General

Posted by: Lena Larsen

Did you know that you can buy a home with ZERO down payment?? If a home purchase is your goal this year but you aren’t able to save up enough of a down payment, you may qualify for a low or zero down payment mortgage. One of our Lenders is offering a great zero down program.

What is a Flex-Down Mortgage?
A Flex-Down Mortgage is a mortgage product that has a flexible down payment amount. There is still a down-payment required, but it will vary based on the property value.

• For a property valued under than or equal to $500,000, 5% down payment is required (sources available below)
• For a property valued at greater than $500,000 and less than $1 million –5% down payment is required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000.

Flex-down mortgages can only be on first mortgages, not second or third or used in refinance situations. As noted above, the total property value has to be less than $1 million. This type of mortgage will also have insurance included with it—the premium will be lesser of the premium as a % of the total new loan amount or the premium as a % of the top-up portion additional loan based on the rates at that time.

Those that choose to go with this type of mortgage product will have to meet requirements, just like any other mortgage. There are a few specifications with this product:

• You must show that you have standard income and employment verification papers
• A credit score of 650 or higher is highly recommended
• You must have no previous bankruptcies
• Some lenders may still require you to have some of the down payment from your own resources

Those considering this type of mortgage are recommended to have very little debt and be able to accommodate the additional cost of higher mortgage insurance (due to the higher risk to the lender on this type of mortgage). Typically, the insurance premium would be 0.2% higher on a flex down mortgage.

How it Works
You can borrow your 5% payment from a Line of Credit or even a credit card. This can then be used for your down payment. You have to disclose this to the Insurer and it will be on the application that goes to the Lender.

This is perfect for someone just getting into a new high paying job or for someone who is renting and can afford higher monthly payments but would take forever to save up the 5% down payment. This type of mortgage product can be an excellent option if you don’t quite have enough for the down payment. Are you interested in learning more about this mortgage product? Contact a Dominion Lending Centres mortgage professional who can show you how a Flex mortgage can make the home of your dreams happen sooner than you think!

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

Let’s take a closer look at how a Refinance Plus Improvements mortgage can get you the extra cash you need to get your renovations completed.

The Standard Refinance

An everyday refinance allows the home owner to access up to 80% of the fair market value of the home. The value is typically determined by a Market Appraisal on the home. Here is how it would look:

• Current Appraised Value of the home: $250,000.00
• Max New Mortgage Amount: $200,000.00 ß 80% of present value
• Your current Mortgage Balance: $190,000
• Equity Available to you for the renovations: $10,000.00

*Note: some of the equity will cover closing costs (it is a new mortgage after all, so a new registration and fund advance needs to happen. If you are breaking a current mortgage, there could be a pre-payment penalty as well)

The remaining equity can be used towards your improvements. But what happens if it’s not enough to cover the improvement costs? You’re now stuck with either making sacrifices to your dream reno, covering the additional costs out of pockets, use a higher interest line of credit or not doing the renovations at all. None of which are a great options.

The Refinance Plus Improvements Mortgage

Here is how the Refinance Plus Improvements mortgage can make all the difference.

For argument sake, let’s assume for a moment that the home owner is thinking about renovating their kitchen and main bathroom. These are in no way a small improvement. They are quite significant improvements…new flooring, cabinets, counter tops and paint in the kitchen along with a full gut and renovation in the main bathroom.

After sitting down with a Mortgage Broker to determine mortgage affordability, the home owners next step is getting estimates for the renovations. After having multiple contractors quote on the work, the home owner settles on a contractor that has quoted $20,000.00 for the job (Labour and materials costs, all in, turn key project). Let’s also assume for a moment that the renovations are going to increase the value of the home by $30,000.00 (side note: Kitchen and Main Bathroom Renovations can have the biggest impact on the value of a home). Here is how it would look:

Refinance Plus improvements:

• Current Home Value: $250,000.00
• Post Renovation Home Value: $280,000.00
• New Max Mortgage Amount: $224,000.00
• Your Current Mortgage Balance: $190,000.00
• Equity Available for the renovations: $34,000.00

See the difference? The refinance plus improvements in this scenario can get the home owner access to an additional $24,000, far exceeding the improvements planned for home. No sacrifices required. No unsecured higher interest financing required. No need to tap into personal savings. Just a nice new mortgage with a low interest rate and one simple payment.

If you have questions about how a refinance plus improvements mortgage can make all of the difference with your renovations plans, please feel free to connect with a Dominion Lending Centres mortgage professional near you. We are always happy to chat mortgage strategy with you while at the same time shopping the market and rates on your behalf!

Happy Renovating!

Nathan Lawrence

Dominion Lending Centres – Accredited Mortgage Professional
Nathan is part of DLC Lakehead Financial based in Thunder Bay, ON.

. Please check out this post written by my colleague Eitan

When you purchase your home, there are 6 additional costs to account for. They include:

• Home Fire and Flood Insurance
• Title Insurance
• Legal Fees
• Adjustments
• Land Transfer Tax
• GST

Here’s an overview of what you can expect.

Home and Fire Insurance. Mortgage lenders will require a certificate of fire insurance to be in place by the time you take possession of your home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Title Insurance. This is a one-time fee of about $150 and it protects you against any issues, defects or fraud on your title. Your lawyer or notary helps you purchase this.

Legal Fees. Thirdly, you are required to pay legal fees. Your lawyer or notary will charge you anywhere from $700 to $1,000 to help with your purchase. There are also fees to register your title with the municipalities. All told, you’re looking at around $1,000 to 1,300, after tax.

Adjustments. An adjustment is a cost to you to pay the seller back for prepaying any property tax or condo fees on your behalf. Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using.

Land transfer tax. Land transfer tax, or property transfer tax (PTT) as it’s known as in British Columbia, is a fee that is charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.

In British Columbia, the PTT is 1% on the first $200,000 of purchase and 2% thereafter. However, if the property being purchased is over $2,000,000, then it is 3% on any value over $2,000,000.

GST. GST is only paid on new construction purchases. GST is 5% on the purchase price. However, there is a partial GST rebate on properties under $450,000.

Please don’t hesitate to contact a Dominion Lending Centres mortgage professional for your home financing and mortgage needs.

Eitan Pinsky

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.M

Please check out this great article written by my colleague Kelly Hudson

Pre-Approved for Your Mortgage… What Does that Really Mean?

There is a myth out there that once you’re pre-approved for a mortgage, you’re good to go out and buy a home… with a no subject offer… DON’T do it!

A pre-approval means that based on being able to PROVE (through documentation) your CURRENT income, expenses, down payment and credit bureau you SHOULD be able to get fully approved once you find the right property (this is the first half of the equation).

Remember that there cannot be any major changes to the your mortgage application details prior to the completion of their purchase as it may affect the your qualifications and change the conditions of the approval.

I always recommend my clients put in a “subject to financing” clause with their realtor when they are putting in an offer to protect themselves.

Here’s why:

The lender can like you and your financial picture, BUT the lender doesn’t know which property you want to purchase (this is the other half of the equation). Here are 3 examples:

• A bidding war has bid up the price and the best offer (yours) has been accepted. YIPPEE!!! The lender sends in their appraiser to determine the value of the property. The appraisal comes in at a lower price than your accepted offer DRATS!! You now have to come up with the difference between the appraised value and your offer, since lenders will only offer a mortgage based on the appraised value of the home.
• You are buying a condo/townhouse and the strata minutes indicate that there are: leaks, electrical issues, roofing problems, etc. that the strata needs to act upon. If the Strata doesn’t have a big enough contingency fund, the lender can decline due to potential special assessments down the road.
• Property zoning – if the zoning is anything other than residential then your options will be limited. Some condos are zoned commercial if there is a large commercial component to the complex. Industrial, Agricultural Land Reserve (ALR) in B.C., or leasehold (government or otherwise) limit a buyer’s options.
  As you can tell “you may be pre-approved” but most certainly the subject property is not!!

There are several properties that most lenders will not touch these days. Here’s a (partial) list of property details that can affect most lender’s decisions on approving your mortgage:

A remediated grow-op or drug lab

Leased land or co-op

Age-restricted property

Special assessment (pending or otherwise)

Any reference to water or leaks in the minutes

A “fixer upper”

Contains asbestos, vermiculite insulations or has (even partial) knob-and-tube or aluminum wiring

Is on land with a commercial zoning component

Livestock is present, etc.

Self-managed strata’s (no strata management company)

Size of the property- below 500 sq. feet,

Doesn’t use municipal sewage or waste

Over 1 Acre and/or multiple buildings

Ongoing or upcoming assessments or legal proceedings

Strata with small contingency fund

The lender reviews the details of each property in detail once you have an accepted offer in place.

It’s important that the real estate agent discloses the information to their buyer ASAP so that it can be brought to the lender’s attention. The agent should be proactive in getting all documentation pertaining to the building/property, so that the buyer can make an educated buying decision. Many of the issues stated above can affect the long-term value and marketability of a property.

If you have a “subject to financing” clause in your purchase agreement, and you can’t find a lender (for whatever reason), then you can back out of the deal with no financial repercussions.

In my opinion you need to always put in a “subject to financing clause” as that’s the best protection you have. With subject free offers you could forfeit your deposit (and facing potential legal action from the seller) should you want to cancel your contract after the agreement has been made, even though you were technically “pre-approved”.

As you can tell there is lots to discuss about buying homes including pre-approvals! If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

Kelly Hudson

Dominion Lending Centres – Accredited Mortgage Professional

The Bank of Canada has increased its key overnight rate from 1.25% to 1.50%. This rate hike didn’t come as a surprise.

In turn prime lending rate of most banks  like Scotiabank, CIBC, RBC has increase by 0.25% from 3.45% to 3.70%. TD Bank has their own prime rate that increased from 3.60% to 3.85.

How does this affect you?

If you have a variable rate mortgage, your rate will go up and your regular monthly scheduled payment will increase as well. The 0.25% in rate increase equals approximately $12 increase in your monthly payment per every 100K borrowed. So on a 300K mortgage, the payment will increase by approximately $36/month. Hardly a budget breaker.

If your variable rate mortgage is with a lender like TD, your payment will not change. More of your payment will go towards interest and less towards principal.

If you currently have a discount of 0.50% below prime, your new rate will be 3.20% (3.70% – new prime rate less 0.50%).

Also, if you have a home equity line of credit (HELOC), personal line of credit or any other loan that is prime rate based, your rate will go up by 0.25%.

What to expect next?

Nobody has a crystal ball but what we are projecting for the future is that this may be the last rate hike for a while. Factors such as impeding trade war with the US and what’s happening with NAFTA could postpone future rate hikes for a while.

Conclusion: If your mortgage is a variable rate mortgage, stay variable! The benefits of staying in a variable product far outweigh a fixed rate. Primarily, a low interest rate compared to fixed rates plus the lowest penalty (three month interest) as opposed to a fixed rate mortgage.

This has been all over the news! The key point is, banks typically give their clients much better rates than their posted rates. For example, TD’s 5 yr posted rate is 5.59% now but their current 5 yr insured special rate is 3.34%.

Posted rate is used to qualify for all insured mortgages and some not insured mortgages like variable rate mortgage. Since their posted rate jumped from 5.14% to 5.59%, you will not be able to qualify for the same mortgage amount. It will be less.

RBC raised their 5 yr posted as well – 5.34% now. Other lenders have not made any changes yet – Scotia’s posted rate is still at 5.14%.  Please check out this article below.

http://business.financialpost.com/news/fp-street/toronto-dominion-lifts-mortgage-rate-in-biggest-move-in-years

Bank of Canada interest rate increase. Prime is at 3.20%.

CONDENSED VERSION

• I am not locking in myself and staying variable for a number of reasons

LONG VERSION

You most likely heard that Prime rate increased yet again last week. Prime is now 3.20% with most mortgage lenders (TD is an exception with TD prime at 3.35%). If your current mortgage is a variable rate mortgage, I believe it is still a great choice.

Reason #1

Payout penalty on a variable rate mortgage is only 3 months interest in case you will be looking to sell or refinance. Penalty on a 5 yr fixed closed mortgage could be as high as 4K per every 100K borrowed depending on a financial institution you are with.

Reason # 2

If your variable rate mortgage is with TD, your payment will not change. Their variable rate product has a static payment.

Reason # 3

Lenders want you to select a 5 yr fixed closed mortgage. Variable rate mortgages offer not a lot of benefit to the bank (lower interest / very low payout penalty) but this is something you can benefit from.  Taking no action to lock in, could be a good pro-active action on your part.

Reason #4

At this time the decision to lock in mainly comes from an assumption that since we have seen two prime increases in the very recent past, more will be coming in the future.

Not necessarily.

The government may have overstepped with this recent rate hike and we may see a pull back within the next year. For instance, back in 2010 prime increased 3 times and remained stagnant for 5 years before it got cut again. Something to consider.

The Bank of Canada will be meeting again on October 25, 2017.

Condensed version of this post:

• Insured mortgages (or with less than 20% down) are getting the best rate offers!
• Uninsured mortgages (20% down or more) get a slightly higher rate
• Rental purchases receive even higher rates

The Whole Story

So what is your best rate? I get this question asked daily….Several time a day actually. Not surprising though, mortgages are what I do and rates are very important to my clients.

Just over 6 months ago, it would have been quite easy to answer this question. These days, after the new mortgage rules got introduced, the answer is more in lines of “it depends on what kind of mortgage it is”.

Let me explain…Insured Mortgages aka high-ratio mortgages or mortgage with less than 20% down enjoy the lowest rate offers these days. This applies to both fixed rates and variable rates. Banks love insured mortgages! Insurance gives them extra security in case of default.  Banks’ main competitors like First National, MCAP and other AAA mortgage trust companies love insured mortgages even more. They insure all the mortgages and sometimes even pay the premium out of their own pocket where the down payment is over 20% just to have the mortgage insured. If your mortgage is coming up for a renewal and it was originally insured, you will get the lowest rate offer with your lender (hopefully!) or another lender. This applies even if you now have more than 20% of equity in the property. If your mortgage  insured originally, it is insured until it is paid in full.

Here is the ironic thing: if you are putting 20% down or more and your mortgage is not insured, you will not have access to those nice high-ratio rates.  Imagine a middle-aged couple with good long job stability, excellent credit looking to buy a house with some substantial savings are being offered a higher rate than their 22 yr old son buying his first apartment with only 5% down? Ironic, indeed.

For example, Scotiabank is offering 2.54% on the 5 yr fixed insured mortgage and 2.64% on their uninsured mortgages.

Mortgage on rental properties seem to have the highest rates. The same major bank  is offering 2.94% on their 5 yr fixed term.

I think we will see a lot of interesting changes in the mortgage market coming up since the new rules have been introduced. I see a tendency among AAA trust companies adjusting to the changes to stay competitive. For instance, MCAP,  one of the major AAA mortgage trust companies, has just recently announced their program for “insurable” purchases with 20% down or more where they offer an extremely low 5 yr fixed rate or 2.39%. To offer this rate, MCAP charges a 1% government related fee to off-set the cost of mortgage insurance.

NOTE: This program is available only to a very small number of top mortgage brokerages.  And guess what?  I have access to this program and can offer it to you!  

If your mortgage is coming up or you would like some more information, please get a hold of me and I would be more than happy to help you out!

You may have heard that mortgage insurance premiums went up effective March 17, 2017. A lot of people confuse mortgage insurance with life insurance. They are not the same thing. Mainly, mortgage insurance does not protect the consumer; rather it protects the bank’s investment in case of default. The banks look after their interests and will never lose…

With less than 20% down, mortgage insurance is mandatory on a standard purchase. On more “high-risk” programs like Mortgages for Self-Employed or Mortgages for New Immigrants, the bank will insist on having the mortgage insured unless the applicants are in the position to put 35% down.

We have three mortgage insurance companies in Canada:

• CMHC
• Genworth
• Canada Guarantee

All three now raised their insurance premiums.   The curious thing is, the bigger the down payment, the more substantial the hike in the insurance premium. It doesn’t make a lot of sense. It seems like folks who are willing to put more down are getting punished. Please check out the chart below.

How does this affect you? If you already own a home, it will not immediately affect you. However, the statistics say 6 out of 10 families will move in the next 38 months. If your new purchase is with less than 20% down, your new mortgage will need to be insured.  From my experience, folks who sell their home and buy a new one will put more than 5% down. On average, it will be 15% down and this is when they will face higher insurance cost.

This information is the result of my in-depth research and also goes in line with the opinion of mortgage industry leaders whose expertise I value. This is not something you will hear on the news where the objective is to instill concern and sometimes panic.

So let’s get to it:

For Variable Rate Holders:
Enjoy the stability of your variable-rate mortgage.  Sounds kind of contradictory, doesn’t it? But this is what variable rate mortgages are now.  We are not anticipating Prime rate going up. Why? Prime rate is deeply influenced by the health of the Canadian economy. A good analogy is, imagine that the Canadian economy is like a car. Once the car starts accelerating a little too much (unemployment rates are low, consumer confidence and spending goes up, inflations picks up) the driver (the Canadian Government) steps on the brakes to slow things down.

This is when they increase the overnight lending rate and Prime rate goes up.

The reality is the Government is putting their foot all the way down on the gas in their effort to stimulate the economy….So it is very possible Prime may even drop down 0.25%.

For fixed rate holders:
Fixed Rates have been very “wild” lately jumping up 0.25 to 0.50% since the changes to the mortgage rules got introduced.  Longer term fixed rates ( 4, 5, 7 and 10 yr) are influenced not by Prime rate but by the bond market and the bond market has been very volatile lately trading between 1.00 and 1.20%.

A jump in bond rates means that fixed rates will always follow. What is happening with Prime has absolutely no influence on 5 yr fixed rates.

If you are set on a 5 yr fixed mortgage, my advice is to get pre-approved to have the rates locked for you! We can hold the rates for 4 months. If your mortgage is coming for a renewal this year, contact me 4 months prior to the renewal date and we will lock the best available rate for you. Or may I suggest looking at a variable rate mortgage? 🙂
Experts predict that 5year fixed rate will remain under 4% by the end of this year.

Wishing you a very calm and successful 2017!

Sincerely,

Lena Larsen