The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.

Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.

The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.

But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.

The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?

The latest round of rule changes are rumored to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.

In part one of this two-part series, we will look at the types of insurances you will hear about during the mortgage process. Sometimes it is a good idea to revisit the basics when looking at a complex thing like a mortgage. There can be misunderstandings which crop up. The mortgage process can be very stressful as you wait for some anonymous entity to decide whether or not you are able to buy the home of your dreams. It is no wonder that things can get missed. Fear not! We will take a look at some of the basics so you can avoid things best avoided.

1. Mortgage Default Insurance – There are three mortgage default insurance providers in Canada. CMHC, Genworth and Canada Guaranty. If you are purchasing a home with less than 20% down you will have to be approved by both the lender and the default insurance provider for the loan. They are looking at your credit, employment stability and the property itself to make their decision. If you default on the mortgage, the bank or mortgage provider is made whole on any shortfall. The cost is a set amount based on how much you are putting down and will be added to your mortgage so you do not have to worry that you need to come up with extra funds for it. As of today based on a standard borrower the premiums are shown in the following table though it is an important note that the premiums are higher in certain cases.
LTV Ratio Premium Rate
Up to 65% 0.60%
65.01% – 75% 1.70%
75.01% – 80% 2.40%
80.01% – 85% 2.80%
85.01% – 90% 3.10%
90.01% – 95% 4.00%

2. Title Insurance – This is required on most mortgages these days. The cost is around $250 and will be collected from you at the lawyer’s office. Title insurance is often used instead of a Real Property Report as it is quicker and less expensive. If for example, the garage on your new home had been constructed offside of where it should be, it is the responsibility of the title insurance to make it right. This could happen by getting the city to allow it or in the worst case, to cover the cost to move the garage.

3. Home Insurance – You have a legal responsibility to make sure you have property insurance. This protects you against things like fire, flood or theft. You will be required to provide verification of the insurance when you meet with the lawyer. You will probably want to do a bit of research before choosing your company. Not all insurance policies are equal and a truly awful time to find that out is after a horrible event.

4. Life Insurance – You will be offered life and disability insurance with your mortgage. Most of us assume that we have sufficient coverage through work but the protection of your family and their home should be given serious consideration. You are not obligated to accept the insurance provided to you but please factor the cost of sufficient coverage into your budget when you are thinking of buying your home. A few things to consider:

– The younger you are when you get insurance the cheaper it is.
– If you leave your current employer or get laid off and have developed a health concern it can be problematic to find affordable if any coverage.
– If you choose the insurance from the mortgage lender or bank you may find yourself tied to them indefinitely if you experience a change in your health. This could mean higher rates at renewal.
– Disability is the number one reason for foreclosure in Cana which goes to show that it can and does happen too many of us.
And there you have the four types of insurance which will be discussed around your mortgage. If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

In the midst of the booming real estate market in Canada (mainly in Vancouver and Toronto), many Canadians are entertaining the idea of downsizing in order to sell their homes at a high value and purchase a smaller home or condo at a lower price.

Is downsizing the way to go? What are the costs associated with downsizing? The truth is, there are many costs to downsizing, and not all of them are obvious.

Why Downsize?Canadians have many reasons to downsize. They include:

• Less house to up keep
• Move closer to loved ones
• Spending the winter in a warmer place, therefore they don’t live in their home year round
• Getting equity out of their home to help fund retirement

Costs to sell your home

But let’s break down the more obvious costs of downsizing so that you can weigh the financial pros and cons. Keep in mind that the example below is for illustration purposes only. There may be other expenses not mentioned, but the key expenses are highlighted.

Let’s use the example of a home that will sell for $1,000,000 which is the approximate average cost of a detached home in Toronto. The home still carries a $200,000 mortgage, which would equate to a net amount of $800,000. However, there are costs that you must deduct from the total sale that can eat into your lump sum.

• Realtor commission (between 1%-7% depending on where you live in the country and what you are able to negotiate). In Toronto, the standard realtor rate is 5%. In this example of a $1,000,000 home, you would need to pay the realtor $50,000.
• Closing costs and legal fees – Approximately $1,500
• Miscellaneous costs – $1000
• This leaves you with approximately $747,500 and an approximate cost of selling your home at $52,500

In addition to these reasons, these are some other costs that are associated with downsizing:

• The cost to fix up your home for the sale – Fresh coat of paint, minor repairs, kitchen/bathroom renovations, roof repairs and maybe even the cost to stage the home.
• The cost to part with old furniture – When you downsize, you typically have to get rid of furniture, books and other items that take up space. You may even decide to keep the items in a storage unit, which can cost money monthly (a typical 50 square foot unit can range from $125-$200/month plus HST, a mandatory monthly insurance premium and a set-up fee or refundable deposit)

Costs to buy your downsized home

There are also costs associated with buying your new downsized home. If you intend to purchase a smaller home (semi-detached, townhouse or condo), most of the money you earn from the sale of your home will go towards the purchase of your new downsized home. Here is an example of the expenses you may incur when you purchase your downsized home:

Let’s use the example of a condo with a cost of $500,000 which is the average cost of a condo in Toronto.

• Land transfer tax in Ontario for a $500,000 property is $6,475. Find out the land transfer tax in your province by visiting your local government website on land transfer taxes. For Ontario, visit the Government of Ontario land transfer tax page.
• There may be a Municipal Land Transfer Tax (MLTT) in addition to the provincial land transfer tax. For instance, in Toronto, the MLTT for a $500,000 condo would be $5,725. Visit your local municipality website to find out the calculation for your MLTT.
• Title insurance and legal fees – Approximately $1,500-Moving costs – Approximately $2,000
• There may be a property tax adjustment – This would depend on when the seller paid the property taxes and when the buyer takes possession of the condo. In most cases, the buyer will have to pay the seller the difference depending on when they took possession of the property. If the seller is behind on payments, then the municipality requires that the seller pays off the taxes from the proceeds of the sale.
• Purchase of new furniture to fit smaller condo – Approximately $10,000 – $15,000-Monthly maintenance fee for condo living – Approximately $500/month or $6,000/year
• This leaves you with approximately $221,800 from the sale of your $1,000,000 home before you deduct the cost of condo maintenance fees at $6,000/year.
• And the additional cost to purchase your downsized home at $25,700
• The total cost of downsizing from a $1 million home to a $500,000 condo would cost approximately $84,200 in your first year alone.

Although you sold your $1,000,000 home and downsized to a $500,000 condo, with all of the added expenses, you would only take home just over $215,800 after your first-year maintenance fees. This is the reality of downsizing. It isn’t as clear cut as the selling value of your home minus the buying cost of your downsized home. Although there is a return, the process of buying and selling has the added costs that can make or break your decision to move.

If you are downsizing because you need extra cash to help you with your retirement, an alternative is the CHIP Reverse Mortgage. With a reverse mortgage, you can stay in your home and still have the extra cash to help you with your retirement. To find out how much money you can get with a reverse mortgage, talk to your Dominion Lending Centre mortgage specialist today or if you decide to downsize, talk to your mortgage broker or a lawyer to find out your true cost of downsizing before making the final decision.

Do successful entrepreneurs just open their doors for business without a business plan? Does a chef open a restaurant without a menu? Do pilots depart the hanger without a flight plan? Can you build a house without architectural plans?…I could go on forever! The answer is NO to all the above.

I’m a planner. Whether it’s for personal or business purposes, I always have a plan. I operate best when I know what is happening and how I’m doing it. Planning is the key ingredient to crossing the finish line successfully.

Case in point…

When it comes to acquiring a mortgage, whether it’s your first, second, third…or tenth you need to establish a PLAN! You need to connect with your trusted Dominion Lending Centres mortgage broker to start the application process.

Am I suggesting you need to create a full blown SWOT analysis (Strengths Weaknesses Opportunities and Threats) to seek mortgage financing?

No… but it wouldn’t hurt.

All joking aside, you should have an action plan: PLAN A and possibly a PLAN B. If you need a PLAN C then there should have been more preparation put into PLANs A and B.

THERE ARE 4 PARTS TO EVERY MORTGAGE.

1. DOWN PAYMENT – How much skin-in-the-game are you putting in? Where is it coming from, saved or gifted? Where is it now?
2. CREDIT – How long have you had it? What are the limits and how do you utilize it? How many forms of credit do you have?
3. INCOME – How long have you been at the current job? Salary or hourly? Have you jumped around to different industries or stayed within? Self-employed or employee?
4. SUBJECT PROPERTY – Where is the property? What is the property? Condo, townhouse, detached, farm on acreage with coach house and out-buildings? Age? Materials used to build? Remaining economic life? Square footage? Past or present issues?   

Before you find the subject property to purchase, the best course of action is to prepare. Why try to obtain financing in three to six days when you could have reduced the stress level by planning ahead of time. Mortgage Brokers call it the Pre-Qualifying Process. As a mortgage professional, I review the first three parts of the application and lock in a rate for up to 120 days.

Some people may ask WHY plan or WHEN to start planning. The main reason one should plan is to simply make sure there are no hidden surprises. If there are any negative aspects to the file, a plan would give us time to find a solution. When the decision has been made to purchase or re-finance (and mortgage funds are required), that is the exact time to connect with your Mortgage Broker. The time is now… immediately. A plan will double your success rate for obtaining approval for mortgage financing.

The market is constantly changing these days, so if you asked me about affordability just a few weeks ago, I would have had a different answer, as the seller’s market has quickly shifted to a buyer’s market – for now, anyway.

This spring, many first-time homebuyers were quickly being priced out of the market due to multiple bidding scenarios that saw houses sell well over their asking prices. This was not an ideal situation for any buyer – let alone first-time buyers on a particularly tight budget.

And while affordability was going by the wayside just a few weeks ago, so too were having a condition of financing and a home inspection included in the purchase offer.

Weighing the no condition of financing risks 

Going in firm (with no conditions) on an offer to purchase is incredibly risky for numerous reasons.

In a state of panic during multiple bidding scenarios, many homebuyers opt to take the no conditions route in the hopes that it lands them the home of their dreams. What it often does instead, however, is land them in hot water. Once a firm offer has been accepted by the seller, the purchaser is bound to that contract, which means they can end up in a lot of legal trouble if they can’t secure financing on that property by the agreed upon closing date.

On the flip side, if a purchaser places a condition of financing within the purchase offer, they have time after the offer is accepted to arrange the mortgage. If they’re unable to arrange financing by a specific date noted in the contract, they can simply walk away from the deal with no repercussion.

It’s important to note that lenders loan money based on appraised values, not on the selling price.

What happens if I forego a home inspection? 

When things go wrong with a house, they can prove extremely expensive – especially when pertaining to the home’s structural integrity. After all, a home inspection looks at much more than the mere cosmetics of a property that can be seen through an amateur’s eye.

Home inspectors are professionals who look at homes every day and know the ins and outs of pretty much anything that could go wrong with things such as the roof, foundation, electrical, plumbing and so much more.

And, on the financing side, foregoing an inspection can also prove risky. What you may not know is that lenders don’t only lend based on the borrower’s financial situation, but also based on the conditions of the property that you want to purchase. It’s part of a lender’s due diligence to ensure the property is livable and worth the amount of money that you’re willing to spend.

The safest move is to consult with a Dominion Lending Centres mortgage professional before making any offers to ensure your bases are covered and you’re not bound to a contract you simply can’t fulfill.

Ever wonder how your mortgage rate is determined? What factors make it jump from percentage to percentage? We are getting down to the nitty gritty today and giving you the facts on what impacts mortgage rates.

What affects a Mortgage Rate?

There are 10 factors that affect a mortgage rate:

1. Location
Depending on which province your home is located in, this will have an overall effect on your mortgage rate. Generally speaking, provinces with more competitive markets will have lower rates.

2. Rate Hold
A rate hold is a guarantee on a rate for 90-120 days. If your closing dates do not fall within this timeframe, then your hold will be re-assessed. If your rate hold is re-assessed and the lender’s rates at that time of re-assessment are higher than your initial rate, then your rates will go up accordingly. We always follow up with all of our clients on a regular basis to avoid this situation whenever possible!

3. Refinancing
Movement on your mortgage of any form can affect your rate typically when you are working with your existing lender. New buyers will have lower rates than refinances, but refinances will have lower rates than mortgage transfers. Mortgage Brokers can access multiple lenders to find the most suitable product for their client’s unique needs.

4. Home Type
Lender’s assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.

5. Income Property/ Vacation Home
As previously mentioned, lenders assess the risk on your property. If you are buying an income property or a vacation home than the lender can assess at a higher risk and a higher rate may apply. This is one of the major benefits to having a mortgage broker on your team! They have access to a variety of lenders that can offer you a rate lower than others as they can compare a large variety.

6. Credit Score
We have talked a lot about credit on our blog, and there is a reason for that. Your credit score is a large determining factor for your rate. Lenders want to see that you have a history of managing your credit well and that you will be able to pay back the lender overtime. For more information on fixing your credit, check out our free e-book, Credit Medic.

7. Insured or uninsured
With the changes that the federal government made back in October 2016 this has had a significant impact on mortgage rates if your mortgage is insured or not. Read our Change of Space guide to find out the full impact of these changes.

8. Fixed/Variable Rate
The type of rate you are wanting to get will also affect your rate. Fixed rates are based on the bond market and variable rates are based on the Bank of Canada (economy).

9. Loan to Value (LVT)
The higher the Loan to Value the higher the risk. You can have someone who has a $1 million mortgage but has $2 million in equity in that property and they would be viewed as a lower risk than someone who has a $200,000 mortgage and their property is only worth $220,000. To boot with the federal changes, the person with the higher risk mortgage (insured) is likely to get a more competitive interest rate than the client with $2 million in equity.

10. Income level
The final part in this rather large equation is your income level. Although this does not necessarily impact the rate itself, it does impact your purchasing power and the amount you are able to put down on a home. Essentially indirectly impacting the rate.

Each of these factors plays a factor in the rate you will be able to get through a lender. The easiest way to get the lowest rate is to work with a dedicated mortgage professional. They will put together a fail-proof plan to get you the sharpest rate. They also have access to a variety of lenders which saves you the time and trouble of shopping for your mortgage on your own. As a final point, mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success.

Why is it important for you to have a mortgage manager? Reaching your financial goals is attainable!

There are some things to consider before securing your mortgage:
Is there a potential of you buying an investment property or a vacation home? Are you considering scaling up or downsizing? Do you think you might move or port your mortgage or retire within the next five years? All these scenarios come into play when setting up your mortgage.

If you had $500,000 cash to invest, how often would want your financial advisor to review your investments?

Why is it different when you are $500,000 in debt with your mortgage?

Why not have an active mortgage broker looking after your $500,000 debt?

Active financial advisors aim to grow your net worth by investing wisely.
Active Mortgage brokers will help you grow your net worth by reducing your debt and growing your asset base. You will cover only half of the prosperity equation without a mortgage broker.

Consider this: your bank’s main goal is to make money for the bank. This is understandable as they are in business to make money. As reported, banks make billions of dollars every quarter, in part, thanks to you. On the flip side, a mortgage brokers is an advocate for you and their main goal is to get you the best mortgage to meet your goals. This comes in many forms, not just the interest rate, although it is important there are other areas that could cost you more money in the long run.
An active mortgage broker can save you thousands of dollars over the life of your mortgage.
Most mortgages are set up on a five-year term. A lot can happen in five years.

Changes in life happen. You are forced to move, or you would like to move to a bigger home, down size, buy an investment home a recreational property, or take equity out to buy a business or perhaps retire.
Mortgage rules continually to change. What worked last year may not work this year. It is important to review your situation with your mortgage broker before making any major decisions with your current mortgage.
Being in the right mortgage may be the difference between being able to buy that investment property or recreational property. It may be the difference of paying a $3,000 penalty or an $18,000 penalty to close out you mortgage.

Remember, it is not getting a mortgage that is important, it is getting the right mortgage that will help you meet your future goals.
When it comes to your renewal time it is important to once again review your options with your mortgage broker.
Your current lender may not have the best rate or option for you at renewal time as there are many lenders and there are many options to choose from. At renewal time, you can change lenders with no penalty. Renewal time is also a good time to take extra equity out of your home to pay off debt, for investment purposes or to pay for that new kitchen you wanted.

I have called many clients well before their mortgage is due when I recognized it would save them thousands of dollars to refinance early. Moves like this help clients pay down their mortgage faster, provide extra cash flow for investments, and provide funds for renovations or a down payment on an investment property.
Having someone manage your mortgage can be a great benefit for you and your family.
If you currently do not have an active mortgage manager, a Dominion Lending Centres mortgage broker would be happy to become your mortgage manager.

There have been a dizzying number of changes to the mortgage rules over the last six or seven years. The red hot markets in Toronto and Vancouver coupled with increased household debt and concerns over the risk to the Canadian tax payer through CMHC have caused the federal government to step in repeatedly. Here are a few of the changes we have seen.

• Maximum amortization from 40 years to 25 years.
• Mortgages must qualify on the stress test rate which is currently 4.84%.
• Homes over $500,000 need 10% down on any amount over that threshold.
• Homes over $1,000,000 are not eligible for mortgage insurance.
• Refinances can no longer be guaranteed by mortgage default insurance.
• Foreign buyers faced additional restrictions.
• Home Equity Lines of Credit are maxed at 65% of the property’s value.
• Refinances are maxed at 80%.
• All outstanding credit cards and lines of credit have to be included at a 3% repayment.
• Increased mortgage default insurance premiums.

This list could go on but these are some of the major ones. Recently the powers that be have announced another round of proposed changes which, if history holds true, we would anticipate to come into existence in October of this year.

The overall indebtedness of Canadian households through Home Equity Lines of Credit is a concern which may signal a further set of limitations to this type of mortgage.
There is consideration being given to a risk sharing model between the mortgage insurers and the banks. At the present time if you were to default on your mortgage the lender has the assurance that the default insurance will make them whole. Going forward this may not be the case.
How could you be affected? There will likely be an increased level of scrutiny applied to mortgage applications. If your credit is blemished or less than perfect you could face higher rates or be shut out of buying a home. They will likely also want to see savings beyond just the down payment and closing costs.

The fact of the matter is that if a bank has an increased risk overall they are going to certainly be more selective in who they lend their money to. The days of the best 5 year rate for everyone may be a thing of the past.

Currently there are lenders in Canada who charge slightly higher rates and make allowances for damaged credit, short self-employment tenure or other issues a borrower may be facing. Though these companies have nowhere near the loose lending guidelines in the U.S. which led to the melt down, the government would like all lenders in Canada to abide by the same guidelines and looking at ways to bring this into reality.
We will have to wait and see if these or other changes are actually implemented. It is fair to say that until the government is satisfied the housing sector no longer poses a threat to the economy, it will remain at risk of further changes. Long story short, if you are considering purchasing then you may want to proceed sooner rather than later. Rates have risen recently and there is uncertainty over the future of mortgages. Call a well-qualified Dominion Lending Centres mortgage professional today for assistance.