20 Nov

Growing Cannabis – How Does it Impact Your Mortgage Approval?

General

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

General

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
19 Feb

Improving Your Credit Score

General

Posted by: Cody Rowe

Your credit score is a big factor when you apply for a mortgage. It can dictate how good your interest rate will be and the type of mortgage you qualify for.

Mortgage Professionals are experienced helping clients with a wide range of credit scores so we can find you a mortgage product even if your credit is far from perfect.

The good news about your credit score is that it can be improved:

  • Stop looking for more credit. If you’re frequently seeking credit that can affect your score as can the size of the balances you carry. Every time you apply for credit there is a hard credit check. It is particularly important that you not apply for a credit card in the six months leading up to your mortgage application. These credit checks may stay on your file for up to three years.
  • If your credit card is maxed out all the time, that’s going to hurt your credit score. Make some small monthly regular payments to reduce your balance and start using your debit card more. It’s important that you try to keep your balance under 30% or even 20% of your credit limit.
  • It’s also important to make your credit payments on time. People are often surprised that not paying their cell phone bill can hurt their credit score in the same way as not making their mortgage payment.
  • You should use your credit cards at least every few months. That’s so its use is reported to credit reporting agencies. As long as you pay the balance off quickly you won’t pay any interest.
  • You may wish to consider special credit cards used to rebuild credit. You simply make a deposit on the card and you get a credit limit for the value of that deposit. They are easy to get because the credit card company isn’t taking any risks.

Contact a Dominion Lending Centres Mortgage Professional if you have any questions.

TRACY VALKO
Dominion Lending Centres – Accredited Mortgage Professional
Tracy is part of DLC Forest City Funding based in London, ON.