14 May

Consumers Digest. May 2019 Mortgage Newsletter

General

Posted by: Anne Martin

Welcome to the May issue of my monthly newsletter!

This month’s edition looks at accessing your home’s equity to invest and getting to know your lender. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


Accessing your home’s equity to invest

To tap into your home’s equity, it all starts with refinancing your home. If you own a home, the equity you have built up in it is one of the most valuable assets you have available to you. It is also much more accessible than taking out a large loan. In many cases, home equity loans and lines of credit can offer you a lower interest rate as compared to other types of loans while providing you with access to credit for investment purposes.

Often times we see clients who refinance in order to:

  • Renovate their home
  • Purchase a secondary property for investment purposes
  • Debt consolidation
  • Business Development
  • Assisting their children’s post-secondary education
  • Financing through a “life event” such as illness

In this particular article, we are going to highlight the value of utilizing your home’s equity to reinvest in other investments such as:

  • rental properties
  • stocks
  • bonds
  • mutual funds
  • RRSP’s
  • RESP’s

The first question that people ask is how much can I borrow? Generally speaking, you can borrow up to 80% of the appraised value of your house. For example, if your home value of $650,000 assuming one qualifies, they can access up to 80% of $650,000 which would be $520,000, if their current mortgage is $450,000 they may be able to get a home equity line of credit for $70,000 (totaling $520,000).

Working with your mortgage broker, you can go through the refinance and approval process if this is something you are interested in accessing. It is always a good idea to consult with your broker and understand the personality of your mortgage—there may be limitations of how much equity you can access and the conditions relating to the refinancing. There are also potential costs associated with this type of refinance including:

  • appraisal fees
  • title search
  • title insurance
  • legal costs

Keep in mind that these potential costs can be rolled within your new loan amount and will not be “out of pocket.”
Now, if you have been approved and are utilizing your home equity for one of the above investments (after speaking to your financial planner/advisor first) and can expect to see a higher rate of return than the interest you are paying to borrow the money, then it is worth considering. We emphasize that you should always proceed with caution and get advice from sound professionals before choosing to invest your hard-earned money.

We have found that this type of investing works extremely well for many and is a safer and less risky way to access funds for further investment purposes. We recognize that this option may not be suitable or comfortable for some, but it is a viable way to capitalize on the equity sitting in your home and make it work for you! If you have questions or are interested in learning more, please do not hesitate to contact a mortgage professional near you.

 

Get to know your lender

One of the biggest aspects of a mortgage is figuring out the best lender. Since every file is unique, a good mortgage broker will likely tell you there’s no “best” lender. Instead, it will be those unique qualities in your mortgage that will determine which lender you’re going to use.

In a typical mortgage, there are three potential types of lenders: the big banks, credit unions and monolines.

A Bank

A bank is a financial institution that accepts deposits, lends money and transfers funds. They are listed as public, licensed corporations and have declared earnings that are paid to stockholders. A key point: they are regulated by the federal government-Office of the Superintendent of Financial Institutions. Everyone knows the big banks and they are considered to be trusted. If you decide to use a fixed-rate mortgage from a big bank, keep in mind the penalty to break the mortgage will be larger than other lenders. The big banks are best for a variable rate, since the penalty will be smaller.

Credit Unions

Credit unions also deposit, lend and transfer funds. However, after that, we run into some differences between the two. Credit Unions have an elected Board of Directors that consist of elected members from their community. They are local and community-based organizations and unlike the banks, they are not federally but provincially regulated. The advantage to a credit union is they are not subject to the recent stress test rules announced for uninsured mortgages, so they can still service debt under the older rules. The credit unions calculation for penalties are typically friendlier to the borrower and if there are credit issues, they tend to be more understanding than the big banks.

Monolines

Monolines specialize in a single type of financial service, such as consumer credit, home mortgages, or a sole class of insurance. While monolines are often used by mortgage brokers because they are broker friendly, there are some advantages to the consumer. Monolines usually offer better discounted rates, while how they calculate the penalties can be friendly to the client. The biggest knock is they’re just not as well-known or trusted like a bank. It should be noted the major investors in monolines are the big banks, so there’s nothing really to fear.

Now that you know a little about the lenders, you need to know how a mortgage broker can help. A typical broker will have access to up to 90 lenders. That can be a real advantage, because if your mortgage isn’t fitting into the right box, a great broker will turn over every stone and work with the lenders to find a solution. And since a broker has a number of different lenders to choose from, they’ll understand each of the lender’s guidelines to get you the right mortgage.

HOMEOWNER TIPS…

Choosing a Home Security Company:

Once the decision has been made to have a security system installed in your home, don’t simply open the phone book or go online and choose the very first company listed. It’s best to talk to friends and neighbours to see what company they use. Find out if they have been pleased with the company. Also make sure that you check with the Better Business Bureau to see if there have been any reports made against the company. Look for a company that has been around for several years and seek references from some of their existing customers.

 

DID YOU KNOW…
Mortgage repayments should not account for any more than 40% of your monthly income, preferably less. Anything more is considered “mortgage stress” because it leaves you with little, if anything, left over once other homeownership costs and living expenses are accounted for. I can help you stick to what you can afford.

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26 Apr

General

Posted by: Anne Martin

Welcome to the April issue of my monthly newsletter!

This month’s edition looks at protecting your pre-approval and options for up or downsizing. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


Protecting your pre-approval

People mistakenly believe once they’ve been pre-approved or approved by a lender it’s all done.

But what they don’t realize a lender may pull their credit 30 days prior to close. They also don’t realize lenders can request updated documents in that time. And, if some of the original information that got you the mortgage approval in the first place changes, and for the worse, you could lose your financing. Here’s a short list of actions that could put your approval on pause:

Having additional credit reports pulled by another broker or lender

The lender will often pull your credit again right before financing. If the lender sees that other brokers or lenders have pulled your credit, the lender views this as credit seeking and it can put your funding in jeopardy.

Applying for additional credit elsewhere

The lender calculates your debt based on the amount of credit you have. If you are applying for new credit, the obvious assumption is that you are planning on using it. Don’t get any new credit until the closing date is passed.

Closing out credit accounts

Credit is not a bad thing… unless you are having a hard time managing it. Old credit shows a long history of being able to handle credit. Lenders like that, so don’t rush to cut up your credit cards just yet. If you can, make above your minimum monthly payments to get in a better standing with your current accounts.

Moving money around without a paper trail

When you settle with the bank on the contract of the mortgage, the lender will require bank statements showing your saved money. They look at the history along with the balance. If there are any unusual deposits, you will need to explain where the money came from. Be prepared to show a paper trail. If your downpayment comes from savings, keep in mind the bank will want 90 days bank statements to ensure the money is accounted for.

Increasing your debt

The lender always looks at your debt-to-income ratio. If you increase your debt, you can risk going over the maximum amount of debt compared to your income.

The biggest, and most common offence to this rule is buying a new car or obtaining a big box store credit card.

Don’t be tempted! If you want to keep your current pre-approval amount, keep your ratio steady.

Moving up or down the property ladder

At some point, the place that we thought would be our forever home for one reason or another just isn’t working. That’s the time to consider moving up in size or potentially downsizing depending on where you are in life.

If you’re feeling squeezed or have a little one on the way, your current digs may not be enough. If you want to upsize during your mortgage cycle, keep in mind you’ll be breaking your mortgage and will have to go through the entire qualification process again.

That means you will need to re-qualify at the current rates offered by lenders and be subject to government changes and recent “stress test” rules. You’ll also be breaking your mortgage which will come with a variety of penalties depending on the terms in your mortgage and the lender. You may be able to port the mortgage, essentially taking the existing mortgage and its terms and transferring it to another property, but not all mortgages are portable. You’ll need to talk to a mortgage broker to find out if this is an option for you.

Moving on UP

If you’re trying to move from a condo or apartment to a single-family home, it’s all about the pros and cons. First, you have to decide if you can afford to make the move and buy something bigger. A larger purchase price comes with larger closing costs. Depending on the province in which you reside, you’re Property Transfer Tax will be larger and you’ll be paying realtor fees on the sale of the home you’re leaving. Canadians typically pay between 2.5 and five per cent their home’s selling price in realtor fees.

Don’t forget the costs of owning a single family home. Unlike a strata, you are responsible for all the maintenance of your home. One rule of thumb is to consider saving one per cent of the purchase price of your home each year for maintenance. If your home cost $500,000, that would mean $5,000 a year in savings. The good news is you won’t have to pay a monthly strata fee and you won’t be kept up at night worrying about a special assessment for major repairs on the building.

Scaling it DOWN

There comes a time when owning a home becomes a little too much to handle. The cleaning, the yardwork and the maintenance can be a pain. And why keep extra bedrooms when they’re just collecting dust? It may be time to downsize. If you’re mortgage free, depending on where you live, you could actually be sitting on a gold mine. While you may be in for a windfall, there are costs to selling your existing home for something smaller and cheaper.

  • Realtor commission (between 2.5 and five per cent depending on where you live in the country and what you are able to negotiate). In Toronto for example, the standard realtor rate is 5%. So for a $1,000,000 home, you would need to pay the realtor $50,000.
  • Closing costs and legal fees – approximately 1.5 per cent of the purchase price
  • Miscellaneous costs – $1,000-plus (moving expenses, upgrading appliances and buying new furniture)
HOMEOWNER TIPS…

Exterior Renovations:

If you’re thinking of selling your home, or you simply want to spruce it up, exterior renovations can significantly increase its value and curb appeal. Aside from more expensive undertakings such as new roofing and siding, there are some projects you can take on yourself, such as creating attractive flower beds or purchasing a new front door. With each project completion, you will be happier with your home, and increase its appeal to buyers when it comes time to sell!

You also need to consider strata or condo fees and the potential for special assessments on the building and all the standard costs that come with buying a place, even if there’s no mortgage.

Another more recent option to the real estate landscape is reverse mortgage. A reverse mortgage is a loan secured against the value of your home. It is exclusively for homeowners aged 55 years and older. It enables the homeowners to convert up to 55% of the home’s value into tax-free cash. With a reverse mortgage, you maintain ownership of your home. You only have to repay the loan once you chose to move or sell.

DID YOU KNOW…
There are eight preset dates per year on which the Bank of Canada makes decisions which affect variable rate and short term fixed rate mortgages. The last increase to the Prime rate by the Bank of Canada was in 2018. No increase is expected anytime soon.

Longer term, i.e. the five year term, fixed rates are influenced by the bond market, and this is arguably less predictable and more volatile.

 

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12 Feb

The ABC’s of alternative lending. Consumers Report February 2019.

General

Posted by: Anne Martin

Welcome to the February issue of my monthly newsletter!

This month’s edition looks at alternative lending and the qualifications of your mortgage agent/broker.
Please contact me with any questions or comments on the information below.
Thanks again for your continued support and referrals!


The ABC’s of alternative lending

Most homebuyers, when it comes to their financing, want the best rate possible. And that usually means turning to either the big banks, credit unions, or monoline lenders. In the mortgage business, these lenders are typically called, “A” lenders. If you’ve got good credit, a good job and decent down payment, you’re probably looking at one of these A lenders. But there are some people who don’t fit into conventional lending, and that’s where you might hear the term “Alt A”, or alternative lender. An alternative lender is a mortgage company backed by investors offering mortgage financing with different guidelines on credit and debt servicing and a focus on the property and exit plan.

Alternative lenders are typically there for people coming out of a bankruptcy, with bruised credit, or are self-employed and need to prove some sort of cash flow.

Borrowers will generally need to have minimum 20 to 25 percent down, there will be applicable lender and broker fees and rates will be higher than conventional lenders. But the rates may not be as high as you think. Some of these Alt A lenders are offering one-year rates between 4.35 and 5.8 per cent. Using an Alt A lender can be a great stepping stone towards a conventional mortgage with the best discounted rate and no fees.

With addition of tougher mortgage rules and stress tests, more people are turning to an alternative lender out of necessity.

If someone has enough equity, there’s always a lender who can assist with financing, but it will come with higher rates and fees.

If you find yourself on the outside of conventional lending, a well-qualified mortgage professional can help you navigate the alternative lending space to help you get the best product that fits your needs

Qualified to make sure you qualify

If you need open-heart surgery, you want to be sure the doctor in the operating room knows what he/she is doing. You want to know they’ve got the professional education, skills and experience to carry out the life-saving procedure.

You would expect nothing less from the person handling the biggest financial decision of your life – your mortgage broker.

Though a mortgage broker doesn’t need quite the same qualifications as a heart surgeon, there are still rigorous standards each mortgage professional must meet to do their job.

While regulations can vary in each province, mortgage professionals need to be registered with a government body and be licensed to carry out broker activities.

First, each broker must complete a provincially approved course for mortgage brokering. These courses are offered through various colleges and institutions and can take days or months to complete. In Ontario, for instance, after completing the course, aspiring brokers need to be hired by a Financial Services Commission of Ontario licensed brokerage, in which the brokerage applies to the commission for that particular broker’s licence.  Licences must be renewed every 2 years, and are subject to mandatory relicensing education.

Agencies like FSCO have the power to investigate public complaints, hand out fines, and suspend or revoke licences of brokers.

Not only are courses for mortgage brokers a good foundation, bit it’s these organization’s background and criminal checks that are most important.

Consumers can take comfort in knowing that their mortgage broker has gone through a rigorous screening process before they have any contact with them. The standards in place are also good at weeding out people in the industry.

There are a number of online resources available to the public through the various licensing agencies. Don’t be afraid to ask your mortgage broker about their background; they’ll be more than proud to share with you their qualifications.

HOMEOWNER TIPS…

Homeowner Insurance:

Much like car insurance, the higher the deductible you choose, the lower the annual premiums will be on your home insurance. But the problem with selecting a high deductible is that smaller claims/problems such as broken windows or damaged sheetrock from a leaky pipe, which will typically cost only a few hundred dollars to fix, will most likely be absorbed by you as the homeowner.

 

DID YOU KNOW…
Now’s the perfect time of year for a free mortgage check-up. With Spring on its way and interest rates still hovering near historic lows, it makes sense for us to revisit your mortgage and ensure it still meets your needs. Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or you simply want to take a vacation. Whatever your needs, we can evaluate your situation and help you determine what’s right for you.
15 Oct

The art of leveraging. Consumer ‘s Home Digest October 2018.

General

Posted by: Anne Martin

Welcome to the October issue of my monthly newsletter!

This month’s edition looks at getting a mortgage for an investment property any why the banks offer different rates. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


The art of leveraging

For some people, just owning one property and having a single mortgage is enough to handle. But for others, home ownership can be a gateway to owning multiple investment properties. You might be thinking: there’s no way I can turn the value of my modest home into a real estate empire. Ok, maybe not an empire, but you can take the equity of your home and, with the right investment, get a return far greater than a stock portfolio.

Most people are trained to stay out of debt and don’t want to consider using the equity in their home to buy an investment property. But they haven’t realized the art of leveraging.

If you’re using equity from your primary residence to buy an investment property, keep in mind that the interest you’re using is tax deductible. Consider that you’re also buying an appreciating asset, and if you compare a real estate portfolio with a stock portfolio, there is no comparison.

Who is a good candidate? You might be surprised to learn you don’t need to make six figures to get into the game.

Essentially, you just have to be someone who wants to be a little smarter with their down payment.

Before you go down that road, there are some quick things you need to know.

With investment properties, the minimum down payment will jump to 20 or 25 per cent from five percent. Rental income from the property can be used to debt service the mortgage application, while some lenders will have a minimum liquid net worth requirement outside of the property.

Most lenders also limit the number of mortgages in a portfolio. Usually, after five mortgages, you’ll be considered a commercial file. However, a mortgage broker can work with other lenders to increase the number of investment properties.

Typically, when you’re considering a mortgage, you’re looking at the rate. But the rate is less important compared to your cash flow and future equity position. If it all sounds like a bit much, consulting a mortgage professional with an understanding of investment financing is the best way to start.

Most people who get into investment real estate think they’ll only end up buying one property, but that’s not usually the case. A broker will prep you for a 10-year plan of purchasing property and position you accordingly. A broker will also have a good understanding of the alt-side of lending and how you can benefit from that type of financing.

A mortgage broker with the right experience and understanding of financing rental properties can be an invaluable resource.


Does the bank have your back?

If your mortgage is coming up for renewal, you’re probably keeping a close eye on rates. But it can be a little bewildering to see the banks offering a bunch of different rates.

If you’re left wondering why, the short answer may be a little harsh. The banks offer different rates because they can, and consumers are brainwashed to believe the banks have their best interest in mind.

So what can you do to get the best rate? To start, know that the bank does not have your best interest in mind. Then, reach out to a mortgage broker for help.

A mortgage broker has no bias opinion on what lender they’re going to use. A reputable broker only thinks about your best interest when deciding where to put the mortgage and has multiple lenders to choose from who compete for your business.

If you’re about to embark on the renewal process, you might want to try this approach. Tell your bank you’re working with a top mortgage broker and you intend to call them back every day to get their best five-year fixed and variable rate.

If your mortgage broker can’t beat that rate, you’ll likely be advised to stay there. However, most of the time, your broker will be able to get you a better rate, just based on the number of different lenders in which they have access.

You’ll likely go back to your bank, who may match the new lower rate, but you should ask yourself an important question: If they really valued your relationship, why didn’t they just offer you that rate in the first place?

With a bit of homework and a mortgage broker, nine out of 10 times you will get you a better rate.

Lastly, you need to keep in mind a mortgage is more than just a rate. You need to consider the personality of your mortgage, and certain aspect like the penalties to break the mortgage and if it’s portable. These are things a mortgage broker can help you figure out.


HOMEOWNER TIPS…
Fall Lawn Care:

What you do for your lawn during the fall will have a great impact on what your lawn will look like next spring. There are four simple steps you can take to help ensure your lawn will be healthy, green and the envy of the neighbourhood next year:

Aerate. This means to puncture your lawn with small holes throughout to allow the fertilizer, sunlight, water and important nutrients that grass needs to grow deep within the ground;
Fertilize. Basically this means feed your lawn before it goes to sleep for the winter;
Overseed. This is when you spread new grass seed all over your existing lawn with a spreader; and
Mow. In November, mow your lawn one more time as short as you can without scalping your lawn. This will help all the other steps above work better.

16 Jul

Common ways to jeopardize your home financing. Monthly newsletter July 2018.

General

Posted by: Anne Martin

 

 

Common ways people jeopardize home financing

Does this situation sound familiar? You’ve found your forever home, you’ve been approved and completed all your mortgage paperwork. You think you’re done and now you want to buy a whole bunch of furniture for the new abode. Or, perhaps you’ve been eyeing a new car or even a new job at the same time. It seems pretty reasonable to make a life change or purchase, after all, you’ve been approved. What could go wrong you ask? You could sink your mortgage approval faster than a leaky boat.

People mistakenly believe once they’ve been pre-approved or approved by a lender it’s all done. But they don’t realize that a lender may pull their credit within 30 days prior to close. They also don’t realize lenders can request updated documents in that time.

And if some of the original information that got you the mortgage approval in the first places changes – and for the worse – you could lose your financing.

Here’s a short list of changes that could put your mortgage approval at risk.

1. DON’T HAVE YOUR CREDIT PULLED BY ANOTHER BROKER OR LENDER – the lender will often pull your credit again right before financing. If the lender sees that other brokers or lenders have pulled your credit, this might be viewed as credit seeking and can put your funding in jeopardy.

2. DON’T APPLY FOR NEW CREDIT – the lender calculates your debt based on the amount of credit you have. If you are applying for new credit, the obvious assumption is that you are planning on using it. Don’t get any new credit until the closing date is passed.

3. DON’T CLOSE ANY OLD CREDIT ACCOUNTS – Credit is not a bad thing…. unless you are having a hard time managing it. Old credit shows a long history of being able to handle credit. Lenders like that.

4. DON’T MOVE YOUR MONEY AROUND WITHOUT A PAPER TRAIL – When you settle with the bank on the contract of the mortgage, the lender will require bank statements showing your saved money. They look at the history along with the balance. If there are any unusual deposits, you will need to explain where the money comes from. Be prepared to show a paper trail.

5. DON’T INCREASE YOUR EXISTING DEBTS – The lender always looks at your debt to income ratio. If you increase your debt load, you can risk going over the maximum amount of debt compared to your income.

6. DON’T CO-SIGN FOR ANYTHING BEFORE YOU CLOSE – You will inherit the debt on your debt servicing ratio. This extra debt is added to your expenses which will alter your ratios and may affect your approval.

A good mortgage broker will remind you of the pitfalls that can happen if you change your financial situation before closing, but ultimately it’s in your hands. You have to take responsibility and use common sense when you’re in the closing process.

Mortgage rules and the new market

If you own a home, or looking to buy one, you probably know about tighter mortgage rules. In case you were unaware, last fall, OSFI, (the Office of Superintendent of Financial Institutions) the agency that regulates the financial industry, announced changes to rules around mortgages. The biggest change, that affects you, the consumer, relates to uninsured mortgages, or homebuyers with 20 per cent or more for a down payment. These people will have to go through a “stress test” or qualify using a minimum qualifying rate.

These new rules came into effect in January and come on the heels of several rate hikes from the Bank of Canada. And many economists and industry watchers are predicting the bank has a few more rate hikes instore before the year is out. We may already be seeing some of the effects of all this pressure on mortgage financing. Real estate markets, especially in the very heated Toronto-area, are starting to cool quite a bit. The Canadian Real Estate Association (CREA) has adjusted its forecast for home sales across the country, predicting an 11 per cent decline from 2017.

So, do you need to be worried?

If your mortgage is coming up for renewal and you’re staying with your original lender, you don’t need to be at all.

For now, you can just renew without requalifying. However, there have been hints the government could change that in the future.

If you’ve got a steady job, a credit score over 700, no debts and you make $60,000 a year in salary, getting a mortgage also shouldn’t be a problem in this lending environment.

But, it could be tougher if you’re newly self-employed or carrying a large amount of consumer debt. That said, mortgage brokers have access to literally hundreds of lenders and can always find a way to get funding.

So taking everything into consideration, the best thing to do is review your portfolio with your mortgage broker. We’re still in a relatively low rate environment, but it could change come this time next year.

If your mortgage isn’t up until 2019, it may make sense to get out of your current mortgage and pay a small fee to get a better long-term rate.

It’s always a good time to review your mortgage because everybody’s situation is different regardless of where you are in your term.

HOMEOWNER TIPS…

5 Ways to Stay Cool Without Air Conditioning:

  1. When it’s cooler outside than inside, open your windows instead of using air conditioning. Use a window fan, blowing toward the outside, to pull cool air in through other windows and to push hot air out. When it’s hotter outside than inside, close your windows and draw window coverings against direct sunlight.
  2. On hot days, delay heat-producing tasks, such as dishwashing, baking or doing laundry, until the cooler evening or early morning hours.
  3. Caulk around window and door frames, use weather stripping on exterior doors, and have a professional seal gaps where air can travel between the attic and your living space.
  4. Use energy-efficient lighting in your home. CFL and LED light bulbs operate cooler and cost less to use because most of their energy produces light instead of heat. Incandescent light bulbs, on the other hand, lose 90% of their energy as heat.
  5. Leafy shade trees planted on the east and west sides of your home can improve comfort and decrease cooling needs by blocking heat and sunlight. You’ll still have the benefit of heat from the sun in the winter, after the leaves fall. Check with your local garden centre for recommendations.

21 Dec

Big Mortgage Changes Jan. 1, 2018. Consumer’s Home Digest December 2017

General

Posted by: Anne Martin

Big Mortgage Changes Jan. 1, 2018

There has been significant press coverage around upcoming changes to mortgage lending rules that will take effect Jan. 1, 2018. These rules will affect many more people than most realize. They will affect people seeking a mortgage most obviously, but they will also affect those with a mortgage in many ways as well. Let’s take a look at some key areas of concern for both groups, those with a mortgage, and those without (but seeking) a mortgage.

What is the impact?

A reduction of 20 per cent-plus in maximum borrowing power for those with a 20 per cent or GREATER down payment. You read that correctly, a big reduction for the group with the bigger down payments.

The Have Nots

You don’t have a mortgage yet, but you have a Pre-Approval, so you think you’re safe with that Pre-Approval…you may be and also you may not be. A select group of lenders have confirmed they will grandfather existing Pre-Approvals under the 2017 lending rules for up to 120 days. However many lenders will not; for them Jan. 1, 2018 is a hard stop on the old lending rules. Still others are already enforcing the new rules. The questions is; what is your lender going to do? Not all lenders have announced their policies yet either.

The best advice; pick up the phone and call your mortgage broker and get an answer from them as to where you stand.

Question#1; Do the new guidelines affect you?

Question#2; If Yes to Q #1 – Is your Pre-Approval going to be grandfathered with the lender that holds it?

The Have’s

You already have your mortgage, so everything is all cool right? Maybe.
Are you thinking of increasing your mortgage amount by even just $1?
Are you thinking of adding on a secured line of credit for even just $1?

And most importantly of all:

Are you thinking of moving your mortgage to a new property in 2018?

To add new money, or to move the mortgage to a new property, will trigger a re-evaluation under the new rules, and many Canadians will not qualify for the very mortgage they currently have if they try to move it to a new property.

Sure your mortgage is most likely portable, but re-qualification could mean a big reduction in the size of it.

Who is safe?

Those who are simply renewing their current balances.

None of these changes impact you if you are renewing your mortgage for the same amount with the same lender. But, before you do that, read the ‘Did You Know’ footnote below, and as always pick up the phone can give me a call before you do anything else.

If you have any questions about refinancing, reducing debt or paying down your mortgage quicker, I’m here to help!


Returning To The
‘A-Side’

Every year Canadian families are caught in unexpected bad circumstances only to find out that in most cases the banks and the credit unions are there (to lend you money) only in the good times, not so much during the bad times.

This is where thousands of families have benefitted over the years from the services of a skilled mortgage broker that has access, as I do, to dozens of different lending solutions including trust companies and private lending corporations. These short-term solutions can help a family bridge the gap through business challenges, employment challenges, health challenges, etc.

The key to taking on these sorts of mortgages is always in having a clear exit strategy, which in some cases may be a simple as a sale deferred to the Spring market. Most times the exit strategy involves cleaning up credit challenges, getting consistent income back in place and moving the mortgage debt back to a mainstream lender. Or as we would say in the business an ‘A-lender’.

The challenge for our clients, and for us as mortgage brokers, over the past few years, arguably over the past nine years, has been the constant tinkering with lending guidelines by the federal government. And the upcoming changes of Jan. 1, 2018 (referenced in the first story above) represent far more than just ‘tinkering’.

This next set of changes are significant, and will effectively move the goal posts well out of reach for many clients currently in ‘B’ or private mortgages. Clients who have made strides in improving their credit or increasing their income will find that the new standards taking effect will put that A-lender mortgage just a little bit out of reach as of the New Year.

There is concern that the new rules will create far more problems than they solve, especially when it seems quite clear to all involved that there are no current problems with mortgage repayment to be solved.

Yet these changes are coming our way fast.

Are you expecting to make a move to the A-Side in 2018?

It just might be worth your time to pick up the phone and call me today.

10 Nov

How will the new mortgage qualification restrictions affect you? NDLC Monthly Mortgage Newsletter.

General

Posted by: Anne Martin

Welcome to the November issue of my monthly newsletter !

This month’s edition discusses what the Bank of Canada is (not) up to, and more importantly what the Federal Government is implementing Jan 1.   Also look for a short note regarding maternity or paternity leave while shopping for a new home or renewing your mortgage on an existing home.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

Bank of Canada – Back on Hold

On Oct. 25, the Bank of Canada made no change to the overnight lending rate.

This lack of movement was widely expected, then again the Bank of Canada surprised 27 of 33 economists polled with the previous 0.25% rate hike on Sept 6, following a previous 0.25% hike July 12. At this point cooler heads are prevailing.

These two recent increases should be viewed with the consideration that the last time the Prime rate reached a level this ‘high’ was September 2010, where it then sat stagnant for more than four years. Until a shock to the system triggered two 0.25% drops in early 2015. A response to the sudden drop in oil prices.

Shocks to the system often cause rates to drop, the unexpected.

What will cause rates to continue to rise in the future? Economic good news, which is something that tends to build in a predictable and slower fashion. Interest rates are unlikely to rise significantly anytime soon; they are also likely to increase gently and slowly when they do so. Just as they have thus far.

The net effect of the two increases in 2017 is a return to a previous high set in 2010; a ‘high’ that remains a remarkable historical low.

The next Bank of Canada meeting is set for Dec. 6 and at this point, few experts are anticipating a rate increase.

Wondering about locking in that variable? Act with caution, act with knowledge, and gather that knowledge from multiple sources, including a conversation with me.

Restrictions On Mortgage Qualification

When – Jan 1st, 2018 – Lenders may adopt new policies sooner due to the date selected

Who is affected by these upcoming changes?

#1 Nobody renewing an existing mortgage.

#2 Nobody purchasing a home with LESS than a 20% down payment.

OK, so who then?

People with more than 20% to put down on a new purchase, or with more than 20% equity in their home.

Yep, the group that represents the absolute lowest risk to market stability. You may have amazing credit, a great income, and 20% or more down…but you will have your mortgage maximum cut by a solid 20% over where it has stood for the past twenty years or so.

Is this a big deal? Yes and No.

No, because the majority of Canadians rarely borrow 100% of their maximum. The group hitting their maximum tend to be the same group that has LESS than 20% to put down and that group was addressed by the government last October.

In other words the impact of these rules will be small overall…mostly.

Yes it is a big deal though, specifically for the small number that will be directly impacted, these changes will feel like the cold and devastating slap in the face they are.

This is being done in the face of a track record of statistics decades long that shows homeowners with greater than 20% equity represent just about as close to zero foreclosures as can be imagined.

In other words, the group impacted is not one that needed ‘stabilizing’ or restrictions. These are people already self-regulating to a great extent. After all, that is how they got the 20% equity and the excellent credit and income required for that maximum amount in the first place.

What does this mean for the market? Is a meltdown imminent?

No.

Again, this is a small number of people affected. Albeit a small group impacted in a massive way if you were to ask them.

In particular these changes are unlikely to have any impact of note on the already flattening and softening Vancouver or Toronto markets. This is due to higher than average homeowner household incomes in these cities.

However small town Canada, where the impact of last year’s ‘stress test’ for buyers with less than 20% down has had a big negative impact. could well feel yet another wave of negative price pressure. Something that will displease many existing homeowners, and as the price softening is unlikely to be significant enough to please prospective buyers, basically nobody will be pleased.

To be clear, these changes were made by the Office of the Superintendent of Financial Institutions (OSFI) and OSFI’s mandate is specifically ‘to protect the stability of the CDN banking system’.

These changes are not about creating affordable housing, addressing consumer debt, stopping bidding wars, slowing condition free offers, or runaway property prices, etc. If you are concerned about these changes affecting your own financing abilities please contact us immediately, we can still take action well before the Jan. 1, 2018 deadline.


Did you know…
Often the impending arrival of a new addition triggers thoughts of other changes in our lives. We often decide that a larger vehicle and/or larger living quarters are in order. And we are perhaps unaware of the impact increased payments can have on mortgage qualification.

There are a few key points around mortgages and new debt additions.

1. The monthly payment on a leased or financed car can have a significant negative effect on mortgage qualification. Housing first, vehicles second.

2. Being on maternity or paternity leave while shopping for a home is not a showstopper. The key is a job letter that clearly defines a return to work date, i.e., you have a full-time income position to return to.

3. Being on maternity or paternity leave, or even having a new car payment in your life will not affect your ability to renew your mortgage with your current lender, although it can make moving to a new lender more difficult.

Before adding a car payment, before listing your current residence for sale, give us a call.

As always, I’m here to help!

10 Oct

Should you lock in your variable rate mortgage? October Newsletter

General

Posted by: Anne Martin

Welcome to the October issue of my monthly newsletter !

This month’s edition delves into the details of breaking a mortgage early, as well as highlights some important details when your kids become renters.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

Is It Time To Lock In A Variable Rate Mortgage?

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localised spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions, I’m here to help!

Teaching Your Kids About Renting

Fall is here! The kids have moved out for school. Help them learn about renting and coping with issues during their tenancy.

One property manager, who has been in the business for decades, compares landlord and tenant relationships to marriage. Initially, both parties are enthused with one another and things look rosy. As the tenancy progresses, the initial rosy viewpoint shifts to a more realistic one as issues arise. These could be minor issues, such as a tenant wanting repairs to happen more quickly, or there could be major issues, such as non-payment of rent.
The below links address practical tenancy issues:

  •     Emergencies and Repairs – Defines emergency repairs and explains how to respond to them.
  •     Regular Repairs – Looks at the proper process for getting non-critical things fixed.
  •     Handling Complaints – Explains how to effectively handle complaints.
  •     Rent Increases – Provides an overview of the process for increasing the rent.
  •     Lease Renewals – Provides an overview of how leases are renewed.

If you’re a tenant, landlord or property manager, Canada Housing and Mortgage Corporation (CMHC) can offer you information on tenant and landlord rights, responsibilities and rental practices across the country: www.cmhc.ca


 

  Homeowner Tips
Fall Lawn Care:
 
Did you know…..

There are two types of debt: secured and unsecured. When you borrow money to buy a house, the bank can take back the house to recoup their money if you don’t pay the debt. That means the debt is secured – it’s being balanced against something that you want to keep, and gives the bank some measure of security that they’re going to be able to recover the money they’ve loaned you. Unsecured debt, on the other hand, means the bank can’t reclaim the thing you’re buying with the borrowed money. (Credit card debt is unsecured, and so are student loans.) 

 

It’s fall, and that means it’s time to get outside and rake the falling leaves. Below is a list of tips compiled by Popular Mechanics to help get the job done.

PATIENCE
Clear your pathways and high-traffic areas of leaves on an ongoing basis, but don’t bother raking your whole yard until all the leaves are down.

USE THE RIGHT TOOLS
That rusty metal fan rake in your shed might seem like an old friend, but perhaps its useful days are over. There are also rake alternatives, including push-power leaf collectors that help take some of the backache out of raking.

TAKE CARE OF YOUR BODY
Speaking of backache, be sure to practice proper raking technique before, during, and after your work. Raking is a real workout, and you need to warm up your body by stretching before you start.While you’re raking, be sure to keep a good posture and stand upright. Switch your main (bottom) hand on a regular basis, and always bend at the knees (not the back) when you stoop to pick up a pile.

WORK SMART
This is the key to efficient raking. Rake your leaves into small piles on top of a tarp or a piece of plastic, then drag that pile to your main pile or compost.

RAKE WHEN IT’S DRY
This one is simple but important. Wet leaves are heavier than dry ones, so try to do your raking during a dry stretch of weather.

 

27 Sep

What should we be talking about? Taxes or real estate?

General

Posted by: Anne Martin

Welcome to the September issue of my monthly newsletter !

This month’s edition addresses the imbalance of time we spend discussing real estate (in most cities) as compared to income taxes, as well as a look at the age old real estate related topic of ‘Location, location, location.’

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


Time To Talk Taxes

In Canada, and certainly in the large urban centres, there are few topics that get more press than real estate these days. It seems that few conversations are capable of lasting more than a single digit number of minutes before some aspect of the topic arises.

Much of the talk is about how action should be taken to rein in rising prices — and to be fair, even those who currently own property are part of this group, as many are parents who would one day like to see their adult children living in homes of their own.

According to a new study by the Fraser Institute, the average Canadian family spent more on taxes in 2016 than any other one thing.

The study cites average family earnings in 2016 as $83,105. Housing costs, which considered both rents and mortgage payments, combined with food and clothing, totaled $31,069.

Total taxes came to $35,283.

Housing costs alone stood at 22.1% of household costs, yet taxes took a 42.5% share.

While taxes are important, as of course they fund many critical public services that we rely on, there is still some question as to the return on investment of our tax dollars.

Perhaps there is a certain sense of futility we feel when it comes to changing taxation in any way, and perhaps that is why there are few rallies to reduce taxes, or to encourage more efficient use of tax dollars, as compared to rallies for action on affordable housing.

The level of futility seems to be growing when it comes to real estate though. And no doubt it is always a concern when governments do take specific actions in a free market society, as often those actions have unintended consequences.

In any event, it would be interesting if, instead of discussing real estate, an equal amount of time, energy, and media attention focused on where our tax dollars go, and why the government requires so many of them.

Location, Location, Location

The true costs of commuting are often overlooked during the home-buying process. Few homebuyers fleeing city-living for the suburbs ever make the advance effort of spending a dark winter’s week purposely engaging in what will be their new commute during peak travel times. Instead it is usually a Sunday afternoon drive that leads them to their new home. And when the reality of the daily commute from Monday to Friday takes effect, it can be quite painful to adjust to.

Having done a bit of research at www.caa.ca around the cost of commuting, a fair figure to use is 45 cents per kilometre. With the average commute at 40 km for many Canadians, this is a $36 daily cost, excluding parking. Aside from the financial cost, there is the social and emotional cost of spending an average of one hour per day alone in a car to consider.

Admittedly there are public transport options that save money, although this is often in exchange for even more time sacrificed due to less than perfect public transit solutions in many suburban areas. Also a consideration is the inflexibility with transit of fitting errands, especially child related errands, into the commute.

Ten hours per week spent commuting is ten hours not invested in…

  •     Socializing
  •     Finding a mate (if this is a goal)
  •     Having children (if this is a goal)
  •     Raising children
  •     Relaxing (absence of children)

Ten hours per week goes a long way.Some might be inclined to work those extra two hours, which even at a reasonable $20 per hour is an extra $10,400 per year gross income.Less the expenses of commuting: $7920 ($36 x 220 working days).The extra earnings, combined with the added savings, may well make staying closer to your workplace the more affordable option.

Perhaps, after deeper reflection, spending the hours focused on career or on the social side of life, rather than commuting is the sensible plan.If we apply this math to a double-income household, and were the wage closer to $25 per hour for those extra two hours per day, the purchasing power increases that much more. Food for thought during today’s hour-long commute.

Did you know…
Only 23% of Canadians know their credit score, and just 26% knew their credit rating at the time they applied for a mortgage, reports a recent Equifax survey. A good credit score can be a major negotiating tool in getting lower interest rate mortgages from financial institutions. The study also found that 10% of Canadians surveyed say it’s okay to inflate your income when applying for a mortgage. And 9% say they have lied on credit card or mortgage applications. The numbers came as a shock to Equifax officials, given that the July survey of 1,500 Canadians was really aimed at gauging their concerns about protection of personal data.
Homeowner Tips Fall Lawn Care:
What you do for your lawn during the fall will have a great impact on what your lawn will look like next spring. There are four simple steps you can take to help ensure your lawn will be healthy, green and the envy of the neighbourhood next year:

  • Aerate. This means to puncture your lawn with small holes throughout to allow the fertilizer, sunlight, water and important nutrients that grass needs to grow deep within the ground;
  • Fertilize. Basically this means feed your lawn before it goes to sleep for the winter;
  • Overseed. This is when you spread new grass seed all over your existing lawn with a spreader; and
  • Mow. In November, mow your lawn one more time as short as you can without scalping your lawn. This will help all the other steps above work better.

16 Aug

Ten things to know about the prime lending rate. Consumer’s Home Digest August 2017

General

Posted by: Anne Martin

Welcome to the August issue of my monthly newsletter !

This month’s edition offers ten things to know about the Prime lending rate and your mortgage, as well providing insight on exactly how to determine if your mortgage is truly portable.

Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!


Ten Things to Know About Prime & Your Mortgage

  1. Fixed-rate mortgage holders are not affected by Bank of Canada rate changes during their current term. Only those in either adjustable-rate or variable-rate mortgages need read on.
  2. On July 12 lenders increased variable-rate borrowing costs by 0.25% to match the Bank of Canada increase of the same amount on the same day.
  3. There are three more scheduled Bank of Canada meetings this year, and there remains doubt about any further increases this year. Few expect anything more than a 0.25% further increase.
  4. This was the first increase to Prime in nearly seven years, and it follows two 0.25% reductions in 2015.
  5. A 0.25% rate increase equals a payment increase of $13 per month per $100,000 of outstanding mortgage balance for those in an adjustable-rate mortgage. That means a $300,000 mortgage balance will see payments rise by $39 per month.
  6. Not all payments increase. Several lenders differentiate from an adjustable-rate product by offering what is called a ‘variable-rate’ mortgage and their clients will not have any payment change at all. Instead, the life of the mortgage is extended slightly. A letter in the mail from your lender should be arriving to confirm which camp you are in.
  7. There is no penalty or fee to convert to a fixed rate. Whether in an adjustable-rate mortgage or a variable-rate mortgage, you have the option of locking into a fixed-rate at any time without cost. The length of the term offered varies according to policy and remaining time to maturity, with some lenders allowing conversion to a three-year fixed from day one, but most ensuring they have you under contract for the full original term.
  8. Locking in can be very costly. The prepayment penalties differ significantly between variable- and fixed-rate products. Be careful about locking in. Aside from immediately increasing your payment even further, you stand to increase your potential prepayment penalty by up to 900%. Few think they will trigger a penalty, yet more than half of borrowers actually do.
  9. No surprises. Mortgage lenders failed to give us the full 0.25% decreases in 2015, instead only reducing rates by 0.15% both times. Counting on our short memories and lack of uproar, lenders chose to increase by the full 0.25% on July 12, rather than doing what would have been fair and only increasing 0.15%
  10. Future increases will depend largely on consistent economic good news. This is what drives interest-rate increases.

Stay tuned for next month’s newsletter as we weigh the likelihood of another 0.25% increase at the September Bank of Canada meeting.

Is My Mortgage Portable?

The question: ‘Is my mortgage portable?’

The answer most often given: ‘Yes.’

This answer is increasingly wrong.

In reality, you may qualify to move 80% or less of the current balance.

The proper question: ‘Do I need to re-qualify for my current mortgage to move to a new home?’

The proper answer: ‘Yes, your mortgage is portable, but only if you re-qualify under today’s new and more stringent guidelines.’

Who is the very best person to answer the portability question? Your mortgage broker.

They will answer this question accurately. And it can only be answered accurately with a complete and updated application, along with all supporting documents to confirm the maximum mortgage amount under current guidelines.

Calling the 1-800 number on your mortgage statement, or asking the teller while depositing cheques is far less likely to get you an accurate answer. Instead that tends to be the origin of the one word answer.

Call your mortgage broker as soon as you start thinking about moving.

Too many clients learn this lesson the hard way. They sell their existing property before speaking with their Mortgage Broker, and in some cases they also enter binding purchase agreements under the mistaken assumption they can just ‘port their mortgage.’

What is the problem?

Key Point – The Federal Government has created a dynamic in which there are two different qualifying rates used for approvals. One is for the initial purchase or refinance, and the other is for when it comes time to move to a new home.

So the qualifying rate used yesterday to get you into a five-year fixed rate mortgage on your current home is not the one being used to qualify you to move that same mortgage to a new home down the street, even just one day later.

Key Point – One day into your new five-year fixed mortgage you are now subject to a ‘stress test’. In a nutshell, the stress test effectively reduces your maximum mortgage amount by 20%. Meaning that you can only port 80% of the current balance to another property… just one day later.

So, what’s the fix?

The best fix – The government could add a simple sentence to their lending guidelines along the lines of ‘If a borrower qualified for their mortgage at the five-year contract rate at inception, then the borrower shall be allowed to re-qualify at the original contract rate when moving their mortgage to a new home.’

Currently this fix does not exist.

The current fix – You pay a penalty to break the current five-year fixed mortgage you have and then apply for a new five-year fixed mortgage. Which is as ridiculous as it sounds.

The penalty amount? Approximately 4.5% of balance, i.e., $14,000 on a $300,000 mortgage balance. Yes, you read that correctly.

This is entirely unreasonable. It is not a fix at all. If you bought with 5% down, and then a few months later were transferred to another province and had no choice but to move, this represents your entire down payment vanishing due to a simple oversight by the federal regulators

Did you know… Homeowner Tips
Paint Brush Tips:
The majority of wealthier Canadians mortgage their homes by choice. 67% of high net worth Canadians (those with $500,000 or more in investable assets) with a mortgage have the cash to pay off their home – in full – but don’t, according to a survey for Investors Group. Their reasons for holding on to their mortgage vary, including tax planning and income-generating rental properties. In Canada, mortgage interest on rental properties is tax deductible. When it comes to painting, many people will buy the big package of brushes for $7. But the bristles on these brushes may be coarse or could fall out. In addition, they can end up looking ratty after a while and the paint won’t spread evenly. The key is to buy a good quality brush and clean it properly as specified on the label. And if you have a big job and find yourself having to paint in intervals, you can wrap your wet brushes in kitchen wrap. Place the oil-based brushes in the freezer and the latex-based in the fridge. When the job has been completed, you can then clean them and put them away. In many cases a good brush will last for dozens of paint jobs.