13 Apr

The Two Types of Mortgage Penalty Calculations

Mortgage Tips

Posted by: Jordan Thomson

THE TWO TYPES OF MORTGAGE PENALTY CALCULATIONS

The Two Types of Mortgage Penalty Calculations

We have all heard the horror stories about huge mortgage penalties. Like the time your friend wanted to refinance her home so that she could open a small business only to find out that it was going to cost her a $13,000 penalty to break her mortgage. This should not come as a surprise. It would have been in the initial paperwork from the mortgage lender and seen again at the lawyer’s office. A mortgage is a contract and when it is broken there is a penalty assessed and charged. You will have agreed to this. The institution that lent the money did so with the expectation that they would see a return on that investment so when the contract is broken there is a penalty to protect their interests. If you think about it, there is even a penalty to break a cell phone contract so the provider can recoup the costs they incurred so it stands to follow that of course there would be a penalty on a mortgage.

The terms of the penalty are clearly outlined in the mortgage approval which you will sign. The onus is on you to ask questions and to make sure you are comfortable with the terms of the mortgage offer. With so many mortgage lenders in Canada, you can very easily seek out other options if needed.

There are two ways the mortgage penalty can be calculated.

1. Three months interest – This is a very simple one to figure out. You take the interest portion of the mortgage payment and multiply it by three.

For instance: Mortgage balance of $300,000 at 2.79% = $693.48/month interest x 3 months or $2080.44 penalty.

OR

2. The IRD or Interest Rate Differential – This is where things get trickier. The IRD is based on:

  • The amount you are pre-paying; and,
  • An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

In Canada there is no one size fits all in how the IRD is calculated and it can vary greatly from lender to lender. There can be a very big difference depending on the comparison rate that is used. I have seen this vary from $2,850 to $12,345 when all else was equal but the lender.

Things to note:

  • You will be assessed the GREATER of the 2 penalties.
  • You should always call your lender directly to get the penalty amount and do not rely on online calculators
  • You can avoid the penalty by porting the current mortgage if you are moving or waiting until the end of the term
  • A variable rate mortgage is usually accompanied by only the 3 month interest penalty

Given that 6/10 mortgages in Canada are broken around the 36 month mark, wouldn’t it be better to find out before you sign how your mortgage lender calculates their penalty just in case??…and the best way to get more information is to contact you local Dominion Lending Centres mortgage professional.

 

Thanks to DLC’s Pam Pikkert for this article.

11 Apr

Residential Market Commentary-week of April 10, 2017

Latest News

Posted by: Jordan Thomson

Residential Market Commentary – week of April 10, 2017

Apr 10, 2017, 11:03 AM by Joelle Park

Policymakers and market watchers are keeping a very close eye on the Greater Toronto Area.  There are increasing calls for some sort of government intervention to slow down price acceleration in the GTA.  March saw prices jump more than 33% year-over-year.  The average price for a home, of any type, is now $917,000.  The average price for a detached home has hit $1.21 million.

When faced with stunning and often troubling numbers like these it is helpful to take a step back and look at the bigger picture.  Toronto and the other unrealistically hot market, Vancouver, do not reflect the Canadian market as a whole.  While they continue to get the headlines and exert an undue influence on “national averages” another market that had been a concern is quietly getting back to normal.

There had been worries about a collapse in Alberta because of falling oil prices and the Fort McMurray wildfire.  But the latest figures from the real estate boards in Calgary and Edmonton suggest the province’s housing market is recovering.  Sales are returning to historical averages, new listings are growing and prices are increasing in step with inflation.

10 Apr

Noisy Neighbours: The Law Behind Condo Noise Complaints

General

Posted by: Jordan Thomson

Noisy Neighbours: The Law Behind Condo Noise Complaints

Do you have noisy neighbours disturbing your peace? Or perhaps you want to play music but are getting complaints? Strata law expert Neil Mangan has advice from all the angles

Neil Mangan Velocity Legal

October 27, 2014
Noisy neighbours

Of all the compromises that come with condo ownership, living with noise might be the biggest. Whether you have a neighbour with creaky hardwood floors or a penchant for practicing freestyle clarinet solos or late-night acrobatics, you know all too well how noise can affect your life.

Although most strata corporations have bylaws restricting noise and other forms of nuisance, it can be difficult for owners and strata councils to figure out when the noises of everyday life cross the line and become legitimate complaints.

Most noise complaints come down to a conflict between how owners wish to use their properties and how different noises travel in buildings. For example, one owner may want to use their spare bedroom as a 24-hour home gym while the person living below can hear every footstep above their bedroom. When both owners have a right to live and use their property, who is responsible to change their behavior or expectations?

From a legal perspective, making a noise that impacts another person’s quiet enjoyment of their property can be considered nuisance. The challenging comes down to figuring out what level or noise or interference is reasonable. We all experience life subjectively and what bothers one person may be entirely acceptable to another.

In British Columbia, the courts will normally try to establish whether the level of noise is objectively reasonable to the average person. The courts will look at the nature and frequency of the noise as well as the nature of the neighbourhood and the property. When a neighbourhood changes over time, this too must be taken into account.

If you believe that a neighbour’s noise is affecting your ability to enjoy your home, look for ways to create evidence in support of your noise complaint. Take recordings of the noise if you can. Keep a journal of the timing, frequency and nature of the disturbances. You may also want to hire an acoustic engineer to measure the level of the noise and compare it to normal levels, verify the source and propose modifications in behavior or building construction.

At the other end of the scale, if you receive noise complaints, ask for specific details about the type of noise and the timing of the incident. Your strata corporation has a statutory obligation to provide you with specific details about the alleged offence. If you want to challenge a noise complaint, remember that you will need to show the strata council, and potentially the courts, that you were not engaging in any unusually noisy activities given the time of the complaint. If the issue persists, consider working with your neighbour and strata corporation to come to an agreeable solution.

If you are a member of a strata council dealing with noise complaints, avoid jumping to conclusions and take the time to investigate the complaint. Your strata corporation has a statutory duty to enforce the bylaws, make reasonable decisions and provide owners with a fair adjudication process.

While a late-night party or barking dog are obvious problems, many persistent noise issues are structural in nature. Your strata corporation is responsible for the repair and maintenance of common property between strata lots, and if the common property is a contributing factor in the transmission of noise between strata lots, the strata corporation may have a duty to repair or minimize the transmission of sound.

The simplest and most cost-effective way to resolve noise disputes is to work with neighbours and strata council to determine whether the noise is normal and to look for ways to minimize the disturbance.

If extending an olive branch doesn’t work, you may have legal remedies. Most of the time, owners have a right to the quiet enjoyment of their property. If you believe that your neighbour or your strata corporation are failing to respect your rights, or are unfairly targeting you, speak with a strata lawyer to review your matter and provide you with qualified legal advice.

For additional information on this and other strata property topics, visit my free online strata law guide at www.stratalaw.ca. Finally, always remember that this article provides general reference information, not legal advice. If you have a legal problem, always speak with a lawyer.

5 Apr

What About My Mortgage Pre-Approval

Mortgage Tips

Posted by: Jordan Thomson

What About My Mortgage Pre-Approval

Although going through the pre-approval process is important, the actual term ‘pre-approval’ is often misunderstood.

An important point to be clear on is that while you may be pre-approved for a certain mortgage amount, there are several variables that can derail a final approval once you write an offer on a property. As such it is imperative that offers include a condition (or ‘subject’) clause along the lines of ‘subject to receiving and approving satisfactory financing’.

This is arguably the single most important clause in a contract (an inspection being a close second), because without the financing, how will you complete your purchase?

The pre-approval process should be considered more of a personal pre-screening process than anything. It should include a lender review of a current credit report and review of all required income and down payment documents. You should have a clear understanding of the maximum mortgage amount you qualify for along with clarity on the various related costs involved in your specific transaction.

With most lenders pre-approvals involve no formal live review of documents, but your Mortgage Broker can preview them to catch any significant areas of concern such as:

  • Unfiled taxes
  • Unpaid taxes
  • Employment still in a probationary period
  • Clarity around down payment origins

Ultimately the property forms a significant part of a mortgage approval, and so until an offer is written on a specific property, no true approval can be offered.

Furthermore, government changes to lending guidelines and policies can render a pre-approval invalid just a few days later, without warning. Pre-Approvals are not always grandfathered when the lending rules change.

So yes, request a pre-approval, as it gives you a good idea as to your maximum mortgage amount and locks down a rate for you. Always a worthwhile endeavour. It may also allow you to address a few smaller issues with ample time prior to writing your offer. Small issues today can be big issues when in the middle of a live transaction.

Bottom line, please be aware that aside from these key advantages, a pre-approval is not a guarantee of mortgage financing.

5 Apr

Advice for Single Homebuyers

Mortgage Tips

Posted by: Jordan Thomson

ADVICE FOR SINGLE HOMEBUYERS

Advice for Single Homebuyers

More than a third of first-time homebuyers in Canada are single. If you’re thinking of joining this group, here’s what you need to do and know before jumping into homeownership.

Study the market.

Identify neighbourhoods you want to live in and check to see how much properties in that area are selling for.

Next, figure out how much you can afford. Remember to include estimates for property tax, utilities, insurance and any other expenses you don’t pay as a renter (condo fees, for example). Start with this calculator.

Assemble your team.

A home purchase should involve financial, legal and real estate professionals. Before first-time homebuyers start exploring properties, they should get a copy of their credit report (www.equifax.ca) and examine it closely.

If there is a history of missed or late payments, both of which can bring your number down, start a plan to change your standing by making regular payments on time. (Caution: there is no quick fix for a credit report; beware of companies that offer to change or “fix” yours for a fee.)

If you don’t already work with a financial advisor, consider booking a meeting with one. Reviewing your entire financial picture—debts and assets, insurance and investments, as well as budgets—is something that a professional can help you understand and offer strategies to improve.

Ramp-up savings.

Pare back expenses before making a home purchase. Why? Finalizing the deal on homeownership will include one-time expenses (closing costs and land transfer taxes, for starters) that need to be paid before move-in day. Homeownership will also bring new on-going expenses (such as property tax and utilities).

Subtract what you currently pay for housing from the estimated cost of living in the new home. Put the difference in a high-interest savings account. Here is a test: if you can make that payment every month, then you likely can afford the home you have your eye on. For tips on creative ways to save for a down payment go to read:

Consider help from family.

According to a recent Genworth Canada First-Time Homeownership Survey, first-time homebuyers in Toronto and Vancouver tend to have higher down payments than buyers in other parts of the country. That is due partly to larger savings of buyers in those areas, but also to larger gifts and loans from family.

A gift or loan from family can be a great help, but this is an arrangement that shouldn’t depend only on a hug and a handshake. Consider drawing up a contract spelling out the specifics of the deal.

How much money is being provided? Does it need to be paid back and, if so, when? If your family member will be sharing the home with you, how much will each of you be putting towards regular expenses, the down payment, or the closing costs? In whose names will the utility bills be set up, and whose name will be on the property title?

Hire a lawyer to do this paper work. That doesn’t have to involve many billable hours, especially if, before meeting the lawyer, you have an open conversation with your family and agree on answers to the above.

Another avenue worth exploring is the Genworth Canada Family Plan, which is meant to help another family member get into a home for a variety of reasons, including a parent who wishes to help an adult entrepreneurial child buy a home, or a parent helping to buy a home for an adult child at a post-secondary educational facility. With the Family Plan it’s important to note that the individual occupying the home must be on title to the property along with the co-applicant. This is not intended for use as a secondary dwelling. The down payment must be from their own resources, so gifts are ineligible.

Protect yourself

Although 35% of first-time homebuyers are buying on their own, many will partner up later.

If you start a relationship and allow another person to move into your home, that person may eventually have legal rights in relation to your home. How does that happen? If you live together long enough, you and your partner may become common-law spouses and that may trigger rights and responsibilities for you both.

When do you and your partner go from couple to common-law? The amount of time you spend living together is the main determining factor and varies from province to province.

How can first-time homeowners protect themselves? With an honest conversation about expectations and specific responsibilities. The main question is what will happen to the home if you split up? Consider a cohabitation agreement (again, with the help of a lawyer) to cover everything you agree to verbally.

Make sure to also outline the nitty-gritty details of day-to-day finances: how will you split the regular bills and when will they be paid? Which one of you will be responsible for making sure those payments are made on time? If there is a major expense, such as a roof repair or furnace replacement, will you both contribute?

For more tips on creative ways to save for a down payment go to www.homeownership.ca and speak with your Dominion Lending Centres mortgage professional.

 Thank you to Marc Shendale- Genworth Canada for these tips!
3 Apr

Banks & Credit Unions vs. Monoline Mortgage Lenders

Mortgage Tips

Posted by: Jordan Thomson

BANKS & CREDIT UNIONS VS MONOLINE LENDERS

Banks & Credit Unions vs Monoline Lenders

We are all familiar with the banks and local credit unions, but what are monoline lenders and why are they in the market?

Mono, meaning alone, single or one, these lenders simply provide a single yet refined service: to fulfill mortgage financing as requested. Banks and credit unions, on the other hand, offer an array of other products and services as well as mortgages.

The monoline lenders do not cross-sell you on chequing/savings account, RRSPs, RESPs, GICs or anything else. They don’t even have these products and services available.

Monolines are very reputable, and many have been around for decades. In fact, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders source their funds from the big banks in Canada, as these banks are looking to diversify their portfolios and they ultimately seek to make money for their shareholders through alternative channels.

Monolines are sometimes referred to as security-backed investment lenders. All monolines secure their mortgages with back-end mortgage insurance provided by one of the three insurers in Canada.

Monoline lenders can only be accessed by mortgage brokers at the time of origination, refinance or renewal. Upon servicing the mortgage, you cannot by find them next to the gas station or at the local strip mall near your favorite coffee shop. Again, the mortgage can only be secured through a licensed mortgage broker, but once the loan completes you simply picking up your smartphone to call or send them an email with any servicing questions. There are no locations to walk into. This saves on overhead which in turn saves you money.

The major difference between a bank and monoline is the exit penalty structure for fixed mortgages. With a monoline lender the exit penalty is far lower. That is because the banks and monoline lenders calculate the Interest Rate Differential (IRD) penalty differently. The banks utilize a calculation called the posted-rate IRD and the monolines use an IRD calculation called unpublished rate.

In Canada, 60% (or 6 out of every 10) households break their existing 5-year fixed term at the 38 months. This leaves an average 22 months’ penalty against the outstanding balance. With the average mortgage in BC being $300,000, the penalty would amount to approximately $14,000 from a bank. The very same mortgage with a monoline lender would be $2,600. So, in this case the monoline exit penalty is $11,400 less.

Once clients hear about this difference, many are happy to get a mortgage from a company they have never heard of. But some clients want to stick with their existing bank or credit union to exercise their established relationship or to start fostering a new one. Some borrowers just elect to go with a different lender for diversification purposes. (This brings up a whole other topic of collateral charge mortgages, one that I will venture into with another blog post.)

There is a time and a place for banks, credit unions and monoline lenders. I am a prime example. I have recently switched from a large national monoline to a bank, simply for access to a different mortgage product for long-term planning purposes.

An independent mortgage broker can educate you about the many options offered by banks and credit unions vs monolines.

 

Thanks to DLC’s Michael Hallett for this information.