A BANK THAT MAY NOT BE FAMILIAR TO YOU

General Darick Battaglia 27 Mar

Quiz time! Who is the largest non-bank mortgage originator in Canada with over $100 billion dollars in mortgages under administration? Answer – First National Financial Corporation. If you’ve never heard of them before, don’t feel bad. The only way to get a First National mortgage is through the broker channel. They do not have any branches anywhere in Canada. How did First National become #1?
Service – First National are fast. They will accept your application, underwrite it and if approved you will get a response within 4 hours. The industry average is 24 hours. Mortgage brokers use First National for clients who have very good credit salaried income and need an approval or pre-approval quickly.

Another nice feature of First National is that they will provide pre-approvals. Many lenders do not want to spend the time and money to provide these but First Nat have always provided pre-approval that are underwritten. What this means is that an underwriter has reviewed your application and if everything in it is straight forward they foresee no problems with an approval for the specified amount of money.

Additionally, if the home you are purchasing is 5 years old or older, a First National mortgage may be for you. They offer Echelon Home System Warranty Program. This is a warranty on your electrical, heating and cooling systems as well as your plumbing. Most hot water tanks have a 6 year warranty. After that it can cost you $20 a month for a warranty program with your utility company. Echelon is free for the first 12 months and then it costs you only $17 a month. Any calls you make for repair work have a $50 call fee but everything else is covered by the warranty. Imagine your hot water tank breaking down on Sunday afternoon. In addition to paying a service call fee of probably $100 you would be paying time and a half for weekends. The tank alone could be $800+. It’s worth it.

Finally, First National introduced something new in fall 2018, a second mortgage. If you have a need for funds for renovations or something else substantial and you are part way through your First National mortgage term you can now obtain a second mortgage. No need to break your mortgage and incur penalties. When your first mortgage term ends, the second mortgage is rolled over into your first mortgage so you don’t have two different expiration dates for your mortgage. This is unheard of for a non-bank to do.
Remember, you can only get First National through the broker channel. Be sure to ask your Dominion Lending Centres mortgage professional if this would be a good mortgage for you.

Courtesy of David Cooke – AMP – DLC Jencor Mortgages in Calgary, AB.

INTEREST RATE CUT MORE LIKELY THAN HIKE IN 2019

Mortgage Tips Darick Battaglia 26 Mar

When the Bank of Canada decided this month to keep its benchmark interest rates stable at 1.75%, it signalled the weakening economy makes it unlikely a rate increase is anywhere on the horizon.

Inflation is not where it should be, we’re not in a deflation mode right now, but inflation is under control and there’s no real need for them to raise interest rates.

Because many of the economic indicators are pointing downward, this puts the bank in a position where it can’t raise rates. This makes refinancing a more attractive option for some homeowners this year.

A lot of economists are saying that Canada is heading back into another crisis, which is an indicator that rates may drop again. This new norm will probably stay around for a little while, but rates will eventually go up. And when it goes up, people have to be obviously prepared for it.

So, for now, homeowners shouldn’t worry too much about a sudden jump in rates. While this may be a new normal, if the economy begins a turnaround, they should be ready or a bump in rates, but I don’t think it’s going to happen the next couple of years.

Usually, Canada’s economy runs almost parallel to that of our southern neighbour’s. However, the two economies seem to have gone their separate ways lately.

There’s a divergence right now that is going to occur between the Canadian and U.S. economies. When people talk about the U.S. sneezing and Canada catches a cold—this is not what’s happening right now. There’s a divergence in the interest rates. Where in the States rates are going up, in Canada, rates cannot go up because of the way our economy is actually going.

The news isn’t all positive for Canadian homeowners though. Read our recent blogs on why too many Canadians are now ineligible for mortgages and why Montrealers in particular will see their municipal tax bills rise in the coming years.

Courtesy of Terry Kilakos – AMP – North East Mortgages based in Ville Ste-Laurent, QC.

2019 BUDGET ANNOUNCEMENT – POLICY OR POLITICS?

General Darick Battaglia 25 Mar

In the wake of the 2019 Budget Announcement, I find myself wondering if the Affordable Housing Incentive is good policy or just politics? Since the inception of Jan. 1 2018 “Stress Test” we have seen the struggle to qualify for mortgages countrywide. This didn’t just affect the major centers such as Toronto and Vancouver, its dark aurora has cast itself out to the more rural parts of the country where property values may not be as high, but income relativity has made it equally as hard to qualify. I live and operate my Mortgage Brokerage from Lindsay ON (City of Kawartha Lakes) and depending on the repayment terms, I am feeling like this may complicate future borrowing for individuals that accept it or may not make a dramatic difference for them today… I understand that much of the changes are widely unknown yet, but it’s still worth considering the practicality of what is proposed.

When reading the parameters around the new changes, they have an eerie resemblance to a program that already exists in the City of Kawartha Lakes and a lot of other municipalities in Ontario.

Homeownership 10% Down Payment Assistance Program. “The Homeownership Program provides up to 10% in down payment assistance to eligible applicants. Approved applicants would then be provided 30 days to supply proof of financing, an agreement of purchase and sale as well as an acceptable home inspection report. To qualify for the program, applicants must be renting in the City of Kawartha Lakes or the County of Haliburton, be at least 18 years old, have a gross household income at or below $76,100 and be eligible for financing from a financial institution. The selling price of the home must be at or below $363,127. Applicants must also be a first time home buyer and the home must be located in the City of Kawartha Lakes or the County of Haliburton.

The kicker with this “interest free and potentially forgivable loan” is that if you sell the house or rent it out, you are required to pay back the original investment of 10% + 10% of the capital gain on that property. I have seen folks use this program and with their hard work, money and time renovating the house along market appreciation, the value go up on their property in excess of $200,000 and now have to pay $20,000 back to the municipality along with the original investment received. Not knocking that program at all as it has helped many of our residents get into their first home, as in most cases the only thing holding them back was saving up the down payment in a market that has inflated rental rates.

Now, getting back to the New Federal Policy, they have not yet explained (or likely even discussed) the repayment terms but my best guess will be that it’s along the same lines and the provincial program. Using the highlights from Geoff Lee’s blog, see proposed “Share Equity” idea.

CMHC First Time Home Buyers Incentive Plan
-This would give first time home buyers the ability to share the cost of buying a home with CMHC
-For existing homes – the incentive would provide up to 5% (funding/equity sharing) of the PURCHASE PRICE
-For newly constructed homes the incentive would provide up to 10% (funding/equity sharing) of the PURCHASE PRICE
-Funding/Equity sharing means that CMHC would cover a percentage of the purchase price

Example:
o $400,000 purchase price, 5% down payment ($20,000), AND 5% CHMC shared equity mortgage ($20,000), the size of the insured mortgage would be reduced from $380,000 down to $360,000 which would lower the monthly payment amount for the first time homebuyer

To qualify for the program:
o $120 max household income
o Cannot borrow more than four times their annual household income – making max purchase price approx. $505,000
o $100,000 household income would mean max $400,000 mortgage in order to use this program.

So if the first-time homebuyer still needs to have a minimum 5% down of their own resources (unlike the local program discussed above), and most will be buying a resale home, their proposed fix for this demographic is to share the 5% cost of the house? Using the example above, it would reduce the borrowers monthly payment by approximately $120 per month or a little more than 6.00% reduction in monthly mortgage payment. Saved money each month is certainly helpful, but will this be something that we look back on in years to come as a real difference maker? Could there have been other ways to assist our first time homebuyers? Did we get our fair chunk of consideration? Whatever the right answer is, as we await the great reveal of repayment terms, we as Mortgage Brokers/Agents need to be cautiously optimistic that this will help our clients but understand that it may negatively effect some too… I hope for our clients sake this turns out to be good policy and not just politics. I await the reveal.

Courtesy of Dustin James – AMP – DLC Premier Financial Group based in Lindsay, ON.

FEDERAL BUDGET 2019: A CLOSER LOOK

General Darick Battaglia 22 Mar

I have been fielding quite a few questions about the announcement of the new First-Time Home Buyer Incentive program. To begin with, these programs are not scheduled to begin until September of this year assuming no governmental changes.
I have taken the time to break down the math a little further to show the potential savings.
Bear in mind that the incentive funds of up to 10% on a new home and 5% on an existing home are merely an interest free loan that must be repaid upon sale of the property. This is for first time home buyers and household income cannot exceed $120,000 per year.
I will use the example that was in the budget release that illustrates the very maximum benefit available.

Details of the example

-New home purchase price: $400,000
-Household income: $120,000
-Down payment from the buyer: $20,000
-CMHC Incentive Loan: $40,000
-Assuming level fixed rate of 3.5% with an amortization of 25 years.

*Mortgage default insurance (CMHC) is required for a home purchase with less than 20% down payment. The insurance premium percentage decreases for each additional 5% down payment. The buyer with the standard 5% down mortgage pays a much higher premium.
When underwriting the original mortgages, the buyer that is using the CMHC incentive loan is allowed to have more ongoing debt payments outside of the mortgage. The incentive buyer can have monthly debt payments up to $1,650 per month, when the standard 5% down buyer can only have up to $1,100.00 per month.
I will take it a step further with the longer-term effects after the sale of each home. I will use a market value increase of 15% over 5 years bringing the sale price to $460,000.00.

It is very clear from the above financial illustration that the benefits of the CMHC incentive loan are realized in the up-front savings on the insurance premium and the reduced interest costs during the mortgage term. If this program comes into effect, I will be advising buyers to set the mortgage payments as close to the 5% down level as possible to further leverage the benefit and put more in their pocket after the sale.

Courtesy of Kevin Carlson – AMP- DLC The Mortgage Firm based in Regina, SK.

NUTS & BOLTS OF THE FEDERAL 2019 BUDGET | WHAT YOU REALLY NEED TO KNOW!

General Darick Battaglia 21 Mar

On March 19, the Federal Government announced the official 2019 budget. One major topic on the discussion table (and one we were all holding our breath for) was the discussion of affordable housing in Canada. So just what happened on “Budget Day?” Here are the highlights of the 2019 Federal Budget:

MORTGAGE INDUSTRY RELATED:

CMHC First Time Home Buyers Incentive Plan

-This would give first time home buyers the ability to share the cost of buying a home with CMHC
-For existing homes – the incentive would provide up to 5% (funding/equity sharing) of the PURCHASE PRICE
-For newly constructed homes the incentive would provide up to 10% (funding/equity sharing) of the PURCHASE PRICE
-Funding/Equity sharing means that CMHC would cover a percentage of the purchase price

Example:

400K purchase price, 5% down payment (20K), AND 5% CHMC shared equity mortgage (20K), the size of the insured mortgage would be reduced from 380K down to 360K, which would lower the monthly payment amount for the first time home buyer
To qualify for the program:

120K max household income
Cannot borrow more than 4x their annual household income – making max purchase price approx. 505K
100k household income would mean max 400K mortgage in order to use this program.
HOME BUYERS PLAN RRSP INCREASE

An increase of the previous $25,000 for RRSP withdrawal amount through the Home Buyers Plan to $35,000
These were the only two key changes that came out of the Federal Budget (so far). It provides minimal assistance for First Time Home Buyers, especially in a market like Vancouver and the Fraser Valley, who have home prices well above the 505k purchase price limit. However, it could provide assistance to those looking to purchase condos or townhomes ore in more rural areas. One area that will remain the same for the mortgage industry is the continued B-20 stress testing measures (which have recently come under fire)

The predicted start time is Fall 2019 for these guidelines. We will keep you updated on any new additions or changes as the information becomes available.

Courtesy of Geoff Lee – AMP – DLC GLM Mortgage Group based in Vancouver, BC.

WHEN DEATH STRIKES SUDDENLY

General Darick Battaglia 20 Mar

Recently I was finishing up a mortgage with a young couple who had just had a beautiful baby girl. I brought up the topic of mortgage and life insurance as well as getting a will written up. The response from the husband was that it was such a morbid topic and a real downer when they were excited about their new home.

The fact is that people, even young people die from car accidents, cancer, and even accidental drownings while on vacation. It’s a topic everyone avoids but it needs to be addressed, particularly when you are taking a major financial step like buying a home. What would happen to your spouse if you died suddenly with your mortgage not paid off?

I spoke to a major Canadian mortgage company about this topic.
I asked if the surviving spouse would be kicked out of the house. “ When someone dies who was on our mortgage we want to know right away . We ask for a copy of the death certificate so that we can take them off title. We will let the mortgage run it’s term if payments are being made on time. Many surviving spouses receive a life insurance policy and can pay off the mortgage or at least keep up the payments. We will renew the mortgage if payments are up to date. However, should the surviving spouse want to refinance the mortgage they would have to re-qualify for it.”

So what can you do to make life easier for your family should you die with a mortgage on your home? The easiest option is to have sufficient life insurance to ensure that they can keep up payments or to pay off the mortgage. Dominion Lending Centres mortgage professionals all offer MPP (Mortgage Protection Plan), a life insurance policy that pays off the mortgage in full in case of the death of the policy holder. The payments never go up because the mortgage balance is going down as the insured person gets older.

Another option is term insurance or whole life insurance. Speak to your favourite insurance broker about this.
Finally, if the surviving spouse is 55 or older, and they can’t afford to maintain the mortgage, a reverse mortgage may be the solution. No payments are made on the principal unless you decide you want to. When the widow(er) moves out the sale of the home pays off the mortgage and interest.

While it can be a “downer” to talk about death and disability, a responsible home purchaser needs to have the conversation with their Dominion Lending Centres mortgage professional at the time of their purchase, refinance or renewal. The sudden death of a family member causes enough grief for the survivors, why add to their misery. As the old commercial used to say “Why wait for spring, do it now”.

Courtesy of David Cook – AMP – DLC Jencor Mortgages in Calgary, AB.

MARCH IS FRAUD PREVENTION MONTH

General Darick Battaglia 19 Mar

You may have seen advertisements warning you to be aware of phishing schemes and other scams. In the past week, I have received fraudulent emails claiming to be Shaw Cable, RBC and even the FBI. These are easy to spot because of mistakes in the letterhead, spelling mistakes and formal language that would fit in well in the 19th century. What is not as well-known is mortgage fraud. Fraudulent mortgages cost lenders every year. These losses result in higher costs and interest rates for consumers – so fraud ends up costing all of us money. What types of fraud should you be aware of?

Fraud for Shelter – this is when an applicant gives false information concerning their income or job status in order to obtain a mortgage to buy a home. While they may plan on paying off the mortgage in full this is still fraud. Another form of fraud is when you sign a declaration at the lawyer’s office saying that you will be living in the property when you have no intention of living there.
Fraud for Profit – a friend says they know someone who needs to buy a house now but their credit won’t be satisfactory for another 3 or 4 months. They ask you to say you are the buyer and provide your credit history in exchange for $5,000 for your trouble. The problem for you the “straw buyer” is when they flip the home and run off with the profits leaving you on the hook for a mortgage and having to deal with legal authorities as well.
Foreclosure Fraud – a fraudster approaches a homeowner who is in financial trouble with a debt-consolidation scheme that involves the owner paying an upfront fee and signing over title to the home to the fraudster.
• the home owner receives cash from the fraudster to address immediate bills and remains in the home paying “rent” or “consolidated debt payments” to the fraudster
• the fraudster pockets all of the owner’s payments and ignores bills and taxes, which leads to debt-collection procedures against the owner
• the fraudster may re-mortgage or sell the property to an accomplice, leaving the owner without the property title, homeless and still in debt

Title Fraud – This is when someone forges your identity and either sells your property or takes out a mortgage on the property. Buying title insurance for a home under $500,000 can cost you between $50 and $175 and covers any legal fees you have to pay to regain your property.

Courtesy of David Cooke – AMP – DLC Jencor Mortgages in Calgary, AB.

MORTGAGE STRESS TEST – NOT THE BAD GUY

Mortgage Tips Darick Battaglia 15 Mar

Ever since the federal government regulator, The Office of the Superintendent of Financial Institutions (or OSFI) brought in the Mortgage Stress Test, there has plenty of blame heaped upon it for slowing home sales and new home starts. Even though it has slightly reduced how much of a mortgage I can approve my clients for, the initial logic is sound. The stress test attempts to protect Canadians from taking on more mortgage debt than they will be able to afford when their mortgage renews down the road.

What it doesn’t do is curb additional debt and other financial factors after the mortgage starts. Many clients do not consider long-term changes like, child care expenses, new vehicle loans, ongoing credit card and line of credit debt payments.

I work with many first and second-time homebuyers with wide-ranging financial details. The stress test is a limiting factor, but in no way is it the largest culprit in preventing my clients from getting mortgage they are requesting. credit cards, lines of credit and vehicle loans have a much larger impact on reducing the mortgage borrowing ability for most of my clients.

Here are some real-world numbers on two hypothetical first-time homebuyer scenarios that help to illustrate what consumer debts can have on a mortgage application.

1. Individual or couple – scenario 1
Buyer(s) with household gross income of $80,000 that have $17,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $250,000 detached home.
An additional monthly credit or loan payment of only $300 per month will prevent mortgage approval for this application.

2. Individual or couple – scenario 2
Buyer(s) with household gross income of $125,000 that have $33,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $500,000 detached home.
An additional monthly credit or loan payment of only $500 per month will prevent mortgage approval for this application.

Credit cards, lines of credit and vehicle loans are exceedingly easy to obtain but could stand in your way when you are looking to buy your first or next home. Please consider carefully before financing anything.

Courtesy of Kevin Carlson – AMP – DLC The Mortgage Firm based in Regina, SK

3 “RULES OF LENDING” – WHAT BANKS LOOK AT WHEN YOU APPLY FOR A MORTGAGE

Mortgage Tips Darick Battaglia 14 Mar

Buying a home is usually the biggest purchase most people make and there are a lot of factors to consider. Our job is to provide you with a much information (as you can handle!!) so you make the best decision based your particular situation.

The 3 “rules of lending” focus on determining the maximum size of mortgage that can be supported by your provable (what you paid taxes on) income.

You need to consider two affordability ratios:

Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 36-39% of your gross monthly income. Housing costs include – your monthly mortgage payment, property taxes and heating. If you are buying a condo/townhouse, the GDS will also include ½ of your strata fees. The total of these monthly payments divided by your “provable” gross monthly income will give you your Gross Debt Service.
Mortgage payments + Property taxes + Heating Costs + 50% of condo fees / Annual Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42-44% of your gross monthly income This includes your housing costs (GDS above) PLUS all other monthly payments (car payments, credit cards, Line of Credit, additional financing, etc.). The total of all your monthly debts divided by your “provable” gross monthly income will give you your Total Debt Service.
Housing expenses (see GDS) + Credit card interest + Car payments + Loan expenses / Annual Income

What about the other 56% of your income?? This is considered to be used up by ‘normal’ monthly expenses including: taxes, food, medical, transportation, entertainment etc.)

Rule #3 – CREDIT RATING Everyone who will be on title to the property will need to have their credit run. Your credit bureau is important because it shows the lenders how well (or not) you have handled credit in the past. This gives them an indication of how you will handle credit in the future, and will you be a good risk and make your mortgage payments as promised. If you handle credit well, you will have a high Credit Score and get the best interest rates from the banks/lenders. If you have not handled credit well, and have a poor credit score, you will either be charged a higher interest rate or your application will be declined.

Courtesy of Kelly Hudson – AMP – DLC Canadian Mortgage Experts based in Richmond, BC

WHAT IS AN UNINSURABLE MORTGAGE?

Mortgage Tips Darick Battaglia 13 Mar

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision.

Courtesy of Kristen Woolard – AMP – DLC National based in Port Coquitlam, BC

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