To tap into your home’s equity, it all starts with refinancing your home. If you own a home, the equity you have built up in it is one of the most valuable assets you have available to you. It is also much more accessible than taking out a large loan. In many cases, home equity loans and lines of credit can offer you a lower interest rate as compared to other types of loans while providing you with access to credit for investment purposes. You can view an excellent comparison of loans here.

Often times we see clients who refinance in order to:
• Renovate their home
• Purchase a secondary property for investment purposes
• Debt consolidation
• Business Development
• Assisting their children’s post secondary education
• Financing thru a “life event” such as illness

In this particular article, we are going to highlight the value of utilizing your home’s equity to reinvest in other investments such as:
• rental properties
• stocks
• bonds
• mutual funds
• RRSP’s
• RESP’s
The first question that people ask is how much can I borrow? Generally speaking, you can borrow up to 80% of the appraised value of your house. For example, if your home value of $650,000 assuming one qualifies, they can access up to 80% of $650,000 which would be $520,000, if their current mortgage is $450,000 they may be able to get a home equity line of credit for $70,000 (totaling $520,000)

Working with your mortgage broker, you can go through the refinance and approval process if this is something you are interested in accessing. It is always a good idea to consult with your broker and understand the personality of your mortgage—there may be limitations of how much equity you can access and the conditions relating to the refinancing. There are also potential costs associated with this type of refinance including:
• Penalties to break your mortgage
• appraisal fees
• title search
• title insurance
• legal costs
Keep in mind that these potential costs can be rolled within your new loan amount and will not be “out of pocket.”
Now, if you have been approved and are utilizing your home equity for one of the above investments (after speaking to your financial planner/advisor first) and can expect to see a higher rate of return than the interest you are paying to borrow the money, then it is worth considering. We emphasize that you should always proceed with caution and get advice from sound professionals before choosing to invest your hard-earned money.

We have found that this type of investing works extremely well for many and is a safer and less risky way to access funds for further investment purposes. We recognize that this option may not be suitable or comfortable for some, but it is a viable way to capitalize on the equity sitting in your home and make it work for you!

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

When applying for any sort of loan, one of the most important metrics a lender is going to look at is your credit score.

But what really is a credit score, who keeps track of it, and most importantly, how can you improve yours?

There are a few simple ways to keep your credit score in good shape.

First off, prioritize paying your bills on time. Missing payments on your credit cards, lines of credit and so on, can have a very negative impact on your score.

You can spend an entire lifetime building up for good credit. All it takes is one mistake to negatively impact you.”
Second, try to keep your credit cards at no more than 65% of their limit. This is the sweet spot that credit scorers are looking for.

Thirdly, you should avoid the “free credit score” services out there because they’re just looking to sell you credit, or sell your information to someone who does.

When you’re looking for credit, what they’re going to ask you is, ‘What are you looking for credit for?’ And you’re going to say, ‘Well, I’m looking to get a mortgage, or I’m looking to get a car loan.’ And then what they’re going to do is they’re going to sell your information to banks and mortgage brokers and people out there who are able to supply you with credit.

Instead, what you should do is go directly to the credit scoring companies. They’re required by law to give you your credit information directly, without affecting your score. TransUnion offers an online form, found here. Equifax has multiple types of credit reports you can order here.

You also want to try to limit the number of credit inquiries by different lenders. When you’re shopping around at different banks, the number of inquiries can add up as each bank makes an inquiry to see what they can offer you.

But as a mortgage broker, we have access to multiple lenders all at once.

You could effectively come see a mortgage broker, get one inquiry done, and that inquiry is good for 20 financial institutions, As opposed to having to go directly to every bank.

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

Genworth Canada, one of the three mortgage default insurers in Canada, offers a program called Family Plan. It provides you with a solution which only requires a 5% down payment to take advantage of its unique solutions to family problems.

In the past, I have used this with clients who want to purchase a home for their child or children who are going to a post-secondary educational institution in another city. Why pay high rent in residence or in a run-down over-priced rental property near the college when you can purchase a property? There are a number of advantages to owning the property your child is living in.

1- you control the maintenance and upkeep for the property ensuring a safe environment for your child.
2- You are allowed to purchase a property with 2 units – this allows you to collect rent and lower the total cost for you. You should be able to write off any renovations or improvements you make to the property- check with your accountant first.
3- when your child graduates you can sell the property for a profit , helping you to recover some of the costs for your child’s education.

Elderly Parents
If you want to find a safe and comfortable place for your parents to live, buying a property such as a condominium apartment or town home may be a solution for you. Often parents are retired on fixed income and can’t get a mortgage . Now you can help.

Providing a Home for an Adult Entrepreneur
So your adult child has decided to start their own business and they want a home. The problem is that you need to show 2 years of successful business financials to prove you can afford mortgage payments. This program allows parents to provide a home for their child right now. An exit strategy can be for them to take over the mortgage payments and then get the next mortgage term in their own name a few years down the road.
As you can see, Genworth’s Family Plan is a very useful program that can help out in a number of different situations. Let’s face it families are unique and we need programs like this to provide solutions to our problems and challenges.

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

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1. Annual salary income employees
2. Full time employees working guaranteed weekly hours
3. Part time employees working guaranteed weekly hours
4. Auxiliary/On-call employees with 2-yr history at same employer
5. Commission Sales who have 2-yr history in same job/industry
6. Employees earning gratuities who have claimed over 2-yr history
7. Contract employees with 2-yr history at job/industry

There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs.

Courtesy of Ryan Oake – AMP – DLC Producers West Financial based in Langley, BC.

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment
The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).
• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you need 20% down payment.

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified
Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.
Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:
• prepayment options (10-20%)
• penalties
• portability
We also discuss what type of mortgage fits your current situation
• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget
Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.
Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor
Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.
Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:
· Finding a home
· Scheduling tours of homes
· Researching the market, neighbourhood and home itself
· Making and negotiating your offer to purchase, and counter-offers
· Providing expert advice on home buying
· Handling the offer, gathering documentation and closing paperwork
I recommend interviewing at least three realtors. You will quickly decide who has your best interests in mind. Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them? There are advantages to each – you need to decide what is the best fit for your situation.
Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval
Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.
If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)
Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys
On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.
Congratulations you’re done – you now own your home!!

Mortgages are complicated, but they don’t have to be!

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