1. Make a double mortgage payment whenever you can. Doing this once a year can shave over 4 years off the mortgage! Sometimes you can skip a payment later on too…if you really, really need to. Try not to. If your payment is $2,000 a month, four years of no payments is $96,000!!

2. Increase frequency of payment. For Example going from monthly to bi-weekly accelerated can shave over three years off your mortgage! $2,000, three years of no payments is $72,000!!

3. Increase your payment. For example a one-time 10% increase can shave 4 years off the mortgage. That’s $96,000! Imagine if you bumped the payment 10% every year from the get go!!! You would be mortgage free in 13 years! Start to finish! Can’t do it? How about 5% every year….you would be mortgage free in 18 years! How about increasing the payment by the amount of your annual raise?

4. Lump sum payments…same idea…mortgage is gone way faster! Even just one payment a year equivalent to 1 monthly payment will give you similar results as #2 above! How about using your annual work bonus?

5. Renegotiate whenever rates drop to save interest and pay mortgage faster! Generally a good idea however *Caution* get independent professional advice (a cost benefit analysis) to make sure it makes sense for you at that time. I can help. A 1% reduction on a $300,000 mortgage will save $250 a month…times 5 years…that’s $15,000!!

6. Keep your credit rating high for best rate. Always pay on time. Never let payments slip past their due date. Always keep balances low in relation to credit limits on credit cards, lines of credit, etc. 50% or less is best even if you pay the balances in full every month. What generally reports to the credit bureau is the statement balance each month. So if your credit limit is $3000 and you are running $3000 a month through the card each month (to collect all those points you never spend or can’t use in blackout periods) and paying in full, it will look like you are maxing out your credit limit and your credit score will drop accordingly.

7. Increase your mortgage! Yeah I know sounds backwards! Do it to roll in your credit cards, line of credit, car loan etc for a better rate and a set payment plan. Oh you say you don’t want to extend the repayment period of that stuff by rolling it into your mortgage or you have a low or promo rate credit card (those never end well) I agree! Then keep the total payment amount the same but pay it in one neat monthly payment to the increased mortgage.

8. Make an RRSP contribution and use the refund to pay down your mortgage.

9. Go variable rate with your mortgage but keep payments as if fixed rate. Variable rates usually win out over fixed rates. By paying a higher payment you will pay off the mortgage faster. It’s also a buffer in case the rate rises above the fixed rate for short periods of time. *Caution* variable rates are not for everyone. Get independent professional advice to find out what is best for you. I can help!

10. Take your mortgage with you when you change properties to avoid penalty or higher rate on a new mortgage. This is called “porting”. Make sure that your mortgage has this feature. It is not widely known and could save you a ton of dough.

11. Set up auto savings every paycheque, even $10, when it reaches the amount of one mortgage payment, apply it to the mortgage. This concept goes nicely with #4 above.

12. Unhook from the money drip…stop paying with your fancy points credit or debit card. Way too easy to overspend! Go old school, go off the grid…PAY CASH, it works!

13. Don’t ever buy on layaway, you know, six months don’t pay schemes. You think…No problem I’ll just pay it in six months, it will be okay. Yeah right!

14. Downsize your house. Two good friends and clients of mine, having followed many of the tips here, are in great shape except they have a six bedroom house! Two people, six bed house – go figure! They are nearly debt free so no biggy, but can you say the same? Circumstances change, make the adjustments along the way!

15. Don’t want to move? Convert the basement/rooms to rental and use the income to pay down debt.

16. Convert your mortgage to tax deductible. If you are self-employed, own rental property or have investments, this is likely possible. I won’t go into details here, just ask me how.

17. Have a payment priority.

18. Pay off the highest interest rate first.

19. If you have tax deductible loans, pay them off last, slowest. Pay the non-tax deductible loans first and fastest.

20. Pay off ugly debt first. Stuff like credit card purchases.

21. Payoff bad debt next. Stuff like car loans, boat loans. Things that depreciate in value.

22. Pay off good debt (or shall I say “not so bad debt”) last. Stuff like mortgages, investment loans. Things that hopefully appreciate in value.

23. Buying a car? Finance it if you have to, don’t lease! *Exception* If you are self-employed it might make sense.

24. You have $20,000 in a secret bank account for a rainy day fund and $20,000 owing on a line of credit. Seriously? The bank account is paying you next to nothing (which is taxable income to boot) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for rainy day funds. Make it the secret line of credit that you have but never use.

25. Give your Banker more money. No really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. My bank charges $10 a month for 25 transactions and nothing, zero, zilch, zip if I keep $2,500 in the account. Let’s see $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No brainer here. Oh yeah, if you need more than 25 transactions a month…see #12 above.

26. #26? BONUS TIP and MOST IMPORTANT. Let’s face it, you’re not the Government and you’re not a Bank, you can’t run deficits forever and you won’t get a bailout….stop procrastinating already! See 1 through 24 above and take action now!

Sidenote: *Caution* beware of some too good to be true ultra-low rate mortgages. These “no frills” mortgages are often loaded with restrictions like pre-payment limitations, fully-closed terms, stripped-out features, or unusual penalties. You really need to compare product to product. If you’re not looking at what you’re giving up, you may regret it in the future. This alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

Courtesy of Len Anderson, AMP – DLC Origin 

Rent-to-Own, Lease to Own, R2O. They may seem like good options, but watch out for these pitfalls. They are a good program as long as you have a mortgage planner ensuring you are following a plan to succeed.

Rent to Own…what you NEED to know. My guess is you might check this option out if you:
1. Have NO credit.
2. Have credit challenges such as a bankruptcy or debt repayment plan.
3. You’re self-employed or on disability with little income to “declare”.
All valid reasons and you’re not alone. There are lots of people each year that contact me with these exact issues.

Rent-to-own or Lease-to-own is a great program for SOME people! The program allows you to buy a home today without having to meet the typical qualifications required by your banks. There is nothing cheap about these programs either.

The Pitfalls

There is NO guarantee that you will qualify for a mortgage at the end of your term; hence you may lose your deposit.

1. You are buying a home based on an estimated future value, so you could be paying an over-inflated price. What happens if your house de-values over the term of your R20 contract?
2. There can be (if the mortgage becomes “private”) hefty fees involved.
3. You DO need an initial deposit (usually 5-10% of the value of the home).
4. Terms are usually 1-3 years, so if you’re credit challenged, you may not qualify for a mortgage at the end of your contract.
5. If certain documents are NOT completed up front (for lender’s future use), you won’t get the mortgage. Certain items such as an appraisal up-front, option purchase agreement, market rent reports and such must be completed and dated in the beginning.
6. Only a handful of lenders will mortgage these.

When it comes time to finance your rent-to-own, you can waste a lot of time dealing with banks and lenders that don’t deal with Rent-to-Own contracts. Always connect with a mortgage broker who deals mostly with investors who thoroughly understands Rent-to-Own and, most importantly, which lenders will finance Rent-to-Own.

Remember Dominion Lending Centres have over 200 different mortgage programs that are likely BETTER, SAFER and give MORE OPTIONS than a Rent-to-Own. Banks are not your one-stop-shop for answering your questions.

Buyer Beware!

You will see many websites out there with Realtors advertising they have this program, or “middlemen” that also have these sites saying how easy it is. Remember “middlemen” and Real Estate people are sales people. They may NOT be licensed mortgage experts that specialize in credit repair or mortgage alternatives. They are there to SELL you a house. Without proper and continual guidance from an experienced, licensed mortgage professional you risk losing your deal at the end.

Courtesy of Kiki Berg, AMP – DLC Hilltop Finanical 

You’re likely asking yourself, what is the dilemma that self-employed workers face? Well, with more and more Canadians joining the ranks of the self-employment every year, one has to ask themselves how they are going to tackle the age old question, how much does one write off vs how much income does one claim on their taxes. We all want to earn as much money as possible and pay as little income tax as required.

This was my train of thought until the topic of ‘paying taxes’ was brought to my attention by a friend that’s an accountant. As he said, paying income tax isn’t such a horrible thing, in fact it’s a necessity which provides for our infrastructure and without it the ‘world’ we know would be drastically different. Here was the response from him after I re-posted a reference to INCOME TAX RELIEF DAY that I saw on social media.

“I would actually look at it more positively and say that I/we spent this money to live in a great country, province and municipality and it’s worth every penny in taxes spent. I will guarantee you there are billions of people on this planet that would switch positions with us in a second and remember this so called date (INCOME TAX RELIEF DAY) is based on the average Canadian family income of $45,000 and is based on all taxes including not just income taxes, but property tax, sales taxes, health taxes, fuel taxes and much more. So technically not all of it is going to Canada Revenue Agency (CRA). Some of it is going to municipal and Metro Vancouver. For more information go to the Fraser Institute website https://www.fraserinstitute.org/research-news/display.aspx?id=22954. ”

After reading over this message, it got me thinking about how some self-employed people report their taxes and the effect that it has on their chances of qualifying for a mortgage. Besides the duty to provide to our country, we all have a personal desire to provide as much as possible for our family. It’s a so-called ‘tug-of-war’ of who gets your money and how much of it. Here’s where the dilemma gets complicated if you want to borrow money from a lender to purchase residential real estate.

The federal Government of Canada regulates the CRA as well as the lending criteria and policies followed by ALL the ‘A’ lenders. ‘A’ lenders are our chartered banks and non-bank or monoline/investment lender. We also have credit unions that are provincially regulated but follow the CMHC lending criteria, which is federal. Having more ‘cash’ in your pocket actually allows you to borrow less. Showing more income claimed, which requires you to pay more tax allows you to borrow more money if desired. ‘A’ Lenders assess their risk management for lending money to borrowers on historical earning and in this case, if one is self-employed then they require a 2 year average based on T1 Generals or in some cases Notice of Assessments (NOA).

It’s a CATCH 22 and you (and your qualified accountant) need to decide which path you’re going to follow; write off maximum expenses and claim ‘little’ income or claim a ‘healthy’ income and pay more income. Neither is right or wrong.

Upon getting the urge to buy residential real estate a detailed conversation on how ‘your income’ is structured should be had with their Mortgage Expert and Certified General Accountant. Once you have chosen which style of accounting your business will adopt, you just have to be prepared to follow the lending guidelines. Plus, it’s really not that bad either way.

Let’s face it, everyone wants the lowest rate possible when it comes to their mortgage. As a Mortgage Expert, it’s something that I seek for every client. But not all clients are eligible for the lowest rate for a number of different reasons. Two main reasons are because of credit blemishes and, of course, lack of income reported.

BUSINESS CASE

The following is a fictitious scenario that represents a self-employed person that writes down expenses in order to minimize CRA income tax.

Jane is a business owner in Vancouver. She has a modest business that is experiencing growth year after year. Jane enjoys the many perks of being a business owner, especially the tax breaks that come along with it!  Since Jane is able to work with her certified accountant, and considerably write down her income, she often saves thousands of dollars a year on taxes.

Jane would like to purchase a new home. She has a 20% down payment to place on a home, and knows that she grosses more than $100,000 per year in her business. However, since she currently writes down her income to $20,000 per year, her Mortgage Expert has just informed her that she will need to state her  income with a ‘Non-Prime’ or ‘B’ lender for approval.

Now if Jane claimed $100,000 per year for the last 2 years, she may qualify for the best rate out there from an ‘A’ lender. However, let’s look at what that really means:

Jane has saved $23,299 per year because of the tax laws the government has legislated for self-employed business owners. Now let’s compare the interest on a ‘typical’ verified-income loan, and a ‘non-prime’ stated-income loan.

** For ease of comparison to BC yearly tax rate– 1 year term has been used. Rates are approximations for example purposes.**
Jane is paying $3,545 more in interest per year, but her income tax savings are $23,299 per year.  She is actually saving $19,754 per year more than the typical ‘verified-income’ employee that was able to receive a mortgage interest rate of 2.69%.

With all entrepreneurs there is one thing in common – they are all savvy and driven to succeed, or fail, on their own terms.

It takes an extreme amount of hard work to get a business from the infancy stage to a self-sufficient entity that produces a constant and steady flow of revenue. Business owners all want to save money while at the same time earning and establishing a presence in their chosen space. Business financials are all structured differently and, depending on how one chooses to operate, will dictate how they can proceed once it’s time to seek residential real estate financing.

If you are self-employed, make sure to consult with us at Dominion Lending Centres to find out how your mortgage can be tailored. Every mortgage scenario is completely different from the next, so make sure yours fits correctly and you are informed before you start the financing process.

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 mortgage means 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 

As the average age of our Canadian population gets older (according to Employment and Social Development Canada, our country currently has over 5 million people over 65 years old), it is no doubt that you or your loved one may be faced with growing concerns about the ability to live life without financial constraints or difficulties. It may be mounting medical expenses or the limitations of living within a fixed income, or carrying debt load into retirement.

On the other hand, it may be the time to enjoy travelling or helping out grandchildren with university tuition, even the purchase of a home in sunnier climes. Perhaps it’s time to enjoy an active retirement and downsize into a smaller home!

Whatever the situation may be, a Reverse Mortgage might just be the perfect fit for you to find that extra income you hold in your home.

WHAT IS A REVERSE MORTGAGE: A Reverse Mortgage is a loan secured against the value of your home. Unlike a loan or a regular mortgage, with this type of mortgage, you are not required to make payments. You only repay the loan when you move or sell your home. A Reverse Mortgage is a means for homeowners, aged 55 years or older, to access a portion of the stored value in their home to use today while still retaining ownership. In effect, converting the equity to cash, which can be received in a lump sum payment, regular payments or a combination of the two.

Advantages:

Payments from a reverse mortgage are tax-­â€free income.
There are no payments to make as long as you or your spouse lives in your home. The principal and interest are only due when your home is either sold or you move out..
The freedom to eliminate monthly payments can be a benefit for stretched budgets.
You can repay the loan at any time.
If the investment market takes a downturn, a reverse mortgage could fill the gap until your investments stabilize or reach maturity.
The amount you owe can never exceed the value of your property.
Advantages of Revers Mortgages Continued…  
You and your beneficiaries will not be responsible for any shortfall if interest rates increase and housing values drop.
Interest paid on the reverse mortgage is tax deductible if the proceeds were used to earn investment income

A CASE SCENARIO

Mr. and Mrs. Walsh 82 and 78 years old, found that the townhome they were in no longer suited them as Mr. Walsh has deteriorating health and was having trouble managing the stairs. They were ready to find a nice little condo to settle into.

Challenge: Mr. and Mrs. Walsh had some concerns, as, now that they were on pensions, they were unable to qualify for the difference they needed. They owned a $400,000 townhouse with a $250,000 mortgage.

Solution:

Sold their current home for $400,000.
Purchased a $230,000 condo with a $125,000 down payment, proceeds of which were from the sale.
They got a $105,000 CHIP Reverse Mortgage on the new property to cover the difference.
No income
No credit requirements and most of all no payments for as long as they live in their home
If one partner passes away, nothing changes
Provides them with complete control over their home and with peace of mind and living life on their terms!

There are some out of pocket costs associated with setting up this type of mortgage (Appraisal and legal advice) with the set up fees coming out of the proceeds of the loan. The interest rate is a bit higher than if you were purchasing a home but still competitive with variable or fixed rate options available.

Unlocking the value in your home with a Reverse Mortgage may just be the answer to bring you peace and security in your financial health. As always, get professional advice from Dominion Lending Centres so we can help you determine whether or not this product is right for you!

Courtesy of Jordan Thomson, AMP – DLC City Wide

A “Gifted” Down Payment is very common for first time buyers. Essentially, a buyer’s family member (usually very nice, warm and loving parents) will offer up money to go towards the down payment. Often this is done because their son or daughter doesn’t quite have enough funds saved up for the full 5% down payment. Or, because they want to make sure their child has enough money to make up 20% for a down payment to avoid CMHC premiums.

All that is required for documentation is a signed Gift Letter from the parents, which simply states that the money does not have to be re-paid, and a snapshot of the son or daughter’s bank account showing that the gifted funds have actually been transferred.

A gifted down payment is viewed as an acceptable form of down payment by almost all lenders. Talk to your Dominion Lending Centres Mortgage Professional to make sure that your lender accepts “gifts” as an acceptable down payment.

Courtesy of Jeff Ingram, AMP – DLC Canadian Mortgage Experts

Not long ago, someone contacted us wishing to refinance their mortgage. They presently held a mortgage from one of the big banks. When this homeowner originally obtained her mortgage, the bank offered her a discounted rate of 2.99%. It matured in July of 2016, however, when they contacted us at Dominion Lending Centres, they wanted to refinance to improve their cash flow because of recent major renovations. The mortgage was over $600,000.

At first thought, an Interest Rate Differential (IRD) penalty might seem to be so small because of the effective rate of 2.99%, that only a 3 month penalty would apply to break their existing mortgage. Wrong. Because the rate for the original mortgage was discounted from 4.64%, 4.64% was used when calculating the IRD penalty. So, instead of paying $5,157 dollars, the client was told they had to pay over $23,000 in order to break their mortgage with the bank.

A mortgage broker-channel lender, and there are many, uses the contract, or effective rate, when they calculate the IRD penalty on fixed rate mortgages, unlike the banks. Because they use the actual contract rate, the penalty would have been the lower one in the example above. An amortization scenario would determine if breaking the existing mortgage would be worth it by seeing the crossover point in time for making up the difference in savings. In the case above, it was not worth breaking, and the client had to wait until their mortgage matured.

The banks have, in recent years, implemented a new way of registering mortgages to assist in these situations. They often now register the loan as a collateral charge loan rather than a mortgage. This allows the bank to refinance the home loan on a house without a penalty if the client needs extra cash in the future. The disadvantage to this is that in order to break the loan agreement, even at maturity, the client either has to pay a lawyer or title insurance company to help break the loan agreement, costing approximately $600-$1000. Aware of this, at renewal, the bank can price the renewal rate accordingly, as they are aware that the client must pay this fee in order to leave the bank.

When purchasing a home or renewing or refinancing, it pays to ask details about pre-payment privileges and the costs associated with discharging your mortgage before the maturity date, as well as how the loan is going to be registered, ie. as a regular mortgage or a collateral charge loan.

Courtesy of Daniel Lewczuk, AMP – DLC Parato Mortgage Group 

Whether you are a first time buyer, looking at buying a bigger house or downsizing, if you are looking at buying an investment property it is important to be prepared. This spring a sellers’ market is in full swing, which is more noticeable in certain areas of the Lower Mainland. With historically low interest rates, buyers are making the jump into homeownership, because for many, their mortgage payments will be less than what they are paying in rent. It is certainly a great time to get into the market. However, in a sellers’ market, buyers find themselves in competition with other buyers to purchase a home.

Buying a home can be exciting but having to compete for a home can add a bit more stress. In this case, a property’s asking price and what the property will sell for is quite different, and in most cases the selling price will be well above and beyond the listed price.

When a homebuyer goes into a multiple offer situation, they are less in control. As a buyer, you need to prepare yourself in doing work upfront and with the understanding that you might not get the property in the end.

During multiple offer situations, the seller is not obligated to negotiate or accept any of the offers. The seller has the liberty to choose the best offer to negotiate and they will accept the offer that best reflects their needs. While price is important, that will not be the only factor they consider. They will also look at things such as subject conditions, completion and possession dates.

Here are some things you can consider which may help you feel more in control of the situation when going into multiple offer situations:

• Get pre-qualified by a Mortgage Expert – One of the most important aspects of buying a home is knowing how much you qualify for. You will know what you are comfortable paying on a monthly basis but also what is the highest amount you can offer. While you might have been qualified, the lender still has to approve the property you are buying.

• Prepare and have all your documentation ready – It is important that you provide your Mortgage Expert with all the documentation the lender is going to require upfront. Especially since time will be of essence, you don’t want the added stress of getting documentation when you are in the middle of negotiations and during the subject condition period.

• Having the right real estate agent – It is critical that you have an agent that has your best interest in mind. As a buyer, it is not your job to seal the deal, it’s your agent’s responsibility to know what your limit is and respect that. Don’t let your agent try to upsell you on the price and encourage you to go above your budget. It’s their job to research comparable properties in the area and advise you, but you are the one that makes the final decision. After all, it’s your money.

• Set your boundaries – Once you set your budget, stick to it. Determine exactly how much you can go over if you end up in multiple offers. Don’t get sucked in by emotion and peer pressure because in the end, it can cost you a lot more money.

• Consider doing a home inspection ahead of time – The buyer could consider your offer more readily if it doesn’t include a “subject to inspection” clause.

• Be flexible – Winning a multiple offer situation might be as easy as agreeing to the seller’s conditions such as closing dates, buying the property “as is” or even tightening the subject removal dates. This is important if the seller has already bought another property and is anxious to move on. Agreeing to make the transaction as easy as possible could mean winning over a more generous offer. Buying a property “as is” and limiting the subject conditions (such as requesting that a missing knob or floor tile be replaced) might work in your favour too. If your agent is aware of any information about the seller’s situation and if you can be flexible in any way, take advantage of this opportunity that might help you get your offer accepted.

• Write it down – Perhaps you might want to write a quick letter to the seller explaining who you are and why you want to buy their home so much. Buying and selling a home is an emotional time for everyone, especially if the seller has lived in that home for a long time and raised their family there. Sometimes, it’s not about the highest offer but it can certainly also be about an emotional connection. Even though your offer might be lower than the others, some sellers might feel a strong connection to your story and decide that it’s not about the money but about someone who will really appreciate a great home!

• Know when it is time to walk away – Multiple offer situations can be stressful and sometimes listing agents strategically set the price of the home below market value to start a multiple offer situation. Make sure you stand firm.

Buying your home is about a great investment and you have to be smart about it. In the end, it’s about being comfortable on what you are paying a month and happy with the decisions you make. After all, it’s about finding a home that will be a great place to start building equity and creating memories.

Courtesy of Alisa and Jorge Aragon, AMP – DLC Mountain View

Okay, so here we are… we have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage goals, the lender is satisfied with all the supporting documents, we are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for the mortgage.

Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender actually advances funds).

NEVER MAKE CHANGES TO YOUR FINANCIAL SITUATION WITHOUT FIRST CONSULTING ME. CHANGES TO YOUR FINANCIAL SITUATION BEFORE YOUR MORTGAGE CLOSES COULD ACTUALLY CAUSE YOUR MORTGAGE TO BE DECLINED.

So without delay, here are the 10 Don’ts of Mortgage Closing… inspired by real life situations.

1. Don’t quit your job.

This might sound obvious, but if you quit your job we will have to report this change in employment status to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you have taken on a new job that pays twice as much in the same industry, there still might be a probationary period and the lender might not feel comfortable with proceeding.

If you are thinking of making changes to your employment status… contact me first, it might be alright to proceed, but then again it might just be best to wait until your mortgage closes! Let’s talk it out.

2. Don’t do anything that would reduce your income.

Kind of like point one, don’t change your status at your existing employer. Getting a raise is fine, but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt service ratios on your application and you might not qualify.

3. Don’t apply for new credit.

I realize that you are excited to get your new house, especially if this is your first house, however now is not the time to go shopping on credit or take out new credit cards. So if you find yourself at the Brick, shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage.

4. Don’t get rid of existing credit.

Okay, in the same way that it’s not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile. Mortgage lenders and insurers have a minimum credit profile required to lend you money. If you close active accounts, you could fall into an unacceptable credit situation.

5. Don’t co-sign for a loan or mortgage for someone else.

You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to your expenses and may throw your ratios out of line.

6. Don’t stop paying your bills.

Although this is still good advice for people purchasing homes, it is more often an issue in a refinance situation. If we are just waiting on the proceeds of a refinance in order to consolidate some of your debts, you must continue making your payments as scheduled. If you choose not to make your payments, it will reflect on your credit bureau and it could impact your ability to get your mortgage. Best advice is to continue making all your payments until the refinance has gone through and your balances have been brought to zero.

7. Don’t spend your closing costs.

Typically the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage, like paying your lawyer for their services. You might think that because you shouldn’t take out new credit to buy furniture, you can use this money instead. Bad idea. If you don’t pay the lawyer… you aren’t getting your house, and the furniture will have to be delivered curb side. And it’s cold in Canada!

8. Don’t change your real estate purchase contract.

Often times when you are purchasing a property there will be things that show up after the fact on an inspection and you might want to make changes to the contract. Although not a huge deal, it can make a difference for financing. So if financing is complete, it is best practice to check with me before you go and make any changes to the purchase contract.

9. Don’t list your property for sale.

If we have set up a refinance for your property and your goal is to eventually sell it… wait until the funds have been advanced before listing it. Why would a lender want to lend you money on a mortgage when you are clearly going to sell right away (even if we arranged a short term)?

10. Don’t accept unsolicited mortgage advice from unlicensed or unqualified individuals.

Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people, who don’t have the first clue about your unique situation, give you unsolicited advice about what you should do with your mortgage, making you second guess yourself.

Now, if you have any questions at all, I am more than happy to discuss them with you. I am a mortgage professional and I help my Dominion Lending Centres clients finance property every day. I know the unique in’s and out’s, do’s and don’ts of mortgages. Placing a lot of value on unsolicited mortgage advice from a non-licensed person doesn’t make a lot of sense and might lead you to make some of the mistakes as listed in the 9 previous points!

SO IN SUMMARY, THE ONLY THING YOU SHOULD DO WHILE YOU ARE WAITING FOR THE ADVANCE OF YOUR MORTGAGE FUNDS IS TO CONTINUE LIVING YOUR LIFE LIKE YOU HAVE BEEN LIVING IT! KEEP GOING TO WORK AND PAYING YOUR BILLS ON TIME!

Now… what about after your mortgage has funded?

You are now free to do whatever you like! Go ahead… quit your job, go to part time status, apply for new credit to buy a couch and 78″ TV, close your credit cards, co-sign for a mortgage, sell your place, or soak in as much unsolicited advice as you want! It’s up to you!

But just make sure your mortgage has funded first.

Also it is good to note, if you do quit your job, make sure you have enough cash on hand to continue making your mortgage payments! The funny thing about mortgages is, if you don’t make your payments, the lender will take your property and sell it to someone else and you will be left on that curbside couch.

Obviously, if you have any questions, please contact me!

Courtesy of Michael Hallett, AMP – Producers West Financial 

Have you ever needed to get out of your mortgage before the maturity date? It can be a confusing and surprising experience. Don’t forget that your mortgage is a legal contract, therefore, like most contracts it is expected that it would cost you something to break it.

The lending institution will have two options to determine how much you will pay, but first they will consider the type of mortgage term you have. Is it a variable rate or a fixed rate? If it’s a variable rate, you most likely will pay three months interest max, but if your term is fixed, you will pay either the Interest Rate Differential (IRD) or three months interest, whichever is greater.

Three Months Interest Penalty

Determining how much three months interest will cost you is usually pretty simple; take the remaining mortgage balance, multiply by the interest rate, divide by 365 to get the daily amount, then multiply by 90 (for three months) and you got it. Of course, you must verify your figures with your financial institution, but you get the picture.

Interest Rate Differential

IRD is more complex. In simple terms, the financial institution wants you to pay them back for the loss in revenue that they may experience when you pay out the mortgage early. So if you have two years left on your mortgage, and they can’t loan out the same funds for at least the interest rate you are paying they will want to be compensated for their loss.

For example; if your current rate is 5% but they can currently can only loan out those same dollars at 3%, they will want you to pay them the 2% loss.

With me so far? Here it comes…

Say your rate of 5% was a discounted rate at the time received, most are, and the posted rate at the time was actually 7%, the financial institution may actually charge you the difference between the 7% and the current 3%, or something even more complicated. Could be a difference of thousands of dollars!

Most banks and financial institutions have different ways of calculating their early discharge penalties, therefore, it is imperative that you find out how they will calculate this penalty upfront before you initially sign for your mortgage, especially if you think you might need to get out early.

A mortgage specialist will take a financial planning approach to sourcing your mortgage options and will help you throughout your decision making progress, making sure that you not only consider your current situation but make sure you look at future scenarios as well.

The good news is that we have access to lenders who will calculate your penalty using your discounted interest rate against the current discounted rate when calculating the penalty.

If you are considering paying out your mortgage early, it is vital that you contact your mortgage specialist or financial institution to obtain a written calculation on how this penalty will be calculated before finalizing your plans. Knowing the costs prior to making the final decision on a house sale/purchase or early discharge can save you thousands of dollars and a lot of stress!

Better to know up front, than being surprised later!

Courtesy of Anne Martin, AMP – Neighborhood DLC