31 May

WHEN DOUBLE DIPPING IS OKAY

General

Posted by: Mike Hattim

Perhaps you remember the Seinfeld episode where George Costanza catches someone double dipping in the salsa. While this is considered unsanitary and bad manners, some forms of double dipping are okay.

Sometimes two levels of government want you to do something, so they offer you an incentive. The idea is that people’s behavior over time changes and it becomes the norm to do this.
Several years ago when I was having my furnace cleaned and serviced, the service man told me that the firebox had rusted and fumes could flow through my home. He turned the furnace off and told me that I needed a new one.

At the time, the local natural gas company was offering discounts on furnaces for people who switched over to their company. The local electricity provider offered lower rates to people who bought a heat pump and the federal government had a program to encourage people to become more energy efficient. As a result, I was able to triple dip – I got a discounted more energy efficient furnace with air conditioning and a new lower rate for electricity.

That program is gone now but there are others that you can benefit from. At this time Alberta residents are being bombarded with ads and flyers from window companies. They say that if you replace your windows now you can qualify for a $1,500 rebate through the provincial government. What they are not telling you is that you can double dip. If you get an energy audit before the windows are replaced and you apply to your mortgage default insurance company , whether it’s CMHC, Genworth , or Canada Guaranty, you may qualify for a 15% rebate on your premium ! On a $400,000 mortgage with 5% down you pay $16,000 in fees. How nice would it be to get $2,400 back?

The programs vary from province to province and cover windows, hot water tanks, appliances. You can check out what’s available here or ask your Dominion Lending Centres mortgage broker for more information. Go ahead and double dip.

By David Cooke

30 May

MORTGAGE MOMENT: WHEN LIFE GIVES YOU LEMONS…

General

Posted by: Mike Hattim

We all do it. Even I fall guilty to it at times. It’s really a part of Human Nature…and really what fun is life without it?

What exactly are we talking about? Dreaming. We make grand plans and lay them out with the utmost care. We write them out, daydream about them, and (hopefully) we make them come true! There is nothing wrong with doing this…not a single thing! However, as many of you know, rarely do the dreams and plans we lay out stay on course as we would like them to.

This holds true many times for mortgage clients. We find that many times, what they initially come to us with when they are being pre-approved, rarely is the same less than 3 years later (There’s a reason 6 out of 10 Canadians break their 5-year term mortgage early).

Recently, we had just this happen with one of our clients. A young, working professional couple, found themselves in a difficult situation when one of them was injured and went on long-term disability leave.

Their income took a significant drop due to this and their cash flow was of course, negatively impacted. They relied (as many people do) on credit cards and at one point also took out a line of credit. They were able to make minimum payments each month on their loans and debts, but the problem sat with the interest rates. They kept getting higher and the debt they carried wasn’t being reduced.

Basically, life had handed them some lemons.

At this point, they felt they were left with one option: seek private funding. The problem with this was fear of losing their home if they approached their lender. The interest rate quoted by the private lender was less than that on their credit cards, but still higher than what was reasonable. The couple felt that seeking to obtain a second mortgage would be the best-case scenario. However, with a rate of 10% plus a lender fee of up to 6% of the loan amount and a 1 year term with renewal fee of 1% for total amount borrowed, this was not at all ideal!

This is where we stepped in and decided to make some lemonade! Here is how the story played out once they came to see us:

We were able to use the income received from disability and refinanced their existing mortgage
We consolidated the credit card and line of credit debt at a rate of 2.35% in doing so we reduced their current monthly payments by $1500 with an annual savings of $18,000! Or $90,000 over five years!
Here is a brief number summary to give you the full recap:

Value of the Home: $525,000

Requested Mortgage Amount: $420,000

Loan to Value: 80%

Income Documentation:

Letter of employment and pay stub
Letter from insurance company detailing disability payments and confirmation of deposit into current bank account.
Credit Score: 746 & 676

Total Debt Service Ratios: 41%

Mortgage Solution: All debts were paid with proceeds from their 5-year variable-rate mortgage with a 30-year amortization. The annual savings was MORE THAN $18,000!

We helped this couple get back on track and allowed them to keep on dreaming! We understand that life rarely will stay on course and go just as you picture it, but there is often a creative solution that can help you get back on track. If life has handed you a few lemons and you aren’t sure where to start, visit a Dominion Lending Centres Mortgage Broker—they can make some of the best lemonade!

By Geoff Lee

29 May

HOW TO NAVIGATE THE MORTGAGE RATE WARS

General

Posted by: Mike Hattim

You may have heard that rates are changing, and that is true. They don’t call it war for nothing and you need an expert by your side!

Think of mortgage brokers as your loyal soldiers. What we are seeing is exactly what we anticipated when prime rate goes up and discounts go down. Confused? Don’t be, variable rates are based on prime and both Bank of Canada Prime and Bank Prime are different.

What the new discount means is what it means – they anticipate prime to go up higher.

With current regulations, borrowers qualify for more mortgages on a variable rates! This is a shift from the previous policy where more Canadians were having to take fixed rates to qualify for the most.

These new discounts on new mortgages getting taken out there discount is lower off of the bank’s prime rate- this does not apply to an existing mortgage

Did you notice earlier I said the bank’s prime rate, you would think they are all the same… right?

This is not the case. In November of 2016 one Canadian lender broke the trend of their counterparts and raised their internal prime to immediately impact their existing customers by adding to their amortization. This discount below was for new clients they increased the discount so it looked bigger.

It’s important to note – each lender has unique criteria to be met to get these offers: some only for purchases, some only with switches, some only certain amortizations, and some only certain property types. The list goes on!

Remember your broker shops all these lenders without bias, while protecting your credit score to assist you in finding the best one. It’s important that we evaluate the following criteria with these lenders- here is an example of three lenders:

Lender one

Bank has a higher Prime than anyone else
No change to payment
Increases amortization which can put into effect a trigger clause- cash call in on mortgage or forced pre-payment and other costs such as appraisal at your expense
Not portable
Does have a 12 month penalty payback if getting a larger mortgage at new rates! Best one!
Have to go to branch to lock in and then be subject to their IRD (usually 3-5% of balance pending where you are in your term).
Based on history this lender is generally the first to raise their rates and last to decrease

Lender two

Prime rate consistent with all lenders
Change to payment so amortization doesn’t increase
NO trigger clause
Have to go to branch to lock in and face large IRD between 3-5%
Not portable but will refund you within 6 months if the mortgage is larger and will get rate available at that time

Lender three

Prime consistent with all lenders
Change to payment so amortization doesn’t increase
NO trigger clause
lender will pay back penalty within 3 months of getting a larger mortgage with them
your mortgage expert can assist you with lock in
If you lock in they have the lowest penalties in the country to break your mortgage in the future, generally 1-1.5% of the balance
With seven-in-10 mortgages breaking before the term is over, this should be weighted very carefully.

Let me demonstrate the following:

A mortgage that gets locked in with first or second lender above at $500,000, by the third year the cost to break a mortgage will be between $15,000 and $25,000. With the third lender the cost would be between $5,000 and $7,500.

What to do with this info?

These new wars apply to new mortgages. If you have a mortgage with a discount less than .50, a renewal upcoming, looking at accessing your equity for home renovations or to consolidate debt and you have a variable rate, it may be time to run the numbers to see if taking a new variable rate mortgage is beneficial for you. One of the significant benefits of having a VRM is to get out at any time with only three months interest penalty (unless a restrictive product was taken for a better rate or had a sale only clause).

As you can see we have only scratched the surface in terms of the differences. There are many other differences and mainly you have to consider as a consumer, do you want to be calling a bank branch and play Russian roulette with the education level and sales goals of the person who guides you through deciding what to do with your biggest asset? Or would you rather have a Dominion Lending Centres mortgage professional who is in the front lines proactively guiding you and assessing the economic factors to give you personalized advice based on their experience and knowledge of the mortgage industry.

Depends on what you value most!

By Angela calla

25 May

FIXED VERSUS VARIABLE INTEREST!

General

Posted by: Mike Hattim

Fixed Interest Rates

This is usually the more popular choice for clients when it comes to deciding on which type of interest rate they want.

There are many reasons why, but the most unsurprising answer is always safety. With a fixed interest rate, you know exactly what you are paying every month and you know that the amount of interest being charged for the term of your mortgage will not increase and it will not decrease.

Fixed interest rates can be taken on 1-year, 2-year, 3-year, 5-year, as well as 7 and 10-year terms. Please note, term is not meant to be confused with amortization. When you have a 5-year term but a 25-year amortization- the term is when your mortgage is up for renewal, but it will still take you the 25 years to pay off the entire debt.

The biggest knock on fixed interest rates when it comes to mortgages, especially 5-year terms, is the potential penalty. If you want to break your mortgage and pay it out, switch lenders, take advantage of a lower rate, or anything like this and your term is not over, there will be a penalty. With a 5-year term a fixed rate penalty can be anywhere from $1,000- $20,000 or more.

It all depends on the lender’s current rates, what yours currently is, the length of time remaining on your term, and the balance outstanding. The formula used is called an IRD (interest rate differential) and the penalty owed will either be the amount this formula produces or three month’s interest- which ever is greater.

Fixed interest rates, especially 5-year terms can be the most favourable. They are safe, competitive interest rates that you will not need to worry about changing for the term of your mortgage. However, if you do not have your mortgage for the entire term, it could hurt you.

Variable Rate Interest

The Bank of Canada sets what they call a target overnight rate and that interest rate influences the prime rate a lender offers consumers. A variable rate, is either the lender’s prime lending rate plus or minus another number.

For example, let us say someone has a variable interest rate of prime minus 0.70. If their lender’s prime lending rate is 5.00% in this example, they have an effective interest rate of 4.30%. However, if for example the prime rate changed to 6.00%, the same person’s interest rate would now be 5.30%. Written on a mortgage, these interest rates would look like P-0.7.

Variable interest rates are usually only available on 5-year terms with some lenders offering the possibility of taking a 3-year variable interest rate.

When it comes to penalties, variable interest rates are almost always calculated using 3-months interest, NOT the IRD formula used to calculate the penalty on a fixed term mortgage. This ends up being significantly less expensive as breaking a 5-year term mortgage at a fixed rate of 3.49% with a balance of $500,000 will cost approximately $15,000. That is if you use the current progression of interest rates and broke it at the beginning of year 3. A variable interest rate of Prime Minus 0.5% with prime rate at 3.45% will only cost $3,800. That is a difference of $11,200.

You can expect to pay this kind of amount for the safety of a fixed rate mortgage over 5-years if you break it early.

Which one is best?

It completely depends on the person. Your loan’s term (length of time before it either expires or is up for renewal) can be anywhere from a year to 5 years, or longer. A first-time home buyer typically has a mortgage term of 5 years. Within those 5 years, the prime rate could move up or down, but you won’t know by how much or when until it happens.

Recently, variable rates have been lower than fixed rates, however, they run the risk of changing. With fixed interest rates, you know exactly what your payments will be and what it will cost you every month regardless of a lender’s prime rate changing.

If you go to the site www.tradingeconomics.com/canada/bank-lending-rate you can see the 10-year history of lender’s prime lending rate. Because lenders usually change their prime lending rate together to match one another (except for TD), this graph is a good representation.

As you can see, from 2008 to 2018, the interest rate has dropped from 5.75% to 2.25% all the way back up to 3.45%.

Canada has had this prime lending rate since 1960, and in that time it has seen an all-time high of 22.75% (1981) and all-time low of 2.25% (2010) (tradingeconomics.com). Whether you want the risk of variable or the stability of a fixed rate is up to you, but allow this information to be the basis of your decision based on your own personal needs. If you have any questions, don’t hesitate to contact a Dominion Lending Centres mortgage broker.

By Ryan Oake

23 May

A FEW REASONS WHY YOU SHOULD CONSIDER A VARIABLE RATE MORTGAGE

General

Posted by: Mike Hattim

Five-year fixed mortgage rates continued their upward march last week as the five-year Government of Canada (GoC) bond yield they are priced on hit its highest level in seven years. Meanwhile, five-year variable-rate discounts deepened, further widening the gap between five-year fixed and variable rates.

When I started working in the mortgage industry in 2005, variable rate mortgages saved you more money than fixed rate mortgages 95 out of the past 100 years. First time home buyers were worried about what their home costs would be and avoided variable rate mortgages (VRM’s) because of the risk of rates going up higher than the fixed rate, but experienced home owners often took a VRM at mortgage renewal time.

However, in the past 5 years, most people have gravitated towards fixed rates because the gap between fixed and variable rates was small enough that the cost of uncertainty outweighed the potential reward for most borrowers.

Once again , the gap is widening. While fixed rate mortgages are going up due to the bond yield, variable rate mortgages have moved in the other direction. Two years ago a VRM would be offered at Prime rate + .20%, but later it reverted to Prime – .30% . In recent months, rates have dropped even further with some lenders offering Prime -1.0% ! You now have a choice between a 5-year fixed rate of 3.44-3.59% depending on the lender and a variable rate with a discount that calculates out to 2.45% . With a gap this large, it’s worth considering if you are risk tolerant enough to have a VRM.

Even if you are skittish, you can ask your Dominion Lending Centres mortgage broker to notify you if rates are going up and switch you to a fixed rate if they go above a certain percentage. Will your bank do that for you? I don’t think so. Be sure to have this discussion with your broker when your mortgage comes up for renewal or if you are considering a home purchase.

By David Cooke

22 May

What happens when the prime rate changes?

General

Posted by: Mike Hattim

If you currently have a variable rate, it is likely you are well positioned for variable mortgages with the spread widening from the fixed.

So what happens when the prime rate changes?

When Prime Rate changes, whether it’s an increase or decrease, the customer is advised via letter that their payment will change.

With most banks/lenders the first payment following the Prime Rate change will remain the same and the interest and principal portion will be adjusted to compensate the increase/decrease. The payment following that whether it’s bi-weekly, monthly etc. will reflect any payment change.

For any questions please contact me.

By Mike Hattim

22 May

HOW THE MORTGAGE INDUSTRY BECAME GREEN

General

Posted by: Mike Hattim

When I started working as a broker in 2005, the mortgage industry and the financial industry in general weren’t very eco-friendly. Let’s face it. When someone buys a home, there’s a paper trail. Starting with the mortgage pre-approval which can run four pages, the Offer to Purchase, which is another 12 pages, income documents, notices of assessment, appraisal, and MLS listing condo documentation to add to the pile of paper. Often you would end up with a stack of paper 50-60 pages high. I needed a copy, the lender needed a copy and then my broker needed to keep a copy on file for seven years. I found that I was going to Staples and buying a case of 5,000 sheets of paper every year. I recall going to my broker’s office and seeing the admin assistant struggling to find a place to put another big box of files as the storage room was full.
What a difference a few years makes. Lenders started to accept documents in PDF format, saving us from faxing them, while brokers and lenders started to use secure servers to store the documents and the paper pile dropped for me from 5,000 sheets a year to less than 500. With photo scanning apps on phones, I expect that the paperwork will continue to shrink.
However, there are other signs of greening in the financial sector. Products like CMHC’s Purchase plus Improvements allow us to encourage our clients to change their windows and doors for more energy efficient ones, adding insulation and putting the renovations into their mortgage. In addition, if the repairs result in an Ener-guide reading of more than 82, or if they buy a new Built Green Canada home, they can qualify for a 15% rebate in their mortgage default insurance premiums.
We may not be building windmills or using solar power, but the Mortgage Industry has definitely become greener in the past decade. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

By David Cooke

18 May

WHAT IS A COLLATERAL MORTGAGE?

General

Posted by: Mike Hattim

A collateral mortgage is a way of registering your mortgage on title. This type of registration is sometimes used by banks and credit unions. Monoline lenders, on the other hand, rarely register your mortgage as a collateral charge – which is an all-indebtedness charge that allows you to access the equity in the home over and above your mortgage, up to the total charge registered.

What this means is that you may be able to get a home equity line of credit and/or a readvanceable mortgage, or increase your mortgage without having to re-register a mortgage. This is a real benefit to you in some cases because re-registering your mortgage can cost up to a thousand dollars.

However, there are some negatives to having a collateral mortgage.

First and most glaring – because it is an “all indebtedness” mortgage – it brings into account all other debts held by that lender into an umbrella registered against your home. This means that your credit cards, car loans, or any related debt at your mortgage’s institution can be held against your home, even if you’re up to date with your mortgage payments.
Secondly, if you want to switch your mortgage over to a different lender, they may not accept the transfer of your specific collateral mortgage. This means you’ll need to pay additional fees to discharge the mortgage and register a new one.
And lastly, collateral mortgages make it more difficult to have flexibility to get a second mortgage, obtain a home equity line of credit from a different institution, or use a different financial instrument on your home. This is because your collateral mortgage is often registered for the whole amount of your property.
To recap, collateral mortgages give you the flexibility to combine multiple mortgage products under one umbrella mortgage product while tying you up with that one lender. While this type of mortgage can be a great tool when used correctly, it does have its drawbacks. If you have any questions, a Dominion Lending Centres mortgage professional can help.

By Eitan Pinsky

16 May

5 WAYS YOU CAN KILL YOUR MORTGAGE APPROVAL

General

Posted by: Mike Hattim

So, you found your dream home, negotiated a fair price which was accepted. You supplied all the needed documentation to your mortgage broker and you are waiting for the day that you go to the lawyer’s to sign the final paperwork and pick up the keys.

All of a sudden your broker or the lawyer calls to say that there’s a problem. How could this be? Everything has been signed and conditions have been removed. What many home buyers do not realize is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval. There are 5 things that can make home financing go sideways.

1 Employment – You were working for ABC company as a clerk for 5 years making $50,000 a year and just before home possession you change jobs. The lender will now ask for proof that probation for this new job is waived and new job letters and pay stubs at the very least. If you change industries they will want to see more proof that you are capable of keeping this job.
If your new job involves overtime or bonuses of any kind that vary over time, they will ask for a 2 year average which you will not be able to provide.
Another item that could ruin your chances of getting the mortgage is if you decide to change from an employee to a self-employed contractor just before possession day. Even though you are in the same industry, your employment status has changed . This is a big deal killer.

2. Debt – A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Your approval was based on how much you owed on that particular date. Buying a new car or items for the new home need to be postponed until after possession of your new home.
Don’t be fooled by “Do not pay for 12 months” sales campaigns. You now owe this money regardless of when the payments start. Don’t buy a new car and don’t buy furniture for the new home. This will increase your debt ratio and can nullify your financing.

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, you said that you were going to save the funds and then at the last minute Mom and Dad offer you the funds as a gift. There’s no problem accepting the gift if the lender knows about it in advance and has included this in their risk assessment, but it can end a deal.

4. Credit – Don’t forget to make your regular credit card payments. If your credit score falls due to late payments, this can kill your financing. If you have a high ratio mortgage in place which required CMHC insurance, a lower credit score could mean a withdrawal of their insurance once again , killing the deal.

5-Identity Documents – This can be a deal killer at the lawyer’s office. The lawyer is required to verify your identity documents and see that they match the mortgage documents. Many Canadians use their middle names if they have the same name as their parent. Lots of new Canadians adopt a more Canadian sounding name for their day-to-day lives but their passports and other documents show another name.

Be sure to use your legal name when you apply for a mortgage to avoid this catastrophe . Finally, keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.

By David Cooke

15 May

BROKERS MORE IMPORTANT THAN EVER

General

Posted by: Mike Hattim

Nearly half of all existing mortgage in Canada will be up for renewal in 2018. Stated in a Financial Post article by Armina Ligaya, CIBC Capital Markets estimates 47% of all existing mortgages will need to be refinanced in 2018. All of this coming on the heels of rising interest rates and changes to key mortgage regulations.

With this renewal number hovering around 50%, almost double from previous years, big banks will be fighting hard to keep their clients and handle their mortgage- as they should. However, is staying with the bank you got your mortgage with 1, 2, 3, even 5-years ago in your best interest?

Think of the rising housing prices, the rule changes to back-end insured mortgages, the multiple stress tests as well as the implementing and removing of programs such as the B.C. Home Partnership Program. All of which has just happened in the past couple of years.

With all these changes, should you not be speaking with a licensed mortgage broker to determine what is in your best interest?

The options that are available through other lenders can be quite advantageous. From opening up Home Equity Line Credits with a big bank, to Manulife One Account access and the lowest interest rates available on Switch Mortgages where lenders will help compensate the administrative costs.

One of the more common scenarios we are seeing is people upgrading their homes with marriage, children, or promotions/relocation with work. Clients know it is happening in the near future but do not have an exact timeline. Wanting a 5-year fixed mortgage but worried about the possibility of upgrading after just 2-years, we usually suggest working with a Monoline Lender. Sticking with a Big Bank like CIBC or RBC and having this scenario happen could potential result in penalties of $10,000-$15,000 where that same penalty might only be $3,000 with a Monoline Lender.

It is always best to consult with a Dominion Lending Centres mortgage broker before signing your bank’s renewal letter. We offer free pre-qualifications, no client-relationship contracts, and credit assessments to see your eligibility on receive A-Rates, all without your credit score taking a hit.

By Ryan Oake