Currently, mortgage rates are on everyone’s mind.

We turned to our network of trusted mortgage specialists to provide some insight for you to get started on your decisions around this important dynamic in the Montréal real estate market.

Independent mortgage broker Philip Sanchez, and Steve Vallières, Director of Mortgage Development for the National Bank of Canada, join GREENPRINT to share their knowledge and perspectives.

1: Variable v. fixed rates? What is the difference between the two? Which do you recommend to buyers?

Philip Sanchez: As the name states the Variable rate could change during the mortgage term based on the fluctuation of the Bank of Canada’s the Prime rate (usually the rate is determined using a discount from the Prime). A variable rate could be converted to a fix rate during the mortgage term at any time without any penalty. Historically, clients with variable rates have come out winning and the penalty could be considerably lower than with a fix rate.

A Fix rate is locked in for the period or term (usually 5 years) and provides clients consistent and stable payments. A fix rate cannot be converted into a variable rate during the duration of the term without breaking the mortgage and penalties could be considerably higher than with a variable rate.

As a mortgage broker I provide all the information to the clients, stating the pros and cons of each product along with the different Lenders for them to make an informed decision that best suits their needs. There are many factors to consider including their future plans as well as their risk tolerance.  Regardless of the product and Lender they select, clients must be completely comfortable with their choice.

Steve Vallières: Les clients qui choisissent leur financement hypothécaire avec un taux d’intérêt fixe ne seront pas affectés par les fluctuations des taux du marché, et ce jusqu’au renouvellement de leur hypothèque. En effet, le taux est fixé pour la durée du contrat. Lorsqu’un renouvellement du contrat a lieu, les nouveaux taux entrent alors en vigueur. Les clients qui choisissent un taux d’intérêt variable verront leur taux changer lorsque la Banque du Canada confirme un changement du taux directeur. Le taux directeur est influencé par plusieurs variables, telles que l’inflation et l’économie locale ou internationale.

Ma recommandation est d’avoir une conversation avec votre spécialiste hypothécaire et prendre la décision qui répond le mieux à vos besoins et votre tolérance au risque. Il n’existe pas de formule qui fonctionne pour tous. Les conseils d’un professionnel seront d’une grande aide lors de la prise de décision.

2: The pre-qualification process is stricter since June of last year. Have you noticed that fewer buyers are pursuing pre-qualification as a result? Is the bank approving fewer files than they were prior to the changing of the qualification rates?

Philip Sanchez: In the past few years, the Office of the Superintendent of Financial Institutions (OSFI) has changed the rules and criteria in order to qualify mortgage files. The last modification to these rules and criteria were issued in June 2021 and it has become more difficult to qualify. In other words, the same clients with same income and debts would qualify for a lower mortgage amount after June 2021. The Lenders and Insurers have also become stricter during the pandemic especially in certain types of files and industries.

This is why an elaborate Pre-authorization is so important at this point in time for all parties involved (clients, real estate and mortgage brokers).

Steve Vallières: Au contraire, je remarque que les clients ainsi que les professionnels de l’immobilier qui les assistent dans leurs recherches reconnaissent davantage l’importance que les acheteurs soient préapprouvés pour leur financement. Le marché immobilier actuel est très compétitif et avoir en main une préapprobation d’une institution financière peut parfois vous avantager lorsqu’une promesse d’achat est déposée. Il est vrai que quelques changements apportés aux règlementations ces dernières années affectent la capacité d’emprunt de certains de nos clients, mais l’objectif des banques demeure d’assister un maximum de clients à réaliser leurs rêves d’acquisition de propriété. Encore une fois, la bonne prise en charge et préparation de votre spécialiste en financement assurera que vos attentes sont réalistes et qu’il n’y aura pas d’imprévu au moment de la demande d’approbation de votre prêt hypothécaire.

3: Have you noticed an increase in refinancing among current homeowners?

Philip Sanchez: I have definitely noticed an increase in refinancing among current homeowners, not only at the time of the mortgage renewal but also before the end of the term which involves breaking the mortgage term. Breaking a mortgage requires paying a penalty however some lenders charge significantly less in penalties than others. In the past 2 years property values have increased considerably therefore many clients were able to refinance their properties and came out winning with a lower rate, even after paying the penalty. Clients use the proceeds from refinancing for different reasons such as: renovations, consolidate debts, purchase of a car, secondary home, or a rental property.

There is a product available which I believe is extremely underutilize and I suggest it to clients that wish to renovate after they have purchased. Some Lenders will allow to finance the renovations and improvements at the time of purchase. By doing this the clients do not have to get into additional debt after their purchase with credit lines, personal loans or credits cards which carry a much higher interest rates that a mortgage loan.

Steve Vallières: L’augmentation importante de la valeur des propriétés ces dernières années a certainement fait en sorte d’augmenter le nombre de propriétaires qui désirent refinancer leurs propriétés. Ceci leur permet de réaliser plusieurs projets tels que des rénovations, des investissements ou simplement pour rembourser des engagements de crédit à plus haut taux d’intérêts. Les banques s’assurent toujours d’octroyer le financement en considérant une valeur de propriété qui est représentative du marché actuel. Plusieurs clients optent pour la rénovation versus la vente et l’achat d’une nouvelle propriété, considérant le nombre très limité de propriétés en vente actuellement.

4: What path(s) do you suggest for first time buyers, who have a more limited budget, and are hoping/assuming that focusing on saving more money before buying is the way to go? Should they wait and save, or should they strike sooner than later? 

Philip Sanchez: My strategy is to pre-authorize clients in order to determine if they qualify for a mortgage as well as the maximum amount. Based on the current market and the lack of inventory I would say that in most cases it is better to make the purchase sooner rather than later (especially if criteria and rules change again and the OSFI makes it even harder to qualify like they did in June 2021). Initially I will ask if there is a possibility that family member is able to help them in form of a Gift or as co-signer/co-owner. Other times I will explain that perhaps it is better to lower their expectations in terms price, type of property, location, etc.

In the past year I have dealt with several files where clients gave up on their ideal single-family home and opted for a condo and at the end, they were extremely happy they modified their expectations. Additionally, I set up the purchases in such a way that clients would be able to sell their condos with a minimal penalty and hopefully a have greater down payment and in a better financial situation to reach their ultimate goal of a single-family home.

In a particular case clients were paying less for the mortgage loan with more square footage in their new condo than they were paying in rent for their apartment!!

Steve Vallières: L’immobilier demeure un investissement long terme intéressant pour la majorité des gens. Devenir propriétaire est un objectif pour plusieurs et la préparation devient d’autant plus importante considérant l’environnement actuel du marché. Je suggère que les clients déterminent leur budget selon leur situation financière et professionnelle actuelle, et mettent en place, avec l’aide d’un conseiller financier, un plan d’épargne pour l’accumulation d’une mise de fonds. Parfois, on réalise qu’on est plus proche de la mise en œuvre de notre projet que l’on puisse imaginer). À mon avis, attendre que le marché ralentisse ou que les prix diminuent peut nous faire manquer de belles opportunités. Ayez une conversation franche et réaliste avec votre spécialiste ainsi que les personnes impliquées dans le projet, puis sollicitez les services d’un courtier immobilier qui saura bien vous accompagner dans vos démarches. Un bon entourage professionnel assure un beau succès de votre projet d’achat.

Philip Sanchez, Independant Mortgage BrokerSteve Vallières, Director of Mortgage Development for the National Bank of Canada