Some of the last round of changes from the government regarding qualifying for a mortgage were that if you have a balance on your unsecured line of credit, then to qualify for mortgage the lenders require that we use a 3% payment of the balance of the line of credit.

Simple math is, if you owe $10,000 we have to use $300 as your monthly payment regardless of what the bank requires as a minimum. Given that the banks hand out lines of credit on a regular basis it is not uncommon for us to see $50,000 lines of credit with balances in the $40,000 range. That amount then means we have to use $1,200 a month as a payment even though the bank may require considerably less.

So what if it is a secured line of credit? Again we have clients telling us that they don’t have a mortgage only to realize they do have a Home Equity Line of Credit (HELOC). A home equity line of credit by all definition is a loan secured by property, the actual definition of a mortgage.

Again, it’s something the bank will require little more than interest payment on because it is secured. The calculation here can also upset the calculation for your next mortgage, as what is required by many lenders is to take the balance of the HELOC. Let’s say the balance is $200,000 and you convert it to a mortgage at the bench mark rate, which today is 5.34% with a 25-year amortization. That without any fees today is equal to $1202.22 per month, so what in the client’s mind may be a $400 or $500 dollar interest payment for the purpose of qualifying will be almost three times higher.

This one change to supposedly safe guard the Canadian consumer has lately been the thing we have seen stop more mortgages than just about anything else.

Courtesy of Len Lane, AMP – DLC Brokers for Life

To get out of debt, you need a plan and you need to execute that plan. That’s why I’ve created this simple, five-step, get-out-of-debt checklist that can help you leave that financial burden behind you.

As you work on your plan, you’ll need to make all necessary adjustments to your budget along the way so you don’t overspend and slide back into debt. Plus, if you don’t have an emergency fund, consider setting some money aside in savings beforehand.

Keep this checklist someplace where you’ll see it often (like your refrigerator door ), and make it your goal to check a task off the list each day (or each week), depending on how quickly you want to become debt-free.

1- Make a list
Take all your bills and put them in a chart that includes: the name of creditor, interest rate, balance, minimum monthly payment. Figure out how long it will take you to pay the balance down to zero. Many credit card statements now feature this.

2. Lower your rates
This is easier than you think. Call up each of your credit card companies starting with the ones with the highest interest rates and ASK them to lower your interest rate. You can tell them that other credit cards are offering lower rates and you wanted to let them keep your business. They won’t give you an answer on the phone but you should receive a letter with a new lower rate within a couple of weeks. Another possible solution is a balance transfer. Often a credit card company will allow you to transfer your balance from another card to theirs and they charge you 0% for 6 months. They assume that you will see zero being added and will spend more. Show them that you are disciplined and keep paying the balance down as if it was still at 19%. Consider getting a debt consolidation loan. If you have a home with equity you can often get a very good rate and clear up all your debts. Often you can get these loans at considerably less than your credit cards. Once again, keep your monthly payments up as if you were still paying a credit card of 19% interest and your balance will go down quickly.
Next contact your car loan company. If you have been paying your loan on time they may lower your rates. Now you are ready to tackle the utility companies. In Alberta the gas/electric companies really want your business. You can often get a better rate just by threatening to switch. This also works with cellphone companies. They often have better plans than the one you are on but will only offer it when you say you are going to leave.

3. Get your Number
What is the amount you need to pay off all your debts? Now that you have a number in mind you can set a goal. Can you pay this off in six months? 12 months? two years?
Get your credit score number. How much does it have to improve before you can qualify to buy a house? Check with your Dominion Lending Centres mortgage broker for help getting this.

4. Make a plan
What will be your target debt? Is it the credit card balance with the highest interest rate? The lowest balance? Set a short term goal to pay one card off in a manageable amount of time. One down and three to go sounds better than tackling all the debt at once. Pay each debt off one by one. Does your community library offer debt counselling financing planning courses? Consider signing up for one.

5 – Monitor your progress
How quickly are the debts coming down? Is your credit score going up? It should if the debts are coming down.
Do you have to adjust your plan to make your deadlines? Don’t be discouraged. Large companies make plans and set budgets and then adjust them quarterly based on how the previous three months performance was.
Stick with your plan and if you show some self-discipline you can achieve your goals in time.

Courtesy of David Cooke, AMP – DLC Clarity Mortgages

Put yourself in a bank or lender’s shoes. Someone comes into your branch and asks you to politely loan them $300,000. You are a big bank, but $300,000 is still a lot of money. How do you ensure this person is going to pay back the money you loan them, on time, and in the right amount? Look at their record for borrowing other people’s money.

This is why taking on different kinds of debt when you are young is a good thing, but it must be within reason.

Credit Cards
Lenders want to see a minimum credit limit of $2,000 as well as the fact that you use your credit and pay it back on time. Don’t go overboard, even just purchasing your car’s monthly gasoline on your credit card and paying it off when your statement comes out should be enough, and the longer you do this, the better.

Car Loan
Banks love giving loans through car dealerships to first time borrowers. Why? Because if they treat you right, guess who you are going to go to when you are ready to ask for a mortgage loan. Getting an auto loan for a reasonable amount will truly help showcase your ability to a lender. Just try and make sure any car loans are completely paid off before applying for a mortgage!

Lines of Credit
Almost like leveling up from a credit card. You will get a much bigger credit limit, and have a much lower interest rate. Plus, the minimum payments are usually interest only, making it easier to manage. Using this to make a bigger purchase and making monthly payments can show your ability to manage debt.

I bet you’d feel a lot more comfortable loaning someone $300,000 if they have successfully managed debt on all three of these levels, rather than someone who came to you with only a chequing account to their name.

Courtesy of Ryan Oake, AMP – DLC Producers West Financial

HELOC, Refinance or Second/Third Mortgages? Which one should you choose to go with? If you have decided to tap into the equity in your home, the three can seem to be interchangeable at times and for many consumers can be a difficult decision on which one to select. We have laid out seven questions to guide you through the decision, for your unique situation. We’ve also broken this down into three categories, Equity, Payment and Availability.

PAYMENT

1. HOW WILL I RECEIVE THE MONEY?
• HELOC: Home Equity Line of Credit-withdraw as needed
• Refinance: Lump Sum
• Private Second/Third Mortgages: Lump Sum

2. WHAT IS THE INTEREST RATE?
• HELOC: Prime Rate + premium 0.5%-1.5%
• Refinance: Best fixed or variable rate (dependent on what you and your broker decide)
• Private Second/Third Mortgages: 6.95%-19.95% typically with lender/broker fees

HOW IS THE INTEREST CALCULATED?
• HELOC: interest accrues on what you withdraw from your home’s equity.
• Refinance: interest accrues on the full loan amount that was taken out.
• Private Second/Third Mortgages: interest accrues on the full loan amount that was taken out.

3. WHAT IS MY PAYMENT?
• HELOC: You pay back the interest only, however, most banks will have a minimum rule so even if your HELOC value is $0 you will still have to pay a nominal fee each month.
• Refinance: You will pay the interest, plus the principle principal loan amount.
• Private Second/Third Mortgages: You can pay interest only payment or pay the interest plus the principle principal loan amount.

EQUITY

4. HOW MUCH EQUITY DO I NEED TO HAVE IN MY HOME IN ORDER TO ACCESS IT?
• HELOC: 20% minimum
• Refinance: 20% minimum
• Private Second/Third Mortgages: 5-10% minimum

5. HOW MUCH EQUITY CAN ACCESS?
• HELOC: You can access up to 80%
• Refinance: 80% of your home’s equity is accessible
o HELOC portion can be up to 65% of your home’s equity
o Mortgage portion must be 15% – as per Bank of Canada guidelines
• Private Second/Third Mortgages: 1st mortgage + 2nd/3rd mortgages up to 95% of home value

AVAILABILITY

6. ARE THERE FEES ASSOCIATED WITH IT?
• HELOC: No fees associated with it
o At times
 Appraisal fees
 Legal fees
• Refinance: Prepayment penalty of Interest Rate Differential or 3 months interest* depends on your current mortgage terms.
o At times
 Appraisal fees
 Legal fees
• Second/Third Mortgage: There are several fees associated with a second mortgage including:
• Appraisal fees
• Legal fees
• Lenders fees
• Broker Fees

***One final note on refinancing: With the new stress-testing you will have to qualify at a higher rate and you will also have to consider that lenders can no longer insure the product… meaning there are many different rates with different lenders.

Once you answer each of these questions and review your options, you can decide which one is best suited for your needs.

Courtesy of Geoff Lee, AMP – GLM Mortgages

Debt Service Ability. A renewed lender focus it seems. As interest rates firm, valuations are impacted, and cap rates begin to firm. What about Debt Service Ability? It is becoming more apparent that property income, and more specifically net operating income available to service debt, has a significant and growing influence on the amount of debt available to a commercial property owner. This is increasingly evident with lender attitudes as well. Cash is King to your commercial lender, notwithstanding the relative amount of leverage on your asset.

What’s the Norm?
Loan amounts equivalent to 75% of property value or purchase price, while perhaps never the “norm” were certainly prevalent, and not at all unusual. It would appear that institutional lenders are signifying their reluctance to “reach” for loans. They are now more frequently capping their maximum exposure to 65% to 70% of property value or purchase price. The ability of the property to comfortably service the debt is of paramount importance.

Why the shifting focus?
Are there other factors at play here? Yes, Canadian lenders regulated by the Office of the Superintendent of Financial Institutions are mandated to stress test their loans to individuals for personal mortgages. While not directly impacting commercial mortgage underwriting, institutional lenders, particularly those regulated federally, are working within a regime of increased oversight. There is a focus on both the quantum of, and absolute rates associated with consumer debt. It is perhaps no surprise that commercial lending is undergoing more focused attention as well.

Commercial lenders are also employing stress testing as an underwriting “best practice”. This stress testing can take many forms, ranging from determining the “break even” interest rate at time of loan approval (the increased rate levels which will still yield positive debt service coverage), to forecasting debt service coverage at loan maturity, at a rate higher than the contractual interest rate.

More generally, we have been operating in an extended period of low rates. Low single digit 5 year commercial mortgage rates have been with us for such a lengthy period now, that LTV considerations were often not of a significant concern from a loan underwriting perspective. This is now changing, with a renewed focus on the sufficiency of property cash flow.

What are the implications?
Mortgage lenders will be increasingly focused on debt service coverage in their underwriting processes. Borrowers should be aware that increased equity, or secondary debt may be required to secure real estate assets. The focus for income property owners has to be on maximizing Net Operating Income.

Understanding your property’s income generating capabilities, and maximizing every opportunity to grow and stabilize cash flow, will be your key to financing success in today’s increased interest rate environment.

Courtesy of Allen Jensen, AMP – DLC The Mortgage Source

The purchase price you negotiate when buying or selling a home is just one part of the total cost for buying a home. In addition to the purchase price there are several other fees – known as closing costs – all of which you need to factor in to your purchase price.

Closing costs tend to be hidden costs when buying a home. It’s not a set number, but a compilation of various administrative, legal fees and other one-time expenses associated with the purchase of a home that are due on the completion date.

These costs can add up, so you’ll need to factor these costs into your cash-on-hand budget.

Many first-time home buyers under estimate the amount of cash they will need for closing costs. Typically, you’ll want to budget between 1.5% and 4% of the purchase price of a resale home to cover closing costs.

Of course, these are estimates — the actual amount you will need could be higher or lower, depending on factors like where you live, the type of home you’re buying, or if it’s a new construction (+5% GST).

To help you plan the purchase of your property, here’s a snapshot of the extra fees you can expect to pay once you’ve settled on the price of your home.
o Legal Fees
o Title Insurance
o Fire Insurance
o Adjustments
o Property Transfer Tax (PTT)
o GST
o and more…

Here’s an overview of what you can expect.

Legal Fees: Legal/Notarial Fees and Disbursements. The lawyer/notary is the person who goes through all the paperwork and makes sure that everything is legitimate and binding. They confirm that all the items that were agreed to by the buyer, seller/builder, and lender are written and worded correctly. Your legal representative should also be able to walk you through each document that you sign so that you understand what you’re agreeing to. Legal fees range from $500 to $2,500. You will also need to reimburse them for their out-of-pocket costs that they incurred while handling the various searches and registrations, including title insurance (see below), property and execution searches, and the registration of the mortgage and deed. These disbursements are repaid to the lawyer on the closing date, as well as incidentals such as couriers, certified cheques, and photocopying, the land transfer tax, the down payment, and any interest adjustments.

Title Insurance: Title refers to the legal ownership of the property. The deed is the physical legal document that transfers the title from one person(s) to another. Both the title and deed of the home must be registered with a land registrar.

Most lenders require title insurance as a condition of granting you a mortgage. Your lawyer or notary helps you purchase this.

Title insurance protects you from title fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects. It can also protect you against fees and costs that were not caught in the searches your lawyer conducted prior to the sale (Yes this can happen!).

Title insurance premiums range from $150-$500 depending on the value of the property.

Fire/Home Insurance: Mortgage lenders require that you have fire/home insurance in place by the time you complete the purchase of your home.

Property insurance protects you in case of fire, windstorms or other disasters. It covers your home’s replacement value. The amount required is at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Adjustments: An adjustment is a cost to you to pay the seller for the seller prepaying for something related to the house including property taxes, condo fees, heat etc. on your behalf.

Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using. These adjustments are prorated based on the date you complete your purchase of the home. The most common adjustments are for property taxes, utility bills and condo fees that have been prepaid.

Property transfer tax (PTT) in British Columbia, is a tax charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.
• In British Columbia, the PTT is 1% on the first $200,000 of purchase, 2% over $200,000 & 3% on any value over $2,000,000.

GST is a federal value added tax 5% on the purchase price of a new home. If someone has lived in the home, the home isn’t subject to GST.
• There is a partial GST rebate on new properties under $450,000.

Interest Adjustment Costs: Most lenders expect the first mortgage payment one month after completing the purchase of a home. If you close mid-month, please note some lenders expect the first payment, or at least the interest accrued during that time, on the 1st day of the next month. When arranging your mortgage, ask how interest is collected to the interest adjustment date.

Other closing costs: Will your new home need furniture? Carpets? Lighting? Window coverings? Appliances? Do you have the equipment you need to maintain the lawn and gardens? Are you hiring movers or renting a truck? Will you need boxes, bubble wrap and tape for the move?

While these and other out-of-pocket costs aren’t part of the real estate transaction, you still need to budget for them. Plan your expenses as much as possible. If necessary, decide what you can put off buying until later, after you move in and get settled.

Courtesy of Kelly Hudson, AMP – DLC Canadian Mortgage Experts

Before you buy a home there are a couple things you need to figure out first. One of the very first decisions you need to make is whether you want to work with a mortgage broker who is independent from the bank, or if you prefer, work with a financial representative from a specific bank. Next, you want to find a realtor that best understands your needs and wants.

From there, you and your realtor go through the laundry list of pros and cons as they relate to; type of neighborhood, type of building whether detached or attached, one, two, or three bedrooms, strata operated, resale potential, upgrades needed, local amenities, previous owners, the list goes on. Once you get an idea of the homes that tick the most boxes possible, writing an offer to purchase comes quick.

But what about your mortgage?

Unlike the list of requirements when it comes to someone’s potential home, a lot of people are only concerned about what the interest rate is when looking at their potential mortgage. If your price range was $500,000 for a 2 bedroom and you found one for $480,000, would you write an offer to buy without looking at those other requirements such as neighborhood, resale potential, upgrades needed, inspections, and previous owners?

There is a lot more that goes into a mortgage and understanding what differentiate one mortgage from another is very important for future borrowers to understand. The following are the 5 key elements borrowers need to be aware of before they sign and commit themselves to a lender and their mortgage product:

Privileges
Virtually every mortgage with every lender has some sort of privilege attached to it. A lot of the time it relates to pre-payment privileges. This can be extremely important because it allows you to increase your monthly payments, make lump sum payments, and change the frequency of your payments- all helping to pay down the principle portion of your mortgage and shave years off of unwanted interest. Why this is important to look at is because some lenders may only offer 10% pre-payment capabilities, while other’s 15%, and some 20%. With a $1,800 monthly payment that’s the difference between $180 against principle or $360. With an outstanding balance of $300,000 that’s the difference between a $30,000 lump sum payment against your principle or $60,000- a massive chunk that will take years and thousands of dollars more off your mortgage. Some lenders even offer the ability to skip a payment and double up on a payment.

Penalties
Nobody wants to pay a penalty for breaking their mortgage early (something 2/3 of people do in a 5-year fixed after the 2 year mark). That is why it is crucial for you to understand what your penalty will be IF you had to pay one. Some lenders use an IRD (Interest Rate Differential) penalty that takes into consideration term, outstanding balance, current rates, previous rates, and blends it all together into a formula. Other’s use three month’s interest and as you can probably guess, the IRD penalty is the more expensive one 99% of the time. IRD is usually applied to fixed term mortgages, variable rates more with three-month’s interest penalty. Big banks will almost always have a higher IRD penalty than monoline lenders because their formula accounts for posted rates, something usually much lower and offsetting with a monoline. A $12,000 IRD penalty with a big bank can be only $4,000 with a monoline for the same sized mortgage.

Interest Rate
The lower the rate, the lower than payment (assuming same amortization). What it really comes down to is picking the right term and choosing between fixed or variable, something a mortgage broker can be very helpful in explaining as it relates to your specific situation.

Portable Mortgage
This relates to a borrower’s ability to move their mortgage from one property, to another, even across provincial boarders. Some lenders like those big banks across Canada allow for this while it is harder when it comes to credit unions. If your job requires relocating and constant moving or travelling, this can be a very important factor.

Assumable Mortgage
Similar to portability, an assumable mortgage allows the person buying your home to take it over. This can result in avoiding pre-payment penalties or avoiding increased costs if downsizing. Not a feature commonly used but extremely beneficial when it is available, and you need it.

Connect with me today to see which of these 5 topics most affects you and what lender offers the best solutions!

Courtesy of Ryan Oake, AMP – DLC Producers West Financial

As I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

Once your offer on a home is accepted and you remove financing conditions, it is your obligation to secure the money needed to close the sale. There are usually a list of conditions one must meet and satisfy in order to obtain the financing they need from a lender. Once that is done, the mortgage will be sent to a real estate lawyer where they will be instructed to finalize everything. This is where all closing costs will be paid and all corresponding money will be sent to the proper parties involved.

However, before any of this is done, one more thing must happen…

Your credit report can be reviewed once again in order to verify your credit history is the same as it was when you were first qualified for a mortgage, sometimes months earlier.

So what happens if you made an offer on a home, got approved for financing, lifted all conditions, and because you also met all the lenders conditions, went out and bought new furniture for your home on a credit card? Well, you may not be able to receive your loan anymore…

If you increase the amount of money you are borrowing through any credit card or bank, miss payments on existing debt, or for any reason alter your credit history from the day you are approved until the final closing day at the lawyer’s office, you run the risk of not being able to complete your purchase.

If you plan on spending any money that isn’t cash and isn’t in a separate account needed for your down payment or closing costs, you need to talk to your broker because it could end horribly for all parties involved and potentially result in legal disputes.

This is the most important purchase and decision you may ever make, why things like this have never been explained in schooling or anything like that is beyond me.

Courtesy of Ryan Oake, AMP – DLC Producers West Financial