As we’ve been reporting for months on our North East blog, instead of protecting many homeowners, the federal government’s restrictive mortgage rules are pushing people out of the safe mortgage market, and into the arms of secondary lenders.

By pushing people to the alternative lending market, they’re being pushed away from the safe harbour of high-quality lenders and into a less regulated and higher-interest area of the market.

To be clear: federal government policies are producing the opposite result of what the stated intention of the policies were.

What’s happened is the new rules, particularly the stress testing, have begun excluding many responsible Canadian homeowners who had previously qualified for mortgages, so many are unfortunately trying their luck with alternative lenders; either to handle their entire mortgage (highly inadvisable), or to top up a down payment.

In a recent paper for CIBC, economist Benjamin Tal says the data in Ontario shows people are increasingly looking to the alternative market for their mortgages.

“Over the past two years, mortgage originations provided by alternative lenders rose by a cumulative 27% while originations in the market as a whole fell by 11%,” Tal said in his report.

In pure dollar figures, he said the alternative mortgages now account for 7% of the market, up from 5% just two years ago.

This trend is worrying because desperate homeowners are seeking relief from these lenders, who will tell them they are suddenly able to qualify for a mortgage. There is, of course, a catch.

What these homebuyers may not realize is why they’re being accepted for those loans.

First, the alternative lenders tend not to be so strict when applying the stress test, because they don’t have to be. Regulation is looser on the alternative market, so by letting debt-to-income ratios climb much higher, it makes it easier for people to qualify for a mortgage. The catch is that by letting those ratios go higher, the homeowners are taking on more risk.

And more risk means lenders need to get something from consumers to make it worth their while. So, they’ll charge higher interest rates. They’ll tack on fees. They’ll add clauses to your mortgage that make it difficult—and costly—to refinance or get out of your mortgage.

Instead of paying in the 3% range, you’ll find yourself paying rates closer to 6%. Over the life of a mortgage, that’s thousands and thousands of extra dollars you’re flushing down the toilet, just on interest.

Someone who’s been denied a mortgage offered by a large bank or another first-tier lender and has been able to find a mortgage elsewhere may be relieved to be in their new home. But they’re sitting on a growing pile of toxic debt.

Things get even worse when homeowners find themselves on the private market.

Consider someone who’s been turned down for a traditional mortgage, and turned down again for a mortgage on the alternative market. Instead of paying that 6% on for an alternative mortgage, you’ll be looking at rates comparable to credit cards; in the double digits, sometimes as high as 21%.

To make matters worse, you’ll be trapped. These private lenders often set the value of your house much higher than anyone else would, essentially locking you in with them. Even if you’re able to turn your financial circumstances around, there’s no way you can refinance a loan for a property worth less than the mortgage is valued.

Until the government changes direction, consumers on the edge of the primary market are just going to have to wait a bit longer to build their nests, lest they get themselves into real trouble.

If a reputable broker is telling someone their file doesn’t work, there’s probably good reason for it. People aren’t turned down for mortgages because a bank or a broker doesn’t want their financing. They’re being turned down for specific reasons.

The whole purpose of these rules, like the enhanced stress test, was to keep people from taking on toxic debt. And what the rules are doing in practice is placing those marginal homeowners in a situation much worse than what they’re being protected from.

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

With approximately 1,000 people retiring every day in Canada, it’s not surprising that there has been an increased demand for Reverse Mortgages.
A Reverse Mortgage can assist people aged 55+ to realize their dreams in retirement. Whether they want to travel, help their kids or grand kids or even just supplement their monthly income, a Reverse Mortgage can be an effective way to have their home assist them to meet those goals.
There is a lot of misinformation out there however, that could make people hesitant to get into a Reverse Mortgage.
Many people think that the Bank will own their home but this is completely untrue. A Reverse Mortgage is just that – a Mortgage registered on the home’s Title, just like any other bank mortgage. The client retains full ownership and control of their home. They have the freedom to decide if and when to move or sell.
Another misconception is that you could end up owing more than your house is worth. In fact, due to the Reverse Mortgage lender’s conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. They will only issue a Reverse Mortgage up to 55% of your home’s value so there is lots of equity remaining to offset accrued interest charges even if you choose to make no payments at all.
In fact, over 99% of Reverse Mortgage clients have equity remaining in the home when the loan is repaid.
Many people view a Reverse Mortgage as a ‘last resort’. In fact financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.
Some people think that you cannot get a reverse mortgage if you have an existing mortgage. But many Reverse Mortgage clients use the funds to pay off their existing mortgage and other debts, freeing up cash flow for to use as they wish – and be free of regular mortgage payments too.
I personally have parents over 70-years that could be looking at the expense of Assisted Living for my Mom in the near future. They own their home outright and once both of them are retired that added cost could be too much for their pensions and could force them to sell their home before they’re ready.
I have advised them of the Reverse Mortgage option and we have decided to look into that possibility when the time comes. It is my belief that nobody should feel forced to sell their home and they will explore any options available to them so they have choices.
If you’d like more information on how a Reverse Mortgage may work for you, I recommend speaking with a Dominion Lending Centres Mortgage Professional to get all the facts.

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

When is it time to think about saving for a down payment? I would say about a year before you think about buying a home. While that’s ideal in today’s world, we often do not have much time to save for a down payment. Sometimes your landlord is planning on retiring and wants to sell the property. How do you get a down payment?

Here’s a few ways to get a down payment for your home:

Save – it’s old fashioned but it works. Open a Tax Free Savings Account (TFSA) and put a set amount into it. If you don’t have the discipline arrange for automatic deposits from your bank account. How much can you save $50 a week? That’s $2,600 in a year. Not enough. How about $200 a week?
Stay at the Mom & Dad Hotel – while your parents may not be able to help you with a down payment they often have a spare room that you can stay in. One year of not paying rent would make a good down payment even if you chip in for groceries.
Extra Income – get a second job and bank every cent from it. I know of many young people who have a day job and are servers on the weekends.
Home Buyer’s Plan – the federal government will allow you to pull up to $35,000 from your RRSP account. This goes for your partner. You could put down $70,000 between the two of you. These funds need to be returned to your RRSP over the next 15 years. This is a great quick source for a down payment.
Take out an RRSP Loan – borrow an amount that you need for a down payment as an RRSP. Hold the funds for 90 + 1 days and you can withdraw the funds. The cons are that you now have more debt and you have to wait for 90 days. Most sellers want a possession day sooner than that.
Sell an asset. I had a client sell his vintage Cadillac Fleetwood for a down payment. Be sure to get a receipt or to sign a bill of sale with the purchaser to show where the funds came from. Rare stamps or coins, another property or vehicle are all acceptable assets.
The Bank of Mom and Dad – This may be the easiest way to get a down payment or it may not. Most parents are nearing retirement and trying to save funds. There can be creative ways to get a down payment. They might set up a a secured line of credit and use the equity in their home. You could make the payments over the next few years. Note: these payments must be included in your debt ratios. If they decide to gift you the funds and make the payments themselves a gift letter is all that’s needed. They could sell their home and move into a granny suite in the basement or over the garage.

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

Working with your DLC mortgage professional can save you thousands of dollars by making the most of your variable rate mortgage in a shifting market.

In the past year we have seen an increase in the prime lending rate by 1%. For those home owners with variable rate mortgages who secured a low discount, savings can be gained moving to a new higher discount variable mortgage rate even if prime is higher than before.

How is that possible you ask?

Consider this. Ed and Anna refinanced their mortgage in 2016 at prime minus .15% (2.55% at the time). The original mortgage was $556,000 with payments of $2,206 per month. Since the prime lending rate has moved up the new effective rate is currently 3.55% (3.7% minus .15) with a payment of $2,442. Of that payment there is $1,533 per month in interest and $909 goes to principal pay down.

The current best rate is 2.75% (3.7% minus .95) so the new payment would be $2,233 per month. Of that payment $1,194 per month in interest and $1,039 towards principal pay down. If Ed and Anna choose to switch their mortgage to a new lender at the better rate in the end their payment is lower by around $100 and they save $340 per month in interest. They also have that bigger rate discount of .95% for the next 5 years so it puts them in a better place as rates move.

Even with the penalty for early pay out the savings is still thousands of dollars over the next term in their mortgage.

Consider making the most of your variable rate mortgage — contact a Dominion Lending Centres mortgage professional near you.

Courtesy of Pauline Tonkin – AMP – DLC Innovative Mortgage Solutions based in Coquitlam, BC

There’s nothing quite like stepping into your dream home for the very first time.

You have achieved your goal of homeownership! However, the journey from home seeker to home buyer can be challenging – unless you have a well-defined plan and guidance from the right professionals. As a mortgage broker, here’s how I will help you reach your objective:

STEP 1 GETTING TO KNOW YOU
In the discovery phase, we will discuss your situation, the essentials and “nice to haves” you’d like in your new home, and how long you plan to live there. Based on your desired move-in date, we’ll work out a timetable for your home-buying process.

STEP 2 BUILDING A BUDGET
I’ll help you create a monthly budget and then calculate a down payment and mortgage payments that fit into it. Together, we’ll also work through a financial check-up that considers how changes in income and expenses could affect your plan.

STEP 3 CUSTOMIZING THE SOLUTION
There are many different types of mortgages, and it’s important to select one that matches your current needs and preferences. I will ask you a series of questions that should help to reveal your priorities.

STEP 4 TESTING SCENARIOS
Together, we’ll try out different mortgage scenarios, and I’ll show you how changes in income, property taxes, condo fees, loans and other variables affect your maximum mortgage amount and mortgage payments. My goal is to make sure you can comfortably afford your mortgage.

STEP 5 ARRANGING PRE-APPROVAL
It’s a good idea to get pre-approval for a mortgage before you find your dream home and make an offer — that way, you can be confident that financing is available. I’ll walk you through the paperwork and guide
you towards the most suitable lender.

STEP 6 ANSWERING YOUR QUESTIONS
Now it’s time to get serious with a Realtor and view properties that fit your price range. If you have any questions along the way, be sure to give me a call.

STEP 7 SEALING THE DEAL
I’ll work closely with your Realtor & Notary to make sure everything is in place for the closing. That’s the day you pay your down payment and get the keys to your new home.

STEP 8 IT’S TIME TO MOVE IN!
From start to finish, the plan we develop together will see you through the home-buying process. Even after you’ve settled into your dream home, we’ll periodically review your current situation to determine if we need to make any alterations to your original mortgage plan

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

A new survey has emerged showing that out of 1,901 owners and would be homeowners, 43% (more than two out of five) Canadians are not confident in their knowledge of the mortgage stress tests—despite them being in place for more than a year now.

We wanted to give you a brief set of notes regarding the guidelines. This is something you can use and reference whether you are a first-time home buyer or looking to refinance underneath these new guidelines. It gives a clear picture of what/how you are impacted as a buyer or someone who is looking to refinance.

Here’s what you need to know about B-20:

The average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power under these guidelines reduced 15-25%. Here is an example of the impact the rules have on buying a home and refinancing a home.

PURCHASING A NEW HOME

When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Up To December 31 2017 After January 1 2018
Target Rate 3.34% 3.34%
Qualifying Rate 3.34% 5.34%
Maximum Mortgage Amount $560,000 $455,000
Available Down Payment $100,000 $100,000
Home Purchase Price $660,000 $555,000
REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV. The maximum amount available is: $560,000 minus the existing mortgage gives you $145,000 available in the equity of the home, provided you qualify to borrow it.

Up to December 31, 2017 After January 1 2018
Target Rate 3.34% 3.34%
Qualifying Rate 3.34% 5.34%
Maximum Amount Available to Borrow $560,000 $560,000
Remaining Mortgage Balance $415,000 $415,000
Equity Able to Qualify For $145,000 $40,000
Source (TD Canada Trust)

These guidelines have been in place since January 1, 2018 and we are starting to see the full impact of them for both buyers and those looking to refinance. Stats are showing that there is a slowdown in the real estate market, however there is also a heightened struggle for many buyers to now obtain approval under these new guidelines. It’s a difficult situation as the cry for affordable housing is still ongoing as the new guidelines may slow down the market but appear to further decrease the borrowing/buying power of individuals.
Keep in mind, this is just a brief refresher course on the B-20 guidelines. As always, if you have more questions or are looking for more information, we suggest that you reach out to your Dominion Lending Centres mortgage broker to discuss and get a full and detailed look at how it will impact you personally.

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

If you’re looking to get a mortgage and considering a mortgage broker, there’s a good chance you’re wondering about how much the service costs.

Good news! Clients looking to get a standard residential mortgage pay no fees to the broker.

On standard residential mortgages, it’s 100% free for the clients. We’re paid by the bank or by the lending institution that we give the mortgage to.

But it’s not the only advantage a broker can bring you. When you’re shopping for a mortgage at a bank, they’re only able to offer you something from their stable of products. A broker, however, is able to shop at different banks to get you the best product for your needs.

If you don’t fit in the bank’s box of products, then you don’t get the mortgage. When you go to a mortgage broker, the mortgage broker has access to every lender on the market and is able to sell you basically everything to find a solution that makes the most amount of sense for you.

Because they’re able to shop around, in many cases the broker is able to find you a better rate on your mortgage.

In addition, mortgage brokers are licensed professionals covered by provincial governing bodies that looks out for you, the consumer. In many cases, the person you’re dealing with at the bank is just a salesperson, without any requirement they be licensed.

So, if you’re in the market for a new home, try a mortgage broker. It’s the safer, smarter choice for your mortgage.

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