Alternative mortgages are a great option if you have been bankrupt, have bad credit, a “life event” has occurred, you no longer qualify for a refinance of your existing mortgage….the list goes on. But do know there ARE SOLUTIONS!
Think of your credit score as a report card on how you’ve handled your finances in the past. A credit score is a number that lenders use to determine the risk of lending money to a given borrower.
There is always someone willing to lend you money however, higher risk = higher rates!
Step 1 for good credit – you need to know your credit history
• In Canada there are 2 credit bureaus – Equifax and TransUnion.
• You can receive a FREE copy of your credit report from both Equifax Canada and TransUnion Canada once a year
• You can pay Equifax or TransUnion for a digital copy, which is much faster, BUT you have to pay, which sucks.
I recommend you order a copy of your credit report from both Equifax Canada and TransUnion Canada, since each credit bureau may have different information about how you have used credit in the past.
Ordering your own credit report has no effect on your credit score.
• Equifax Canada refers to your credit report as “credit file disclosure”.
• TransUnion Canada refers to your credit report as “consumer disclosure”.
Once you have obtained your free credit report, check it for errors:
• Are there any late payments that have been erroneously attributed to your credit history?
• Are the amounts owing in your credit report accurate?
• Is there anything missing on your credit bureau
o Sometimes the credit bureau has more that one file with your name, which can be merged, but it takes time.
If you find any errors on your credit report, you need to dispute them with your credit bureau.
How can I get a copy of my credit report and credit score?
There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.
Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved.
The “free-report-by-mail” links are not prominently displayed, since credit bureaus would love to sell you instant access to your report and credit score online.
Equifax, the instructions to get a free credit report by mail are available here.
For TransUnion, the instructions to get a free credit report by mail are available here.
The bottom line: when it comes to financing your life, through credit cards, mortgages, car loans or any other kind of debt – your credit score has a BIG impact on what kind of terms you can negotiate.
Keeping an eye on your credit score is important — if there’s a problem or an error, you want to know and have time to fix it before you apply for a loan. If you have any questions, please feel free to give me a call at 604.725.1607 or email email@example.com.
Thanks to DLC’s Kelly Hudson.
Last year a third of mortgage holders in Canada chose to pay their mortgages aggressively, which is to say they paid more than the amount required. And the numbers were higher for those who bought their properties after 2013.
Instinctively it would make sense to pay off your mortgage as quickly as you can, to reduce your debt and to build up more equity in your home in case you wanted to borrow against it.
But this isn’t always the case.
When does paying your mortgage aggressively make sense?
Canwise Financial President James Laird identified three kinds of people for whom an aggressive payment plan would be prudent.
The first are people who have mortgages with a high interest rate, since any additional payments (also known as prepayments) go towards reducing the principal. This will lower payments faster and puts you in a better negotiating position when the time comes to refinance.
The second kind are people with access to a Home Equity Line of Credit (HELOC), which can be used as their emergency fund. In that case, the money you’d otherwise put away for unexpected purchases might as well go towards your mortgage.
The third group are people uncomfortable with other investment vehicles like stocks and bonds. The big positive to paying a mortgage down aggressively is that it entails zero risk. And it’s better than letting the money sit under the mattress.
Renee Dadswell, Mortgage Trainer at Mortgage Professionals Canada and a mortgage agent at The Mortgage Station, added one more category of people well-suited to aggressively paying down their mortgage: those with refinanced mortgages where the money was used to purchase items with a shorter lifespan, like a car. “You don’t want to be paying for the car 15 or 20 years later when you don’t even own it anymore,” says Dadswell.
When does paying your mortgage aggressively not make sense?
“If you have a super low rate, don’t rush to pay it back,” Laird recommends. “It’s cheap money. Take advantage of it.”
Another instance where paying a mortgage down aggressively would be unwise is when the property in question is a rental property or houses a home-based business. “A portion of the interest (on rental properties and homes with home offices) are tax deductible,” says Dadswell. “In these cases, aggressive payback could have very negative tax effects.”
A third argument against an aggressive mortgage payback plan is if you can find another investment that gives you a better return. “If you put $100,000 into your 3.00% mortgage, you save $3,000 next year,” says Laird. “If you made a 5% return on that $100K instead, you could put that $3K towards your mortgage next year and still have $2K left over.”
How could you pay your mortgage more aggressively?
Like with anything else, how your money goes out should be a function of how it comes in.
If you’re a salaried employee and just got a significant pay raise, you could choose to increase your regular payments and direct that extra money towards the principal.
If your extra money comes to you as a year-end bonus or an owner’s dividend, you could choose to make a yearly lump-sum payment towards the principal.
Note that many full-featured mortgages come with flexible prepayment options that allow the borrower to increase their monthly payments by up to 100%, and allow for annual lump sum payments of up to 25% (though typically between 10-20%).
Either way, Dadswell offers this word of caution: “The goal of living in a house is to enjoy it and make memories in this home. If your budget is so tight that you cannot enjoy the house as a home, you will regret the purchase,” she said.
“A mortgage will most likely be your largest debt,” says Laird. “The payment schedule will inform the rest of your financial life, from your monthly budget to RRSP/RESP planning to how much you can save.”
Both Laird and Dadswell agree that a consultation with a mortgage broker and your financial planner should happen before putting an aggressive mortgage payback plan in place.
“You’ll get the right perspective on your goals and how putting more towards your mortgage will impact those goals,” says Laird.
And when you’re contemplating having less money in your pocket at the end of the month or year, the right perspective is a good thing.
Canadian Mortgage Trends
Many homeowners are vaguely aware of the fact that you can take out a second loan on your home. You hear your friends mention it or perhaps a family member close to you has gone through the process—but do you truly know what it means to take out a second mortgage? We have taken all the questions we get asked about second mortgages and compiled it into four key points. They can be useful when you require extra funds for debt consolidation, CRA payouts or money in a hurry.
A SECOND MORTGAGE IS BASED ON THE EQUITY IN YOUR HOME
The total loan amount that the second mortgage lender will offer you will depend on the equity that has been built up in your home. Second mortgages allow you to access up to 95% of the equity you have in your property. For instance:
House Value $850,000
95% LTV (maximum mortgage amount) $807,500.00
First Mortgage $550,000.00
Amount Available Through Second $257,500.00
INTEREST RATES WILL VARY AND BE HIGHER THAN YOUR FIRST MORTGAGE
This is because when a lender agrees to a second mortgage, they are taking a higher risk as he gets second priority in case of default. With that being said, we have options and solutions such as working with private lenders that can help you obtain a reduced rate and the right product for your mortgage situation. Typically, you can expect an interest rate of 6.95%-19.95% with lender and broker fees included.
YOUR PAYMENT CAN BE AS LOW AS INTEREST ONLY PAYMENTS
One of the advantages of selecting to use a second mortgage is the fact that the payments are attractive. You can pay interest only payments or you can also select to pay the interest plus the principle loan amount. You can work with your mortgage broker to discuss options and what would work best with your situation.
THERE ARE ADDITIONAL FEES TO CONSIDER
Since we want to have you understand ALL the fees associated, it is important to know that setting up a second mortgage will require you to pay: *note dollar amounts are approximations
An appraisal fee to assess the value of your home: $300
Legal fees to set it up: $2,000
Lenders & Broker fees: 1-5%
Second mortgages are a great option for many and may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, talk to me and I can guide you through the process from start to finish!
As the market shifts, developers will increase their incentives to buyers with cash back and decorating allowances on new build or pre-sale purchases. It is very important to review those options with your real estate agent representative and vital to consult with your Dominion Lending Centres mortgage broker. Although these offers may seem attractive, they can impact your financing and could cost you thousands of dollars.
Before you write a contract on a new build or pre-sale, ensure you have set up your team including a real estate agent and mortgage broker. Always consult with them to ensure you have sound advice. Do not rely solely on the developer’s sales representative.
What happens when you sign a contract on a pre-sale?
When you visit the sales centre for the pre-sale and decide to write a contract you have a rescission period where you can back out of the purchase. The contract you sign is drafted by the sales centre and once you remove any conditions, you are locked into the purchase. Therefore it is essential you have your real estate agent with you at the time of signing or at a minimum, they review the contract. It is in your best interest you fully understand the terms, the disclosure statement, what you are buying, schedule to build, GST, deposit schedule and any incentives.
Once you remove any conditions, the deposit is paid to the developer and a schedule set for all other deposits till the building is complete. Those total deposits are typically 20% of the purchase price. That is money you will not receive back if for any reason you are unable to proceed with the purchase. Some contracts allow assignment to another buyer, but those must be approved by the developer and may come with restrictions. Your realtor can guide you on these matters.
How Will Cash Back or Decorating Allowances Impact Your Purchase?
When the market slows, developers will use incentives such as cash back and decorating allowances on new build or pre-sale purchases as a strategy to increase sales. Regardless if this is a cash back or a rebate for decorating, it will have an impact on the purchase price for the lender on the financing. This is a common misconception among buyers and even realtors who do not understand the process from a financing perspective.
For example: A purchase price plus GST is $800,000. The developer is offering a $20,000 decorating allowance. The lender will automatically deduct the $20,000 from the purchase price. Your new purchase price will be $780,000 for financing purposes. This does not change the actual purchase price. You still have to pay the developer $800,000 for the home. The lender will lend on the $780,000 only. Therefore you must pay in cash at the time of funding the $20,000 difference.
The developer has sold you the idea you are receiving decorating upgrades of $20,000. You are receiving the value of that allowance BUT make no mistake you are paying for it.
If the incentive is a cash back amount in the above example, you will receive the cash back from the developer at the time of completion. However, the lender will still only offer financing on the lower value minus the cash back amount.
Thanks to DLC’s Pauline Tonkin for this info.
FIXED-RATE MORTGAGE: WHAT LENDERS YOU SHOULD DO IT WITH AND WHY
25-year amortization or 30 years? Insured or Uninsured? With an A Lender or B Lender? These are just a few of the questions people have to decide on when they are pursuing a mortgage. But the biggest question of all: Fixed Rate or Variable Rate?
With the instability of the market, and the Bank of Canada’s continuous rate hikes, many people now are flocking towards a fixed rate mortgage over a variable rate. What this means is that they are choosing to essentially “lock in” at a rate for the term of their mortgage (5 years, 10 years, 1 year…you name it). Now there are benefits to this…but there are also disadvantages too.
For example, did you know that 60% of people will break their mortgage by 36 months into a 5 year term? Whether it’s due to career changes, deciding to have kids, wanting to refinance, or another reason entirely, 60% of mortgage holders will break it.
And just like any other contract out there, if you break it, there is a penalty associated with it. However, there is a way to avoid paying more than is necessary. This applies directly to a fixed rate mortgage and we can help you decide what lenders you should go with.
If you have a FIXED RATE MORTGAGE:
There are two ways your penalty will be calculated.
Method #1. If you are funded by one of the Big 6 Banks (ex. Scotia, TD, etc.) or some Credit Unions, your penalty will be based on the bank of Canada Posted Rate (Posted Rate Method) To give you an example:
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:
Bank of Canada Posted Rate for 5-year term: 5.59%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.59%
Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.69% less your discount of 2% gives you 1.44%. From there, the interest rate differential is calculated.
Contract Rate: 3.59%
LESS 3-year term rate MINUS discount given: 1.69%
IRD Difference = 1.9%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.7%
For that mortgage $300,000 mortgage, that gives a penalty of $17,100. YIKES!
Now let’s look at the other method (one used by most monoline lenders)
This method uses the lender published rates, which are much more in tune with what you will see on lender websites (and are * generally * much more reasonable). Here is the breakdown using this method:
Rate when you initially signed: 3.24%
Published Rate: 3.34%
Time left on contract: 3 years
To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:
Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
MULTIPLY that by 3 years (term remaining)
0.90% of your mortgage balance
That would mean that you would have a penalty of $2,700 on a $300,000 mortgage.
That’s a HUGE difference in numbers, just by choosing to go with a different lender! Knowing what you know about fixed rate mortgages now, let a Dominion Lending Centres Mortgage Broker help you make the RIGHT choice for your lender. We are here to help and guide you through the mortgage process from pre-approval onward!
Thanks to DLC’s Geoff Lee for this info
Which is better, a fixed or variable rate? I get asked this question often, and it is my job as your mortgage broker to provide you with information and guidance in relation to your personal situation, to help you make the choice that is right for you.
There is no right answer as it depends on your own individual needs, financial goals and risk tolerance.
If you want to make an informed decision, I can help!
Mortgage switches and transfers are becoming one of the more popular sources of revenue for certain lenders which means great incentives for borrowers as the banks and financial institutions fight for your business.
When your mortgage is up for renewal, your lender will typically send you a letter either 6-months or 120 days before your mortgage matures. When it is up for renewal and matures, you will need to commit to a new term and commit to a new interest rate. Most of the time, the bank’s offer is in the letter they send, and you circle your choice and mail it back; simple and quick.
But what happens when your lender isn’t offering you their lowest rate? Or is hoping you just circle one of the options and don’t look into the other options that are out there and available to you?
Most lenders will allow you to finance up to $3,000 back into your mortgage balance for legal fees, admin fees, and costs associate with moving from your current lender to them. With the move being cash free, you can take advantage of very low rates offered to new potential clients in order to win their business.
The mortgage amount (other than the $3,000 for costs) will need to remain the same though. When you change the mortgage amount, you are refinancing your mortgage, which moves you into a new category and changes the process as well as the different interest rates that are available to you.
For more information on mortgage switches and transfers please reach out to a Dominion Lending Centres mortgage professional. We will be able to tell you what kind of low interest rates and new mortgage privileges we are able to give you access to!
Thank you to DLC’s Ryan Oake for this info!
People have a lot of different ideas on how they want their home to look. Some want a modern look while others like traditional cottages. But one thing that more and more people want is smart technology in their homes. This adds value and desirability to your home making it easier to sell for the asking price.
In a recent survey, 35% of first time home buyers put smart technology as a priority in their home purchase.
What is a smart home? A smart home is a residence that uses internet-connected devices to enable the remote monitoring and management of appliances and systems, such as lighting and heating.
Smart thermostat – Is a thermostat that can be controlled remotely by your smart phone and will eventually learn your heating and cooling patterns. You can turn up the A/C in the summer from your office and the house will be cool by the time you get home. These features are convenient but they also help you save money on home heating and cooling costs.
Connected Lights – allow you to turn on or dim lights at different times of the day. Combined with a Smart thermostat they can help you to save half your average energy costs.
Smart Locks – these are really cool ! You can program your front door to unlock when guests arrive using Bluetooth or WiFi or some smart phones.
Wireless Security – We have all seen photos of burglars stealing packages from the front door of a home , or perhaps you have seen the TV ad of the lady at the spa who can see 2 unsavory looking guys at her front door and speaking to them and scaring them off. You may have seen the YouTube video of a house that caught fire in Ft. MacMurray and the firefighters extinguishing the blaze. The home owners were able to watch this from a hotel room in Edmonton. Check with your insurance company, you may qualify for a large discount in your rates by having this home security.
Finally, not only is your home more desirable and comfortable, but this is achievable in both new and existing homes. Speak to your Dominion Lending Centres mortgage broker about having these additions to your home added to your mortgage either with a Purchase/Refinance Plus Improvements or a HELOC. We can advise you on the best options for your particular needs.
Written by David Cooke
The words reverse mortgage carry some negative connotation. What does it really mean? What makes reverse mortgage different than a regular or demand mortgage in Canada? There are no payments required if 1 applicant lives in the home. Payments can be made if they wish, they are truly optional.
No medical required and limited income and credit requirements.
Clients can receive up to 55% of the value of their home in tax free cash, depending primarily on their age, property type as well as location.
COMMON MISCONCEPTIONS & OBJECTIONS:
I heard they were restrictive and bad for seniors.
Much of the negative press around reverse mortgages originated out of the U.S. The rates, fees, and restrictions are quite different from what is offered in Canada. The reverse mortgage providers in Canada follow the same chartered bank rules as other major lenders.
The bank will own my house.
This is only a mortgage; the title and deed remain in the client’s name. The owner will not be asked to move, sell, or make payments for as long as at least 1 applicant lives in the property.
I’ll lose all my equity.
The maximum the lender can finance is 55% of the value of the home. The average advance is more like 35% of the value, leaving ample equity to fall back on. If the real estate market increases at an average of about 2% to 2.5% per year over time, clients will find their home value increasing just as much over time as the balance owed.
The costs are too high.
The closing costs are the same as a regular mortgage, approximately $1,800, includes the appraisal and lawyer fee.
A line of credit is better and cheaper.
A line of credit is a great solution for someone with good credit, cash flow and most importantly someone with a regular income.
I paid off my mortgage, I don’t want more debt.
Leveraging money from your home is not debt. It’s the equity accrued over the duration of ownership. Only the interest is debt.
Why are the rates higher than a regular mortgage?
Other lenders can lend out money at lower costs. This is because they have other services to sell the client to help recoup their cost. The regular mortgages also require a regular repayment frequency; thus, the lender is constantly receiving funds back to re-lend.
I heard they have high penalties and you can’t get out very easily.
This is well suited for seniors looking to keep the reverse mortgage in place for 3 or more years. There might be other solutions for a timeline that is shorter. Penalties are always waived upon death of the last homeowner. Penalties are reduced by 50% if selling and moving into a care facility.
I don’t need money very much so it’s not worth it.
The newest program offered is called Income Advantage. It allows clients to access money on their own timeline, when they need it or a pre-determined auto-advance. Borrower only pays on the amount advanced. The minimum advance required is $25,000.
If you’d like to talk to see if a reverse mortgage is a good fit for you, I am a Certified Reverse Mortgage provider and would love to help answer your questions. Call or email me anytime!
Written by Michael Hallet