Top Mortgage Broker, Ray Macklem, joins Adam and Matt to discuss Home Equity Lines of Credit, Refinancing & Debt Consolidation. We promise… it’s sexier than it sounds.
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Tell us about yourself
I’m a mortgage broker with Dominion Lending Centers. I’ve been a broker for nine years and before this worked in sales with other brokers and lenders.
What got you into the financing side?
I was always interested in financing while I worked in sales. I gained experience in sales but financing was always my end goal. In the summer of 2007, I moved to Calgary and was able to work at a brokerage there.
Do you have a focus area?
No, we’re not geographically restricted. I’m licensed in Alberta and BC and work across the Lower Mainland.
What is refinancing and when is it a good time to do so?
Refinancing is re-evaluating your financial situation. It’s looking at the equity you have in your home, your debt levels and your monthly payments. If you’re stressed about your monthly payments or debt levels, then you should contact someone to review your situation. Most people wait too long until refinancing is harder to complete. If you’re feeling stressed about your situation, it’s time to sit down with someone and get some more information.
What are the possible solutions with refinancing?
There are many different solutions such as switching between fixed and variable rates or home equity lines of credit. I’m a fan of using a home equity line of credit as a tool for investments or cash flow, but not to carry a significant balance as the interest rate is higher. With lower interest rates these days, now is a good time to look at your options.
What is a home equity line of credit?
A home equity line of credit is a line of credit secured against your house. You get a set limit against that line of credit and you can access all or part of it at any time. You only pay interest on the portion that you use. Typical the interest rate is prime plus half a percent.
If you’re planning to use a home equity line of credit for investing purposes, you’ll want to talk to an accountant first to discuss the interest and any tax deductions. It would act the same way as a loan where you could use the available funds to purchase your investment.
I don’t see many people using a home equity line of credit for stock market investments but it is possible. Most people choose to invest in the real estate market with this line of credit.
Given the affordability crisis, for people who are under water, what solutions do they have?
The cost of living in the Lower Mainland is very high, even if you already own your home. Our goal is to see how we can make their mortgage less expensive. So that might be by finding a lower interest rate, wrapping other debt into their mortgage or extending the amortization period.
There’s good debt, like a mortgage, and bad debt, like credit card debt. We want to swap bad debt for good debt. This frees up money which we can then use to pay off the mortgage faster.
For someone with a lot of debt, how can they consolidate?
The first step is for us to collect information about all of the debt you currently have: your mortgage, property value, access to equity, loans, payments and interest rates. Once I have all of that information, I’ll do some calculations and present you with your opportunities for savings. I want you to be able to pay less interest overall by rolling some of that bad debt into your mortgage. This frees up cash flow which we can use to pay down the mortgage.
Is there a certain time frame for this?
There is a penalty if you break a fixed rate mortgage. However, we consider this in our calculations and see if it’s in your best interest.
How do the new mortgage rules affect this?
Overall, there will be an increased cost to buyers as lenders assume increased risk. The rules also reduce competition between lenders, which means increased rates and increased costs. There will be higher expenses for buyers after November 30th.
If refinancing is on your mind, you should do it sooner rather than later. Predictions are that the interest rate will increase between 0.15% and 0.3% so lock in now if you can.
Variable vs fixed rate
There is an ongoing debate between variable and fixed rate mortgages. Generally, Canadians are more conservative and choose fixed rates. Historically however, variable rates have been able to save buyers more money. You take the lower variable rate in the beginning and when rates start to rise, you then lock into the fixed rate.
The argument for going with a fixed rate right now is that the gap between fixed and variable is so small. So if you go with a variable for the first few years, you won’t be saving as much money because of this small gap. You may even lose money if you have to lock into a fixed rate that is much higher when the rates begin to rise.
To get in touch with Ray, you can email him at email@example.com