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Down-payment options

By Tracy Head

If you are paying rent in the Okanagan (often higher than a mortgage payment), it is almost impossible to save for a home. 

So how do you come up with the money you need?

To buy a home, you need to have a minimum of five per cent down payment. You will actually be required to show that you have 6.5 per cent (five per cent for down payment plus 1.5 per cent for closing costs) on hand.

At one time, this option was only available to first-time home buyers; the program has since been expanded so that most people are able to take advantage of it. Houses priced over $500,000 require a little more — five per cent of the first $500,000 and 10 per cent of any balance over $500,000.

What if you are not able to save part or all of your down payment yourself? Here are three ways you can come up with the money you need:

  • Gifted down payment
  • Federal Home Buyers' Plan (RRSP withdrawal)
  • BC Home Owner Mortgage and Equity Partnership

GIFTED DOWN PAYMENT

All or part of your down payment can come from a gift, as long as all of the following conditions are met:

  • The person giving the money is an immediate relative (i.e.: a parent, grandparent, or sibling); 
  • Your lender has verified that the money is a genuine gift (not repayable);
  • The funds are in your account at least 15 days prior to the closing date of your mortgage.

Your lender will usually ask for a gift letter signed by the family member providing the money, as well as copies of bank statements showing that the money is available and has been transferred to your account.

FEDERAL HOME BUYERS' PLAN

The Home Buyers' Plan is a program that allows you to withdraw up to $25,000 per person (or $50,000 per couple) from your registered retirement savings plans (RRSPs) to buy or build a qualifying home.

Withdrawals that meet all conditions do not have to be included in income and there is no withholding tax. As part of the program, you are expected to pay 1/15 of the amount you use back to your RRSPs over each of the next 15 years.

BC HOME OWNER MORTGAGE AND EQUITY PARTNERSHIP

Under this relatively new program, the provincial government will match your funds up to a maximum of five per cent of the purchase price.

Your portion can come from your own resources (savings, RRSP, etc) or from gifted money. This means that you will be able to get in to a home with as little as 2.5 per cent of the purchase price – the program will potentially match that amount to add up to the five per cent minimum you need.

To take advantage of this program, you need to meet with your mortgage broker or bank and get a pre-approval in place. Once you have your pre-approval certificate, you apply on-line for the additional down payment funds from the provincial program.

You will need to provide confirmation that you are pre-approved for a mortgage, as well as information about your income and finances.

It’s a great idea to meet with your mortgage professional before you start shopping for a home to discuss how much you qualify to borrow, as well as how much you need to have on hand for your down payment and closing costs.

Your mortgage professional can review your finances and discuss options like the Home Buyer’s Plan and the BC Home Owner’s Mortgage and Equity Partnership to help get you into a home.

Tracy Head is a mortgage consultant with Verico Complete Mortgage Services. She can be reached at 250-826-5857.



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Things to think about

What You Should Think About When Financing Your Home

If you’re like most Canadians, your home is probably the most important investment you’ll ever make.

Whether you’re buying a home or refinancing your existing home, making the right decision now can help save you money and provide greater financial stability for your family in the future.

To help you make an informed decision, Canada Mortgage and Housing Corporation (CMHC) offers the following tips on what you should think about when financing a home:

Calculate in advance how much home you can afford. 

Mortgage professionals use a few variables to determine the maximum mortgage you can afford:

  • your household income
  • your down payment
  • your debt payments including your new planned mortgage along with major related expenses such as property taxes and heating.


Consider getting a smaller mortgage than the maximum amount you can afford. 

Your future financial picture may not be the same as it is today. By taking on a smaller mortgage than the maximum amount you can afford, you will gain the flexibility and peace of mind to manage your other obligations today and deal with any unforeseen events that might occur in the future.

Evaluate the impact rising interest rates could have on your monthly payment. 

For many homeowners, a rise in interest rates could have a significant impact on their housing costs. For example, if you are renewing a mortgage of $250,000, an increase of just two per cent in the interest rate could cost you around $265 extra each month.

Evaluating the impact of future interest rate increases today could help you avoid potential financial difficulties tomorrow.

Become mortgage free faster by reducing your amortization period. 

On a mortgage of $250,000, choosing a 15-year amortization instead of a 25-year amortization will increase your monthly payments by about $545, but will also save you around $48,000 in interest over the life of your mortgage, and make your family mortgage-free 10 years sooner.

Choosing an accelerated payment option (equivalent to one extra payment per year), making lump sum payments or increasing your regular payment amount all contribute to reducing your amortization period.

For example, making one extra payment per year on your 25-year mortgage will make you mortgage-free six years sooner.



New rules hurt bottom line

New Consumer Advocacy Campaign Announced (continued)

On April 25, Mortgage Professionals Canada launched a new consumer advocacy campaign including a website www.tellyourmp.ca

The purpose is to educate members of Parliament about the negative impact that changes to mortgage insurance and eligibility have had on homeowners or potential homeowners.

The association has been lobbying the government and now is asking middle-class Canadians to voice their opinions by letting them know how they have been affected by the changes.

Here is a summary of the rule changes:

  • All insured mortgages need to qualify at either the "Bank of Canada benchmark rate" (currently 4.64 per cent) or the contract rate offered on the homebuyer's commitment, whichever is greater.
  • Portfolio ('bulk') insurance must now meet the same criteria as mortgages that are high-ratio insured.  This means that amortizations greater than 25 years, rental and investment properties, refinances, and homes with values greater that $1 million can no longer be portfolio-insured.
  • A proposed risk-sharing model for lenders to share in losses of insured mortgage claims.
  • New capital requirements as of Jan. 1, 2017 that require mortgage insurers to increase the amount of capital they need to hold in reserve.
  • An increase announced by CMHC for insurance premiums that consumers pay on unconventional mortgages. In some loan to value categories, premiums will increase by more than a whole percentage point of the value of the mortgage, effective March 17, 2017.  This is the third increase in three years.

Concerns/Considerations:

The Mortgage Professionals of Canada are concerned with the negative impact these changes are having on the housing activity in Canada.

They are also concerned by the additional costs by way of higher interest rates and reduced purchasing power that will impact middle class Canadians. 

These changes have caused some banks to increase their prime rates, which will cost many Canadians thousands more over the course of a mortgage term.

The reduction of portfolio mortgage insurance eligibility, in addition to the increase in premiums due to the Office of the Superintendent of Financial Institutions (OSFI) recent increased requirements for adequate capital is having more of an affect on the competiveness of small and medium sized lenders. 

These changes are reducing mortgage competition and therefore affordability for Canadian homeowners and potential homebuyers.

The members of the Canadian Mortgage Professionals have been voicing their displeasure regarding the impacts these changes are having, especially outside of the Vancouver and Toronto markets. 

There is a growing resentment that the activity in these hot markets is negatively and unfairly impacting the rest of the  country, such as the Okanagan.

If they move ahead with a risk-sharing provision this would provide an additional burden on the market and divide between rural and urban centres.

The Canadian economy only saw modest growth in 2016, especially for the middle class, and the housing sector was one of the drivers of that growth.

Mortgage pros are concerned that these changes will hurt the economy as the Bank of Canada noted that the new rules will ultimately reduce economic growth which in turn will hurt the middle class the most.

If you have been impacted by the changes please visit: www.tellyourmp.ca.



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Mortgage pros fight Ottawa

New Consumer Advocacy Campaign Announced

The Mortgage Professionals Canada launched a new consumer advocacy campaign including a website, www.tellyourmp.ca, on April 25.

The purpose of the website is to educate members of Parliament about the negative impact that changes to mortgage insurance and eligibility have had on homeowners or potential homeowners.

The association has been lobbying the government and is asking middle class Canadians to voice their opinions by letting them know how they have been impacted by the changes.

"Our members are working with and seeing directly that many Canadians are frustrated by the impacts of these changes and are looking at ways to reach out to the government directly," said Paul Taylor, president and CEO, Mortgage Professionals Canada.

"Our goal with this grassroots campaign is to make it incredibly easy for Canadians who have been disadvantaged by the changes to send a message to their local MP to build support for affordable homeownership."

Mortgage Professionals Canada has been encouraging those impacted by the mortgage changes to email a letter to their MP by visiting www.tellyourmp.ca.

Members of the association have been lobbying local MPs about the negative impact the changes are having on housing activity in Canada. Additional  costs are impacting the Canadian middle class through higher interest rates and reduced purchasing power.

Many homeowners are paying thousands more in interest costs and many first time buyers or those with smaller down payments are unable to qualify for a mortgage that will allow them to buy a home in their local. 

Because of these changes and the impacts to real people, the association is calling for the government to make some reasonable, common-sense adjustments to the recent changes. 

The association gave the government recommendations on meeting  their goals while softening the negative impacts on Canadian homeowners and buyers.

About Mortgage Professionals Canada

Mortgage Professionals Canada is an association representing the mortgage industry. It represents approximately 11,500 individuals and more than 1,000 companies, including lenders, insurers, mortgage brokerages and industry service providers. 

"Our members make up the largest and most respected network of mortgage professionals in the country whose interests we represent to government, regulators, media and consumers."

The association is dedicated to maintaining a high standard of industry ethics, best practices and consumer protection.

This body represents the mortgage broker channel which originates 33 per cent of all mortgages in Canada, 50 per cent of first time homebuyers and represents about $80 billion dollars in annual economic activity. 

The strong membership and diversification of members allows the association to address issues impacting all aspects of mortgage origination in Canada.

If you have been impacted by the changes, please visit the website above.

To be continued.



More The Mortgage Gal 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 since 1991 and a broker since 1997. 

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 Laurie at 250-862-1806 or visit:
http://www.okanaganmortgages.com

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



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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