I’ve heard brokers say more than once that mortgages are a commodity, by definition a commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. That doesn’t sound like mortgages to me.

While the core product is always the same, money lent that is secured by real estate, the nuances of a mortgage can vary a lot. When we look at what the client is looking to do with that property and what their life style is composed of, we have to be sure that we aren’t just placing them for the sake of placing them in a mortgage. We have a duty to the client to make sure that even though they are looking for that lowest rate that it doesn’t tie them into a mortgage they can’t get out of in a reasonable manner. I recently had a client whose parent had gotten a mortgage on a property that the kids were living in with the idea that down the road when the kids had some money they would buy the house from Mom and Dad. Problem was that when I read the original commitment the bank representative had not explained that the sale had to be arm’s length sale; sorry kids you need to move out.

By some standards the comparison for commodities that a barrel of oil is a barrel of oil, when as an Albertan I already know that the heavy crude from Fort McMurray sells for a discount because while it is needed to toughen up the Texas oils, they just don’t need as much of it. By mortgage standards the same applies, if the rate is lower than the market there has to be a reason. The reasons can range from as simple as the yearly buy down is only 10% instead of 20% and range up to the office doing it pays their staff a salary and they use the extra money to buy down the rate. Regardless of the reason we still need to make sure the product we recommend to our clients fits their needs and plans for the future. And if you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

By Len Lane

A mortgage in its simplest form is a contract. It has terms, conditions, rights and obligations for you and the lender. When you sign on the dotted line, you are agreeing to those terms for the length of time laid out in the contract. However, sometimes life throws us an unexpected event that brings around the need to make key decisions and changes. One of these changes, for whichever reason, might be needing/wanting to break your mortgage contract before the end of the term. Can you do that? What are the penalties? Let’s take a look!

To answer the initial question of can it be done, the answer is yes. Most mortgage lenders will allow this provided they receive compensation. Compensation is known as an Interest Rate Differential or IRD. When you started your fixed rate mortgage you had a rate of xx.x%, but the best they can lend to someone else right now is 1% less, so they want the difference. Seems fair, right? However, like most contracts, the fine print tells the true tale. The method in which the IRD is calculated is what borrowers should be aware of.

Let’s examine a few different calculations that can be used for IRD.

Method “A” -Posted Rate Method – Generally used by major banks and some credit unions

This method uses the Bank Of Canada 5 year posted rate to arrive at the formula to calculate the penalty. It also considers any discounts you received. These are the ones you will commonly see on their websites or when you first walk into the Bank or Credit Union. Now, rarely does anyone settle on that rate-there is a discount normally that is given. This gives you the actual lending or contract rate. When this method is used, you will be required to pay the greater of 3 months interest or the IRD. What that looks like is:

Bank of Canada Posted Rate for a five-year term: 4.89%
You were given a discount of: 2%
Giving you a rate of 2.89% on a five-year fixed term mortgage.

Now you want to exit your contract at the 2-year point, leaving 3 years left. The posted rate for a 3-year term sits at 3.44%. The bank will subtract your discount from the posted 3-year term rate, giving you 1.45%. From there your IRD is calculated like so:

2.89%-1.45% =1.44% IRD difference x3 years=4.32% of your mortgage balance.

On a mortgage of $300,000 that gives you a penalty of $12,960.

For most, that is a significant amount that you will be paying! It can equate to thousands and thousands of dollars, depending on the mortgage balance remaining. So what other methods are used? Let’s take a look at the second one.

Method “B”-Published Rate Method – Generally used by monoline (broker) lenders and most credit unions

This method is more favourable as it uses the lender published rates. Generally, these rates are much more in tune with what you will see on lender websites and appear to be much more reasonable. Again, let’s look at an example.

Your rate: 2.90%
Published rate: 2.60%

Time left on contract: 3 years

Equation for this: 2.90%-2.60%=0.30% x3 years=0.90% of your mortgage balance. A much more favourable outcome. On a $300,000 mortgage that would equate to only $2,700.

The above two scenarios operate under the idea that the borrower has good credit, documented income, and a normal residential type property. It is also a fixed rate mortgage, not a variable one. For variable rates, if the contract needs to be broken, generally the penalty will be a charge of 3 months interest, no IRD applies.

So, if you do find yourself in a position where you need to end your contract early get in touch with a Dominion Lending Centres mortgage broker to review your options. To avoid any surprises all together though, it is advised to consult with a mortgage professional right from the start. We are committed to ensuring that you make an educated decision when selecting a lender. Yes, we want to get you the best rate, but we also want to make sure you are taken care of.

Geoff Lee

Deciding to borrow money to launch your small business startup is a big decision. It’s the second biggest decision after deciding to start the business. Since it is a big decision, it requires much thought and research before taking the leap. There are multiple ways to fund a small business startup, and it’s important to know and understand all of them before making a final decision.
Not only can you borrow money to launch your small business startup, you can also invest your own personal savings or give up a percentage of ownership in the company to investors in return for funding. Before making the final decision to borrow money for your small business startup, here are a few things you should know:

Types of Financing

There are a number of different ways you can finance your small business startup. Depending on the amount of revenue the business is generating, how many years the company has been in business, and the business industry, you may or may not qualify for certain types of financing.

Pay Back & Defaulting

When you borrow money to launch your small business startup, you will be required to make monthly payments. You will also have a set “term” to pay back the financing. The term is the period of time you will have to make monthly payments toward the total financing amount you borrowed. This is important because you need to be comfortable making the monthly payments. It has to be something you can afford. I suggest developing a business plan with at least three years of financial projections to estimate what your expenses will be and the amount of revenue the business will generate. This will help you determine if there will be enough money to go around (to cover business expenses and paying back a business financing).
If you default on a financing for any reason it can ruin your personal and business credit. Having a good understanding of how much it will cost you to borrow money to build the business will enable you to plan better and avoid defaulting. It’s good practice to ask a lender what their average interest rates and terms are before you apply so you can estimate what your monthly payments will be. The bottom line is that paying back financing has to be something you are ready for and capable of handling.

Maximum Amount of Debt

Your debt to income ratio and the amount of outstanding debt you have on the business is important in the lender’s decision to give you a small business loan. If your company is a small business startup with no revenue, lenders will pay close attention to your debt to income ratio. As a rule of thumb, your outstanding debts should equal no more than 28% of your total income. (Depending on who you talk to, some people will say it should be no more than 32% to 36% of your total income however, 28% is playing it safe). If you have a high debt to income ratio, you may not be able to borrow money to launch your small business startup.
If your small business startup has some revenue, and you’ve already borrowed money for the business, if you apply for additional financing, the lender may also look at outstanding business debt. As a rule of thumb, you usually can’t borrow more than 15% of your total annual revenue. This all depends on the lender, but keep that in mind if you decide to take out multiple business loans from different lending sources for the business.

How You Will Spend the Money

Some types of financing are restricted to certain business expenses. For example, equipment financing must be spent only on equipment purchases. This includes computers, office furniture, etc. However, financing such as unsecured business lines of credit can be spent on any business expense. This is why it is important to develop a business plan and at least three years of financial projections. Financial projections outline what the money will be spent on. Knowing what the money will be spent on will help you determine what type of business financing will work best for you.

Need Expert Help? Let Us Assist You

If you still need helping figuring out if borrowing money will be right for your small business startup, Dominion Lending Centres Leasing can help. Our team can advise you and will help you analyze your situation to determine whether or not borrowing money to launch your small business startup makes sense. They will also help you figure out what type of financing will work best for you.

By Jennifer Okkerse

No one wants to be told that they are not allowed to have something. We live in Canada; as Canadians, our focus has always been to strive for better and for more. That said, there appears to be a growing trend around co-sharing which means people are increasingly moving away from owning their own cars, bikes, offices and, even, homes.

Don’t believe me? Watch this video about communal pod-shares, or this one about a car-sharing company in Edmonton. The trend is here and growing.

While this lifestyle is not for everyone, it speaks to an interesting trend about doing more with less.

In Edmonton, we have the luxury of living in a city that offers affordable housing in every corner of the city. Although we have the benefit of local properties that give us more bang for our buck, times are changing.

The federal government made some changes last year that greatly affected people’s ability to qualify for a mortgage. This month, more changes are expected which will make it even that much more difficult to qualify for a mortgage. New and existing homeowners are rushing in droves to secure five-year fixed mortgage rates ahead of future Bank of Canada rate hikes, and others regulation changes.

The government is essentially continuing its stress-test for all uninsured mortgages (those with a down payment of more than 20%), which will affect a small percentage of new homeowners.

For those looking to get into their first home, however, this might be a good opportunity to look at the growing trend of doing more with less. Qualifying for a mortgage on a home worth more than $500,000 will likely be unattainable on a single, or even double, income. Looking at homes that offer more bang for you buck, including smaller starter homes could get your real estate investment off on the right foot.

We’ve been able to enjoy low interest rates for many years now. Unfortunately, they are up and will likely continue to increase. As such, your $500,000 mortgage in five years could actually cost you more in monthly payments – even as you pay down your premium. It is simply a reality that many cannot afford and should be taken into account as you take the plunge into buying property.

To discuss your mortgage rates, and to secure a low rate for 120 days, do not hesitate to call a Dominion Lending Centres mortgage specialist. We can also look at your current finances to better understand what price range of home you can afford.

By Max Omar

Like many of you, I received a call last week, from my mortgage provider, asking whether I wanted to “lock in” a new five-year fixed rate. The rate was a special offer and would only last for the week, so I would need to make a decision quickly, with little time to think about the consequences to my own mortgage strategy.

While it may appear that your financial institution is acting entirely in your best interests, this is only partially the case. While it is true that locking in or switching to a new fixed rate can help you control your costs, they are doing it to manage their own costs, not yours. It’s important to remember that each time a financial institution lends you money, it’s not their own money. Their strategy is to borrow the money from investors, depositors and other corporations in order to lend you the money. The five year fixed rate renewal they sign with you is backed up with a five year investment contract with someone else. Always.

When I started as a broker, the best piece of advice I got was from a former boss who said; “Before you sign up with someone, its always important to have an exit strategy, because things will change, often for the better, and you may need to get out of the agreement. Make sure you make it easy to do so. “

Having an exit strategy is just as important when signing a renewal or early renewal contract. The strategy is not so much about exiting the mortgage entirely, but ensuring you know and can use the existing features to your advantage. There are three specific features (termed ‘privileges’ and ‘penalties’ in the offer) that you should know and understand before signing that new contract;

A) Pre-Payment Privilege
For most of us, there is some time in our lives where a sum of money lands in our laps, perhaps a large bonus, severance, cash settlement or even a small inheritance. Knowing how much you can pay down, should you choose to, is vital. Depending on the lender, you may be limited to a 10 percent prepayment or as much as 20 percent. Some lenders specify the exact day you can make the prepayment, some merely say ‘anytime’.

B) Increased Payment Privilege
Again, at some time in our lives, most of us will leave one job for another that pays significantly more. In those situations we can certainly afford to increase our mortgage payments and should do. Do you know how much you can increase your payment and when? Again, it varies widely from lender to lender, for 10% on a specific day, yearly, to 20% anytime.

C) Early Payout Penalty
This is perhaps the most ignored potential cost in mortgage financing. As with the privileges, no two lenders calculate the penalty the same way. Its important to understand the differences. It can save you thousands.

Most people’s reaction, when we talk about penalties is ‘well I’m never going to pay out early, so it doesn’t matter. ‘ I don’t blame you for thinking that way, because that’s always my reaction too! But let’s walk through a “what if” and I’ll show you why its important to consider.

So… You have an existing mortgage in the amount of $480,000. Your lender’s representative calls you to say that because rates are going up, he’s calling all his clients to let them know that if you wish to early renew, they’re offering a fixed rate that’s actually a minuscule amount lower than you are paying now. Rates are going up and the offer is only guaranteed until the end of the week!

Because it’s actually well before the renewal date, there is a penalty, but they’ll add that on to the mortgage balance, no need to worry. After a couple of moments hesitation, you agree and you go in to sign at the branch. Overall, your experience with the lender has been very good.

Spool forward three years and your life is changing. You’ve become an expert in your field, people are noticing and suddenly, you are offered a dream job in another part of the country.

It’s sad and exciting to have to sell up and move but you’re startled when you realize the payout penalty is $21,000. That’s a LOT of your hard earned equity to lose but you realize that you’ve already actually paid another $37,00 in penalties when you renewed early. Now its $25,000! GULP!

I know you realize that this is a worst case scenario but it can potentially happen to any one of us. The key is not avoiding these costs, but by making informed choices, avoid paying any more than you have to. By being aware and making one simple change, your penalties in our previous scenario could be about $7,500 – a savings of $17,500.

You can read more about how some lenders (not all ) calculate their penalties here.
As always, contact a Dominion Lending Centres mortgage specialist if you have any questions.

By Jonathan Barlow

We all do different things to go green in our day to day life: using reusable shopping bags, biking instead of driving, re-using water bottles… you name it. All of the various steps we take to minimize our environmental foot-print give us the satisfaction of knowing we are working towards a greener tomorrow-but how often do you get rewarded for going green? If your experience is anything like ours, not very often. But we have some exciting news right from CMHC-they want to reward YOU for going Green! Here’s how.

The CMHC Green Home Program is a relatively new program that allows lenders to offer borrowers more affordable financing choices when purchasing an energy efficient home or when purchasing an existing home and making energy-efficient improvements. This program gives you a refund of up to 25% of the CMHC Mortgage Loan Insurance Premium as long as the home is located in Canada. In addition, the process to apply is simple, all a borrower must do is fill out this application form and submit it to CMHC.

Sounds fairly straight forward doesn’t it? Let’s dig into a few more details though with a straightforward FAQ.

1. When Does the Program Apply?
The program is applicable when a new home is purchased (with a traditional or non-traditional source of down payment). The program also applies to new construction and to CMHC improvements related to energy efficiency.

2. What is the Loan-to-Value Ration?
The Loan to Value Ratio of this program will vary by CMHC product and the number of units. Contact CMHC or a Dominion Lending Centres mortgage specialist to find out more.

3. What are the Benefits of the Program?
The Program can offer a 15% or 25% refund of the total premium paid provided to borrowers. This is how you are “Paid to go Green”

4. What are the Energy Efficiency Requirements?
The requirements that must be met in order to qualify for a premium refund include:
Purchase of energy efficient homes or units located in low-rise residential building:
• Most new homes built under a CMHC eligible energy-efficient building standard automatically qualify for a premium refund.
• For all other homes, eligibility will be assessed using the NRCan EnerGuide Rating System (ERS) either the 0-100 scale or the gigajoule scale.
Purchase of condominium units located in high-rise residential buildings:
• For homes built under the LEED Canada New Construction Standard (certified, silver, gold and platinum)-Level 1 only.
• The building is designed to be either 20% or 40% more energy efficient than compliance with the applicable building cod.
Energy Efficient retrofit (renovations) of an existing home (purchase)
• To qualify the home must be assessed by a qualified energy advisor before and after the energy-efficient renovations.
• The refund is based on the improvement in the energy rating assessed using the NRCan EnerGuide Rating System (ERS) either the 0-100 scale or the gigajoule scale.

5. How does the Refund Application Process Work?
Borrowers should look at filling out the application located on the CMHC’s website. The application must be submitted within 2 years of the closing date of the mortgage and the energy efficiency documentation must be no more than 5 years old. Finally, the partial premium refund will be provided by CMHC directly to eligible borrowers that have incurred the costs of their lender’s CMHC mortgage loan insurance premium.

For those who qualify for this refund, it presents a unique opportunity to gain back some of their hard-earned money. If you are wondering if this program is right for you, contact a DLC mortgage specialist and we would be happy to walk you through the entire process.

*Sources: CMHC Green Home Program https://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/cmhc-green-home.pdf

By Geoff Lee

Moving on up from condo to house, these young homeowners prove age is just a number

For Jordan Rothwell and Karissa Roed, the timing to find their forever home couldn’t be more perfect. The couple, who recently moved to Mission, B.C., are expecting their second child and are ready for the family to grow.

It’s quite the responsibility for Jordan and Karissa, aged 23 and 24, respectively. But it’s a challenge the young couple has been preparing for since they first resolved to get into the housing market a couple of years back. And the pair see their story as motivation for what other young people can achieve if they set their minds to it.

“If younger people would just set goals for themselves, especially when it comes to buying property, it’s such a blessing when you do it. You’re instantly further ahead as an adult when you do it,” Jordan says.

Their property story began when Jordan’s grandfather offered to match the couple’s savings for a down payment on a condominium. So Jordan and Karissa went about saving money wherever they could. That meant a lot of sacrifice—especially missing out on trips and events they might have attended.

“It basically became an addiction for a while, just saving up every penny to try and get to the point where we could go in and buy a condo,” Jordan notes.

It paid off. By 2014, they saved up $5,000 and, with matching funds, moved into a two-bedroom condo in Port Coquitlam, B.C.

Fast forward a couple of years, and Jordan and Karissa were looking to upsize. By then, they had some equity, in part because they bought their condo at the right time, taking advantage of the hot Metro Vancouver real estate market, and were ready to move into their forever home.

Once again they looked to family, partnering with Karissa’s mother and stepfather to purchase a 3,000-square-foot, six-bedroom house in Mission for $605,000. Jordan, Karissa and their young family will live upstairs, while her parents will take the ground floor.

The couple couldn’t be happier in their new home. “It’s definitely nice moving from a condo to a house,” Karissa says, adding they have nearly double the square footage as their old condo, along with a backyard for her children to play.

Dominion Lending Centres mortgage specialist Pauline Tonkin says she couldn’t be more impressed by the couple’s smart financial habits. Tonkin helped them secure a mortgage for their first condo and wasn’t surprised to see them make a jump to a house.

“I wasn’t concerned for them because they really do the right things. They really get it,” Tonkin says. “Age is not indicative of how people handle finances.”

She describes the couple, especially Karissa, as very diligent at considering all the costs involved in the purchase. The pair wanted all the details, something Tonkin says isn’t often the case with young buyers.

Besides securing the proper financing, Tonkin helped Jordan and Karissa through the process, giving them a “road map” to where they wanted to be. It was help the couple appreciated. “When you’re buying a condo or a house, it’s such a blur,” Karissa says, adding that their mortgage broker was someone they could trust and call at all hours if they needed to.

Jaclyn LaRose has enjoyed similar success as a homeowner. This spring, she sold her first condo to upsize to a bigger one in Surrey, B.C., close to her work as a schoolteacher.

LaRose was 26 when she and her sister decided to buy their first place with a little help from their parents. Her parents didn’t like seeing them throw away money on rent, she explains, so they helped out with a five per cent down payment for an apartment in nearby Coquitlam, B.C.

“I definitely considered at the time that I was young because I hadn’t been thinking about it for a few more years at least,” she says.

Not having even hit the age of 30, Larose is now on her second home. She said she has friends who believe it’s impossible to get into the market, especially in B.C.’s Lower Mainland. But she also points out those friends are looking in prime spots where the prices are highest. LaRose chose to look a little further afield to get into the market. She’s gone from a 500-square-foot, one-bedroom apartment to a two-bedroom with more than 800 square feet.

While Larose points out there is a sacrifice related to home ownership, she now feels lucky to be in her position. “It’s just about getting in when you can,” she said. There are places out there where you can get in.” And now that she has home ownership all sewed up, she’s able to focus on her career and personal goals.

“For the short term I feel settled,” LaRose says.

Back in Mission, Karissa and Jordan have settled into their new home. They are also way ahead of their peers and looking forward to the future. A lot of people his age look at owning a home as something they’re not supposed to do, or able to do at their age, Jordan says. But he doesn’t see it that way at all: “If you just stick to your guns and build a goal of what you want to accomplish… you’ll get there.”

By Jeremy Deutsch

This letter will also appear as a full page ad in the Oct. 3 Globe and Mail.

Dear Prime Minister Justin Trudeau and Finance Minster Bill Morneau;

One year ago, your government introduced new mortgage rules that put the dream of home ownership out of reach for many Canadians. Although well intended, the changes have reduced the average Canadian family’s purchasing power by upwards of 20 per cent, and have had the unintended consequence of making housing less affordable for Canadians. Instead, Canadians who were once able to purchase or re-finance their home are being shut out of the market or forced to pay more interest to traditional lenders as competition in our sector declines.
The new stress test that requires all new mortgages to qualify at the greater of either the Bank of Canada benchmark rate or the contract rate offered, means that Canadians who previously could reasonably afford a mortgage payment at the standard rates no longer qualify. Additionally, changes to portfolio insurance requirements have resulted in some monoline lenders being unable to insure mortgages, thus reducing overall competition, which hurts consumers, regardless of what solution they use for their homes.
Canadians who are now unable to fulfill their dream of owning a home have been telling us their stories and we’ve been listening. We’ve documented their stories and we think it’s important for you to see them. We’ve posted these stories at www.NewRulesHurt.ca and are sending every Member of Parliament a printed copy so they can read firsthand how the new mortgage rules have impacted the lives of hard working individuals and families in their constituencies. Please take the time to read these stories and seriously consider changing mortgage rules to make them fair and equitable for all Canadians trying to purchase, or keep their home.

By
Gary Mauris
President and CEO
Dominion Lending Centres

A lot of people get into hot water when they assume that because they’ve qualified for a mortgage in the past, they will qualify for a mortgage in the future.

This article has one point to make and it’s this:

Don’t assume anything when dealing with mortgage financing!

And if that’s all you take away, that’s enough!

Just because you’ve qualified for a mortgage in the past, doesn’t mean you will qualify for a mortgage in the future, even if your financial situation has remained the same or gotten better. The truth is, things have changed over the last year, and securing mortgage financing is more difficult now than it has been in recent memory.
The latest changes to mortgage qualification by the federal government has left Canadians qualifying for about 20-25% less. On top of that, a lot of the “common sense” guidelines that lenders would use in determining your suitability have been replaced with non-negotiable hard and fast rules.
As a mortgage professional who arranges financing for clients everyday, I keep up to date with the latest changes in the mortgage world, understand lender products, and have my fingers on the pulse of what is going on.
From experience, I can tell you that having a plan is crucial to a successful mortgage application. Making assumptions about your qualification, or just “winging it” is a recipe for disaster.
If you are thinking about buying a property, contact a Dominion Lending Centres mortgage specialist who would love to talk with you about all your options, and help you put together a plan.

By Michael Hallett