Despite headline-grabbing stories about million-dollar houses pushing home ownership out of reach in Canada’s large cities, there’s still plenty of opportunity for first-time buyers in certain segments of the Canadian real estate market, says Dominion Lending Centres Chief Economist Sherry Cooper.

Single-family home prices have been surging in cities like Toronto and Vancouver, but that’s driven largely by a shortage of land: You practically need to knock down an older home in order to build a new one. It’s the supply-demand story, Cooper says. Land for single-family homes is in short supply while demand is strong, driving double-digit price increases.

But that’s not the case in the condo market, where prices have not been escalating as quickly. Condos, and housing in those parts of Canada where the land supply is not an issue, are still an affordable option.

“There are differences in the housing market depending on the sector and the region,” she says. “For example, condo prices in Toronto are rising at single-digit rates. Part of that is because there has been a dramatic increase in construction, so that the supply of condos is increasing very sharply.”

At the same time, retiring boomers are often helping their children buy homes. Aid from mom and dad coupled with the increase in supply, has resulted in the rate of home ownership rising.

“We are in a sweet spot in demand for housing right now because in Canada, the growth in the number of first-time buyers — roughly aged 25 to 35 — is at a relatively high level. It’s stronger than what we have seen since the baby boomers came of age. First-time homeowners are still out there buying and in fact they represent roughly 30 per cent of new home sales, even in Toronto and Vancouver,” she says.

“What’s different is that it now takes two incomes to buy a home rather than one, as it was way back when, and also your first home may well be a condo and it may well be far from the city centre and it may well be quite small.” But the reality is that low interest rates have helped to make housing more affordable.

“But once you get in the door, there’s the whole notion that house prices will rise and you will have greater equity to move up next time around,” she adds.

These differences between single-family housing markets and multi-family housing markets need to be recognized by governments in their attempts to make housing more affordable, Cooper says. Housing and construction are key strengths in the Canadian economy right now, and government intervention — like the B.C. government’s move to increase the property tax for expensive homes — needs to be carefully weighed.

“You don’t want to dampen what has been a very significant component of economic growth.”

Courtesy of Gordon Hamilton, Writer 

In a nutshell, a CHIP mortgage or “reverse” mortgage is a mortgage that is secured by the client’s principal residence and as long as one of the client’s lives in the house, it never has to be repaid, not even the interest. “CHIP” stands for “Canadian Home Income Plan” by the way; however the lender who does these types of mortgage in Canada is called Homequity Bank.

It is probably easiest to explain using an example: Let’s assume a husband and wife aged 70 and 69 respectively live in a home that has been appraised at $500 000 and has no mortgage on it right now. Based on the value and their ages, CHIP would allow them to borrow up to $195 495 against the house. They do not have to take the full amount and can in fact choose a monthly income supplement. For example they could choose $50 000 in a lump sum and then $1 000 per month for the next 140 months.

So long as one of the applicants remains in the house, they never have to make a payment. If one of the spouses moves to a retirement home and the other stays in the house, they still don’t have to make any payments. Snowbirds also qualify……so long as the house remains your primary residence.

Here are some of the “requirements”:

• Minimum age 55 for all applicants
• Must be principal residence (no rentals)
• All persons on title must be on mortgage

Two GREAT features of CHIP MORTGAGES:

1. NO INCOME VERIFICATION: Since the mortgage is not expected to be repaid until the house is sold or until the last homeowner leaves the property, no income verification is necessary. This is a great advantage to those who are “asset rich” but don’t show much income

2. NO CREDIT REQUIREMENTS: Many retirees have little or no credit history which makes it very difficult to get a loan or mortgage. With the CHIP mortgage no credit is no problem!

Common questions:

1. Does the bank own my house? No, this is registered against the title of the home the same as any other mortgage. The “bank” cannot force the sale of your home provided one of the applicants still resides in it.

2. Will the equity disappear in my house? CHIP mortgages are designed to limit the risk of the mortgage amount exceeding the value of the home. Your home is still increasing in value and the CHIP mortgage is only a portion of the value of your home so in most cases, the equity in your home continues to increase.

3. What is the cost to set up a CHIP mortgage? There is a fee ranging from $995 to $1495 to set up the original mortgage, plus you must pay for an appraisal and a lawyer to register the mortgage. This is clearly explained in the application process so you will be fully aware of all costs prior to setting up the mortgage.

4. What if I have an existing mortgage? A CHIP mortgage can still be set up however you must pay off the existing mortgage with the funds advanced. This is a common strategy for those who are about to retire and don’t want to make mortgage payments anymore.

If you have any other questions, please contact a Dominion Lending Centres mortgage professional.

Courtesy of Brian Mill, AMP – Neighbourhood DLC 

It is matter of fact that life can be much unexpected. Perhaps you have been hit hard by this economic downturn or maybe an illness or even just plain old mismanagement has left you with a series of late payments on your credit. No use crying over spilt milk so to speak. So, let’s look at what to do to repair your credit after such an event.

There are three main scenarios we most often see in conjunction with damaged credit:

1. Regular late payments. All types of credit providers report to the credit agencies about you and your repayment history. Cell phones, credit cards, student loans, vehicle or personal loans, lines of credit, and of course your mortgage. You are assigned a credit rating based on if your payments are made on time, if you are at or near limit on your credit cards and a variety of other things. Often the descent into bruised credit starts by missing a payment here and there. Of course the more late payments you have, the more leery a new lender will be to extend you additional credit. If you had a rough patch like this, then the best thing to do is catch up ASAP and do not let it happen again. Lenders will want to see that you have recovered financially and you now mange yourself well. The magic number is 2. They want to see 2 years of perfect repayment on at least 2 credit facilities. After the damage was done, it is imperative that you not have another late payment on anything including your cell phone. It is also a good idea to save some money so they can see you have a fallback position if you lose your job. Finally, keep your credit cards at no higher than 75% of the available credit. It can be a sign of financial distress if you are maxed out.

2. Orderly payment of debts (OPD) – This program is entered into voluntarily by people who need further help. These agencies will meet with you to assess your situation and determine a repayment plan with your creditors. They make calls on your behalf and negotiate for you which will stop the collection calls you may have been receiving. Interest rates are negotiated down and you are set up on a repayment plan to pay your creditors every cent you owe based on your income. Your credit bureau will reflect that you have opted for the OPD which means you have to do some work to be considered for lending later on. Again, the magic number is 2. You need to have 2 credit facilities reporting pristine for 2 years once the OPD reports as complete. At that point many lenders will consider you for mainstream lending. You may have to start with a secured credit card or 2 or a vehicle with a higher interest rate to get back on track.

3. Bankruptcy – In this scenario, you have gone through the formal bankruptcy process which involves a trustee and the court system. Your debt obligations were negotiated down to a fraction of what they were and you have paid out that amount as per your agreement. Two years after you show as formally discharged with 2 years of established credit on 2 credit facilities you will once again be eligible for mainstream lending. Without those criteria you may find yourself paying a higher rate for a mortgage or other loan.

A few extras I would like to point out: If you have ANY late payments after the OPD or bankruptcy, you will likely be turned down for a mortgage at best rates. The lenders will allow that life threw you sideways, but it is up to you to show them it will not happen again. If there was a foreclosure in your past, you are not likely to get any financing for a mortgage unless you are willing to pay some very high interest. Finally, there are companies out there who advertise that they can fix your credit for a fee. Be very cautious in your dealings with them. They can be very expensive and the credit reporting agencies are on record reporting there is NO quick fix for credit issues. Do your due diligence before entering into an agreement with anyone telling you they can fix your credit.

Courtesy of Pam Pikkert, DLC Regional 

The true cost of mortgage penalties is a common concern and complaint among homeowners so it seems reasonable to review it once again.

Due to the sometimes complex calculations the banks use to determine this amount – consumers have been left in the dark when trying to make a decision on whether the cost of refinancing early is worth it or not. Recent changes and more to come will regulate the banks to provide more information up front and over the life of your mortgage on penalty costs. As a broker I always discuss the true cost of mortgage penalties with my clients to ensure we work with lenders that have best options for penalties if ending the term is a possibility for any reason.

I recently discussed the true cost of mortgage penalties, blending rates and provided comparisons in one of my To Finance and Protect video blogs.

https://www.youtube.com/watch?v=oXjdoEN9y1o

In the example I provided the three possible options for a penalty.  First, three months interest.  Second, interest rate differential (IRD).  Third, the difference between IRD calculations by the bank and other lenders.  Almost all of the major banks have a different IRD calculation than other lenders which can more than double and in some cases triple the penalty.  Knowing the exit cost of your mortgage is an important part of the decision in choosing a lender and many people don’t realize this until it is too late.

The majority of long-term fixed-rate mortgage holders terminate or change their mortgage before their term is up. In fact, the average five-year mortgage lasts only three to four years. Penalties apply in only a minority of these cases, but for those who are affected, they can substantially raise your overall borrowing costs

Note: The Financial Consumer Agency of Canada (http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgageLoan/RenewMortgage/RenewMortgage-3-eng.asp#Breaking) is doing a noble job encouraging clarity with mortgage penalties. In 2013, I went a step further by requiring banks to provide: annual information to help consumers calculate their penalty, written penalty statements upon request with clear calculation explanations, and access to exact prepayment penalty quotes by phone.

To discuss your early renewal or refinance options, contact a Dominion Lending Centres mortgage professional.

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

I’ve actually had clients ask me that question! The business of life often gets in the way and we don’t always do our homework when it comes to our financial obligations. Before they know it, clients start getting e-mails from their lender and their broker reminding them that it’s time to renew their mortgage… “Wow, dear, has it been 5 years already? Our bank is offering us 2.99% for 5 years! What a difference from our old mortgage at 3.79%. Let’s sign now and lock it in because who knows what the future holds.”

The friendly mortgage broker they had dealt with five years ago calls to remind them that she may be able to get them a better rate than what their bank is offering and also review their financial situation and help them make some adjustments. Yes, time is of the essence and there’s paperwork involved which is a pain but consulting their mortgage broker may save them a lot of money in the long run.

I had a client recently who not only saved a whopping $8,000 on a new 5-year term but also lowered his monthly payments. And the moral of the story? You snooze, you lose. So don’t snooze (or lose!) – contact your Dominion Lending Centres mortgage professional today!

Courtesy of Marie-France Lavigne, AMP – DLC The Mortgage Source

When shopping for a mortgage, many home buyers enlist the services of a Mortgage Professional. There are several benefits to using a Mortgage Broker and I have compiled a list of the top 8:

1. Saves you time – Mortgage Brokers have access to multiple lenders (over 50!). They work with lenders you have heard of and lenders you probably haven’t heard of. Because their relationship with lenders is ongoing, Mortgage Brokers know what is available in mortgage financing and will be able to advise you on what your lending options are without all the leg work that you would have to do in order to find a small percentage of information that a Mortgage Broker already has in hand.

2. Saves you money – Mortgage Brokers, if they are successful, have access to discounted rates. Because of the high volume that they do, lenders make available discounted rates that are not available directly through the branch of the lender that you go to.

3. Saves you from becoming stressed out! – It can be very daunting to find a mortgage. A Mortgage Broker takes on that stress for you. Your Mortgage Broker will make sure all the paperwork is in place. They will keep in good communication with you so that you know what is going on with your mortgage and will keep you up to date with any complications so that there are no surprises.

4. Gives you access to lenders that are otherwise not available to you – Some lenders work exclusively with Mortgage Brokers. In these circumstances, the layman does not have access to these lenders and, therefore, does not have the option to use discounted rates and mortgage products that these lenders offer.

5. Services are free – Mortgage Professionals are paid by the lender and not by you. This is not a disadvantage to you. A good Mortgage Broker will ALWAYS have the best interest of the client in mind because if you, as a client, are happy, you will go tell your friends about the service you’ve received from the Mortgage Professional you work with. Mortgage Professionals rely on referrals, which means that if you are a happy customer, and you got the best deal available, you will tell your friends and family about them which will result in referrals and potential future business.

6. Take on every challenge – As Mortgage Professionals, we see every scenario out there and work to make sure that every client knows what is available to them for financing options for a mortgage. Damaged credit and low household income might be a deterrent for the bank, but a Mortgage Professional knows how to approach the lender and has the relationship to make sure every client has a plan and strategy in place to make sure there is a mortgage in their future.

7. The Mortgage Brokerage industry is monitored by governing bodies – Nowadays, as Mortgage Brokers, it is extremely important to have principles and values that are based on the best interest of the client. In fact, in order to become licensed, the Mortgage Professionals need to be well versed in the ethical and upstanding values that are outlined through the Financial Institutes Commission, a provincial governing body that is a watchman for this industry. FICOM’s mandate is to make sure every Mortgage Broker walks in integrity and in the best interest of their client.

8. The Mortgage Broker has a better understanding of what mortgage products are available than your bank – Interestingly, a Mortgage Broker has to be licensed and cannot discuss mortgages with you unless they are licensed. This is unlike the bank who can “internally train” their staff to sell the specific products available from their bank. The staff at your bank do not have to be licensed Mortgage Professionals.

While this is not an exhaustive list on the benefits of using a Mortgage Professional, it is compelling to see the benefits of using a Mortgage Professional rather than putting a mortgage together on your own.

At Dominion Lending Centres, we have an excellent rapport with the lenders we introduce our clients to. Our customer service is reflective of our relationship with our lenders. We are always professional and we always make sure our clients know every viable option they have for mortgage financing.

Courtesy of Geoff Lee, AMP – GLM Mortgage Group 

Each year from 2008 through 2010 the Federal Government reduced the maximum amortization as follows:

Purchases with less than 20% down –from 40–35 years, then 35- 30 and finally 30–25 years where it remains today.

Purchases with 20% or more down were cut from 40–35 years, and then from 35 – 30 (*certain lenders still offer 35 years to specific applicants).

Any risk within the real estate sector can most accurately be measured by the amount of equity in a property. Thus the focus on the purchases with less than 20% was more extreme, and logical.

The following table demonstrates the effect reducing the amortization by five years had at each point, an increasingly powerful effect. It essentially cancelled out the interest rate drops.

Today’s buyers do not qualify for radically higher mortgages thanks to lower rates, anyone who suggests otherwise has perhaps forgotten about the amortization effect. The final move from 30 years to 25 years has the same effective impact as a 1% interest rate increase.

Mortgage          Rate      AM                      Payment

$100,000              4.49        40                           446.26
$100,000              4.14        35                           449.08
$100,000              3.49        30                           447.09
$100,000              2.49        25                           447.47

Today’s buyers putting less than 20% down with a maximum amortization of 25 years at 2.49% basically qualify for the same amount of money as they did back in 2008 at 4.49% with a 40 year amortization.

Few clients are aware of this, and many Brokers are not either.

The next time you hear somebody saying that ‘today’s low rates have allowed borrowers to qualify for too much debt’ you will know better.

Interest rates are not quite the key driver behind the current boom in prices; interest rates play a role, but it is a much smaller one that people realize as the lower rates have been largely neutralized by shorter amortizations.

Perhaps the most important point of all to take away from this is that as interest rates rise the Federal Government will almost certainly extend amortizations back out, in turn negating the impact of rising rates.

Food for thought.

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts 

A private mortgage can improve your financial well-being and using a reputable mortgage agent/broker will advise when it is suitable for your circumstances to enter into a private mortgage. Your mortgage agent will also advise a financial action plan to refinance you down the road to return to the prime lending marketplace.

Here are the facts on mortgage lending and when to use a private mortgage:

There are several types of mortgage loans in Canada including first mortgages, second mortgages and lines of credit. As we all know, these are available through well- known prime lending institutions like banks, credit unions, trust companies and independent financial institutions that only deal in mortgages to qualified borrowers.

There are also the institutional “alternative” lenders that have all the products mentioned above, however, they loan their money to individuals who do not meet prime lending guidelines. These loans would be considered “riskier” due to the fact that the borrower may not be able to prove income and may have challenged credit which will not meet the prime lender’s guidelines. These institutions often charge lender fees and higher interest rates. Institutional alternative mortgage lenders are most often used as a temporary solution that alleviates an immediate situation that once resolved, the mortgage is moved to a “prime” lending institution. Often times the alternative lenders restrict their lending areas, loan to value and credit and income criteria.

When a borrower doesn’t meet the alternative lender’s lending criteria, a private mortgage can be arranged for a temporary solution, just like the alternative lender. Investors/Lenders are usually individuals or private corporations, Self-Directed RRSP program lenders, who loan their own personal/corporate funds; believing investment in real estate is stable and want to earn a higher return on their money than they can make at their financial institution. These investors will take a more personal approach to the loan and are ready to hear your story, (usually with a sympathetic ear) and assess the amount of risk that they are being asked to take on. Income and credit is reviewed, but with less stringent guidelines than the alternative lenders. Again, lender fees and possibly brokerage fees will be charged.

Consider this scenario to explore why a private mortgage can work for you.

You worked for the same company for 10 years, they went bankrupt and shut down, it took you 9 months to find another job, but in the meantime, you used up all your savings as your EI payments weren’t enough. Your payments are behind on your $40,000 worth of debts which cost $800 monthly, and you owe $10,000 in property taxes and to CRA. Your house is worth $300,000, your current mortgage is $175,000, you need $50,000 to pay it all off plus $4,000 (estimated) to set up of a second mortgage including legal fees. It makes sense to retain your 2.25% first mortgage in order to give you time to restore your credit history and income. Therefore, a private second mortgage suits the situation. A second mortgage of $54,000 with interest only payments at 11% will cost you $484 monthly, creating a savings of $316 monthly plus CRA and the property taxes are paid off.

Some other reasons to borrow private funds.

• purchase property where you don’t qualify with more “traditional” lenders
• pay off/consolidate debts into your property
• renovate your home
• pay for medical expenses
• supplement your first mortgage
• improve cash flow
• pay off debts to CRA or property taxes
• pay for your children’s post-secondary education

Yes, private mortgages do have higher rates and fees, however, your mortgage agent is obligated to ensure that all parties to the transaction are fully aware of the costs going in and will provide the reason behind choosing a private mortgage. Your mortgage agent will outline why you don’t qualify for a prime or institutional lender at this time and review the financial benefits of entering into a private mortgage. Your mortgage agent will also explain the exit strategy to pay off the private mortgage down the road with the goal to get you back into the prime lending market.

Ask your Dominion Lending Centres mortgage broker if a private mortgage is right for you!

Courtesy of Anne Martin, AMP – Neighbourhood DLC 

There was a 62 year old male and his 61 year old female wife living in Kelowna. One day the male had a massive heart attack and died instantly. Insurance paid off all the debts.

The husband had always looked after the financial affairs. The widow knew nothing about financial matters and couldn’t even balance a cheque book. She started receiving credit offers in the mail and responded to them.

A son, living elsewhere, visited his mother one day and found out that she had accumulated new debt in the amount of $40,000. The widow could not keep up with all the payments with the reduced pension income so the son took her to her local financial institution that the couple had dealt with for many years.

They met with the branch manager and arranged a term mortgage to pay off the debts and gave the mother a $5,000 limit credit card.

The son again visited the mother one winter day 2 years later and found that her gas had been turned off due to nonpayment. She was using a space heater to keep warm. He couldn’t understand why there was a problem. He did some investigating and discovered that the branch manager had given his mother a secured line of credit with a limit of $90,000 and a $15,000 credit card.

The widow had maxed out the line of credit and the credit card. Because of a poor market and deferred maintenance of the property, the home could not be sold even after it was listed for 6 months. The son arranged for his mother to live with her daughter in Alberta. He cleaned out the home and took the keys and gave them to the branch manager telling her that he didn’t know what else to do.

Maybe the widow would have been best served if she had been presented with either the option of a term mortgage or a reverse mortgage; and then the widow might have been able to stay in her home for the rest of her life. Unfortunately, she wasn’t presented with the option. Why is this story important? Because the widow was my mother.

If you know someone who can benefit from a CHIP Reverse Mortgage, please contact a mortgage professional at Dominion Lending Centres.

Courtesy of Bob Urbanovitch, Business Development Manager – Home Equity Bank 

1. Have you explored all your options. Once you receive your mortgage renewal statement, there is nothing easier than signing on for another term, heck 70% of everybody that received them from their current lender just signs over thousands of dollars. This may make sense in some cases, but your family and financial situation may changed over time. I can look for opportunities that may meet or exceed your current expectations.

2. Are you comfortable with your current payments. If your monthly payments are barely letting you break even each month then it might be time to reduce payments. On the other hand, if you are earning more income then why not pay down your mortgage faster and save thousands in interest over time. Have you reviewed your prepayment options?

3. Do you need cash flow for other things. Your priorities may have changed since you purchased the home. Things like your child(s) post secondary education, planning a career change or a major purchase may now be front and centre. With ‘today’s’ current market, there may now be access to additional equity in your home that can be used for other purposes.

4. Can you handle fluctuating rates. Some homeowners are comfortable with the ebb and flow of interest rates and some are not. It is best to base your decision on your personal situation and not what you read in the daily news. I can help you decide on a fixed or variable rate mortgage options, but ultimately it’s your decision.

5. Will you sell soon. If so, consider a shorter term mortgage that has flexible manageable terms if you decide to sell your home.

6. Are you thinking of a major renovation. Upgrades can increase the value of your home but the cost of having the work done can tie up a lot your money. Make sure to allow for ample finances to complete.

7. When do you want to be ‘mortgage-free.’ Increasing your payments will raise your monthly expenses now, but you will ultimately save thousands on interest in the long term. A mortgage-free lifestyle could be just around the corner.

8. Could you use your home equity to fulfill other goals. Refinancing a mortgage can be one way to free up cash you need for other things, which could even include purchasing another property.

9. Have your insurance needs changed. If your home equity has increased, there may not be the need for default insurance anymore.

10. Are you getting the best rates and terms. In a competitive mortgage environment your good credit history can make refinancing your mortgage work to your advantage. Dominion Lending Centres analyzes mortgage markets daily to ensure you don’t miss any money saving opportunities.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial