Rob McLister, CMT

That is Taco Bell’s slogan. It’s meant to remind us that fast food doesn’t end with hamburgers. Tacos are pretty tasty in their own right.
In the lending world, the closest equivalent to “the bun” is the 5-year fixed mortgage. Like hamburgers are to fast food, the 5-year fixed is to mortgages. It’s been the most popular term in Canada for years.

Yet, despite its prevalence, qualified borrowers owe it to themselves to think outside the 5-year fixed. A little extra risk can sometimes yield a lot more reward.
Fixed 5-year mortgages are especially popular in uncertain/rising rate markets (like today’s). People who can’t afford rate risk, and those who cannot qualify for shorter terms, often choose a 5-year fixed by default.

Even individuals with rock-solid financial resources frequently gravitate to 5-year terms. Much of the time that’s because they don’t want to overthink the safety of a longer-term mortgage. In other cases, it’s because no one has ever shown them how much 5-year fixed terms really cost over the long run.
No matter how popular 5-year terms are, however, mortgages are not a one-size-fits-all proposition. For those who can stomach the chance of higher rates at renewal, various compelling alternatives exist. One happens to be the 3-year fixed.

Lenders like Merix Financial, HSBC, and others still have three-year rates in the 3.35% range or better. That’s 59+ basis points below current 5-year pricing.
At those rates, (from a purely mathematical and hypothetical perspective) the 3-year fixed performs better in our internal simulations than any other term, be it a variable or a 1, 2, 4, 5, 7 or 10-year fixed.1

With major banks forecasting a 2% rate hike in 24 months, 3-year fixed mortgages model even better than variable-rate mortgages (primarily because of the 3-year’s low rate and its 36 months of rate-hike protection).

This doesn’t mean a 3-year will definitely save you more money than any other term. It just means they offer very good value with decent odds of interest savings.
On a $300,000 mortgage with a 25-year amortization, a 3.35% three-year will save you about $5,130 over a 3.94% five-year fixed. That’s over 36 months.
After 36 months, you can move into any other term you want (e.g., a 1-year fixed, variable, or another 3-year fixed). As long as your rate at renewal is about 5% or less, you’ll come out ahead of today’s 5-year fixed.

A few other points about 3-year terms:
• You can make your 3-year fixed payment equal to a 5-year fixed payment, thus shrinking your amortization even faster.
• People tend to refinance 5-year terms roughly every 3.5 years on average. Three-year terms let people out without a penalty just before many of them are getting ready to renegotiate their mortgage.

The “optimal term” (if there is such a thing) changes as rates fluctuate and as borrowers’ finances change.
All things considered, however, the three-year fixed is the sweet spot of the mortgage market at this particular point in time.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/02/think-outside-the-bun.htmlSidebar: Economist rate forecasts are subject to error so they are only a rough guide. Your financial resources and risk sensitivity are paramount when choosing a term.

Always consult a mortgage professional for advice specific to your circumstances.1 Based on amortization comparisons using major Canadian economists’ published 2- and 5-year rate forecasts, historical rate spreads, and deeply-discounted rates for all fixed and variable terms.
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I can help you determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.

Because I am familiar with the credit repair niche, I can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond my expertise, I can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.

If you have some equity built up in your home and still have a manageable credit score, for instance, you can often refinance your mortgage and use that money to pay off high-interest credit card debt. By clearing up this debt, you are freeing up more cash flow each month.

In the current lending environment, with interest rates hovering at an all-time low, now may be an ideal time for you to refinance your mortgage and pay off some debt.

Following are five steps you can use to help attain a speedy credit score boost:
1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.

The best bet is to pay your balances down or off before your statement periods close.
4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts.

As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.

5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

If, however, you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible.

Depending on the severity of your situation – and the reasons behind the delinquencies, including job loss, divorce, illness, and so on – I can help you address the concerns through a variety of means and even refer you to other professionals to help get your credit situation in check.

As always, if you have any questions about you credit situation or your mortgage in general, I’m here to help!

Appraisal

Essentially, home appraisal is a survey activity performed by a professional in order to develop an expert opinion on the market value of a real estate property. Home appraisal is usually done for a lending company or a bank as a prerequisite for the approval of a mortgage application by a homebuyer.

The essential elements of a home appraisal report include information and data related to the overall condition of the property, the neighbourhood, variables that contribute to the sale of similar homes and the time spent in selling similar properties.

The appraisal report may be presented as a comparable sales analysis or a cost assessment of value.

Home Inspection

A home inspection is not used to determine property value, but will provide an assessment of the physical condition of a property.

A well-trained home inspector will perform a comprehensive visual inspection to determine the condition of the building and all of its major systems (roof, structural, heating, plumbing and electrical systems, etc).

While an appraisal is intended to provide the lender with sufficient information to decide on mortgage financing, a home inspection will hopefully reveal to a potential homebuyer whether the building and its systems are in sound working order.

If there are outstanding issues, a good inspector will provide the potential purchaser with a schedule outlining the estimated costs and a timeline detailing when these repairs will need to be completed.