The Big Short – An American film about American finance.

Many Canadians, particularly those in Vancouver and Toronto where real estate is spoken of like a sport, will gravitate to the film The Big Short over the coming weeks. It is an adaptation of an excellent book written in 2010 by Michael Lewis. As a Canadian Mortgage Broker who read the book when it came out to better understand the differences between the two countries’ mortgage markets, I was into a theatre within the first few days of its release.

Short version:

Ryan Gosling is the only significant Canadian content in this film.

Long Version:

This is an American tale about an American debacle that takes place due to American finance policies. A tale, a debacle, and policies vastly different from anything we have happening in Canada. As with most things Canadian, our finance system is in fact far more conservative and quite sedate. It is as solidly built, resilient, and popular as Mr. Gosling himself.

Five key differences between the US and Canadian housing markets

One.

In the USA in 2006 ‘subprime’ mortgages accounted for more than one in three new mortgage applications. Over half required little to no documentation of income at all, and little to no down payment. In the movie there is a case, likely not far from reality, of a property financed in the name of a man’s dog. A system so lax that even your pet could qualify for a mortgage.

In Canada, even in 2006, subprime loans accounted for less than 1 in 20 applications, still fewer today. Even in cases of limited documentation, the Canadian system typically required 35% down payment. Equity = security.

Two.

The US system had Mortgage Brokers packaging up loans with little to no oversight or review on a Friday, and selling them the following Monday to an investor on Wall Street who was in turn re-selling the debt to yet another investor in another country. All the while, credit rating agencies focused on maintaining their initial (heavily biased) ratings of mortgage bonds, even as the mortgages inside the bonds were sliding into default, because if they did not maintain the ratings then ‘some other ratings agency’ down the block would get paid to assign a stable rating. It was (and remains) a system designed to offload risk as if all the players involved are playing a protracted game of musical chairs. They all know the music might stop at some point, but are willfully blind to it.

And hey, last time the music stopped the people turning a blind eye got little more than a slap on the wrist, and most kept their jobs and were paid their annual bonuses anyways.

In Canada, the lender, often a Credit Union or Chartered Bank, has rigorous approval standards that leave most applicants’ heads spinning, with some wondering if a hair sample will also be required. Mortgage Brokers in Canada are licensed and regulated. More important still, few Canadian mortgage applicants ever pay any kind of fees or higher-than-market rates. Nor have I had any clients simply sign documents without spending the time to understand exactly what they are signing on for.

Three.

The US system created A.R.M.’s, an unbelievably good deal on paper… at first. Recall the subprime mortgages from point 1 above. Well, about 90% of those mortgages (the ones written for people with no income) were written as A.R.M.’s.

Mr. & Mrs. American, please sign here for your A.R.M.

What’s an A.R.M.?

This was a question that millions seemed either not to ask, or did not dwell long on the answer to.

A.R.M. = Adjustable Rate Mortgage:

The pitch in 2004: “Today and today only, we can give you a 1.00% rate with interest-only payments for the first three years (Yes it gets better still: interest-only payments). That’s right, your payments will be just $415.80 per month on a $500,000 mortgage. In three years the interest rate will reset (keyword there: reset) to 4% over a 30-year amortization, but no need to worry about that as we will just refinance you at that time or flip out of the house since it will be worth so much more; just look how much it has risen in price since I started speaking a few minutes ago…”

“What’s that? How much is the payment at 4%? Why, you’re the first one to ask me that in months. I am not even sure. Let me figure it out ”(Leaves to find office manager, who in turn finds a guy that was in the business a few years earlier when math was still important. Returns.) – “It would be $2,377.59 per month. Yes, that is much higher, but hey it’s only $415.80 for now, and three years is an awful long ways away”.

In Canada it is rare to see a ‘teaser rate’ mortgage as we call them, as the optics are not great around such products since 2007. However, when you do see a mortgage product such as this in Canada, the qualifying rate used is not the artificially low teaser rate as with the US system, it is the higher (inevitable) interest rate that is used to ensure that the borrowers will have stability.

In Canada we have variable-rate mortgages which are significantly different products and again use a qualifying rate much higher than the effective rate. At the time of this writing a variable rate mortgage is at a net rate of 2.20%, but the qualifying rate used is 4.64%. In other words, the Canadian system goes the opposite path of the US system. We ensure an applicant is well overqualified for the mortgage they are applying for.

Four.

Many US residential home builders are publicly traded companies, and as another by-product of the bubbly finance system at the time, vast sums of money were thrown at them to build, build, build, and build. In 2004 it was estimated that 40% of US real estate purchases were investment or vacation homes.

In 2006 there were already vast numbers of partially constructed homes that were no longer selling, there were no buyers for them. The overbuilding was significant, and as the economy slowed it was one more layer on a rapidly rolling snowball that became an avalanche.

Meanwhile in Canada… more than 90% of real estate purchases are for owner-occupied properties, with less than 4% of mortgages being written for investment properties. Supply in most markets remains tight. Markets like the city of Vancouver, have seen the last single-family home site created. In fact, single-family homes are dwindling in many urban centres as consolidations occur to create new multi-family sites. With geographical constraints such as mountains, coastlines, borders and agricultural lands among the myriad of limitations to growth (a.k.a. ‘sprawl’), the supply side of the equation in cities like Toronto and Vancouver will not be easily remedied anytime soon.

Five.

Mortgages in many states are ‘non-recourse’ loans, meaning that the lender cannot go after the borrower for any monies owed over and above the final sale price of the asset pledged. In states such as California and Arizona, this led to many ‘strategic defaults’ by borrowers. Essentially these were an exit plan for home owners with otherwise good credit and stable incomes who found themselves saddled with a mortgage balance more than double the market value of the home. Looking at how long it would take to pay the debt, and whether the home would ever recover its value, many people chose to throw the keys to their homes — or at least their second, third and fourth homes — on the desk of the bank and walk away.

This played a role in foreclosures rising to 14.4% of all mortgages in the USA by September 2009.

Meanwhile in Canada, all mortgages are full recourse, which means that the lender can (and will) chase the homeowner to the ends of the earth for repayment of any loss, garnisheeing wages if need be to collect monies owed.

In 2009 Canada also hit a record high foreclosure level… of 0.41%. This is just slightly above the twenty year average.

Conclusion

As the movie ends it is a scene of massive government bailouts, another thing that no Canadian bank required through that period of time (in fact Canadian Banks were the only lenders in the G7 that did NOT require Government assistance). It was also a scene, unchanged to this day, of little fault being found with those who built a system doomed to failure. There were no jail sentences for those involved in perpetrating what became a massive global economic meltdown. It was as if this were something that just happened on its own. A force of nature.

In the USA there was clear evidence of fraud at all levels in a broken system that rewarded multiple layers and players to look the other way and ‘go along to get along’.

In Canada we are conservative by nature. As a Mortgage Broker myself, I am on the front lines dealing daily with fiscally prudent clients who opt to borrow, in most cases, significantly less than they (painstakingly) qualify for. I then get on the phone to fiscally prudent underwriters at fiscally prudent lenders and work through a hurricane of paperwork for an approval.

Also, I have not met a Canadian Mortgage Broker with a lounge sized fully stocked bar in their offices serving Caesars at noon as if work is just one big party (see the movie). Alas, we are a far more boring bunch here with actual work in our workdays.

As much as many would like to draw comparisons to the Canadian and USA real estate markets, there are few commonalities to be found that are any more logical than the following theory:

‘Ryan Gosling starred in a film about the US mortgage meltdown, Ryan Gosling is Canadian, Ryan Gosling is mortgage meltdown, mortgage meltdown is Canadian’…um ya – Illuminati confirmed!

Great flick though, an excellent adaptation of a great authors work.

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts 

Why Are People Taking So Much Money Out of China?

China is experiencing the largest episode of capital flight in history, encouraged by the slowdown in economic activity, the plunge in the stock market and the surprise devaluation of the currency–the Chinese yuan (also called the renminbi) last August. Chinese businesses and consumers are moving money abroad where its value might hold up. Last year, some $700 billion to $1 trillion (U.S.) is estimated to have fled China (see chart below). The dream of many Chinese to have their children educated overseas is another cause of long-term capital outflows. Finally, the flows are driven by a belief that it will only get harder to move money offshore.

Capital controls already exist. Individuals are limited to the equivalent of $50,000 a year, though there are multiple ways to get around the restrictions. The Chinese government is ramping up efforts to stem the flood of money with new rules making it harder for foreign companies in China to repatriate earnings and for investors to move yuan overseas.

In recent days, the yuan has come under renewed downward pressure with mounting expectation of Fed rate hike. The biggest problem for China so far is perception. Capital flight signals a loss of confidence in the government’s ability to run the economy. The perception is made worse in China by the government’s opacity and by the economy’s difficult transition from reliance on big infrastructure and exports to consumer spending.

Much of that Chinese money is moving into housing, not only in Toronto and Vancouver, but also into real estate in Australia, New Zealand and the United States. The Chinese are now the number-one foreign purchaser of U.S. residential real estate–surpassing Canadian inflows this year. This is stimulating the housing markets, especially in New York, Los Angeles, San Francisco and Seattle. Chicago, Miami and Las Vegas are also seeing significant investment.

House prices in Vancouver have surged exponentially with the rising outflow of Chinese capital looking for a home. To a lesser degree, the same is true in Toronto, blowing up a bubble in already overheated housing markets. Can this continue?  No one knows, but there are varying opinions whether this is a sustainable force for price appreciation or will China’s efforts to crack down on capital outflow be successful, removing one of the linchpins of the Vancouver and Toronto housing markets.

The answer to that question is not simple. Some believe the Chinese money ball will only grow, bouncing its way around the world. Many believe that China doesn’t need to stop the capital outflow, but just to contain it. Historically, governments cannot effectively control capital outflow. However, everything about China breaks historical norms, and the government is working hard to make foreign exchange transactions more difficult. This poses a significant downside risk to Canada’s strongest housing markets.

In another example, the capital outflow from Russia has been proportionately much larger and some of that capital has also found its way into Toronto housing.

Can The Vancouver and Toronto Housing Boom Last? 

The media continue to put the spotlight on the Vancouver and Toronto housing booms and the role played by foreigners to drive up prices. Affordability issues are of great concern and questions continue to arise regarding the sustainability of the housing bubble. Not only are many first-time homebuyers shut out of the housing market, but the supply of listings is held down by the affordability issue as well. Many existing homeowners cannot afford to move up as foreign capital has mainly boosted the luxury housing market. Reportedly, the foreign buyer is far less price sensitive than Canadians, boosting the priced of multi-million dollar homes.

The Canadian government and regulatory response to this foreign inflow of money is evolving. The media have recently highlighted the potential for money laundering and the lax enforcement of  anti-money laundering initiatives in the real estate sector. But it appears that most of the Chinese purchase of Canadian housing is not for money laundering purposes, meaning garnered through illegal activity or to support terrorism. Moreover, Canadian real estate players are not responsible for enforcing Chinese law. According to a spokesman for the Financial Crimes Enforcement Network, an agency of the U.S. Treasury Department, banks are required to “conduct enhanced due diligence on foreign correspondent accounts.”

Meanwhile, Chinese officials have intensified a crackdown on what are known in China as underground banks, which Chinese nationals often use to shift money in and out of the country. Those money-transfer agents, however, remain rampant despite repeated enforcement efforts, according to the state-controlled Xinhua News Agency. While determined individuals can always find a way to move money, including untraceable bitcoin transactions, a slowdown in the volume of Chinese capital moving into Canadian housing is a meaningful risk factor for the hottest markets in Canada.

Courtesy of Dr. Sherry Cooper, DLC Chief Economist

An important rule of thumb to remember regarding credit is that YOU are your only advocate for your credit. YOU are the only one that can improve your credit. YOU are the only one that can manage any errors on your credit. YOU are the only one who can determine who pulls and when your credit is looked at.

Frequently, when we move forward with a client’s application for mortgage preapproval, there are errors on the individual’s credit report (some statistics say 80%). It is a MUST that those errors are corrected immediately. Calling the credit bureau company to get those errors corrected are the responsibility of the consumer. The credit bureau company will assist you to correct those errors by providing needed information such as telephone numbers, account numbers, etc to the consumer who is questioning their report. This goes a long way in improving credit. If there are errors, they WILL negatively affect your credit score.

Improve your credit score by….

1. Paying your bills on time. Even if it is a minimum payment amount, paying bills on time is probably the most important aspect of keeping your credit healthy. A late payment ALWAYS significantly lowers your credit score.

2. Try to keep your credit card balances within 30% of the maximum allowable credit. Banks always consider the amount of debt you have. If you can’t manage your credit card debt, the bank will doubt that you can manage mortgage debt.

3. Don’t apply for credit on a frequent basis. Some stores market their credit card applications every time you go through the cashier’s check out. Keep in mind that marketing is a big part of credit and the high interest rates that you will pay on remaining balances will be far more negative than the 3% cashback that is being offered.

4. Don’t close old credit accounts. Keep the older credit around. The lender will always look to see how old and established your credit is. The older, the better.

5. Don’t pull your credit too often. Although credit pulls for mortgages, automobiles, and student loans is looked at differently than credit cards, it is important to keep credit pulls to a minimum. The more applications to credit cards, the lower your credit bureau score goes.

6. If you are going to make a purchase that will require more credit, it is better to call the credit card company and increase your credit limit than make a purchase that goes over your credit limit. If you go over your credit limit, this will significantly affect your credit score to the negative.

7. If you enter into a dispute with a company, it is better to make a payment and close the account than close the account forcing the company to go to collections. Be very careful when online shopping as it is very difficult to reconcile a dispute when there is little physical presence. Make sure you know who you are shopping from when making purchases online.

8. Don’t buy too much on credit at one time. If you go out and buy a car, buy a cellphone and then apply for a personal loan, the credit bureau sees this as financial instability and your score will be lowered. Even getting a preapproval from a bank will lower your score.

9. Make sure your credit bureau has no mistakes or continuing collections. When you call in to make sure your credit score is accurate and something comes up such as collections for a cable company, make sure to get the contact information from the credit bureau company and call the collections to settle the payment as soon as possible. As well, get the collections company to call the credit bureau to mark the account as “paid” and even remove the notification entirely.

Courtesy of Geoff Lee, AMP – DLC GLM Mortgages 

When I last left off, I was speaking about how Donna Thornton of DLC Beamsville was putting together a large community event to help support Bullying Ends Here. I really had no idea exactly what I was in for BUT it was SPECTACULAR. For starters, Donna arranged for me to speak to their junior high school which was inspiring given all of the positive feedback afterwards. Then it was the next day that all of Donna’s (and her incredible team) hard work came to fruition. Donna had the entire community centre packed with various vendors, displays and kids amusement rides. Even the hot air balloon made an appearance. Donna brought an entire community together for a day of fun and friendship all the while raising much needed funds for my charity. I was so humbled and amazed at just how much work she must have done to make that event happen. There must have been thousands that showed up. Great job Donna!

After I finished the 12 days in Ontario, I finished off the 2015/16 Bullying Ends Here campaign with stops in Calgary and Blackfalds. I have to say that it has been one incredible season with so much to be proud of and thankful for. The truth is that there are many that deserve credit and thanks for helping make all of this happen. Many of whom are with Dominion Lending Centres. Without your help, support and believing in me, none of this would have happened. We are a team and we all have a role to play. Thank you to all who helped make this year such a success.

With that said, I can tell you that the program was presented in every province in the Country over the last 8 months. I presented close to 200 times to over 100,000 individuals. The emails are well over 15,000 and the requests are now from all over the world. The program was recognized in the B.C. Legislature, the book a best seller, awarded the ‘2016 Inspiration Award’ by the Alberta Government and got to make thousands of new friends….all while continuing to spread Jamie’s message of acceptance and understanding. I’m not sure how I can top that for the 2016/17 school year but I have a sneaky suspicion that much more will take place. For starters, I will be speaking in Amsterdam Netherlands in August on the world stage which will be exciting. I suspect this will open doors that will lead to beyond our borders.

My goal was always very simple, I wanted to help just one person. I wanted to tell the world about a boy named Jamie. I had no idea what was about to unfold and the journey I would be on. Not a day goes by that I don’t pinch myself to prove that this isn’t a dream.

I will be adding available dates for 2017 in the next week or two and will be reserving days for almost every province again. Please continue to check things out at www.bullyingendshere.ca where you can see some more incredible things that our charity has done and the lives saved.

It is now time to focus on my police work and enjoy some personal time while also writing the second edition to the book which should be ready by mid summer. Along with a few edits, there will be several new chapters outlining what the kids are telling me in their emails along with signs of bullying and also what you can do to prevent it. Always a work in progress needless to say. As always, I am here to email anytime at tad@bullyingendshere.ca.

Please enjoy your summer, be safe and keep smiling.

Courtesy of Tad Milmine, Founder – Bullying Ends Here 

Sometimes “life happens”, and when it does, your home can be your savior if you have accrued some equity in it. Maybe you’ve been out of work, run up your credit cards and driven your credit rating into the ground. Perhaps, you’ve decided to leave the job you hate and venture out into the world of owning your own business. Whatever it may be, the equity in your home can help.

I recently helped a client who had maxed out her high interest credit cards due to not being able to work for a couple of years, and the credit card debt had lowered her credit score substantially. She was now back to work as a self employed consultant earning a good income, but the $1,000 monthly interest payments she was paying was seriously eating at her cash flow and not reducing the principal she owed. Dead money!!

Luckily for her, she had great equity in her condo, so I was able to provide her with an Equity Take Out Mortgage. The mortgage lender I chose was able to loan her money based on the strength of her property and the low loan to value of the mortgage based on her equity, NOT her income or credit score.

Here are the numbers:

Mortgage Amount $75,000

Rate: 4.75% (due to low credit score and equity take out)

Monthly Payments: $425.59

Savings per month: $574.41

In this case, my client was able to pay off her credit card debt and had a fair amount of money left over to invest in her business and her future.

In the end, she was very happy to be able to get her finances and business back on track, and start her life anew!

By working with me, a licensed mortgage broker who has access to a variety of lenders and products, we were easily able to find a great solution to a “life happens” scenario.

If you would like to learn more about how the equity in your home can help you, contact your nearest Dominion Lending Centres mortgage professional.

Courtesy of Jordan Thomson, AMP – DLC City Wide Mortgage 

You’re likely asking yourself, what is the dilemma that self-employed workers face? Well, with more and more Canadians joining the ranks of the self-employment every year, one has to ask themselves how they are going to tackle the age old question, how much does one write off vs how much income does one claim on their taxes. We all want to earn as much money as possible and pay as little income tax as required.

This was my train of thought until the topic of ‘paying taxes’ was brought to my attention by a friend that’s an accountant. As he said, paying income tax isn’t such a horrible thing, in fact it’s a necessity which provides for our infrastructure and without it the ‘world’ we know would be drastically different. Here was the response from him after I re-posted a reference to INCOME TAX RELIEF DAY that I saw on social media.

“I would actually look at it more positively and say that I/we spent this money to live in a great country, province and municipality and it’s worth every penny in taxes spent. I will guarantee you there are billions of people on this planet that would switch positions with us in a second and remember this so called date (INCOME TAX RELIEF DAY) is based on the average Canadian family income of $45,000 and is based on all taxes including not just income taxes, but property tax, sales taxes, health taxes, fuel taxes and much more. So technically not all of it is going to Canada Revenue Agency (CRA). Some of it is going to municipal and Metro Vancouver. For more information go to the Fraser Institute website https://www.fraserinstitute.org/research-news/display.aspx?id=22954. ”

After reading over this message, it got me thinking about how some self-employed people report their taxes and the effect that it has on their chances of qualifying for a mortgage. Besides the duty to provide to our country, we all have a personal desire to provide as much as possible for our family. It’s a so-called ‘tug-of-war’ of who gets your money and how much of it. Here’s where the dilemma gets complicated if you want to borrow money from a lender to purchase residential real estate.

The federal Government of Canada regulates the CRA as well as the lending criteria and policies followed by ALL the ‘A’ lenders. ‘A’ lenders are our chartered banks and non-bank or monoline/investment lender. We also have credit unions that are provincially regulated but follow the CMHC lending criteria, which is federal. Having more ‘cash’ in your pocket actually allows you to borrow less. Showing more income claimed, which requires you to pay more tax allows you to borrow more money if desired. ‘A’ Lenders assess their risk management for lending money to borrowers on historical earning and in this case, if one is self-employed then they require a 2 year average based on T1 Generals or in some cases Notice of Assessments (NOA).

It’s a CATCH 22 and you (and your qualified accountant) need to decide which path you’re going to follow; write off maximum expenses and claim ‘little’ income or claim a ‘healthy’ income and pay more income. Neither is right or wrong.

Upon getting the urge to buy residential real estate a detailed conversation on how ‘your income’ is structured should be had with their Mortgage Expert and Certified General Accountant. Once you have chosen which style of accounting your business will adopt, you just have to be prepared to follow the lending guidelines. Plus, it’s really not that bad either way.

Let’s face it, everyone wants the lowest rate possible when it comes to their mortgage. As a Mortgage Expert, it’s something that I seek for every client. But not all clients are eligible for the lowest rate for a number of different reasons. Two main reasons are because of credit blemishes and, of course, lack of income reported.

Business Case

The following is a fictitious scenario that represents a self-employed person that writes down expenses in order to minimize CRA income tax.

Jane is a business owner in Vancouver. She has a modest business that is experiencing growth year after year. Jane enjoys the many perks of being a business owner, especially the tax breaks that come along with it!  Since Jane is able to work with her certified accountant, and considerably write down her income, she often saves thousands of dollars a year on taxes.

Jane would like to purchase a new home. She has a 20% down payment to place on a home, and knows that she grosses more than $100,000 per year in her business. However, since she currently writes down her income to $20,000 per year, her Mortgage Expert has just informed her that she will need to state her  income with a ‘Non-Prime’ or ‘B’ lender for approval.

Now if Jane claimed $100,000 per year for the last 2 years, she may qualify for the best rate out there from an ‘A’ lender. However, let’s look at what that really means:

Jane has saved $23,299 per year because of the tax laws the government has legislated for self-employed business owners. Now let’s compare the interest on a ‘typical’ verified-income loan, and a ‘non-prime’ stated-income loan.

** For ease of comparison to BC yearly tax rate– 1 year term has been used. Rates are approximations for example purposes.**
Jane is paying $3,545 more in interest per year, but her income tax savings are $23,299 per year.  She is actually saving $19,754 per year more than the typical ‘verified-income’ employee that was able to receive a mortgage interest rate of 2.69%.

With all entrepreneurs there is one thing in common – they are all savvy and driven to succeed, or fail, on their own terms.

It takes an extreme amount of hard work to get a business from the infancy stage to a self-sufficient entity that produces a constant and steady flow of revenue. Business owners all want to save money while at the same time earning and establishing a presence in their chosen space. Business financials are all structured differently and, depending on how one chooses to operate, will dictate how they can proceed once it’s time to seek residential real estate financing.

If you are self-employed, make sure to consult with us at Dominion Lending Centres to find out how your mortgage can be tailored. Every mortgage scenario is completely different from the next, so make sure yours fits correctly and you are informed before you start the financing process.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial 

If you are considering building a new home, then you need to be educated on the difference between draw and completion mortgages. When you meet with a builder, there is tons of terminology and information you should be aware of so you are properly covered.

Completion mortgage means that the builder does not expect any funds until you take possession of your new home. Before the building process begins, you will have to go to your mortgage professional to get your application verified for the build to start. The benefits of this option are that you don’t have to put down any payments before you take possession, you can add upgrades to the mortgage, and the lender doesn’t require all final information from you until 30 days before you take possession. During this build process you will want to take extra care of your finances to ensure nothing changes, which could put your initial approval in jeopardy. Any changes that could possibly change your financial position and your credit should be discussed with your mortgage professional. This can include things like switching jobs, buying a car, and taking out any new loan.

A draw mortgage is preferred by home builders because it allows them to receive portions of funds during predetermined stages of the build process. To obtain a draw mortgage, the beginning process is the same and you will have to go to your lender to be verified for the build to begin. The benefits of this option are that the builder is able to manage their cash flow, inspectors are sent to verify stages of development are met, and funds sent to the builder are handled through a lawyer. There are some extra costs associated with this option though. Inspections will incur a cost upon each stage met and interest payments may be incurred as well. You also do not have the option to add upgrades throughout the build process with a draw mortgage as the first advance sets the loan in stone.

As always, if you would like to discuss draw and completion mortgages in preparation for your new build contact us at Dominion Lending Centres! We are happy to help you figure out your financial future.

Courtesy of Alim Charnania, AMP – DLC Regional Group 

Because the top secret formula has never been released there are common myths that are floating around about the ones credit score, here are the top 5.

1. Too Many Credit Cards Will Hurt My Credit Score

Actually, cancelling healthy active cards or accounts hurts more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time you should observe the rule of maintaining a balance at no more than 75% of the limit, but less is best. Applying for new credit every week will lower your score more.

2. Using Credit to Build a Credit Score

Remember to keep your balances low and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.

3. My Utilities and Internet are Paid On-time Every Month

These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.

4. Checking My Score Will Decrease It

There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting a loan or credit card application. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty.

Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

5. There is Nothing I Can Do Once a Payment is Late

Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it. Some is better than none.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial 

I continue to hear from my clients that their own bank or credit union is stating they HAVE to purchase life and disability insurance in order to be approved for their mortgage. This is called tied selling. “ Tied selling is when a financial institution requires a client to transact other business with the same institution as a condition of doing business with said institution .” We also have a local credit union where their approval letter states that the client or clients HAVE to purchase life and disability through them. So far I have always beat them to it and managed to win my battle but it is ridiculous how the banks and credit unions keep getting away with this. I have many clients tell me that their banks or lending institutions tell them they HAVE to.

With bank or credit union insurance, the underwriting is not done up front and really helps the client nothing except another monthly expense. With this insurance, the client is approved right away and what happens is the client pays and pays for years on this insurance. If they then become ill with cancer or some other health issue,  the bank or credit union then will not pay. Also the bank or credit union insurance is not portable, and in some cases, if the original mortgage details are changed, the borrower may have to reapply for coverage for the new mortgage even though it is with the same lender. This can also cause an increase in monthly premiums as their ages may have changed.

With Manulife Mortgage Protection Plan and any other insurance providers, the underwriting is done up front. If the clients does develop cancer or some other health issue, the policy still pays out. Mortgage Protection Plan is also portable and should the client refinance their mortgage and change lenders the client does not have to reapply and the premiums remain the same. The only time premiums would change is if the client were to top up their Manulife Mortgage Protection Plan because their new mortgage amount has increased.

There are different forms of underwriting that include the following, Post claims underwriting (medical history is reviewed at time of claim), Simplified Underwriting (some medical information is provided at time of application and a partial review determines level of coverage), and up front underwriting. (full disclosure complete with blood, urine and vitals are collected sent off and coverage is determined by lab results).

Not all lenders coverage have the same type of underwriting or types of coverages available for the borrower to apply for.

I always encourage my clients to have some form of life and disability in place to protect themselves and their families however I would discourage anyone from purchasing life or disability from any lending institution. I would gladly refer them to a licensed insurance contact of mine or offer Manulife Mortgage Protection Plan. Please chat with your mortgage professional at Dominion Lending Centres for more information.

Courtesy of Shirl Funk, AMP – DLC Red River Lending Ltd. 

Short Version

1. There are no changes to the first-time home buyer exemption limits (with the exception of point #2 which includes first time buyers).

2. All buyers (first-time buyers and repeat buyers) are now exempt from PTT on purchases of NEW homes up to $750,000 in value (think properties on which GST is being charged).

Note: the buyer must be a Canadian citizen or a permanent resident.

Note: there is a partial exemption for homes between $750,000.00 and $800,000.00.

3. PTT charged on amounts over $2,000,000.00 has increased to 3%. The 3% tax is only paid on the amount over $2,000,000.00, not the full price.

Long Version

The impact of these changes will not change the Vancouver real estate market in any way at all. The real estate market is driven primarily by one thing: it is not low rates, not foreign buyers, not assignment clause flips, not taxation changes, not down payment changes. It is emotion. Emotion fuels decision making.

People buy homes because they are in love, getting married, having babies, they got a raise, their business is doing well, it was a sunny day and an open house caught their eye. People sell homes because they believe they can time the market (wrong), prices can’t go higher (wrong), they got a job transfer, a divorce, health issues… the lists of good and bad reasons go on, with one underlying dynamic – emotion. ‘We felt it was time to buy, we felt it was time to sell’. Rarely do you hear ‘we calculated’. Feelings and emotions.

Tax Hit (not a big one though)

A client purchasing a $4,000,000.00 home is not slowed by a $20,000.00 increase in purchase taxation. They will still pay the four million; it is a non-issue – a mosquito bite, not the sting of a hornet.

So, no brakes being put on $2M plus sales, just an increase in revenue to help offset the decrease on the break the provincial government is giving to people who are purchasing brand-new properties up to $750,000.00

Tax Break

First-time buyers see only an advantage if they are purchasing a brand new property, now their exemption rises from $475K to $750K (again on new builds only).

Repeat buyers were just given some love. Repeat buyers now get an exemption on new builds up to $750,000 as well. This is huge news and will likely stimulate the move-up buyers to look around, as a $13,000 cash expense has just been removed from the process of moving from one property to a larger, nicer, brand-new place. No doubt this will have a few people jumping off the fence and taking action. Builders, Realtors and clients alike will all rejoice at this news!

Tax Neutrality

The elimination of the Property Transfer Tax on new properties under $750,000 also has one other key impact. It helps offset the recent down-payment increases implemented by the federal government for any buyers of brand-new properties who were looking to put 5% down. Effectively their cost on properties over $500,000.00 up to $750,000.00 is now the same. This news neutralizes the down-payment increase.

The cash expense of a 5% down payment on a $745,000 property just rose by $12,250.00 (to a total of 6.6% or $49,500), but with this announcement the provincial government no longer has their own cash expense of $12,900.00 in the mix (Property Transfer Tax was calculated at 1% of the first $200,000 and 2% on the balance at this price point).

So the down payment went up in this example by $12,250.00 but the PTT cost decreased by $12,900.00. A $745,000 (new build only) property is actually easier to purchase with the minimum down payment for first-time and repeat buyers alike.

No doubt sales centres and developers rejoiced at this new as well.

Always remember to take your Realtor with you to a sales centre, they are your professional representation in the process.

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts