What is the maximum mortgage amount one now qualifies for with the rules that came into effect on October 17th?

Short answer: LESS. A minimum of 20% less, in fact.

Before October 17th, the lenders calculated the maximum mortgage amount based on the contract rate of 2.49%, but now it is based on the Bank of Canada benchmark rate of 4.64%

Here are three random scenarios that I have created to outline borrowers’ qualifying power before and after the change. Note they are all based on  25-year amortization, the new qualifying interest rate (5-year Bank of Canada benchmark, currently 4.64%) as well as a GOOD credit score of 680 or greater. The first two are based on 5% down; the third is based on a 20% down payment, which does not require mortgage insurance.

Scenario #1 – young professional

Gross Household Income $75,000

Monthly Expenses $450 (car loan and  student loan)

Monthly Strata & Property Tax $484

Maximum Purchase Price Now $370,000 ($18,500 down payment)

Before Rule Change $435,000

Scenario #2 – young professional couple

Gross Household Income $140,000

Monthly Expenses $1,230 (car & personal loans, unsecured LOC, credit card)

Monthly Strata & Property Tax $584

Maximum Purchase Price Now $725,000 ($36,250 down payment)

Before Rule Change $840,000

Scenario #2 – established Gen-X with a family

Gross Household Income $180,000

Monthly Expenses $2,300 (car & personal loans, credit card)

Monthly Property Tax $417

Maximum Purchase Price $960,000 ($48,000 down payment required)

(Mortgage amounts over $999,999 are not eligible for default insurance. Therefore one would be required to apply a 20% down payment.)

This is just a quick and dirty summary of three simple scenarios. Now more than ever, we as mortgage consumers need to get pre-qualified before making any real estate-based decisions. The average cost to buy a single-family detached home in my area is $1,175,000, townhouses are approximately $535,000, followed by condos priced around $377,000.

My suggestion, and the first thing that one should do if you are looking to re-finance or purchase a new home, is to contact your trusted Dominion Lending Centres mortgage broker to find out exactly how much you qualify for.

Don’t get caught up in the emotional experience of buying a new home. Make sure you treat it like any other business decision: the numbers need to make sense first, then you need to figure which parts of your WANT and NEED list you can live with and live without.

For more details on changes to the mortgage rules, please read DLC’s “Chance of Space: New Mortgage Rules” guide by CLICKING HERE.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial

Mortgages are like vehicles. A bank is similar to the brand, Ford or Toyota for example. How long you have a mortgage before it’s time to renew is like the model, a Fusion or Camry. The rate is similar to the car’s paint color, and the mortgage benefits such as prepayment privileges and portability are like the car’s benefits; 4-wheel drive, hatchback, four doors instead of two, etc.

A bank is like a sales person at a Ford or Toyota dealership. He or she know everything about every car on their lot; engine size, warranty, all available colors, and their fuel ratings. He or she can match any car to your needs and lifestyle, as long as it’s sold at their lot.

But what if they don’t have the most fuel efficient car? What if you don’t like the design or you need four doors and a trunk and all they have is two doors and a hatchback? Are you still going to buy from that dealership just because you went there first? No, you’re going down the street to check out the Chevrolet, maybe even BMW, Mazda, or the new Chrysler dealership. That sales person doesn’t want you to go buy from another lot down the street, but you are buying to satisfy your needs, not the dealership’s needs of selling their own cars.

Now imagine a dealership that sold every single make and model of vehicle. Imagine you could choose one of their sales people, and have them work only for you. They know just as much or even more about every make and model, they do all the research for you and tell you what you need to look for, they ask you the important questions; they have your best interest. That is a mortgage broker, your own personal expert.

Now, you may not need a personal expert to buy a car. But what about mortgages? Is a 0.10% lower interest rate a lot? Or will a 20% prepayment privilege instead of 10% be more advantageous? Can you switch lenders and move your mortgage? $15,000 or $5,000 penalty? How is it calculated? Fixed or variable? Is a collateral charge good or bad? 2-year term or 5-year? Big bank or monoline lender? How about credit unions? The list goes on.

So, a bank or Dominion Lending Centres mortgage broker? Put it this way; would you buy from the first dealership you visit or hire an expert?

Courtesty of Ryan Oake, AMP – DLC Producers West Financial 

Most people believe that being mortgage free is their plan for retirement. That means paying off your mortgage as fast as possible becomes the priority and having other forms of investments are considered only after your property is paid off.

It is important to decide what option will give you the balanced diversification and protect you from the real estate market and economic fluctuations.

One strategy to be mortgage free is that you will have minimal property expenses when you retire and have 100% of the value of your home in equity. You will then have extra funds when you decide to downsize to a smaller home. But by putting all of your eggs in one basket you could be limiting the ability to use other investment options that could give you a higher return on investment and would help you achieve your retirement goals faster.

By focusing on making extra payments towards your mortgage and making lump sum payments on your mortgage or increasing your payments regularly, you would shorten the life of your mortgage, yet you are not investing into your RRSP’s.

Here is the best of both worlds: By investing in your RRSP’s, you pay less tax and get a refund. With that money you could make a lump sum payment on your mortgage every year.

Another option would be to put the equity in your home to work for you by using a HELOC (a home equity line of credit). This will give you access to your equity whenever you need it and would be a perfect investment vehicle.

Having a HELOC separate from your actual mortgage gives you the flexibility to use it for investment purposes. This way the interest you pay on funds that are drawn from the home equity line of credit are tax deductible.

Here are some investment ideas: Use the funds from the HELOC to purchase an investment property and with the rental income you could cover the mortgage payments and property costs. The rental property would then pay for itself and you have vehicle to help with your retirement goal.

Another idea is doing the Smith Manoeuvre. This means using the HELOC for short and long term investments. If you do short-term, high return investments that when cashed, help you pay off the line of credit. Any extra money you have made will allow you to make a lump sum payment on your original mortgage.

Many Canadians think of retirement as time filled with traveling, spending more time on hobbies and interest. However, in order to be able to do that, there are a lot of factors that need to be taken into consideration when planning for your retirement. More Canadians are thinking of their current needs and not as much about retirement until the later years.

There has been an increase in life expectancy as health care technology is advancing. Canadians are more aware about their health and are taking better care of themselves, which means seniors are living longer. According to Statistics Canada, males have an average life expectancy of 79 and females of 83. On average, there is an increase of 2-3 years of life expectancy for males and females every decade.

As a result, seniors now have to save more for their retirement than their predecessors. 4 in 10 Canadians age 55+ say there is a serious risk that they will outlive their retirement savings. An additional 40% of seniors will still be in debt after the age of 65, according to The Vanier Institute of the Family.

The cost of long-term care is significant. Benefitscanada.com, reports that baby boomers currently account for 33% of the population and 14% are over the age of 65. Based on today’s trends and demographics, by 2036, 25% of the population will be over the age of 65. In 2036, Statistics Canada reported that one in ten Canadians will require long term care by the age of 55, three in ten by the age of 65 and five in ten by the age of 75.

Since life expectancy has increased, long term care costs need to be taken into consideration. Pensions are low and most people are not saving enough for retirement. It is important to have a retirement strategy that works for you by exploring different ways that work with your lifestyle and goals. A comprehensive strategy can be put in place by working with your Dominion Lending Centres Mortgage Professional, Financial Adviser and Accountant.

 Courtesy of Alisa Aragon, AMP – DLC Mountain View

In the Vancouver market, we often hear about the benchmark price, the average price, and the median home price. Usually that of a specific neighbourhood or municipality.

However, what buyers rarely hear is the average price of the bottom 80% of listings of the Greater Vancouver Area. Y’know, the properties that the overwhelming majority of us live in.

A review of this significant market slice is overlooked because it is boring. Boring, because when we skim the ultra high end sales off the top, and look at the lower 80% of properties listed in the Lower Mainland we arrive at an average sale price of ~$597,000. Such a property ($597,000) would today require household income of ~$108,000 using a 5.8% down payment ($34,700) to qualify for purchase.

A $108,000 household income is certainly above the recently sighted average of $80,000, but not at all uncommon in the lower mainland in the era of the dual income household in which we currently live.

It is also worth noting that previous to Oct 17, 2016 the income required for this same purchase price was ~$88,000.00 per year. In other words an experienced police officer, teacher, nurse, or firefighter could pretty much pull that $597,000.00 purchase off on their own income.

The Federal Government

So, while ~80% of properties on the market were arguably within reach of the average household in the Lower Mainland prior to Oct 17, 2016 the federal government decided, in their infinite wisdom, that a household with an:

• excellent credit score
• Stable documented income
• zero consumer debt
• a $34,700.00 down payment

Well, they should get themselves a $20,000 raise before they buy what they could have bought. Exactly what so many before them have bought, and what just ~0.30% of CDN’s ever stop making payments on.

Wasn’t the 2008 financial crisis a ‘stress-test’ of Canadian households? We came through that intact, far more so than our counterparts to the south.

The Provincial Government

Without question the BC provincial government threw a psychological bucket of cold water on the entire market with it’s poorly implemented foreign buyer tax. And lets be realistic, if they had truly wanted to limit foreign ownership they would have restricted foreign buyers to owning a single Canadian property, or at the least a single BC property. instead they said ‘give us more money’ and keep on coming. If a 33% rise in one year did not slow down foreign buyers, what are we thinking a 15% tax will do once 6-12 months pass and it is normalized into the market?

Bottom line is that nobody knows what it will do, with so many transactions pulled from August, September, October into that final week of July to beat that tax, we once again do not have clean data. We will over the coming months, and until then many of us are are holding our collective breath and pressing pause to just ‘wait and see what happens’. But prices, especially in that bottom 80% of listings, are not really moving at all. Not yet.

The Municipal Government

Talk to a home-builder about the level of municipal red-tape, fees and taxation involved in their adding new supply to any market in the Greater Vancouver area.

Development fees, and costly red-tape delays (time is money) all conspire, with other levels of government to place an estimated $109,000.00 of a $400,000.00 condo into the hands of various levels of government.

25% of the cost of new housing is taxation.

A golden goose for government to say the least.

Conclusion

With any product, there will always be the top 20% of premium offerings that few among us are able to afford. Clothing, cars, watches, or handbags, there are always products out of our personal price range. We do not look at the average cost of a suit, a car, a handbag before we purchase it, we look at what we can afford. Through my experience working at Dominion Lending Cetnres, purchasing a home is similar.

It is short-sighted to focus primarily on average prices as the media does. These numbers skew our perceptions because of the incredibly high-end properties in our markets. But hey, that $50,000,000.00 sale sells newspapers and generates clicks, so that is the one we have our attention guided to, but what we focus on is often not reflective of reality as a whole.

The average buyer has more options available than they realize, although the various levels of government are doing what they can to reduce those options.

When you hear terms like ‘suck some demand out of the market‘ – what they really mean is ‘suck buyers with lower household incomes out of the market‘. Maybe that is you, your siblings, your adult children? Were they really at risk? Do they really need the level of coddling we now have in place? Arguably no, because they already had great credit, zero debt, strong income, and a down payment.

How tightly do you want the government dictating your financial affairs?

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts 

As a mortgage professional with Dominion Lending Centres, I do everything I can to maintain a high credit score. For example, I pay off my credit card in full, or at least the monthly minimum, on time every month. I don’t overuse credit and I stay under 75% of my credit limit.

However. . .

I recently switched from fee to no fee banking. Then I applied for a new credit card and – horror of horrors – I was told there was a problem. What?! Me?!

I immediately ordered a copy of my TransUnion credit file, (that was the credit company they used) and there it was. Apparently, I was using my old married name while living at a different address – horror of horrors once again (actually not that horrible, and I’ve so moved on). The thing is, I haven’t changed my address in 14 years and I’ve been using my maiden name even longer.

So, I checked all the trade-lines thoroughly and everything was in order. It could have been much worse.

I’m contacting TransUnion to get this cleared up, and I’ll probably put an alert on my file now.

Good save!

The moral of this story is simple: check your credit file at least once a year at either Equifax.ca or Transunion.ca. You can get a free report, but you’ll have to dig a little deeper.

Happy credit checking.

Courtesy of Sandra Tisiot, AMP – DLC Smart Debt  

Looking to increase your homes property value? Here are five of the best renovations you can do to your home to increase property value. These five renovations can sometimes have a return on investment 5-6x what they cost.

# 5 Flooring

Flooring is one of the most important aspects of your house. You will see an immediate rise in property valuation with the installation of hardwood floors. Existing hardwood floors that you can refinish are ideal as they are less costly to restore and in higher demand than new flooring materials. For the bathroom, tile will always be in demand and retain value exceptionally well.

# 4 Fixtures

Kitchens often look tired and dated, in large part due to old fixtures. Replacing or updating cabinet hardware, light fixtures, countertops and faucets will result in an immediate increase in your home’s value. This small, but effective upgrade will also revitalize the entire home. Pot lights are in high demand in open concept style homes.

# 3 Bathroom

The bathroom is the second most important room in the home in terms of valuation. If you can add a three-piece bathroom to a home with only one full bathroom, you will see a dramatic rise in the market value of your home. While you should never compromise bedroom space for a bathroom, try sneaking one in dead space in the home. Scott managed to fit in a 3-piece bathroom under a staircase – the width of the room measured just 44 inches. As an added tip, use glass for the shower to make the bathroom feel more spacious.

#2 Kitchen

Kitchens are the single most important room in the home relating to valuation. The kitchen can make a significant difference in the value of your home. As such, it is crucial that you invest in having a modern, fresh and desirable kitchen. Modern cabinetry, under cabinet lighting and new appliances will all significantly increase the value of your home on the market. To save on cost without compromising construction and desirability, look at options like Ikea cabinets as opposed to custom cabinetry.

#1 An Income Suite

No surprise, but the single biggest way to increase the value of your home is to build an income suite within the property. Whether this is converting your basement into a rental, or another floor in the home, an income property will increase your home’s worth. The main reason for this is that it covers a portion, or sometimes all of your mortgage payments, and results in your home being cash flow positive – which creates real wealth that can supplement your income.

Speak with any Dominion Lending Centres mortgage professional about how Genworth Canada can help qualified home buyers make their new home just right for them, with tailored improvements, immediately after taking possession of the purchased property.

Courtesy of Marc Shendale, Genworth Canada – Vice President Business Development

The Canadian Mortgage and Housing Corporation (CMHC) issued its quarterly housing market assessment and outlook yesterday, suggesting that, for the first time ever, there are “problematic conditions” in housing markets at the national level in Canada (see table below for details). As well, CMHC expects national housing starts and MLS sales to decline slightly in 2017 before stabilizing in 2018, which is pretty much the consensus view. What I find strange about the hype surrounding this report is that there is nothing new here. Moreover, the details seem encompass lagged data, before the sales decline and price slowdown in Vancouver–a slowdown that began before the August implementation of a 15% tax on non-resident buyers in Vancouver.

The tightening measures announced by the Department of Finance on October 3 are the most recent in a long list of initiatives over the past eight years designed to cool  housing markets, particularly in Vancouver and Toronto and surrounding regions. Today’s report is apparently justification for the most recent policy moves, rather than anything new. In other words, the report is looking in the rear view mirror.

At least in part, the government has itself to blame for the boom in housing. I am struck by a recent report by Derek Holt at Scotiabank that reminds us of all the measures the government took to spur housing prior to the financial crisis. Most notably–allowing RRSP withdrawals for home purchases in 1992, introducing 40-year amortization periods and 0% downpayments in 2006, the zero downpayment insured investor mortgage (for non-owner-occupied housing purchases) with a high amortized premium in 2007, and offering first-time home buyers tax credits in 2008 and 2009. Clearly, the surge in household debt relative to income was at least in part generated by these politically popular actions, which fueled the already strong demand generated by the decline in interest rates to ever-lower levels.

Since October 2008, the government has been scrambling to overturn these measures and more. In a series of steps, maximum amortization periods have been reduced from 40 to 25 years, minimum downpayments increased from 0% to 5%, and stress tests to qualify for a mortgage have been tightened. Refinancing ceilings have also been reduced over time from 95% to 80% loan-to-value and, for buyers of non-owner occupied housing, a 20% minimum downpayment has been imposed. All this happened before the most recent initiatives which tighten mortgage conditions significantly further as well as impose disincentives for foreign purchases.

The growth in the demand for housing will no doubt slow in response. What has yet to be tackled is a reduction in government impediments to an increase in the supply of affordable housing that is particularly lacking in Greater Vancouver and Toronto.

Courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

With the recent changes to the mortgage rules in Canada, we take a moment to look back at the evolution of the mortgage, and to highlight these new changes and what they mean.

LOOKING BACK

BEFORE 2008

During this time, lending and mortgages were much more laid back! There was 100% financing available, 40 year amortizations, cash back mortgages 95% refinancing, 5% down payment required for rental properties, and qualifications for FIXED terms under 5 years and VARIABLE mortgages at discounted contract rate. There was also NO LIMIT for your GROSS DEBT SERVICING (GDS) if your credit was strong enough. Relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non subject and subject properties.

JULY 2008

We saw the elimination of 100% financing, the decrease of amortizations from 40-35 years and the introduction of minimum required credit scores all took place during this time period. It was also the time in which the Total Debt Servicing (TDS) could only be maxed to 45%

APRIL 2010

This time period saw Variable Rate Mortgages having to be qualified at the 5-year Bank of Canada’s posted rate along with 1-4 year Fixed Term Mortgages qualified at the same. There was also the introduction of a minimum of 20% down vs. 5% on investment properties and an introduction of new guidelines on looking at rental income, property taxes and heat.

MARCH 2011

The 35-year Amortization dropped to 30 years for conventional mortgages, refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit

JULY 2012

30 year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down). Refinancing also dropped down this time to 80% from 85%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging and the disappearance of true equity lending. Perhaps the three biggest changes of this time were:

* Ban mortgage insurance on any million dollar homes

* 20% min requirement for down payment

* Elimination of cash back mortgages

* Federal guidelines Min; requirement of 5% down

* Introduction to FLEX DOWN mortgage products

FEBRUARY 2014

Increase in default insurance premiums.

FEBRUARY 2016

Minimum down payment rules changed to:

• Up to $500K – 5%
• Up to $1MM – 5% for the first $500K and 10% up to $1MM
• $1MM and greater requires 20% down (no mortgage insurance available)

Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of $750K or less.

JULY 2016

Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

WHAT IS TO COME?

OCTOBER 17, 2016: STRESS TESTING

INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

NOVEMBER 30, 2016: MONOLINE LENDERS

In addition, Portfolio Insured mortgages (monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 Million and must be owner occupied.

BOTTOM LINE:

Homeowners will experience the following:

1. QUALIFY FOR LESS-25% less

• Options for mortgages will decrease as certain lender’s guidelines will no longer meet the federal criteria

• No more rental or investment properties to be insured

2. CAPITAL GAINS

• Can only be claimed 1x per year.

• Measure taken against the recent flipping of assignments to avoid property transfer tax from investors in the last 2 years

Stay up-to-date on all the changes in the mortgage rules by visiting the Dominion Lending Centres “new rules” page by clicking HERE. As always, we’re here to help with all your mortgage questions and needs.

Geoff Lee, AMP – DLC GLM Mortgage Group 

I sit atop a local bike trail overlooking the spectacular valley vista. The air is crisp, the soil is tacky and the sun is out in full force. The only thing on my mind is what lies ahead. I push away from the trailhead, anticipating my navigating down the steep, rocky and rooty trail. The natural adrenaline rush I get from charging down through the forest never gets old, as there is always something new to experience.

Riding my mountain bike is a passion. It has provided a platform for me to explore amazing geographic regions in BC as well as down the coast into the USA. My bike also recently provided me the opportunity to travel to Iceland to see and experience a fascinating culture and landscape.

I look with extreme jealousy at the professionally sponsored riders and racers who travel the world. They get to live in a world of adventure, one that they created from a young age. I want to help create the same thing for other kids.

It starts with getting your very first bike.

I have had many bikes over the past 40 years. They have ranged from second- or third-hand bikes costing just a few bucks right through to brand-new bikes worth thousands of dollars. The price doesn’t matter. Getting a new bike, regardless of my age—or the bike’s—has always put a smile on my face. But the thing I crave more is planning where that bike will take me on my next adventure and imagining the stories and memories it will create.

Bikes For Kids gives underprivileged kids that same feeling of owning their first bike. Every kid remembers that first bike, and the adventures that came with it!

The initiative was created by the Dominion Lending Centres head office and since 2014, we have donated 2,500+ bikes to needy kids across Canada. At our recent Dominion Lending Centres University I was asked, “What’s your number?” My reply was five. This means I plan to donate five bikes at this year’s Bikes For Kids.

I would love to give other kids the same opportunity to experience what I experience when I’m riding my bike in the forest or anywhere else it might take me. If you would like to DLC donate more than just my five bikes please visit www.BikesForKids.com before November 14th. It will put a smile on your face for donating, and even a bigger smile on the recipient’s face when they receive it.

Courtesy of Michael Hallett, AMP – DLC Producers West FInancial 

Most of us know that changing your mortgage payment from monthly, or semi monthly, to an accelerated bi-weekly payment instantly reduces your standard 25 year amortization by 2.58 years with today’s rates. (If you didn’t know that, you’re likely not working with the mortgage professionals at Dominion Lending Centres).

Sometimes, however, an accelerated bi-weekly payment option might not be available to you. Either the lender does not offer it as an option with that particular product, or they may not allow you to set it up if the accelerated payment knocks your qualifying ratios out of line. Although these situations are rare, they do come up from time to time. Here’s a workaround for those that might find themselves in this situation.

Open up a separate chequing account from which ONLY your mortgage payment will be withdrawn.

Then, from the account where your paychecks are deposited, set up an automatic transfer from this account, to your new chequing account. The automatic transer will be every two weeks and for half of the amount of your monthly mortgage payment. This is the amount that your accelerated bi-weekly payment would equal out to.

Throughout the year you will continue to automatically transfer exactly half of your monthly payment into your new chequing account, every two weeks. Then, those two months each year where you receive your paycheck three times in one month, you will also transfer half of your mortgage payment into the new account three times this month. When your monthly payment is withdrawn by your lender, there will be a half monthly payment remaining in your new account. This will happen twice throughout the year, leaving you with one full monthly payment remaining in your new chequing account. This is the accelerated effect.

Once per year, take this remaining balance in your account and apply it as a lump sum towards your mortgage, which most mortgages allow you to do. This lump sum goes directly towards your principal balance, interest free, thus reducing your amortization the same as anaccelerated bi-weekly payment would have.

It may not seem like much, but imagine no mortgage payments for the next two and a half years. Feels good, doesn’t it?!

Courtesy of Jeff Ingram, AMP – DLC Canadian Mortgage Experts