16 Mar

Mortgage Industry Update, March 16th

General

Posted by: Adam Sale

Last week we saw several changes in the mortgage industry that will directly affect our Real Estate industry. Here are some need to knows:

Stress-Test

The stress-test changes slated for April 6th are suspended. The posted mortgage rate, published weekly by the Bank of Canada, will remain the qualifying mortgage rate. It is currently 5.19%, but it is expected to fall this week to around  4.95%.

Mortgage Repayment

CMHC is highlighting their Mortgage repayment options for those effected with making their mortgage payments. The best thing a homeowner can do if they fear they won’t be able to make their mortgage payment is get out in front of it as soon as possible and let their lender know. Many lenders have payment deferral options that will actually allow borrowers to skip a payment if they come into financial hardship. For more information on what CMHC suggests please view this website: Dealing With Mortgage Payment Difficulties

Rising Risk-Premiums

Bank’s are rising their risk premiums due to the expectant recession which is causing an increase in fixed mortgage rates and a tightening of the discount off the prime rate on variable-rate mortgage loans. This widening spread between mortgage rates and government yields is typical behaviour during a contracting economy, and took place during the financial crisis in 2008. During the crisis, rates continued to decline even with the widened spread.

Banks of Canada Rate Cut

The Bank of Canada is hopeful that its rate cuts will stabilize the housing market from what might have otherwise been a substantial shutdown. Expect the Bank to cut rates again to near-zero levels, following in the footsteps of the Fed. So far, as of this writing, the Canadian banks have not responded to Friday’s BoC rate cut. The prime rate went down a full 50 bps on March 5 after the Bank cut its key rate by that amount on March 4. But so far, the Big-Six banks have not responded to the 50bps cut three days ago. 

 

11 Mar

Variable Rate or Fixed Rate?

General

Posted by: Adam Sale

Fixed Rate or Variable Rate?

We are approaching interesting times. The world economy is slowing down due to heightened tensions with the coronavirus, oil prices, blockades etc etc, the list goes on.

One positive spin on this whole fiasco is cheaper mortgage rates, Yay!

When an economy is contracting like this the government steps in to lower the overnight interest rate to make borrowed money cheaper to ease expenses and “hope” new borrowed money will be put to a productive use.

On March 4th, the Bank of Canada did just that. They decreased the Overnight Interest Rate from 1.75% to 1.25%. This caused retail banks’ Prime Rate to drop from 3.95% to 3.45%.

The decrease in Prime Rate directly effects variable rate mortgages, and people saw their interest rate decrease by half a point overnight.

As it stands, variable rate mortgages are an extremely attractive product. If the economy continues on this contraction trajectory, it is likely we will see more rate cuts in the future, but don’t expect them to happen as quickly as you may think. Keep in mind we’ve been expecting Bank of Canada to decrease the interest rate for almost a full year and they’ve finally responded.

I suspect the Bank of Canada will follow their typical strategy of waiting 3-6 months and seeing how this rate cut effects the economy before adjusting the rate again.

The average variable rate mortgage product is Prime (3.45%) minus 0.75% to 1%; so 2.45-2.70%.

The beauty of a variable mortgage is in its flexibility. These mortgages offer excellent repayment features, and their penalties for breaking a contract are only 3-months interest – which is substantially lower than most lenders IRD penalty for fixed-rate mortgages.

For those homeowners looking for a stable mortgage payment, fixed rate mortgages are still a great buy. They are extremely cheap and getting cheaper daily!

Insured Mortgages are averaging: 2.39%

Insurable Mortgages (owner-occupied): 2.39-2.64%

Conventional Mortgages (over 1 mil, Rental properties, Non-owner occ): 2.64%

5 Mar

Mortgage Rates Keep Getting Cheaper!

General

Posted by: Adam Sale

Canada cuts interest rate by ½ a point, bond rates keep falling and Mortgages keep getting cheaper!!

It has been a rough couple of weeks in the stock market, but this is great news for the real estate industry. As bond rates keep dropping, we are seeing ridiculously cheap mortgage rates.

Right now rates are coming on-line as low as 2.39!!

This is insanely cheap, and I fully expect the other lenders to follow suit in the upcoming weeks.

How can you benefit from these changes?

Two ways:

  1. When mortgage rates drop significantly its a good time to renew your mortgage, or think about refinancing at a lower-rate (depending on what your current rate is).
  2. Come April 6th, the new stress-test for insured mortgages is going to be based on the current insured mortgage rates. As this mortgage rate drops, new buyers will qualify for a much larger loan.

Based on the hypothetical rate of 2.39%, households that earning $80,000 will qualify for approximately $30,000 more house!

2 Mar

Do You Want the Lowest Interest Rate or the Cheapest Mortgage?

General

Posted by: Adam Sale

Do you want the Lowest Interest Rate? Or the Cheapest Mortgage?

If you’re searching for the perfect mortgage, the questions you should be asking yourself are:

“Do I want the lowest interest rate? Or do I want the cheapest mortgage?”

Image result for teeter totter rate

You’re probably thinking, doesn’t the lowest interest rate mean I’m getting the cheapest mortgage?

Not necessarily. You see too many people are being sold the wrong mortgage product because they are after the lowest interest rate, and end up paying big fees when they have to break their mortgage contract.

Rather than starting the mortgage search by looking for the cheapest rate, we should begin our search by reviewing our financing plan and asking ourselves:

1) What major life changes might we expect in the near future? (are we getting married, having a baby, relocating for work?)

 2) What do we want to accomplish with our mortgage? (do we want to pay it down quickly and build up equity in our property, are we going to add a line of credit to it later?)

My point is this, start your mortgage search by reviewing your future goals and ensuring the mortgage product aligns with these goals.

I urge you, don’t fall prey to the belief that interest rates are like golf scores, where the lowest score wins. Rather, speak with a mortgage broker to find the best mortgage product suited for you! Happy hunting!

– Adam Sale

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,

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,