In Winnipeg, MB, Jackson and Hailey have been living in a rental home for more than three years. They liked this rental home so much; they asked the landlord if they could buy this house. The landlord agreed to sell the property for $300,000 to Jackson and Hailey. On August 1, 2015, the landlord as “seller” and the tenants as “buyer” signed the agreement (Offer to Purchase). They deposited $5,000 with the agreement and the possession date was August 31, 2015. If Jackson and Hailey put 5% down, then they need $15,000 as a down payment PLUS 1.5% for the closing costs of the house – 1.5% of $300,000 would be $4,500. To buy this home, Jackson and Hailey need $15,000 + $4,500. Altogether, they need $19,500.

In the month of July 2015, the couple (the tenants – Jackson and Hailey) added a patio at the rental home and painted the whole house inside. The tenants spent $5,897.32 from their pocket for this renovation and patio project. On July 28, 2015, the landlord (the seller) gave them a cheque for $5,897.32.

They deposited this cheque in their savings account and were under the impression that they could use this $5,897.32 towards their 5% down or closing costs. No, they can’t use this amount since the landlord paid it for the work they did in that same home. Under the guidelines, the seller is not allowed to pay any money to the buyer for the sale of this property. Now Jackson and Hailey are short $5,897.32 to buy this home.

Jackson and Hailey should have gotten some advice from a mortgage professional at Dominion Lending Centres before they signed an agreement to buy this home.

The proper planning of a mortgage is pertinent before anybody signs any agreements – it helps the client and the real estate agent.

It’s been a month since Donald Trump stunned the world by beating Hillary Clinton and his presidential win is already affecting many Canadians. Who else but Donald could wipe out more than 1 Trillion dollars in the bond market [1] as investors worry about his campaign promises to cut taxes and take on massive amounts of debt?

But what does this have to do with Reverse Mortgages in Canada?

Bottom Line: they could become more expensive. In fact, all mortgages in general could become much more expensive, relative to the low-interest rate environment that has surrounded Canadians for over a decade.

Bond Market = Funding Source of Mortgages. One of the primary funding sources for banks’ lending out money is the Bond Market. Banks make their money on the spread between how much interest they have to pay investors to borrow money and how much interest they charge clients on their mortgage. When banks costs increase, it usually translates into an increased cost to consumers.

Bonds are a bit tricky to wrap your head around at first, but it is an interesting global market (accounting for over 100 Trillion Dollars [2]), and it’s worth getting the basics down.

One of the most important things you need to know about bonds: the value of bonds moves in the opposite direction to interest rates. When interest rates rise, the value of bonds becomes lower.

To help illustrate, I’m going to use a very basic example using a 10-Year Canadian Bond:

If you purchased a bond 5-years ago for $1,000 that was earning 6%, and sold it on the bond market today when interest rates were only 2%, would you sell your bond for $1,000? No, it would be worth much more to investors as they can only purchase bonds earning a 2% yield.

Now, let’s say you purchased a bond today for $5,000 that was earning you 2%. If, in 5-years from now, rates rose to 4%, what do you suppose would happen to the value of your bond? Right! It would be worth far less, as you’d be selling investors a bond that is earning them less than they can purchase on the market.

Donald Trump’s talk of issuing massive amounts of debt, cutting taxes, trade wars and higher tariffs, has investors very worried about interest rates rising – and rising interest rates has the bond and the mortgage markets worried.

BMO Bank of Montreal senior economist, Sal Guatieri, is quoted: “The market has really re-priced interest rates higher right across the yield curve, and some of those pressures have spilled over to Canada as well. We’re seeing our 10-year Government of Canada bond yield now up about 30 basis points compared with before the US election. So that’s a pretty meaningful move in long-term rates over such a short period of time”.

By coincidence, RBC Royal Bank has raised its 5-year fixed rate by 30 basis points which goes into effect tomorrow. What does this mean to the 5.78 million seniors living in Canada? If they own a home and are looking into a reverse mortgage, locking into a 5-year fixed rate might be a good option for consideration.

If you are considering a Reverse Mortgage for yourself or a loved one, contact the mortgage professionals at Dominion Lending Centres.

By Roland Mackintosh

To understand financing options for conventional borrowers – ask your Dominion Lending Centres Mortgage Broker.  In October 2016 the Federal Government announced some significant changes to mortgage rules for high ratio borrowers.  Changes for high ratio mortgages took effect Oct 17th.  Changes for conventional borrowers took effect Nov 30th.  These changes will result in tighter guidelines to qualify for a mortgage, pressure on rates and may impact home prices in a market which has already been softening in recent months.

Let’s clarify the difference between a high ratio and conventional mortgage so we are all on the same page.

A high ratio mortgage occurs when a borrower has less than 20 percent down payment for their property purchase.  The mortgage must be insured through one of the main insurers and the client pays a one-time premium which is rolled into the mortgage.  A conventional mortgages occurs when a borrower has more than 20% down payment which means the mortgage does not require insurance coverage and no additional premium cost. In the case of rental properties or special mortgage programs an insurance premium can apply at a cost to the borrower.

Effective November 30th, all conventional borrowers are required to qualify at the benchmark rate (currently 4.64 percent) and a maximum of 25 year amortization for all mortgage terms if the lender is insuring the mortgage.  In recent years banks  and credit unions have opted to insure some of their conventional mortgages through CMHC, Genworth or Canada Guaranty.  Mortgage companies are required to insure their portfolio of mortgages through these insurers if they source their funds through investors rather than using their own money.  Since they are not a bank they do not have deposits to savings or chequing accounts.  With an insured mortgage the lender transfers their risk of lending to the insurer in the event of default by the borrower.  The mortgage is granted with insurance coverage and includes a mortgage premium.  The lender covers the cost of this insurance so many borrowers would not have any idea if their conventional mortgage was insured or not.

Because mortgage companies insure their mortgages the announcement of the new rules had an immediate impact on their business and what they can offer as competitive products to consumers.  Banks have the option to but don’t have to insure their conventional mortgages and can follow the previous rules for qualifying at contract rates and 30 year amortizations. However as expected, the banks have announced a premium to the interest rate for borrowers to access the 30 year amortizations.  So rates have increased for all mortgages over the past couple of weeks by 20 basis points, for 30 year amortizations an additional premium will be added and a further premium for rental properties.  Bottom line the cost to borrower has increased.

Over the past 20+ years the increase of mortgage companies has created competition for the banks.  There are some concerns these changes to mortgage rules will mean the exit of some mortgage companies from the market place and limit the competition for consumers on rates and products.  We have seen rate increases in the past few weeks which may be in part in response to the changes.  Although after the fiscal year end of October 31st rates typically rise so this may be a non-event.  As the deadline for the new rules for conventional mortgages passes some mortgage companies who fund with their own money have announced shifts to their products and rates to offer competitive options to consumers.  The good news is there is always the power of choice.

Your Dominion Lending Centres mortgage broker will continue to work with the banks, credit unions and mortgage companies so nothing has changed in that regard – business as usual.

As an independent mortgage broker I can access all lending options including 30 and 35 year amortizations.  In addition there are solutions for rental property owners, financing options for self-employed people and alternative financing for those borrowers who do not fit within traditional offerings. Now more than ever it is important for consumers to consult  with your mortgage broker to review any important aspects of your financial picture, address any concerns and source best solutions.

For assistance with your high ratio mortgage or to understand financing options for conventional borrowers – ask your DLC Mortgage Broker.

By Pauline Tonkin

Strata condominiums or townhouses are a popular home options with many benefits including providing little personal maintenance, the ability to live in a more populated area, among others.

10 Things you should know about Condo and Townhouse Strata Properties

1. Each Strata lot typically has one vote.
2. You may have a monthly strata fees which will cover common area maintenance, management expenses, maintain the contingency reserve funds minimum requirements and more.
3. Rules will be in place regarding things such as if pets are allowed, where you can park, what can be placed on your patio, if you can rent the unit and more.
4. Rules can be changed. Typically a 3/4 vote in favour of a change will be required.
5. You can be fined if you break the rules.
6. Age restricted properties are more difficult to finance as lenders believe it affects marketability.
7. The Fire Insurance covered by the strata fees is for common property and buildings. Personal belongings are not covered under the Strata’s insurance.
8. For mortgage qualifications half of the strata fees will typically be used in your debt servicing calculations.
9. Unless a 3/4 vote opposes the requirement for a Depreciation Report a Strata’s with 4 or more strata lots is required to have a Depreciation Reports done every 4 years. The report covers all common areas and structures which help determine long term maintenance requirements and costs.
10. Special assessments where you have to pay lump sum amounts may happen if the strata votes for major upgrades or if contingency accounts need to be topped up.

Always best to do your due diligence by reading through the last two years of strata minutes, the depreciation report and analyze the financial reports before you buy a strata unit. Once you have purchased, be proactive in protecting your investment by attending strata meetings or joining the strata council.

Looking to buy a Strata Property? Get started by contacting your local Mortgage Professional at Dominion Lending Centres!

Have you found the house of your dreams?

But there is already an accepted offer in place?

OK, but are there outstanding subjects on the offer? Perhaps there’s a ‘subject to sale’ with a 72-hour trigger clause against the potential buyer, and this one condition might still be anywhere from two to six weeks from removal. Why sit back and wait to see what happens over the following weeks?

In a softening market ‘subject to sale’ becomes more common.

Get in the game: write a backup offer.

Over the last few years, more purchase offers have fallen apart due to financing than in the past couple of decades combined. Financing has become that challenging, and few people realize it until they actually write an offer and make the application.

When it comes to mortgage financing, while money never have been cheaper… it’s also never been harder to get.

So, if you find your dream home and it already has an accepted offer, follow through with writing the backup offer anyway. It is not a waste of time for you or your Realtor. Historically clients and Realtors alike may have felt this was a wasted process. No longer!

If you’re the seller, take the time to think through the written offer in front of you before accepting one with an exceedingly long subject removal period of, say, two to six weeks, or an offer containing a ‘subject to sale’ that lasts a month or longer. Keep in mind that despite what I am urging buyers to do, very few will write a backup offer if another offer is already in place. People don’t like to bump other people; it feels confrontational. So in effect you are removing your home from the market whether you think so or not.

These subject-to-sale offers typically have a ‛72-hour clause’. This clause means that if another offer is written, the original buyer has 72 hours to remove all subjects and go firm. Whether they have met these conditions or not, it becomes their decision to roll the dice and follow through with their offer.

As Canadians, we are often very polite, perhaps too polite. We give thanks to those who thank us for thanking them. We apologize when offered an apology. It’s the Canadian way.

And so, we don’t really want to trigger the 72-hour clause on somebody. We don’t like putting others in uncomfortable situations. The reality for the seller is, if you have a long subject removal offer on your property, it is highly unlikely that anyone else is going to write an offer on it.

Conclusion

As a seller: Be wary of taking placeholder offers laden with long subject removal dates which put you in a position where you are subsequently hoping for a backup offer. You’re unlikely to get one.

As a buyer, write backup offers. If you are serious about the property, don’t be shy about triggering the 72-hour clause. Get your elbows up, get in the game, and make it happen.

By Duston Woodhouse

The King of Pop made the best-selling album of all time, Thriller (which came out 34 years and two days ago!), with sales of around 65 million copies. Yet in spite of the huge revenues he continued to receive from such recordings, Michael Jackson died broke. How could this be? The answer to this question reveals some important lessons for anyone who wants to achieve long-term financial freedom.

Michael’s main problem was that as his income dwindled in recent years, he never changed his spending habits. In 2005, a forensic accountant testified that Michael was spending $20-30 million more per year than he earned and was in debt by as much as $285 million. In 2001, he borrowed $200 million from Bank of America just to stay afloat. His 2,600 acre private estate, Neverland, cost $5 million a year to maintain and faced repossession twice.

Unfortunately, Michael didn’t understand the difference between good debt and bad debt. Borrowing money to pay for living expenses and possessions that never pay a return is bad debt. It may give you short-term pleasure, but it offers no long-term value.

Instead of buying the latest big screen TV and taking exotic cruises, set more money aside so you can eventually start investing in assets that will increase in value over the long term. Good debt are things that will generate income for you over time. Some examples are borrowing to pay for post secondary education, seminars, books, retirement investments, strategic renovations to your home, or the purchase of a revenue property.

It’s true that Michael did choose some good debt, like buying the rights to 259 Beatles’ tracks. Today, his estate has an estimated value of over $2 billion.

Here’s the key lesson you want to implement. Live within your means and set aside at least 10% of your income to invest in cash flow producing assets. Do this, and you will never have to lose any precious sleep worrying about how you will make ends meet.

If you would like some tips on using the equity in your home to start investing in return-producing assets—so you can enjoy financial security, talk to your Dominion Lending Centres mortgage professional. We can offer objective advice and give you access to innovative, affordable financing so you can position yourself for an abundant future.

Starting the journey to homeownership can be overwhelming and stressful. But with a little planning, you’ll get the home that’s right for you. A home that strikes a balance between your “wish list” items and the practical realities of the property, location and the housing market. Before you know it, you’ll have a place to call your very own. A place to entertain. A place to decorate. A place to raise a family. It really is an exciting time!

To help keep you on track, below is a step-by-step guide to buying your first home.

STEP 1 – Build a Budget

An effective budget will map out your plan to set aside money for your down payment and additional costs. It will also help determine the price of home you can afford.

STEP 2 – Investigate Mortgage Options

There are many different types of mortgages. If you don’t have the 20% down payment for a conventional mortgage, you can get a high ratio mortgage, combined with mortgage default insurance, that allows for a smaller down payment. You should be pre-approved for a mortgage before you start house hunting.

Consult with a Dominion Lending Centres mortgage professional to discuss what options are available to you and learn more about how to get started.

STEP 3 – Choose a Realtor

Your realtor will play a vital role in your homebuying experience. The best realtor will be a combination of a personal advisor, consultant and negotiator. He/she will show you homes that match your criteria, guide you through the homebuying process, negotiate the best possible price for your home and deliver your closing documentation.

STEP 4 – Get a Lawyer

It’s important to hire a lawyer who specializes in real estate. You could find yourself in a bidding war for the home you want, and it doesn’t hurt to have a lawyer look over any offer to purchase before you submit it. A real estate lawyer will also conduct a title search and check for outstanding taxes and liens on the property.

STEP 5 – House Hunting

* Create a wish list

House hunting can be a lengthy process. To save yourself time, know exactly what you want in a home beforehand. Think about your immediate needs, future plans and lifestyle. When you look at homes, you may be tempted to concentrate on the home, but don’t forget to

look at the whole property: the lot, the neighbourhood, the surroundings. How close is the home to facilities and services important to you?

* Bring your checksheet

When you’re ready to begin shopping for a home – often called “house hunting” – bring along this House Hunting Checksheet. You may end up seeing multiple homes in one day. This checksheet will help you compare and keep track of the homes you visit. And help you remember the features you did or didn’t like.

STEP 6 – Make the Offer

Your agent presents the offer to the seller. This document includes the price, conditions, deposit and closing date. The seller either accepts, rejects or counters the offer (also called “signing back” the offer).

STEP 7 – Home Inspection or New Home Warranty

Hiring an inspector is voluntary, but it’s a smart idea for resale homes. You can choose to make your offer to purchase the home conditional on the outcome of your inspection. If your inspection reveals major problems, you can negotiate those repairs with the seller before your deal closes, or legally withdraw your offer.

What is a New Home Warranty?

New Home Warranties are typically used when you buy a brand new home. The builder provides a New Home Warranty to cover things like deposits and completion dates, along with labour and materials for at least one year after the home was built. It also protects you against structural problems for a minimum of five years.

STEP 8 – Finalizing the Deal

Finalizing the deal will include the final approval of your mortgage, a meeting with your lawyer to finalize details like insurance and conditions, and the results of a title search.

STEP 9 – Moving Preparations

There’s a lot to do before you move. Line up utilities and other services like phone, cable and internet. If you rent, you must give your landlord notice. Also, forward your mail to your new address and hire a moving company. Preparing these things well in advance will help you make a smooth transition to your new home.

STEP 10 – Closing Day

This is the day you legally get possession of the house. Your lawyer completes the paperwork (so the home is in your name), payments are finalized and you receive the deed and the keys. Congratulations on your new home!