The DON’Ts Between Waiving Conditions And Possession Date.

General Carola Singer 12 Dec

 So you have your conditions waived and your contract is binding for the purchase of your new home. You think this is awesome. Now I can go and buy that new truck and furniture and I’m lease the truck. The furniture company is giving me an amazing deal with buy now/pay later. You get your loans and feel great. Then you get a call from your mortgage lender telling you: sorry you no longer qualify with your new debts.

Can they do that? Yes they reserve the right to do another credit check and employment check just before possession and can decline you at that point. Is it right? No, cause you could go the day after possession and take out the same loan without having to jump through the whoops. But these are the lender rules.

Here are some pointers what to NOT do between condition waiving and closing:

  1. Don’t take on any new loans or max-out credit cards and lines of credits! A $400 monthly payment will decrease your mortgage power by about $70,000 depending on income. You say, well I will just through it on my interest-only line of credit. With rule changes over the years we are not allowed to use interest-only payments. For an unsecured line of credit we have to use a 3% debt payment. So if you have a $10000 balance, we have to use a $300 payment for that and yes it can affect your numbers.
  2. Don’t quit your job before possession! This can be doable on the strength of the overall file but will require an exception with the lender. If you are transitioning into a different job at a different company the lender might grant an exception. It will certainly make things a little more complicated and hopefully your exception is granted. If at all possible wait with a job change til after possession so you don’t compromise your closing and may lose your deposit.
  3. Going from employed status to self-employed status. Both of these are qualified completely different by lenders. For traditional lenders you need an average of two years as self-employed. So you may no longer qualify with your lender and we have to look for a different lender who will work with the new status. This could completely change the dynamic of your application and jeopardize qualifying.

If you cannot close your purchase anymore because of any of the above reasons you can lose your deposit and the seller can take you to court for any losses on their end.

It’s best to leave any of these til after taking possession. You will save yourself a lot of stress. If anything you should talk to your mortgage expert if you are thinking about doing any of the above. A good mortgage expert should tell you all the implications a decision like this might have.

Keep it simple and don’t change anything from condition waiving to closing the deal .

Nuf said.

 

Cannabis Legalization, Mortgages and Homeownership

General Carola Singer 14 Oct

What homeowners and property investors need to know?

With the legalization of Marijuana in just a couple of days there are a lot of questions for homeowners and landlords about its mortgages or legalities. Will some mortgage rules with banks change with its legalization?

What are the lenders positions on mortgages on properties that may have been grow ops?

CMHC will continue to insure mortgage loans for homeowner residential properties where cannabis will be legally grown. CMHC will also monitor the impacts of the Cannabis Act on mortgage loan insurance activities over the long term.  What does that mean? It means they reserve the right to say yay or nay depending on the overall situation.

I hear it more than once: I got a really great deal on purchasing a remediated grow-op. What most people don’t know: A lot of lenders have stopped financing remediated grow-ops. There are a few select lenders who will consider them case by case. When I mean a few, I mean the selection is much slimmer and sometimes a more costly option, due to some lenders adding premiums to the mortgage rates for these. It is up to their discretion to do so and the borrower is limited for financing options.

Can a landlord restrict tenants from growing cannabis or smoking cannabis in their properties?

If you are an investor it would be worth your while to consult with a real-estate lawyer what your options are on prohibiting cannabis on your property. You may want to revise your lease agreements for existing tenants as well.

With this change there will be lots of questions and uncertainties. Changes may still happen as lenders are watching the effects. You will want to have a team of licensed professionals (realtors, mortgage brokers, lawyers, insurance agents etc) with their fingers on the pulse and who will be able to advise you with the proper information. This will set you up for success and avoid unnecessary big costs.

Not All Variable Mortgages Are Created Equal

General Carola Singer 12 Jun

Did you know not all variable mortgages are created equal?

Even if they look the same from the outside with the same rate there could be important factors that will affect the overall cost of that mortgage.

How could that be? Well there are different types of variable mortgages. Some have restrictions, different prepayment options and different compounding.

Things to watch out for:

  • bonafide sales clause: some no frills mortgages have a greater rate discount however the only way to exit that mortgage is to sell your home. Some allow you to only refinance with that lender which might not have the most competitive rate or product at that time
  • additional discharge fee: again they may have a better rate for display but there are some no frills products that will tag on a 2.75% fee on the mortgage amount if you break the mortgage early. 6 out of 10 break their mortgage after 3 1/2 years. So this could be costly. A typical non restricted variable mortgage payout penalty is 3 months interest.
  • lower prepayment options: with most mortgages you are allowed to apply an extra 15-20% per year prepayment to the mortgage. Most of them have flexibility on how you do this as well. Some of the restricted variable mortgages only allow 10% and only on the anniversary.
  • interest compounding: you could have 3 different lenders with the same variable mortgage rate, yet they all have a different effective rate because the way they are compounded:
    • lender A: compounds the interest semi-annually in advance which is the most cost effective
    • Lender B: compounds the interest monthly in advance (typically most of the Big 5)
    • Lender C: compounds the interest according to your payment frequency. Example: if you change your payment to biweekly accelerated to pay down your mortgage quicker, the lender will now compound your interest biweekly. Sneaky I know. We know of at least one major bank that’s doing that.

When you get your mortgage through a licensed mortgage associate this will be disclosed up front as we are accountable to our regulators. This is not the case for customer service reps facilitating mortgages at branch level. So you have to make sure you really read and understand the small print as some of the details explained above.

Making sure you are in the right mortgage product is crucial. You don’t want to find out you got the lowest rate but it cost you $15000 to break the mortgage 3 years down the road.

You don’t plan to break the mortgage! Most people don’t yet 6 out of 10 do. Life happens: divorce, job change, job loss, transfers etc). Life is variable so should be your mortgage!

You say this sounds really complicated. Well it can but it doesn’t have to be.

Let me be the expert for your mortgage so you don’t have to be!

 

My Renewal Isn’t Up For Another Year…

General Carola Singer 14 May

Famous last words. If you knew last year that rates would go up as much as they did, would you have broken your term and renewed early at a lower rate. Of course you would have if we would have had that crystal ball and foreseen the future.

Why it’s good to talk to your mortgage broker about 12 months before your maturity date:

  • You might need to incorporate different strategies like a renovation, a move or purchasing another home down the road.
  • To take you to a new lender we can hold their rate between 90 and 120 days from renewal. When rates are on an upward trend this will protect you for the renewal date.
  • Maybe you want to stay with your current lender and we can negotiate an early renewal.
  • Even if you are in a fixed term your payout penalty is most likely 3 months interest and can be capitalized into an early renewal if you switch lenders. And if not we can just be proactive and keep an eye on it. This might be an opportunity to switch into a more flexible variable rate (lower rates than fixed, lower payout penalties)

Why would you switch into a variable rate when Prime keeps going up?

The variable rate is a combination of Prime Rate and a discount the lenders will give you. What does this have to do with renewals?

  • In January 2017 Prime was set at 2.70% and a typical discount was around 0.50% so if you took a variable rate out your mortgage rate was 2.2%. Currently on May 14, 2018 Prime sits at 3.45%. The discount lenders give on a variable is in the ball park of Prime -1%, so effectively 2.45% for a mortgage rate.
  • To break a variable mortgage and early renew your payout penalty will be 3 months interest unless you are in one of those restricted no-frills mortgages.
  • What am I saying? If your mortgage is variable and your discount is currently less than 0.50% of Prime, it doesn’t matter if you have 3 years left on your term, it would be worth your while to see if it would make sense to early renew with a much better discount.

This is why I like variable mortgage rates because of this kind of flexibility.

Clear as mud? Does this sound confusing? Did I lose you with all the numbers? Just give me a call and I walk you through it. No mortgages are one-size-fits all.

 

Take Advantage of your RRSP for Mortgage Qualifying

General Carola Singer 10 Jan

With increasing home prices it can be overwhelming to think about saving the minimum 5% downpayment required to qualify for a mortgage.

With the Home Buyers Plan an RRSP is a great vehicle to capitalize on some perks that help accelerate this process. Why not take advantage of some double dipping.

Now is a great time to review this as we have until February 28, 2018 to max out our contributions for 2017.

First let’s look at how RRSP contributions work?

  1. Contribution limits are calculated at 18% of the prior year’s reported earned income.
  2. RRSP contributions within the first 60 days of the tax year may also be used as deduction for the previous tax year. The savings depend on the tax bracket.
  3. Some employers will match contributions or even offer a group RRSP plan. Take advantage of it!

How does the Home Buyers Plan work?

  1. A borrower can borrow up to $25000.00 single or $50000/couple tax free from one’s RRSP for a downpayment as long as one hasn’t been a home-owner for five years.
  2. The funds have to stay in the RRSP for 90 days before withdrawal.

How can you make the most of it?

  1. Some employers match contributions or offer group RRSP plans . Can you say free money? Take advantage of it!
  2. You increase your savings by increasing your tax refund and either add it to the RRSP or pay down an RRSP loan. Take advantage of it!
  3. RRSP loans can be used to maximize your contribution and tax savings.

 

Example:  Fast-tracking your downpayment with a $5000 RRSP loan. Borrower with 32% tax bracket makes $250/month RRSP contribution. Employer matches contribution 1:1. 

  • $8000 Yearly contribution by borrower
  • $3000 Yearly matched employer contribution (this could vary depending on the employers cap on contribution)
  • $11,000 Total RRSP balance
  • $5000 RRSP loan
  • $2560 Tax savings applied as RRSP loan payment
  • $2440 remaining RRSP loan balance 

You will save up for a downpayment a lot quicker than with a regular savings account. This strategy might help to become a homeowner sooner.

What if you also got a $5000 gift from a parent on top of this to help you out? $16000 as a 5% downpayment could put you into a $320000 purchase oac.

What if you and your spouse both did this? $22,000 as a 5% downpayment could put you into a $440000 purchase oac.

Maybe you are closer to qualifying for a mortgage than you think. Let’s have a conversation!

Feel free to contact me!

Don’t leave money on the table!

Canadian Home Buyers Plan Link

It is important to seek advice from licensed professionals (financial planner, accountant, mortgage broker) for your own scenarios.

Should I Stay Variable Or Lock In?

General Carola Singer 12 Sep

Yes there have been two increases to Prime by Bank of Canada this Summer. The question a lot of people have is whether to lock in or stay in a variable mortgage rate.

Here are some considerations:

  • If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a great place to be.
  • If your discount from Prime is 0.25% or less then depending on which lender you are with you may consider locking into a fixed rate, BUT (yes it’s a big BUT):
  • The penalty to prepay (example: refinance or sale of property) a variable is typically 3 months interest which is about 0.50% of the mortgage balance. Whereas the penalty for a 4yr/5yr or longer fixed rate mortgage the mortgage penalty can be almost 4.5% of the mortgage balance depending which lender you are with and what term you are in. So switching from a variable to a fixed could be costly in the long run if you need to break that mortgage down the road. CHOOSE WISELY!
  • Before locking in there are many questions to ask, most the lenders will not ask you. Since your lender is re-active, you need to be pro-active. That could mean not to take action at all.
  • The benefit to lock in is mostly the lender’s not yours. Once you lock in they have much more of a ransom (penalty) on you.

We had two recent rate increases. Wouldn’t it mean there will be more on the way? 

Not necessarily.

Depending if the government had overstepped with the rate hikes there could be a pullback within the next 6 to 12 months. In 2010 rates increased 0.25% three times and then didn’t move up further for 5 years, after which it was decreased twice by 0.25%.

So last time Prime was pushed to todays level it remained there for 5 years before it was cut.

Food for thought.

The next Bank of Canada meeting is October 25, 2017. I will be watching and waiting. Remember, BE PROACTIVE!

 

Is It Worth It To Port Your Insurance Premiums?

General Carola Singer 20 Jan

Did you know you can port your mortgage insurance (CMHC, Genworth or Canada Guaranty) premiums even if you break the current mortgage for a better rate? You may be upsizing and add more money to your mortgage. Most people think they have to pay the premium on the whole mortgage amount again if they don’t have 20% downpyament. Not necessarily. 

When you add to the mortgage you can have your mortgage broker check with the underwriter if it’s more economical to pay the topup premium or redo it. Even though the topup premium percentage is higher it could still be cheaper depending how much the topup amount is. 

Checking this avenue can save you thousands of dollars. I just recently did a scenario with a borrower where the topup was $9322 versus $18000. That’s just about half. Does it workout like that every time? Not always but there is nothing to lose. It’s a win-win to check. 

Most borrowers don’t know this and my guess is that not every CSR or mortgage broker thinks of this either. 

If you have any questions I’m just a phone call away. 

Why I Favor Variable Rates!

General Carola Singer 12 Jan

Up until October 2016 there was an advantage of choosing a 5 year fixed rate over some of the other terms. The advantage was that one could qualify at the discounted rate for a mortgage versus the Benchmark Rate set by the Bank of Canada. At the time that was a 2 percent difference and gave borrowers a lot more buying power. October 17th came and with new regulations that advantage went away unless the mortgage is conventional. So now all insured mortgages no matter what term are qualified at the Benchmark Rate.

Statistically 60% of borrowers break their 5 year mortgage term after 3 1/2 years and have to pay a penalty. When you have a fixed term the penalty is based on the interest rate differential which means the difference between the existing mortgage rate and rate for the remaining time left on the term. If you are with a bank that can be expensive as their penalties are sometimes as much as quadruple of straight mortgage lenders because they incorporate the discount they gave you for the discounted. But some of the products the banks have are really good and depending on what the borrower is looking for, the best fit. How can we avoid those penalties?

Well this is one of the reasons why I favor variable rates but there are a couple altogether:

1. The penalty on a variable rate mortgage is typically 3 months interest, no matter when you break it in the term, unless it is specialty product with restrictions. In that case that should be disclosed up front before making a final decision. But this is a huge difference.

2. Statistically people fare better with variable rates

3. Variable rates do NOT go up with fixed rates. Variable rates fluctuate with Prime going up or down which is set by Bank of Canada throughout the year in eight meetings. Fixed rates go up or down depending on bond rates. 

4. With fixed rates recently having gone up, the variable rate is still lower.  You can set your payment higher as if you had a fixed rate and apply the difference of the fluctuations to the principal.

If you have any questions feel free to contact me

12