8 Jun

9 Reasons People Break Their Mortgage.

Posted by: James Wynters

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

sale and purchase of a new home

If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

to utilize equity

Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

to pay off debt

Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

cohabitation, marriage and/or children

As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

divorce or separation

A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

major life events

There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

removing someone from title

Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

to get a lower interest rate

Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with your DLC mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

pay off the mortgage

Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. Dominion Lending Centres have mortgage professionals across Canada wanting to be part of your journey and help you get the best mortgage for YOU.

Written by my DLC Marketing Team

30 May

The Rate Debate.

General

Posted by: James Wynters

One of the first questions that potential buyers want answered is: “What is your interest rate?”

It is easy to think that this is the most important question, but there is a lot more to your mortgage contract than just the rate. And so, the rate debate continues!

The rate debate is a hot topic in the mortgage world. Not just the rates itself, but the importance of the rate versus other factors in the mortgage – such as terms and penalties. As a borrower, it can be easy to get caught up in one thing but, if you’re not paying close attention, ignoring other factors could cost you in the long run.

Before we get into these other factors, let’s talk rate. While not the only factor, it does continue to be an important decision criteria with any mortgage product. The interest rate is the percentage of interest you are paying on the principal loan; lower interest rates means more money to the mortgage and who doesn’t want that?

VARIABLE VS. FIXED

There are two types of mortgage rates: variable-rate and fixed-rate. A fixed-rate is just that – a fixed amount of interest that you would pay for the term of the mortgage. A variable-rate, on the other hand, is based off of the current Prime Rate, and can fluctuate depending on the markets.

Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.

Fixed-Rate Mortgage: First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The pros of this type of mortgage are that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage: As mentioned, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate), this means that should Prime drop and interest rates lower, they are paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.

BEYOND RATES

When considering your mortgage, other considerations such as penalties can be important factors for deciding on a mortgage product. If you have two competing products, say 1.65% interest fixed-rate and a 1.95% interest variable-rate, it seems as though it is a pretty easy decision. But, what about the ability to make extra payments? And what are the penalties?

It is easy to think that nothing will change throughout your 5-year mortgage term, so you probably haven’t even considered the penalties. However, when looking at the fixed versus variable rate mortgage, penalties can be quite different. Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation.

Given that nearly 70% of fixed mortgages are broken before the term ends, this is an important variable. Fixed-rate mortgages are typically okay when the penalty is your contract rate versus the Benchmark rate. However, when penalties are based on the Benchmark rate (sometimes called the Bank of Canada rate), it is typically much higher than your contract rate, resulting in greater penalties.

In some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate. While the interest rate is lower, lower penalties are sometimes best should anything happen down the line.

CONVENTIONAL VS. HIGH-RATIO MORTGAGE

Another consideration beyond just the interest rate, is whether or not you will be obtaining a conventional or a high-ratio mortgage. Whenever possible, it is recommended to put 20 percent down payment on a new home. This results in a conventional mortgage. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product.

So, what does this mean?

High-ratio mortgages need to be insured by either Genworth Financial, the Canada Mortgage and Housing Corporation (CMHC), or Canada Guaranty. This is due to the Bank Act, which will only allow financial institutions to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Insurance on the mortgage is important to protect the lender should you default on your payments, leaving the insurer to deal with the borrower.

The difference between conventional and high-ratio mortgages is that high-ratio mortgages require insurance, which results in an insurance premium. This is added to and paid along with the mortgage, but is an important factor when considering your monthly payments. These premiums are based on the loan to value (LTV), which is the amount of the loan versus the value of your home.

All high-ratio mortgages are regulated to have mortgage insurance, but some homeowners with a conventional mortgage may choose to pay for mortgage insurance to get a better rate.

SMART QUESTIONS TO ASK

To ensure you understand your mortgage contract, and how it could affect you now and in the future, we have compiled a few smart questions to ask before you sign.

What is my interest rate? Can I qualify for a better one?
Do you recommend fixed or variable-rate?
What are the penalties for breaking my mortgage?
Are there any pre-payment penalties?
Will I require mortgage insurance? If so, what are the premiums?
What will my monthly payment be?
Is my mortgage portable?

These are just a few examples of good questions to ask. It is important to do your own research and be diligent with any contract you are signing. Contacting a Dominion Lending Centres mortgage broker today can help ensure you understand what you are agreeing to, and that you are getting the best mortgage product for you !

Written by my DLC Marketing Team.

4 May

Process in the Paperwork.

General

Posted by: James Wynters

Documents Required to Qualify for a MortgageMortgages can sometimes feel like endless stacks of paperwork, but being prepared in advance can save you time and stress! Getting your mortgage pre-approved is part of this prep-process, and will make things easy in the long run.

In order to get pre-approved, the lender must have taken you on as a client and reviewed all your documents before you begin house-hunting. It is important to ensure you have your pre-approval certificate before moving ahead and your pre-approval agreement in writing. This should include the pre-approved mortgage amount, the mortgage term, interest rate, payment information and the expiry for the pre-approval. Typically, they are valid for up to 120 days.

To prepare for the mortgage pre-approval process, there are a few must have documents that you will need to organize and have available prior to submission.

Letter of Employment: One of the key aspects for financing approval is employment stability. Lenders want to see a letter from your employer (on a company letterhead) that details when you started working at this company, how much you make per hour or your annual salary, your guaranteed hours per week, and any probation if you are new. This can be done by your direct manager or the company HR department – they will be used to this type of request.
1. Previous Two Pay Stubs: In addition to the employment letter, you must also have your previous two pay stubs. These must indicate the company name, your name and all tax deductions.
Supporting Documents for Additional Income: If you have any other income, such as child support, long-term disability, EI, part-time income, etc., the lender will want to see any and all supporting documentation.
1. NOTE: If you are divorced or separated and paying child support, it is important to also bring your finalized separation or divorce agreement. In some cases, they may request a statutory declaration from your lawyer.
Notice of Assessment from Canada Revenue Agency: Lenders will also want to see your tax assessment for the previous year. If you do not have a copy, you can request one from the CA by mail (4-6 weeks) or you can login to your online CRA account to access it.
1. Your Previous Years T4: Along with your tax filing and assessment notice, lenders will also want to see your previous years T4 slip to confirm income.
3-Month (90 day) Bank Account History: Lastly, it is important for lenders to see 90 days history of bank statements for any funds that you are using towards the down payment. As saving up for a down payment takes time, there should be no issues providing these documents. If you received the money from the sale of a house or car, or as a gift from your family, you will need proof of that in the form of sales documents or a letter.

The above documents are required for any potential buyer who is a typical, full-time employee. But what if you only work part-time? Or maybe you are self-employed? Here is what you will need:

part-time employee

You will still require all of the above documents (letter of employment, previous pay stubs, supporting documents for any additional income and 90 days of bank history).

However, the difference between a full-time employee and a part-time employee, is that if you only work part-time, you will need to supply THREE years worth of Notice of Assessments, versus just one. You will also need to have been working for at least two years in the same job to use part-time income.

If you have both a full-time and a part-time job, you can use that income too, assuming it has been at least two years.

self-employed

If you are self-employed, the requirements for documents to lenders is slightly different. You will need to provide them:

3-Month (90 day) Bank Account History: Lenders need to see 90 days history of bank statements for any funds that you are using towards the down payment.

T1 Generals: Also known as the Income Tax and Benefit Return
Statement of Business Activities: This is used to illustrate the business income versus expenses and should include financial statements for your business.
Notice of Assessment from Canada Revenue Agency: Similarly to part-time income, if you are self-employed you will also need to provide the previous three years of assessments.
If Incorporated: You will need to supply your incorporation license and articles of incorporation.

When it comes to mortgages, preparation is key. By having pre-approval in hand, it can prevent any delays or issues with subject-to-financing clauses in the mortgage agreement. While you can walk into a bank, fill in an application and get a rate for a potential mortgage, this is just a ‘rate hold’ meaning it is a quote on the rate so you can qualify for the same rate later. This is not a pre-approval and does not guarantee financing.

To save yourself the headache down the line, contact a Dominion Lending Centres mortgage broker today to start the pre-approval process! Plus, our services are free to you. Why wait? Get fully pre-approved today to make closing the deal that much faster when you do find that perfect home.

Written by my DLC Marketing Team

22 Apr

5 Things to Consider When Building Your New Home.

General

Posted by: James Wynters

Building a new home is an exciting adventure but requires very different considerations. To help you have the best experience building a home, we have put together the 5 most important considerations.

1. it’s all in the numbers

Regardless of whether you are shopping for a pre-built home, or are looking to create your own from the ground up, it is vital to know what you can afford and stay within it. This is the key to building a home that you will be able to enjoy for the next 20 or 30 years, while still maintaining your financial stability.

When calculating the cost of building your home, there are many components from construction materials and contracts to tax benefits, funds for the down payment and slush account and other related expenses. In Vancouver B.C., the typical cost to build a house is between $200 and $350+ per square foot. In some cases, it could cost as much as $500 or more per square foot.

Overall, the average cost to build a house can range $300,000 to $350,000 for 1,000 square feet to double or triple that amount. For example, an average 2,500 square foot home could cost between $500,000 and $875,000 to build depending on materials, design, etc.

2. choose a reputable builder

This one seems pretty straight forward, but when you start looking it can quickly become overwhelming when you realize how many options there are. When it comes to determining the head contractor for your project, careful research is needed. Another option is to consult friends and family members who have gone through the process, or ask your mortgage broker and/or realtor! They often have many qualified contacts in the industry or can help point you in the right direction.

3. build a home for tomorrow

As tempting as it can be to personalize your home to the tenth degree and include every cool little feature you can think of, it is important to always keep resale value and practicality in the back of your mind. Life can often throw a few curve balls that, for one reason or another, may result in your having to sell your home in the future. If that time should ever come, you will want to be able to appeal to all buyers easily and not have to hold the house longer than necessary. Ask yourself if the features you are putting into your home will appeal to others, and also if the design suits the neighborhood you are building in as well.

4. go green!

Now more than ever before energy efficient upgrades are easy to add to your home. To make your home as efficient as possible, it is important to incorporate these options into your design BEFORE you start building. Options such as energy efficient appliances, windows, HVAC systems, and more can save you money in the long run and may also make you eligible for certain grants and discounts. For instance, the Canadian Mortgage and Housing Corporation (CMHC) green building program rewards those who select energy efficient and environment friendly options.

5. understand the loan

Aside from the costs of building a new home, what does a mortgage look like for an unbuilt home? In many cases, this is where a “construction mortgage” might come into play. In order to properly qualify for financing on an unbuilt home, you need to give your broker a budget that includes both hard and soft costs, as well as the reserve of money you plan to have set aside in case you run into unexpected events.

For example, based on the lender loaning up to 75% of the total cost (with 25% down):

Land purchase price: $200,000
Total soft and hard costs (as complete): $400,000
$600,000 x 75% = $450,000 available to finance

It is also important to note that the lender will also consider the appraised value of the finished product. This value is determined before the project begins. In this example, the completed appraised value of the home would have to be at least $600,000 to qualify. In addition, the client will have to come up with the initial $150,000 to be able to finance the total cost of $600,000.

Depending on the lender, you may have a time frame within which you need to complete construction (typically between 6 and 12 months).

When it comes to construction loans, there are a few other key points to remember with regards to repayment:

Construction loans are usually fully opened and can be repaid at any time.
Interest is charged only on amounts drawn; there are no “unused funds”
Once construction is complete and project completion has been verified by the lender, the construction mortgage is “moved over” to a normal mortgage

In addition, a lender will always consider the marketability of a property. This includes not only demographic aspects, but also looking at the geography. For instance, a lot that in a secluded area with minimal market demand, may not be a property that they are willing to lend on.

There are a lot of things to consider when you build a home but a few things that can keep you on track and on budget are to have a solid plan in place, work with a builder you trust, build a strong team around you that can be there from start to finish – and to do your research. Once you have decided to build, call your Dominion Lending Centres Mortgage Professional. They can help you get the ball rolling and can guide you to the first step of breaking ground on your new home.

Written by my DLC Marketing Team

13 Apr

Affordable Housing is a Key Theme in Federal Budget 2022

General

Posted by: James Wynters

Today’s budget announced a $10 billion package of proposals intended to reduce the cost of housing in Canada (see box below). The fundamental problem is insufficient supply to meet the demands of a rapidly growing population base. Thanks to the federal government’s policy to rapidly increase immigration since 2015, new household formation has risen far faster than housing completions, both for rent and purchase. This excess demand has markedly pushed home prices to levels beyond average-income Canadians’ means.The measures announced in today’s budget to increase housing construction, though welcome, are underwhelming. The Feds can control the construction of lower-cost housing through CMHC. Still, most home building is under the auspices of the municipal governments, where the red tape, zoning restrictions and delays abound. The federal government increased funds to help local governments address these issues, but NIMBY thinking still prevents increased housing density in many neighbourhoods.

The headline policy announcement for a two-year ban on foreign residential property purchases may sound reasonable. Still, according to Phil Soper, chief executive of Royal LePage, “It will have a negligible impact on home prices. We know from the pandemic period, when home prices escalated with virtually no foreign money, that our problem is made-in-Canada.”

According to the Financial Post, Soper added that measures like the tax-free savings account for young Canadians would be encouraged to help them achieve their dreams of homeownership in a typical real estate market. However, in a low-supply environment with pandemic-fuelled price gains, these measures would only add more demand without addressing the supply issue. Only a few first-time buyers would be able to take advantage of it.

The Home Buyers’ Bill of Rights that would end blind bidding and assures the right to a home inspection and transparent historical sales prices on title searches is also long overdue.

The First-Time Home Buyer Incentive has been extended to March 2025. This program has been a bust. Buyers do not want to share the equity in their homes with CMHC. The Feds are taking another kick at the can, “exploring options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.” To date, the limits on the program have made them useless in high-priced markets such as the GTA and the GVA.

Budget 2022 Measures To Improve Housing Affordability

Tax-Free Home Savings Account

Introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.

New Housing Accelerator Fund

With the target of creating 100,000 net new housing units over five years, proposes to provide $4 billion over five years, starting in 2022-23, to launch a new Housing Accelerator Fund that is flexible to the needs and realities of cities and communities, while providing them support such as an annual per-door incentive or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development.

New Affordable Housing

To ensure that more affordable housing can be built quickly, Budget 2022 proposes to provide $1.5 billion over two years, starting in 2022-23, to extend the Rapid Housing Initiative. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25% of funding going towards women-focused housing projects.

An Extended and More Flexible First-Time Home Buyer Incentive

Extension of the First-Time Home Buyer Incentive–which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government–to March 31, 2025. Explore options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.

A Ban on Foreign Investment in Canadian Housing

Proposes restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a two-year period.

Property Flippers Pay Their Fair Share

Introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply to Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.

Rent-to-Own Projects

Provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

Home Buyers’ Bill of Rights

Bring forward a national plan to end blind bidding. Among other things, the Home Buyers’ Bill of Rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

Multigenerational Home Renovation Tax Credit

Provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability, starting in 2023.

Doubling the First-Time Home Buyers’ Tax Credit

Double the First-Time Home Buyers’ Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers, applying to homes purchased on or after January 1, 2022.

Co-Operative Housing Development

Reallocate funding of $500 million to a new Co-Operative Housing Development Program to expand co-op housing in Canada. Provide an additional $1 billion in loans to be reallocated from the Rental Construction Financing Initiative to support co-op housing projects.

There is also a laundry list of other programs to create additional affordable housing for Indigenous Peoples, Northern Communities, and vulnerable Canadians. Enhanced tax credits for renovations to allow seniors or disabled family members to move in; and for seniors to improve accessibility in their homes. As well, money is provided for long-term efforts to end homelessness.

To combat money laundering, the government said it would extend anti-money laundering and anti-terrorist financing requirements to all mortgage-lending businesses within the next year.

For greener housing initiatives, the government is planning to provide $150 million over five years starting this year to drive building code reform to focus on building low-carbon construction projects and $200 million over the same timeline for building retrofits large development projects.

Bottom Line

Nothing the federal government has done in today’s budget will make much of a difference in the housing market. What does make a difference is the spike in interest rates that is already in train. Fixed mortgage rates are up to around 4%, and variable mortgage rates have begun their ascent. There is still a record gap between the two, but the Bank of Canada will likely hike the policy rate by 50 bps next week. The Bank will probably hike interest rates at every meeting for the remainder of the year and continue into the first half of next year.

It is also noteworthy what Budget 2022 did not do. It did not address REITs or investment activity by domestic non-flipping purchasers. Some were expecting a rise in minimum downpayment on investor purchases or restrictions on using HELOCs for their funding.

Budget 2022 did not raise the cap of $1 million on insurable mortgages. It did not reinstate 30-year amortization, a favourite of the NDP. And, it did not follow the BC provincial government in allowing a “cooling-off” period after a bid has been accepted, technically giving would-be buyers more time to secure financing.

Written by Dr Sherry Cooper – Chief Economist for Dominion Lending Centres

5 Apr

Spring into Action in 3 Simple Steps.

General

Posted by: James Wynters

Spring is here and that means we’re embarking on the best time to start getting outside and enjoy more of what the beautiful outdoors has to offer. From weekend hikes, to community running events, don’t underestimate the power of a quick ‘at-home workout’ to compliment leg, ankle, and core strengthening before you hit the trails. With no need for any equipment, all this Mandy Gill APP workout calls for is 20 minutes on the clock.

burpees

Only 10 reps! Begin standing with your legs shoulder-width apart. Place your hands on the floor and kick your legs, back so you end up with your stomach and thighs on the floor. Your elbows should be bent. From this position, press up like you’re doing a push-up and push your hips up. Jump your feet under your hips and stand. Finish the movement by jumping in the air and bringing your hands over your head. Repeat. Want to blast fat and tone up quickly? This is the movement to get you there!

donkey kicks

While still on all fours, keep your right knee bent at a 90 degree angle and flex the foot as you pull your knee towards your right elbow. Then extend your right leg to a straight position, and repeat for a total of 50 reps on the right side. Once you’ve completed that, switch to the left leg for 50 reps.

leg lifts

This move and the next primarily target the glutes, hip flexors, and abs. Position yourself on all fours on a mat, with your hands underneath your shoulders, and your knees under your hips. Lift the right leg up towards the ceiling while keeping your leg as straight as possible, and your glutes squeezed. With control, bring down your leg to tap your right toe to the ground and then return it back up towards the ceiling to complete a total of 25 reps. Then complete 25 reps on the left side.

Written by my DLC Marketing Team.

21 Mar

The Credit Challenge.

General

Posted by: James Wynters

For most people, credit score isn’t something you spend much time thinking about. Especially if you are someone who is making good money and paying all your bills on time. When you are in that boat, it feels pretty good! But, when you miss a payment or you struggle to pay all those credit cards, lines of credit and even your mortgage, it can feel like a sinking ship.This is especially true if you’re credit challenged, but are looking to get into the housing market. Improving your credit is the best first step to getting a lender to give you a chance and fortunately, it is very doable!

why does credit score matter?

The reason your credit score is so important is because it tells lenders the basic story surrounding your credit. It essentially indicates whether or not you are a “good investment” by relaying how long you’ve had credit, your ability to pay back that credit and how much you currently owe. Your credit score is affected by how much debt you’re carrying in relation to limits, how many cards or tradelines you have and your history of repayment.

If you are considering getting your first mortgage, keep in mind that a credit score above 680 puts you in a good position to get financing, while a score below that will make it tough and improvement is needed.

CREDIT REPORTS

To ensure your credit score remains in good form, it is important to take a hard look at your credit report and review your credit score for any old or incorrect information. If you find any errors, contact Equifax to have them corrected or removed. Another big factor includes paying off any collections (such as parking tickets or overdue bills).

CONSIDER THE 2-2-2 RULE

If you’re a young person and new to the world of credit, consider the 2-2-2 rule to help build up your credit. Lenders typically like to see 2 forms of revolving credit (i.e. credit cards) with a limit of no less than $2,000 and a clean history of payment for 2 years.

It is important to note, a great credit score means keeping a balance on all those cards at any given time, below 30 percent of the overall limit. For a card with a limit of $2,000, this means having no more than $600 of it in use. It is also a good idea to check if your credit card requires an annual fee and make sure you are paying that off too.

If you’ve been advised to get a couple credit cards but have locked them in a vault where only a sorcerer’s spell can access them, you’re going down the wrong path. The goal is not just to have credit but to show potential lenders that you know how to use it responsibly!

rock bottom credit

When things get really bad, there is a tendency for clients to consider declaring bankruptcy or a consumer proposal. Bankruptcy is a legal process where an individual or entity can seek relief from some or all of their debts when unable to repay them. A consumer proposal is a formal, legally binding process to pay creditors a percentage of what is owed to them.

The truth is, it is best to avoid these two options. Instead, there are companies out there that will perform the same function with regards to negotiating your debts – but it won’t impact your credit or carry the stigma of bankruptcy or a consumer proposal.

CONSIDER REFINANCING

If you already own a home and have some equity, but you are still drowning in credit debt, consider refinancing your mortgage. While you might not get the same great rate you have now, or might get dinged for breaking your mortgage early, using the equity in your home can be a great way to get rid of high-interest credit card payments and consolidate debt to keep more money in your pocket at the end of the day.

keeping your score in-tact

Once you have your credit score where you want it, it is important to maintain that score. You can do this by ensuring you never use more than 30% of your available credit and that you pay your bills each month, and on time. Even if you can only pay the minimum amount due, it is important to be making those payments and recognizing the requirements.

Written by my DLC Marketing Team

8 Mar

Power Up Your Finances.

General

Posted by: James Wynters

Let’s face it, mere mention of the word “money” can make people shift in discomfort. In an era in which the veils are being lifted off many societal taboos, a shroud of shame hangs stubbornly over money talk – we’re taught to fear it, we’re taught it’s too complicated, and those are all messages meant to disempower.

It’s time to push past the taboo, and normalize talking about money. Disrupt it by talking about it – openly and frankly – with your partner, your friends, your family, and your colleagues. Speaking of partners, it’s important both parties are open with one another about their fears, feelings, and goals in regards to money. This is particularly important in opposite-gender households, where research shows that the male partner takes the financial lead in most homes.

stnce Senior Program Specialist, Sarah Zandbergen, has this to say about the hesitation to discuss finances with partners: “It can be difficult to bring up, no question, but if you’re sharing your life with someone, finances are bound to come up. A staggering statistic we came across in our research is that 90% of women will be the sole financial decision-maker in their family at some point in their lives. Knowing this, there is absolutely no excuse to defer ownership to someone else.”

Smash the stigma, and get radically transparent about your salary, your financial situation, your debts, your windfalls, and your savings goals.

And, hey, we get it – there’s a sense of comfort, albeit a false one, that comes with avoiding fiscal responsibility, because it temporarily absolves us of having to do anything, but remaining on the sidelines gives money a leg up on you. So if you want to be truly in control, increasing your knowledge about money, and how to save it, is a critical part of the confidence-building process.

Written by my DLC Marketing Team

22 Feb

Staying Out of the Penalty Box.

General

Posted by: James Wynters

When it comes to mortgages, it is easy to focus on the rates and your current situation, but the reality is that life happens and when it does, rates won’t be the only thing that matters.First and foremost, the most important thing to remember is that a mortgage is a contract. That means that there is a penalty involved if the contract is ever broken. This is something that every homeowner agrees to when you sign mortgage paperwork, but it can be easy to forget – until you’re paying the price.

why break your mortgage?

You’re probably wondering why you would ever break your mortgage contract? Well, you might be surprised to find out that 6 out of 10 mortgages in Canada are broken within 3 years and there are typically nine common reasons that this happens:

Sale and purchase of a new home
To utilize equity
To pay off debt
Cohabitation, marriage and/or children
Divorce or separation
Major life events (illness, unemployment, death of a partner)
Removing someone from title
To get a lower interest rate
To pay off the mortgage

It is always important to think ahead when signing a mortgage agreement, but not everything can be planned for. In that event, it is important to understand the next steps if you do indeed need to break your mortgage.

calculating penalties

Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation or the sum of three months interest to determine the penalty. You will typically be assessed the greater of the two penalties, unless your contract states otherwise.

INTEREST RATE DIFFERENTIAL (IRD)

In Canada there is no one-size-fits-all rule for how the Interest Rate Differential (IRD) is calculated and it can vary greatly from lender to lender. This is due to the various comparison rates that are used.

However, typically the IRD is based on the following:

The amount remaining on the loan
The difference between the original mortgage interest rate you signed at and the current interest rate a lender can charge today

In this case, these penalties vary greatly as they are based on the borrower’s specific mortgage and the specific rates on the agreement, and in the market today. However, let’s assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to break your mortgage as it is not always the most viable option.

THREE MONTHS DIFFERENCE

In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above – balance of $200,000 on your mortgage, an annual interest rate of 6% – then three months interest would be a $3,000 penalty. A variable-rate mortgage is typically accompanied by only the three-month interest penalty.

paying the penalty

When it comes to making the payment, some lenders may allow you to add this penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty up front.

Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid being stuck in the penalty box. If you cannot avoid a penalty, do note that, while only calculators can be great tools for estimates, it is best to call your lender or mortgage broker directly for the accurate number in the case of determining penalties.

If you are unsure about getting the best penalty terms, reach out to a Dominion Lending Centres mortgage broker today! They can help you find the best mortgage product for you.

Written by my DLC Marketing Team

11 Feb

Renting Vs. Buying: What You Need to Know !

General

Posted by: James Wynters

When it comes to the Canadian housing market, there are lots of options for where to live! From renting an apartment to owning a single-family home, it all comes down to where you see yourself living and what you can afford! The beauty is, there is no right or wrong answer when it comes to renting versus buying but let’s break down the pros and cons of both and hopefully help you to decide which is best for you!

why do people rent?

One of the most common answers to this question is affordability. Most people rent because they believe it is cheaper than owning a home. This can be true in some cases, but there are also times when monthly rent costs are higher than monthly mortgage payments. Of course, there are also cases where rent is far more affordable than buying, especially when you factor in the cost of a down payment and maintenance on a home you own, rather than one you rent. Affordability is fairly dependent on an individual’s situation, but it is not the only decision factor for choosing to rent.

Another reason individuals may choose to rent is that they simply aren’t sure where they want to live, or maybe they cannot find a place that fits their needs. If you are new to an area, you may want to rent in the meantime so you can get to know the neighbourhoods and determine which area is the right fit for you. In some cases, you simply may be unable to find a home that is affordable to buy in the area you want or within a reasonable commute from your work.

For individuals who travel a lot for work or like to be free-floating, renting can be the perfect option but if you simply believe buying a home to be out of the question, it is time to take a hard look at your options because it may not be so far fetched!

pros and cons of renting:

To help you decide if renting is right for you, we have put together a little list of pros versus cons to help you see if it is the right fit.

Pros of Renting	Cons of Renting
Less maintenance Fewer repairs Lower upfront costs Short-term commitment for people unsure of where they want to plant roots Protection from potential decrease in property values	Monthly payments may increase Potential for being evicted / lease renewal not being approved Paying to someone else’s mortgage instead of building your own equity Requiring permission to paint or remodel

why do people buy?

According to the most recent data, Canada boasts an overall homeownership rate of 67.8%. Even for those Canadians aged 35 and under, more than 40% of households own their own homes. This is quite an impressive statistic! So, let’s look at why people choose to buy.

One of the main reasons that people choose to buy a home is to have the stability and peace of mind of owning the place you live. This means you are not at risk of being put in a situation where the landlord wants to move their parents into the basement suite and you have to leave or having to deal with increased costs if you go to renew a lease agreement.

For others, the benefit to buying comes in building up equity and ensuring that nest egg for your future. When you choose to rent, you are paying into someone else’s mortgage and into their future but when you work towards buying your own home, suddenly all that money you invested is going to your future instead. This is an extremely important aspect to consider in today’s age when many are having trouble with the idea of saving for retirement.

Now I get it, you may be thinking “if I can’t afford to retire, how can I afford to buy a house” but if you can afford to pay the high cost of rent in today’s market, then home ownership isn’t as far out of reach as you think. This is especially true if you buy a two-story home and rent out the basement, giving you ample living space upstairs but also additional income to pay your mortgage.

pros and cons of buying:

To further show the benefits and costs to buying, we have broken down some pros and cons to help you to determine if this is the right path for you.

Pros of Buying	Cons of Buying
Freedom to renovate or modify your home as you wish You are building up equity in a safe, secure investment as you pay down your mortgage Potential for additional income if you have a rental suite Stability and peace of mind from being in control of your investment and owning the place where you live	The risk of losing your home value when you sell Responsibility for all ongoing costs, including mortgage principal and interest, property taxes, insurance and maintenance Monthly payments can increase if interest rates go up at renewal time Possibility of unexpected and potentially costly repairs

to rent or buy, that is the question!

Did you know? 4 in 10 households spend more than 30 per cent of their pre-tax income on rent, which is above the commonly accepted affordability threshold.

The latest National Bank report revealed that monthly mortgage costs for median-priced condos was higher than the average monthly rent for a similar unit in Toronto, Montreal, Vancouver, Victoria and Hamilton. At the same time, monthly mortgage payments were lower than rents in Calgary, Edmonton, Quebec City, Winnipeg and Ottawa. While this data does not include suburbs, it shows a staggering difference between mortgage payments and rent payments.

If someone can rent for $900 a month or pay a mortgage of $1200 a month, it may seem like a no brainer but it is important to remember that paying rent does not build equity! However, if you are unsure of where you want to live or cannot find a suitable and affordable home with a close enough commute to work, renting may be your only option. This is where checking listings and discussing with a real estate agent may open doors and where a mortgage broker can come in handy to help you determine if purchasing a home is viable in your near future.

yes, you can buy!

The reality is that in the long run, homeowners often fare financially better than renters because homeownership enables forced savings that accumulate over the years, growing into a sizeable nest egg.

If you are unhappy renting or really prefer the idea of owning your own home, you CAN. It is time to stop assuming you cannot make the leap from renting to buying – all you need is the right information and the right preparation!

To determine if you are able to purchase a home, a good place to start is the My Mortgage Toolbox app from Dominion Lending Centers. This app is perfect for seeing what you can afford. Using the app to calculate minimum down payments and monthly mortgage costs can help you to get a good picture of the financial landscape and your options. Looking at your budget and evaluating your current rent costs and other monthly expenses can also help you to determine your affordability bracket.

Some other things to consider before buying include:

Your credit score – do you have good financial standing to be approved for a mortgage?
Your savings – do you have any money put away for a downpayment? If not, do you have wiggle room in your budget to start saving?
Your time – do you have the resources to maintain a home from the yard to any necessary repairs?

If buying a home to live in is out of the question due to the availability in your area or cost of homes close to work, another option is to consider an investment opportunity. Maybe you cannot afford to buy in the area you want so you rent in order to keep your commute short and be in a neighbourhood you love. However, you can still reap the equity benefits by investing in a vacation or rental property which would give you the necessary nest egg and help you feel more secure about your future financial situation. You could keep the investment property as long as you want! If you end up finding the perfect home in your area down the line, you could always sell your investment property and take the earnings for a down payment on the right home – or keep it as an extra security blanket!

Regardless of whether you choose to continue renting or make the leap to owning your own home, the most important factor is your financial security. What works for your friend or your parents may not work for you – and that is okay! However, educating yourself and looking into all the options will ensure that, at the end of the day, you are in the best situation for yourself.

Written by DLC Marketing Team