Want 1.49% Mortgage Financing?

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By Melanie Reuter & Bai Jiang

The lowest known mortgage rate in Canadian history was announced today by Meridian Credit Union, Ontario’s largest credit union.  

The 18-month fixed mortgage is available at a whopping low 1.49%, essentially free money for a year and half. 

Although this mortgage sounds amazing and it is, like most credit unions across the country, you must open an account at the branch at which you are getting the mortgage (no big deal) and must purchase a property in Ontario (so people looking to purchase in Halifax for example are out of luck).

Additionally, at time of press, we are unsure whether it is available for investment properties. What we do know is that Meridian will only allow you to have four mortgages with them, so you may cap out quickly if you haven’t already.  Additionally, they only allow a 50% add back, meaning only 50% of the gross rent is counted as income (compared to some other institutions that will allow up to 90%).

With any mortgage shorter than 5 years (or variable rate mortgages) the mortgagee must qualify at the Bank of Canada benchmark rate, which is currently 4.64%. Rate is one thing to look at but you must consider at rate you must qualify, impacting how much of a loan you can get.

And with any mortgage, it is also important to look at the terms beyond the interest rate: are there strings attached when it comes to renewing? (must you renew with the credit union and their current posted rate at the end of the term?); are there massive penalties for breaking the term? (although if you have to do it within 18 months, you may need to consider your approach).

Keep in mind that these incredibly low interest rates also means that more renters can now qualify as home owners, depleting the pool of tenants. 

Individuals will need to qualify at 4.64% Bank of Canada benchmark rate (for variable mortgages or terms less than 5 years). This doesn’t necessarily mean that more renters can qualify for home owners. The lower rate does make it cheaper from a mortgage payment perspective. So for those who are tight on the budget, this could be an option, however they will need to carefully think about what they can afford once 18 months are up (likely higher rates since introductory rates will be over). 

By all means, take advantage of this incredibly low rate, but be mindful of where it leaves you in 18 months.  Will it be better to take a slightly higher rate for a longer period of time overall?  Likely, but make sure you look at your plan to make sure this is a fit for your end goal.

Melanie Reuter is the Director of Research with REIN and a Real Estate Investor owning both single and multi-family units. She has a Master of Arts Degree from California State University, San Bernardino and a BA from Simon Fraser University in Burnaby, BC.

Bia Jiang is an accredited mortgage professional with Dominion Lending Centres – Casa Mortgage Inc, a real estate educator and investor, and a valued REIN Member. He specializes in arranging financing for home purchases, refinancing, transferring clients existing mortgages, and mortgage investments. Bia is an active member of CAAMP (Canadian Association of Accredited Mortgage Professionals). He can be reached at baijiang@dominionlending.ca or by phone: 604-299-0318.

 

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