28 Apr

Writing a Subject Free Offer – Mortgage Tips

General

Posted by: Adam Sale

Writing a Subject Free Offer – Mortgage Tips

Subject free offers seem to be the new normal in Vancouver’s real-estate market. In regards to financing, here are some tips for purchasers writing a subject free offer:

  • Prior to writing the subject-free offer obtain the Property Disclosure Statement, MLS Listing, Strata Form B (if available) & Depreciation Report (if available) so your mortgage broker can confirm with the lenders they will finance the property.
  • Purchasers should have a down-payment of at least 20%, and preferably 25% of the purchase price. This amount of capital will provide access to the greatest number of lenders.
  • Purchasers wanting to use a down-payment which less than 20% of the purchase price are at the mercy of 3 mortgage insurance companies. If these 3 insurance companies decline the mortgage request, the banks will not approve the loan and the borrower is forced to find a private lender at EXTEMELY high interest rates (14%-20%), or risk losing their deposit, or legal action. When writing a subject-free offer on a property I always ask these clients,

“if you have to, can you come up with a 20% down-payment for this property? If you cannot come up with a 20% down-payment, making a subject-free offer is extremely risky”

  • Prior to viewing properties (or writing a subject free offer), purchasers should receive a complete mortgage analysis from their mortgage broker to discover their lending limits. Many banks will issue pre-approvals (which is essentialy an interest rate hold) based on a borrower’s self-directed application without verifying the necessary documents. A competent mortgage broker will request the required documents upfront to ensure all information is verified and the process moves smoothly.
  • If the property is priced at the purchaser’s upper lending limits, ensure the mortgage broker has received the MLS listing well in advance so they can add the necessary amounts to the application. The property’s MLS listing discloses condo fees, property taxes and sq/ft amounts which may help or hinder the mortgage request.

To learn more about how to write the most competitive offer, please contact me at 778-215-4121.

Best,

Adam Sale

8 Apr

Proposed New Stress-Test for Uninsured Mortgages – June 1st 2021.

General

Posted by: Adam Sale

OSFI Proposes New Stress-Test for Uninsured Mortgages

The new proposal for the qualifying rate for uninsured mortgages is the higher of 5.25%, or the mortgage contract rate +2%. This is an increase from the current stress-test of 4.79%.

Increasing the stress-test specifically on uninsured mortgages will affect homebuyers purchasing with a 20% down-payment by decreasing their lending limit. It is also expected to put negative pressure on housing prices, primarily on homes above $1-million.

In Vancouver, assuming a client is earning $100k annually, their lending limits would decrease from approximately $560k to $528k on a 30-yr mortgage.

OFSI is seeking input from interested stakeholders on this proposed qualifying rate by email to b.20@osfi-bsif.gc.ca before May 7, 2021.

OFSI will communicate final amendments to the qualifying rate for uninsured mortgages by May 24,2021 with a coming into force date of June 1, 2021.

11 Mar

What’s Happening With Interest Rates?

General

Posted by: Adam Sale

Yesterday (March 10) the Bank of Canada kept their word on keeping the overnight interest rate unchanged. They’ve mentioned numerous times their plan is to keep the target interest rate unchanged until 2023, at which point they believe the economy will show decreased unemployment numbers and the economy will be operating near capacity.

However, the bond market’s yields (interest rates) are increasing since January which is driving the fixed-rate mortgages to highs not seen since the pandemic started a year ago. The 5-year bond yields have increased by half a percent since mid-January, and the 5-year fixed-rate mortgages have followed suit.

5-year bond yield

5-year bond yield

Where’s the Opportunity for the Lowest Mortgage-Rates?

The opportunity for the lowest mortgage rates is in the variable mortgage product and the 3-year fixed mortgage product.

Variable rate mortgages are at a significant discount, and vary between 1.45-1.85% depending on the type of mortgage. It is unlikely the variable rate mortgages will decrease further, and expect the interest rate to rise in 2023 when the Bank of Canada increases their rates. I feel a realistic hike throughout 2023 would be between 0.5%-0.75%.

Any purchaser looking for flexibility to time the market and sell their property at the peak price should consider the variable rate mortgage for its low-penalty.

Homeowners wanting a stable payment can find the cheapest rates in the 3-year fixed-term mortgage products. 3-year bond yields are not increasing as rapidly as the 5-year bond yields so expect many 3-year term mortgage specials to appear in the coming weeks, several lenders are already offering insured specials at 1.59%.

First-time homebuyers purchasing a starter home should consider the 3-year fixed-rate mortgage as it offers flexibility to sell and move into something larger at the end of 3-years without incurring penalties.

3-year bond yield

3-year bond yield

Deciding which mortgage product to use should always depend on what your goal is for the property in 3-5-10 years. Often the lowest-rate mortgage product is not the cheapest product for your personal scenario.

10 Feb

How to use RRSP Contribution to help cover Closing Costs.

General

Posted by: Adam Sale

How to use RRSP Contribution to help cover Closing Costs.

Most first-time home buyers know $35,000 in their RRSPs can be withdrawn tax-free for use towards the purchase of their first home. What they may not know is the funds must be held in their RRSP for at least 90-days.

The minimum 90-day rule creates an opportunity for individuals who may have their savings in other accounts and have not utilized their RRSP.

In these cases, it may make sense to transfer money from their savings accounts (TFSA, Stocks, High Interest Savings) into their RRSP account to lower their overall income for the year and collect a tax refund.

For example: A client with $80,000/yr 2020 income contributing $20k into their RRSP will receive a tax-refund of almost $5,500!

Those first-time home buyers looking to take advantage of the tax refund should consider maximizing their RRSPs by the contribution deadline of March 1st to get the benefits of lowering their 2020 taxes.

For more information on whether this strategy is available for you please contact your personal financial advisor or myself @ 778-215-4121.

Regards,
Adam

29 Jan

Cheaper Variable Rate or More Expensive Fixed Rate?

General

Posted by: Adam Sale

Does it make sense to go with the cheaper Variable Rate mortgage or the more expensive Fixed Rate mortgage?

It all depends on what the buyer is planning on doing with the property.

Scenario 1 – Buy and Flip

When purchasing a property to flip the variable rate mortgage adds flexibility to pre-pay the mortgage without incurring outrageous pre-payment penalties seen on fixed rate mortgages.

The pre-payment penalty for a variable rate mortgage is 3-months of interest. If mortgage payments are $2,000/m, the interest payment will be at most 50% of the payment ($1000). If we multiply this amount by 3-months the pre-payment penalty would equal $3,000. Which is a much less than the fixed-rate’s Interest Rate Differential penalty.

Scenario 2 – Buy and Hold for 3 years or More

Bank of Canada has mentioned on several occasions they will be keeping interest rates low until the end of 2022/early 2023. Based on this information it may make sense to go with a fixed rate mortgage if the buyer is planning on living in the property for 3-5 years.

The current premium for a fixed rate mortgage vs variable rate mortgage is approximately 0.25%.

On a $500,000 mortgage the payments are as follows:

Monthly Fixed Payment @1.89%: 2,090.81

Monthly Variable Payment @ 1.65%: $2,033.77

A difference of $57.04/m! – If we expected interest rates to remain low for the full 5 years this would result in $3,422.40 of savings!

However, according to Bank of Canada we expect interest rates to start rising in Year 3. It is likely interest rates will rebound by 0.50%-0.75%.

How quickly these rates rise will be the determining factor on whether Variable vs Fixed is the better option from a savings perspective.

Following the financial crisis that started in early January 2008, interest rates rose by 0.75% in the 4-month period from June-September 2010. Canada saw a period of low interest rates for almost 30-months!

If you found this chart interesting, and would like another scenario explored, please contact me at adamsale@dominionlending.ca or @778-215-4121

Cheers,

Adam

20 Nov

Bond Market Signalling Mortgage Rates Will Start increasing

General

Posted by: Adam Sale

Bond Market Signalling Mortgage Rates Will Start Increasing

There’s been recent movement in the government bond market which dictates Canada’s mortgage rates. When bond yields rise mortgage rates tend to follow. Bond yields rise on positive economic outlook, and decline on negative outlook.

Several factors in the recent weeks are creating an optimistic outlook for this year. These are:

1. Positive Vaccine trials 

2. Bank of Canada decreasing their quantitative easing measures

3. Hopes the new American president will bring stability to the world economy

Since the election and the positive news regarding the vaccine trials Canada’s government bond yields have increased by 16%.

What does this mean?

In short, if bonds remain at this level it is likely we’ll see mortgage rates begin increasing. The amount at which these mortgage rates will increase is speculative. Personally, I do not see these rates rising much more than 0.15%-0.20%. Even if these rates rise, mortgages are the cheapest they’ve every been!

Current rates being offered on the market are:

High ratio @ 1.65% – 1.89%

Insurable @ 1.65% – 1.89% (dependant on down-payment amount)

Conventional @ 1.79% – 2.09% (dependant on lending scenario)

If you are thinking about purchasing a home in the next 4-months I suggest setting up a pre-approval to lock-in a low-rate incase rates start rising in the short term.

To set-up a virtual pre-approval please contact me @ 778-215-4121 or by email adamsale@dominionlending.ca

16 Oct

Variable Mortgage Product with a Fixed Payment

General

Posted by: Adam Sale

Flexibility of a Variable Mortgage Product with the certainty of a Fixed Payment

Today I spotlight a cool variable-mortgage product offered exclusively by TD. It’s their variable mortgage.

Variable mortgage products are excellent for those who have a higher risk tolerance, but want the flexibility of paying off their mortgage without incurring outrageous penalties.

Current market conditions (October 2020) make the variable mortgage slightly cheaper than fixed rate mortgages, but you also run the risk of your monthly payments increasing if interest rates increase in the future.

TD’s variable mortgage product acts differently than the others.

TD’s variable mortgage keeps the payment fixed for the desired term and instead manipulates the portion of principal vs interest. If interest rates increase, the interest portion of the monthly mortgage payment increases. If interest rates decrease, the principal portion of the payment will increase.

This can be an excellent product for those who wish to take advantage of the flexibility and low pre-payment penalties of a variable mortgage, but don’t want the risk of their mortgage payment increasing.

The down-side with this product is if interest rates increase the overall amortization period of the mortgage will increase. However, if interest rates decrease the amortization will also decrease.

To learn more about the differing mortgage products, and to discuss a mortgage scenario please give me a call or text @ 778-215-4121

Cheers,

Adam Sale

9 Oct

How to Make Your Mortgage Tax Deductible

General

Posted by: Adam Sale

How to Make Your Mortgage Tax Deductible

Did you know in Canada there are 2 ways to make the interest you pay on your mortgage is tax deductible.

The first way, is by owning a rental property. Interest accrued throughout the year on a rental property is a deductible expense from the rental income. This will lower your taxable income on your rental income.

The second way is through the Smith Manoeuvre.

The Smith Manoeuvre sounds confusing to most people, so I suggest researching this strategy to truly understand the concept.

In short, the Smith Manoeuvre uses your Home Equity Line of Credit to fund your investment portfolio.

This strategy requires a higher risk tolerance.

Steps to perform a Smith Manoeuvre:

  1. Obtain a mortgage with a Home Equity Line of Credit (Heloc) – lending rules a​llow 65% of the home’s equity to be in a Home Equity Line of Credit. The remaining amount of the mortgage must be allocated to a fixed payment account.
  2. Each monthly payment is part principal & part interest – the principal amount is re-advanceable.
  3. Re-borrow the principal amount after each monthly payment and invest in dividend stocks or Exchange Traded Funds. The interest paid on the re-borrowed funds is tax deductible.
  4. Use the tax refund at the end of the year to pay down the mortgage and continue the cycle.

To make the Smith Manoeuvre profitable, look for investments which pay a dividend yield that’s higher than the interest paid on the Heloc portion of the loan. The current interest rates on a Home Equity Line of Credit range from Prime +0.5%-1% (2.95%-3.45%).

Please note this is a higher risk investment strategy which is not recommended for everyone. Please do your due diligence and research the Smith Manoeuvre to see if this is the correct strategy for you!

For more information on mortgage products & Mortgage Strategies please call/text 778-215-4121 or email me at adamsale@dominionlending.ca

Have a great Thanksgiving weekend!

Sincerely,

Adam Sale

30 Sep

Non-Resident, Temporary Visa & Permanent Resident Mortgage Options

General

Posted by: Adam Sale

Non-Resident, Temporary Visa & Permanent Resident Mortgage Options

Non-Resident – U.S Citizen

U.S Citizens interested in purchasing a property in Canada can purchase with as little as a 20% down-payment if the property will be the owners primary or secondary residence. Applicants must meet standard debt servicing requirements.

U.S Citizens interested in purchasing a rental property in Canada are required to provide a 35% down-payment.

Foreign Work Visa (Non-Permanent Residence)

Can purchase with a minimum 10% down-payment if:

  • Property is Owner-Occupied
  • Must have valid work-visa with minimum 6-month remaining
  • Must be mortgage insured by (CMHC, Genworth or CG)

Permanent Residents

Can purchase with a minimum 5%-10% down-payment:

  • Must be mortgage insured by (CMHC, Genworth or CG)
  • Owner must be paying income taxes in Canada
  • Property must be owner-occupied & primary residence

For more information regarding these options, please call/text me at 778-215-4121 or email at adamsale@dominionlending.ca

25 Aug

5 Benefits of a Pre-Approval

General

Posted by: Adam Sale

5 Benefits of a Pre-Approval

  • Shop with Confidence – Be certain how much house you can afford to save you time while shopping!
  • Lock-in a rate for 90-120 days – In the event rates are rising, know you have access to your low locked-in rate. If rates are decreasing, you can to take advantage of the lower rates as well – best of both worlds!
  • Prepared, Prepared, Prepared – Once you’ve been pre-approved lenders will shuffle your file to the top for underwriting once there is a live deal in play. This means your realtor can write a more competitive purchasing offer by decreasing the amount of time for subject removal.
  • Stress-Free Process – provide your mortgage broker with the required documents early during the pre-approval stage, this will keep the home-buying process flowing smoothly.
  • Credit Review – Often a credit report will have an past debt that didn’t drop off the report properly. Discovering these errors early during the pre-approval stage will provide adequate time to take the necessary actions with addressing these errors.