As a Dominion Lending Centres mortgage broker, I often see in the lender’s conditions sheet a request for the lawyer to obtain title insurance. We all know that this is a measure to protect the lender and to allow for the deal to proceed if there is a delay with the title or the other lawyer.

However, did you know that title insurance is also available for the new home buyer? Why would you recommend that they spend more money when they have already have to provide a down payment, pay legal fees and moving expenses? It’s the right thing to do.

Title insurance protects you from unknown defaults in the title. This is coming up more and more now that people who bought homes in the 1960’s and 70’s are moving into retirement homes after many years in these homes. You may not realize that in 1973 Mr. Jones made a verbal agreement with his neighbour Mr. Smith to allow his garage roof to straddle the property line. Now the neighbours want you to move the roof over 6 inches to comply with their property survey. Who pays for this? Fortunately, if you have title insurance with either FCT or Stewart Title, they would.

Another very important reason to consider title insurance even when you own the property free and clear is identity theft.

There was a very enterprising fraudster operating in southern Alberta a few years ago. He would search land titles for properties in rural areas where the owners had no mortgages or liens. He would then go into a bank posing as the property owner and ask to re-finance the property. If it was worth $500,000, he would ask for $200,000. He would then say that he was going to Arizona for 3 months and wanted to pay his first 3 months on the mortgage up front.

The bank rep would be impressed by the fraudster’s responsible behavior and agree to accept the pre-payment. The fraudster would put a few more deals like this and then leave well before the 3 months was up. The property owner would then be contacted by the bank asking for the late payment in month 4 and would have no idea he had been a victim of fraud. If he was fortunate enough to have title insurance, the insurer would pay for his legal representation and settle the claim with the lender.

I recommend title insurance to my clients for all the above reasons but by mentioning this to them I am also showing my clients that I want to protect them. It’s one more way Dominion Lending Centres can differentiate ourselves from the banks.

When you purchase a property, you may be a little overwhelmed by all the insurance offers related to purchasing a new property that come your way. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance is solely for the purpose of the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased in order to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 9 Benefits of using Mortgage Life Insurance

1. Peace of mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you, as the main breadwinner of the family, pass on.

2. Easy to get – Mortgage Life Insurance is based on the mortgage and your age. There are a list of standard questions to answer but coverage will never be denied.

3. Mortgage paid off in the case of death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.

4. Family can stay in their home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.

5. It protects your family’s finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.

6. Lost wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time period (ie up to 3 years). Unexpected life events such as a serious

car accident can result in missed mortgage payments as a result of loss of wages as you need to recover from injuries.

7. Portability – some Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.

8. If you are a young buyer, your Mortgage Life Insurance premiums will be very low. Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.

9. Good health now results in coverage for unexpected illness later on. After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are in regard to the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if at a later date you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact any of the 2,500 mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

When considering buying your first home, I am sure you will have many questions. I hope to give you some insight to what lenders are most importantly looking for when qualifying for a mortgage.

1. What’s the best rate I can get?

The rate that you receive depends on a number of things. I get a lot of clients that are what I like to call “rate sensitive” this means that they are fixated on the lowest rate and don’t understand why they may not be able to get the advertised rate.

A number of those rock bottom rates you see advertised have conditions to them. For instance they may be only for a 30 day quick close, or they may not be portable.

Some factors that determine rate are employment (self employed, full time, part time, etc.) credit score, down payment, income and more.

Until a full application’s been received and credit has been checked you cannot be guaranteed a rate.

2. What’s the maximum mortgage amount for which I can qualify?

This of course is going to be based on your income and liability circumstances. There are two calculations brokers use to qualify a borrower. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees). Generally this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Lenders and brokers calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Your TDS ratio should be no more than 41-44% of your gross monthly income (this is dependent on credit score as well).

Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more flexible lifestyle.

3. How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price for houses under $500,000. For homes over $500,000 10% down payment is required on the amount over $500,000. If you want to avoid CMHC mortgage insurance than 20% down payment or greater is needed.

4. What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment. Your RRSPs can be used without being taxed if you pay back within 15 years, gifted funds from parents are also accepted. Some lenders will also allow a flex down program to be used. This is where based on qualification you can use a line of credit towards your down payment.

5. What will a lender look at when qualifying me for a mortgage?

These are the most important factors a lender will look at when qualifying for a mortgage such as employment history, income, debt, credit history and the value/kind of property.

Most importantly, the lender is looking to make sure you can afford the home you’re wanting to purchase. Second most important thing they consider is the value in the home. The lender wants to make sure that if you default on payments that they have security in the home.

Overall lenders are looking for stability. They want to see this with employment, debt re-payment, and credit history. It’s important for you to have good credit, and minimal liabilities. Make sure you’re never late never late on any loan or credit card payments. This shows you are responsible and less of a risk for the lender.

6. Should I go with a fixed or variable rate?

This ultimately depends on your risk tolerance. If you’re a first time home buyer you may feel a lot safer going fixed as you know what you’re expected to pay for the term of the mortgage.

However, variable rates can save you a lot of money, I mean thousands.

If you want to choose a variable rate and qualify for one (as it’s a bit tougher) just know and understand that you run the slight risk of it possibly rising while in your term if the prime rate moves up, but you can never predict this. There are much smaller penalties with a variable rate than a 5 year fixed.

Your Dominion Lending Centres mortgage professional can discuss all the differences and benefits for you.

7. What credit score do I need to qualify?

A credit score of 680 and up is a good credit score that can offer you the discounted rates. There are lenders that lend on lower credit scores but usually at a bit higher rate.

8. What happens if my credit score isn’t great?

If your credit isn’t the greatest there are ways to increase your score. Most credit reporting companies report every month. So luckily you can change your score within a few months time if you do the right things. The most important thing is to pay down your credit cards so the balance is no more than 30% of the limit.

Even better…pay off your credit card balance in full, if you can have a $0 balance owing that’s the best!

Don’t go taking out any large loans before a mortgage approval. It’s best to wait till you’ve actually got the property in your hands. You don’t want to do anything that could jeopardize your approval or have a lender pull an approval from you as they re-checked your credit prior to closing and now see an expensive car loan.

Make sure everything is up to date. No overdue collections still showing or an old bill showing up on there when you paid it ages ago, but never got removed for some reason.

9. How much are closing costs?

Closing costs on average are 1.5% of the total purchase price. This is a guideline to go by, but not exact. Closing costs will cover things like, inspections, lawyer fees, property transfer tax, appraisals, and title insurance.

10. How much will my mortgage payments be?

This is going to depend on many different things. The size of your down payment, the interest rate, the purchase price, amortization chose, whether or not you’re paying mortgage insurance (CMHC) and also the frequency of payments ( bi-weekly accelerated, or monthly).

If you have any other questions, please feel free to contact any of the Dominion Lending Centres mortgage professionals from all across Canada!

Are you an adult with an aging parent(s) and are you concerned about your parents’ ability to remain financially independent? Today, Canadian adults have many responsibilities, including the concern for their children’s well-being, as well as their parents’ quality of life and their debt. As life expectancy rises for the senior demographic, there is a growing trend of retirees not saving enough for retirement. Many Canadians overestimate how long their money will last, in part due to their longer-than-expected lifespan.

How can you help your parents maintain their financial independence?

Among the many concerns we have for our aging parents, the biggest concerns include their ability to retain their standard of living. Many senior Canadians prefer to stay in the comfort of their own homes to age-in-place, but we have noticed that their finances are not as stable as we anticipated and they may be struggling with:

• Health/Medical costs & expenses – Your parents’ health care costs are piling up.
• Monthly bills – You notice that your parent(s) are struggling to pay monthly utility and phone bills.
• Renovations and retrofits – Your parents’ home may require repairs. Their home may need retrofits in order for them to maintain their lifestyle, for example, they may need to install a stair lift because of knee problems.
• Revenue Canada debt – Your parent(s) struggle to pay their taxes and now have accumulated debt.
• Property taxes (in arrears) – Your parent(s) have forgotten one too many payments.

If your parent(s) are stressed over their finances, you can help them maintain their independence by introducing them to financing options to help them regain control of their retirement. The CHIP Reverse Mortgage from HomEquity Bank is a great option for older Canadians because it has helped thousands of senior Canadians deal with the most common financial struggles.

How a Reverse Mortgage can help

The CHIP Reverse Mortgage can provide your aging parent(s) with financial independence by unlocking up to 55% of the value of their home (tax-free) without them having to sell or move, in either a lump sum amount or monthly advance.

Contact your Dominion Lending Centres mortgage professional to get your free estimate or to find out more information about how a CHIP Reverse Mortgage can help.

In the News: 15% Property Transfer (bonus) Tax for Foreign Buyers in B.C.

Short Version

“Good intentions can often lead to unintended consequences” – Tim Walberg

As Canadians we no longer appear to be a people that keeps our word.

Review the official policy here.

Long Version

The BC government is increasing the PTT by a 15% tax for purchasers who are foreign entities.

This post is not about the tax itself: whether the tax is right, wrong, too much, too little, etc. that is all for another conversation. The majority want to implement a tax on foreign buyers. Fine, I get it. it makes sense on many levels.

But let’s do it with some class. As Canadians are we not known for being fair in our dealings?

The topic of this post is the patently unfair retroactive implementation of this tax. Such an approach is tactless, lacks foresight, and should be embarrassing to any self-respecting CDN that ever looked a person in the eye and while shaking their hand said ‘yes, we have a deal’.

Did the BC Gov’t not learn anything from the HST implementation?

The Back Story

Why is this happening at all? Partly due to growing anger about rapidly rising prices. Anger that needs to be directed somewhere, at somebody. Sadly it is being channelled toward a very specific group of people, largely due to inaccurate or flat-out misleading headlines like this one:

Foreigners buy 5% of B.C. homes in less than 3 weeks

Let’s do some math on this headline. ‘5% of BC homes’ (that’s 55,000 of 1.1 million total properties) were purchased by foreigner buyers? Leaving 95% to go?

The above headline was not written by somebody with a grasp of basic math. Nor was the opening sentence:

Citing freshly collected data, the B.C. government announced that overseas nationals bought approximately 5 per cent of homes in the province over just 19 days last month.

Extrapolating the math suggested in the headline indicates that ~55,000 of the 1.1 million privately owned properties in BC were bought by foreigners. In other words at this pace all 1.1 million will be owned by foreigners in just another 380 days.

Just over a year, and that is it.

Clearly this is bad math, bad writing, and an inaccurate headline. But it is this sort of error, combined with hyperbole and a twisting of numbers, that has so many of us twisted in knots.

So, the Government of BC to the rescue with their knee-jerk reaction tax.

(Hey gang, relax. The BC election is still a year away (May 2017), and you really could have taken an extra few days and considered the unintended consequences of your actions.)

The Core Story

The nuts & bolts of this new tax:

1. A foreign national is a person who is not a Canadian citizen or permanent resident.If it is company that is purchasing, a foreign company is one that is not incorporated in Canada, or incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation.

International student?

Foreign (i.e. American) worker on a temporary visa, with your Permanent Resident status application pending approval?

You, my friends, are out of luck. Just like one student we know of whose parents were assisting her on the purchase of a $400,000 condo to live in during her remaining six years of studies. Contract entered into three months ago, completing in about four months. Boom! $60,000.00 extra please, in addition to the $140,000.00 minimum down payment required, or else forfeit your $80,000 deposit to the developer.

If she completes, the government wins. ($60,000 in new tax revenue)

If she cannot raise the extra $60K, the developer wins. ($80,000 deposit forfeited)

Either way, she and her family lose. And we as CDN’s have our reputation for fair dealing evaporate.

At the very least, this British national training to be a doctor is getting quite the slap in the face for having the audacity to try and put down any kind of roots while living here for the next six years.

She entered into a contract in good faith, and now one of the things we Canadian’s hold so dearly ‘stability of Government’ has been thrown out the window as we allow the rules of a firm and binding contract to be rewritten midstream. Negatively impacting this person, and hundreds of others.

2. The increased tax applies only to properties in the Greater Vancouver Regional District, and does not apply elsewhere in the province, or the Tsawwassen First Nations Lands.

Whistler, and other recreational destinations, just let out a long sigh of relief. Internal sales stats suggest that for many months in Whistler up to 1 in 4 buyers is a foreigner. Their market would have been hit hard by a restriction like this.

It may still be, in the opposite direction, once we see where foreign capital starts to flow to as alternatives to the GVRD.

3. The tax only applies only to residential properties, not commercial.

Commercial real estate investors need not worry. For the BC government this would, of course, have been a much more concerning group to annoy. Much easier to hammer on the individuals here learning, working, and trying to become a part of the community. Especially when the public perception has been as warped as it has to assume all foreign buyers are multi-billionaires from one specific country.

4. The increased tax is effective August 2, 2016, regardless of when the contract is signed. Even if the contract was signed weeks, months, or in the case of condo pre-sales years ago, if it completes after August 2, 2016 there is a higher tax. End of story.

Refer back to our student example in point #1. A pretty devastating announcement for several people. Including Mac Kerman – was he really the target that everyone had in mind?

Would it not have been possible to consider:

• An exemption for students?
• An exemption for gainfully employed temporary workers?
• An exemption for those with Permanent Resident status applications pending?
• An exemption for these groups purchasing below $475,000.00 or $750,000 – along the same lines as first-time buyer rules.
• A sliding scale? Starting at 5% and rising to 15% based on purchase price.

What happened to being reasonable?

Could we not possibly have differentiated between foreign buyer and foreign investor?

Could we not possibly have made an exception for existing contracts?

• The additional tax is payable even if there would normally be an exemption available.Transfers between related individuals, transmission to surviving joint tenant and other such items now attract the additional tax.

• This is notable. This is a form of a death tax. It is a tiny little foothold on the topic. And sure, the target this week is foreign buyers, and foreign inheritors, but it will not be long before talk of a Canadian death tax starts to gain traction.

Conclusion

We already have people who should know better getting the details of this new tax wrong when interviewed. New construction and pre-sale contracts dating back years are indeed 100% affected by this tax, and the many thousands of buyers who entered into a good-faith agreement as long as three years ago on a pre-sale completing as soon as next week are caught in this mess. How is that fair dealing on our part?

One family I spoke with due to complete late next week on a $1.6M home have been in Canada for more than two years, they are settling their family here, have professional jobs and are paying their income taxes, but now need to come up with an extra $240,000.00 cash. Simply due to their Permanent Resident status application taking its time winding through the process.

We are thumping these taxpaying resident en-route to becoming Canadians because… why?

Because this is how we allow our government to roll. This how we Canadians do business?

So, too damn bad.

What a slap in the face to these buyers and hundreds of others, as it is to you and I as well. This is not how you personally or I personally do business. Except that on the world stage, as Canadians it looks like it is.

Have you entered into a contract with a Canadian in good faith? Yeah, so what – we will just add a 15% premium at the last minute because our handshake means nothing and written contracts mean even less.

We should all find ourselves a touch embarrassed to be Canadian this week.

Sometimes we forget what great tools we have from our Private Mortgage Lenders.

1. Construction mortgages for the smaller home builder, loans based on each property or blanket several and payout the mortgages as they sell.

2. Are you a builder already and have standing inventory that you’d like to take some money out of to continue your business. We have a Private lender will look at these with rates as low as 8%.

3. Are you a Flip Master are you interested in buying, renovating and selling properties. We have a private lender that may be able to help with as little as $10,000 down payment.

4. We also have a private lender that will assist with a legal suite conversion. Remember that CMHC now allows 100% offset for legal suites opening up a whole new option for buyers to qualify.

5. Private second mortgages up to 85%, banks can only refinance to 80% and will probably turn it down these days.

6. Private second mortgages behind your CHIP mortgage depending on a few factors up to 50%.

7. Farm land the bank and FCC said no we have a lender that will lend on farm land throughout Canada.

8. Rental purchases with 100% offset on the rents and 75% loan to value

9. Foreign ownership probably one of the biggest growth markets with our weak dollar. They can be done with 35% down even if the client is not a US citizen, lower than the banks 50%.

10. Commercial properties that the bank has said no to you will also be considered through our private lenders

11. Small town BC, Alberta and Saskatchewan loans up to 70% of the property in area’s most won’t go.

Lots of options for private lenders this year and lots of opportunities from BC to Ontario. Want to learn more? Contact your mortgage professional at Dominion Lending Centres – we can help!

Pre-approvals are certainly beneficial. However, they can also be very disappointing if you are not prepared to know what they actually mean.

They DON’T mean…

They don’t mean that you have a mortgage.Until there is a Purchase Agreement (a written up contract to purchase a property) actually submitted to a bank and a commitment from the bank offered to the client, there is no mortgage. Your bank will often say, “You are pre-approved on a mortgage based on a specific rate that is being offered during this time.” Factors such as the amount of income you bring in, the amount of debt you have and even the property itself will determine whether or not the bank will actually give you a mortgage.

They don’t mean that the rate you are pre-approved for will be the rate you pay. Rate holds are temporary and depending on whether or not you qualify for the rate, you may not get what you initially bargained for.

To get a pre-approval that is solid it is important to know exactly what the terms of the pre-approval mortgage are. Pre-approvals should show exactly what you qualify for in terms of how much money you will be able to borrow for a mortgage based on your financial profile.

A good pre-approval…

A good pre-approval will reflect that you properly income qualify. As mentioned previously, many banks will give you a pre-approval based on a rate guarantee, NOT ON YOUR INCOME. This means that you may be in a lurch because the bank has not pre-approved you properly. A good pre-approval will be based on asking for documents to prove your income. The last thing you want is to be “pre-approved” only to be told after you’ve made an offer on a property that you actually don’t qualify.

A good pre-approval will let you know how much money you will need to provide for a down payment along with closing costs. There are more costs involved in purchasing a property than just the down payment. Costs such as legal costs, title transfer costs, property transfer tax costs (if applicable), appraisal costs (if applicable), etc. are often not talked about when initially going to your bank to ask for a mortgage loan.

A good pre-approval will secure a rate for 90 to 120 days. If rates are trending down, even when you have a negotiated pre-approval rate, you should be able to take advantage of the lower rate. Pre-approvals are excellent when rates are trending up. They secure the lowest rate, even when the bank has raised their rates. But be careful! Every bank has their own guidelines as to guaranteed rates and whether or not they will commit to the lower rate they initially negotiated with you.

A good pre-approval will be aware of lender guidelines concerning properties. Appraisals are not done for a pre-approval. But when contracting for a mortgage, depending on amount of down payment, contract details, etc. you may have to have one. The lender and the insurer ultimately look at the property to see if they deem it marketable and low risk for resale.

A good pre-approval gives the Realtor sure negotiating power. In today’s market there are properties selling so fast that financing has to be secured before going in to make an offer. A good pre-approval ensures that your chances of getting an accepted offer on a popular property are sure. Taking part of a multi-offer negotiation increases your opportunities for success, which can only be the result of a firm pre-approval.

A good pre-approval will prepare you for what you should expect your monthly mortgage spending budget to look like. With your pre-approval in place you know what kind of payments to expect, including the amount of taxes, strata fees (if applicable), etc. you will likely be paying. Your pre-approval explores the costs involved in purchasing a property and carrying a mortgage.

So you’ve graduated from high school and off to university or college. Before you start, take the time to set down some goals and a budget for your financial future as a post secondary student.

Your parents have probably been telling you to put aside some money from your part time job into savings. However, sometimes we don’t take the advice of our parents 🙂 So if you aren’t sure you are on track with your budget and savings, consider a few pointers that I have always found helpful and some from the experts provided in the links below.

To help with your financial future as a post secondary student here are a few easy steps you can set up a budget to live by including a savings plan:

1. Track your spending for 2-4 weeks. It depends on how disciplined you are but if you can track for the full month –all the better. Some expenses like gas for your car will be easy. It is the little trips for coffee that we sometimes forget and those can add up.

2. Make a chart or list of your expenses (all spending) and income. If you are spending more than you are earning you need to make some adjustments. You should not be dipping into savings to cover your monthly expenses. If you are earning more than you are spending — excellent!

3. Based on your budget, set an amount each month that goes into your savings account. I recommend 10% of your income. If you are living at home while going to school you may be able to set aside more in savings. Take advantage of that low or no rent situation!

4. Talk to friends and family to see who they use for investing their savings. You may be conservative or more aggressive — that is up to you to decide or to discuss with a financial planner. Set aside some money for short term needs and for a long term savings. You may have a goal to save $1,000 for new tires for your car and then accumulate a larger savings goal that you build on over the next 4 years of school to use towards moving out of the family home, buying a new car or a down payment on starting a business.

For more tips visit—

http://www.mymoneycoach.ca/impulse_spending/education.html

To learn more about common challenges for post secondary students, visit –

Five financial pitfalls that post-secondary students should avoid

In today’s market, variable and fixed rates are not too far apart. This makes most people think that the fixed rate is the way to go as it’s often viewed as the safest option.

Many believe that variable rate mortgages are for the daring and at any time your rate could double leaving you high and dry in the cash flow department. Many don’t realize that isn’t the truth at all.

The great thing about a variable rate is you have the option to lock into a fixed rate at any time you start feeling panicky, but I can assure you your interest rate will not be doubling over night. Even if your rate did go up by .25% the savings you would have already earned would put you on level playing ground, or you’d possibly still be in the lead.

Over the last 40 years variable rate mortgages have proven themselves to be the better choice for saving money and flexibility. I would also say that you’ll be given ample warning in the news and media that the Bank of Canada is planning a move on rates. When the rate does increase, I’m certain it will be slowly creeping up with just a quarterly rate increase at a time.

Where you’ll save the most money choosing a variable rate compared to a fixed rate is with the penalty.

With a variable rate, you’ll only ever be charged 3 months interest at any given time you choose to break your mortgage during the term. With a fixed rate it’s always the greater of Interest Rate Differential (IRD) or 3 months interest, and believe me those IRD penalties can be insanely large!

Statistics show that the majority of Canadians break their mortgage before the 5 year term is up, so save yourself some dough and consider going variable. There’s more to it than just the lower rate…and we here at Dominion Lending Centres can show you many mortgage options to fit your specific needs.

When I meet with my clients, I explain that I believe my role is to get them the mortgage that fits their goals and plans, while saving them the most amount of money over the lifetime of their mortgage. This takes into consideration what you might be offered at renewal time by the lender or should you terminate the mortgage during the term or what will you pay for an early payout penalty.

In the last few weeks the feds have increased the posted rates (aka, contract rate) at the big 5 banks, was 4.54% and now at 4.74%. Why does this matter to you??…qualifying and early payout penalties!

Qualifying……. If you want a variable rate mortgage or a term shorter than 5 years, we have to use the “posted or contract rate” (4.74%) to qualify you for the mortgage. This recent bank rate increase means fewer clients will have the option of choosing a variable rate or shorter term mortgage. The 5 year fixed rate becomes their only option.

Early payout penalty……With the 5 year fixed rate seriously low at 2.44% for an insured mortgage, that might not seem like a bad deal. Unless you have to break or terminate that big bank mortgage before the end of the term. The big banks calculate the early payout penalty by adding back the discount you got when you selected the mortgage term with them. It is as if you are paying them the posted rate, when it comes time to calculate the early pay out penalty. (e.g. Posted rate 4.74% – your rate 2.59% = your discount of 2.15%). With this new increase in the posted rate, it means your penalty will be higher should you break or terminate your mortgage before the maturity date.

In an economy where interest rates are decreasing, by increasing the posted rate the big banks have found another way to make money off of you, the borrower, that is not in your best interest!

When you are mortgage shopping for a purchase, refinance or a renewal, please talk to an experienced and knowledgeable Dominion Lending Centres mortgage professional. When life happens and the penalty is $3,500 vs. $16,000 you will be happy you followed our advice.