How to qualify for more under the new mortgage rules
With the change of mortgage rules requiring borrowers to qualify at the prescribed or posted interest rate that is approximately two per cent higher than the discounted rates, it time to come up with options for qualifying.
The change in qualification was designed to "stress test" borrowers. The government wants lenders to ensure that if mortgage rates rise borrowers will be able to make their mortgage payments when they have to renew at a higher interest rate in five years.
The new rules mean that, on average, a borrower qualifies for about 20 per cent less that they did a month ago.
Here are some strategies to help you qualify for more:
1) Save more down payment.
- For every $10,000 down payment you save that will shave approximately $56 off your monthly payments.
- Also if you are able to save 10 per cent rather than less than 10 per cent, you will qualify for a lower insurance premium through CMHC, Genworth or Canada Guaranty.
- The premium tiers are at five per cent down — 3.6 per cent premium, 10 per cent down — 2.40 per cent premium and 15 per cent down —1.80 per cent premium added to the mortgage and nothing for 20 per cent down.
2) Pay off some debt.
- Some lenders will allow you to use your unused TDS — total debt service ratio of 40 per cent to qualify for a mortgage.
- For example, if you have a credit card or line of credit with $10,000 owing the lender is required to use a three per cent or $300 payment in your debt service calculations.
- That same $300 will allow you to qualify for another $53,000 in mortgage money.
3) Find a property with a suite.
- The lender is allowed to include 50 per cent of the rental income for the suite into your income to qualify you for a mortgage.
- If you have a suite that has a market rent of $1,200, that may mean an extra $42,000 in mortgage funds.
4) Get a co-signer.
- Some times the purchase of a property may make sense because the borrower is self-employed and makes more money than then show for qualifications or maybe the child has demonstrated that they are able to pay a comparable rent payment.
- In these cases, the lender will accept a parent or related person to co-sign the mortgage to allow a larger mortgage payment.
If you have any questions about this or any other aspect of qualifying for a mortgage under the new mortgage rules, please call 250-862-1806 or email me at [email protected].
Sometimes, our children come to us for money to go out with friends, buy clothes, computer stuff or games and and the more they ask, the more we realize that we have created their reliance on us.
We can try offering to pay a portion which at least teaches them to learn to save for those things that they really want.
What about a down payment for a house. How does a parent handle assisting their child who can't save for a down payment on a home.
Here are a few things to consider.
Make it a starter home or condo
- If you are going to assist your child in buying a home it is important to make sure that not only can they afford the mortgage payments but also the property taxes, maintenance and other costs such as insurance an utilities. If you don't there will be further requests for money.
- A starter home or condo is a good idea because it is pointless to help your child buy a home that their income cannot afford. Buying a bottom end home will move them into the market and allow them to build some equity to move up to another home later.
A gift from your estate
- If you give your child a gift toward the down payment of a home, there are no negative tax implications for you unless you have to dispose of an asset that will create a taxable captial gain.
- If your child buys a home and is living in it as a principal residence, the property will be exempt from tax for any gains in value. The one thing to consider is that if your child is married and later divorces the gift that was invested into the matrimonial home will be split.
- If the gift is made prior to marriage, it may not need to be split, but this is something to be discussed with a family lawyer.
- If you are a U.S. citizen giving a gift over $14,000 US may trigger a gift tax liability. There is a tax exclusion amount and it is preferable to speak to a U.S. tax expert before deciding to gift your child.
Consider a mortgage loan
- If you lend money to your child to buy a home, there are no negative tax implications. Lending them the money will allow some control over the property if you register a mortgage on the property.
- The terms of the mortgage can be decided by you and can be interest bearing, non interest bearing, have repayment terms of principal and interest or interest only or can be due upon sale.
- If you lend the money to your child and they get divorced you will be entitled to be reimbursed for the mortgage outstanding, which will protect your child's investment.
- The mortgage you hold will be an asset and may have estate probate fees associated with it. These should be relatively small but again talking with a financial planner or accountant will clarify this for you. If you are a U.S. citizen, however, you will avoid the gift tax issue.
Transferring property as a gift
- If you have a rental property you may consider gifting it to your child but make sure you check on the tax implications. The market value will need to be determined and an appreciation will be taxable.
- There may also be property transfer taxes payable. Consulting a tax expert and lawyer are always a wise decision before making any large purchases or dispositions.
If you have further questions on assisting your children in buying a home please contact me at 250 862 1806 or email [email protected].
5 reasons to use a mortgage broker
There are a lot of good reasons to work with a mortgage broker when you’re buying or refinancing a home.
To help you understand just how valuable your broker can be, here is a list of the top five reasons. There are many more
1. Mortgage solutions are their area of expertise.
- You need to find a mortgage or refinance an existing one, but you have questions.
- Where do I start?
- Which lender best fits my needs?
- Which lender can offer me the best value?
- Are there really differences between mortgages?
- Which features are best for my needs?
- Brokers have experience working with banks and other lenders.They understand the benefits of the various rate options, and they’re familiar with the many types of mortgages and which one might be right for you.
Your broker has the answers.
2. Your broker is your champion.
- Your broker negotiates with the lender on your behalf, manages obstacles, processes paperwork and hammers out the details.
- They’ll help simplify what can be an overwhelming experience and take your long-term goals into consideration.
Your broker is on your side.
3. Personalized service.
- Your broker will work with you through every step of the purchase or refinance process.
- They will walk you through the application process and help you to understand your options and answer any question you have.
After all, your broker’s success is dependent on your satisfaction.
4. Your broker finds solutions that fit your needs.
- Your broker will help you navigate the confusing road map of rate types, mortgage options and terms to decide which solution is best for you and your financial planning.
- Your broker takes the time to understand your financial situation and needs to avoid unnecessary risk.
And that can save you money.
5. Your broker can save you time, lots of it.
- House hunting consumes as lot of time and energy. Imagine having to research different mortgage products as well.
- Finding a mortgage or refinance solution that’s right for you can take hours, days and maybe weeks.
- Your mortgage broker does almost all the work for you. They will research mortgage financing and lender options, process the application and document requirements and negotiate with the lenders.
That means less interruption to your daily schedule and more time to focus on your home.
For more information on working with a broker, please call 250-862-1806 or email [email protected].
The federal government has announced new rules to try and cool the heated real-estate markets in Vancouver and Toronto.
The change limits the foreign money going into the Canadian real-estate market by closing a “loop hole” that was allowing non residents to purchase a “home” in Canada.
It exempted the property from taxable capital gains upon its sale by deeming it their residence.
The other change announced by the government recently was the “stress test” for high ratio buyers.
"Overall, I believe the housing market is sound, but as minister of finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk," Finance Minister Bill Morneau said in Toronto.
The government has introduced changes to qualifications to ensure that buyers purchasing homes at the high prices and low interest rates are able to make their payments when interest rates rise.
Currently, if a purchaser with less than 20 per cent down payment buys a home and takes a mortgage term of five years or more, the lender and insurer qualify them at the interest rate they obtain.
The current rate for a five-year fixed mortgage is about 2.44 per cent. The new rules will require that the borrower is qualified at the Bank of Canada’s Benchmark rate, which is currently 4.64 per cent.
This rate is used right now to qualify high-ratio buyers who want to take short term or variable rate mortgages.
This change in qualification will have a dramatic affect on the buying power of a purchaser.
For example, if a couple were to buy a property today and had $80,000 in income and no debts, they would qualify for a home of approximately $520,000 with $27,000 down payment and a $493,000 mortgage.
This is with using $200 per month for taxes and $120 for heating.
If this same couple waited until today to apply, they would only qualify for a $430,000 property with the same $27,000 down and a mortgage of $403,000.
This change means a drop in buying power of $90,000 for a couple making $80,000.
This will force a lot of first-time buyers and move-up buyer with low equity to rethink their dreams to purchase a home.
That means they will have to purchase a property that is 17 per cent less.
With the real estate market having increased by 20 per cent in 2016 they may not be able to find something they can qualify for.
If you have any questions about these changes please email [email protected] or call 250-862-1806.
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