Over the last few years, we have seen many retired Canadians outliving their retirement savings and requiring a financial solution to help them live the rest of their retirement. In the media alone, there is a constant outpouring of articles relating to retirement planning, preparing enough savings for retirement, as well as numerous articles around when to tap into your CPP. For many retirees and those approaching their retirement, these articles are a reminder of how to prepare and what to anticipate. However, Canadians continue to struggle with their finances in their retirement years.

Many Canadians are entering their retirement years with debt and underestimating the amount they need to save for retirement. In a recent national survey of Canadian homeowners, 40+, that we commissioned, we found there is a large gap between the lifestyle expectations of those Canadians studied and the reality. In fact, a startling 69% of Canadians researched expressed confidence that they have sufficient funds to retire, however 43% of retirees studied have debt including a whopping 35% of Canadians 75+. While 78% claim to have savings and investments, a full 40% have less saved than $100,000. That means, the majority (53%) of Canadian homeowners 40+ have either no or less than $100,000 in savings to carry them through retirement!

The study further goes on to show that a significant portion (82%) of those studied, reported that having the ability to stay in their homes during retirement is very important and 69% value their home equity as an important asset in their retirement plans.

This study also enabled us to question the familiarity of the reverse mortgage product. More than half of the respondents claimed that they were familiar with reverse mortgages, and among those who would consider a reverse mortgage, 50% of them said that the main reason for considering a reverse mortgage is to supplement their income.

Many respondents wanted reassurance that they would continue to own their own home without ownership being transferred to a third party. (yes-customers continue to own their own home!) The respondents also felt more at ease knowing that banks and other secure financial institutions offered the CHIP Reverse Mortgage (they do!) and if the solution was recommended by financial professionals (it is!).

This study is a reminder of how important it is to continue to raise awareness to the reverse mortgage product. Canadians prefer to age in place, are carrying debt and have inadequate savings, but many are directed to solutions that don’t give them the opportunity to live in their homes without the need for monthly mortgage payments. Reverse mortgages are a smart and comprehensible solution for Canadians planning their retirement. To learn more, contact your local Dominion Lending Centres mortgage professional.

By Yvonne Ziomecki

Avoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

2. Not knowing your credit score

Your credit score is a HUGE factor in your mortgage application. The first thing lenders look at is your history and your score—then from there they build your file.

You should know where you stand because so much of your lending availability is tied to your credit score. In mere minutes, a mortgage broker can help you obtain a copy of your credit report, and go through it to ensure the information is correct.

3. Shopping with too many lenders

When you shop from institution to institution you will have your credit score pulled multiple times. Lenders typically frown upon this and it may interfere with your mortgage application. If you go to a mortgage broker though, your score is pulled ONE time only.

4. Not keeping your taxes up-to-date

Plain and simple: If you are self employed or the mortgage application is requiring a 2 year income average to qualify (utilizing overtime wages and/or bonuses) and you haven’t filed your taxes and kept them up to date, you cannot get a mortgage. Lenders will ask for your notice of assessment if your tax filings are not up to date, and you will not get your mortgage until they are filed properly and a Notice of Adjustment from the latest year it is received.

5. Not understanding that the real estate market you qualify in TODAY will adjust in the future.

Rates may be at an all time low right now, but new rules, government regulation, and changes when you are up for renewal can change the circumstances. You must be able to carry your mortgage payment at a higher rate or with new laws imposed.

Remember, securing a mortgage isn’t always about getting the best deal. It’s about getting a home you want and establishing yourself as a homeowner. That means not overextending yourself and taking your qualifying amount to the maximum. Leave some breathing room because no one knows what the future may hold!

But one thing’s for sure – you should contact a mortgage professional at Dominion Lending Centres!

Are you on the hunt for a new home but can’t find exactly what you are looking for? You’re not alone. House hunters experience this scenario every day. With real estate prices increasing you may not be able to buy your dream home the first go-round.

Think about buying a fixer-upper. There are many potential properties that you can put your own personal stamp on. Why not renovate something?

There is a mortgage product called Purchase Plus Improvements (PPI). With the PPI the lender is able to provide additional financing to improve the subject property. This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof,  basement finishing, and more.

There are parameters to the PPI mortgage program:

• Apply for up to a maximum of 10% of the as-improved market value
• Utilize as little as 5% towards the down payment
• At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
• Renovation to be completed within 120 days
• A third party (appraiser) must verify completion
• One advance of the funds once the project is complete
• Once the renovation is complete the lawyer would release the funds

PPI Scenario

Listed or Purchase Price: $450,000

Value of the Renovation: $45,000

As-Improved Value: $495,000 (new Purchase Price)

Maximum Borrow: $49,500 (10%)

Purchase Price: $495,000

Down Payment: $24,750 (5%)

Mortgage Amount: $470,250

Mortgage Insurance: $16,929

Total Loan: $487,179

Monthly Mortgage Payment: $2,146.17

For many, it is a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?

If you are considering another form of financing for the renovation, some borrowers look for a line of credit, but is it really saving money and time? An interest-only payment on $49,500 is another $309.38 (based on 7.50%) which saves you $114.28 overall.

With all the different types of mortgages out there, be sure to contact your local Dominion Lending Centres mortgage professional so we can explain how “we’ve got a mortgage for that”!

By Michael Hallett

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

December’s jobs report was unambiguously strong showing employment gains of 53,700 (0.3%), the result of gains in full-time work. Finally, for the first time this year, full-time jobs outpaced part-time. The unemployment rate increased 0.1 percentage points to 6.9% as more people entered the labour force. This is evidence that the economy may be absorbing the slack that’s kept interest rates near record lows.

Full-time positions rose 81,300 in December from the previous month, the biggest gain since March 2012, and even after taking away 27,600 part-time jobs, the total employment gain of 53,700 shattered the economist forecasts for a small decline.

For 2016 as a whole, employment grew by 1.2%, compared to a growth rate of 0.9% in 2015. Payrolls rose by 214,000 last year, the fastest December-to-December growth since 2012.

Quebec and British Columbia posted job gains in December, while there was little change in the other provinces. In 2016, BC recorded the fastest employment growth rate among the provinces for the second consecutive year, up 3.1%. The gains were evenly split be tweet full- and part-time work and spread across many industries.

In another report, Canada’s trade balance returned to surplus in November for the first time since September 2014, moving from a $1.0 billion deficit in October to a $526 million surplus in November. Exports rose 4.3% on the strength of increased exports of metal and non-metallic mineral products as well as record exports to countries other than the US. Imports were up 0.7%, mainly on higher imports of energy products.

The data may signal Bank of Canada Governor Stephen Poloz’s long-awaited economic revival is finally on solid ground. Poloz has stressed ahead of his Jan. 18 rate decision that there is still plenty of slack in the job market which may be adding to divergence with a recovering US economy.

The job gain made the fourth quarter the best since 2010 and turned 2016 into a breakout year from some of the slowest hiring since World War II. The trade surplus means struggling energy and manufacturing companies may contribute to growth aided by debt-fueled consumer spending on houses and cars.This would be just in time to help offset what is likely to be a slowdown in housing in Canada this year in the wake of federal government mortgage initiatives to tighten mortgage credit conditions.

Provincial Unemployment Rates in December In Descending Order (percent)
(Previous months in brackets)

When signing your mortgage commitment letter you will have to choose your payment frequency. If your goal is to re-pay your mortgage as quickly as possible, then you need to understand how different payment options will affect your repayment schedule.

So what are your options?

In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage in the shortest time possible.

For the purposes of this exercise and to keep things simple, let’s use $100,000 as our mortgage amount. We’ll use a 5 year fixed rate at 2.54% with a 25 year amortization period and interest being compounded semi-annually.

As you can see from the table above, choosing to pay your mortgage more frequently doesn’t result in reducing your amortization schedule. The key to reducing your amortization is to make sure you choose an accelerated re-payment schedule.

We are going to focus on Accelerated bi-weekly vs. bi-weekly payments but the same principle can be applied to accelerated weekly payments as well.

Okay, we’ve just determined that accelerating your mortgage payments will reduce your amortization and the interest you pay. How does accelerated bi-weekly vs bi-weekly result in more principle being repaid?

It’s important to think of your payments as a stream of income for the mortgage lender. Mortgage payments are comprised of principal and interest payments. The interest is calculated based on your outstanding principal balance, meaning once the interest has been paid, the remainder of your payment is used towards paying down your principal balance.

By choosing an accelerated repayment schedule, the monthly payment is divided by 2 (bi-weekly) or by 4 (weekly). There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments with all non-accelerated repayment schedules.

This accelerated repayment of principal is what shortens your amortization.

13 monthly payments ÷ 26 = accelerated bi-weekly payment

Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment

With a non-accelerated or regular payment plan, the Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. With this adjusted payment, the Lender still receives a stream of income of 12 monthly payments per year, so there is no additional principal available to accelerate the amortization.

12 monthly payments ÷ 26 = regular bi-weekly payment

Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment

So now you know why choosing accelerated bi-weekly vs. bi-weekly payments results in 1 extra month of payments per year, which in turn shortens your amortization.

I always recommend this to anyone who can afford the increase in payment but I understand this option isn’t right for everyone. Another option to help shorten your amortization is to increase your payments, meaning more principal paid.

When you’re choosing your next mortgage, make sure you discuss payment options with your Dominion Lending Centres mortgage professional that align with your overall goals for repaying your mortgage.

Yesterday, Ottawa unveiled major initiatives to slow housing activity both by potentially discouraging foreign home purchases and, more importantly, by making it more difficult for Canadians to get mortgages. As well, the Finance Minister is limiting the degree to which mortgage lenders can buy portfolio insurance on mortgages with downpayments of 20% or more. Ottawa has clearly taken out the big guns to slow housing activity, which is widely considered to be too strong in Vancouver and Toronto. Ironically, home sales have already slowed precipitously in Vancouver in recent months and the BC government introduced a new 15% land transfer tax on foreign purchases of homes effective August 6, the effects of which are yet to be fully determined.

The measures announced by Finance Minister Morneau are more far reaching than anything considered to date and could well have quite a significant impact. Not only are these initiatives intended to close loopholes for foreign investors, which might help to make housing more affordable for domestic purchasers, but they will actually make homeownership less attainable for the marginal borrower, which is often younger Canadian first-time home buyers.

Officials at the Department of Finance have been studying the housing market and have led a working group with municipalities and provinces, as well as federal agencies such as the Office of the Superintendent of Financial Institutions (OSFI) and Canada Mortgage and Housing Corporation (CMHC). This in-depth analysis has informed today’s announcement.

 Measures Aimed At Foreign Homebuyers

• The income tax system provides a significant income tax benefit to homeowners disposing of their principal residence, in the form of an exemption from capital gains taxation.
• An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.
• The Canada Revenue Agency (CRA) will, for the first time, require all taxpayers to report the sale of a property for which the principal residence exemption is claimed.

Measures Affecting All Homebuyers

The Finance Department says in its press release that, “Protecting the long-term financial security of Canadians is a cornerstone of the Government of Canada’s efforts to help the middle class and those working hard to join it.” This is a “Nanny State” measure to protect people from themselves, as the Bank of Canada has long been concerned about the growing number of households with excessive debt-to-income ratios. It will make housing less attainable, at least in the short run. If it, therefore, substantially reduces housing demand, home prices could decline, ultimately improving affordability. This, of course, is not what the 70% of Canadian households that already own a home would like to see.

• Broadened Mortgage Rate Stress Tests: To help ensure new homeowners can afford their mortgages even when interest rates begin to rise, mortgage insurance rules require in some cases that lenders “stress test” a borrower’s ability to make their mortgage payments at a higher interest rate. Currently, this requirement only applies to a subset of insured mortgages with variable interest rates (or fixed interest rates with terms less than five years). Effective October 17, 2016, this requirement will apply to all insured mortgages, including fixed-rate mortgages with terms of five years and more.
• A buyer with less than 20% down will have to qualify at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. The Bank of Canada’s posted rate is typically higher than the contract mortgage rate most buyers actually pay. As of September 28, 2016, the Bank of Canada posted rate was 4.64%, compared to roughly 2% or so on variable rate mortgages.

For borrowers to qualify for mortgage insurance, their debt-servicing ratios must be no higher than the maximum allowable levels when calculated using the greater of the contract rate and the Bank of Canada posted rate. Lenders and mortgage insurers assess two key debt-servicing ratios to determine if a homebuyer qualifies for an insured mortgage:

• Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
• Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.

To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39% and a TDS ratio no greater than 44%. Qualifying for a mortgage by applying the typically higher Bank of Canada posted rate when calculating a borrower’s GDS and TDS ratios serves as a “stress test” for homebuyers, providing new homebuyers a buffer to be able to continue servicing their debts even in a higher interest rate environment, or if faced with a reduction in household income.

The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later.

• Tighter Mortgage Insurance Rules

Lenders have the option to purchase mortgage insurance for homebuyers who make a down payment of at least 20% of the property purchase price, known as “low-ratio” insurance because the loan amounts are generally low in relation to the value of the home. There are two types of low-ratio mortgage insurance: transactional insurance on individual mortgages at the point of origination, typically paid for by the borrower, and portfolio (bulk pooled) insurance that is acquired after origination and typically paid for by the lender. The majority of low-ratio mortgage insurance is portfolio insurance.

Lender access to low-ratio insurance supports access to mortgage credit for some borrowers, but primarily supports lender access to mortgage funding through government-sponsored securitization programs.

Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
2. A maximum amortization length of 25 years;
3. A maximum property purchase price below $1,000,000 at the time the loan is approved;
4. For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
5. A minimum credit score of 600 at the time the loan is approved;
6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
7. A property that will be owner-occupied.

These tighter mortgage insurance regulations will reduce the supply of mortgages and/or increase their cost to the borrower.

Consultation on Lender Risk Sharing

The Government announced that it would launch a public consultation process this fall to seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages could enhance the current system.

Canada’s system of 100% government-backed mortgage default insurance is unique compared to approaches in other countries. A lender risk sharing policy would aim to rebalance risk in the housing finance system so that lenders retain a meaningful, but manageable, level of exposure to mortgage default risk.

This proposal by CMHC has been floated for some time and, needless to say, the Canadian Bankers’ Association, is against it. The measure would certainly increase the risk associated with funding mortgages and therefore likely increase the capital required to be set aside against this additional risk. Therefore, in essence, it increases the cost to the lenders to finance mortgages. The lenders will undoubtedly attempt to pass off this increased cost to the borrower or reduce its supply of credit. Right now, the cost of mortgage insurance is borne by the taxpayer.

Bottom Line: These are very meaningful initiatives to slow housing demand, making it more difficult for Canadians to borrow. Finance Minister Morneau has taken out the big guns. I have no doubt that the pace of mortgage lending will slow from what it would otherwise be as a result of these government actions. However, these actions do nothing to address the shortage of housing supply in Vancouver and Toronto.

Housing has been a very important pillar for the Canadian economy, especially at a time when oil price declines have decimated the oil sector and manufacturing continues to struggle. This is a case of being very careful what we wish for– I’m concerned that we might see more of a slowdown in housing than the government was counting on, which will certainly affect jobs and growth and reduce tax revenues at a time when budget deficits are mounting and fiscal stimulus has yet to do its job.

New credit reporting and what it says about you and your spending habits may make all the difference between you buying a home now or later.

When home buyers contact me to apply for a mortgage, I always review their credit report with them along with the rest of their application, before they start looking at homes with a Realtor. If there are any issues with the credit history we can determine the reason, the next course of action and how it will impact financing a purchase.

There is a lot of valuable information in a credit report which provides an overview for lenders about your ability to borrow money. Consistent late payments, collections and bankruptcy have the biggest impact on lowering your score. Running a high balance or over your limit on your credit cards will also drive your credit score down. Scores range from 300-900 and a difference in score by as little as 50 points says a lot to a lender about you as the borrower. For example, a score of 550-599 represents 21% of delinquencies while a score of 600-649 only 11%. Delinquency rates are defined as those who have late payments beyond 90 days. If your score falls from one bracket to the lower bracket with late payments or collections, the difference can affect the interest rate you can receive or, worse yet, if you can qualify for the mortgage amount you need.

The most recent software update for the credit bureau reporting system has added some features which could have a significant impact on reporting. The new reports, which were released in early 2015, show three credit scores and one overall score.

The first score ranks based on open credit and balance to limit ratio. So if you have lots of open credit and your balances are low or reasonable the score is higher. High balances or over limit on all credit cards will drop your score.

The second score ranks based on late payments and collections over $250. If your late payments are beyond 90 days, your score will drop dramatically.

The third score ranks based on the number of third party collections in the last 3 years and the oldest revolving credit. So if you have outstanding parking tickets or an unpaid gym membership that you forgot about — they will come back to haunt you.

These individual scores were created to show specific behaviour by a borrower and if the credit score is trending up or down. This can give the lender an indication of a chronic issues with a potential borrower or if they are consistent with their credit usage.

With mortgage payments, lines of credit, auto loans, credit cards and even cell phone bills now reporting on the credit report,  consumers have to be diligent with spending and paying bills on time.

I recommend to all my clients to keep your credit report clean — after all, it is your identity.

Establish at least two trade lines of a minimum of $2,000. One credit card and one personal line of credit for example.

Maintain lower balances (< 65%) on all lines of credit or credit cards.

Make payments a few days before they are due to ensure you are always on time

If you get a parking ticket, fight it and lose – pay the bill and don’t let it go to collection.

Look at your credit report annually and certainly 3-6 months before making any major purchase such as a car or home. To view your own credit report visit www.equifax.ca.

Because the top secret formula has never been released there are common myths that are floating around about the ones credit score, here are the top 5.

1. TOO MANY CREDIT CARDS WILL HURT MY CREDIT SCORE

Actually, cancelling healthy active cards or accounts hurts more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time you should observe the rule of maintaining a balance at no more than 75% of the limit, but less is best. Applying for new credit every week will lower your score more.

2. USING CREDIT TO BUILD A CREDIT SCORE

Remember to keep your balances low and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.

3. MY UTILITIES AND INTERNET ARE PAID ON-TIME EVERY MONTH

These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.

4. CHECKING MY SCORE WILL DECREASE IT

There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting a loan or credit card application. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty.

Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

5. THERE IS NOTHING I CAN DO ONCE A PAYMENT IS LATE

Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it. Some is better than none.