What Exactly Is a “Reverse Mortgage”?

General Darick Battaglia 22 Aug

In a nutshell, a CHIP mortgage or “reverse” mortgage is a mortgage that is secured by the client’s principal residence and as long as one of the client’s lives in the house, it never has to be repaid, not even the interest. “CHIP” stands for “Canadian Home Income Plan” by the way; however the lender who does these types of mortgage in Canada is called Homequity Bank.

It is probably easiest to explain using an example: Let’s assume a husband and wife aged 70 and 69 respectively live in a home that has been appraised at $500 000 and has no mortgage on it right now. Based on the value and their ages, CHIP would allow them to borrow up to $195 495 against the house. They do not have to take the full amount and can in fact choose a monthly income supplement. For example they could choose $50 000 in a lump sum and then $1 000 per month for the next 140 months.

So long as one of the applicants remains in the house, they never have to make a payment. If one of the spouses moves to a retirement home and the other stays in the house, they still don’t have to make any payments. Snowbirds also qualify……so long as the house remains your primary residence.

Here are some of the “requirements”:

  • Minimum age 55 for all applicants
  • Must be principal residence (no rentals)
  • All persons on title must be on mortgage

Two GREAT features of CHIP MORTGAGES:

1. NO INCOME VERIFICATION: Since the mortgage is not expected to be repaid until the house is sold or until the last homeowner leaves the property, no income verification is necessary. This is a great advantage to those who are “asset rich” but don’t show much income

2. NO CREDIT REQUIREMENTS: Many retirees have little or no credit history which makes it very difficult to get a loan or mortgage. With the CHIP mortgage no credit is no problem!

Common questions:

1. Does the bank own my house? No, this is registered against the title of the home the same as any other mortgage. The “bank” cannot force the sale of your home provided one of the applicants still resides in it.

2. Will the equity disappear in my house? CHIP mortgages are designed to limit the risk of the mortgage amount exceeding the value of the home. Your home is still increasing in value and the CHIP mortgage is only a portion of the value of your home so in most cases, the equity in your home continues to increase.

3. What is the cost to set up a CHIP mortgage? There is a fee ranging from $995 to $1495 to set up the original mortgage, plus you must pay for an appraisal and a lawyer to register the mortgage. This is clearly explained in the application process so you will be fully aware of all costs prior to setting up the mortgage.

4. What if I have an existing mortgage? A CHIP mortgage can still be set up however you must pay off the existing mortgage with the funds advanced. This is a common strategy for those who are about to retire and don’t want to make mortgage payments anymore.

If you have any other questions, please contact a Dominion Lending Centres mortgage professional.

Courtesy of Brian Mill, AMP – Neighbourhood DLC

Foreigner Property Tax Unlikely To Improve Housing Affordability

General Darick Battaglia 19 Aug

There has been much hand-wringing about the overheated housing markets in Vancouver and Toronto. Accelerating price gains in the past year are indicative of a buying frenzy, especially in Vancouver, which is clearly unsustainable. New listings are way down, new supply is constrained, and buyer euphoria seems to be suggestive of panic fear of missing out — all of which has made housing less affordable and far out of reach of most middle-class households.

Housing affordability is a hot-button political issue, so it is not surprising that the B.C. government, facing an election in less than a year, has felt compelled to do something to dampen the fervor. Time will tell how impactful the new tax will be, but one thing is certain: Housing in Metro Vancouver will remain unaffordable for most households.

RBC estimates that owning a single-detached home in the Vancouver area would require 120 per cent of a typical household’s income. In other words, unless the buyers have access to a huge downpayment (thanks, let’s say, to Mom and Dad), it is out of reach. Even condos are too expensive for average earners in Vancouver.

In the Toronto area, owning a single-detached home is also a stretch — eating up roughly 72 per cent of typical household income — but condo ownership is still reasonably viable for many, requiring about 37 per cent of average household income.

But this is really no different than many other global cities. Average earners typically can’t afford to buy a home in San Francisco, New York, London or Sydney, and there is nothing government can do to change this. Scandinavian and some other European governments built subsidized housing in metro areas, but it is doubtful that Canadians are willing to pay the kind of taxes that would require. Besides, land shortages in Vancouver and Toronto are part of the problem.

Increasing housing supply through changes in land use restrictions might help at the margin, but density and greenspace markedly impact the quality of life. Public transportation pressures are already endemic to Vancouver and Toronto and densification along major public transit routes is already underway.

As we have seen, it is politically enticing to blame the affordability problem on foreigners. They don’t vote in Canada, so they are easier to tax. Other countries have done it. For example, the U.K., Hong Kong and New Zealand have imposed capital gains taxes on foreign-owned properties that are not a primary residence. Australia has limited foreign purchases to newly constructed or renovated homes, and Switzerland sets quotas for personal-use only purchases.

Canada could also impose a tax on property flipping by foreigners (or anyone else) — say a capital gains tax on properties sold within two years of purchase. Or we could penalize foreign owners of vacant properties that are not properly maintained.

The fact is, as other countries have seen, this might take some of the steam out of the markets, but it will not make housing affordable for average earners in Vancouver. It just won’t.

Notably, there are early signs that the red-hot markets are cooling, at least a bit. Resales have slowed in the past few months, and housing starts have picked up. Boomers are downsizing and much more of that will come over the next decade. I believe house price inflation will slow in the next year, which should encourage many who are thinking of selling to put their properties on the market. So while housing in Vancouver and Toronto will remain expensive, the pace of appreciation is likely to slow.

Will prices fall enough to make them affordable? No. Even if prices fell 30 per cent, it would simply take them back to where they were a year or so ago. Over-extended first-time homeowners would continue to make their payments as long as they don’t lose their jobs, because Canadians don’t walk away from their homes.

Courtesy of Sherry Cooper, Chief Economist, Dominion Lending Centres 

New Mortgage Rules and Their Impact

General Darick Battaglia 18 Aug

A short time ago Canada Mortgage and Housing Corporation (CMHC) changed the rules on how much down payment buyers have to have in place to buy a home worth more than $500,000. The new rules stated that you have to have 5% on the first $500,000 and 10% on the remaining balance up to $999,999. After that point they require 20% but that’s another article altogether.

With the recent changes, they also allowed for the use of 100% offset should the home have a legal suite. This was great news for some parts of the country as housing costs increased over the million dollars in prices in Vancouver and Toronto. Does it have much effect on other parts of the country?

Recent numbers would say no. With housing prices in the west decreasing just about everywhere else but Vancouver, the average Canadian first time buyer will not likely apply for a mortgage that is in this price range. The idea of wanting the big home as the first home is something that first time buyers will not be doing. Even in the Vancouver markets, the buyer for the million plus property is most likely a move up buyer.

I look at my own nephews and nieces and they have bought closer to their lifestyles. My niece in Vancouver, who is a single young professional, chose more the loft style home and while living in 400 sq ft. is foreign to most of us, it is a choice she had to make to be in downtown Vancouver and able to walk to work.

Probably where we have seen the biggest impact of these new rules is in Ft McMurray, AB. While prices are down  in Ft McMurray, there are still a lot of homes that are in the $850,000 to $900,000 range – most built during the boom times with full legal suites.

I recently had a file that was in the $900,000 price range with a full legal suite. While the clients had the required down payment of 5% and 10% on the balance of the mortgage, the lender decided they wanted 20% down on the property even though CMHC had said yes to the mortgage. I’m sure this is happening in more than one location across Canada especially in areas where the prices have been fluctuating up and down over the last few years.

With ever changing markets and regulations, be sure to get advice from your Dominion Lending Centres mortgage professional before you buy your dream home.

Courtesy of Len Lane, AMP – DLC Brokers for Life 

WHAT DOES IT MEAN TO BE CANADIAN?

General Darick Battaglia 17 Aug

I have asked this question quietly to myself more than once over the years.

***For a post on the nuts & bolts of the new BC 15% foreign tax legislation click here – this post is specifically about the unbelievable way in which we are implementing it.

A few points about me, for perspective:

  • I am second generation Canadian.
  • I speak just one language.
  • In my work as a Dominion Lending Centres mortgage professional, I do not work with foreign buyers (although I have had conversations with a few over the last few weeks).
  • I am married to a woman born in the UK whose parents immigrated to Canada 43 years ago.

So, what does it mean to be Canadian?

Most recently I ask this question as witness to a growing tide of anger and resentment fueled by anecdotal and hyperbolic Vancouver real estate stories. Stories that all too often cast one particular group of people in a negative light. Stories of questionable studies based solely on people’s birth-names. Inaccurate tales of $31M student-owned mansions, and $51.8M estates purchased by a ‘former duck farmer’.

Seriously, are such stories relevant to our lives?

How many of us were in the market for a $30M mansion? Does it matter what a millionaire today did decades ago for a living? What has any of that got to do with the price of tea in… anyways.

The average sale price of 80% of homes in the Greater Vancouver Regional District (GVRD) has been $597,000.00 this year. There are more than 100,000 sales per year in BC, and we focus on a handful… as if they explain what drove prices of detached homes in Chilliwack up by ~50% in just over a year.

Impressions

Such stories have left readers and residents alike under the (false) impression that 95% of foreign money is dirty money, 95% of foreign buyers are criminals, and 66% of all real estate sales in Vancouver are to these damn crooked foreign buyers with their dirty money. And with the majority of ‘exciting’ real estate stories focused on a specific group of ‘foreign buyers’, is it any wonder that when we hear the words…

  • foreign buyer
  • dirty money
  • money launderer
  • bidding war

… we can think of one nationality alone.

(I have not even used the word, but you have thought it ten times over already haven’t you?)

So what?

Well, we have been suckered, played, used. That’s what.

Media stories have inadvertently, in a quest for clicks, shares, and eyeballs, created a pressure cooker which primed the government to act, or overreact, triggering knee-jerk legislation with little evidence of forethought or industry consultation. And so we have a new Foreign Buyer Property Transfer Tax. In itself this is less of an issue, but what is staggering is the decision to implement this tax on binding contracts due to complete following August 2nd  – even though they were entered into, in good faith, weeks, months, or even years ago .

This is the heart of the issue: not the tax itself, but the way it is being brought in.

We will talk another day about the validity of the tax itself, whether it is too high or too low, along with the (non) impact it will have on house prices.

Today let’s focus on one key point, a point that has me struggling with how our government has portrayed us as Canadians on the world stage.

The point that should truly blow your mind and have you questioning the accuracy of this post is, in a word:

Retroactive

The retroactive caveat in this legislation is an offence to all that it means to me to be Canadian. This poison pill flies in the face of good-faith dealings, besmirching the closely held value that our word is our bond.

What am I talking about?

Suppose you got off a plane from Los Angeles, Rio, London, or wherever, just three months ago to open a new division of your employer’s company and you fell in love with Vancouver, as so many do. You thought, ‘Wow, this market is moving fast. I am going to buy. Even though your Permanent Resident status has not yet been approved,  the application is in the works and there is no reason not to buy. After all, you are young, educated, and healthy – just what Canada looks for in new immigrants. Perhaps you’re not wealthy, but you have managed to amass some savings, and being skilled and in demand locally, you will soon be on your way to becoming Canadian.

So, on the weekend of July 16th you write an offer. Over the following week the Canadian bank approves your mortgage and on July 22nd you remove conditions and go firm on your offer. You are now in a binding contract to purchase and have handed over a significant deposit – nearly all of your life’s savings in fact.

Things are moving fast as the purchase completes August 3rd.

On July 25th you get a panicked call from the law firm handling your purchase. A new tax has been announced and you need to come up with an extra $90,000.00 in nine days. The price just went up. Up how, you wonder?!?!!

You pause. Are you in the fourth dimension? Are you in some third-world banana republic? ‘Repeat that a second time’, you say.

‘A 15% provincial tax is now due on your purchase’.

A tax that did not exist the day before.

‘OK, and if I cannot pay this amount?’ you ask

You forfeit your deposit. A deposit of how much? $30,000.00 – $120,000.00 depending upon how the contract was negotiated.

You are stuck between a rock and hard place.

Kind of like Mac Kerman is.

Is this the foreign buyer you thought was being hit with this tax?
Mac Kerman

 

Was this the image you had in mind of a foreign buyer?

Or Mr. Howard Dresner, another painful story of a fellow purchasing a $568,000.00 townhouse

Howard Dresner

How about Mr. Dresner, does he fit the profile built up in many of our minds of what a foreign buyer is?

Or Mr. Hamed Ahmadi, a local tax paying resident, with his life savings on the line due to a $54,000 tax on his $360,000 condo purchase.

Hamid Ahmadi

29 years old, without the savings for an unexpected and unprecedented tax.

Hold On!

Aren’t all foreign buyers absentee multimillionaires based in…? (You did it again didn’t you?)

The thing about a retroactive tax is that a multimillionaire can afford either to pay it, or more significantly, to walk away from their contract and deposit and simply not complete – leaving the local Canadian seller in a bit of a jam to say the least. Watch for these stories over the coming weeks.

But you did not know that foreign buyers are often people you work with, or work for, play hockey with, people who look like you, talk like you, and in fact have applications in for permanent resident status because they also love Canada – just like you.

The Mac Kermans in this situation, along with any Mexican nationals, may have some luck as there is the suggestion that this Property Transfer Tax contravenes NAFTA.

Regular folk

What about the people being crushed by this tax who are living here, working here, and paying Canadian income tax? Their crime in all of this? Simply waiting for the painfully slow process of Permanent Resident status approval. These are people just like you and me, or like our parents or our grandparents (many of whom bought homes prior to having citizenship or PR cards themselves). These folks are buying $300,000 to $600,000 properties. In many cases having a random charge of $45,000-$90,000 stacked without warning onto the previously agreed-upon price will ruin them. It is simply not something they can deal with. Could you, your parents, or grandparents have? Could your siblings? Your children?

I Am Canadian

Aside from the very real personal impact this is having on our fellow about-to-be-Canadians,perhaps most important of all, we seem to be overlooking the negative impact such underhanded dealings have on our reputation internationally as Canadians.

To me, being Canadian means being fair in all dealings, both personal and professional.

Maybe I watched too many Clint Eastwood or John Wayne films growing up, but my word is my bond and my handshake means as much as any contract. And speaking of contracts… is Canada not a country with a stable government that operates under the rule of law, in which citizens have rights? Should that same protection not be extended to those who enter into contracts with us?

All bets are off

As it stands now, with this tax being levied on unsuspecting buyers, if one enters into an agreement with a Canadian – be it verbal, handshake, or formal contract negotiated in good faith – it is simply not worth the paper it is printed on.

We as individuals tend to honour our end of a bargain under any and all circumstances. Indeed, on a personal level we behave with honour far more often than not. Yet in this instance, if this legislation stands, we are allowing our provincial government to act dishonourably on our behalf and allowing them to make us all, as Canadians, appear untrustworthy.

Precedent & Uncertainty

Just what sort of precedent might this set? The Mayor of Toronto seems on side with pulling a similar move.

Hearing such sentiments, would you as a foreign buyer enter into a binding purchase agreement anywhere in Canada at this point?

Would you risk a tax being imposed on your binding contract due to little more than a political whim? A tax that you might not have the funds to meet. After all, it was 15% this time; perhaps in Toronto it will be 50%. Perhaps in BC it will be 55% next week, 32% the week after, who knows? There is no longer any certainty in dealing with us.

This method of implementation creates doubts and serious instability in dealing with Canadians.

The Bigger Picture

On a larger scale, this should spur second thoughts for any foreign entity considering entering into any agreement or contract in any and all financial sectors anywhere in Canada. After this, how can we be trusted?

A message is being sent loud and clear: You may think you have a deal with us, but we are Canadian and Canadians change the terms of their deals with no notice, no compensation, no consideration, and no thought as to the long term damage to our national reputation.

You think this is just about Vancouver real estate? Were I an American, a European, or anything but a Canadian myself, I would have to think twice about doing any sort of business with Canadians moving forward.

I am Canadian.

I am embarrassed to be.

Let’s fix this!

If our government does not fix this mistake in time – and there is still time – then they should expect a massive class-action lawsuit, countervailing tariffs from other countries, at the least some sort of reaction from our trading partners.

Some of us might be thinking ‘Yeah, we really stuck it to those multimillionaires from that one country’. However, by failing to apply the tax to new purchase contracts only, or perhaps phasing it in over one year, or even 90 days… by hammering on people already locked into agreements… we are sticking it to ourselves in ways we have not yet imagined.

No doubt the 90% of the 737 people polled who approve of this tax don’t realize that it is being forced on people who are already in firm contracts and cannot magically complete their purchase within one week. People who are not multimillionaires. People from the USA, Europe, and South America. People living and working and paying taxes here right now.

Conveniently, in their announcement of the tax the government used the example of $300,000.00 tax amount on a $2M home to illustrate the math, again fueling those same images in your mind. Images of multimillionaires.

Again we were all played.

Cooler heads may oppose the tax itself by accurately pointing out that while it is a cash-grab for the government, that is all it is. This legislation has no teeth around the flow of ‘dirty money’, other than perhaps increasing the flow of said money by 15%. And in a market where $2M homes shot up to $3M in less than a year, is the new price of $3.45M really a showstopper for many of these buyers? Time will tell.

But how do you think the buyers in the $500,000 price bracket are dealing with a $75,000.00 bill that was not part of their original agreement to purchase?

There will be fallout from this, not just for ‘foreign buyers’ but for many Canadians.

Prices?

The value of real estate in Vancouver? Unlikely to be a casualty at all; it is exceedingly resilient.

The damage will be 99% collateral, failing to hit the intended target.

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts 

Why I Recommend Title Insurance

General Darick Battaglia 16 Aug

As a Dominion Lending Centres mortgage broker, I often see in the lender’s conditions sheet a request for the lawyer to obtain title insurance. We all know that this is a measure to protect the lender and to allow for the deal to proceed if there is a delay with the title or the other lawyer.

However, did you know that title insurance is also available for the new home buyer? Why would you recommend that they spend more money when they have already have to provide a down payment, pay legal fees and moving expenses? It’s the right thing to do.

Title insurance protects you from unknown defaults in the title. This is coming up more and more now that people who bought homes in the 1960’s and 70’s are moving into retirement homes after many years in these homes. You may not realize that in 1973 Mr. Jones made a verbal agreement with his neighbour Mr. Smith to allow his garage roof to straddle the property line. Now the neighbours want you to move the roof over 6 inches to comply with their property survey. Who pays for this? Fortunately, if you have title insurance with either FCT or Stewart Title, they would.

Another very important reason to consider title insurance even when you own the property free and clear is identity theft.

There was a very enterprising fraudster operating in southern Alberta a few years ago. He would search land titles for properties in rural areas where the owners had no mortgages or liens. He would then go into a bank posing as the property owner and ask to re-finance the property. If it was worth $500,000, he would ask for $200,000. He would then say that he was going to Arizona for 3 months and wanted to pay his first 3 months on the mortgage up front.

The bank rep would be impressed by the fraudster’s responsible behavior and agree to accept the pre-payment. The fraudster would put a few more deals like this and then leave well before the 3 months was up. The property owner would then be contacted by the bank asking for the late payment in month 4 and would have no idea he had been a victim of fraud. If he was fortunate enough to have title insurance, the insurer would pay for his legal representation and settle the claim with the lender.

I recommend title insurance to my clients for all the above reasons but by mentioning this to them I am also showing my clients that I want to protect them. It’s one more way Dominion Lending Centres can differentiate ourselves from the banks.

Courtesy of David Cooke, AMP – DLC Westcor 

WHAT IS MORTGAGE INSURANCE?

General Darick Battaglia 15 Aug

When you purchase a property, you may be a little overwhelmed by all the insurance offers related to purchasing a new property that come your way. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance is solely for the purpose of the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased in order to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 9 Benefits of using Mortgage Life Insurance

1. Peace of mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you, as the main breadwinner of the family, pass on.

2. Easy to get – Mortgage Life Insurance is based on the mortgage and your age. There are a list of standard questions to answer but coverage will never be denied.

3. Mortgage paid off in the case of death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.

4. Family can stay in their home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.

5. It protects your family’s finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.

6. Lost wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time period (ie up to 3 years). Unexpected life events such as a serious

car accident can result in missed mortgage payments as a result of loss of wages as you need to recover from injuries.

7. Portability – some Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.

8. If you are a young buyer, your Mortgage Life Insurance premiums will be very low. Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.

9. Good health now results in coverage for unexpected illness later on. After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are in regard to the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if at a later date you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact any of the 2,500 mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

Courtesy of Geoff Lee, AMP – DLC GLM Mortgage Group 

10 LIKELY MORTGAGE QUESTIONS WHEN BUYING YOUR FIRST HOME

General Darick Battaglia 12 Aug

When considering buying your first home, I am sure you will have many questions. I hope to give you some insight to what lenders are most importantly looking for when qualifying for a mortgage.

1. What’s the best rate I can get?

The rate that you receive depends on a number of things. I get a lot of clients that are what I like to call “rate sensitive” this means that they are fixated on the lowest rate and don’t understand why they may not be able to get the advertised rate.

A number of those rock bottom rates you see advertised have conditions to them. For instance they may be only for a 30 day quick close, or they may not be portable.

Some factors that determine rate are employment (self employed, full time, part time, etc.) credit score, down payment, income and more.

Until a full application’s been received and credit has been checked you cannot be guaranteed a rate.

2. What’s the maximum mortgage amount for which I can qualify?

This of course is going to be based on your income and liability circumstances. There are two calculations brokers use to qualify a borrower. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees). Generally this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Lenders and brokers calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Your TDS ratio should be no more than 41-44% of your gross monthly income (this is dependent on credit score as well).

Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more flexible lifestyle.

3. How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price for houses under $500,000. For homes over $500,000 10% down payment is required on the amount over $500,000. If you want to avoid CMHC mortgage insurance than 20% down payment or greater is needed.

4. What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment. Your RRSPs can be used without being taxed if you pay back within 15 years, gifted funds from parents are also accepted. Some lenders will also allow a flex down program to be used. This is where based on qualification you can use a line of credit towards your down payment.

5. What will a lender look at when qualifying me for a mortgage?

These are the most important factors a lender will look at when qualifying for a mortgage such as employment history, income, debt, credit history and the value/kind of property.

Most importantly, the lender is looking to make sure you can afford the home you’re wanting to purchase. Second most important thing they consider is the value in the home. The lender wants to make sure that if you default on payments that they have security in the home.

Overall lenders are looking for stability. They want to see this with employment, debt re-payment, and credit history. It’s important for you to have good credit, and minimal liabilities. Make sure you’re never late never late on any loan or credit card payments. This shows you are responsible and less of a risk for the lender.

6. Should I go with a fixed or variable rate?

This ultimately depends on your risk tolerance. If you’re a first time home buyer you may feel a lot safer going fixed as you know what you’re expected to pay for the term of the mortgage.

However, variable rates can save you a lot of money, I mean thousands.

If you want to choose a variable rate and qualify for one (as it’s a bit tougher) just know and understand that you run the slight risk of it possibly rising while in your term if the prime rate moves up, but you can never predict this. There are much smaller penalties with a variable rate than a 5 year fixed.

Your Dominion Lending Centres mortgage professional can discuss all the differences and benefits for you.

7. What credit score do I need to qualify?

A credit score of 680 and up is a good credit score that can offer you the discounted rates. There are lenders that lend on lower credit scores but usually at a bit higher rate.

8. What happens if my credit score isn’t great?

If your credit isn’t the greatest there are ways to increase your score. Most credit reporting companies report every month. So luckily you can change your score within a few months time if you do the right things. The most important thing is to pay down your credit cards so the balance is no more than 30% of the limit.

Even better…pay off your credit card balance in full, if you can have a $0 balance owing that’s the best!

Don’t go taking out any large loans before a mortgage approval. It’s best to wait till you’ve actually got the property in your hands. You don’t want to do anything that could jeopardize your approval or have a lender pull an approval from you as they re-checked your credit prior to closing and now see an expensive car loan.

Make sure everything is up to date. No overdue collections still showing or an old bill showing up on there when you paid it ages ago, but never got removed for some reason.

9. How much are closing costs?

Closing costs on average are 1.5% of the total purchase price. This is a guideline to go by, but not exact. Closing costs will cover things like, inspections, lawyer fees, property transfer tax, appraisals, and title insurance.

10. How much will my mortgage payments be?

This is going to depend on many different things. The size of your down payment, the interest rate, the purchase price, amortization chose, whether or not you’re paying mortgage insurance (CMHC) and also the frequency of payments ( bi-weekly accelerated, or monthly).

If you have any other questions, please feel free to contact any of the Dominion Lending Centres mortgage professionals from all across Canada!

Courtesy of Danielle Spitters, AMP – DLC Valley Financial Specialists 

TO THE CHILDREN OF AGING PARENTS

General Darick Battaglia 11 Aug

Are you an adult with an aging parent(s) and are you concerned about your parents’ ability to remain financially independent? Today, Canadian adults have many responsibilities, including the concern for their children’s well-being, as well as their parents’ quality of life and their debt. As life expectancy rises for the senior demographic, there is a growing trend of retirees not saving enough for retirement. Many Canadians overestimate how long their money will last, in part due to their longer-than-expected lifespan.

How can you help your parents maintain their financial independence?

Among the many concerns we have for our aging parents, the biggest concerns include their ability to retain their standard of living. Many senior Canadians prefer to stay in the comfort of their own homes to age-in-place, but we have noticed that their finances are not as stable as we anticipated and they may be struggling with:

  • Health/Medical costs & expenses – Your parents’ health care costs are piling up.
  • Monthly bills – You notice that your parent(s) are struggling to pay monthly utility and phone bills.
  • Renovations and retrofits – Your parents’ home may require repairs. Their home may need retrofits in order for them to maintain their lifestyle, for example, they may need to install a stair lift because of knee problems.
  • Revenue Canada debt – Your parent(s) struggle to pay their taxes and now have accumulated debt.
  • Property taxes (in arrears) – Your parent(s) have forgotten one too many payments.

If your parent(s) are stressed over their finances, you can help them maintain their independence by introducing them to financing options to help them regain control of their retirement. The CHIP Reverse Mortgage from HomEquity Bank is a great option for older Canadians because it has helped thousands of senior Canadians deal with the most common financial struggles.

How a Reverse Mortgage can help

The CHIP Reverse Mortgage can provide your aging parent(s) with financial independence by unlocking up to 55% of the value of their home (tax-free) without them having to sell or move, in either a lump sum amount or monthly advance.

Contact your Dominion Lending Centres mortgage professional to get your free estimate or to find out more information about how a CHIP Reverse Mortgage can help.

Courtesy of Yvonne Ziomecki, HomEquity Bank – Senior Vice President, Marketing and Sales 

A SLAP IN THE FACE… FOR CANADIAN’S TOO

General Darick Battaglia 10 Aug

In the News: 15% Property Transfer (bonus) Tax for Foreign Buyers in B.C.

Short Version

“Good intentions can often lead to unintended consequences” – Tim Walberg

As Canadians we no longer appear to be a people that keeps our word.

Review the official policy here.

Long Version

The BC government is increasing the PTT by a 15% tax for purchasers who are foreign entities.

This post is not about the tax itself: whether the tax is right, wrong, too much, too little, etc. that is all for another conversation. The majority want to implement a tax on foreign buyers. Fine, I get it. it makes sense on many levels.

But let’s do it with some class. As Canadians are we not known for being fair in our dealings?

The topic of this post is the patently unfair retroactive implementation of this tax. Such an approach is tactless, lacks foresight, and should be embarrassing to any self-respecting CDN that ever looked a person in the eye and while shaking their hand said ‘yes, we have a deal’.

Did the BC Gov’t not learn anything from the HST implementation?

The Back Story

Why is this happening at all? Partly due to growing anger about rapidly rising prices. Anger that needs to be directed somewhere, at somebody. Sadly it is being channelled toward a very specific group of people, largely due to inaccurate or flat-out misleading headlines like this one:

Foreigners buy 5% of B.C. homes in less than 3 weeks

Let’s do some math on this headline. ‘5% of BC homes’ (that’s 55,000 of 1.1 million total properties) were purchased by foreigner buyers? Leaving 95% to go?

The above headline was not written by somebody with a grasp of basic math. Nor was the opening sentence:

Citing freshly collected data, the B.C. government announced that overseas nationals bought approximately 5 per cent of homes in the province over just 19 days last month.

Extrapolating the math suggested in the headline indicates that ~55,000 of the 1.1 million privately owned properties in BC were bought by foreigners. In other words at this pace all 1.1 million will be owned by foreigners in just another 380 days.

Just over a year, and that is it.

Clearly this is bad math, bad writing, and an inaccurate headline. But it is this sort of error, combined with hyperbole and a twisting of numbers, that has so many of us twisted in knots.

So, the Government of BC to the rescue with their knee-jerk reaction tax.

(Hey gang, relax. The BC election is still a year away (May 2017), and you really could have taken an extra few days and considered the unintended consequences of your actions.)

The Core Story

The nuts & bolts of this new tax:

  1. A foreign national is a person who is not a Canadian citizen or permanent resident.If it is company that is purchasing, a foreign company is one that is not incorporated in Canada, or incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation.

International student?

Foreign (i.e. American) worker on a temporary visa, with your Permanent Resident status application pending approval?

You, my friends, are out of luck. Just like one student we know of whose parents were assisting her on the purchase of a $400,000 condo to live in during her remaining six years of studies. Contract entered into three months ago, completing in about four months. Boom! $60,000.00 extra please, in addition to the $140,000.00 minimum down payment required, or else forfeit your $80,000 deposit to the developer.

If she completes, the government wins. ($60,000 in new tax revenue)

If she cannot raise the extra $60K, the developer wins. ($80,000 deposit forfeited)

Either way, she and her family lose. And we as CDN’s have our reputation for fair dealing evaporate.

At the very least, this British national training to be a doctor is getting quite the slap in the face for having the audacity to try and put down any kind of roots while living here for the next six years.

She entered into a contract in good faith, and now one of the things we Canadian’s hold so dearly ‘stability of Government’ has been thrown out the window as we allow the rules of a firm and binding contract to be rewritten midstream. Negatively impacting this person, and hundreds of others.

  1. The increased tax applies only to properties in the Greater Vancouver Regional District, and does not apply elsewhere in the province, or the Tsawwassen First Nations Lands.

Whistler, and other recreational destinations, just let out a long sigh of relief. Internal sales stats suggest that for many months in Whistler up to 1 in 4 buyers is a foreigner. Their market would have been hit hard by a restriction like this.

It may still be, in the opposite direction, once we see where foreign capital starts to flow to as alternatives to the GVRD.

  1. The tax only applies only to residential properties, not commercial.

Commercial real estate investors need not worry. For the BC government this would, of course, have been a much more concerning group to annoy. Much easier to hammer on the individuals here learning, working, and trying to become a part of the community. Especially when the public perception has been as warped as it has to assume all foreign buyers are multi-billionaires from one specific country.

  1. The increased tax is effective August 2, 2016, regardless of when the contract is signed. Even if the contract was signed weeks, months, or in the case of condo pre-sales years ago, if it completes after August 2, 2016 there is a higher tax. End of story.

Refer back to our student example in point #1. A pretty devastating announcement for several people. Including Mac Kerman – was he really the target that everyone had in mind?

Would it not have been possible to consider:

  • An exemption for students?
  • An exemption for gainfully employed temporary workers?
  • An exemption for those with Permanent Resident status applications pending?
  • An exemption for these groups purchasing below $475,000.00 or $750,000 – along the same lines as first-time buyer rules.
  • A sliding scale? Starting at 5% and rising to 15% based on purchase price.

What happened to being reasonable?

Could we not possibly have differentiated between foreign buyer and foreign investor?

Could we not possibly have made an exception for existing contracts?

  • The additional tax is payable even if there would normally be an exemption available.Transfers between related individuals, transmission to surviving joint tenant and other such items now attract the additional tax.
  • This is notable. This is a form of a death tax. It is a tiny little foothold on the topic. And sure, the target this week is foreign buyers, and foreign inheritors, but it will not be long before talk of a Canadian death tax starts to gain traction.

Conclusion

We already have people who should know better getting the details of this new tax wrong when interviewed. New construction and pre-sale contracts dating back years are indeed 100% affected by this tax, and the many thousands of buyers who entered into a good-faith agreement as long as three years ago on a pre-sale completing as soon as next week are caught in this mess. How is that fair dealing on our part?

One family I spoke with due to complete late next week on a $1.6M home have been in Canada for more than two years, they are settling their family here, have professional jobs and are paying their income taxes, but now need to come up with an extra $240,000.00 cash. Simply due to their Permanent Resident status application taking its time winding through the process.

We are thumping these taxpaying resident en-route to becoming Canadians because… why?

Because this is how we allow our government to roll. This how we Canadians do business?

So, too damn bad.

What a slap in the face to these buyers and hundreds of others, as it is to you and I as well. This is not how you personally or I personally do business. Except that on the world stage, as Canadians it looks like it is.

Have you entered into a contract with a Canadian in good faith? Yeah, so what – we will just add a 15% premium at the last minute because our handshake means nothing and written contracts mean even less.

We should all find ourselves a touch embarrassed to be Canadian this week.

Courtesy of Dustan Woodhouse, AMP – Canadian Mortgage Experts 

THE YEAR OF THE PRIVATE LENDER

General Darick Battaglia 9 Aug

Sometimes we forget what great tools we have from our Private Mortgage Lenders.

1. Construction mortgages for the smaller home builder, loans based on each property or blanket several and payout the mortgages as they sell.

2. Are you a builder already and have standing inventory that you’d like to take some money out of to continue your business. We have a Private lender will look at these with rates as low as 8%.

3. Are you a Flip Master are you interested in buying, renovating and selling properties. We have a private lender that may be able to help with as little as $10,000 down payment.

4. We also have a private lender that will assist with a legal suite conversion. Remember that CMHC now allows 100% offset for legal suites opening up a whole new option for buyers to qualify.

5. Private second mortgages up to 85%, banks can only refinance to 80% and will probably turn it down these days.

6. Private second mortgages behind your CHIP mortgage depending on a few factors up to 50%.

7. Farm land the bank and FCC said no we have a lender that will lend on farm land throughout Canada.

8. Rental purchases with 100% offset on the rents and 75% loan to value

9. Foreign ownership probably one of the biggest growth markets with our weak dollar. They can be done with 35% down even if the client is not a US citizen, lower than the banks 50%.

10. Commercial properties that the bank has said no to you will also be considered through our private lenders

11. Small town BC, Alberta and Saskatchewan loans up to 70% of the property in area’s most won’t go.

Lots of options for private lenders this year and lots of opportunities from BC to Ontario. Want to learn more? Contact your mortgage professional at Dominion Lending Centres – we can help!

Courtesy of Len Lane, AMP – DLC Brokers For Life 

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