25 Nov

Is a Cash-Back Mortgage for You?

General

Posted by: Cody Rowe

When purchasing your next home, most know that you need to have a minimum of 5% of the purchase price saved for the down payment. But did you know that you’re required to show proof of closing costs as well?

This will be conditioned in your mortgage approval and you must prove these funds for closing costs in the form of 1.5% of the purchase price.

For example, on a $500,000 purchase price you’ll be required to have an additional $7,500 in your account to cover legal fees, appraisal costs, title insurance, property transfer tax, moving expenses etc.

So when you’ve worked hard to:

  • Save up your down payment
  • Boost your credit score
  • Get a good job to afford a home
  • Discover the right property

Finding out that you’ll need more money for these expenses can end up feeling like a bit of a bummer.

This is one situation where a cash-back mortgage can be useful to get you back on track and moving forward.

A cash-back mortgage is similar to getting cash back from your credit card, but from your mortgage instead.

Here’s how it works…..

Apply for a principal mortgage amount that allows you to purchase your next home. During this application process, speak with your advisor regarding the option of cash-back from the mortgage funds to see whether this feature is something best suited for you. Based on this conversation, you can request between 1 – 5% of purchase price to be provided to you at the time of closing. It’s important to know that this additional amount is included in the mortgage funds, so this will be part of the principal amount that you will be charged interest on, which is why it’s important to review all options before going ahead.

Unlike a purchase plus improvements mortgage, you are not required to prove what you intend to use the funds for prior to it being deposited into your account. So for example, if the plan is to do upgrades to the home, you won’t be limited by having to supply cost sheets, contractor quotes or be subject to restrictive completion dates. Once the money is in your account, it’s yours to spend as you wish!

If you have any questions on whether a cash-back mortgage is the right solution for you, contact us today!

Remember, if you got your mortgage anywhere else, you probably paid too much!

 

17 Oct

How Canadian Reverse Mortgages Differ from those in the USA

General

Posted by: Cody Rowe

How much do you really know about reverse mortgages? Maybe you know that reverse mortgages can help Canadians 55+ access the equity in their home, tax-free. But there are many people who mistakenly think that Canadian reverse mortgages are just like those offered in the U.S. As Canada’s leading provider of reverse mortgages, HomeEquity Bank can help set the record straight.

Canadian reverse mortgages are an increasingly popular borrowing option for homeowners 55+.

Unlike in the U.S. where features and rates can fluctuate greatly between the many providers, HomeEquity Bank, the leading provider of reverse mortgages in Canada, is a federally regulated Schedule 1 Bank. This means that HomeEquity Bank has the same oversight and regulatory obligations that the big 6 Canadian banks have. With a trusted and secure bank backing the CHIP Reverse Mortgage, it becomes a great alternative to selling your home, and may be a better-suited lending solution when compared to a second mortgage or a line of credit. Homeowners can retire stress-free, without the worry of monthly payments. Plus, funds are tax free and don’t impact your OAS or CPP.

Here are some key differences that set our reverse mortgages apart from those of our American neighbours.

In Canada:

  • Eligibility amount is up to 55% of your home’s value. Our conservative lending amount serves two purposes: Firstly, the amount you qualify for increases with age as the cost of living is expected to increase and other sources of retirement income deplete. Secondly, we provide a No Negative Equity Guarantee which ensures the loan balance doesn’t exceed the fair market value of your home.
  • Closing & administrative closing costs are $1,795. There are also standard legal and appraisal fees payable to third parties, as with any mortgage.
  • No monthly payments are required.

In the U.S.

  • Eligibility amount is up to 80% of your home’s value, according to the Federal Housing Authority.
  • Closing & administrative closing costs to a max of $6,000. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
  • Monthly payments are required.

Tens of thousands of Canadians are already using the funds from a reverse mortgage to supplement their monthly income, pay off debt, travel, purchase a second property and more. To see how a reverse mortgage could work for you, contact your Dominion Lending Centres  Mortgage Broker today!

 

Article provided by:

Sue Pimento

HomeEquity Bank – Vice President, Referred Sales, Eastern Canada

16 Sep

First-Time Buyer Incentive Program

First-Time Buyers

Posted by: Cody Rowe

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:.

What is it?
The new First-Time Home Buyer Incentive allows eligible first-time home buyers, who have the minimum down payment, to apply to finance a portion of their home purchase through a shared equity mortgage with the Government of Canada. 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 home

As a shared equity mortgage, the government will then OWN 5-10% of the equity of your home (pending on how much was contributed to the down payment).

How do you know if you qualify?

First, you must be considered a “First Time Home Buyer” however this a has a few versions outside of the standard definition. A first-time buyer is stated as:

Continue reading

1 Aug

What is a Refinance?

Mortgage Tips

Posted by: Cody Rowe

Refinancing a home is one of those things where people understand what it is but have trouble explaining how it works. To put it simply, refinancing your home allows you to access the equity you have built up, by changing the mortgage amount.

Let’s say you bought a $300,000 condo and you paid 20% ($60,000) as your down payment and had a mortgage of $240,000. Over the next 4 years, you continue making payments and pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home- this is where a refinance could come into play.

What this means is you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a home worth $350,000, therefor your equity in the home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 is going to go from the lender to you. You are borrowing money from the lender, but adding that money back on top of your mortgage.

This is why people will refinance their home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest, because it is being added to the mortgage.

This is just one way people are able to use their home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity lines of credit, collateral charges, and purchase plus mortgages. Knowing this before you buy can be extremely beneficial, that is why it is important to work with a qualified Dominion Lending Centres broker!

Written by:

RYAN OAKE
Dominion Lending Centres – Accredited Mortgage Professional
23 Jul

What is a Collateral Mortgage?

General

Posted by: Cody Rowe

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

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

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

  • First and most glaring – because it is an “all indebtedness” mortgage – it brings into account all other debts held by that lender into an umbrella registered against your home. This means that your credit cards, car loans, or any related debt at your mortgage’s institution can be held against your home, even if you’re up to date with your mortgage payments.
  • Secondly, if you want to switch your mortgage over to a different lender, they may not accept the transfer of your specific collateral mortgage. This means you’ll need to pay additional fees to discharge the mortgage and register a new one.
  • And lastly, collateral mortgages make it more difficult to have flexibility to get a second mortgage, obtain a home equity line of credit from a different institution, or use a different financial instrument on your home. This is because your collateral mortgage is often registered for the whole amount of your property.

To recap, collateral mortgages give you the flexibility to combine multiple mortgage products under one umbrella mortgage product while tying you up with that one lender. While this type of mortgage can be a great tool when used correctly, it does have its drawbacks. If you have any questions, a Dominion Lending Centres mortgage professional can help.

Written by:

EITAN PINSKY
Dominion Lending Centres – Accredited Mortgage Professional
11 Jun

Home Buyer Tax Credit

First-Time Buyers

Posted by: Cody Rowe

When you purchase a home as a first time home buyer, you have a third benefit on top of the First Time Home Buyers’ Program and the Home Buyers Program- the Home Buyer Tax Credit.

The Home Buyer Tax Credit allows you to claim $5,000 for the purchase of a qualifying home in the year if the following are true:

  • you or your spouse or common-law partner purchased a qualifying home that is owner-occupied.
  • you did not live in another home owned by you or your spouse or common-law partner in the year you bought the home you are claiming or in any of the previous four years.

If these two points are true, you can make the $5,000 claim on line 369 of the tax return for the year you made the home purchase in. This $5,000 claim can help save up to $750 in potential taxes owing to the government.

For more information, click the following link or reach out to your Dominion Lending Centres mortgage professional.

Written by:

RYAN OAKE
Dominion Lending Centres
28 Mar

Bridge Loans – How Do They Work?

General

Posted by: Cody Rowe

The fast pace of buying and selling real estate is daunting. Throw in trying to manage closing dates, possession dates and access to the proceeds for the purchase and you have a recipe for disaster.

I recently received an email from a potential client asking these very questions:

“I was wondering how the process usually goes, for looking at a new place. We had planned to use our equity in this home as the down payment for a new place. But if we can’t unlock that equity until the closing date, what usually happens in the interim?  Do we have to find a place to rent?…a month or longer? When we bought this place, it was our first home purchase, so moving to a new one is new to us. I don’t understand how we are supposed to start looking for a place after subject removal (which is 30 days after tomorrow), when we can’t access the equity to make a down payment.”

This scenario happens much more often than one thinks. In order for sellers to access their equity to become buyers they are required to utilize a bridge loan to transition into their “next” home. The bridge loan allows you to purchase a new property before the sale completes on the existing or current residence.

Most lenders have a 45 – 60-day window to exercise this option, with a range of daily rates and admin fees. The four vital components to a mortgage application are incomecredit worthiness, the subject property and down payment.

The first three have been approved; now how does one unlock the down payment? Easy. The borrower is required to supply the fully executed purchase and sale contract, subject removal addendum and the current mortgage statement for the existing property. This provides confirmation that you have sold the property on X date as well it confirming the sale price less the possible real estate commission fees and closing costs. Once the current mortgage amount is subtracted the net proceeds are yielded, leaving you your down payment amount.

As mentioned above, there are fees to access bridge financing, as well as a daily interest rate. If the purchase of the next property completes the same day as the sale, then it is handled at the lawyer’s office internally and the funds are transferred accordingly.

The equity is yours to access right now. The lenders verify your equity with the conditions provided.

Here is an example of the timeline and fees of how the bridge loan scenario can be utilized:

Existing home sold, completing December 14, 2016 $600,000

Current outstanding balance $400,000

Equity remaining $200,000

New home purchase, completing November 30, 2016

The lender has approved the down-payment amount. Because the proceeds are still secured against the existing home we had to provide confirmation that the funds were available. We determined there was $200,000 by way of sales contract, subject removal addendum and the current mortgage statement.

The second layer to the bridge loan is the cost of borrowing the $200,000. Bear in mind the funds are still tied up in the existing property. The cost to borrow the $200,000 temporarily is Prime + 2% (daily rate) plus an administration fee of $250.

$200,000 x 4.70% / 365 (days) = $25.76 per day to borrow $200,000

There is a 14-day completion difference. The total cost to utilize a bridge loan is $360.64 (in interest) + $250 (admin fee) = $610.64.

All-in-all this is a very inexpensive and easy way to access the equity you have built up in your current home. Remember, lenders are in business of making money…this is simply a cost of doing business.

Be sure to surround yourself with industry professionals (like the mortgage brokers at Dominion Lending Centres) to make sure nothing is overlooked or miscalculated.

Written by:

MICHAEL HALLETT
Dominion Lending Centres – Accredited Mortgage Professional
20 Nov

Growing Cannabis – How Does it Impact Your Mortgage Approval?

Latest News

Posted by: Cody Rowe

As many of you already know, Canada just became the second country in the world to legalize marijuana for medical and recreational purposes.

Of course, this historic moment in Canadian history has cannabis activists jumping for joy while others are not s-toked on the idea.

With legalization comes the realities of growing your own pot at home which already has Global News giving Canadians a step-by-step guide on how to do so properly and legally — sorry Manitoba and Quebec!

We always have clients contacting us for restructuring advice on their current mortgages. However, through our initial discussions, we have found out that some have started growing pot plants within their homes.

Since this legislation is new to everyone, including the mortgage community, we had to do some research.

Prior to September 17, growing cannabis at home was a legal grey area. Mortgage wise, it was a red flag. Any home that has previously or is currently being used in the growing of cannabis was treated as a “grow-op” and as a result is NOT financeable.

[grow-op: a concealed facility used for marijuana plantation.]

Since legalization day on October 17, the federal government officially set a limit of four pot plants per household — NOT by person. This information DOES NOT have to be disclosed on a property disclosure UNLESS damage has occurred within the household because of cannabis cultivation.

Just as a FYI — ALL property owners should consult their realtor or lawyer about how to properly disclose when selling their household.
After talking to our local Canada Mortgage and Housing Corporation representative (CMHC), she notified us that mortgage insurers are currently leaving lenders to create their own policies on how to deal with marijuana plants and their effect on existing mortgages.

We contacted lenders about this ‘budding’ home-grown industry but were met with no answers.

This situation is certainly a waiting game and we’re all holding our breath waiting for the first move!

Let us share our advice.

If you are looking to sell your property or refinance your mortgage — get rid of those pot plants now!
Any home appraisal company can disclose in their report that cannabis is present within your home which could place your home on a list that DOES NOT foresee future sales or refinances.

It is your safest bet to keep your cannabis plant growth up to the licensed growers located across the country.
If you have any questions, contact your local Dominion Lending Centres mortgage professional.

 

Written by:

CHRIS CABEL
Dominion Lending Centres – Accredited Mortgage Professional
24 Oct

Thoughts on Today’s Rate Increase

Latest News

Posted by: Cody Rowe

POLOZ RATE HIKE HAD A HAWKISH TONE

As was universally expected, the Bank of Canada’s Governing Council hiked overnight rates this morning by 25 basis points taking the benchmark yield to 1-3/4%. This marked the fifth rate increase since the current tightening phase began in July 2017 (see chart below). The central bank stated it would return the overnight rate to a neutral stance, dropping the word ‘gradually’ that was used to describe the upward progression in yields since this process began. Market watchers will certainly note this omission. For the first time in years, the Bank has acknowledged it expects to remove monetary stimulus from the economy entirely.

So what is the neutral overnight rate? According to today’s Monetary Policy Report (MPR), “the neutral nominal policy rate is defined as the real rate consistent with output sustainably at its potential level and inflation equal to target, on an ongoing basis, plus 2% for the inflation target. It is a medium- to long-term equilibrium concept.” For Canada, the neutral rate is estimated to be between 2.5% and 3.5%, which implies that at a minimum, three more 25 basis point rate hikes are likely over the next year or so.

The Bank of Canada emphasized that the global economic outlook remains solid and that the U.S. economy is particularly robust, but is expected to moderate as U.S.-China trade tensions weigh on growth and commodity prices. The new U.S.-Mexico-Canada Agreement (USMCA) eliminated a good deal of uncertainty for Canadian exports, which will reignite business confidence and investment. Business investment and exports have been of concern in recent quarters, and the Bank is now looking towards a resurgence in these sectors, augmented by the recently-approved liquid natural gas project in British Columbia.

A continuing concern, however, is the decline in Canadian oil prices. Western Canada Select (WCS), a local blend that represents about half of Canada’s crude oil exports, has declined about 60% since July as global oil prices have risen (see chart below). WCS plunged below US$20 a barrel last week posting the biggest discount to West Texas Intermediate (WTI) on record in Bloomberg data back to 2008. WCS generally tracks heavy oil from Canada, which typically trades at a discount to WTI because of quality issues as well as the cost of transport from Alberta to the refineries in the U.S.

Canadian pipelines are already filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the U.S. or the Pacific Ocean is increasingly dragging down domestic oil prices. Oil-by-rail shipments to the U.S. are at an all-time high, but this is an expensive and potentially unsafe option and precludes Canadian oil exports to China and Japan.


An even broader concern is the impact of higher interest rates on debt-laden consumers. The Bank is well aware of the risks, as the MPR cited that “consumption is projected to grow at a healthy pace, although the pace of spending gradually slows in response to rising interest rates… Higher mortgage rates and the changes to mortgage guidelines are affecting the dynamics of housing activity. Housing resales responded quickly to the new mortgage guidelines, and the level of resale activity is expected to continue on a lower trajectory than before the changes. New home construction is shifting toward smaller units, although stronger population growth is estimated to raise fundamental demand for housing.”

Household credit growth has slowed, and the share of new mortgages with high loan-to-income ratios has fallen. The ratio of household debt to income has levelled off and is expected to edge downward (see chart below).


Low-ratio mortgage originations declined by about 15% in the second quarter of 2018 relative to the same quarter in 2017 (see charts below). The MPR shows that “while activity fell for all categories of borrowers, the drop was more pronounced for those with a loan-to-income ratio above 450%, leading to a decline in the number of new highly indebted households”.

Bottom Line: The Bank of Canada believes the economy will grow about 2% per year in 2018, 2019 and 2020, in line with their upwardly revised estimate of potential growth of 1.9%. The Bank asserts that mortgage tightening measures of the past two years have “reduced household vulnerabilities,” although the “sheer size of the outstanding debt means that vulnerability will persist for some time”. That is Bank of Canada doublespeak. What it means is expect three more rate hikes by the end of next year.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

17 Jun

MAKING SMARTER DOWN PAYMENTS

First-Time Buyers

Posted by: Cody Rowe

Mortgage Insurance Premiums. Many people know what they are- an extra cost to you the borrower. But not many people realize how they are calculated. Understanding the premium charges and how they are calculated will help lead you to making smarter down payments.

5%- 9.99% down payment of a purchase price is a 4% premium
10%- 14.99% down payment of a purchase price is a 3.10% premium
15%- 19.99% down payment of a purchase price is a 2.8% premium
So, that means with a $300,000 purchase price and a $30,000 down payment (10%), you would have a 3.10% premium added to your mortgage, making your total mortgage amount $270,000 + $8,370 for $278,370 total. The $8,370 being 3.10% of your original $270,000 mortgage.

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Now let’s say you have a down payment potential of $60,000 and have the income to afford a $350,000 purchase price but you found one for $325,000. Using your entire $60,000 down payment (18.46%), your new mortgage amount would be $272,420, where $7,420 of it represents the mortgage insurance premium.

But what if you change that $60,000 (18.46% down payment) to say $48,750 and have a down payment of exactly 15%? Well, your premium is still the exact same as it would be with an 18.46% down payment because your premium is still 2.8% of the mortgage amount. That means you will now save $11,250 (difference in down payments), while only paying $7,735 in premiums (an increase of $315).

I don’t know about you, but if someone told me I could put $11,250 less down and it would only change my insurance premium by $315, I am holding onto that money. You now have more cash for unexpected expenses, moving allowance, furniture, anything you want. You can even apply it to your first pre-payment against your mortgage and pay the interest down while taking time off your loan. Obviously if cash is not an issue, putting the full $60,000 would be better seeing as you are borrowing less and paying less interest. However, if cash is tight, why not hold onto it and pay that difference over the course of 25 years?

Reach out to us when it comes to structuring your mortgage request with a bank. It is small little things like this that make all the difference.

Written by:

RYAN OAKE
Dominion Lending Centres – Accredited Mortgage Professional