1. Not consolidating high interest debt into low interest mortgage.
2. Paying “fees” to get the lower rate
3. Not looking at their long term forecast
4. Taking a 5 year rate when 3-4 years can be cheaper
5. Having their mortgage with a lender that has high penalties and restrictive clauses.

Not consolidating high interest credit or vehicle loans in their mortgage. I hear this often “I don’t want to use the equity in my home” or “I can pay it off”. Many times when people end up with debts is due to inefficient budgeting and understanding what your income is and your debt payments are. There are many folks where monthly payment is the driving factor in their monthly budget. Making minimum payments can take you YEARS to pay off. Soon after people get mortgages, they are buying that new car at 0% interest and $600 month payments, then the roof or hot water tank goes and they put another $15,000 on credit, then someone gets laid off and boom…can’t make all the payments on all those debts that it took a 2 income family to make. It’s a true reality. Let’s look at an example:

Paying Fees to get the lower rate.
Dear rate chasers…they catch up with you somewhere. Nothing comes for free. Let’s face it, you go to the bank and their goal is to make money! A lender that offers you a 4.49% with a $2500 vs a 4.64% with no fee and you think “yes, score what a great rate!” Hold your coins… as you could be walking away poorer as the banker didn’t run the bottom line numbers for you. Chasing rates can cost you more money in the long run.

Your $500,000 mortgage was offered with two rates for the business for self guy who needed a mortgage where they didn’t look at the income so much: 4.49% and $2500 fee and $4.64% no fee. Lets see what it really looks like for a 2 year mortgage.

$502,500 (built in th $2500 feel) 4.49% – payments $2778 per month – $479563 owing in 2 years
Total payments: $66672
$500,000 (no fee) 4.64% – payments $2806 per month – $477634 owing in 2 years
Total payments: $67344.

Wait? So by taking the lower rate with the fee means I owe $1929 MORE in 2 years and only saved $672 in overall payments?

The long term financial planning side.
I counsel many of my clients to take 2-3 year year terms for a variety of reasons. Better rates, lower payments, capitalizing on the equity in your home to pay off a car loan or upcoming wedding. Did you know the average homeowner refinances every 3 years of a 5 year term and pays a penalty?

Taking a 5 year when 3 and 4 year rates might be a better option. Many times the 2-4 year rates can be significantly lower than the 5 year rates. Remember, the bank wants money and the longer you take the term, the more they make. True, many folks prefer or fit the 5 year terms, but many don’t. Worrying about where rates will be in 3-5 years from now should be a question, but not always the guiding factor in you “today” budget.
Here is an example of a $450,000 mortgage and what the difference in what you will owe on a 3 year term.

2.34% – payments are $990 every two weeks = $402,578 owing in 3 years
2.59% – payments are $1018 ever two weeks = $403,604 owing in 3 years.
Your paying $28 MORE every two weeks ($2184 total) and owe $1026 MORE in 3 years. Total LOSS $3210! Planning is key. Stop giving away your hard earned money!

Mortgage monster is in the penalties you pay when you fail to plan.
Since many families today are getting in with 5-10% as their downpayment.
If you got your mortgage with many of the traditional banks you know and your current mortgage is $403,750 and you need to break your mortgage (ie refinance to pay off debts) 3 years into the contract you potential penalty could be $12,672! Ouch. vs going with a mortgage broker who can put you with a lender that has similar rate you penalty would be significantly different – almost $10,000 dollars different!

Get a plan today! If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Documents, documents and more documents. Yes that’s right you will need to provide your Dominion Lending Centres mortgage broker with as many documents that we request upfront as possible. Why? Because the more supporting documentation you have available will help us as brokers to find you your best mortgage options. If you don’t have everything on hand e-mail a PDF of what you have and start digging up the rest as soon as possible.

Why so many documents you ask? While the lending market isn’t what it used to be, it is now much more strict and complex then a few years ago. Lenders are asking for WAY more documentation before they will lend you money. Yes, there have been instances of mortgage fraud that likely led to more scrutinized lending and Government regulations that lenders have to abide by are always changing. Mortgage lenders need to protect their investors and help ensure our Canadian housing market remains strong.

It may seem like a pain but ask yourself this if you had a large amount of money would you lend it out to somebody without proof they have income stability and/or the means to pay it back? Pretty sure your answer is no (at least mine is).

Below is a list of typical documents lender and mortgage insurers request. If you would like a tailored list please contact your DLC Mortgage Professional to discuss your application.

Income – lenders are looking for proof of income stability.

Self-employed Income

* 2 years of Income Tax Returns, Business Financials, CRA Notice of Assessments. Often it’s best to have your accountant e-mail them to us so no pages are missing.

Rental income

* Lease agreements

* T1-General tax returns with the Statement of Real Estate Activities. If you don’t claim your rental income let us know as this may affect how your mortgage is approved.

* Proof of the rental income being deposit on a regular basis into your bank account.

Guaranteed Employment Income

* A couple of recent pay stubs

* A job letter confirming your position, guaranteed pay and hours, if you are seasonal, contract or any specific information that relates to your income stability. Lenders will call your employer to verify the letter and ask for more information as possible. (Sample Job Letter)

* 2 Years of CRA Notice of Assessments

* 2 Years T1-Generals

Commission, Overtime, Seasonal, Contact or Bonus Income.

* A couple of recent pay stubs

* Job letter

* 2 years of T1-General Income tax returns

* 2 years of CRA Notice of Assessments

Liabilities – We will see most of your consumer credit accounts on your credit report however we may require some additional paperwork

* Current mortgage statements

* Property tax statements and proof of payment

* Child Support Payments proof via court orders and bank statements

* Alimony via Separation Agreements

* Proof your income tax has been paid. This is the most important item to pay because the Government has more power than the lenders. If you are wanting to refinance your mortgage to pay CRA contact us to discuss your options.

* Proof debts have been paid. If a zero balance is require you must show the account at a zero balance or the current balance and the proof of payment

Down Payment & Closing Costs

* The last 90 days of savings history. Any larger deposits have to be sourced.

* Gift Letter (some lenders have prescribed forms)

* Statement showing gift deposited into your account

* Property sale contracts and mortgage statements

About Documentation from Financial Institute

* Must have account ownership proof. For example e-statements are the best as they typically have your name, account number and the providers details already on the statement

* Screenshots work if the providers logo/name are clearly shown on them as well as the account holders name. If the account number only shows then you will have to provide an additional document from the provider with both your account number and name.

* If you are having your account history printed at a Teller please have the Teller stamp the paperwork

Documentation varies by applicant and lender. Be prepared by contacting your mortgage professional today for your tailored documents list.

As many of you may remember, this past October the Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 . The changes will go into effect on January 1, 2018 but lenders are expecting to roll this rules out to their consumers between December 7^th – 15^th, and will require conventional mortgage applicants to qualify at the Bank of Canada’s five-year benchmark rate or the customer’s mortgage interest rate +2%, whichever is greater.

OSFI is implementing these changes for all federally regulated financial institutions. What this means is that certain clients looking to purchase a home or refinance their current mortgage could have their borrowing power reduced.

 What to expect

It is expected that the average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power reduced 15-25%. Here is an example of the impact the new rules will have on buying a home and refinancing a home.

 Purchasing a new home

When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Refinancing a mortgage

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV. The maximum amount available is: $560,000 minus the existing mortgage gives you $145,000 available in the equity of the home, provided you qualify to borrow it.

In transit purchase/refinance

If you have a current purchase or refinance in motion with a federally regulated institution you can expect something similar to the below. A note, these new guidelines are not being recognized by provincially regulated lenders (i.e credit unions) but are expected to follow these new guidelines in due time.

Source (TD Canada Trust)

These changes are significant and they will have different implications for different people. Whether you are refinancing or purchasing, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact your Dominion Lending Centres mortgage specialist. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.