16 Sep

Niche Mortgage Solution Designed for the Equity Rich

General

Posted by: Adam Sale

There’s a new niche mortgage solution in British Columbia designed for the Equity Rich

Think of this mortgage solution as a reverse mortgage with no minimum age limit, no monthly payments & no income requirements!

Making this mortgage solution worth exploring for those who are interested in using their equity to purchase a 2nd home or investment property.

This mortgage solution is offered by Fraction Mortgage: https://www.fraction.com

How does it work?

Homeowners can unlock up to 40% of their home’s equity. 

The interest rate on the mortgage is determined by the change in the home value over a 5-year term.

For example, if the home’s value has appreciated by 20% over 5-years, then the interest rate charged to the loan will be 20%/5 years = 4%/yr

The lender restricts the minimum annual interest charged to 3.5%, and the maximum rate will never exceed 7.99%.

Who benefits from this mortgage solution?

– Purchasing an investment property/2nd home and don’t want monthly mortgage payments.

– Loss of income, but don’t qualify for a reverse mortgage due to age

– Retired parents gifting a down-payment to their children

This mortgage solution is designed for equity rich borrowers with no income wanting to unlock their property’s equity without paying Private Lender rates of 8.99%-12%.

For a visual calculator on how this mortgage solution operates please click the link: https://app.fraction.com/estimate

I welcome any questions regarding this mortgage product.

– Adam Sale Mortgages

8 Sep

Interest Rate Update: September 8, 2021

Latest News

Posted by: Adam Sale

Interest Rate Update

Bank of Canada announced today they will maintain the overnight interest rate at 0.25%.

This interest rate directly effects the Prime interest rate charged by lenders on Variable interest rate mortgages.

In addition to maintaining the overnight lending rate, the Bank of Canada will continue their Quantitative Easing program of purchasing $2bn worth of Government of Canada bonds per week.

This bond purchasing program is keeping the interest rates on the bonds suppressed which is producing ultra-low fixed mortgage interest rates.

 Bond Rates at end of day September 8:

Interpreting the chart:

Canada 2-yr: The low 2-yr bond rate means the discount received on Variable Interest mortgages will continue to stay around Prime – 1% on Conventional Mortgages & will be around prime – 1.15% on Insured Mortgages

Canada 3-Yr to Canada 5-Yr: Banks will continue to heavily market their 5-year fixed mortgage rates, but consumers will find cheaper mortgage rates in the 2, 3, & 4-year fixed mortgage durations. Borrowers should determine what their 5-year plan is before taking a 5-year fixed mortgage.

Canada 7-Yr & 10-Yr: Although the difference between the 5-yr and the 7-yr bonds are negligible, the difference in the mortgage rate is roughly a full percentage point at 2.94% & 3.30%. Borrowers should be aware of the high penalties involved with breaking a mortgage of this duration.

The next interest rate update is October 27, 2021.

 

1 Sep

Converting an Outstanding HELOC balance to a Mortgage to Help Purchase a 2nd Home

General

Posted by: Adam Sale

The Benefits of Converting an Outstanding HELOC balance to a Mortgage to Help Purchase a 2nd Home

Firstly, lets look at why someone may keep a large outstanding balance on their Home Equity Line of Credit:

  1. Low monthly debt burden, only interest payments are required, not interest & principal
  2. Flexibility to pay off the entire HELOC without incurring any pre-payment penalties.
  3. Ability to borrow and repay as needed

Carrying a balance on a HELOC will lower the monthly debt burden by requiring only interest payments to be made, but it will actually hinder ones mortgage qualifying amount, and here’s why:

  1. Banks calculate monthly payments for credit cards and unsecured lines of credit @ 3% of the outstanding balance. A $15,000 credit card balance will create a monthly payment of $450!
  2. Home Equity Lines of Credit with balances over $50,000 are calculated at the stress-test rate (5.25%) and amortized over 25-years. An outstanding HELOC balance of $150,000 creates a monthly mortgage payment of $893.88 on the mortgage application.

However, when the balance of a HELOC is converted into a mortgage, the actual mortgage payment is used in the qualifying calculation.

For example, a $150,000 HELOC balance converted into a variable mortgage @ 1.50% creates a monthly mortgage payment of $599.58, a difference of $294!

In this scenario, the borrower is paying off their debts AND qualifies for $50,000 more!

14 Jul

Using Rental Income to Purchase Your Next Investment

General

Posted by: Adam Sale

Using Rental Income to Purchase Your Next Investment

There are 3 categories of rental properties on a mortgage application, each has a distinct way of calculating rental income. The 3 categories are: owner occupied + basement suite, subject property, non-subject property.

  • Owner-occupied + Basement Suite Rental – When the property is owner-occupied, lenders typically allow 85%-100% of rental suite income to be added to the buyer’s total income. This additional income will help boost the buyer’s qualifying amounts.
  • Subject Property – Lenders generally allow 50% of rental income to be added to the purchaser’s total income when the rental property is the subject property (the property being financed). In some cases market rent appraisals can be used to determine rental income.
    • Buyers purchasing their 3rd property or greater will need to use the bank’s rental worksheet to calculate total income and expenses for all properties.
  • Non-Subject Property – Banks allow 50%-80% of rental income to offset the purchaser’s total expenses when the rental income is from the non-subject property (the property not being financed).
    • Banks will allow 50% – 80% of the rental income to be used to offset the rental property’s expenses when the purchaser is buying/refinancing their “owner-occupied” property.
    • Buyers purchasing their 3rd property or greater will need to use the bank’s rental worksheet to calculate total income and expenses for all properties.

This is a simplified overview for determining how much rental income can be used in the mortgage application. Each lender has their own nuances within these categories.

To learn more about which lender is best for you, please contact me at 778-215-4121 or by email: adamsale@dominionlending.ca

Best,

Adam Sale

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.

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

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

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

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.