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 in the purchase contract are satisfied and you agree to the purchase your new home, you are required to place a deposit on the property to remove subjects on the purchase agreement. The deposit forms part of the down payment amount. Once subjects are removed, the purchase agreement is now a binding contract.

It is extremely important you understand the mortgage commitment letter offered by your lender is based on your information at the time of mortgage submission. Any changes to your credit report or employment between mortgage submission and completing the purchase of your new property could jeopardize your financing commitment, and should be discussed with your mortgage broker. DO NOT FINANCE A NEW CAR during this period of time.

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 mortgage broker on the lawyer or notary you are planning on using 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 to ensure the process flows smoothly and to avoid any additional “rush order” charges.

Arrange Home Insurance

Lenders require home insurance to be setup on your new property before they will provide you with the funds to complete the mortgage transaction. To setup home insurance you will need to speak with an insurance agency/broker and let them know you’ve recently purchased a home and inform them of the completion date. They may ask you for a copy of the purchase contract. Once the insurance is setup, retain a copy of your home insurance as you will be required to bring it to the lawyer/notary office when you sign the transfer 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 RRSP/TFSA to your designated account. Consolidating your down-payment into a single account allows for easy withdrawal on completion day.

Preparing 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 a copy of your 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.