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Mortgage-Matters

Keep calm and call a broker

Keep calm call a mortgage broker

You have no doubt heard by now that major mortgage rule changes will come into effect on Jan. 1.

There will be lots of talk over the next few weeks as to whether these changes are necessary, unnecessary, good or bad. There will be comments that "no one will ever qualify for a mortgage again" and that "Canada’s housing market is crashing."

The reality is that people will continue to buy and sell homes and obtain mortgage financing. Will it be more confusing and difficult? Most definitely.

Could your purchasing budget be significantly reduced? Yes.

This is why it is more necessary than ever to have a mortgage broker assist you to make the right decision about mortgage financing and help you navigate the complicated world of mortgages.

Regardless of all the commentary, these mortgage rule changes will be happening as the government will not reverse its decision. So how do you react?

As it becomes more and more difficult to qualify for mortgage financing, working with a mortgage professional that can offer you choice and options will be important rather than a single financial institution that can only offer their suite of products.

Here’s a short reminder on how a Mortgage Broker can assist you.

  • I work with Canada’s leading financial institutions including banks, trust companies, and credit unions. Did you know that you can only access many of the largest mortgage companies in Canada by working with a mortgage broker? Many of these lenders have the most favourable terms available.
  • When you work with me to find you the very best mortgage, and negotiate on your behalf, there is no cost to you. The lender pays me a fee for finding and bringing them the business. You are dealing with an expert as my business is only mortgages.
  • I also have lenders available that specialize in providing mortgages for clients who are self-employed, contract employees, have seasonal income, have trouble proving income, or lack some of the standard documentation. I am an expert in negotiating the best rates for all Canadians, but understand that sometimes you may have challenges in your past that I can work through with you, to get you back on track.
  • You deal with me directly through the entire process, from our very first conversation right until the mortgage process and funding is complete. I am also there after funding to manage your mortgage ensuring that you are paying the lowest overall cost on your mortgage going forward.

If you have any questions about your mortgage options please give me a call at 888-561-2679 or email [email protected]. I would love to have a conversation with you.



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Buying a rental property

Buying an investment property can be a daunting process and is different than buying your primary home.

You may feel unsure of all the steps and what you should be looking for (cash flow, exit strategy synergy, profit, return on investment and more.)

Organizing your financing is always the first step for any property purchase and you may be worried about qualifying for financing and these could be some of your concerns.

  • You are a new investor and you don’t where to start
  • You are self-employed, so your income on paper is low
  • You haven’t filed your income taxes for a while
  • Your current real estate investment portfolio is too large
  • You have limited liquid assets and you need access to cash
  • Poor credit or blemishes in the past
  • Concerned about property management
  • Interested in Rent to Own but you have no potential clients and tenant buyers
  • Concerned about qualifying tenants so that you minimize delinquency in rent
  • Little or no down payment available

The first step should always be to get your financing in order by knowing exactly what you qualify for and how many properties you can purchase — knowing this means you can go property hunting with confidence as well as execute on any potential opportunities that might come your way.

By being confident that you are pre-approved means that you can negotiate with leverage when you find the perfect investment opportunity and also be comfortable in the knowledge that you have aligned your mortgage financing to maximize cash and profit.

Ensure that you are working with an expert who will complete a full analysis of your current situation and understands your future plans for real estate investing.

The last thing you want to happen is to find yourself running into a financing ‘wall’ because your current lender has restrictions on the number of investment properties you can own or a maximum number of doors that they will finance.

Your financing review should include the following understanding that a lender is going to first review you as the borrower and will look at the following:

  • Your Credit Rating: In order to qualify for the best options and rates you will require a higher credit score. However, there are lenders that will provide financing for lower credit scores but the rates will be higher and there could be fees.
  • Sufficient Income: Are your debt services ratios in line with qualifying within lender guidelines.
  • Proof of Down Payment, Closing Costs and Liquid Assets: You can’t purchase a rental property with a minimal down payment and a 20 per cent down payment is required. Lenders must see that you have sufficient liquid resources to not only cover the down payment and closing costs but you must also have some savings as a ‘fall back’ position in case there are emergency repairs required on the property or to cover possible tenant vacancies.

Once you have found a suitable property then a lender will review the property including its market value, condition, positive cash flow, etc. and recommendations for suitable financing can then be made by your financing expert to ensure that your acquisition and exit strategies are aligned with the right mortgage financing.

Please give me a call at 888-561-2679 or email [email protected] if you would like to discuss opportunities for purchasing a rental property.



More mortgage changes

There isn’t much doubt that more significant mortgage rule changes are on the way, perhaps as early as Oct. 2.

Canada’s banking regulator, OSFI (the Office of the Superintendent of Financial Institutions), is attempting to cool down certain hot housing markets by implementing a stress test to qualify for uninsured mortgages.

The new stress test will require a qualifying rate of two per cent over the contract rate.

Uninsured mortgages account for approximately 65 per cent or more of the mortgage market in Canada. Typically an uninsured mortgage is one where there is 20 per cent or more equity in a property.

These changes will also affect home equity lines of credit.

OSFI is also proposing that more prudent underwriting criteria be used for uninsured mortgages including more caution in certain markets when calculating the value of properties which will determine the amount being lent out to clients.

This could restrict the allowable loan values in different areas of the country.

What does this mean for the average Canadian buying a home?

It is quickly going to become even more difficult to qualify for mortgage financing and potentially your buying power will be further reduced by approximately 25 per cent.

It is not only homebuyers who will be affected by these changes. Here are some other scenarios where these changes could potentially cause you some grief.

DEBT CONSOLIDATION

If you have consumer debt other than your mortgage, now is the time to consider accessing the equity you have in your property. By restructuring your mortgage debt you could significantly save on interest costs and reduce your monthly payments.

INVESTMENTS

If you are considering accessing equity for investment purposes to plan for retirement, call us now before the rule changes happen.

MORTGAGE RENEWAL

If your current mortgage is up for renewal sometime within the next year, a review of today’s best options is in order to ensure you are positioned correctly before the changes happen.

RENOVATIONS

Have you been considering renovations to your home? Now, is the time to ensure you are set up to access the equity in your home to complete those improvements to your property.

BUYING AN INVESTMENT PROPERTY

Now would be the time to ensure you can still access equity in your properties if you require that equity to purchase an investment property.

With the proposed changes the following information may not matter when it comes to qualifying for a mortgage:

  • That you have excellent credit
  • A large down payment
  • A long established relationship with your current financial institution
  • Excellent net worth – savings, investments, equity in other real estate

If you or someone you know would let to know more about securing the best mortgage strategies prior to these changes being implemented, please call 888-561-2679 or email [email protected].



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Monster in your mortgage

So you have found your dream home. Congratulations!

Your realtor was a great negotiator and you bought your new home for $475,000. Your mortgage is $350,000 with monthly payments of $1,750 per month over a 25 year amortization.

You were also able to negotiate a great rate (3.5 per cent) with your mortgage lender, so you are feeling pretty good right about now.

But wait a minute, let’s total those payments — that’s $525,000 worth of mortgage payments over the next 25 years. With your down payment of $125,000.

Does that mean you are paying $175,000 more than you agreed to pay for the house?

Assuming that there is no increase in mortgage rates over the next 25 years, the answer is yes. 

If rates increase the overall cost of buying your home will increase significantly as you renew your mortgage at higher rates assuming that rates will increase within the next five years which is most likely.

If you are a typical Canadian mortgage holder, you will take a fixed rate mortgage (80 per cent). 

Canadians are highly motivated to repay their mortgages as quickly as possible and these surveys find consistently that each year more than a third of mortgage holders take actions that will shorten their amortization periods (making lump sum payments, increasing their regular payment to more than is required, or increasing the frequency of payments).

The most recent buyers expect that, on average, they will repay their mortgages in 18.8 years, which is 3.6 years shorter than their average contracted period.

The Monster in your mortgage is the interest you are paying. It’s really quite outrageous when you think about it. Yet every day, many Canadian homeowners are accepting

The Monster in their mortgage without a thought to what it might mean to their overall financial health for the future.

The good news is, something can be done to weaken The Monster and make it nearly helpless.

With a couple of small affordable strategies that do not even require lump sum payments, you could potentially save thousands in mortgage interest even within the first five years of your mortgage.

You can start by:

  • setting your mortgage repayment at accelerated bi-weekly payments.
  • rounding up your payment to an even amount will save you
  • setting yourself on a program to increase your mortgage payments annually.

These are only three of the many strategies that are available to get your mortgage under control and you don’t have to be a new homeowner or wait until your mortgage is up for renewal.

They can be implemented at any time during the life of your mortgage.

It’s up to you to get the ball rolling so if you would like to know more specifically how these strategies can put a large amount of the interest on your mortgage back into your pocket, let me know.

For more information, please call 888-561-2679 or email [email protected].



More Mortgage Matters articles

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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