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,

20 Jan

Leasehold Financing

General

Posted by: Adam Sale

Did you know some lenders will finance 95% of a leasehold property?

Most of the big 5 banks require a minimum down-payment of 20%, but there are still a few wholesale lenders willing to arrange financing with a down-payment of 5%.

A couple things to note about these lending scenarios are:

  • There must be adequate time left on the lease, for example: A 25-year amortization requires a minimum of 30 years left on the lease.
  • The mortgage needs to be insured
  • Leases must be Provincial, Municipal, SFU or UBC

Also, when advising your clients on the purchase of a leasehold property its worth thinking about their age, financial situation and their plan for the property.

A growing number of elderly homeowners are relying on their house as a form of “retirement savings account” by taking advantage of “reverse-mortgage” products.

A Reverse mortgage product allows elderly-homeowners to supplement their income by withdrawing the equity built up in their property in either a lump-sum payment, or monthly allowance.

A lease-hold property is NOT ELIGIBLE for a Reverse-mortgage if there is less than 75 years remaining on the head lease, or if it’s located on First-nations land.

If you would like more information on regarding financing leasehold properties, please send me a message.

Thanks for reading!

Adam Sale

8 Jan

High Ratio, Insurable, and Conventional Mortgages. Whats The Difference?!?!

General

Posted by: Adam Sale

I’d like to briefly discuss the 3 categories of mortgages being offered by Prime-Lenders, which one offers the cheapest rates, and why.

High Ratio Mortgages

Down-Payment between 5%-20%; needs to have Canadian Mortgage Housing Corporation (CMHC) insurance. This means the insurance agency that dictates what the lending requirements are. So yes, you may be getting a mortgage through ScotiaBank or TD, but at the end of the day it is CMHC that sets the guidelines on what the lending requirements are. High Ratio Mortgages offer the best mortgage rates because the mortgage is insured. This insurance removes the bank’s risk of a client defaulting on their payments.

The CMHC requirements are standardized between all lenders, allowing very little flexibility between lenders. 

Insurable Mortgages

These mortgages have a minimum of 20% down-payment, are uninsured, but still follow CMHC’s lending guidelines. These guidelines include, and are not limited to, the same debt servicing ratios per-credit score, and must qualify with a maximum amortization of 25 years. Insurable rates are similar to High-Ratio mortgages; however, we begin noticing much more variance between these rates with each lender.

Conventional Mortgages

Mortgages that have a minimum of 20% down payment, and do not follow CMHC’s lending guidelines. Within this “Conventional Mortgage” category we start seeing banks being much more creative with their financing requirements. Rates for conventional mortgages are the highest between these groups and vary the most. A few key features of conventional mortgages worth mentioning are outlined below:

–         30 Year amortization: Most banks offering conventional mortgages will allow the client to qualify using a 30 year amortization to lower their monthly payments.

–         No stress test: Some credit unions offer mortgages that are not required to follow the governments stress-test rules.

–         Equity Financing: Several Prime Lending Banks/Credit Unions offer mortgage programs to clients that have a minimum of 35% down-payment. These programs do not follow the typical income requirements, relying heavily on a common-sense approach.

I hope this clarifies some confusion around the different mortgages, and the varying rates being offered.

For more information, please contact me at 778-215-4121 or by E-mail: adamsale@dominionlending.ca

Thanks for reading!

Adam Sale,

19 Dec

Does it make “Cents” Breaking Your 5-year Mortgage for a Lower Interest Rate?

General

Posted by: Adam Sale

Does it make “Cents” breaking your 5-year Mortgage for the current low interest rate?

Many home-owners are asking if it’s worth breaking their 5-year fixed mortgage to take advantage of the low interest rates?

As always, it depends.

Most home-owners asking this question arranged their mortgage in late 2017-2018, when mortgage rates were averaging 3.5%. This means they are between 1-2 years into their 5-year mortgage term.

The longer the length left in a mortgage term, the higher the pre-payment penalty is for breaking the contract.

Fixed-rate mortgages have a clause in the pre-payment section stating the penalty for breaking the contract is the greater of either a 3-month interest charge, or an Interest-Rate Differential penalty.

Generally speaking, if there is more than a year left in the mortgage term the Interest-Rate Differential is used. Typically, the IRD charge is substantially more than paying 3-months of interest.

One of the biggest misconceptions about mortgages is

all Interest-Rate Differentials are the same,

 this is false.

The Big 5 banks have the strictest IRD charges on the market, often thousands of dollars more than a credit union or wholesale-banks IRD charge.

Mortgages at Big 5 banks are designed to penalize you more for breaking your mortgage than the savings you will gain from a monthly mortgage payment at a lower rate.

If, instead, you are with a credit union or wholesale bank there are scenarios where it may be advantageous for you to break your mortgage, depending on how these individual lenders calculate their Interest-Rate Differential charge.

If you are curious on what it costs to break your specific mortgage, give me a call I’d love to find out if there is an opportunity to save you some money.

Thanks for reading,

Adam Sale

5 Dec

BoC Holds Interest Rates at 1.75; Is a recession coming?

General

Posted by: Adam Sale

BoC Holds Interest Rates at 1.75; Is a recession coming?

Bank of Canada holds interest rates steady at 1.75% for the ninth-consecutive policy announcement.

What does this mean Canada’s Economy? Is a recession still coming?

Over the last year we’ve been bombarded with information about a looming recession and the "inverted yield-curve prophecy."

Then, in November sentiments changed when the yield curve returned to regularity. Sparking news articles stating “We avoided the recession!”

So, what are we to believe?

Canada’s economy is in an interesting position. Quebec and Ontario are thriving which is propping up our GDP, while many sectors in our western provinces are struggling.

BC has yet to feel the full effects of a severely contracted forestry sector. Alberta and Saskatchewan’s Oil & Gas supply chain has reached a bottleneck, causing energy producers to allocate their investments south of the border.

Thankfully, there is some good news - we live in Vancouver. A couple key features of our western major city are:

1.      Vancouver’s economy is diversified

2.      Desirable place to live

Vancouver has a robust economy fueled by real estate, finance, construction, international trade, tech, the public sector, and tourism. No other city west of Toronto offers such a diverse mixture of industries. If we are heading into a recession, this variety will help cushion the affects.

Which brings me to my next point, Vancouver is a desirable place to live.

In 2018 Canada approved an estimated 313,000 temporary residents, Ontario received the bulk of the newcomers with an estimated 42% and BC received the second largest amount of migrants with an estimated 21%.

Of the 21% migrants, the majority reside in Vancouver due to our large universities, employment opportunities and (of course) our temperate climate.

In conclusion, Canada's economic growth is easing, but we still continue grow. If our economy were to stagnate and enter a recessionary period the Bank of Canada is well positioned to adjust interest rates respectively.

Thanks for reading,

Adam Sale B.Mgt – Mortgage Broker

Cell: 778-215-4121 | www.AdamSale.ca

Email: adamsale@dominionlending.ca

15 Nov

What happens after Subjects are Removed?

General

Posted by: Adam Sale

What happens after Subjects are Removed?

When subjects are satisfied and you agree to the purchase your new home, you are required to place a non-refundable deposit on the property to remove subjects on the purchase agreement. Once subjects are removed, the purchase agreement is now a binding contract.

It is extremely important you understand the mortgage commitment letter you signed prior to subject removal commits your lender to you based on the information that was provided. Any changes to your credit report or employment could jeopardize your commitment to financing, and should be discussed with your mortgage broker.

From Subject Removal to Completion Day you need to:

  • Retain a lawyer or notary (if you haven’t already)
  • Arrange home insurance
  • Consolidate your down-payment
  • Prepare for Completion day

Retain a Lawyer or Notary

Once subjects have been removed it is time to notify your Realtor on who you would like to use as your lawyer or notary to complete the transaction. Your lawyer or notary will facilitate the mortgage signing, transfer property title, register the mortgage and register title insurance. Retain a lawyer or notary as soon as possible.

Arrange Home Insurance

Before your lawyer or notary will release mortgage funds, they require confirmation of home insurance being arranged on the property. Most lenders require you to pre-pay a year’s worth of home insurance. Bring confirmation of arranging home insurance to your lawyer’s office when you sign the mortgage documents.

Consolidate Your Down-Payment

To keep the process moving smoothly, begin consolidating your down-payment into one account as early as possible. If you plan on using your RRSPs in the Home Buyers Plan you will be required to fill out the government form “T1036 – Home Buyers Plan Request to Withdraw Funds from RRSP.” Bring this form, and a copy of your purchase agreement to the institution that issued your RRSP’s so they can arrange the withdraw of these funds. It often takes multiple days to transfer funds out of your RRSPs to your designated account. Consolidating your down-payment into a single account allows for easy withdrawal on completion day.

Prepare for Your Completion Day

Your lawyer will be in contact with you during this process and inform you on what to bring for completing the transaction. You will be instructed to bring confirmation of arranging home insurance, and a cashier’s cheque that will include the following amounts for:

  • Down-payment (less the deposit amount)
  • Legal fees
  • Title insurance fee
  • Property transfer tax amount
  • Property tax / Utility bill adjustments

Completion Day

Finally, the day has come for you to complete your side of the transaction and take ownership of the property. On this day you will bring the requested cashier’s cheque to the lawyer or notary, and sign the required documents to finalize your side of the sale.

Under the guidance of your lawyer or notary you will be signing your mortgage documents, transferring the title of the property, registering the mortgage charge and registering the title insurance.

After all the required documents are signed and your fees are paid, your side of the transaction is complete!

Possession Day

This is the day you have worked so hard for. Today you pick up the keys to your new home!

24 Oct

3 Ways to Purchase a Rental Property

General

Posted by: Adam Sale

3 Ways to Purchase a Rental Property

In this write-up I’ll briefly discuss 3 different approaches for financing a rental property, and the biggest issue clients face

It is assumed if someone is purchasing a rental property, they already own their primary residence. This is a second property purchase. 

The biggest issue clients face when purchasing a rental property is ensuring their income will support the monthly payments required with operating two properties.

Yes, receiving rental income will help support the additional payments, but will it fully cover them? Every lender approaches rental income differently. Make sure you are working with a knowledgeable broker to maximize your rental income’s purchasing power.

Conventional Mortgage – 20%+ Down-Payment

Purchasing a rental property with a conventional mortgage (20% down-payments) will give you the greatest amount of flexibility in finding lenders with favorable rental programs. Conventional mortgages are not required by law to follow CMHC’s strict lending guidelines, thus creating opportunities for lenders to develop niches in the marketplace.

For example, some lenders aggressively target the condo market by removing monthly strata payments or property tax payments from the income-qualifying equation.

Slight variations between lenders, such as the one mentioned above, have a significant impact on your purchasing power. It is estimated for every $500 in monthly payments the stress test decreases your purchasing power by approximately $80,000.

Recently, some provincial lenders are aggressively growing their residential mortgage share by offering their own “relaxed” version of the stress-test.

Refinance Option

One of the easiest ways to purchase a rental property is by refinancing one’s primary residence to purchase the new property in an all-cash deal.

This option is straightforward, and can qualify the homeowner for their new mortgage by only adding their primary residence’s housing costs into the income-qualifying equation.

If adding rental income to the income-qualifying equation is necessary for the purchase, using the conventional mortgage option may be a better solution.

High-Ratio Mortgage – Less than 20% Down-Payment

Purchasing a property with less than a 20% down-payment is tricky, but do-able if you have solid income to support CMHC’s rigid lending guidelines.

High-ratio mortgages are designed for owner occupied properties. In order to perform this transaction requires you to move from your current property, and make the new property your principal residence.

So, what makes a high-ratio mortgage transaction involving a rental property more difficult to complete?

When income-qualifying a client for this type of transaction, we are required to follow CMHC’s “net-rental income” approach for adding rental income into the calculation. This equation is not favourable, and typically creates a negative net rental income which decreases the clients’ purchasing power.

“Net rental income = gross rents – operating expenses.”

To discuss any of these options in greater detail, please contact me at adamsale@dominionlending.ca, or by phone at 778-215-4121.

Thanks for reading!

16 Oct

Purchase Plus Mortgage Program

General

Posted by: Adam Sale

Purchase Your Home and get an Additional $60,000 for Renovations

Renovation

Below is a quick write-up I did on the Purchase Plus mortgage program, who it is designed for and how it operates

If you're interested in purchasing a property and then renovating it to increase its live-ability and value, then the Purchase Plus Mortgage program may be your ideal mortgage solution.

When applying for a mortgage, lenders typically lend based on the homes current appraised value. However, the Purchase Plus program allows lenders to lend on the future value of the home, after the necessary improvements are performed.

This mortgage program allows a maximum of $40,000 in additional funds to be put towards improvements on high-ratio mortgages.  On conventional mortgages some programs will grant a maximum of $60,000 for improvements.

How it works?

To take advantage of this program, borrowers will first need to qualify for the whole mortgage amount including the additional improvement portion. Once they’re qualified, the process of purchasing a home is relatively the same except for one additional step. Lenders require a satisfactory quote outlining the scope of the work and the cost estimates.

With a satisfactory quote, the home appraiser will generate a report with 2 values. The current value of the property, and the future value.

When it is time to purchase the property, the lender will advance the funds for the current property’s value to pay out the seller. The lender then retains the funds for the future value of the property until construction is completed.

During the renovation phase it is the home owners responsibility to pay for the completed work. Once the project is 100% complete, the appraiser will review the project and inform the lender of the new property value. With a satisfactory report the lender will then transfer the remaining funds to the borrower.

Speak with a Contractor

Are you unsure of what your potential project will cost, or where to find a reputable contractor? I highly recommend Greg Baarts of GreNor Homes. His years of experience and excellent reputation will ensure your project completes on time. 

Greg Baarts

GreNor Homes | www.grenorhomes.com

604-505-4574 | Greg@grenorhomes.com 

www.grenorhomes.com

Find out if this Program is right for You

If you are interested in more information on the Purchase Plus option, or would like to discuss possible mortgage scenarios please send me an email, or call me at 778-215-4121.