12 Feb

How to Get a FREE Copy of Your Credit Bureau

General

Posted by: Steven Brouwer

How to Get a FREE Copy of Your Credit Bureau

Think of your credit score as a report card on how you’ve handled your finances in the past. A credit score is a number that lenders use to determine the risk of lending money to a given borrower.

There is always someone willing to lend you money however, higher risk = higher rates!

Step 1 for good credit – you need to know your credit history
• In Canada there are 2 credit bureaus – Equifax and TransUnion.
• You can receive a FREE copy of your credit report from both Equifax Canada and TransUnion Canada once a year
• You can pay Equifax or TransUnion for a digital copy, which is much faster, BUT you have to pay, which sucks.

I recommend you order a copy of your credit report from both Equifax Canada and TransUnion Canada, since each credit bureau may have different information about how you have used credit in the past.

Ordering your own credit report has no effect on your credit score.
• Equifax Canada refers to your credit report as “credit file disclosure”.
• TransUnion Canada refers to your credit report as “consumer disclosure”.

Once you have obtained your free credit report, check it for errors:
• Are there any late payments that have been erroneously attributed to your credit history?
• Are the amounts owing in your credit report accurate?
• Is there anything missing on your credit bureau
o Sometimes the credit bureau has more that one file with your name, which can be merged, but it takes time.

If you find any errors on your credit report, you need to dispute them with your credit bureau.

How can I get a copy of my credit report and credit score?

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.

Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved.

The “free-report-by-mail” links are not prominently displayed, since credit bureaus would love to sell you instant access to your report and credit score online.

Equifax, the instructions to get a free credit report by mail are available here.

For TransUnion, the instructions to get a free credit report by mail are available here.

The bottom line: when it comes to financing your life, through credit cards, mortgages, car loans or any other kind of debt – your credit score has a BIG impact on what kind of terms you can negotiate.

Keeping an eye on your credit score is important — if there’s a problem or an error, you want to know and have time to fix it before you apply for a loan. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

Kelly Hudson

Kelly Hudson

Dominion Lending Centres – Accredited Mortgage Professional
Kelly is part of DLC Canadian Mortgage Experts based in Richmond, BC.

6 Feb

What Questions to Ask When Considering a Refinance

General

Posted by: Steven Brouwer

What Questions to Ask When Considering a Refinance

Many of my clients and friends regularly ask me when or if they should consider a refinance. Here are 4 quick questions that I ask of them. The answer they give me, will very quickly tell me if we should be taking a deeper look at the mortgage refinance options available to them.

What do you believe the current value of your home is and what is the outstanding balance on your mortgage?
Have you ever heard your mortgage broker or banker talk about “loan to value”(LTV)? They are looking to determine what your outstanding balance of your mortgage is as a percentage of your property value. The reason we look at your LTV is because there are limits in Canada with respect to how large your mortgage can be based on the current value of your home. This gives your mortgage broker insight into how much equity or money you have access in the event that you were to refinance your mortgage.

What is the maturity date of your mortgage and your current rate/term length?
Understanding who your current lender is, what your maturity date is, and what your rate/term details are, will help your mortgage broker determine what type of penalty you might have for breaking your current mortgage contract. Knowing your rate will also give them the details they require to calculate the interest savings that you would receive from a refinance. When looking to refinance, your mortgage broker should be factoring these potential costs and overall interest savings into their overall benefits analysis when trying to determine if refinancing is the right option for you.

How is your household monthly cash flow impacting your short and long term financial goals?
Budget, budget, budget… this is one of those tools that we all know we should do, but it often gets very little of our attention each month. By understanding how much net income you have coming in each month and where that cash is going (cash flow) we can look at how a restructured mortgage could help. If you are finding that all of your money is disappearing each month and you’re having trouble getting by, a new mortgage can help restructure your monthly debt payments giving you some added breathing room. It is important to note that sometimes it is not about debt payments and it can be about high household expenses. Taking the time to assess your spending and cutting it back if necessary, might be enough to get you back on track. Check out our blog post on basic budgeting tips and tricks.

Looking at your outstanding debt, what are the current interest rates that you are paying and are you only making the minimum payments each month?
A quick snap shot of your current debt load, respective interest rates and monthly payments can give us some insight into how a refinance can save you interest. By understanding what your financial picture looks like and the amount of interest that you are currently paying to service that current debt, we can very quickly estimate how much interest you could save with a refinance. If you take a number of those high interest rate credit cards and roll them into a new, low interest rate mortgage, the savings can very quickly become quite substantial.

In closing, a refinance is a financial tool that can make a significant difference in your current financial picture. If you have reviewed the questions above and would like to take a closer look at your situation, there is never a better time than the present to make a change that will have a positive impact on your future.

Take the time to have a conversation with a Dominion Lending Centres mortgage broker who can give you some insight into how a new mortgage could help you with a brighter financial future.

Nathan Lawrence

Nathan Lawrence

Dominion Lending Centres – Accredited Mortgage Professional
Nathan is part of DLC Lakehead Financial based in Thunder Bay, ON.

29 Jan

First Time Home Buyers

General

Posted by: Steven Brouwer

First Time Home Buyers

Your First Home. What a THRILLING thing that is to think about!! One of the best parts about our job is helping individuals purchase their first home. We know that the process can seem daunting at first, but we have an in-depth understanding and knowledge of what steps are required to make the process go smoothly. Follow these and you will be turning the key into your new home before you know it.

1. Find a Fantastic Mortgage Broker
Finding a mortgage broker who can help with your pre-approval process can allow you to determine the price point of home you can really afford. Finding a mortgage broker right off the bat can also give you an advantage over working with your bank:

  • Mortgage Brokers work for you, not the bank or lender
  • They have access to multiple lenders and are not limited to one single product
  • They are an expert in the field. They focus on mortgages and mortgages alone!

2. Get Comfortable With The Numbers
There are two numbers that all first-time homebuyers should keep in mind: 39 and 44. These two numbers can help you budget and determine what you can truly afford when looking to purchase a home. Why 39 and 44? Here’s why:

  • A maximum of 39% of your total income can go towards your housing costs. This will cover your mortgage payment, property tax payment, heating costs, and strata fees.
  • A maximum of 44% of your total income can go towards your housing costs and total debt payments. This will include ALL housing costs and all debt repayments (credit cards, car loans, student loans, etc.)

Now, here are a few other key numbers that can help you in your house hunting:

3. Know What Your Down Payment Needs to Be
You know the numbers, now let’s look at what you need to know about the down payment itself. First, if you have less than 20% down payment your mortgage will be insured and have insurance premiums added to your mortgage. If you are considering putting the minimum down, that would be 5% if the property is worth $500,000 or less. A down payment of 10% is required for any amount over $500,000. Here’s a quick example of what this looks like:

Purchase Price of $600,000

5% of $500,000                                   $25,000

10% of $100,000                                             $10,000

Total Down Payment:                                   $35,000

4. Take Advantage of The RRSP Home Buyers Plan
The Canadian government’s Home Buyers’ Plan (HBP) allows for first time home buyers to borrow up to $25,000 from you RRSP for a d own payment, tax-free! You are able to combine this with your partner if you are both first time home buyers you can both access the $25,000 from your RRSP for a combined total of $50,000. Certain qualifications do apply for you to use this plan, we have laid them out here for you to review.

5. Don’t Forget About the Closing Costs!
This is one so many people overlook! Closing costs are something that can add up quickly when you are purchasing a home. Here is an approximate breakdown of the funds you will need:

  • Legal Costs: $1000
  • Title Insurance: $200
  • Appraisal: $350
  • Property Transfer Tax: Pending on purchase price

An additional few facts on property tax for you to consider:

This is an approximation of what your closing costs may be, but it is always good to budget for them beforehand.

6. Have your Documents Ready to Roll
Mortgages = paperwork! There are a number of documents that you will need to have to give to your mortgage broker. This will vary depending on your employment situation and where your down payment is coming from, but here is a general list you can follow:

  • Most Recent paystub
  • Letter of Employment
  • NOA’s (2 years)
  • T4’s (2 years)
  • Down payment verification—up to 3 months of bank statements
  • Contract of Purchase and Sale (Your realtor will provide this)
  • Property Disclosure Statement (Realtor will provide)
  • if you are self-employed you may also have to show:
    o T1 Generals
    o Articles of Incorporation
    o Financial Statements

7. Start Working on Your Credit Score
Yes, your credit score does directly impact your ability to get a mortgage. Lender’s want to see that you can responsibly manage credit and debt repayment before loaning you a large sum of money to purchase a home. Your credit score will be a determining factor in the terms and rate associated with your mortgage.

Just what impacts your credit score? Good question! Here are a few things:

  • Late payments will lower your score
  • Collections, judgements, consumer proposals, bankruptcy this will lower your score
  • Exceeded limits on credit cards
  • Ideally, you will be able to show a minimum of 2 active and current trade lines
  • The longer your trade line is, the better increase in your score!
  • Lenders also like to see a minimum of $2,000 limit on your credit cards.

Understanding and using this knowledge can help make your first home buying experience a great one! Once you have gone through the pre-approval process with a mortgage broker the fun part begins! Upon you receiving your preapproval, you can begin the house hunting. From there, you can put an offer on your dream home (yay!) Once your offer is accepted, we go through the mortgage process with you and then it’s moving day for you!

This is an exciting time for first time homebuyers—we enjoy getting to help our clients go from start to finish and helping them get the keys to their first ever home. If you have questions or are looking to find out just how much you will qualify for you can check out our mortgage calculator OR you can reach out to a Dominion Lending Centres mortgage professional directly!

Geoff Lee

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

21 Jan

7 things every self-employed individual should know — Before you apply for a mortgage

General

Posted by: Steven Brouwer

7 things every self-employed individual should know — Before you apply for a mortgage

Self-employed individuals are quickly becoming one of the most common clients that we handle. Daily we have successful business owners come into our offices who enjoy the perks of being an entrepreneur. One of these includes fantastic write-offs that allow them to bring their income down to a low tax bracket.

However, this benefit can also mean that the same business owner may have a hard time qualifying for a mortgage all because their income is significantly reduced on paper… how frustrating ‘eh? But these savvy business owners know that there is advanced planning that is involved in being able to qualify for conventional financing. Back in 2015, Statistics Canada reported that there were about 2.7 million people self-employed in Canada… which is an astounding 14% of the total population of Canada! What does that stat mean? Two things:

1. That being self-employed is a more than viable way of earning income in today’s world.
2. That 14% may not fit into the conventional lending “box”

The Conventional Lending Box
To fit into this box, self-employed individuals must meet certain qualifications. For example, they must be able to provide:
>Two most recent years of personal tax returns
>Two most current years Notice of Assessments
>Two most current years financial statements
>Statement of Bank Account Activity
>Investment Income Statement
>Photo ID

Now, the one area that raises a red flag in the above is the tax returns. As we previously mentioned, their income claimed on the return itself might be significantly different than their actual income. Tax deductions related to business often reflect meals, rental spaces, 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 their actual take home pay is. However, the conventional lending box requires income to justify the mortgage. So how do we pull this off?

The Unconventional Lending Box
Now please keep in mind that “unconventional” in this box just means that as a self-employed individua,l you are going to work with a Mortgage Broker to find an alternative to allow you to show that you can justify the mortgage. There are several well-known and consistently used pieces of advice that we would like to pass along to you:

1. If you are organized and planning (think 2 years out) you can plan to write off fewer expenses in the two years leading up to the property purchase. Yes, you will pay more personal taxes. However, your income will be higher, and it will be easier to qualify you for the mortgage amount you are seeking.
2. Set up your finances 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 you spend doing your own taxes will not be nearly as efficient both financially and time-wise as a professional. Make sure that you discuss with them what your goals are so that they can set up your taxes properly for you!
3. Choose your timing carefully. If you are leaving for an extended holiday within the two years before purchasing, your two-year average income may fluctuate. Plan your vacations and extended trips away with income in mind.
4. Consider using Stated Income. You have the option to state your income. This is based on you being in the same profession for 2+ years before being self-employed. The lender looks at the industry and researches the mean income of someone in that profession and with your experience. You will be required to provide additional documents such as bank statements, showing consistent deposits and other documentation may be asked of you to show your income.
5. Avoid Bankruptcy at all cost…. or if you do declare bankruptcy have all your discharge papers on hand to present to the lender and ensure you have two years of re-established your credit.
6. Mortgage Brokers can state income with lenders at the best discounted rates. But if you do not qualify with A lenders using stated income, then a broker will work with you to utilize a B Lender who are more lenient but may come with higher interest rates and applicable lending and broker fees.
7. Last but not least, if A or B lenders don’t fit, private financing can be looked at as an alternative option in order to get you into the market and offer a short-term solution to improve credit or top up your reporting income. Then you and your broker can refinance into an A or B lender at that time. Just keep in mind that private lending will have a higher rate associated with it , with lender and broker fees added on as well, if you choose to go with this option.

So, to all of our self-employed, hard-working, determined individuals, take heart! You can qualify for the mortgage you want, it just takes a little more planning to get everything in order. Keep in mind to that every lender has different guidelines as to how they view self-employment. Working with a Dominion Lending Centres broker leading up to your property purchase can help you ensure you get the mortgage you want.

18 Jan

5 C’s of Credit to get a Mortgage

General

Posted by: Steven Brouwer

5 C’s of Credit to get a Mortgage

Whether you are buying your first home or have been a home owner for years, when you are looking at purchasing a property, finding the best mortgage solution for your specific situation can be an intimidating experience.

Working with a licenced mortgage broker will ease that tension, along with knowing the basics of what lenders are looking for will help you better understand the process.

The Five C’s of Credit/Mortgages
The five Cs of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the mortgage, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender.

Higher Risk = Higher Rates!

Know Your 5 C’s:

Every client has individual mortgage needs when buying a home and my goal is to find a mortgage loan that’s right fit for your situation! The first step in getting the mortgage process started involves understanding what lenders are looking for in order to get mortgage approval.

The approval process is called the Five C’s of Credit and they consist of:
Collateral– the property that you are planning to purchase
Credit – do you have good credit? Do you have a good history of repayment for all loans?
Capacity – Proof of being able to pay for your mortgage with your provable income
Capital – How much equity do you have in the property? The borrower’s net worth
Character – The borrower’s willingness to repay the loan and their reliability

1. Collateral
Collateral reflects the strength of the property itself. Lenders look at if the property is owner occupied (do you live there) or is it a rental dwelling? Is the property a home, condominium or cottage? Is the property located in a metropolitan neighbourhood or a rural area? Is there a single family living in the home or multiple families? All these factors are considered by the lender for marketability when rating your property. An appraisal is one of the tools that will be used to assess the value of the property.

2. Credit
Shows the lender a snapshot of what the borrower’s repayment history has been over a period of time. This is the only way a lender can predict the borrower’s propensity to make future payments. The credit score (also called credit history, credit report, credit rating) is the primary measurement factor.
When you borrow money, your repayment history is reported to the credit bureau – this rating is called your credit score. How do you pay your bills – always on time or sometimes a few days late or not at all, will determine what type of credit rating will apply. Some other factors that affect your credit rating are if your credit card balance is greater than 25-50% of your credit limit, if any accounts have gone to collection, or if there have been multiple inquiries into your credit.

3. Capacity

The most important by far! How are you going to pay for your mortgage? The lender’s main concern is how you intend to repay your mortgage and will consider your income (from all sources) against your monthly expenses. Proof of income will differ depending on your employment status: salaried, commissioned, self-employed, full time, or part time. Lenders will determine what types of documents are required to confirm your provable income and how much mortgage you can qualify for. This is represented as TDS Total Debt Service Ratio and GDS Gross Debt Service Ratio.

4. Capital
Capital refers to your personal net worth and how much equity you have in the property. Where is your down payment coming from? In Canada your minimum down payment is 5% for a “high ratio” insured mortgage* or a “conventional” mortgage with 20% down. The downpayment money can come from your own resources or can be gifted from a family member.

5. Character
Character is a subjective rating and basically reflects a combination of the above four factors. Your character tells a story to the lender about your individual situation. Lenders want to know that as a borrower, that you are trustworthy and will meet your payment obligations to them. Lenders will take factors such as length of employment, your tendency to save and use credit responsibly to establish your character and determine whether you are a borrower that they can trust with their mortgage.

The goal is to get a yes with your lender. The Five C’s of credit outlined above determine a borrower’s ability and willingness to make payments. Understanding what a lender is looking for allows you to set yourself up to put your best foot forward.

There you have it – the 5 C’s that lenders analyze when reviewing a mortgage application.

If you have any questions or concerns feel free to contact a Dominion Lending Centres mortgage professional, they’re here to help!

14 Dec

7 Sure-Fire Ways to Grow Your Credit Score

General

Posted by: Steven Brouwer

7 Sure-Fire Ways to Grow Your Credit Score

Have you ever wished for a simplified guide on how to actually GROW your credit score? Well today is your lucky day! We have had years of experience working with individuals who come to us with poor or damaged credit and we have found 7 steps that prove to be tried and true in fixing it.

First off though—why are we so focused in on credit scores? Simply put, your credit score details your history of borrowing money. It shows how timely you are on payments; how responsible you are with it and how you manage it.

In a Nutshell: Your credit score represents to the lender that you have proven yourself capable of paying your bills on time and are responsible when managing credit. You credit score will also impact the interest rate that you receive. So, when we are talking about mortgages, your credit score=very important.

Now that we have that covered, here are our 7 sure-fire ways to grow your credit and make the mortgage application process, a breeze:

1. Have at least 2 credit lines at all times
This means that you should always have 2 “tradelines” going. Whether this be 2 credit cards, a credit card and a line of credit and a car loan etc. You want to show that you can manage credit, and this is one easy way to do it. As an added note, the limit on the credit lines will need to be set at a minimum $2,000.

2. Make your payments on time each and every month
No skipped payments! You should ALWAYS make the minimum payment required on all your lines of credit each month.

3. Do not let your credit be pulled too often.
This one is something people often forget about. Having your credit pulled for new credit cards, car loans, and other things frequently raises a red flag for lenders and can significantly lower your credit score

4. Do not exceed 50% of the available credit limit on your credit card or credit line.
We know this one can be hard to do. One easy way to monitor this is to only use a credit card for certain fixed bills such as a cable/internet bill, cell-phone bill, etc. This way you can easily keep track of what credit you have used and what is available still.

5. If you have missed a payment, get back on track right away.
If you did, by chance, miss a payment, do not fret. Instead, get back on track with your month by month payments. Lenders would look at the one missed payment as an abnormality versus a normal occurrence if you are back on track by the following month.

6. Make sure each partner has their own credit.
We cannot tell you how frustrating it can be for couples when they realize that all their credit cards and lines of credit are only under one name…leaving the other person with no proven track record of managing credit! We advise clients to both grow their credit by making sure all joint accounts report for you both.

7. Do not exceed the Credit limit.
It is important to not go over or exceed the credit limit you have been given. Having overdrawn credit, shows the lender that you are not able to responsibly manage credit.

If you follow these 7 steps and are responsible with your credit, you will have no problem when it comes time to purchase a home! In need of more advice? Contact a Dominion Lending Centres Broker-they will be more than happy to help you.

30 Nov

Reasons why Mortgage Brokers are Better than Banks

General

Posted by: Steven Brouwer

Reasons why Mortgage Brokers are Better than Banks

I am often asked if it’s hard to compete with the banks. While they may offer competitive rates at times, right now we have much better rates than the banks. However, we have certain advantages which allow us to blow them out of the water most of the time.

  1. More Choice – banks are limited to around 5 products that they can offer you. They will try to fit you into one of their products even if the financial institution next door has a better one for you. Brokers have access to banks, credit unions, trust and mortgage companies as well as private lenders.
  2. Better Representation – Brokers are your champions bankers are employees. They put their employer first . They won’t offer you the best rates unless you are a good negotiator. Brokers are licenced by provincial organizations and have to follow a code of ethics which requires that we put the consumer first. We also negotiate the best rate, terms and conditions for you. If you need to break the mortgage before the end of the term, we can assist you with that and perhaps help you to avoid paying a penalty.
  3. More Benefits – If you are moving into a home that is more than one year old, you probably do not have a home warranty. Brokers have 3 lenders who offer home warranties, which can cover repairs to the plumbing, heating and electrical systems with a small deductible. Two of the lenders even offer this as a complimentary service for the first year while the third lender offers it for the length of the mortgage. As Dominion Lending Centre brokers, we also have discounted rates for moving services and boxes from a large national moving company .
  4. Better Protection – I saved the best for last. We offer portable mortgage life and disability insurance.

It may not sound like much but we have the same coverage as the banks offer with one important difference – portability. While we take care to place you with a good lender, circumstances change and lenders may not offer favourable terms on renewal. If you try to leave a bank after developing a condition like high blood pressure or having a heart attack, you will have to re-apply for insurance coverage and may be denied. There are hundreds if not thousands of unhappy bank clients who are stuck paying high interest rates because they are forced to stay with a lender. Broker insurance gives you the independence to move from lender to lender depending on who is willing to offer you the best rates and terms. This may not sound like much to you now but it’s a real game changer for anyone who knows someone who have had this happen to them.

Is it difficult to compete with the banks? No – we have them beat hands down.

David Cooke

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional

30 Nov

Variable Rate? To Lock In Or Not?

General

Posted by: Steven Brouwer

Variable Rate? To Lock In Or Not?

This post applies if you are taking a new mortgage, whether it’s for a purchase, refinance, or renewal. The variable remains the main contender.

But what about all the economists saying if you are currently in a variable rate mortgage then you should rush to ‘lock in’?

You mean the economists that are employed by profit driven shareholder owned institutions that directly benefit from your locking-in (banks) via instantly increased profit margins and massively higher (up to 900% higher) prepayment penalties that 2/3 mortgage holders will trigger?

A bit biased, that crowd.
Also they are generalists, they’re not specialists.

But what about independent real estate experts?

While these experts may have their finger on the pulse of many facets of the real estate market, many remain totally unaware of how exactly mortgage prepayment penalties are calculated, and just how likely you are to trigger them.

Also generalists, are unaware of many nuances of mortgage products.

So what’s my game?

I’ve never really had game, so to speak. And I don’t stand to profit from your locking in, or from your staying variable. In fact as I type this on a stunning day I’m wondering just what I’m doing in my office at all.

I’m just a Mortgage Broker offering an opinion. An opinion that reflects my personal policy, an opinion shaped through 25 years of experience with my own mortgages, an opinion based on 11 years of experience with 1,673 client’s mortgages.

I’ve seen a few things, mortgage specific things.

I’ve watched 2/3 of my clients break their mortgages and trigger penalties. Almost every single one of them a small and relatively painless penalty thanks to staying variable.

But what about these rising rates?

If you are currently in a Prime -.65% to Prime -1.00% variable then to lock-in would be to inflict an immediate rate hike on yourself that might take the government another 12-18 months to pull off… if they pull it off.

Stay variable.

If you are in a Prime -.35 or shallower mortgage, we should discuss restructuring that into a Prime -1.00% mortgage and reducing your rate by .65% or more.

Staying variable.

My crystal ball says yes, perhaps another two or three 0.25% hikes through 2019, but at that point the odds favour (heavily) an economic contraction that will in turn trigger a corresponding reduction in interest rates.

It is my theory, and that of others smarter than I, that the fed is pushing rates up aggressively to beat said economic contraction, because they want to have the tool of ‘reducing interest rates’ back in their toolbox when the rainy days come. And we are overdue for stormy economic times. And when those times arrive it will not be prudent to be locked-in.

In short, life is variable – your mortgage should be as well. If you have any questions, contact your local Dominion Lending Centres mortgage professional today.

Dustan Woodhouse

Dustan Woodhouse

Dominion Lending Centres – Accredited Mortgage Professional
Dustan is part of DLC Canadian Mortgage Experts based in Coquitlam, BC.

6 Nov

No need to panic after rate increase

General

Posted by: Steven Brouwer

No need to panic after rate increase

 

You may have already seen the more technical BANK OF CANADA RATE ANNOUNCEMENT on October 24th, or you may not have. The Coles Notes (the simplest version) are as such:

  • Global economy remains strong, the USMCA will reduce trading uncertainty
  • Canadian economy is balanced for the foreseeable 2 years
  • Household spending will increase, but backed by income growth
  • Housing activity across Canada is stabilizing

 

On October 24th the Bank of Canada did what we all expected, they increased the Overnight lending rate by 0.25% to 1.75%. This equated to a PRIME being increased by 0.25% to 3.95%. All variable rate mortgages and lines of credit utilize PRIME to calculate the current interest rate.

Now the BIG QUESTION, how do we as mortgage consumers respond? First, ask your Dominion Lending Centres mortgage broker how they plan to react in accordance to his own financing.

No need to ask me, I will tell you. Variable, with no hesitation. I will stay the course by not pushing the panic button.

WHY?

Because if I decide to move, re-finance, consolidate, leverage equity or to simply break the mortgage for any reason my penalty will only be 3 months interest. I also need to consider how much money I have saved over the term by utilizing a variable rate mortgage rather than a fixed. During my current mortgage the spread between variable and fixed is approximately 1%.

Please excuse the following ‘tongue & cheek…’To go with a fixed mortgage tells me that you can predict the future with absolute certainty.

I know I can’t, so I rely on statistics. 65% of all fixed mortgage consumers will break their mortgage in 33 months, the penalty that follows is unavoidable. For the average B.C. mortgage of $350,000 the penalty is approximately $14,000. By opting for a fixed rate mortgage, you have declared to the universe that there is a zero percent chance you will need to access equity, amend the current mortgage or consider applying for a secured line of credit.

Real estate wealth is a long game, building net worth doesn’t happen overnight. Gains are not made in the short term. Just like other markets (stocks, bonds, mutuals, GICs RRSPs), there will be highs and lows.

What does this increase mean?

Dollarize it for your own personal consumption. For an increase of 0.25% the payment will go up $13 per every $100,000 borrowed. For some variable rate borrowers, the payment hasn’t even changed as the lender only adjusts the principal and interest allocation.

Now the question becomes, what do you do? Remain with variable or lock into a fixed. I recommend staying the course.

Michael Hallett

Michael Hallett

Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC.

10 Sep

Subject Free Offers; Still Risky!

General

Posted by: Steven Brouwer

Subject Free Offers; Still Risky!
The majority of my clients have stellar qualifications: established careers and businesses, excellent credit ratings, solid down payment funds, etc. They are truly awesome individuals who will almost certainly receive mortgage financing without a hitch.
Almost certainly.
With multiple offers, bidding wars, and over-asking-price bids now common as far afield from Vancouver proper as Port Coquitlam and beyond, clients find themselves, in the heat of the experience, contemplating a subject-free offer.
But there’s often an unanticipated hitch: the property itself.
A client would be hard pressed to find a Realtor to write an offer without a ‘subject to inspection‘clause, and for good reason. Similarly, a client should be hard pressed to find a Mortgage Broker advising an offer without a ‘subject to financing‘ clause.
This is because no banker or Broker can give a client 100% assurance of financing without factoring in the actual specific property details. Until an appraisal is reviewed and approved, the application is not complete. And there are some properties that some lenders simply will not lend against.
There are the obvious examples that lenders tend to exclude;
Properties containing Asbestos, Aluminium wiring, Underground Oil tanks
Re-mediated former grow-ops
Re-mediated drug labs.
There are also less obvious ones;
live-work units
row-homes (attached non-strata properties)
properties smaller than 450 sq ft
properties on lease land, Government, First Nations, or Private.
Regarding the appraisal process, there is more than simply the valuation question to be answered. In fact, valuation is rarely the challenge in our market, as many properties ‘auto-approve’ when the value is below $750,000. (This is not true of ALL properties below $750,000 by a long shot; many lenders condition all strata properties for instance for a full appraisal no matter the purchase price.)
What is being looked at other than value in the appraisal report?
A key complication is a little thing called ‘Remaining Economic Life or REL’ (as opposed to the ‘physical life’) of the home. This refers to how long this specific house is likely to remain standing on this property under the current care it is receiving.
Perhaps we have an otherwise perfectly habitable home for decades to come ─ lots of remaining ‘physical life’. The problem is that lenders are looking for remaining ECONOMIC life rather than the remaining physical life. The question is not “How long can that house be standing there?” it is “How long does it make economic sense for that house to be standing there given current market conditions?”
There may be a problem if it is located in a neighbourhood where many of the older homes are being purchased to be demolished and replaced with multimillion dollar homes. That leaves the purchase looking like a speculative land play or potential knock-down. As such, the remaining economic life is perhaps 15 years or less stated in the appraisal report.
Or maybe the property is a ramshackle house in a state of disrepair. It looks like the bargain of the age on paper, and perhaps the purchaser is a contractor planning to bring the home back into a wonderful state of repair. However the appraisal must view the current remaining economic life of the home ‘as-it-sits’ not ‘as-is-planned’. We have seen homes like this with REL as short as five years.
What is this ‘Remaining Economic Life’ exactly?
Economic life is the total period of time which the improvements (house/buildings) contribute to the overall property value. The total economic life of a typical Lower Mainland home is generally accepted to be 65 years. Economic life and physical life can differ widely and physical life usually exceeds economic life. Renovations and updates can increase a property’s physical and economic life, and poor maintenance can shorten it. Increases in land value can also have a negative impact on remaining economic life. As older homes are torn down to make way for new ones, it makes less economic sense to keep the older one standing.
REL is the estimated time period which the improvements continue to contribute to property value. An appraiser estimates REL in part by interpreting the economic conditions, attitudes and reactions of buyers in the market.
The REL is calculated by subtracting the Effective Age from the Total Economic Life.
Economic Life – Effective Age = Remaining Economic Life
For example:
A 40-year-old home that has had substantial renovations may have an effective age of 30 years.
65 years – 30 years = 35 years Remaining Economic Life (REL)
How lenders view Remaining Economic Life (REL)
Few lenders will lend on a home with a remaining REL of less than 15 years. Also, the effective amortization will be set at the REL minus five years, which drives payments sky high, and often leaves client unable to qualify for such large mortgage payments should they even want to sign on for them.
Clients can run the risk at this point of their own awesomeness being part of the undoing of the mortgage approval. Clients with significant liquid assets and strong incomes buying a smaller, older home on the street of newly built monoliths will be viewed as most likely planning to knock the home down and build a new one.
The immediate thought: ‘But the land value alone… ’
Lenders are not in the business of writing conventional AAA-rate mortgages on properties that will be torn down. Instead this is viewed as ‘speculative’ or ‘investment/business’ lending with which come undeniably greater risks. Wherever one finds greater profits there are greater risks. Lenders price accordingly, which is why land/construction financing carries higher rates and additional fees.
A property with a habitable home standing on it is unquestionably easier to market and sell ─ and thus recover the loan balance from ─ should the lender have to step in and take over. And foreclosure is the last thing any Canadian lender wants to contemplate.
It will take on average 18 months of no payments before a lender has gained control of and sold a property through the foreclosure process. And at the end of it said lender must seek out the defaulting client and write them a cheque for the remaining equity that was in the property, all the while honouring the original interest rate in most cases.
It is nothing like the US system at all. (which is a wonderful thing for us)
So lenders avoid any whisp of risk, preferring security. Ideally in the form of a habitable home on a lot that is going to look decades from now much as it does today.
Clients would be wise to also minimize risk, by either writing offers that contain a ‘subject to inspection’ and a ‘subject to financing’ clause, or by having a detailed conversation with a skilled Broker well in advance of writing a subject-free offer.
If you have any questions, contact a Dominion Lending Centres mortgage professional near you today.

Dustan Woodhouse
Dominion Lending Centres – Accredited Mortgage Professional
Dustan is part of DLC Canadian Mortgage Experts based in Coquitlam, BC.