26 Feb

Mortgage Rates are dropping! Here’s why.

General

Posted by: Adam Sale

Mortgage rates are dropping!

In case you aren’t aware, there is an unprecedented amount of doom & gloom in the news, but amidst all this chaos is mortgage rates are getting cheaper.

As you may know, the stock market has been declining since Monday. While this may not be good for our investments (ugh!), this is excellent for cheap mortgage rates.

Over the last 3-weeks Canada’s 5-year bond rates dropped to similar levels seen in August 2019.

Since it usually takes 2-weeks of depressed bond prices before wholesale lenders decrease their mortgage rates, we are finally starting to see those rates adjust. The big banks typically wait a full month before they adjust their rates, so we are still waiting for those to come down.

In August 2019, 5-year fixed mortgages were priced as low as 2.49%, so be on the lookout for similar rates as long as these bond prices stay depressed.

If you have any clients that are thinking about purchasing, now is the time to beat everyone to the punch and jump on these abnormally low-interest rates.

I will keep you updated with how things transpire.

19 Feb

How to Benefit from the Changes to the Stress-Test

General

Posted by: Adam Sale

New changes to the Stress-Test!

Yesterday the Department of Finance unveiled they are changing the stress test rules April 6th.

The changes will affect “insured mortgages,” which are characterized by their low-downpayment requirements and under $1 million purchase price.

Currently, Bank of Canada restricts our qualifying mortgage rate to 5.19% or the contract rate + 2%, whichever is higher.

Under the new rules, the Bank of Canada is disposing of the 5.19% benchmark, and allowing our new qualifying rate to float based on the Median contract rate for a 5-year insured mortgage + 2%.

 

This is a huge step in the right direction!

Buyers will have more purchasing power, and the qualifying rate will better match our economic condition.

If we take a household making a $100K under today’s standards, they will qualify for a mortgage of roughly $500k.

After April 6th, if our 5-year fixed rates are at 2.79% our same household they would qualify for a mortgage of approximately $525k.

I understand this is not a massive difference in the qualifying amounts, but it is a step in the right direction!

How will this change benefit you?

The “floating” Benchmark Rate will be published on a Wednesday and come into effect the following Monday

Under the new “floating” qualifying interest,  you’ll be about to afford more house during periods of a low interest rates.

I suspect we will see an increase in activity in the summer as the typical “summer rate-specials” come out, but we may see a decrease in activity during the winter as rates tend to rise slightly.

12 Feb

3-Types of Mortgages to Finance Your Home Renovation Project

General

Posted by: Adam Sale

3-Types of Mortgages to Finance Your Home Renovation Project

 

Are you interested in turning your home into your dream home? This piece is all about the 3-financing options available to homeowners and future homeowners to fund their renovation projects.

The 3 types of products offered by prime lenders are:

  1. Home Equity Line of Credit

  2. Refinancing or 2nd Mortgage

  3. Purchase Plus Mortgage

The first two options involve withdrawing equity out of your house. While the Purchase Plus Mortgage option allows you to add the costs of your completed renovation project to your mortgage. I’ll explain more on that later.

So lets break down our first 2 options: the home equity line of credit or HELOC for short and, Refinancing or adding a 2nd mortgage.

The maximum amount of funding provided by these two options is determined by our income and what’s known as our Loan-to-Value. We’re not going to discuss income requirements, but I would like to discuss the main limiting factor, which is Loan-To-Value.

So what is Loan-To-Value? Loan-to-Value is a ratio of how much our outstanding mortgage balance is, to the Current fair-market value of our home. If we have a home worth $500,000 and our outstanding mortgage balance is $250,000, then our loan-to-value is 50%.

Remember this 50% number because we will be using it later.

Option 1 – Home Equity Line of Credit

Our first option is a Home-equity line of credit. Line-of-credits are an excellent way to fund renovation projects because they are flexible. They allow us to withdraw money as we need rather than a lump-sum, and many interest only payments. Lots of benefits packed into these products, but they do have a downside.

Mortgage rules dictate the maximum Loan-to-Value allowed for a home-equity line of credit is 65%. So, if we apply this rule to our scenario it will look something like this.

Option 2 – Refinance / 2nd Mortgage

Mortgage rules allow us to refinance our original mortgage or take out a 2nd mortgage up to a maximum of 80% Loan-To-Value, but unlike the Line-of-Credit, this option requires you to take the full amount as a lump-sum. Meaning the lenders will transfer the entire amount requested into our account, and we will begin making the necessary payments on this new amount whether we’ve used it or not.

If we apply this option to our scenario the maximum amount available to us is $150,000.

Option 3 – Purchase Plus Mortgage

This option is unlike the others for a few key reasons.

Firstly, the Purchase Plus Mortgage is for prospective homeowners, not current homeowner. And, the program is available to high-ratio mortgages, as well as conventional mortgages. To really explain the benefits of this mortgage program let me give you an example.

Let’s say we’re actively looking to purchase a home and we’ve been pre-approved for $540,000. During our search we find the perfect home for a price of 500k, but it needs a few updates, new floors, paint, cabinets etc. If we use our standard mortgage, we will only receive funding for the original price of the home which is $500,000.

However, with the purchase plus option, we will receive funding for the original home price of 500k plus the cost of the additional renovations. Up to $40,000 with a high-ratio mortgage, and $60,000 for a conventional mortgage!

So there you have it, 3 options to fund your home renovation project and turn your home into your Dream Home.

If you have any questions, or would like to take advantage of these programs please call me at 778-215-4121

 

12 Feb

5-Tips to Help You Qualify For A Large Mortgage

General

Posted by: Adam Sale

5 Tips To help You Qualify For A Larger Mortgage

Are you trying to qualify for a larger mortgage?

Here are 5 tips to help you increase the amount you’ll qualify for.

Tip 1: Decrease your Credit Card Debt/Revolving Debt

Credit Card debt and Line-of-credit debt is classified as “revolving debt.”

When you apply for a mortgage and you have a balance on your credit card or line of credit, we as loan officers are required to figure out what your “monthly” payments are.

We Calculate all Revolving Debt balances at 3%.

Let’s say you have $20,000 in credit card debt, or on a line of credit, that equals a $600 per-month payment! These theoretical payments can erode much of your mortgage qualifying amount.

(If your line-of-credit is over $50,000, you may get special treatment with how it is calculated. Speak with a mortgage broker)

Tip 2: Keep Your Credit Report Clean

Do you make payments on time? Do you keep your credit card balances low? If you have a great credit score, you will qualify for the maximum amount possible. A credit report is based on a number of variables, but the 2 categories that make up 80% of the calculation are: repayment history, outstanding debt utilization. For example, if you have never missed a payment, but all your credit cards are maxed out your credit score is going to be negatively impacted. The vice-versa is true as well.

The easiest way to ensure you never miss a payment is by setting minimum payments on all your bills. This way, if you end up going to Thailand for 2 months, you’ll never have to think about making that minimum 15$ payment

Tip 3: Lower your Student Loan Payment

Do you have a student loan? This payment may be hindering the amount you can qualify for. One option many first-time home buyers take advantage of is extending their loan amortization. The Government of Canada allows students to extend their amortization up from 10 years to a maximum of 14.5 years.

In the long run you will end up paying more interest, but the lower monthly payments may be what’s needed to get you into your dream home.

Tip 4: Sell your car? (Eeek)

Of course, this is easier said than done, but if you are financing a vehicle those monthly payments could be using up much of your mortgage qualifying room. If you are fortunate enough to live in a city with great public transportation (is it ever great? How about acceptable public transportation). Decreasing your vehicle financing will increase your qualifying amount. After you are comfortably in your new home, you can once again go vehicle shopping.

Tip 5: Guarantor or Co-signor

If you are fortunate to have a guarantor or co-signor to help with your purchase, their income is added to the mortgage application and could help you qualify for a larger mortgage. In some cases, if our signor has too much debt it will hinder our application and it will be better to leave them off.

There you have it! 5-tips to help you maximize your mortgage qualifying amount.

Pro-Tip: Before deciding to purchase the maximum amount of house possible, try living for 6-months with the proposed payments. At the end of 6-months if you are happy with your lifestyle, then I say go for it!

Thanks for reading, if you have any questions please send me a message: adamsale@dominionlending.ca

Cheers,