30 Dec

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.

 
By Pam Pikkert
29 Dec

108 YEAR 7 MONTH AMORTIZATION. TOTALLY COOL SAYS THE FEDS!

General

Posted by: Mike Hattim

In October 2015, I wrote 136 words on this topic, hoping that the image alone would get some traction. It was a pretty insane image to a numbers geek like me – linked here.

Perhaps these additional 381 words worth will garner more attention.

This month’s Visa images are tamer, as a business card the monthly total can be significant during busy months. Yes I pay the balance to zero each month, in fact I appear to actually over pay it some months (so deep is my fear of credit card interest).

No I will not be taking 108 years and 7 months to pay off the balance…

108 YEARS AND 7 MONTHS!

108 YEARS AND 7 MONTHS!

108 YEARS AND 7 MONTHS!

Here is a question for a government so intent on protecting us from ourselves:

Why clamp down even further against lending on a secured asset in which we live, a debt we must pay off in a maximum of 30 years, (25 if less than 20% down) with a record of repayment that is the envy of the free world, yet allow us to take 108 years and 7  months to pay off the:

  • Particle board furniture we fill the home with?
  • The vacation we could not afford to take?
  • A night of bottle service hitting up the clubs (yo!)?

How does this make sense?

99.63% of Canadians never miss a mortgage payment. There is no mortgage crisis to repair.

Can the same be said about this form of debt though?

To qualify for this 108 year 7 month amortization… Does one need:

  • A down payment?
  • Clean Credit history?
  • A job?

Nope. Not at all.

In fact in some cases one can qualify for this kind of debt without even being alive, or even being an actual  human being. Trust me, to apply for a mortgage through Dominion Lending Centres, is easy, but not THAT easy!

So I ask again: Where is the real debt problem in our country?

Why is our government not asking this question?

Why is our government intent on trying to fix a problem that does not exist?

Canada is not the USA, and policy should not be set based on Netflix analysis.

The recent changes made to mortgage lending will in fact do the most damage to lower middle class households, the ones already most susceptible to 108 year 7 month loans.

Enjoy your day, mine will be spent applying for credit cards on behalf of our dog and two cats.

 
By Dustin Woodhouse
28 Dec

6 TIPS ON HOW TO REPAIR, INCREASE AND MAINTAIN YOUR CREDIT

General

Posted by: Mike Hattim

Credit scores are like report cards for grown‐ups. The score you get ranges from 300 to 900. Your score indicates your creditworthiness to potential lenders, banks, landlords, insurance companies, and even to some employers. The higher your score the better.

1. GET A COPY OF YOUR CREDIT REPORT

Make an inquiry once a year, twice is much better. If you are planning on purchasing anything that requires a credit check, keep track of your credit. This is something that is 100% in your control. As a consumer you have ability to make a soft/consumer inquiry to Equifax as many times as you want without it affecting your score. Here is a link to Equifax. If something doesn’t look right, contact the creditor immediately. Don’t wait to report an incorrect or fraudulent transaction. Is there an outstanding collection? If so, deal with it immediately, and by that I mean pay it. Then argue to get your money back. Do not leave this on your credit report hoping that it will disappear. No matter what, the collection will not be removed until it’s paid unless taken to litigation. Once dealt with, it will still take months to recover the points lost and 6 years to fall off your credit report.

2. NEVER MISS A MINIMUM PAYMENT

Because this attributes to 35% of your overall score, delinquencies have the biggest negative effect on your credit score. If you have overdue bills, make the necessary arrangements with your creditors. They would much rather work with you than file collections against you. If you can’t pay it all back, it’s better to pay some.

3. DON’T CLOSE UNUSED CREDIT CARD ACCOUNTS

Got a credit card that you have had ten years and hardly use? Keep it. It takes 12 years of history with the same specific card in good standing to crack 800 and enter that top 2% tier of quality credit. Cancelling a card can actually lower your score. Keep the old cards and only use them occasionally so the issuer doesn’t stop reporting your information to the credit bureaus. Having a long credit history helps increase your score. Don’t jump around to credit providers. Most ‘large’ providers have several different products. There is likely one that will fit your needs.

4. NEVER MAX OUT YOUR CREDIT CARDS

A good rule of thumb when considering building your credit is to keep the balance at or below 30% of the limit. Furthermore, a balance of 50% of the limit will maintain existing levels and over 75% will start to decrease it. NEVER exceed the limit, by even a $1.

5. DON’T LOOK FOR MORE CREDIT

Don’t shop around for credit or open several credit accounts in a short period of time. It raises alarms at credit bureaus and financial institutions, especially when you don’t have a long‐established credit history. Work with your existing creditors, as there is more relevant history. They are more likely to work with you, especially if you are looking to resolve some credit hardship(s). Always ensure you give your permission before allowing a credit check.

6. RULE OF 2

Ideally, you want to have 2 sources of credit solely in your own name for a minimum of 2 years with at least a $2,500 credit limit. This would be either 2 credit cards or one credit card and a line of credit. Ensure this is in addition to any joint accounts. Joint credit is only reported to the primary credit holders credit bureau and will not have any positive effect on the co-account holder.

If you ever have questions about your financial situation or want to discuss your credit score, please contact Dominion Lending Centres.

 
By Michael Hallett
27 Dec

BREXIT

General

Posted by: Mike Hattim

The decision by British voters to leave the European Union (EU) has shocked markets and will no doubt lead to continued uncertainty for an extended period. Stock markets around the world are reeling, the British pound has taken an unprecedented nosedive, commodity prices with the exception of gold are plunging and interest rates are falling sharply. Central banks, particularly the Bank of England, are vowing to do whatever it takes to provide liquidity and stem financial chaos. Mark Carney, Governor of the Bank of England and a vocal opponent to Brexit, has assured markets that the Bank will be there as a lender of last resort to cushion the blow to financial institutions. Banks and insurance companies are hardest hit, but businesses worldwide that do business in the UK or in Europe are faced with disturbing questions that could take months or years to answer. Moreover, hedge funds and other investors around the world that have been caught on the wrong side of this trade are scrambling, which likely portends a sell off in risky assets for at least a couple of days.

Even with all of this, investors should not panic sell this environment. It is a buying opportunity for longer term investors. At the same time, do not try to time markets. No one can pick the bottom and market timing never works. Canadians who have some dry powder should consider buying their favourite stocks as they are sideswiped by the British vote.

Politically, the vote and the subsequent resignation of the British Prime Minister, David Cameron, is a vivid indication of the global move to nationalism, isolationism and xenophobia. Populist demagogues around the world are finding a welcoming audience as the top 1 percent who have benefited from globalization and free trade have failed to share the wealth. The broad middle class in all countries have been squeezed by forces that have pushed production to cheap-labour emerging economies or have replaced their jobs by technology. In all advanced economies, income growth has stagnated for all but the richest among us, which has led to a very nasty blame game. Scapegoating immigrants, minorities, free trade and the powers that be is evident from the US to France. Donald Trump, the most vivid example of such populist demagoguery, who happens to be in Scotland today, supported Brexit and has lauded the British people for taking their country back.

Elites who make light of this growing sentiment do so at their own peril. It helps to explain the populist movement in the US election campaign on both the left (Bernie Sanders) and the right (Donald Trump). Mainline economists support free trade and globalization. But mounting income inequality creates a tinder keg that is ripe for exploitation. Promises of “bringing the jobs back” and “America (Britain) First” set fire to this furor and, as we have just seen, these forces can win at the peril of financial and economic losses.

For now, the most immediate impact will be lower interest rates. Not only will the Bank of England and the European Central Bank ease further, so will central banks in Switzerland and Japan. The Fed, which was widely expected to hike interest rates once again in September, will likely remain on the sidelines.

The Bank of Canada will wait and see what happens. The Canadian dollar is actually holding up quite well right now, although Canadian bank stocks are taking a hit, down just over 2 percent as of this writing. Only about 4 percent of Canadian trade is with Europe and only roughly 3 percent with Britain. Investors are fleeing to the safe haven of the US dollar, US Treasuries and, to some extent, Canadian assets are safe havens too. If anything, continued very low interest rates could further boost already hot Toronto and Vancouver housing markets.

Bottom Line: while this is not good for our economy, the negative impact will be relatively muted. Nevertheless, financial turmoil and uncertainty will continue for some time, which is never good for confidence and therefore, risk-taking and spending.

 
By Dr Sherry Cooper
22 Dec

HOW TO GET A MORTGAGE WHILE BEING SELF EMPLOYED IN CANADA

General

Posted by: Mike Hattim

There are great advantages to having business for self. There are many extremely successful business owners that live great lifestyles but don’t have to pay for medical, all because they have great tax write-offs that bring their income down to a low tax bracket. The other side of this is that these great benefits actually make these same business owners work hard to qualify for a mortgage, all because their income is significantly reduced on paper. These business owners know that there is advanced planning involved in being able to qualify for conventional financing.

According to Statistics Canada, in 2015 there were about 2.7 million people self-employed in Canada which is about 14% of the total population of the country. These statistics reflect people that are continuing on in maintaining a significant lifestyle financed by self-employment and being able to be counted as such. In other words, being self-employed is a viable way of making income. It just doesn’t fit very well in the conventional lending “box”.

In order to fit in the conventional lending “box”, there is a measure that lenders require that each mortgagee(s) (the person(s) applying for the mortgage) must meet. Some of the documents that self-employed have to provide for the lender are two most recent years of tax returns that don’t always accurately reflect the actual take-home that a self-employed person has. Tax deductions related to business often reflect meals to rental space to credit card interest, etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what they actually take home. However, the “box” requires that tax returns show the required income to justify the mortgage.

So, how does one show enough income when they are self-employed? The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for property purchase.

  • The easiest way to plan is to write off fewer expenses in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for.
  • Set your finances up through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time that you spend doing your own taxes will not be as efficient both financially and time wise as a professional. A certified accountant knows what to look for and has enough experience to understand the tax implications. Make sure you discuss with them what your goals are so that they can set up your taxes appropriately.
  • Choose your timing carefully. If you are leaving on an extended holiday or sabbatical within the two years previous to purchasing, your two-year average income is not going to be great. Take all the time off that you want AFTER your purchase. Plan your timeline with INCOME in mind.
  • Ask your Mortgage Broker about STATED INCOME. There are options with some lenders to State your income. This is based on you being in the same profession for at least two years previous to being self-employed. The lender looks at the industry and researches the mean income of someone in that same profession within a reasonable amount of time. STATED INCOME is a complicated approach to showing income. However, your Dominion Lending Centres Mortgage Professional will know what questions to ask and how to negotiate this kind of proof of income. Documents such as bank statements, showing consistent deposits, will be requested by the lender.
  • BANKRUPTCY. Although some business people see bankruptcy as a viable option to get out of a bad deal and regroup, lenders generally do not like bankruptcy. Having said that, some lenders will overlook this if there has been consistent and excellent credit since the time of bankruptcy and you have been fully discharged from the bankruptcy for a specific time period. Make sure you keep ALL Bankruptcy papers easily available along with your discharge papers.
  • Be prepared for higher interest rates. Lenders offer discounted rates to those that fit in the “box”. Those that are not conventional are seen as a risk and, therefore, are applied to a higher interest rate. There also could be lender fees attached to the mortgage.
  • Offer a larger down payment. Lenders are somewhat handcuffed to the insurer when there is less than 20% down payment on a property purchase. But if you offer more than 20% down payment, depending on the lender, their flexibility increases and it is up to the lender or even the branch if they want to take you on as a client.
  • As a last resort, you can do private financing. Even though it is an expensive option, it could result in the mortgage you are looking for. Rates are higher and there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two year self-employed period to set yourself up to show STATED INCOME to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.

Being self-employed does not mean that you have to show enough income on your T1 General in order to qualify for a mortgage. There are many factors involved in showing income when you are self-employed. And every lender has different guidelines as to how they view self-employment. If you are self-employed, plan accordingly and make sure you are well set up to show that the lender that you are a desirable candidate for a mortgage.

 
By Geoff Lee
16 Dec

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.

 
By Brian Mill
15 Dec

HOW TO MAXIMIZE YOUR CASH FLOW WHILE INCREASING YOUR NET WORTH BY HAVING A MORTGAGE PLAN

General

Posted by: Mike Hattim

Interest rates are only one of many features that should be looked at when you are applying for a mortgage. But all things being equal, the interest rate may be more important than you think.

I was reviewing mortgage options with a client and the only thing they were interested in was the mortgage rate. There was no concern about all the other conditions that could end up being quite costly and since I could only offer him what he considered a small reduction, the client said “the bank’s rate was only a little higher and I feel more comfortable leaving everything I have with my bank for such a small difference.” What was the difference? I will get to that in a minute.

The mortgage renewal form you get in the mail is another cautionary note. I have had clients send me a copy of their renewal form. So far, in every case the renewal rate was higher than what I was currently able to get them. The last one I saw was .25% higher than what I could offer.

ACCORDING TO A RECENT MARITZ/CAAMP SURVEY, CLIENTS WHO USED THE SERVICES OF A MORTGAGE BROKER BENEFITED WITH AN INTEREST RATE .045% LOWER THAN THOSE THAT DEALT DIRECTLY WITH THEIR LENDERS.

So what does this fraction of a percentage mean for you? Let’s look at a $500,000 mortgage at 2.64% compared to 2.84%. That is only .2% or, to look at it a different way, it is about $50 a month or $600 a year savings by taking the 2.64% mortgage.

Here are a few options to increase net worth.

  1. You take the 2.64% rate and you invest the $600 a year into a growth mutual fund that averages 10%. Even though over the years, as your mortgage goes down, the savings may not be as great, you make up the difference and keep investing that $600 a year for the next 30 years. That is a small difference, but in 30 years it has added up to over $100,000 in your tax free savings account.
  2. You take out the 2.84% and say I like my bank and I am comfortable with the bank making the extra money and increasing their bottom line off my mortgage.
  3. With interest rates being so low, you could look at increasing your cash flow by stretching out your amortization and lowering your payment. Then you take the extra cash flow and invest it with your financial adviser in your tax free savings account.
  4. If you have extra equity in your home and have not contributed to your Tax Free Savings Account, consider refinancing and topping up your TFSA. As of 2016, the accumulative amount you can contribute is $51,000 per person 19 years or old in BC. So that would be $102,000 per couple. Invest that $102,000 and get an 8% return, you end up with $698,544 tax free money after 25 years and you paid back the mortgage and interest payments. If rates stayed the same throughout the 25 years at 2.69%, the whole $139,906 would be paid back. So you make a tax free profit of $558,638 by freeing up some capital to invest. Your total cost is $37,906 in interest.

There are many details to a mortgage and the rate is just one of them. Any of us here at Dominion Lending Centres would be happy to review your future mortgage needs to make sure you are maximizing your mortgage to your benefit.

 
By Kevin Bay
14 Dec

CAN YOU HANDLE THE PROJECTED INCREASE IN MORTGAGE RATES?

General

Posted by: Mike Hattim

Lately we’ve seen projections that rates will begin to increase through the next 15 months. Some banks have projections that show the 5 year bond will increase from the current .65% to 1.7% that 1.05% increase will equate to these numbers.

The 5 year mortgage rate on average is set by most lenders at the bond rate and adding what some call their comfort margin of 1.8%. So by today’s standards that rate would be 2.45% which pretty close to what we see on average somewhere between 2.39% and 2.49%. Take the projected increase in the bond to 1.7% and add the 1.8% then we are now at 3.5% so almost a full percent higher. Doesn’t sound like much does it, let’s look at the numbers to see what difference per month it makes in your payment.

With a household purchase price of $500,000 at today’s rate of 2.45% on a 25 year amortization with a $350 a month car payment and no other debt you would need to be making $85,000 a year. Your monthly payment would be $2,195 per month plus taxes. Take the same scenario projected to happen a year from now and rates at 3.45% your payment now is $2,450 plus taxes and your income now needs to be $95,000 a year. I don’t know many people in today’s economy getting a $10,000 raise. (NOTE: these numbers do include CMHC fees and have been calculated using the Filogix program, they also take into consideration average credit scores).

If you’re waiting another year to buy you may be surprised that the rates have increased to the point that you no longer qualify for the house of your dreams. Talk to a Dominion Lending Centres mortgage professional today about your different down payment options you may be able to get into that new home before the rates increase and lock in for a five year term at today’s excellent rates.

 
By Len Lane
13 Dec

TOP 5 REASONS PEOPLE DO NOT QUALIFY FOR A MORTGAGE

General

Posted by: Mike Hattim

I receive calls every month from people who want to know how to qualify for a mortgage because they were declined by their bank. In many cases I can help them and in some cases they have to wait – but we identify what they need to do to get in a better situation to qualify.

Here are the top 5 reasons why people don’t qualify for a mortgage with their bank and come to see an independent mortgage specialist.

#5 Lack of a Down Payment or Equity

With the end of cash-back mortgages offered by the banks, borrowers now have to come up with the down payment on their own. They can receive it as a gift from a family member – but no more cash-back from the lender used for down payments. Minimum down payment is 5% for the purchase of an owner-occupied home or 20% for a rental property. Minimum 20% equity in the home if it is a refinance. This will help you qualify for a mortgage.

#4 Insufficient Income

With the high price of homes in the Vancouver area, sometimes people simply don’t earn enough money to manage a mortgage payment, property taxes and strata fees along with existing consumer debt and still have a life. For some home buyers, the only other option is to access more money for a down payment (gifted) or try to purchase a home with suite income or look at alternative lenders who accept room and board and other sources of income to help you qualify for a mortgage. In some instances, home buyers will look for someone else to go on title to add income to the application.

#3 New Mortgage Rules

For those with less than 20% down payment, the new mortgage rules are adjusted to the debt servicing ratios and amortization for borrowers. The new rules for debt servicing apply to those with good credit scores and allow for a max of 39% (gross debt servicing – GDS) of gross monthly income to cover the mortgage payments, property taxes and 50% of the strata fee. In addition a max of 44% (total debt servicing – TDS) of gross monthly income is allowed to cover the same and other consumer debts such as loans, credit cards and lines of credit. The maximum amortization was also reduced from 30 years to 25 years – effectively tightening qualification for borrowers equivalent to a 1% interest rate hike.

#2 Credit Issues

Some people don’t realize if they are late on credit card payments, their mortgage or loan payments the lender will update the credit bureau agencies and the late payments will reflect on their credit report, lowering their credit score. Other items can also effect credit scores such as a collection (if you didn’t pay that parking ticket or fitness membership fee they can send to a collection agency) and those marks on your credit report make your score drop like a rock. Going over your credit card limit, and applying for credit often requiring your credit report to be pulled by the bank, auto dealership and credit card companies will lower your score. Finally, consumer proposal and bankruptcy will greatly impact your score, which can stay on your report for up to 7 years if real estate was involved as is the case with bankruptcy.

#1 Too Much Debt

There are a growing number of consumers doing – well – too much consuming. Credit card debt is on the rise and over use of lines of credit are putting some people in a debt overload situation. Some pre-home-buyers go out and purchase that amazing new truck, along with a large monthly payment, which pushes their total debt servicing (TDS) ratio over the limit. Nice new truck – no home with a garage. Some home owners have so much consumer debt that they are unable to refinance their home to consolidate the mortgage and the credit card debt because the amount exceeds the maximum loan to value allowable (currently 80% of the value of the home) and if housing prices stabilize or drop in some areas – this makes it more difficult for home owners to qualify for that new mortgage and lower payments. Paying off your debt will help you qualify for a mortgage.

Do you want more information for your next mortgage? Contact any of us here at Dominion Lending Centres – we’re here to help!

 
By Pauline Tonkin
12 Dec

MORTGAGE CHANGES. OH HOW TIMES HAVE CHANGED

General

Posted by: Mike Hattim

With the recent changes to the mortgage rules in Canada, we take a moment to look back at the evolution of the mortgage, and to highlight these new changes and what they mean.

LOOKING BACK

BEFORE 2008

During this time, lending and mortgages were much more laid back! There was 100% financing available, 40 year amortizations, cash back mortgages 95% refinancing, 5% down payment required for rental properties, and qualifications for FIXED terms under 5 years and VARIABLE mortgages at discounted contract rate. There was also NO LIMIT for your GROSS DEBT SERVICING (GDS) if your credit was strong enough. Relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non subject and subject properties.

JULY 2008

We saw the elimination of 100% financing, the decrease of amortizations from 40-35 years and the introduction of minimum required credit scores all took place during this time period. It was also the time in which the Total Debt Servicing (TDS) could only be maxed to 45%

APRIL 2010

This time period saw Variable Rate Mortgages having to be qualified at the 5-year Bank of Canada’s posted rate along with 1-4 year Fixed Term Mortgages qualified at the same. There was also the introduction of a minimum of 20% down vs. 5% on investment properties and an introduction of new guidelines on looking at rental income, property taxes and heat.

MARCH 2011

The 35-year Amortization dropped to 30 years for conventional mortgages, refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit

JULY 2012

30 year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down). Refinancing also dropped down this time to 80% from 85%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging and the disappearance of true equity lending. Perhaps the three biggest changes of this time were:

* Ban mortgage insurance on any million dollar homes

* 20% min requirement for down payment

* Elimination of cash back mortgages

* Federal guidelines Min; requirement of 5% down

* Introduction to FLEX DOWN mortgage products

FEBRUARY 2014

Increase in default insurance premiums.

FEBRUARY 2016

Minimum down payment rules changed to:

  • Up to $500K – 5%
  • Up to $1MM – 5% for the first $500K and 10% up to $1MM
  • $1MM and greater requires 20% down (no mortgage insurance available)

Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of $750K or less.

JULY 2016

Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

WHAT IS TO COME?

OCTOBER 17, 2016: STRESS TESTING

INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

NOVEMBER 30, 2016: MONOLINE LENDERS

In addition, Portfolio Insured mortgages (monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 Million and must be owner occupied.

BOTTOM LINE:

Homeowners will experience the following:

1. QUALIFY FOR LESS-25% less

• Options for mortgages will decrease as certain lender’s guidelines will no longer meet the federal criteria

• No more rental or investment properties to be insured

2. CAPITAL GAINS

• Can only be claimed 1x per year.

• Measure taken against the recent flipping of assignments to avoid property transfer tax from investors in the last 2 years

Stay up-to-date on all the changes in the mortgage rules by visiting the Dominion Lending Centres “new rules” page by clicking HERE. As always, we’re here to help with all your mortgage questions and needs.

 

By Geoff Lee