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Finance

Down payment

If you have less than 20% down payment, mortgage insurance is required through Canada Mortgage & Housing (CMHC), Genworth or Canada Guaranty. Homeowners no longer need the minimum 5% down payment from their own funds to purchase a home.  You can now use borrowed funds for your 5% down, but keep in mind that there are higher credit criteria and your insurance premiums increase.

 

Down payment from your own resources (non borrowed):

You must supply verification satisfactory to the lender of accumulated savings from non-borrowed funds.  This may be in the form of:

  • Copy of your bank statement or bankbook (including cover) showing a minimum three-month history.  Any large deposits during this time period must be explained and documented.
  • Copy of RRSP statement, term deposits, CSBs, or other investments.

 

Down payment from a gift (non borrowed):

All or part of the minimum equity requirement (5% for down payment plus 1.5% for closing costs) may be provided by way of a financial gift, as long as all of the following conditions are met:

  • The donor is an immediate relative of the borrower (recipient); and
  • The Approved Lender has verified that the money is a genuine gift; and
  • The Approved Lender has verified that the funds are in the borrower’s (recipient’s) possession at least 15 days prior to closing.

The Approved Lender will verify the authenticity of the gift by obtaining a written confirmation, signed by the donor and the borrower (recipient), which will include the following points:

  • The money is a genuine gift from the donor and does not ever have to be repaid;
  • No part of the financial gift is being provided by any third party having any interest (direct or indirect) in the sale of the subject property.

 

Borrowed down payment:

Effective March 1, 2004, homebuyers can get their down payment from borrowed sources that include:

  • Lender cash back incentives;
  • Personal loans, lines of credit or credit cards;
  • Unsubstantiated gifts.

When using a borrowed down payment, there are a higher credit criteria and also increased insurance premiums.

 

Down payment from the sale of an existing property:

You will be required to provide a copy of the unconditional Agreement of Purchase and Sale on your existing property.  This needs to be accompanied by a copy of a recent mortgage statement showing the balance owing on any mortgages presently registered against the property.  The difference between the sale price and the mortgages owing will substantiate the funds available for your down payment.

 

If you have any questions regarding your down payment or any other mortgage related question please call (250) 862 1806 or email [email protected].



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Pre-approved for mortgage?

There seems to be a lot of confusion around the term pre-approval when it comes to mortgage pre-approvals.  Pre-approvals can range from a client giving a lender or mortgage broker their income and asking how much mortgage they qualify for to a full documented pre-approval with all the necessary paperwork to back up the application.  It is important for a borrower to know the difference.

It is imperative that the lender or broker complete an application with the purchaser to obtain not only their income but also any other financial obligations that they may have such as loans, credit cards, and child support.  These other financial obligations can impact the amount of mortgage that a borrower may qualify for.   This information can be verified by obtaining a credit report which will confirm the outstanding  balances of these obligations.  Many applicants these days are hesitant to have a credit report pulled as they fear it may lower their credit score but, often not pulling one can create frustration during the final approval when unexpected debts or late payments surface.

The most secure pre-approval is one in which every aspect of the buyer’s application has been verified.  Here is a list of some of the information that may be helpful to obtain prior to meeting for a pre-approval:

1.  Employment letter stating the position, time on the job, salary or hours and the prospects for future employment.

2.  Recent paystub – is a secondary confirmation and should agree with the letter.

3.  Notice of Assessments for two years.  These are often obtained if the borrower is hourly or has recently started a new job.

4.  Confirmation of down payment – a minimum of three months history showing the accumulation of savings towards the down payment.

 

These are some of the basics that can assist a lender or mortgage broker in giving you a pre-approval that is fairly solid and not subject to a lot of conditions.

 

If you require further information or would like to set up your FREE strategy session for a pre-approval please call 250 862 1806 or email [email protected].



Refinance your mortgage?

 
Canadian Mortgage rates are low and could be dropping down in time for the spring market following a drop in the Bank of Canada Rate on January 21 by 1/4% which will save new buyers and those with mortgages up for renewal on their home costs.  If you have a variable rate mortgage your rate will have already been reduced by .15% as most lenders lowered their Prime lending rates in February to 2.85% from 3.00%. With lower rates still to come, does it make sense to get our of your current mortgage and get a lower rate?  There are three questions to consider.
 
1. How much is my penalty?
 
Penalties are part of the mortgage contract signed with your lender and prevent certain actions.  Mortgages with variable interest rates usually only have a penalty equal to three months interest but sometimes there are reinvestment fees.  Fixed rate mortgages are more difficult to calculate and can be several thousand dollars.  Most fixed rate mortgages have a penalty that is usually the greater of three months interest or the interest rate differential.  The Interest Rate Differential (IRD) is the rate used to calculate the loss that the lender would incur to replace the mortgage at today's lower rates.  The IRD is based on the term remaining and the posted interest rate at the time the mortgage was obtained.
 
2.  How can I calculate the IRD penatly?
 
There are online calculators that will ask for all the details of your mortgage including the original rate, balance and term remaining.  These are good approximations but to get a more accurate calculation it is best to contact your lender directly.  Sometimes you can take advantage of an unused prepayment of the principal to reduce the penalty as long as it is not within 30 days of the payout.  This will lower your IRD.
 
3.  Will I save enough money with my lower rate?
 
There are many online calculators which will calculate an approximate penalty and the savings for you.  Usually the rule of thumb is that if you are paying a three month interest penalty because the interest rate differential is lower, than you will usually save money in the long term.  This is especially true if you refinance from a fixed rate mortgage into a variable rate mortgage and keep your higher payments.  There are some cautions such as do you have the money to pay the penalty if it cannot be added to your refinance, and will you qualify for a variable rate mortgage using the government prescribed qualifying rate?
 

For these and further information on saving money on your mortgage please call 250-862-1806 or email [email protected].





What will Bank of Canada do next?

One of the big questions facing the markets right now is what the Bank of Canada will do next.  One economist believes it will continue to cut.  In a new forecast the HSBC Bank PLC predicts the BOC will cut the benchmark rate again in this quarter to 0.50%, and then again in the second quarter to just 0.25%!

It was just last week that Bank of Canada Governor Stephen Poloz and his colleagues surprised the markets with a cut of one-quarter of a percentage point to 0.75 per cent, fuelling speculation that they could move again.  Mr. Poloz called the cut an “insurance policy” because of the oil price decline and that he was prepared to cut further if necessary.

The HSBC’s chief economist in Canada, David Watt said the Bank of Canada will have to “remain cautious” for the rest of the year. “The Canadian economy is going to be vulnerable through the first half of this year” he added. Before the oil downturn, economists had expected a “re-balancing” in the economy towards exports and business investment, from the consumer spending and housing action that had propelled growth. But now, Mr. Watt said, investment in the oil patch is obviously going to suffer.  Energy companies are already substantially cutting their budgets and commencing layoffs of employees.

Other economists are predicting a second rate cut from the Bank of Canada but as an example, CIBC World Markets expects only a further 0.25% cut to 0.50% and not more.  Still others, Mark Hopkins of Moody’s Analytic, expects Mr. Poloz to hold rates steady for quite some time.  “Given the offsetting impact of the exchange rate and the strength of core inflation, a second rate cut is unlikely but cannot be ruled out,” Mr. Hopkins said in a recent report that predicts the Bank of Canada will keep rates steady into next year.

With the uncertainty over interest rates, of course, come predictions for the Canadian dollar, which has suffered substantially from the drop first with oil prices and now with the latest cut by the Bank of Canada.  Those watching the market believe the Canadian dollar, which rallied over the past two days with oil, will decline further still, to somewhere in the neighbourhood of $0.75. Some economists call for a 71 cent dollar by the end of next year.

Several other central banks are slashing their rates as well – Australia is down 0.25% while Bank Reserve Bank of India, by the way, held rates steady today.

 

It is a great time to be looking at refinancing or renewing a mortgage this spring.  Call today 250-862-1806 for a FREE strategy session to find out if it makes sense for you. Or you can email any questions to [email protected]



Read more Home Finance articles

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About the author...

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business for 17 years starting as a lender with Royal Trust. She later worked at the Royal Bank as a Mortgage Consultant and 11 years ago became a Mortgage Broker. As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products. Laurie has a Bachelor of Education degree from UBC.

Contact her at 250-862-1806 or by fax 712-0209 or visit:
http://www.okanaganmortgages.com/

Visit Laurie's blog at: http://www.okanaganmortgages.com/blog.html




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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


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