28 Jan

TITLE INSURANCE CAN BE YOUR BEST FRIEND WHEN PURCHASING REAL ESTATE

General

Posted by: Mike Hattim

Nearly everyone will buy a home and, in fact, most people will buy several, moving up from one to another more desirable home.  Each time they buy a home, the buyer‘s realtor will request a Real Property Report from the seller’s Realtor.

A Real Property Report (RPR) is a legal document that clearly illustrates the location of significant visible improvements relative to property boundaries. It takes the form of a plan or illustration of the various physical features of the property, including a written statement detailing the surveyor’s opinions or concerns. It can be relied upon by the buyer, seller, the lender and the municipality as an accurate assessment of the improvements on the property.

But what happens if the RPR is old, or even unavailable? The new buyer can’t be confident that the location of improvements (buildings) are within the property boundaries and that there are no encroachments from adjacent properties that they are unaware of. Knowledge of these things can help to protect buyers from potential future legal liabilities resulting from problems related to property boundaries and improvements.

Because of this, many realtors suggest the use of Title Insurance to protect their buyers from unknown defects in the title of the property causing financial loss. Title protection will protect a buyer from costs associated with:

  • Title Fraud
  • Survey and title issues and/or defects
  • Challenges against your ownership

It will also cover you against title defects that have occurred in the past, prior to you purchasing the home.

Title insurance will not expire as long as you own the home.

In some cases, the lender will also request title insurance under a loan policy. This allows them to feel comfortable after releasing the funds, and many lenders will accept title insurance in lieu of an up-to-date RPR.  As a result, the loan policy can save you time and money. If the lender requires a lender policy as a part of your agreement, the lawyer or notary will order a Loan Policy as a part of your closing.

Because the title can be used in lieu of the RPR and reduce the need for some legal searches, this again will save time and money making the Title Insurance a request that many realtors will suggest to their buyers.

For more information contact your Dominion Lending Centres mortgage professional.

 
27 Jan

HOW TO SUCCESSFULLY KILL YOUR FINANCING APPROVAL

General

Posted by: Mike Hattim

Here is where you are currently sitting. You have successfully found your dream home. Negotiated like a true champion and kept your calm through the back and forth with the seller. Provided the endless supply of paperwork required by your lender to meet the financing condition. Set up all the things required for the big day, like scheduling the myriad of people to move your furniture, get your Internet set up and making sure your home is warm and toasty. Then you get a call from your mortgage specialist to the effect of “Houston, we have a problem.” Today we are going to look at the most common ways people unwittingly kill their mortgage approval and leave themselves in the lurch.

First thing to note is this, your financing approval is based on the information the lender was provided at the time of the application. Any, and I do mean any, changes to your financial picture are grounds for the cancellation of the approval. It’s actually in the commitment you have signed.

1. Employment – Not all employment is considered equal by the lender and insurers like CMHC. Self Employed, commissioned, part time, overtime, and bonus are all examples of income types where we must have a two year average to satisfy everyone involved, proving that you will have enough income to support the mortgage.

For example, Bob accepts a position with a new company after his financing condition is met. He has negotiated well and knows that the income will exceed what he made previously. The problem is that now Bob will be paid a base plus a bonus component where he was previously salaried. Until there is a 2 year history, the bonus income cannot be used and the mortgage approval is cancelled.

The other consideration is that most new employment comes with a probationary period which can be up to 1 year. Lenders will not use probationary employment which will likely lead to a cancellation as well.

A really important thing to note here is that lenders are calling at the time of approval and again just before funding to verify the employment information provided.

2. Debt – Again, the approval is based on the debt load you had on the day of the mortgage application. Any changes can cause a cancellation. The following are the most common:

* New vehicle – Often comes with a large monthly obligation

* Do not pay for 12 months – We know you are eager to fill your new home with furniture and that you don’t have to pay for 12 months, but this is a new debt obligation and the lenders have to include a payment for it

* Increase to credit card balances – this can change your affordability ratios too much

3. Down payment source – And yet again I reiterate that the approval is based on the initial information you have provided. You will be asked at the lawyer’s office to verify the source of the down payment and if it is different than what the lender has approved, then you may be in trouble. For example, there are lenders who will allow you to use a line of credit for the down payment. Not all of them do and even if yours is one of them then the lender is still obligated to inform the mortgage insurer and their investors of the change to the source. This leaves you at risk at the last minute of your mortgage being declined.

4. Credit – Even if you do not increase your debt load, you also need to make sure you keep your credit as strong as it was when you were approved. Make all payments on time. This includes cell phones. And be careful about allowing anyone to pull your credit. Too many inquires can be an indication of money troubles as you search for new credit facilities. You could see a substantial drop to your credit score which can…?? You know the answer, kill your mortgage approval.

There you have it. You are now fully aware that your mortgage approval is a delicate thing which requires proper care and keeping during that period between approval and funding. Make sure you take good care of yours. Have a great day everyone.

25 Jan

TOP 5 QUESTIONS TO ASK YOUR MORTGAGE LENDER BEFORE SIGNING ON THE DOTTED LINE

General

Posted by: Mike Hattim

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.

 
15 Jan

CHOOSING THE RIGHT MORTGAGE

General

Posted by: Mike Hattim

Choosing the right mortgage to meet your needs is a process best handled with the support of a mortgage professional. Just as there are many homes to choose from, there are many types of mortgage financing options.

Choosing the right mortgage can save you thousands of dollars and give you the flexibility to make informed choices in your life. It is important to take the time to review each option considering your personal and financial goals and resources. This will help you make the best decision and get you into the home of your dreams.

An important first step in choosing the right mortgage begins with asking yourself a few questions.

What kind of property are you buying?

You may want a starter home such as a condo to build equity that you can rent out later or sell and buy another home. Or you may prefer to buy a house with suite income. In each case you will want to consider how much you can afford including the strata fees and property taxes.

How long do you plan to stay in this home?

If you only plan to live in your home for 5 years or less, you may want to keep your options open and consider a variable or short term loan when choosing the right mortgage. If you are settling in for the long haul you may consider a longer term fixed rate mortgage or a combination of mortgage terms (fixed and variable). Each come with different benefits and deserve consideration as part of your home purchase and mortgage planning.

Would a fixed mortgage or variable be best for you?

A fixed rate mortgage is exactly that, a mortgage with a fixed rate over a fixed period of time. A variable rate mortgage is based on the prime lending rate (ie. Prime – .5% or 2.5%). As the prime lending rate moves up or down (in relation to the overnight lending rate set by the Bank of Canada) your cost of borrowing will fluctuate. If you need to know exactly what you will be paying every month for the full term of the mortgage (ie. 5 years) then a fixed rate mortgage may be best for you. Typically the cost of borrowing over time is lower with a variable rate mortgage. However, the interest rate environment can change and you should review both options when choosing the right mortgage with your mortgage broker.

How much do you have for a down payment and other costs?

If you have access to funds in your own account, RRSP or family gift, you may want to make a larger down payment to lower your mortgage payment and avoid high ratio insurance premiums.

Any purchase with less than a 20% down payment is a high-ratio mortgage and must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada (Genworth). The fee for this insurance varies according to the amount borrowed and the percentage of your down payment, ranging from 1.00% to 2.90% of the mortgage. This one-time, upfront fee can be added to the mortgage.

If the home may need some renovations, you could consider a purchase plus improvement mortgage. It is also prudent to keep some funds in your savings for at least 3 months of mortgage and property taxes as a buffer.

Other Factors to Consider in Choosing the Right Mortgage

Loan Term

A short-term mortgage is usually for three years or less. Short-term mortgages are appropriate for buyers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. The key to choosing between short and long term is to feel comfortable with your mortgage payments and how long you are making those payments. After a term expires, the balance of the principal owing on the mortgage can be repaid or a new mortgage agreement can be established at the current day interest rates.

Open or Closed Mortgage

Open mortgages can be paid off at any time without penalty and are usually negotiated for very short terms. They are suited to homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity. Closed mortgages are commitments for specific terms, 1-10 years for example. They can come with fixed interest rates or variable interest rates. If you want to pay off the mortgage balance, you will need to wait until the maturity date or pay a penalty on the outstanding balance, if any.

For help in choosing the right mortgage, contact a mortgage professional at Dominion Lending Centres.

 
14 Jan

FINANCIAL CHECK-UP

General

Posted by: Mike Hattim

Welcome to your free financial check-up, discussing 5 key factors to assist you in ensuring you are on the right track to a solid financial future.

Credit

Ensuring you are using credit wisely will pave the way to making sure you have options available to you if or when you need them. One thing we can all do is check our credit report on a regular basis – at least once each year – so you know where you stand and whether your credit score has been compromised in any way, especially through fraud. You can contact Equifax at 1-800-465-7166 or go to the website at www.equifax.ca for more information.

There are many people who believe that it is more responsible to not use credit at all but, in fact, if you don’t have any credit accounts reporting to the credit bureau, financial institutions have no way of knowing how responsible you are with credit and you will likely be turned down if you need a loan or credit card in the future.

Making payments on time is critical to maintaining a good credit score but also keeping your account balances below 75% of the maximum limit is another way of boosting your credit score. If you have multiple accounts, spreading the balances evenly among them using balance transfer methods can help to bring some accounts in line.

It’s wise to pay off your higher interest credit accounts first but that decision needs to be balanced with whether to pay down the higher-payment accounts.

Savings

The old adage, “10% of the money you earn should be tucked away into savings” is a good one. Although it may be difficult to be disciplined enough, if you “pay yourself” every month, the savings will start to build and you may find you don’t need to rely on credit to handle those unexpected expenses.

I personally have a monthly allotment that I transfer to my savings account the same day each month. I have a reminder in my phone to physically do the transfer and it is built into my budget as if it were another utility payment I have to make.

Taking advantage of a Tax Free Savings Account (TFSA) is a great way to earn higher interest on your savings as opposed to the low rate you are paid for a standard bank savings account. If your TFSA is managed by a Financial Planner you can see very good returns on your investments. Any money earned within your TFSA is tax-free and can be withdrawn at any time.

Retirement

Part of the savings picture is, of course, planning for retirement. If you can, work an RRSP contribution into your budget as soon as possible so you will be much further ahead when you want to put your feet up and enjoy.

I follow my Financial Planner’s recommendations when it comes to how much I contribute each year. As I am self-employed, the amount I contribute each year varies but I always make a contribution.

Contributing to an RRSP also gives you a tax break at the end of the year and you can use your tax return money to put towards paying down your mortgage or put it towards a vacation. Both of those are win-win scenarios.

Mortgage

Being the largest loan most Canadians will ever have, your mortgage deserves attention and regular check-ups. Choosing the right mortgage structure for you and taking advantage of today’s historically low rates, can put you on track to huge savings.

Take a look at your debt-structure. If you are making high monthly payments on high-interest loans and/or credit cards, you could easily restructure your circumstances by refinancing your credit accounts into your home. In most cases, this reduces the amount of interest you are paying overall and lowers your monthly payments. At the same time, if you take advantage of an accelerated payment structure (bi-weekly or weekly) and bump up your minimum required payment by the 15-25% that your institution allows, you can pay down your principal and be mortgage free much sooner!

In today’s mortgage climate, if you currently have a mortgage rate anywhere over 4% you should do yourself a favour and have me do a Free Mortgage Analysis for you so you can see apples to apples whether there are any financial advantages to breaking your existing mortgage for a better rate. When you can see the costs vs. benefits in black and white, the answer as to whether to refinance will be crystal clear.

Insurance

Making sure you have adequate insurance is essential in protecting yourself and your family in the event of a crisis or emergency. Whether it be home, health, life or disability insurance, it is always a good idea to review all of your insurance coverage at least once a year to make sure you are fully covered.

Mortgage insurance is a great idea but most clients benefit more from having independent mortgage insurance coverage as opposed to taking the insurance coverage offered by the institution that has your mortgage. The average Canadian makes a change to a mortgage every 38-42 months, you may have to re-apply for the same coverage at an older age and higher premiums. If your mortgage insurance is through a company that is independent of the bank, you would have the ability to keep the coverage and premium you initially had even if moving your mortgage to another institution at a better rate works better for you.

Another way to go is Term Life Insurance. Securing a policy that will cover all costs and pay out all obligations should anything happen to you will give your family peace of mind in the worst circumstance.

Critical Illness Insurance offers protection should you become affected by one of the approved conditions and is often paid in a lump sum amount once you have survived the specified waiting period. It gives you the assurance that the costs of a serious medical condition, as well as living expenses, will be covered.

Wrap Up

I recommend talking to your Dominion Lending Centres mortgage professional to make sure you make the best decision on all insurance needs.

I hope you have found some value in the information provided. As always, I recommend seeking out the experts and gaining knowledge before making any important decisions that will affect your future.

7 Jan

THE TRUTH ABOUT THE CASH BACK MORTGAGE

General

Posted by: Mike Hattim

We often see ads from the major lenders offering cash back incentives on their Mortgage products.

Gone are the days where a Cash Back Mortgage could be used to facilitate a purchase without the required minimum of a 5% down payment. Cash Back incentives are now made available for other enticing uses; New Furniture and Appliances, Renovations and the other great hook…..Apply the cash back portion directly on your Mortgage for a better effective rate!

Just a few weeks ago, I was emailed an offer from a major lender who shall remain unnamed;

“NEW PROMO … Cash back for purchases. Effective 5 year Rate as low as 2.62%….”

First off, the Cash Back Mortgages are offered at a premium (higher) compared to other standard rates available. The ploy suggested by the lender here is pay it straight down on principle and lower your effective interest rate over time.

READ THE FINE PRINT

The kicker here and warning to all….there IS a catch! If you are to break the mortgage midterm, whether to sell your home or refinance, you not only have to pay the interest penalty, you also have to return the Cash Back portion to the bank. Even if you used it to pay down your Mortgage. This is in the fine print on the websites and in your contract for you to see.

I have seen this happen to a few people that I know and it ended up being a $10,000 – $20,000 factor in their decision not to move or change careers!

There are other more cost effective ways to obtain financing in better programs such as Purchase Plus Improvements, or Home Equity Lines of Credit (HELOC), that expose you to less future risk and still provide you with flexibility to accomplish your goals.

This is why you need a certified Mortgage Broker – like the fine folks at Dominion Lending Centres – working for you. We know of these programs and can offer advice on which ones most suit your situation.

 
7 Jan

THE TRUTH ABOUT THE CASH BACK MORTGAGE

General

Posted by: Mike Hattim

We often see ads from the major lenders offering cash back incentives on their Mortgage products.

Gone are the days where a Cash Back Mortgage could be used to facilitate a purchase without the required minimum of a 5% down payment. Cash Back incentives are now made available for other enticing uses; New Furniture and Appliances, Renovations and the other great hook…..Apply the cash back portion directly on your Mortgage for a better effective rate!

Just a few weeks ago, I was emailed an offer from a major lender who shall remain unnamed;

“NEW PROMO … Cash back for purchases. Effective 5 year Rate as low as 2.62%….”

First off, the Cash Back Mortgages are offered at a premium (higher) compared to other standard rates available. The ploy suggested by the lender here is pay it straight down on principle and lower your effective interest rate over time.

READ THE FINE PRINT

The kicker here and warning to all….there IS a catch! If you are to break the mortgage midterm, whether to sell your home or refinance, you not only have to pay the interest penalty, you also have to return the Cash Back portion to the bank. Even if you used it to pay down your Mortgage. This is in the fine print on the websites and in your contract for you to see.

I have seen this happen to a few people that I know and it ended up being a $10,000 – $20,000 factor in their decision not to move or change careers!

There are other more cost effective ways to obtain financing in better programs such as Purchase Plus Improvements, or Home Equity Lines of Credit (HELOC), that expose you to less future risk and still provide you with flexibility to accomplish your goals.

This is why you need a certified Mortgage Broker – like the fine folks at Dominion Lending Centres – working for you. We know of these programs and can offer advice on which ones most suit your situation.

 
5 Jan

A PRE-APPROVAL IS NOT REALLY A PRE-APPROVAL

General

Posted by: Mike Hattim

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).

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!

 
4 Jan

4 THINGS THAT WILL KILL YOUR MORTGAGE APPROVAL

General

Posted by: Mike Hattim

So, you’ve worked hard to save every penny and have managed to finally afford the down payment necessary on a home. You have searched high and low, only to find the house of your dreams at a price you can afford. Though your credit rating is good and you have a stable job, there are some key things to avoid while waiting for your mortgage to be approved.

Here are 4 things you must absolutely avoid to ensure that you get that dream house:

1. Buying a Vehicle

Your current car may have finally given up or a great deal has arisen, but before making any decision on a new vehicle, check with your mortgage professional. You need to ensure that the numbers you provided on your mortgage application hold true in order to be approved!

2. Changing your Credit or Payment Routine

Before putting extra money towards a debt or changing your payment schedule on any liability, you must check with your mortgage professional. Again, anything that doesn’t align to the information you provided on your mortgage application could put your approval in jeopardy.

3. Changing Jobs

There are many opportunities and challenges that come with any job, but before deciding to drastically change your employment situation, keep the following in mind:

  • If you are accepting a new position you need to ask if you will be given a probation period. Any mortgage lender will not accept probationary employment on a mortgage application.
  • If your income situation is changing, such as receiving bonuses, overtime, or commissions, you could be putting your approval in limbo. This is risky because these job perks require a 2 year history before a lender will accept them as income.
  • If you cannot stand your job any longer and are considering leaving the position, you need to talk to your mortgage professional immediately. The information you provide on your application must check out, especially when it comes to your employment. Most likely, you will need to wait to leave your job until after the mortgage has been approved and you’ve taken possession of the home or you’ll risk losing your dream house.
  • If you are considered a contractor or self-employed person, you must provide a 2 year history in order to be approved for a mortgage. If you are considering going into this line of work you’ll need to wait until after you take possession.

4. Making Payments Late

While waiting for your mortgage to be approved, make sure you make every payment early or on time! If your credit experiences even a slight drop because of a late payment or maxed out credit card, a lender will not approve your mortgage and will cancel the application.

Getting approved for a mortgage doesn’t have to be difficult! As long as you do your due diligence and know all the information, you will be on the path to a happy home-buying process. Contact Dominion Lending Centres to inquire about mortgage approvals. We’re always happy to lend a helping hand!