The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.

However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.

Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).

And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).

Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.

As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.

The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.

Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.

The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.

What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.

Courtesy of Eitan Pinsky, AMP – DLC Origin Mortgages

A HELOC, or, Home Equity Line of Credit, can be one of the greatest gifts you give yourself. Borrowing money against your home as you accumulate equity through a shrinking mortgage or an increasing property value- something almost many people in the Vancouver and Toronto markets can relate to.

With all this increasing value and home appreciation, people are looking to cash in and utilize this new-found money. Unfortunately, one of the first things people think to do is sell! This can be counter-intuitive because you may of just sold your house for $150,000 more than what you bought it for last year, but you are now stuck buying a house that has gone up $100,000, $150,000, possibly $200,000 in the same amount of time.

So what can you do?

Open up a HELOC. You can do this separately through a second lender, move your mortgage over to one of the big banks like Scotia and enter a STEP, or utilize Manulife’s new Manulife One mortgage product. As you pay down your mortgage and accumulate equity in your home, you unlock the ability to spend money on a line of credit that is secured against that same equity you have built up in your home.

Let’s say you bought a pre-sale condo for $225,000. Two-years later it is worth $375,000. If you have that mortgage set-up with a HELOC component, you could potentially have $100,000 available to you on a line of credit if you qualify. What could you do with $100,000 where you are making interest only payments? Buy a rental property that breaks even or better yet has positive cash flow. You can build equity in a second home while someone else pays the mortgage through rent.

Don’t want to buy an investment property? Maybe you want to invest in stocks or funds where the expected return is more than the interest you are paying? Maybe you need to do renovations? Planning a wedding? Travelling? The list goes on.

Setting up a HELOC for yourself can open up many doors, all without having to give up your property and pigeon hole yourself into over-paying for someone else’s!

Courtesy of Ryan Oake, AMP – DLC Producers West Financial

Building a new home – It’s something that many couples dream of. It can be an exciting, stressful, joyful, crazy time period that many walk away from saying “never again” or “bring on the next one!” We scoured the internet and sorted through our own experiences to bring you the Top 5 things to consider when you are building a new home.

1) It’s All In The Numbers

Just like house-shopping, building a home from the ground up requires you to know what you can afford. Most house plans offer a cost to build tool (usually for a nominal fee) to give you an accurate estimate of construction costs based on where you’re building. The numbers include the costs of construction, tax benefits, funds for the down payment and slush account, and other related calculations.

Once you have determined what you can and are willing to spend, meet with a Dominion Lending Centres mortgage broker to discuss how much you wish to borrow for your home.

Renovations and the actual building portion aside, we often are asked on what a mortgage looks like for an unbuilt home. This is where a “construction” mortgage comes into play. The budget you give your broker should include your hard and soft costs as well as the reserve of money you plan to have set aside in case you run into unexpected events.

It’s this initial budget that a lender will determine how much you qualify for.

For example, based on the lender loaning up to 75% of the total cost (with 25% down):

Land purchase price (as is) Total soft and hard costs Total Cost (as complete)

$200,000

$400,000

$600,000 x 75% = $450,000 available to loan

Keep in mind, the lender will also consider the appraised value of the finished product. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify for the amount available to loan. The appraised value is determined before the project begins.

As well, the client will have to come up with the initial $150,000 to be able to finance the total cost of $600,000. A down payment of $150,000 plus the loan amount of $450,000 = the total cost of $600,000.

2) Choose a Reputable Builder

Builders are a dime a dozen, but not all of them are qualified or will be the right one for your project. Careful research is needed when determining who will be the head contractor of your home-building project. Alternatively, one of the best ways to find your perfect contractor is by asking friends and family who have gone through the process. Another great source is your mortgage broker! They often have many industry connections to some of the most qualified contractors and builders. Ask them if they know of anyone—we can almost guarantee they can will have at least one or more referrals for you.

3) Build a Home for Tomorrow

It can be tempting to personalize your home to the tenth degree—after all you are building it to meet your unique, customized wants and needs. However, keep resale value and practicality at the back of your mind at all times. Life can often throw a few curve balls that lead to you-for one reason or another-having to place the home for sale. If that time should ever come, you want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others and if the features suit the neighborhood you are building in as well.

4) Go Green!

Now more than ever before energy efficient upgrades are easy to add to your home. When you are in the design stages, selecting energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. For example, the CMHC green building program rewards those who select energy efficient and environment friendly options.

5) Understand the Loan

As a final note, once construction is done it’s crucial to understand how a Construction Mortgage Loan repayment works. To make it easier, we have a list of points that you should know:

Construction loans are usually fully opened and can be repaid at any time.
Interest is charged only on amounts drawn. There are no “unused funds.”
Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage.
A lender will always take into consideration the marketability of a property. They will look at
not only the location based on demographic but also the location based on geography. For instance, a lot that is in a secluded area where no sales of lots have occurred in the last five years and mostly consisting of rock face may not be a property that they are willing to lend on.

Depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).
There are a lot of things to consider when you build a home but a few things that can keep you on track and on budget are to have a solid plan in place, work with a builder you trust, build a strong team around you that can be there from start to finish, and to do your research.

Courtesy of Geoff Lee, AMP – DLC GLM Mortgage Group

Recently one of the former members of the boy band New Kids on the Block expressed an interest in buying this lighthouse off the coast of Virginia in the U.S. Unique homes can be a lot of fun to own and to live in. However, there are some things you should be aware of before you make an offer on a unique property. He probably paid cash for this property because unique properties can be difficult to find financing for.

While we don’t have lighthouses in Western Canada, another type of property does come onto the market from time to time; church conversions.
I had a client last year who owned a church conversion in a small town in Saskatchewan. The building was great. It had lots of room, and it was on a large lot.

The problem was trying to find a lender who would lend on a church conversion. I found out that the big banks would lend but only in larger cities and towns. They would lend on homes in small towns in Saskatchewan and Alberta but not both. The only solution was to go to a local credit union that knew the property and the town.

Why won’t big banks do unique homes like this in smaller centres? Marketability – if the borrower doesn’t keep up their payments it would take months to find a buyer who wanted something like this and it would cost the bank a lot to keep the property until a buyer could be found.
Another lesson to be learned.

Courtesy of David Cooke, AMP – DLC Clarity Mortgage

Finding the best realtor for you involves doing some leg work. It can be overwhelming, kind of like choosing which ice cream you want to try! You go to the ice cream store and they have over 50 flavours and after you have contemplated, you opt for vanilla, just because it was easy.

Finding the best realtor for you is not “vanilla.”

Here are five questions you should always ask your potential real estate agent:

1. How does your experience benefit my real estate transaction? Where the agent just completed a course on negotiation skills or sold a home in your neighbourhood, they should be able to bring a unique edge to the table.

2. If you were buying or selling your home, what would you look for in an agent?
This question is a great way of getting the inside scoop on the industry. What do industry professionals see as an essential asset? How does each agent vary in those priorities?

3. Tell me about a recent work success. Give the agent a chance to discuss their latest win, and you’ll learn what they’re passionate about and how they’ll turn your home search or sell into their newest achievement.

4. What are your most effective approaches to marketing a home? Rather than the standard ‘how will you market my home,’ ask which methods are delivering results. If your agent is particularly successful with new school social media or tired and true networking, you’ll have expectations on how they’ll tackle selling your home.

5. Give the rundown of the conditions, commission fees and agreements. These basics will play a major role in how you choose your real estate agent. Ask for the specifics at each interview, and you can see how each partnership measure up.

Courtesy of Karen Penner, AMP – DLC Jencor Corporation

People have a lot of different ideas on how they want their home to look. Some want a modern look while others like traditional cottages. But one thing that more and more people want is smart technology in their homes. This adds value and desirability to your home making it easier to sell for the asking price.

In a recent survey, 35% of first time home buyers put smart technology as a priority in their home purchase.
What is a smart home? A smart home is a residence that uses internet-connected devices to enable the remote monitoring and management of appliances and systems, such as lighting and heating.

Smart thermostat – Is a thermostat that can be controlled remotely by your smart phone and will eventually learn your heating and cooling patterns. You can turn up the A/C in the summer from your office and the house will be cool by the time you get home. These features are convenient but they also help you save money on home heating and cooling costs.

Connected Lights – allow you to turn on or dim lights at different times of the day. Combined with a Smart thermostat they can help you to save half your average energy costs.

Smart Locks – these are really cool ! You can program your front door to unlock when guests arrive using Bluetooth or WiFi or some smart phones.

Wireless Security – We have all seen photos of burglars stealing packages from the front door of a home , or perhaps you have seen the TV ad of the lady at the spa who can see 2 unsavory looking guys at her front door and speaking to them and scaring them off. You may have seen the YouTube video of a house that caught fire in Ft. MacMurray and the firefighters extinguishing the blaze. The home owners were able to watch this from a hotel room in Edmonton. Check with your insurance company, you may qualify for a large discount in your rates by having this home security.

Finally, not only is your home more desirable and comfortable, but this is achievable in both new and existing homes.

Courtesy of David Cooke, AMP – DLC Clarity Mortgages

Prepayment, Portability and Assumability

Prepayments

One of the most common questions we get is about mortgage prepayments. The conditions vary from lender to lender but the nice thing about prepayments is that you can pay a little more every year if you want to pay off your mortage faster. A great way to do this is through prepayments.

They’re always something to ask your broker about because each lender is very different. You can always do an increase on your payments and that means that you pay a little bit more each week or each month when you make your mortgage payment. You can also make a lump sum payment. Perhaps you get a bonus every year or you get a lot of Christmas money. You can just throw that on your mortgage. It goes right on the principle so you’re not paying interest on those extra funds. Paying a big chunk at once also means that a higher percentage of future payments will also go towards the principle.

Portability

Portability means that if you sell your house and you want to take your current mortgage and move it to your new house you can. The one thing about portability that we always have to keep in mind is that we can’t decrease the mortgage amount but we can do a little bit of an increase often through a second mortgage or an increase we call a blend and extend. It just gives you the flexibility of moving the mortgage from one property to the next property. It also gives you the flexibility of being in control of where you mortgage is going and not having to break your mortgage every time you decide to move.

Moving a mortgage to a new property avoids things like discharge fees, the legal cost of registering a new mortgage and the possibly of a higher interest rate. It’s great to be able to keep that rate for the full term rather than having to break and pay those penalties half way through.

Assumability

Assuming a mortgage comes into play more often where there are family ties. Say your parents have a mortgage and you move into that house. Rather than you going out and getting a new mortgage and your parents having to pay those discharge fees, you have the ability to assume their existing mortgage at that current rate. All you have to do is apply and make sure you can actually afford the mortgage at what they’re paying. You have to be able to be approved on the remaining balance on the mortgage just like you would on any other mortgage. Just because your parents have an eight hundred thousand dollar mortgage doesn’t mean you’ll be able to take that over.

Courtesy of Tracy Valko, AMP – DLC Forest City Funding

The words reverse mortgage carry some negative connotation. What does it really mean? What makes reverse mortgage different than a regular or demand mortgage in Canada? There are no payments required if 1 applicant lives in the home. Payments can be made if they wish, they are truly optional.

No medical required and limited income and credit requirements.
Clients can receive up to 55% of the value of their home in tax free cash, depending primarily on their age, property type as well as location.

COMMON MISCONCEPTIONS & OBJECTIONS:

I heard they were restrictive and bad for seniors.

Much of the negative press around reverse mortgages originated out of the U.S. The rates, fees, and restrictions are quite different from what is offered in Canada. The reverse mortgage providers in Canada follow the same chartered bank rules as other major lenders.

The bank will own my house.

This is only a mortgage; the title and deed remain in the client’s name. The owner will not be asked to move, sell, or make payments for as long as at least 1 applicant lives in the property.

I’ll lose all my equity.

The maximum the lender can finance is 55% of the value of the home. The average advance is more like 35% of the value, leaving ample equity to fall back on. If the real estate market increases at an average of about 2% to 2.5% per year over time, clients will find their home value increasing just as much over time as the balance owed.

The costs are too high.

The closing costs are the same as a regular mortgage, approximately $1,800, includes the appraisal and lawyer fee.

A line of credit is better and cheaper.

A line of credit is a great solution for someone with good credit, cash flow and most importantly someone with a regular income.

I paid off my mortgage, I don’t want more debt.

Leveraging money from your home is not debt. It’s the equity accrued over the duration of ownership. Only the interest is debt.

Why are the rates higher than a regular mortgage?

Other lenders can lend out money at lower costs. This is because they have other services to sell the client to help recoup their cost. The regular mortgages also require a regular repayment frequency; thus, the lender is constantly receiving funds back to re-lend.

I heard they have high penalties and you can’t get out very easily.

This is well suited for seniors looking to keep the reverse mortgage in place for 3 or more years. There might be other solutions for a timeline that is shorter. Penalties are always waived upon death of the last homeowner. Penalties are reduced by 50% if selling and moving into a care facility.

I don’t need money very much so it’s not worth it.

The newest program offered is called Income Advantage. It allows clients to access money on their own timeline, when they need it or a pre-determined auto-advance. Borrower only pays on the amount advanced. The minimum advance required is $25,000.

Courtesy of Michael Hallett, AMP – DLC Producers West Financial

Short Version:

The most important question a home-seller must ask their Broker or their banker this Spring:

‘Do I QUALIFY to port my mortgage?’

You must re-qualify to port your mortgage to a new property, and you must re-qualify under stringent new rules.

How stringent?

Long Version:

Let’s say you have impeccable credit, a $100,000 income, and bought a house with a basement suite last year – you may have a mortgage of ~ $675,000…which you qualified for in 2017.

In 2018, you new maximum mortgage amount is closer to ~$530,000.

And if rates were to move up another 0.50% you’d be capped at ~$490,000.

If rates were to move up a full percentage point ~$455,000

Either way, even with no further upward movement, the family in this example, were they to enter into a binding sale agreement without confirming their qualifications would not be able to re-enter the market at the same price point.

Key Point – Do not ask if your mortgage is ‘portable’ (99% are). Ask if you currently qualify to move your mortgage to a new property. This will require an actual application and full review.

Key Point – The federal government has created a dynamic in which qualifying rates have shifted radically, and more precisely the ground has shifted under tens of thousands of middle class Canadians feet. You have been protected from yourself, and you don’t even know it.

Key Point – Since Jan. 1, 2018, you’re subject to the new stress test. Even though you have impeccable credit, have never missed a payment, and even got a 3% raise last year – too bad.

Conclusion

Don’t list your home for sale without having something in writing from your current lender confirming that you QUALIFY to move your existing mortgage to a new property. If you have any questions, contact your local Dominion Lending Centres mortgage professional.

And if you’ve personally been caught in this ‘portability trap’, by all means make your voice heard. Share your story with me directly and also here; www.tellyourmp.ca

Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts

As property prices continue to rise across Canada, the conversation around “how to climb the property ladder” has made a subtle shift to “how to get on the property ladder in the first place.” Especially if you’re single.

Whereas before it was assumed anyone would qualify to buy a starter home (or condo), nowadays with increased housing prices and the government making it tougher to qualify for a mortgage through a financial stress test, becoming a homeowner isn’t a walk in the park. Qualifying for a mortgage on a single income is becoming increasingly difficult.

Unfortunately, just because you have a proven ability to pay rent on time doesn’t mean you will qualify to make mortgage payments in the same amount. So if you are looking to get into the housing market, but don’t qualify on your own, maybe you should consider co-ownership as an option!

So what is co-ownership anyway? Well, co-ownership is when more than one applicant takes on the financial responsibility of owning a property together. Co-ownership can take on many forms. Obviously owning a home with your spouse or life partner is the most common form of co-ownership, while having your parents co-sign on a mortgage is another. But for the sake of this article, let’s think past these arrangements.

Did you know that there are really no limitations with whom you can purchase a property? This is assuming they meet the lending criteria.
Maybe a brother, sister, cousin, neighbour, co-worker, friend, your mechanic, financial advisor, or some distant relative just happens to be looking to get into the housing market as well? There is a good chance that by combining your incomes together, you will qualify for a mortgage that neither of you would qualify on your own. Bringing someone else into the picture, or even a group of people, can significantly increase the amount you qualify to borrow on a mortgage. Most lenders will accept up to four applicants on a mortgage, while some lenders have even gone as far as launching products designed to make buying with friends and family easier. Buying a property with someone(s) in a co-ownership arrangement is becoming way more commonplace.

However, before making the decision to buy a house with someone, there is no doubt going to be a list of things you are going to want to work through. You will want to get everything out in the open and ask yourself questions like…

Do I trust this person?
Can I live with this person?
Am I comfortable making decisions about the home with this person?
How will conflict be managed when it arises?
What happens if either party runs into financial trouble?
What is the exit plan?
The more you work through ahead of time, the better chance you have at successfully co-owning a house with someone. A lot of people who purchase a property in a co-ownership agreement treat it like a business arrangement.

Courtesy of Kris Grasty, AMP – DLC First Pacific Mortgage