Borrower or credit costs can be outrageous. To go get a line of credit, you are usually paying upwards of 6% to 7.5%. These lines of credit can be based on interest only or principle and interest payments. This kind of loan is based on how the lender views you as a risk. In other words, they look at the amount of money you are making and the amount of debt you have and then decide how much credit they are willing to give you. Usually, these loans are not very big as there is no security. And even though a lender considers your income vs your debt for a mortgage you will not get as much as you would get through a mortgage BECAUSE….

…a mortgage is based on securing a loan against a property. If you fail in making a mortgage payment and eventually go into foreclosure, the lender always has a property that they can sell in order to get their loan back. The lender looks at you as a risk, but they look at the property as a potential asset.

While the lender is taking advantage of your property by leveraging it against you as a risk, you also have the ability to do the same thing.

A great product that is available to owner-occupied properties is a Home Equity Line of Credit or HELOC (pronounced Hee – lock) as it is known in the banking world. A HELOC is a product that uses the equity that is built up in your owner occupied home and uses it as a line of credit, securing it against your property. The result is a line of credit with a very manageable interest rate (usually around 3.2% in today’s market) that you can use toward anything you want. We recommend that you don’t use it for everyday expenses as that can get you into a lot of trouble. But there are strategies that you may want to consider such as:

a. That much needed home renovation

b. College tuition for your children or yourself!

c. If your income and debts are within lender guidelines, you may even be able to use your HELOC for a down payment on an investment property

d. So much more!

Generally speaking, you can borrow in a HELOC up to 80% of the appraised value of your property (minus your mortgage of course). This is considered a revolving loan where you can take or pay back cash as often as you want without having to reapply for a loan. But note that when you sell the property, your HELOC gets paid back with the proceeds of the sale (if necessary) and that line of credit is no longer available to you.

Make sure you don’t get a HELOC mixed up with a Home Equity Loan. This type of loan is based on a one time loan for a specific or one time occasion such as a vehicle. On this type of loan the rate and monthly payments are fixed and you pay it back on a scheduled payment plan, much like a mortgage. However, interest rates on these types of loan are generally a little higher than the HELOC loan.

In order to get a HELOC you will likely have to pay for an appraisal (around $250 – $300) and then the legal fees (around $500 – $750). However, you don’t have to pay any banking fees (like having a chequing account) as it is considered a revolving loan.

If you are interested in finding out what your HELOC options are, please contact a mortgage professional at Dominion Lending Centres. We’d be pleased to discuss your loan options with you.

After diligently saving your pennies and carefully managing your credit to be as strong as possible you are finally ready to start house hunting for that perfect dream home. Between you and your new life lies the seemingly terrifying mortgage process so let’s go over what you can expect so there are no surprises along the way.

1. Pre-approval

The first step should always be to choose a great mortgage professional (like the fine folks at Dominion Lending Centres!). Referrals from friends and family and your real estate agent can help with this. You are trusting the largest loan you are likely to take to this person so make sure they know what they are doing. They are going to take an application, pull your credit, and determine what your maximum purchase price will be. You will be asked to provide a whole bunch of paperwork to verify your information

• Letter of employment and pay stub
• Down Payment Verification
• 2 Year’s Notice of Assessment and/or T4’s
• Void Cheque

This list is the very least of what you may be asked for. If you are self-employed, separated, previously bankrupt, new to Canada, receive bonuses or many other scenarios then you will likely be asked for much more. Given the current state of the economy and the record levels of attempted mortgage fraud, the banks have to be very careful these days.

The other real benefit to the preapproval is that you can house hunt with confidence knowing that your entire situation has been assessed. You will not look at homes out of your price range either which can save you the heartache of falling for a home you cannot afford. It also makes your offer very strong if you find yourself in a competition with another buyer.

2. Approval

Hopefully you provided the bulk of the paperwork for the preapproval but you may be asked for updated information such as a more recent paystub or bank statement.

At this point your application is re-assessed by the lender. They will take a look at the property you are purchasing and make sure it fits their guidelines. Then it is sent off for mortgage default insurer approval and once then you will get the official approval to sign. Make sure that you do not remove the financing condition until all lender conditions are met. Your mortgage professional will tell you when that is.

3. Final steps

Once you have met all of the conditions, the lender will send the paperwork over to the lawyer’s office. It takes the lawyer a few days to get things ready for you to sign and when you go you will be asked for:

• Balance of the down payment in the form of a bank draft
• 2 forms of ID
• Void Cheque

The day of funding, the lender sends the funds to the lawyer who sends them to the seller’s lawyer who upon receipt of the funds gives the all clear and you will be given the keys to your new home.

It is a great idea to call your lender a bit after the mortgage closes to make sure everything is set up the way you wanted.

Make sure to ask questions at each stage of the mortgage process. The onus is on you as the person signing the contract to understand the loan you are being offered and the terms it comes with. There are so many resources available to you as a home buyer that it is easy to learn a bit about mortgages before you sign.

It can seem a bit daunting but we broke it down into bite size pieces so you will be ready to navigate it like a boss and before you know it the realtor will be handing you your keys and your new life can begin.

If you are ready to start talking about your mortgage, call any of the mortgage professionals at Dominion Lending Centres today!

Sometimes “life happens”, and when it does, your home can be your savior if you have accrued some equity in it. Maybe you’ve been out of work, run up your credit cards and driven your credit rating into the ground. Perhaps, you’ve decided to leave the job you hate and venture out into the world of owning your own business. Whatever it may be, the equity in your home can help.

I recently helped a client who had maxed out her high interest credit cards due to not being able to work for a couple of years, and the credit card debt had lowered her credit score substantially. She was now back to work as a self employed consultant earning a good income, but the $1,000 monthly interest payments she was paying was seriously eating at her cash flow and not reducing the principal she owed. Dead money!!

Luckily for her, she had great equity in her condo, so I was able to provide her with an Equity Take Out Mortgage. The mortgage lender I chose was able to loan her money based on the strength of her property and the low loan to value of the mortgage based on her equity, NOT her income or credit score.

Here are the numbers:

Mortgage Amount $75,000

Rate: 4.75% (due to low credit score and equity take out)

Monthly Payments: $425.59

Savings per month: $574.41

In this case, my client was able to pay off her credit card debt and had a fair amount of money left over to invest in her business and her future.

In the end, she was very happy to be able to get her finances and business back on track, and start her life anew!

By working with me, a licensed mortgage broker who has access to a variety of lenders and products, we were easily able to find a great solution to a “life happens” scenario.

If you would like to learn more about how the equity in your home can help you, contact your nearest Dominion Lending Centres mortgage professional.

What’s a pension? I don’t have one. In today’s day in age there are not many people that will have one when they retire. So it’s up to us, as individuals, to create our own – build your net worth from within. There are many ways to create a pension plan, acquiring rental properties is just one of them. Many of the wealthy people these days have utilized real estate to grow their empire, whether it’s through buying and selling or buying and never selling. When acquiring a portfolio of properties one is able to plan for continual growth by utilizing the potential cash flow and accrued equity to purchase a second, third, fourth…property.

First step is to determine your budget, which may ultimately be decided by how much of a down payment you have as well as to figure out what your monthly comfort level is for cash flow. For all intents and purposes I will be using values and amounts from my local area on a relatively new 1 bedroom/1 bathroom condo. With newer units comes less risk of future assessments. Do your homework*.

Purchase Price: $225,000
Down Payment: $45,000 (20% minimum, lender may request more)
Mortgage Amount: $180,000
Mortgage Insurance: $0 (lender may require depending on how income is reported)
Total Loan: $180,000

Variable at 2.40% (P-0.30%) 5 year term CLOSED 30 year amortization
Monthly Mtg Payment: $700.79
Est. Monthly Strata: $200
Est. Monthly Property Tax: $100 ($1,200/year)

TOTAL Monthly Payment: $1,000.79

Property Transfer Tax:

$2,500 (paid at completion, cannot be rolled into the mortgaged. It is calculated based on 1% of the 1st $200,000 and 2% on the remaining balance.) To calculate Property Transfer Tax http://www.bcrealestatelawyers.com/ptt-calculator/

Appraisal:

$300 (required to validate the purchase price because there is no mortgage insurer involved; CMHC, Genworth or Canada Guaranty).

Home Inspection:

$400 (highly recommended)

Title Insurance:

$200 (In short, title insurance is an assurance as to the state of title of a given property. In practical terms, it protects lenders and purchasers against loss or damage suffered due to survey problems, defects in title and other matters relating to title as specified in the policy.

Approx lawyer fees:

$1,500

The cost to acquire the property was $4,900.

Well that was easy, you just purchased a rental property…NOPE, you are just getting started. The obvious goal is to pay off the mortgage with the rent ($1,200/month) coming in.

Yearly Cash Flow
= Rent – Mortgage Payment – Property Tax – Heat – Strata – Renters Insurance** – 3% Vacancy
= $14,400 – $8,409.48 – $1,200 – $1,200 – $2,400 – $500 – $432
= $258.52

Positive cash flow is ultimately what you are seeking with a rental property, however this is not always attainable from the start. Just because there is positive cash flow at the beginning DOESN’T mean that you should start paying yourself (a pension), and that amount of $258.52 is yearly. So more or less this property just breaks even.

Because the real estate market is cyclical we are going to estimate the increase in market value by a modest 3%, year over year, some years more than others. Along with calculating the year over year market value increase we will look at how the mortgage balance has decreased over time. Remember the purchase price was $225,000 and the starting mortgage amount was $180,000.

If you would like more information, please contact your local Dominion Lending Centres mortgage professional.

Legend

*Read everything single piece of information provided by the seller and strata; AGMs, strata minutes, property disclosure statement, Form B as well as the depreciation and engineers report if available.

**Renters insurance (purchased by the property owner) has many variables to consider for the cost; detached home, condo, townhouse, location, value of personal contents, any betterment and improvements.

It is well known that when you are a First Time Home Buyer you can use up to $25,000 from your RRSP without paying any personal taxes. However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.

Who is a First Time Home Buyer?

Normally, you have to be a first-home buyer to withdraw funds from your RRSPs to buy or build a qualifying home.

You are considered a first-time home buyer if, in the four year period, you did not live in a home that you or your current spouse or common-law partner owned. This condition is particularly important because even if the house where you live is not in your name but your spouse or common law partner, you don’t qualify for this benefit.

Even if you or your spouse or common-law partner has previously owned a home, you may still be considered a first-time home buyer.

The four-year period:

Begins on January 1 of the fourth year before the year you withdraw funds; and

Ends 31 days before the date you withdraw the funds.

Example:

If you withdraw funds on March 31, 2016, the four-year period begins on January 1, 2012 and ends on February 28, 2016.

If you have a spouse or common-law partner, it is possible that only one of you is a first-time home buyer.

RRSP withdrawal conditions

* You have to be a resident of Canada at the time of the withdrawal.

* You have to receive or be considered to have received, all withdrawals in the same calendar year.

* You cannot withdraw more than $25,000.

* Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdraw amounts of $25,000 or less.

* Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.

* Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.

When do you I have to repay the amount withdrawn?

Generally, you have up to 15 years to repay to your RRSP(s) the amount you withdrew from them for you down payment. However, you can repay the full amount into your RRSP at any time.

Example:

If you withdrew $15,000 from your RRSPs for the down payment of your house you will have to repay to your RRSPs $1,000 per year for the next 15 years.

For more information contact contact your Dominion Lending mortgage professional or visit www.cra-arg.gc.ca.

Lawyers, doctors, business owners and other self-employed Canadians…you know the type. Well educated, hard-working and driven. They are dedicated to their profession, their business, their staff and helping people. They don’t have much personal time since work is their life, but when they do, they like spending time with their friends and family, they have hobbies and they like to travel and enjoy life. They are in their late 50’s to early 60’s and usually own big homes and vacation properties. They seem to have it all.

So why when it comes to financial matters, especially tax matters, are they so disorganized or naïve? It may be that they are too busy, or have more important things to focus on, or are just big procrastinators, but many accountants across the country are finding out that remitting HST to CRA is not a top priority for some of these professionals.

It usually starts small, they forget, or they put it lower on their priority list. Then over time, the amount they owe becomes bigger and they no longer have the money, but not to worry, they say they will have it soon and then it spirals out of control. Next, they are sheepishly sitting in their accountant’s office waiting for the ‘sentence’. You owe…gasp…$500,000!

This was a familiar scenario for Michael B. (68) of Vancouver, BC. Michael was a family doctor working in his own practice for over 35 years. Married with children, Michael was the sole income provider for his wife of over 45 years and his 2 sons until they married and had families of their own. As a family doctor, Michael’s clinic was always busy and he and his family never had to worry about money. Michael only visited his accountant once a year during tax season and never worried much about income since he was planning to work for at least another 7-8 years.

His retirement came suddenly when his wife was diagnosed with Alzheimer’s and Michael needed to spend more time at home to care for his wife as she was deteriorating faster than usual. At first, his spending habits remained the same as when he was working and when tax season came around, he was too busy to remember to file. The habit of cutting expenses was difficult since he never had to watch his spending. In addition, he was no longer occupied at work and with his wife sick, Michael was spending more money on ordering food and dining out. After many years of putting his taxes on the backburner, his accountant gave him the bad news that he owed more than $250,000 to the CRA. Additionally, his spending money was now beyond depleted and he was paying excess amounts in credit card interest. Michael was suddenly faced with the decision to sell his home in order to pay off his debts and to clear his taxes. Both he and his wife loved their home and it was the one thing that he would not be ready to sacrifice.

Michael’s accountant introduced him to a simple solution called a CHIP Reverse Mortgage from HomEquity Bank. Equity taken out via a reverse mortgage is taken tax-free, keeps investments intact and because there are no monthly payments, won’t have an impact on day-to-day cash flow. It can be arranged quickly without CRA tax liens or payment schedules. A reverse mortgage can be a great solution for your 55+ clients. Contact your Dominion Lending mortgage professional for more information.

Just a few years ago, a federally imposed limit on how much equity you could access via refinancing your home was tightened to 80% of value. The requirement to maintain a minimum 20% equity in your property has made refinancing for many people difficult. Those who only put 5% or 10% down must wait years to build up to the 20% minimum as it is.

Over the last two years, I have seen many clients with more than 20% home equity yet carrying higher consumer debt load seek a refinance to access equity, pay off or consolidate all of their consumer debt. Many clients just did not have enough equity to make this possible.

Fast forward to spring 2016 and we are seeing a sellers’ market leading to bidding wars and increased home valuations. This recent surge may be of benefit to similar existing homeowners that do not wish to sell.

A refinance does not make what we owe disappear. We are looking to move debt from bad (unsecured) debt to good debt where it is secured against an appreciating asset. We are looking to wipe the slate clean and get a fresh start! Having high usage of your credit limits is likely eroding your credit score, adding needless stress to your life and costing you more over time than is necessary.

The major benefits of a refinance are roping all expenses into one low interest debt, reducing your overall monthly interest cost yet most important for families is the monthly cash flow improvement! I often recommend that some of the monthly savings be added to the mortgage prepayments to accelerate the debt reduction while keeping some cash left in pocket for lifestyle enjoyment!

Many people with fantastic jobs and incomes simply get a bit too deep into multiple lines of credit, new car payments and credit cards. It happens all too quickly where people overestimate what they can comfortably afford. The focus of debt cost unfortunately has shifted where folks are not concerned about the total debt amount or payoff schedule, the determining factor seems to have evolved to whether they can handle the monthly payment; cars, toys, vacations all start to add up.

These groups of clients had been able to make all payments, yet the debt did not seem to be reducing year over year. Their options were second mortgages, private mortgages or refinance to the 80% max and still keep a pile of monthly consumer debt repayments. Ultimately, I had recommended that a few clients opt to sell their home to pay off the entire debt load, and put 5-10% down on a newer home. This was the only way to access more of their equity to pay everything off. The average monthly savings that I have seen for these groups of clients was between $1,000 – $1,600/month!

This is a prime time to reassess your current financial situation. If you owe significant amounts on credit cards, lines of credit or other consumer debts, there may be enough headroom in your equity to allow you to refinance. Another prime reason to consider a refi would be property improvements and renovations, where you may be accessing equity yet the added debt may be directly offset by the potential increase in property value.

Ultimately, it is best to consult with a Dominion Lending Centres mortgage professional first. Let the math and numbers show you whether it makes sense to make a change. Our job is not to sell you a mortgage. We offer solutions or strategies through showing the numbers in a way that may have not occurred to you before!

Well folks I just do not get it. I do not understand why smart person after smart person continues to sign on the dotted line for the first offer they are given upon mortgage renewal. Case in point that has brought this to a head for me was just a couple weeks ago. The mortgage was with one of the beloved big 5 banks whom we Canadians seem to hold in great awe and respect. Here is what it looked like:

Mortgage amount $259,997 in a new 5 year fixed rate term with a 20-year amortization at 4.10% making the monthly payment $1584.51 and the balance after 5 years $213,266.26.

I know for a fact that the SAME bank and many others were offering 2.59% for the exact same term. This is how that would have shaken out:

Mortgage amount with a rate of 2.59% in a 20-year amortization would have had a monthly payment of $1,387.40 and the balance at the end would have been $206,956.55.

That means that the client could have saved $197.11/month or $11,826.60 over the 5 years. On top of that is the crazy fact that they would have also owed $6,309.71 LESS at term maturity. $18,136.31 is the amount that this one person could have saved. That is one person out of a very large number of people doing the exact same thing so I must loudly repeat – Stop it!!

Let us examine the facts for a moment shall we?

1. Banks are a business and they are mandated to generate a profit for their shareholders and investors. Though success seems to have become a dirty word, this is actually a good thing for our economy. Our banks are strong and continue to report profits. A secret of the banking world that you need to be aware of is that the person you are sitting down with may receive a commission or a bonus based on how many mortgages they sign at the higher rates. I repeat that I do not have any problem with profit. I myself am commissioned based. What does concern me is the fact that the average consumer does not know this may be occurring on their transaction which may lead a them to make a choice without questioning their options.

2. The average consumer will shop 3 stores and visit many websites to save on big ticket purchase such as a TV or a car. Once they get to the dealership they will negotiate and play the game to get the best price so why do we not when it comes to our largest asset? Why are we not ensuring that we are not overspending $18,136.31?

3. There are a large number of lenders and banks in our country to choose from. They are solid institutions offering great mortgages to consumers. Research them and make an informed decision before dismissing them as unreliable. They too are watched over by the powers that be who work diligently to protect your rights as consumers.

4. There are so many well qualified mortgage professionals from Dominion Lending Centres who live and work in your community. Find one you like and have them find your best option if the whole thing seems like too much work.

Did you know that to switch your mortgage to a new lender at renewal, you will not incur a penalty, or pay legal fees or appraisal fees? It will probably take about 4 hours all together, which in the examples I used, works out to $4,534.08/hour. That is pretty substantial hourly wage and certainly worth your time.

So stop it and save your money.