtor with cash back.

I have got my approval done and the interest rate on it was 4.99%. I was told by the agent that during the time when we close the mortgage,the interest rate will be much lesser - he said ~ 2.79 (five year fixed) was the best rate . However I am not sure what my rate would be ? How do I go ahead to make an offer on a property when I am not confident of my interest rate and my numbers? Also I am looking for some realtors who have experience in west etobicoke/east Mississauga that offer Cash back. Please PM me.

4 replies

Jan 2nd, 2018 5:41 pm

speedyforme: Deal Guru; Dec 11, 2008; 10061 posts; 1512 upvotes

Jan 2nd, 2018 5:41 pm

You should be working with a mortgage broker. They can help you get preapproved and you will know the amount and interest rate that would be provided and by which lender.

Jan 2nd, 2018 5:46 pm

vparvath [OP]: Jr. Member; Sep 23, 2014; 118 posts; 32 upvotes; Vaughan, ON

Jan 2nd, 2018 5:46 pm

speedyforme wrote: ↑ You should be working with a mortgage broker. They can help you get preapproved and you will know the amount and interest rate that would be provided and by which lender.

I got my pre approval done through a mortgage broker , and the interest rate on my pre approval was 4.99%. He said it would be lower once I close the mortgage.

Jan 2nd, 2018 6:31 pm

CNeufeld: Deal Guru; Mar 23, 2008; 11710 posts; 7978 upvotes; Edmonton

Jan 2nd, 2018 6:31 pm

vparvath wrote: ↑ I got my pre approval done through a mortgage broker , and the interest rate on my pre approval was 4.99%. He said it would be lower once I close the mortgage.

According to current insured (<20% down) mortgages, what you qualify to borrow is calculated based on 5 year BOC rate. That's probably the 4.99%. So let's say based on your income and debt, you can borrow $500,000 @ 4.99% = ~3000/month.

But when you actually go to get a mortgage, the rate is 2.79%, because that's the best deal your broker can get you. $500,000 @ 2.79% = $2300/month.

Basically, OSFI is requiring the banks to provide a big cushion between what they figure the maximum is you can afford and how much you can actually borrow. So even if interest rates go up, you won't be house poor.

But get a full explanation from your broker. If you can't get one, get another broker. It should be pretty easy for them to explain to you, if they try. If not, try talking to one of the brokers in here (@CdnRealEstateGuy seems to be willing to explain things, for one).

http://www.cbc.ca/news/business/osfi-mo ... -1.4358048
Or as per the RBC website:

On October 17, 2017, the federal government announced changes to the interest rate used to qualify borrowers for a conventional mortgage (i.e. a mortgage where you have made a down payment of at least 20%). As of January 1, 2018, when qualifying clients for a conventional residential mortgage, RBC is required to approve a conventional residential mortgage at the greater of the client rate plus 2% or the 5-year benchmark rate published by the Bank of Canada.

Jan 2nd, 2018 6:35 pm

CdnRealEstateGuy: Deal Fanatic; Feb 2, 2014; 8477 posts; 2391 upvotes; Toronto

Jan 2nd, 2018 6:35 pm

CNeufeld wrote: ↑ According to current insured (<20% down) mortgages, what you qualify to borrow is calculated based on 5 year BOC rate. That's probably the 4.99%. So let's say based on your income and debt, you can borrow $500,000 @ 4.99% = ~3000/month.

But when you actually go to get a mortgage, the rate is 2.79%, because that's the best deal your broker can get you. $500,000 @ 2.79% = $2300/month.

Basically, OSFI is requiring the banks to provide a big cushion between what they figure the maximum is you can afford and how much you can actually borrow. So even if interest rates go up, you won't be house poor.

But get a full explanation from your broker. If you can't get one, get another broker. It should be pretty easy for them to explain to you, if they try. If not, try talking to one of the brokers in here (@CdnRealEstateGuy seems to be willing to explain things, for one).

http://www.cbc.ca/news/business/osfi-mo ... -1.4358048
Or as per the RBC website:

C

Yes, pre-approved rates can be quite high. Many lenders have posted rates that match the BoC rate and that's what you may get for a pre-approval. YOU WON'T GET A "COMPETITIVE" RATE FOR A PRE-APPROVAL. All the great rates you see in the mortgage thread are for approvals only.

But once you apply for an approval, you'll get a better rate.

Point of a pre-approval isn't to shop around for a rate anyways...it's just to know your budget before you start the grueling home buying process. If more buyers took pre-approvals seriously, we wouldn't have all the horror stories on RFD that seem to be popping up weekly now (where buyers are pulling out of purchasing a home at the very last minute because they can't get a mortgage).

Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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