If you are considering building a new home, then you need to be educated on the difference between draw and completion mortgages. When you meet with a builder, there is tons of terminology and information you should be aware of so you are properly covered.

Completion mortgages mean that the builder does not expect any funds until you take possession of your new home. Before the building process begins, you will have to go to your mortgage professional to get your application verified for the build to start. The benefits of this option are that you don’t have to put down any payments before you take possession, you can add upgrades to the mortgage, and the lender doesn’t require all final information from you until 30 days before you take possession. During this build process you will want to take extra care of your finances to ensure nothing changes, which could put your initial approval in jeopardy. Any changes that could possibly change your financial position and your credit should be discussed with your mortgage professional. This can include things like switching jobs, buying a car, and taking out any new loan.

A draw mortgage is preferred by home builders because it allows them to receive portions of funds during predetermined stages of the build process. To obtain a draw mortgage, the beginning process is the same and you will have to go to your lender to be verified for the build to begin. The benefits of this option are that the builder is able to manage their cash flow, inspectors are sent to verify stages of development are met, and funds sent to the builder are handled through a lawyer. There are some extra costs associated with this option though. Inspections will incur a cost upon each stage met and interest payments may be incurred as well. You also do not have the option to add upgrades throughout the build process with a draw mortgage as the first advance sets the loan in stone.

As always, if you would like to discuss draw and completion mortgages in preparation for your new build contact us at Dominion Lending Centres! We are happy to help you figure out your financial future.

Courtesy of Alim Charania, AMP – DLC Regional Mortgage Group 

There is a misconception out there that once you’re pre-approved, you’re good to go. A pre-approval simply means that based on your CURRENT income, expenses, down payment and credit you SHOULD be able to get fully approved once you find the right property (this is the first half of the equation). Many places won’t even pull a credit check (which is extremely important) and will just run a basic mortgage calculator and say “everything looks good” but that doesn’t mean anything. You leave thinking great, I’m pre-approved!

I always recommend that people put in a “subject to financing” clause with their realtor when they are putting in an offer to protect them each and every time. Here’s why:

You could be pre-approved but the lender still doesn’t know which property you’re purchasing (that’s the other half of the equation). Let’s say you find the house of your dreams (well within the maximum price that the mortgage broker went over with you) but we find out that the house was a former grow op. In this case, very few lenders will even look at this (even if it’s been fully remediated and there’s a stamp from the city saying it’s all good) and if they do, they’ll usually require a substantial down payment and further air quality testing that you must pay for as mould spores can grow behind walls and become airborne years later. Yes this is an extraordinary example but it can also happen where a bidding war has bid up the price and the best offer (yours) has been accepted. The lender sends in their appraiser to determine the value of the property and it may come in at a lower value than your accepted offer and so you’d have to come up with more money for a down payment (which you weren’t prepared for or don’t have).

Often times a mortgage broker/agent will request income verification that has yet to have been provided by the client at the time of preapproval only to be surprised that it is not exactly what was discussed verbally at the time of the application.  Unique circumstances to an application could delay the actual approval process.  It is always best to include a 5 banking day financing condition.  The applicant should be aware of holidays when calculating condition time periods.  Lenders may be short staffed around the time of a holiday as employees take  “vacation days.”

If you have a “subject to financing” clause in your agreement, then you have a way out and can look for another property with no issue at all. If you don’t have a “subject to financing” clause at all and you’ve already given your deposit to the realtor (because you were under the impression that you were going to be approved), then you’re out of luck and will be stressed out and scrambling to find a lender that will help you out, even though you were technically “pre-approved”.

So in summary, always put in a “subject to financing clause” as that’s the only protection you have. This is much cheaper than forfeiting your deposit (and facing potential legal action from the seller) should you want to cancel your contract after the agreement has been made.

Better yet, contact your local Dominion Lending Centres Mortgage Professional and have them do a proper pre-approval and have you fully prepared for what most likely will be the largest purchase in your life!

Buying your first home is often the largest financial commitment you will have made and just coming up with the down payment is a difficult task for many! Then there are the legal fees, property transfer fees, disbursements and all those other costs that can really add up, creating a huge dent in your finances!

To help offset these costs for first time home buyers, the Federal Government created the First Time Home Buyers Tax Credit (HBTC) to assist home buyers with the costs associated with purchasing their home.

Who is Eligible?

The HBTC applies to first time homebuyers who intend to occupy the home as their principal residence no later than one year after acquisition. To be considered, a first time home buyer, neither the individual nor the individual’s spouse or common law partner will have owned  another home in the year of the home purchase or in the four preceding calendar years.

Special rules apply for the purchase of homes that are more accessible or better suited to the personal needs and care of an individual who is eligible for the Disability Tax Credit. In these cases, the HBTC can be claimed even if the first time homebuyer criteria is not met.

How Much is the Tax Credit?

The $5,000 non-refundable tax credit provides up to $750 of federal tax relief. It is based on a down payment of $5,000 and is calculated by multiplying the lowest personal income tax rate (15%) x $5,000 = $750.

The individual’s spouse or common law partner may claim any unused portion of an individuals HBTC. When two or more eligible individuals jointly purchase the home, the credit may be shared but cannot exceed $750.

If only one individual is eligible to claim the tax credit, the percentage of that individuals ownership of the home can be used. ie. 50% of $750= $375

Also note, it is up to the applicant to ensure that they can provide documentation for the purchase transaction and that they meet the applicable eligibility requirements, should the CRA require proof.

For more information, you can visit the Department of Finance Canada website.

Here at Dominion Lending Centres, we are always happy to provide advice and help you with the financing of your first home!

Courtesy of Jordan Thomson, AMP – DLC City Wide Mortgage 

With mortgage interest rates at historical lows, it is a wonderful time for first time home buyers to take the leap into the market. But there are some considerations and preparations to be made before starting the process.

A higher level of bank scrutiny has come into play now that the governance of CMHC has been shifted to the Office of the Superintendent of Financial Institutions (OSFI). The banks have been jumping through hoops to meet stricter lending policies and so must potential mortgage borrowers.

Mortgage rule changes that came into effect in July 2012 shortened the maximum allowable amortization on mortgages from 30-years down to 25-years. This has made it more difficult for buyers to meet debt-servicing requirements of lenders due to the higher monthly payments of the shorter repayment structure.

These two components of the lending landscape have put First Time Buyers in the hot seat. Most young people are newer to both the employment game and the credit world and have had limited time to build up their own savings for the down payment.

Canadian mortgage insurers (CMHC and Genworth) have minimum credit requirements of two years’ history on at least two credit accounts with a good repayment record. While potential borrowers may think it responsible not to overextend themselves with credit, they can be negatively affected by “under extending”. Paying on time on at least two accounts, such as a credit card or loan, demonstrates credit responsibility because these types of accounts report to the credit bureaus, a third party, and demonstrate a borrower’s credit responsibility.

Avoiding credit means there is no third party record of how credit is handled, leaving financial institutions lacking the tools to assess how a potential borrower will handle repayment of such a large loan. While it’s not advisable for young people to apply for credit everywhere, it is a good idea to establish two different credit accounts as soon as possible to create a strong credit history.

Because many first time home buyers are young people with limited employment history, there is a very good chance they have not saved up the minimum 5% down payment yet. Direct relatives, such as parents, can “gift” the down payment to their adult child to help them buy the home. There must be no requirement for re-payment and they should have no vested interest in the property being bought.

Keep in mind though that if the first time home buyer has limited credit and their down payment is being gifted, they are really not bringing much to the equation as far as their own personal risk, so many lenders are requiring co-applicants to bring some strength to the deal. If there is the potential for a purchase in the near future, it may be a good idea for the parents to put the gifted funds into their child’s personal bank account. As long as the money is in their name for at least 90-days, those funds are now considered their own and no longer gifted.

We here at Dominion Lending Centres are always available to help you – contact us today!

Courtesy of Kristin Woolard, AMP – DLC National 

If a buyer can’t obtain a mortgage due to poor credit, employment history, lack of down payment or income — most lenders will consider lending if there is someone to act as co-signor or guarantor for a mortgage. The two options provide different requirements.

Co-signer or guarantor for a mortgage, which is best? People often use the terms guarantor and co-signer interchangeably, but they have very different responsibilities and rights. A co-signor is basically a co-owner – he/she is registered on the title and is equally responsible for payments (although it’s often a given that the co-signor will not make the payments). A guarantor, on the other hand, personally guarantees payments will be made if the original applicant defaults, but he has no claim to the property because he/she is not on title.

Lenders require a co-signor or guarantor for a mortgage for different reasons. A co-signor is used when you need to support income. If the original applicant’s qualifying ratio doesn’t meet the lender’s standards, a co-signor is required to bridge the income gap. A co-signor, because their name is also on the title, must sign all of the mortgage documents and can expect to remain on title until the applicant qualifies for the mortgage on his or her own. Or, in the case of two spouses, the co-signor might remain on title indefinitely. Keep in mind that removing someone from the title involves legal fees.

A guarantor is usually called upon if the applicant qualifies by income, but has a slight credit blemish or has yet to establish credit. It’s also an option for couples where one spouse is an entrepreneur and they don’t want to risk losing the house should the business go bankrupt — they simply keep that person’s name off the mortgage.

Guidance for guarantors
A guarantor has to be stronger financially than a co-signor because they promise to carry the entire debt should the homeowner default. As a result, guarantors are carefully scrutinized, undergo a credit check and must also disclose assets, liabilities and income.

Therefore, it’s important for guarantors to know all of the circumstances of the person they’re acting for and be confident the applicant will make the payments. Before signing, all guarantors should seek advice from a lawyer who is independent of the real estate transaction.

It’s also smart to secure creditor insurance in case things go wrong. The applicant and guarantor should discuss collateral or come up with a repayment plan up front should the guarantor be called on to cover the debt.

To learn more, listen to my radio interview on CKPM– click the link below:

What happens when you co-sign or become guarantor on a mortgage?

When a guarantor wants out
Some lenders offer early release policies that free the guarantor from obligation (usually after 12 months) if the borrower is up-to-date with payments and has established good credit. Sometimes a guarantor can remain under obligation for several years.

Before agreeing to act on behalf of an applicant, guarantors need to evaluate the time commitment they’re willing to make. If, for example, they want to buy their own home in a few years or take on any major debt, such as a car or boat, they may not qualify because of their guarantor status.

Regardless of whether you wish to be a co-signor or guarantor, for a mortgage you should always consult your mortgage professional at Dominion Lending Centres and a lawyer before acting.

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

New credit reporting and what it says about you and your spending habits may make all the difference between you buying a home now or later.

When home buyers contact me to apply for a mortgage, I always review their credit report with them along with the rest of their application, before they start looking at homes with a Realtor. If there are any issues with the credit history we can determine the reason, the next course of action and how it will impact financing a purchase.

There is a lot of valuable information in a credit report which provides an overview for lenders about your ability to borrow money. Consistent late payments, collections and bankruptcy have the biggest impact on lowering your score. Running a high balance or over your limit on your credit cards will also drive your credit score down. Scores range from 300-900 and a difference in score by as little as 50 points says a lot to a lender about you as the borrower. For example, a score of 550-599 represents 21% of delinquencies while a score of 600-649 only 11%. Delinquency rates are defined as those who have late payments beyond 90 days. If your score falls from one bracket to the lower bracket with late payments or collections, the difference can affect the interest rate you can receive or, worse yet, if you can qualify for the mortgage amount you need.

The most recent software update for the credit bureau reporting system has added some features which could have a significant impact on reporting. The new reports, which were released in early 2015, show three credit scores and one overall score.

The first score ranks based on open credit and balance to limit ratio. So if you have lots of open credit and your balances are low or reasonable the score is higher. High balances or over limit on all credit cards will drop your score.

The second score ranks based on late payments and collections over $250. If your late payments are beyond 90 days, your score will drop dramatically.

The third score ranks based on the number of third party collections in the last 3 years and the oldest revolving credit. So if you have outstanding parking tickets or an unpaid gym membership that you forgot about — they will come back to haunt you.

These individual scores were created to show specific behaviour by a borrower and if the credit score is trending up or down. This can give the lender an indication of a chronic issues with a potential borrower or if they are consistent with their credit usage.

With mortgage payments, lines of credit, auto loans, credit cards and even cell phone bills now reporting on the credit report,  consumers have to be diligent with spending and paying bills on time.

I recommend to all my clients to keep your credit report clean — after all, it is your identity.

Establish at least two trade lines of a minimum of $2,000. One credit card and one personal line of credit for example.

Maintain lower balances (< 65%) on all lines of credit or credit cards.

Make payments a few days before they are due to ensure you are always on time

If you get a parking ticket, fight it and lose – pay the bill and don’t let it go to collection.

Look at your credit report annually and certainly 3-6 months before making any major purchase such as a car or home. To view your own credit report visit www.equifax.ca.

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

In Winnipeg, MB, Jackson and Hailey have been living in a rental home for more than three years. They liked this rental home so much; they asked the landlord if they could buy this house. The landlord agreed to sell the property for $300,000 to Jackson and Hailey. On August 1, 2015, the landlord as “seller” and the tenants as “buyer” signed the agreement (Offer to Purchase). They deposited $5,000 with the agreement and the possession date was August 31, 2015. If Jackson and Hailey put 5% down, then they need $15,000 as a down payment PLUS 1.5% for the closing costs of the house – 1.5% of $300,000 would be $4,500. To buy this home, Jackson and Hailey need $15,000 + $4,500. Altogether, they need $19,500.

In the month of July 2015, the couple (the tenants – Jackson and Hailey) added a patio at the rental home and painted the whole house inside. The tenants spent $5,897.32 from their pocket for this renovation and patio project. On July 28, 2015, the landlord (the seller) gave them a cheque for $5,897.32.

They deposited this cheque in their savings account and were under the impression that they could use this $5,897.32 towards their 5% down or closing costs. No, they can’t use this amount since the landlord paid it for the work they did in that same home. Under the guidelines, the seller is not allowed to pay any money to the buyer for the sale of this property. Now Jackson and Hailey are short $5,897.32 to buy this home.

Jackson and Hailey should have gotten some advice from a mortgage professional at Dominion Lending Centres before they signed an agreement to buy this home.

The proper planning of a mortgage is pertinent before anybody signs any agreements – it helps the client and the real estate agent.

Courtesy of Gurcharan Singh, AMP – DLC Canadian Anderson Financial Mortgage Team 

Interest rates are only one of many features that should be looked at when you are applying for a mortgage. But all things being equal, the interest rate may be more important than you think.

I was reviewing mortgage options with a client and the only thing they were interested in was the mortgage rate. There was no concern about all the other conditions that could end up being quite costly and since I could only offer him what he considered a small reduction, the client said “the bank’s rate was only a little higher and I feel more comfortable leaving everything I have with my bank for such a small difference.” What was the difference? I will get to that in a minute.

The mortgage renewal form you get in the mail is another cautionary note. I have had clients send me a copy of their renewal form. So far, in every case the renewal rate was higher than what I was currently able to get them. The last one I saw was .25% higher than what I could offer.

According to a recent Maritz/CAAMP survey, clients who used the services of a Mortgage Broker benefited with an interest rate .045% lower than those that dealt directly with their lenders.

So what does this fraction of a percentage mean for you? Let’s look at a $500,000 mortgage at 2.64% compared to 2.84%. That is only .2% or, to look at it a different way, it is about $50 a month or $600 a year savings by taking the 2.64% mortgage.

Here are a few options to increase net worth.

1. You take the 2.64% rate and you invest the $600 a year into a growth mutual fund that averages 10%. Even though over the years, as your mortgage goes down, the savings may not be as great, you make up the difference and keep investing that $600 a year for the next 30 years. That is a small difference, but in 30 years it has added up to over $100,000 in your tax free savings account.
2. You take out the 2.84% and say I like my bank and I am comfortable with the bank making the extra money and increasing their bottom line off my mortgage.
3. With interest rates being so low, you could look at increasing your cash flow by stretching out your amortization and lowering your payment. Then you take the extra cash flow and invest it with your financial adviser in your tax free savings account.
4. If you have extra equity in your home and have not contributed to your Tax Free Savings Account, consider refinancing and topping up your TFSA. As of 2016, the accumulative amount you can contribute is $51,000 per person 19 years or old in BC. So that would be $102,000 per couple. Invest that $102,000 and get an 8% return, you end up with $698,544 tax free money after 25 years and you paid back the mortgage and interest payments. If rates stayed the same throughout the 25 years at 2.69%, the whole $139,906 would be paid back. So you make a tax free profit of $558,638 by freeing up some capital to invest. Your total cost is $37,906 in interest.

There are many details to a mortgage and the rate is just one of them. Any of us here at Dominion Lending Centres would be happy to review your future mortgage needs to make sure you are maximizing your mortgage to your benefit.

Courtesy of Kevin Bay, AMP – DLC Producers West Financial 

When signing your mortgage commitment letter you will have to choose your payment frequency. If your goal is to re-pay your mortgage as quickly as possible, then you need to understand how different payment options will affect your repayment schedule.

So what are your options?

In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage in the shortest time possible.

For the purposes of this exercise and to keep things simple, let’s use $100,000 as our mortgage amount. We’ll use a 5 year fixed rate at 2.54% with a 25 year amortization period and interest being compounded semi-annually.

As you can see from the table above, choosing to pay your mortgage more frequently doesn’t result in reducing your amortization schedule. The key to reducing your amortization is to make sure you choose an accelerated re-payment schedule.

We are going to focus on Accelerated bi-weekly vs. bi-weekly payments but the same principle can be applied to accelerated weekly payments as well.

Okay, we’ve just determined that accelerating your mortgage payments will reduce your amortization and the interest you pay. How does accelerated bi-weekly vs bi-weekly result in more principle being repaid?

It’s important to think of your payments as a stream of income for the mortgage lender. Mortgage payments are comprised of principal and interest payments. The interest is calculated based on your outstanding principal balance, meaning once the interest has been paid, the remainder of your payment is used towards paying down your principal balance.

By choosing an accelerated repayment schedule, the monthly payment is divided by 2 (bi-weekly) or by 4 (weekly). There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments with all non-accelerated repayment schedules.

This accelerated repayment of principal is what shortens your amortization.

13 monthly payments ÷ 26 = accelerated bi-weekly payment

Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment

With a non-accelerated or regular payment plan, the Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. With this adjusted payment, the Lender still receives a stream of income of 12 monthly payments per year, so there is no additional principal available to accelerate the amortization.

12 monthly payments ÷ 26 = regular bi-weekly payment

Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment

So now you know why choosing accelerated bi-weekly vs. bi-weekly payments results in 1 extra month of payments per year, which in turn shortens your amortization.

I always recommend this to anyone who can afford the increase in payment but I understand this option isn’t right for everyone. Another option to help shorten your amortization is to increase your payments, meaning more principal paid.

When you’re choosing your next mortgage, make sure you discuss payment options with your Dominion Lending Centres mortgage professional that align with your overall goals for repaying your mortgage.

1. How the penalties are calculated if I break my mortgage early? Specifically, ask what rate they use to calculate the “interest rate differential”. Typically, if the lender has “posted rates” they use these to calculate the penalty. If this is the case, the penalty can be 3, 4 or even 5 times higher than a mortgage lender that does not have posted rates and uses them in their early payout penalty calculation. This one question can save you thousands of dollars!

2. Is this a “collateral” mortgage? Some lenders have recently started putting all of their mortgages into what is called a “collateral” charge. In the right situation, given significant equity in the home, this product can be very useful and advantageous. The disadvantage to this product however, is that you cannot “switch” it to another lender at maturity. You have to actually discharge this type of mortgage and re-register a new one with a new lender which will cost on average $1000 for legal fees and appraisal costs. Beware of lenders who do this, especially if your mortgage is high ratio because it is only useful if you have more than 20% equity.

3. Can I “blend and extend” my mortgage if I buy another house? Most variable rate mortgages cannot be “blended” however, typically the penalty to break a variable is 3 months interest. Some lenders have changed their policies (very quietly) – instead of allowing you to add new money to a mortgage in the event of a new purchase, they require you to pay the full penalty. Some clients have been caught off guard by sneaky lenders who don’t tell them this until only a few days before close, at which time it’s too late to switch lenders.

4. What happens to my life insurance if I switch lenders at the end of my term? This is a very commonly overlooked detail by those who take the insurance offered by their bank or lender. The challenge is that if you want to “switch” your mortgage to another lender at the end of your term, you have to re-apply for insurance. The downside to this is that you’ll be five years older, and if you have developed any health issues, you may not qualify for the insurance at all. Getting insurance that mortgage brokers offer stays in place for the whole time you have your mortgage, no matter who your mortgage lender is.

5. What happens at the end of the term (typically five years)? Will they offer you the best rate they offer their new clients, or will you have to negotiate for best rates at that time. Most banks know that clients likely won’t make the effort to negotiate the best rates. Working with an independent specialist will provide you with the most competitive rates, not only when you buy your home, but when it comes up for renewal. A qualified professional will make sure you have the best options available each time your mortgage comes due.

Courtesy of Brian Mill, AMP – DLC Neighbourhood