COVID's emotional cost

COVID is catching up.

I remember conversations from last March and April as we were trying to anticipate the implications and fallout from a world-wide pandemic.

I remember the great toilet paper hunt of 2020. I remember wondering about how homeowners would be affected if they had to go months without income.

In conversations with other brokers, I recall speculating about when our world would be back to normal.

Lenders were quick to support their mortgage clients by offering payment deferrals. The government came out with programs to help support those who weren’t working.

As we moved through last year and many people found ways to go back to work, it seemed like (for most people) we were adapting to our new normal.

So here we are, a year into the pandemic.

There are friends and neighbours among us who have been unable to return to their chosen careers due to the nature of their work.

I have had a few heartbreaking conversations with clients over the last few weeks. And the number of these calls seems to be increasing.

Clients who have exhausted their savings, maxed out all their credit cards trying to make ends meet, found work in different fields, revamped their lifestyles, and then received a bill from the government saying they didn’t actually qualify for CERB so they now have to repay almost $10,000.

For this family, this bill was the proverbial last straw.

My client is an event planner, specializing in international music festivals. Last spring, she had a full slate lined up for the year. Her partner works in advertising. He was able to adapt his work and has been operating at about 75% capacity as compared to before COVID hit.

She estimated that she lost more than $150,000 in revenue last year.

This is the heartbreaking part of the story. Both self-employed, and both were heading into what they thought was going to be a banner year for their businesses.

They had been working hard for years to get to where they were. Relief was in site.

Here we are a year later. We are working to refinance their home to pull equity to pay off their credit cards and reduce their monthly bills.

I got a little choked up during one of our calls. My client said she was mortified about having to go down this road. She said it took them more than a month to work up to calling about a refinance once they realized they had reached their breaking point.

They had a plan. They had been working diligently on this plan with their finances, and this past year has set them back to where they were five years ago.

This call in particular was a sobering one for me. I am sure there are many families out there who are struggling but doing their best to maintain the lifestyle they led prior to COVID.

If you have significant equity in your home, refinancing may be an option to help reset your finances and reduce your monthly bills. Although this may not be an ideal solution, if you are losing sleep because creditors are looking for payments you don’t have it may be the solution that works for now.

For families that are still struggling with reduced income, if you are a homeowner it may be worthwhile to reach out to your mortgage person.

Even with changes to income, there are lenders offering refinances at reasonable rates that may provide the solution that allows some breathing room for you.

Closing costs, then some

You’ve done your homework – saved your down payment, met with your mortgage broker and are pre-approved for a mortgage, connected with a reputable realtor, and chosen a lawyer.

You’re off to a great start in the purchase process.

As you move forward, keep in mind that you’ll also be covering a few extra costs in addition to legal fees when your purchase is finalized. Being prepared for these closing costs in advance avoids last minute stress.

How do I budget for my closing costs?

If you are putting the minimum five per cent required to buy your home, your mortgage professional will explain that you need to have 6.5% on hand to cover your closing costs.

It is a good idea to gather estimates of these fees and expenses, so you are fully prepared.

Rule of Thumb: allow 2-3% of the purchase price to cover your closing costs

You will normally sit down with your lawyer about a week before your purchase completes to sign all the required documentation.

At that time, you will need to provide a draft or certified cheque to cover the balance of your down payment and closing costs.

The following list covers typical expenses you’ll encounter when buying a home:

  • Deposit — will have been made when you went firm with your offer. If you are selling and buying at the same time, make sure you have access to funds for this deposit
  • Realtor commission (if you are also selling a home)
  • Legal fees
  • Appraisal
  • Inspection
  • Property Transfer Tax
  • Property Tax Hold-back: If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next instalment of property taxes when due. Property taxes are paid July 1 each year.

Some surprise expenses that people don’t account for can include:

  • Moving expenses
  • Appliances if not included in your purchase price
  • Decorating/updates
  • Repairs
  • Utility hookup fees
  • Tools, shovels, gardening equipment etc

One of the big-ticket closing costs that catches clients by surprise is the Property Transfer Tax.

Some provinces levy this tax whenever real estate changes hands. In B.C., this tax is calculated as a percentage of the purchase price of your property, so the more expensive the property, the larger the amount of tax paid.

It is key to know that there are several exemptions to this tax. First time home buyers may be exempt from paying all or part of the property transfer tax up to a fair market value of $500,000. There is a partial exemption for prices up to $525,000.

Exemptions are also available on newly-built home purchases up to a purchase price of $750,000.

In B.C., the tax is charged at a rate of:

  • One per cent on the first $200,000,
  • Two per cent on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
  • Three per cent on the portion of the fair market value greater than $2,000,000.

For example, if the fair market value of a property is $450,000, the tax paid is $7,000.

It is important that you confirm with your lawyer that you are eligible for an exemption. There are nuances that may mean you do have to pay the tax, so you don’t want to be caught by surprise at closing.

As you are house hunting, do your homework on these closing costs. Keep a list or spreadsheet, and my suggestion is you budget a little high so you are not scrambling at closing.

A quick reminder – the B.C. Speculation Tax Declaration forms have come out in the mail. Take a second to complete the form online. They are due by March 31.

Hope you are enjoying Family Day.

Lowest rate not always best

I take calls on a regular basis that start with the question “What’s your best rate?”

My answer is never a quick one.

  • Not all mortgage lenders are created equal.
  • Not all mortgages are created equal.
  • The lowest rate available may not be the best rate for your particular situation.

In the mortgage space, lenders have subtle differences in their policies and products. Many offer a standard mortgage as well as a no-frills version. The no-frills option is generally price .05% lower than the standard product.

Based on a $500,000 mortgage, comparing 1.69% and 1.64%, the difference in interest cost over five years is about $1,160.

The no-frills mortgages come with the slightly lower rate and restrictions about how and when you can pre-pay the mortgage.

In the excitement of buying your home you might be certain that you will be in your new home for life. Or for five years at minimum.

Trading a standard mortgage penalty calculation for the no-fills option may come back to bite you later.

I’m working with a young couple that signed a no-frills mortgage three years ago with another broker. He was offered an amazing position in a different city, one that he couldn’t turn down.

They were shocked to learn that their mortgage is not portable to a different home, and are looking at a massive penalty to break their mortgage early.

They aren’t in the position to carry this home as a rental, so unfortunately are losing almost $20,000 on the sale of their home.

I’ve been working with another client for the last year that is in a situation where the value of the condo he bought has dropped, and he will have to come up with cash to pay out his mortgage if he wants to sell.

He has had it rented for the last 18 months because his employer transferred him to a different city.

Sometimes lender policies guide how I choose which lender to place my clients with. A common challenge right now is clients who own multiple rental properties.

Lenders calculate the rental expenses slightly differently. From time to time a lender with better rental calculation may have a slightly higher interest rate.

This may not be the best rate available, but it may be best rate for you if your numbers work based on their policies.

When I am answering the rate question, I try to get a good sense of my clients’ future plans.

Historically variable rate mortgages have outperformed fixed rate mortgages. At this point, we are in a situations where the variable rate mortgages are at a higher rate than the fixed rates that are available.

Taking the lower fixed rate might be tempting, but going with a variable mortgage may make more sense if you are looking at moving or even paying the mortgage out early.

Finding the best rate means finding the best rate for you. Take the time to make sure you understand the fine print – it can make a world of difference in the long run.


Buying new home is a race

Trying to buy a home in the Okanagan right now feels a bit like an episode of The Amazing Race.

Ideally, when you're buying a home, you take your time — save your down payment, get your mortgage pre-approval in place, make a plan, consider multiple options, then make an offer on your dream home.

It seems like clients can’t get in to look at homes quickly enough to make an offer, never mind take a night to consider if their potential dream home truly checks all the boxes.

During the last week, I’ve had six sets of clients trying to buy homes:

  • Two of them haven’t found anything they loved.
  • One couple was successful negotiating an accepted offer.
  • The other three have made offers on homes that went into multiple offer situations.

Of those three, two tapped out when they found that the houses they were interested in were selling for almost $50,000 over the list price.

The third couple went up to the $50,000 over asking and are the backup offer in case the first-place offer falls through.

All these couples have told me that their realtors are watching new listings like a hawk, and they are to the point that they are taking time off work to look at homes if they feel it might be close to the right fit.

As soon as a viewing is booked, they make a run for the house and hope that there is not already an offer being negotiated.

Another dynamic is that some sellers are waiting a few days and looking at all offers at the same time to see which one they want to accept.

I think this is part of what is driving prices up and contributing to the frantic environment potential homebuyers are facing.

Good for sellers, not so great for buyers right now.

If you are shopping for a home, my suggestion is to make sure you are crystal clear about your maximum price point. Have your pre-approval in place and have all of your documents to your mortgage person as soon as possible so there are no last-minute surprises.

One young couple I’ve been working with for a few months initially decided on a maximum price point. They knew what they had to do to get there.

After looking for at least four months, they have now realized they have to increase that price point to find anything even remotely close to what they would like to buy.

When they became frustrated at not finding anything they could afford, we revisited their application.

With a few small tweaks, they are now hunting for a home almost $100,000 higher than where they started. In their case, it is a matter of taking part of what they saved for their down payment and paying off a car loan.

Sometimes a fresh set of eyes can help you fine-tune your application.

If you have been looking for a bit and find yourself needing to revisit your pre-approval, it’s a great idea to reach out to your mortgage person to see if there are any changes you can make to put you into a better position moving forward with an offer.

If you are starting to hunt for a home now, make sure you have your financing lined up before you reach out to a realtor.

You need to be ready to go in case you find your dream home right away. Having your ducks in a row may mean the difference between being the successful purchaser or missing out on a new home.

More The Mortgage Gal articles

About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit www.okanaganmortgages.com

Visit their blog at 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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