4 Apr

What is an Uninsurable Mortgage?

General

Posted by: Tina Card

WHAT IS AN UNINSURABLE MORTGAGE?

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances, properties over $1,000,000 or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

Consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have an analysis of your mortgage needs done so that you can make an informed decision. If you have any questions, please don’t hesitate to contact me anytime.

Article in part by Kristin Woodlard

28 Mar

Nuts and Bolts of the Federal 2019 Budget / What you Really Need to Know

General

Posted by: Tina Card

On March 19, the Federal Government announced the official 2019 budget.  One major topic on the discussion table (and one we were all holding our breath for) was the discussion of affordable housing in Canada.  So just what happened on “Budget Day”?  Here are the highlights of the 2019 Budget:

CMHC First Time Home Buyers Incentive Plan

-This would give first time home buyers the ability to share the cost of buying a home with CMHC
-For existing homes – the incentive would provide up to 5% (funding/equity sharing) of the PURCHASE PRICE
-For newly constructed homes the incentive would provide up to 10% (funding/equity sharing) of the PURCHASE PRICE
-Funding/Equity sharing means that CMHC would cover a percentage of the purchase price.

We are awaiting clear details of how repayment would take place.

Example:

  • 400K purchase price, 5% down payment (20K), AND 5% CHMC shared equity mortgage (20K), the size of the insured mortgage would be reduced from 380K down to 360K, which would lower the monthly payment amount for the first time home buyer

To qualify for the program:

  • 120K max household income
  • Cannot borrow more than 4x their annual household income – making max purchase price approx. 505K
  • 100k household income would mean max 400K mortgage in order to use this program.

Also, mortgage applicants under this plan still have to qualify under the federal stress test, which ensures that borrowers will be able to keep up with the payments even if interest rates rise by roughly two full percentage. The incentive, however, would lower the bar for test takers, as applicants would have to qualify for a lower mortgage.

The predicted start time is Fall 2019 for these guidelines.

Home Buyers Plan RRSP Increase

An increase of the previous $25,000 for RRSP withdrawal amount through the Home Buyers Plan to $35,000

These were the two mortgage related key changes that came out of the Federal Budget.

by Geoff Lee

28 Mar

OFSI Facing Growing Pressure to Tweak Stress Test

General

Posted by: Tina Card

Canada’s financial regulator is facing growing pressure to tweak its mortgage stress test, and no longer just from the mortgage industry.

On Monday, Calgary city councillor George Chahal filed a motion asking for the mayor to call on the federal government to amend the stress test implemented by OSFI (the Office of the Superintendent of Financial Institutions) on January 1, 2018.

Chahal argues the stress test is designed for the Greater Vancouver and Toronto markets, where prices have soared in recent years, and that slower-growth cities, such as Calgary right now, are suffering the wide-ranging consequences. One of those, which he addressed in his motion, is that many borrowers who don’t pass the stress test are being forced to turn to private, unregulated lenders that typically charge higher rates.

“I think we need to have a made-in-Alberta solution based on local economic indicators and which reflects the needs of Calgary and our local economy,” he told The Calgary Star.

Alberta Conservative Party Leader Jason Kenney also spoke out against the stress test last week, vowing to fight it should he be elected premier.

“If you elect a United Conservative government, we are going to go to bat for [those]…who are being pushed away from home ownership because of the prejudicial, regional, unfair stress test imposed by the Canada Mortgage and Housing Corp.,” he said in a speech to Calgary real estate agents.

In January, Mortgage Professionals Canada released its annual report, which addressed the negative effects of the stress test and reiterated calls for changes. Key among them being that any stress test be based on a “relevant” interest rate and factor in income growth and principal repayment; stop subjecting renewals to the stress test; and making it easier for borrowers at alternative lenders to transfer to more liquid and lower-cost lenders.

Canada’s big banks too, which at one time welcomed the stress test, are now voicing their own concerns in the face of a 17-year low in mortgage growth.

“The damage caused by the central bank’s premature bullishness was reversed quickly [with a pause in interest hikes]. What hasn’t been reversed yet is the damage to the housing market due to OSFI’s B-20 rules,” CIBC Deputy Chief Economist Benjamin Tal wrote in a research note, adding that he does not view the introduction of the 200-bps stress test as an error. “Some Canadians needed to be saved from themselves. But given where we are in the cycle, and with policy rates up by 75 basis points since the introduction of the new measures, is 200 basis points still the right number? Not taking a position here… just asking.”

In an interview with the Huffington Post, he added: “It’s not something that has to be set in stone. It should be more dynamic,” he said of any stress test. “You have to assess the damage to the housing market, whether that damage is too severe, and what other forces in the market are leading to slower growth.”

OSFI Not Expected to Cave to Pressure…Yet

Despite the increasing pressure to tweak the stress test, OSFI has no plans to make any modifications just yet, according to sources cited by Reuters.

That was more or less confirmed by Carolyn Rogers, Assistant Superintendent of OSFI, during a speech Tuesday.

“OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them,” she said.

She noted that the stress tests were introduced due to a “shift in risks” in the financial system and that the situation can continue to change.

“Should that margin of safety be monitored, and should changes be considered if conditions in the environment change? Of course they should,” she said.

Ron Butler of Butler Mortgage told CMT that as the real estate “apocalypse” continues in Vancouver, those in government and the mortgage industry are justifiably worried.

“Banks are here to make money for shareholders, and if they see something adversely affecting that goal, such as a slowdown in lending, they will definitely have an opinion,” he said.

Butler notes that he sees both sides of the stress test argument, saying he sees the human toll it takes on those caught in the middle, but also the need for it given that “soaring real estate prices pose a certain degree of danger to our economy and society.”

He argues that any modification should do away with requiring mortgage renewals at a new lender to be subject to the stress test. “Applying the stress test to consumers seeking to get a better deal at the point of renewal of their mortgage is ridiculous,” he said. “If a family is prevented from shopping for the best interest rate at the point of renewal when their incumbent lender is not required to use the test, then it is an anti-consumer policy that enriches the incumbent lender and harms the consumer.”

By: Steve Huebl

28 Mar

What is the Difference between a Mortgage Broker and a Mortgage Specialist

General

Posted by: Tina Card

With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.

Sooooooo… what is the difference between a Mortgage Specialist & a Mortgage Broker? At the surface, they sound the same
• They both arrange mortgages
• They both can offer advice and help you select a mortgage, right?

WRONG!!! There are many differences… Let’s check some of them out!

• A Mortgage Broker works for you! Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage. Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
o Bank specialists are employed and paid by the bank and work on the bank’s behalf.

• A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including; Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks) and private lenders.
o Usually, Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.

• A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. They continue to maintain their good status to keep that license by taking professional development education courses.
o Bank specialists are not licensed and require no formal training. There are no standards for educational requirements (although most Lenders do provide some in-house training).

• Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
o A bank specialist can only offer their own institutions products, good or bad.
o Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.

• Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
o When you see a bank specialist, the mortgage negotiating is typically left up to you.
o Will the bank specialist negotiate on your behalf or the banks?

• For conventional financing, the services of a mortgage broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage. Therefore, brokers are motivated to get the best terms and rates for their clients.
o Bank specialists are paid by the bank
o Some banks offer bonuses if the specialist gets their client to pay higher interest rates or sign up for other bank services.

• Mortgage Brokers work on a referral basis and are self-employed. Most of their business is done through word of mouth referrals, therefore a Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.

o A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.

• Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
o Bank specialists are generally only available during regular banking hours.

• Mortgage Brokers are focused on your mortgage
o Specialists are trained and rewarded on cross selling. Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation.  (article by Kelly Hudson)

28 Mar

Mortgage Qualifying Solutions

General

Posted by: Tina Card

Many people are having trouble getting the mortgage they want these days. Working with a Licensed Mortgage Advisor offers you not only access to a variety of products, but also a variety of experience-based solutions.

Here are a couple strategies we have used to get home buyers qualified, who have had difficulty elsewhere:

CREATE THEIR DOWNPAYMENT

Take out an RRSP loan with a lender who has the right guidelines.  The client utilizes a payment on the RRSP loan that fits into their long-term debt service ratios to qualify for a house. After 90 days the clients use the Home Buyers plan to withdraw the down payment. The useful part of our scenario is that our lender does not require the loan to be paid off to use the RRSP money for the down payment. Most RRSP lenders will demand that the withdrawn funds are used to pay the balance of the RRSP loan off in full.  If they qualify, ( in RRSP room and GDS / TDS ratios,)  up to $25,000 in down payment could be available.

RE-WRITE A CAR LOAN TO REDUCE THE MONTHLY PAYMENT

We have a bank lender who rewrites car loans with a longer term creating a lower monthly payment.  Lower car payments can lead to a higher mortgage. Recently, we had clients with a newer vehicle with a large payment. With the new lower payment that we organized, the clients then were able to obtain a $70,000 higher mortgage. They were very happy that they were now able to purchase the house they really wanted NOT the house that the bank said they should be purchasing.

If you think you can benefit from these strategies or would like to know about other solutions, please give me a call.

12 Oct

Understanding Mortgage Payout Penalties

General

Posted by: Tina Card

It is very common for people to believe that the rate is the most important consideration when selecting a mortgage product. In many cases, this is a reasonable assumption, many times customer are deciding between mortgage products that are very similar in rate. In this case, as in most, understanding the terms of the mortgage are more important then the interest rate. It is unfortunate that too many  Canadians find themselves learning  about one of the most important terms which has very negative  effect on their financial situation when it’s too late, Payout Penalties.

When calculating a mortgage payout penalty, banks and broker lenders use the greater of:

  1.  A 3 month interest penalty or
  2.  The interest rate differential (I.R.D)

This is where the similarities end.  Banks calculate their I.R.D. based on the discount off the posted rate for the nearest term at the time of payout, while the broker lender uses a re-investment rate.  The bank discount is the discount you received at the time of approval.

The example that I am using is a mortgage with a balance of $400,000.00 at 2.79% with 26 months left on the original 5 year term.  The 2.79% rate from your bank was a 2% discount off the original 5-year posted rate of 4.79%.  The broker lender does not deal in posted rates as such.

Interestingly enough, the bank posted rate for the nearest term of 2 years was 3.24%, and the reinvestment rate for the broker lender was also 3.24%.

For the broker lender, the reinvestment rate was higher than the rate on the mortgage paid out, so the 3-month interest penalty is charged.  The penalty worked out to $2,790.00.

The bank penalty was calculated using the original 2% discount subtracted from the 3.24% posted rate for a 2 year term.  This resulted in the penalty being charged as the difference of 2.79% minus the 1.24% or 1.55% differential for the remaining 26 months of the term.  The result was a penalty in the amount of $13,433.33 or a difference of $10,643.33.  The banks not only get to charge the higher penalty but also get to reinvest the money at the higher rate.  Win, win for the banks but lose, lose for the borrowers.

In the past three years, many Albertans had to sell their homes due to unforeseen circumstances. Do you not think that the $10,000.00plus in penalty differences would have been better in the hands of these Albertans or your hands versus going to the Ivory Towers on Toronto’s Bay Street?

Written by: Dave Melnyk, Mortgage Advisor – Jencor Mortgage Corporation

25 Sep

Turn the house you like into the Home you will buy!

General

Posted by: Tina Card

Government restrictions on refinance guidelines have reduced the equity homeowners can access for renovations. High ratio buyers especially, in a flat market, may wait years before the house has appreciated enough that an 80% LTV refinance provides any money. If home buyers want to do upgrades, the time of purchase may be the only opportunity, for years they can add the cost of the renovations to the mortgage.

Use the Purchase plus Improvements to:

• Add a new or updated kitchen
• Develop the basement for more living space or visiting friends & relatives
• Update or replace the carpeting or maybe adding hardwood
• Add a garage or workroom
• Add a media room or “man cave”
• A new additional bathroom with maybe a jetted tub
• A new roof
• A more efficient central air or furnace system
• Add new siding, eaves or fascia
• Replace or updating doors and windows
• Add major landscaping

If the property isn’t exactly what they want: renovate, add, or upgrade it!

There are specific requirements for the purchase plus improvements program, please call to learn the details. Exceptions to the generally understood parameters are available.  Renovating up front may be your buyers best option.

25 Sep

7 sure-fire ways to grow your credit score

General

Posted by: Tina Card

Have you ever wished for a simplified guide on how to actually GROW your credit score? Well, today is your lucky day! We have had years of experience working with individuals who come to us with poor or damaged credit and we have found 7 steps that prove to be tried and true in fixing it. 

First off though—why are we so focused in on credit scores? Simply put, your credit score details your history of borrowing money. It shows how timely you are on payments; how responsible you are with it and how you manage it.

In a Nutshell: Your credit score represents to the lender that you have proven yourself capable of paying your bills on time and are responsible when managing credit. Your credit score will also impact the interest rate that you receive. So, when we are talking about mortgages, your credit score=very important.

Now that we have that covered, here are our 7 sure-fire ways to grow your credit and make the mortgage application process, a breeze:

1. Have at least 2 credit lines at all times
This means that you should always have 2 “tradelines” going. Whether this is 2 credit cards, a credit card and a line of credit and a car loan etc. You want to show that you can manage credit, and this is one easy way to do it. As an added note, the limit on the credit lines will need to be set at a minimum $2,000.

2. Make your payments on time each and every month
No skipped payments! You should ALWAYS make the minimum payment required on all your lines of credit each month.

3. Do not let your credit be pulled too often.
This one is something people often forget about. Having your credit pulled for new credit cards, car loans, and other things frequently raise a red flag for lenders and can significantly lower your credit score

4. Do not exceed 50% of the available credit limit on your credit card or credit line.
We know this one can be hard to do. One easy way to monitor this is to only use a credit card for certain fixed bills; such as a cable/internet bill, cell-phone bill, etc. This way you can easily keep track of what credit you have used and what is available still.

5. If you have missed a payment, get back on track right away.
If you did, by chance, miss a payment, do not fret. Instead, get back on track with your month by month payments. Lenders would look at the one missed payment as an abnormality versus a normal occurrence if you are back on track by the following month.

6. Make sure each partner has their own credit.
We cannot tell you how frustrating it can be for couples when they realize that all their credit cards and lines of credit are only under one name…leaving the other person with no proven track record of managing credit! We advise clients to both grow their credit by making sure all joint accounts report for you both.

7. Do not exceed the Credit limit.
It is important to not go over or exceed the credit limit you have been given. Having overdrawn credit, shows the lender that you are not able to responsibly manage credit.

If you follow these 7 steps and are responsible with your credit, you will have no problem when it comes time to purchase a home! In need of more advice? Please don’t hesitate to contact me anytime!

25 Sep

5 Things to Consider When Buying an Acreage or Country Property

General

Posted by: Tina Card

HOW MANY ACRES ARE YOU PURCHASING? 

For conventional mortgages,  lenders will finance a certain number of acres, a house & a garage. The number of acres that they will consider can vary based on the property location and the norm for that area. The minimum down payment can also vary based on the size and location of the land.  For example, a property that is close to a major urban area and under 10 acres would most likely be approved with 20% down payment. If it is a larger acreage 30+ acres and not within an hour of a major urban area, the minimum down payment will likely increase.

For high-ratio / CMHC insured mortgages with a minimum of 5% down,  they will approve and insure the value of the house, garage and the `residential component` of the land. If the norm / average acreage size for the area is 20 acres, this is what they will approve in land value. If it is 160k – then this is what they will approve. However, if you purchases a 160 acre acreage and all of the acreages surrounding it are only 20 acres – CMHC will likely only give value to the first 20 acres of land and the buyers will have to pay out of pocket for the value of the remaining land as determined by an appraisal.

It is typically easier to secure financing on CMHC insured Mortgages and it is not uncommon for lenders to require the mortgage is insured even if the buyers have a 20% down payment based on the purchase price. If it is a large acreage, has outbuildings of major value or is a mobile or modular home – these are all things that could result in either a larger down payment requirement and / or mortgage default insurance.

If there is no home on the property a mortgage is not available and one would require a land loan. Land loans typically start at a minimum of 25% down payment and go up from there based on the location, size and value of the property, they also often come at slightly higher interest rates.

WHAT ABOUT No mortgage unless there is good water! Potability reports are needed for all well water and flow rate, this will be requested either upfront with the lender approval or at the lawyers before closing. Some insurers will also request a copy of the Septic Inspection report.POTABILITY

WHAT ABOUT ZONING? Country residential is the easiest to finance. However, if the land is zoned Agricultural, but used as residential (no farming or commercial component) the lenders and insurers will consider this as well. Agricultural & Farmland that derives income is more difficult to finance. Lenders are wary as it is difficult to foreclose on agricultural land and if the Agricultural land has a farming component or income lender options become much more limited and down payment requirements increase.

WHAT IF THE PROPERTY HAS OUT BUILDINGS? Mortgages are for a house, garage and land – and that’s all. If the property has an outbuilding of value the effective value of the property will often be reduced by the lender or insurer, and this will affect the down payment requirements.

For example, if a client is purchasing a small acreage for 800k , and there are a brand new large heated shop, horse corrals and an arena on the property that the appraiser values in total at $ 160k, this would be deducted from the purchase price in the lenders eyes bringing the effective value down to 640k (800k-160k). The buyer would then need to have a minimum 6.1% down payment based on the 640k effective value ($39k) PLUS 160k to make up the difference (value of outbuildings) for a total of $ 199,000. Even though the buyer is technically putting more than 20% down based on the contract purchase price, the lender and insurer would consider this to be financed at 94% of the value of the home, garage and land and a CMHC premium would apply.

OTHER FINANCING FACTORS TO CONSIDER: You may need to allow extra time for conditions to be removed on acreage purchases as  CMHC appraisals and well water testing can cause delays.

As always with mortgage financing, the buyer plays an important role. For strong clients, the lender may make an exception to their policies. 

Article was written by Corey Lewis, Jencor Mortgagee