A word of caution before you defer your mortgage payments amid the COVID-19 pandemic: it will cost you in the long run.

Remember, a deferral isn’t mortgage payment forgiveness.

There seemed to be a collective sigh of relief when Finance Minister Bill Morneau, after consultation with the big banks, highlighted potential mortgage payment and credit card deferrals would be available for Canadians.

Understandably, Canadians rushed to the phones only to be met with frustration and confusion and left wondering:

Who would qualify?

• Is there an application process?
• Does the entire household have to be off work?
• Will they require documentation?

None of the banks could initially could answer those questions.​ As days pass, we learn a little more, yet frustration is still high. A mortgage deferral might not be the deal you think it is.

Here’s why.

1. A mortgage deferral doesn’t mean an interest-free holiday. ​

2. If you choose to defer, the interest accrued during the skipped periods will be added to the principal  balance. This will make a difference in how much you end up paying in interest over the life of the mortgage.

My take away: a deferral is not mortgage relief, it is simply the ability to skip a payment for a specific period of time and will be added to outstanding balance of your mortgage.

Here are some of your other options.

1.  If you can’t handle a larger payment once the deferral ends, you could try to extend your amortization period.

2. If you are able, you could make extra payments in an effort to get back to where you started prior to the deferral.

3.  It might make more financial sense to borrow only what you need from a line of credit, paying the interest amount only, and paying back the principal amount as quickly as you can when you can.

Canadians are scrambling and worried about mortgage payments as many face layoffs in wake of the pandemic. I’ve been asked about liquidation of registered retirement savings plans (RRSPs), taking out cash advances on credit cards — all in fear of a foreclosure.

During this crisis, lenders have made it clear foreclosure isn’t going to be the first course of action and there are solutions that will help keep you in your home.

If you are in a financial crisis, a mortgage deferral is exactly the lifeline you may need. However, it is always best to reach out and ask for assistance before missing a payment. Recognize it isn’t going to free, but knowing all of your options can make it less costly

Committing to a mortgage for five long years exposes people to the most insidious aspect of residential financing: prepayment charges.

And when it comes to such charges – the penalties you pay come when you back out of your mortgage early – some lenders take a greater toll on your bank balance than others.

Big banks are usually the worst. Mortgage finance companies are often the best.

And these bank competitors want you to know it. More and more, smaller lenders are using their preferential penalty calculations as a selling point, as well they should.

This year I’ve seen lenders such as Equitable Bank, Manulife Bank of Canada, XMC Mortgage Corp., Merix Financial, CMLS Financial Ltd., RFA Mortgage Corp., First National Financial LP, and MCAP all go out of their way to step up marketing and educate consumers on how bad penalties from major banks can be. (Mind you, a few of these lenders also have “no-frills” mortgages with high penalties – for example, 3 per cent of principal. So watch out for those.)

WHAT IS A ‘FAIR-PENALTY LENDER?’

A fair-penalty lender calculates its standard prepayment charges, for lack of a better word, “fairly.”

It does so by comparing your actual mortgage rate to a rate equal to (or close to) what it charges new customers for a time frame similar to your remaining term.

Unlike Big Six banks, fair-penalty lenders don’t use arbitrarily inflated rates (“posted rates”) in their calculations. That only serves to drive up penalties.

So why doesn’t everyone get a mortgage with a fair penalty lender?

Well, because most people are conditioned to pay more for big bank financing. Among other things, they trust the brand, like the convenience or like knowing they can walk into a branch to talk to someone if there’s ever a problem (although, for most people, mortgage problems after closing aren’t too common). And the cost of that convenience is steep.

A SIMPLE EXAMPLE

Suppose you’re a major bank customer with a regular 3.19 per cent $300,000 five-year fixed mortgage that you got one year ago.

Now imagine you:

• Need to consolidate debt into your mortgage;
• Just found a new job in a different city and must sell and rent;
• Want to break and renegotiate to a lower rate;
• Have to break the loan early for some other reason – maybe because of a loss of income, divorce, inability to get a fair rate from your bank on a “port and increase” (that’s where you move your mortgage to a new property and increase the loan size), or inability to qualify for a port.

In these scenarios, one popular bank would charge you an interest rate differential (IRD) penalty of roughly $16,800 to exit your existing mortgage.

Compare that with just three months’ interest (about $2,400) at a “fair penalty lender.”

To put that another way, the extra $14,400 you’d fork over to the “less fair” lender would be like paying an 8.19-per-cent interest rate versus the 3.19 per cent. That’s astronomical. These days, determined mortgage shoppers do backflips to save even a 10th of a percentage point off their rate, let alone five whole points.

WAYS AROUND PENALTIES

Some big banks are kinder than others when it comes to helping you avoid prepayment pain. The better ones let you add money to your mortgage without penalty, offer early renewal options and have flexible portability rules.

But more often than not, you can find a similar mortgage from a fair-penalty lender for a comparable price or better – without the penalty shackles.

If you’re dead-set on a big-bank mortgage and want to lower your exposure to heinous fixed-rate penalties, consider a short-term fixed or variable rate instead – if it’s suitable for you. By suitable, I mean you have a tolerance for potentially higher rates sooner than five years and you have no problems getting approved for a mortgage.

These days, with so many people taking fixed rates because they’re cheaper than variable rates, banks stand to make a killing on prepayment charges. That’ll be especially true if recession hits and rates fall further. We come across people almost every week who’d love to refinance at today’s lower rates, but they can’t because their bank penalty is too harsh.

The time has come to heed this lesson as borrowers. Big-bank IRD penalties clearly overcompensate banks for the legitimate expenses they incur when a customer backs out of a mortgage early. The more that people demand fair penalties, the more pressure it’ll put on Canada’s six biggest lenders to change their methods.

Robert McLister is a mortgage planner at intelliMortgage and founder of RateSpy.com. You can follow him on Twitter at @RateSpy.

Credit Reports: You’ve Scored! But Are You Playing the Game?

For most people, your personal credit score and how a credit score is calculated are complete mysteries. How can you be expected to play and be successful if you aren’t even told the rules of the game? There are things borrowers can do to improve their score so they can access better mortgage products and save thousands of dollars, or qualify for their wonderful home when they otherwise might have trouble. Let’s stick handle through just some of the key things you should know about managing your credit score.

Amount owed and utilization accounts for 30% of your score. There are a lot of people that end up with high balances on their credits cards and struggle to meet the payments each month. If they manage to pay off their credit cards without seeing a mortgage broker to consolidate their debts, often the immediate response is to close the accounts. A better response is to cut up the cards and delete the numbers from your computer and devices and keep the accounts open. You want any remaining outstanding balances to be less than 75% of your total combined credit available, and if they are less than 35%, even better, because this keeps your utilization of available credit low and increases your credit score. Types of credit and the number of different credit products accounts for 10% of the score, so this is another reason you want to keep those accounts open. Cell phone providers are now reporting to the agencies that publish credit scores as well.

In some parts of the world where credit products are not well established, a borrower’s credit is evaluated based solely on how they have managed payments on their cell phone bills. It’s important to pay your cell phone bills on time; we’re all busy, so setup automatic payments to ensure a payment is not missed. My last word of advice for today is to monitor your credit score by purchasing your own credit report each year for about $25 so you know your score and to ensure the report is accurate. This will help you stay within the boundaries of the game.

There is a lot more to managing a credit score than I can get into in this short blog. If you would like to know more, contact me or your local Dominion Lending mortgage broker. We can provide advice to help you manage your credit score and put you in a better position to qualify for a mortgage with better rates. Know the rules of the game, plan ahead for your home financing, and play SMART.

Todd Skene

Dominion Lending Centres – Mortgage Professional
Todd Skene is the founder of DLC Home SMART Mortgage with DLC Pilot Mortgage Group based in Vancouver, BC.

6 Things all Co-signors should consider

Co-signing on a loan may seem like an easy way to help a loved one (child, family member, friend, etc. ) live out their dream of owning a home. In today’s market conditions, a co-signor can offer a solution to overcome the high market prices and stress testing measure. For example, if you have a damaged credit score, not enough income, or another reason that a lender will not approve the mortgage loan, a co-signor addition on the loan can satisfy the lenders needs and lessen the risk associated with the loan. However, as a co-signor there are considerations.

1. If you act as a co-signor or guarantor, you are entrusting your entire credit history to the borrowers. What this mean is that late payments on the loan will not only hurt them, but it will also impact you.
2. Understand your current situations—taxes, legal, and estate. Co-signing is a large obligation that could harm you financially if the primary borrowers cannot pay.
3. Try to understand, upfront, how many years the co-borrower agreement will be in place and know if you can make changes to things mid-term if the borrower becomes able to assume the original mortgage on their own.
4. Consider the implications this will have regarding your personal income taxes. You may have an obligation to pay capital gains taxes and we would highly recommend talking to an accountant prior to signing off.
5. Co-signors should seek independent legal advice to ensure they fully understand their rights, obligations and the implications. A lawyer can lay it out clearly for you as well as help to point out any things you should take note of.
6. Carefully think about the character and stability of the people that you are being asked to co-sign for. Do you trust them? Are you aware of their financial situation to some degree? Are you willing to put yourself at risk potentially to take on this responsibility? Another consideration is to think about your finances down the road and determine how much flexibility will be needed for yourself and your family too! If you have plans of your own that will require a loan, refinancing your home, etc. being a co-signor can have an impact.

Co-signing for a loan is a large responsibility but when it is set-up correctly and all options are considered, it can be an excellent way to help a family member, child, or friend reach their dream of homeownership. If you are considering being a co-signor or wondering if you will require a co-signor on your mortgage, reach out to a Dominion Lending Centres mortgage professional. We are always happy to answer any questions and guide you through processes like this.

Geoff Lee

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

Mortgage renewals with the same lender are on the rise, but should you just sign on the dotted line?

If you’re in a mortgage that’s coming up for renewal in the coming months and you’re considering just staying with your current lender, you wouldn’t be alone.
According to the Canadian Mortgage and Housing Corporation’s (CMHC) Residential Mortgage Industry Report released in the summer, in 2018, the number of mortgage renewals with the same lender increased by 16 per cent over the previous year.
The report suggested one of the factors that may have contributed to large increases in loan renewals with the same institution are the tighter approval criteria. In other words, people are worried they may not qualify for a new mortgage if they switch lenders, so they’re staying put.
You’ll remember in the fall of 2017, OSFI, (the Office of Superintendent of Financial Institutions) the agency that regulates the financial industry, announced tighter rules on mortgages. The biggest change related to uninsured mortgages, or homebuyers with 20 per cent or more for a down payment. These people are now required to go through a “stress test” or qualify using a minimum qualifying rate.
The changes came a year after a similar stress test was introduced for insured mortgages.
If the tighter mortgage rules still have you stressed as you face a mortgage renewal, the CMHC report noted the approval rate for same lender renewals remained stable at 99 per cent. Renewals are not specifically subject to the new stress test and are more likely to meet current lender criteria, the reported noted.
So, does that mean you should just automatically renew your mortgage with the same lender when your term is up? Not necessarily. You need to reach out to a mortgage professional to get the best advice.
For starters, most lenders, especially the big banks, will send you a renewal letter when there’s about three months left on the term. Sometimes that letter could come with six months left. Typically, the lender will offer you a rate at that time and all you’ll have to do is sign at the bottom line to roll over your mortgage.
But beware, lenders often offer a higher rate than a new client because they’re hoping the ease of renewal will keep you from seeking out a new lender and lower rate.
In some cases, it may be best to just sign and roll over your mortgage. There are a few things to consider. If you decide to change lenders, you’ll basically have to go through an approval process again. That entails getting all your documents, lawyer’s fees and appraisals.
You’ll have to ask yourself, is it worth the effort to save a few basis points off your rate, or a few hundred dollars over a term to make the switch?
For some it won’t be. But, if a switch can lead to saving thousands of dollars, it would certainly be something to consider. While everyone’s situation is different, the larger the mortgage, the bigger the savings will be if you can find a lower rate.
Often, homeowners will just use a bank their parents recommend for their first mortgage. But they might find themselves not happy with the service or terms of the mortgage and may just want to switch to a different lender as the mortgage comes up for renewal.
If that’s a situation you find yourself in, you have options, and a Dominion Lending Centres mortgage broker can help you make the best decision.

Jeremy Deutsch

Communications Advisor

5 Mistakes First Time Home Buyers Should Avoid

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes first time homebuyers commonly make, and how you can avoid them and look like a Home Buying Champ.
1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curveballs and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:
• Legal and Notary Fees
• Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
• Home Inspection fees
There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:
• When was the roof last done?
• How old is the furnace?
• How old is the water heater?
• How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
• When were the windows last updated?
All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market, a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundation cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing…even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate, you may be missing out on great opportunities that a mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.
Remember, when you are buying a home, you are not alone! The minute you decide to work with a Dominion Lending Centres Mortgage Broker you are bringing on a team of individuals who are there to help you through the process from start to finish.

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

First Time Home Buyers Incentive Program

The new First Time Home Buyer Incentive program from CMHC (Canadian Mortgage and Housing Corporation) was officially released on September 2. This program was met with mixed reactions across the mortgage industry, but we wanted to take a minute to give you the facts regarding the program. Below are the key points you need to know, and as always if you do have any further questions please reach out to us.

What is it?
Eligible homeowners are able to apply for a 5% or 10% shared equity mortgage with the Government of Canada.  A shared equity mortgage is where the government shares in the upside and downside of the property value. The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
• 5% for a first-time buyer’s purchase of a re-sale home
• 5% or 10% for a first-time buyer’s purchase of a new construction

It’s important to understand that with this program, the government will then OWN 5-10% of the equity of your home (pending on how much was contributed to the down payment).

Who is eligible?
First, you must be a First Time Home Buyer. This incentive is only offered to those who are purchasing their first home. Second, you need to have the minimum down payment to be eligible. The minimum down payment is 5% of the purchase price of the property, and this must come from your own resources. The Federal Government will not give you 5% to put towards/cover the entire down payment. Third, your maximum qualifying income is no more than $120,000. Lastly, your total borrowing is limited to 4 times the qualifying income.

There are restrictions on the type of property you can purchase. The below are the eligible properties:
o New construction (5-10% incentive)
o Re-sale home (5% incentive)
o New and resale mobile/manufactured homes (5% incentive)

Residential properties include single family homes, semi-detached homes, duplexes, triplex, fourplex, townhouses, condominium units. The property must be located in Canada and must be suitable and available for full-time, year-round occupancy.

How Does Repayment Work?

You can repay back the incentive in full at any time without a pre-payment penalty or you can repay the incentive after 25 years or if the property is sold, whichever happens first. The repayment of the incentive is based on the property’s fair market value:
o You are given a 5% incentive of the home’s purchase price of $200,000 or $10,000. If your home value increases to $300,000 your payback would be 5% of the current value or %15,000
o You are given a 10% incentive of the home’s purchase price of $200,000 or $20,000 and your home value decreases to $150,000, your payback amount would be 10% of the current value or $15,000.

If you are interested in this program or have further questions, we encourage you to reach out to your Dominion Lending Centres mortgage broker. This is a brand-new program and more details are coming out each day. We also are working to better understand the implications of this type of shared equity mortgage and will keep you updated on any news or updates we receive.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional

4 Ways to Make the Mortgage Process Smoother

Mortgages are complicated—we get it! But there are steps that you as a homebuyer can take to make the process a much smoother one (plus let you walk away with the sharpest rate!)

1. Use a Broker
This should be the first step you take when getting a mortgage! Enlisting a trusted broker to work with you can help you secure the sharpest rate and the right mortgage product too! This is one of the biggest (if not the biggest) purchase you will make in your lifetime. Working with a professional will make all the difference.

2. Budget, Budget, and Budget Some More
Budgets aren’t the most glamorous element of homebuying but they are a necessity. Why? Because often you will have overlooked costs that can make or break you getting into your home. A few things to consider:
• Property transfer taxes
• Legal fees
• Home inspection/appraisal fees
• Down payment (this is kind of a big one)
• Mortgage insurance
And the costs don’t stop once you own the home.

3. Understand the Importance of the Down-Payment
Many home-buyers focus on just simply putting money aside for the down payment. While this is crucial, there are other considerations.
• How big of a down payment can you make? You must meet the federally mandated minimum down payment: 5% for all mortgages up to $500,000, and 10% on any portion above $500,000 up to $999,999.99 (CMHC-insured mortgage loans are only available on properties valued under $1 million). But the size of the down payment will also reduce the interest you pay out over the life of your mortgage and reduce the size of the CMHC mortgage premium too.
• Take advantage of the Home Buyer’s Plan to withdraw up to $25,000 tax free from their Registered Retirement Savings Plan (RRSP). This can help to supplement your down payment as long as you understand the rules for paying it back.
• Leave plenty of time to transfer the funds from whichever source you are pulling them from. You will also need to leave adequate time for a certified or cashier’s cheque to be produced before the closing

4. Don’t Become Hyper Focused On the Rate
Yes, the rate is important, but don’t be hasty and jump into a mortgage purely based on the rate. Consider other areas such as the terms, the penalty to break, the amortization, and all other factors before signing on the dotted line. Your broker can help you to understand the ins and outs of a mortgage.

Considering these four things can help you be more prepared when beginning the mortgage process. Remember, a Dominion Lending Centres mortgage broker will help you and guide you through each of these things to ensure you are getting the best mortgage possible and with minimal stress too!

Mortgages are like coffee

The most common question we get for mortgages is “what is your best rate?” Now imagine we walked into our local coffee shop and asked “what is your best price?” Doesn’t happen. There are all kinds of different coffees and lots of ways to make them. The same goes for mortgages.

Getting a coffee at the lowest price is usually not going to get you the coffee that meets your needs. You want quality beans, flavour, extra features like a shot of caramel, maybe make it a macchiato, froth on the top, an alternative milk option, and the list goes on.

The same goes for mortgages. Lowest rate mortgages may come with a lack of portability, the inability to make extra payments, and they may lock you into a good rate today without the flexibility for better rates in the future. They may be the lowest rate without the lowest monthly payment amount, they may be for term lengths that are too long and have significant penalties when the mortgage needs to be broken.

The lowest rate mortgage may be collateral charge mortgages that allow a bank to foreclose on your property because you were delinquent on your credit card payments while you went on an extended vacation in Europe and forgot to keep track while you were having so much fun drinking coffee at a popular little hole in the wall café in some small ancient village. The 4 strategic priorities that every mortgage needs to balance are lowest cost, lowest payment, maximum flexibility, and lowest risk.

So the next time you need a mortgage, treat it like your coffee order, don’t ask for the best rate, ask how you can get the best mortgage that meets your needs.

Todd Skene

Dominion Lending Centres – Mortgage Professional
Todd Skene is the founder of DLC Home SMART Mortgage with DLC Pilot Mortgage Group based in Vancouver, BC.