2 Jul

What Rate Will I Get with Today’s Mortgage Categories?

Buying & Refinancing a Home

Posted by: Garth Chapman

Once upon a time it was fairly easy to answer the question “what rate will I qualify for?”  Back then higher down-payments resulted in lower interest rates on your mortgage.  Now neither of those are the case.

Once upon a time you either had a high ratio or a conventional mortgage.

Now you will have an insured, or insurable or uninsurable mortgage.  The reference to insurance is what most people understand as a high ratio mortgage insured by CMHC, Genworth or Canada Guaranty.

Once Upon a Time:

  • High ratio mortgage – down payment less than 20%, with insurance (aka CMHC fees) paid by the borrower.
  • Conventional mortgage – down payment of 20% or more, and the lender had a choice whether to insure the mortgage or not at their own expense.

Now it is more complicated:

  • Insured – Most often a down-payment or refinance equity below 20%. A mortgage transaction where the insurance premium is or has been paid by the borrower, which often means a high ratio mortgage.
    • Interest rates are the lowest in the range.
  • Insurable – Fits all the same guidelines as an insured mortgage but the borrower has more than 20% for a down payment.  A mortgage transaction that is often portfolio-insured at the lender’s expense.  Property must be valued at less than $1MM that fits insurer rules and is qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%.  Property cannot be a Rental.  The loan-to-value and your FICO (credit) score will determine what rate you qualify for.
    • Interest rates are slightly lightly higher than insured rates.
  • Uninsurable – All mortgages that can’t be insured.  Examples include refinances, single unit rentals (rentals between 2-4 units are insurable), purchases and transfers for properties with valued at over $1MM, equity take-out’s greater than $200,000, amortizations greater than 25 years.
    • Interest rates are at the higher end of the range, and are determined based on loan-to-value (LTV) %.

What does this mean when it comes to shopping for best rates and terms when your mortgage matures and you have the opportunity to move it to another lender?

  • If your mortgage was originally insured (borrower paid insurance), we can get insured rates.
  • If your mortgage was originally back-end insured (basically the same as being conventional) we can get insurable rates.
  • If your mortgage was placed before October 2016, we can grandfather the insurable rates even if it was a $1 million+ value house or 30 year amortization. It then depends if it was insured (client paid insurance) or conventional as to whether we get insured or uninsurable rates now.
  • If your mortgage was placed after October 2016 and the property value was over a $1 million or the mortgage had a 30 year amortization, we are restricted to uninsured rates.
25 Jun

Ultra Low Rate websites – What’s The Story?

About Mortgage Brokers

Posted by: Garth Chapman

Ultra low mortgage rates, offered through various internet sites, are often restricted mortgages.  You may have higher prepayment penalties than generally available in the marketplace, as high as 3% of your mortgage balance.  Low rate mortgages often do not allow an in-term transfer, which is generally referred to as porting the mortgage with you to a new home.  Many do not allow blend and increases (refinances), you must pay the penalty to do a refinance (get equity out of your home).

Low rate sites are looking for no hassle, no muss, no fuss mortgage applications.  So if you happen to be an hourly worker, does your 2 year average and your YTD income substantiate the required income to qualify?  Does your source of down payment meet new government requirements?  When will you be told if they do or do not?  Self-employed, contract worker, income from a couple of sources, you can spend a week thinking you have sent in the correct paperwork only to find out you have not been approved.  Unfortunately, it may mean your file is just a little too time consuming for the low rate site.

Low rate sites use salaried staff who need to meet production quotas.  They do not have time for problems or complex scenarios.  They are looking for the 20% to 30% of the market who have the perfectly simple scenario.

Low rate sites are not able to work through other issues, a unique property size or type, square footage issues, condo by-laws or financial statement problems, post tension cable or special assessment requirement.  Will the low rate site take the time to find the most suitable lender or insurer?  Lenders will have sliding scales, can you get an exception, can you find a new lender before condition day?

Low rate sites often entice you with the initial promise of an attractive rate and then after you have completed the application and have sent them all your documents will tell you that you don’t qualify for that rate, but that you do qualify for some other higher rate.

Low rate sites do not have the staff to help ensure the rest of the home buyer process gets completed on time.  For example, meet the financing condition date, ensure the lender instructs money to lawyer on time, and insure you get possession on time to avoid late interest charges.

Low rates sites will ask you to sign a non-compete agreement that if they present you with a commitment, you will not obtain your mortgage from another bank, lender, or broker, and if you choose to do so, you will be charged a fee.

Your Mortgage Broker has access to many of these low-rate restricted mortgage products.  So call and ask your Broker what you qualify for, and if a low-rate mortgage is a good fit for you.

25 Jun

First-Time Buyer Incentive – What do we have so far? Mostly Gossip

Buying & Refinancing a Home

Posted by: Garth Chapman

The rumor mills are buzzing.  Global News and other media outlets are reporting some new details on the new First-Time Buyer Incentive, also referred to as an Equity Participation Mortgage.  What is being discussed by the media is mostly the same information as was disclosed in the budget.

CMHC has just released some details found here.  The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.

The First-Time Buyer Incentive (what we know so far)

  • The government will provide an equity participating mortgage of up to 5 % for an existing house and up to 10 % for a new construction home.
  • No interest or principal reduction payments required on the participating mortgage portion.
  • Can be repaid early, no details on the mechanics.
  • Must be repaid within 25 years.
  • When the house is sold the government will participate in the increase in value, or decrease,  proportionately with the initial participating mortgage granted.
  • Maximum purchase price is $480,000.
  • Maximum family income is $120,000.

The Good

  • First time buyers will have slightly lower mortgage payments, with likely interest savings of up to $60 to $120 per month ( depends upon the amount, new or used house, and interest rates.)

The Bad

  • The Home Buyer will have the Federal Government as a partner in the ownership of their property through a participating mortgage.  Read that twice.
  • The total home purchase price the borrower qualifies for under this program is less than if the borrower does not use it, because there are different qualifying guidelines.
  • The Government will, if the home eventually goes up in value, recoup an equity dividend, the repayment could turn out to be more than what mortgage interest would work out to be, especially if we eventually see a strong rebound in our depressed Alberta markets.

The Unknown (Possible Risks to the Borrower)

  • The program has been announced and promoted without any details on how it will be managed whenever life offers changing circumstances for the homeowners.
  • Perhaps the participating mortgage will have no rights except passive acceptance of whatever 5 % is paid to the government.
  • What about a private deal with a family member or friend or investor over a “gifted or provided down payment”?  Is that allowed, what documentation will be accepted.
  • Who will determine what are allowable capital expenses? What documentation does the homeowner have to provide for maintenance and upgrades and renovations? What bureaucracy is going to administer any dispute over costs? What costs are legitimate?
  • Does the government want 5% of the gross lift or will maintenance, operating or capital expenses factor?  What about real estate fees, legal fees, closing costs? What if the homeowner operates an illegal suite? What if the homeowner has an encroachment argument with a neighbor or with the city?  Will the government as mortgage holder have for a voice in any dispute before a court?

The Editorial 

  • Since the government became convinced that the bureaucrats know how to underwrite mortgages, hundreds of thousands of deserving Canadians are being denied access to mortgage liquidity.
  • Let bankers be bankers, and let the government bureaucrats provide high level oversight.  Mortgage underwriting should be an industry derived process, not a government dictated and controlled approval.
  • Every month at Jencor we see hundreds of people denied access to a mortgage.  Most of whom would have qualified for that requested mortgage before the Stress Test was implemented.
  • If the government wants to incentivize first time home purchase activity, they could simply make mortgage access reasonable.  Instead we get an intrusive program costing taxpayers $1.3 Billion dollars over the next 3 years.

Watch for our updates on this when the government announces program details.

12 Mar

Are you Stressed by the Mortgage Stress Test? Here are a Few Solutions

Buying & Refinancing a Home

Posted by: Garth Chapman

Alberta’s real estate markets are stressed. Prices are flat or down.  So this is a Buyer’s Market, and yet so many Buyers are finding it difficult to qualify for the mortgage they need, largely due to the new mortgage Stress Test.  Here are a few smart ways that you can use to achieve the mortgage you need to buy the property that suits your family’s needs.

Use the flex down or borrowed down payment programs offered though one of our mortgage lenders.

You must qualify, the payment for the loan must fit in your total debt service ratio.

You must have good credit, meeting minimum beacon score requirements.

The CMHC default insurance premium is higher, but by using this option you can borrow the down-payment.

First time home buyers can obtain a new RRSP loan and 90 days later use the First Time Home Buyers Plan and withdraw up to $25,000 for a home down-payment.  Pro Tip– you are considered a First Time Home Buyer if you have not owned a home in the previous 4 years.

Call your favourite Jencor Mortgage Broker, and we will arrange an RRSP loan and a mortgage pre-approval as per your financial qualifications. Couples can both do this.

90 days later, you withdraw up to $25,000 (per person) from your RRSP plan(s) for down payment.

Then you can get to work with your favourite Realtor to buy a home.

IMPORTANT – The key element of this is that our best mortgage lender for this program does not require the loan to be repaid when funds are withdrawn for the down-payment, whereas most lenders do.

Is a Large Vehicle Loan Payment Reducing the Mortgage You Qualify for?

Whether you are refinancing, buying a new home, or just wanting to improve your cash flow, is a large vehicle loan payment reducing your options!

We have a vehicle finance company that will aggressively extend out an amortization, reducing the vehicle payment. The result, all other things being equal, a bigger mortgage. We had one couple rewrite their vehicle loans, and they got a $70,000 bigger mortgage. Their realtor was able to write an offer in the neighborhood they have always wanted to live in. Got a great deal on the house as well.

Call me today if a lower vehicle loan payment could help you.

Special Programs for Self Employed Buyers

  • The federal government continues to impose restrictive guidelines on all mortgage applicants. One group particularly hard hit are business for self borrowers (aka BFS). Many BFS clients hire good Tax Accountants. Good Tax Accountants are great for a lower tax bill, but low taxable earnings are not so good for obtaining a mortgage.  Most lenders require two years of personal tax returns, notice of assessment, and corporate financial statements.  If your clients are being declined after providing all of that information perhaps one of the special programs that still exist could help.
  • We have lenders who will consider:
    • Using an insured stated proof of income mortgage to 90 % loan to value. We do need to provide information to confirm the reasonableness of the application.
    • Using an insured stated proof of income mortgage to 65% loan to value. Again we need to confirm reasonableness but no insurance premium applicable.
    • Using a series of bank statements to confirm business cash flow to support a mortgage. Maximum 80% loan to value.
    • Using a cash flow analysis of the corporate financial statements to support the income requirements 80% loan to value.
    • We have some other esoteric programs too hard to describe in one line.
    • Your Jencor Agent can often help a BFS client who has been frustrated by their own Bank or by an inexperienced Mortgage Broker.

Some combination of these ideas may just help you, your friends or relatives get the mortgage you need for the home you want.

22 Jul

Do you have a HELOC on your home, vacation or rental property?

Buying & Refinancing a Home

Posted by: Garth Chapman

If you have a Line of Credit (HELOC or LOC) on your property you are paying a much higher rate of interest to the bank.  Why not put some of that money in your own pocket instead of in the bank’s? Your savings will likely be in the range of 1% or more of the outstanding balance.  That would amount to $3,000 per year or more on a $300,000 HELOC.

So let’s take a look at the details and at my philosophy around this.  I have split my thinking into two types of debt for purposes of this post.

YOUR LONG-TERM DEBT:

You want to have your long-term debt in a mortgage, which means it would be at a lower interest rate than you will pay on a LOC.  This is true for both Variable and Fixed rate mortgages. The mortgage should be/have:

  • Should be portable if there is any chance of you wanting to move during the 5-year term.
  • Can be registered at full appraised value if you want to later be able to increase the LOC or the mortgage without having to incur the costs of refinancing.  This option precludes putting a LOC or 2nd mortgage on the property with a different lender.
  • Should be transferable at time of maturity. When a mortgage matures (the term ends) you become essentially a ‘free agent’. By this I mean that you then can shop around for the best deal and move to another financial institution without cost. This works to ensure your existing mortgage lender offers you a competitive rate.
  • Lenders will normally allow the mortgage to be split into 2, 3 or more separate mortgages within the All-In-One product.  This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.
  • Collateral mortgages are generally not portable, and are not transferable at maturity.
  • Should have good pre-payment and payment increase privileges.

YOUR SHORT-TERM DEBT:

Your short term debt should be in a secured LOC at the higher rate.

  • Your LOC rate should be in the range of Prime + 0.50% (at the time of writing).
  • Your LOC should ideally be connected to your mortgage – referred to as an All-In-One (AIO) mortgage product. Each bank has their own name for this product.
  • Ideally the LOC should increase automatically as you pay down the mortgage. Only some banks do this. This gives you more flexibility over time especially when you decide to buy something.

We have several of these AIO mortgages, and over time they have allowed us to buy several more properties over the years by easily tapping the equity in our existing properties via those LOCs.

Some Lenders will allow the LOC to be split into 2, 3 or more (up to 9) separate accounts within the All-In-One product. This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.

A quick thought on mortgage pre-payment penalties:

If you don’t want/need a LOC that is connected to your mortgage, and if you are on a fixed rate mortgage, then you should consider having your mortgage with a lender that is not one of the big-6 banks. The reason is that their pre-payment penalties are 2-3 times higher than the non-bank (known as Monoline) lenders.  I have personal experience with this issue and would be happy to explain further, and even provide examples.

12 Feb

First Time Home Buyer Tax Incentives and Credits

Building a New Home

Posted by: Garth Chapman

The good news begins with a generous definition of who is a first time home buyer: to qualify as a first-time home buyer, which generally means you and/or your spouse (whoever will be on the Title and Mortgage for the home) must not have owned a home in Canada for 4 years. And now, to the two plans currently available to Canadians.

 

First-Time Home Buyer’s Tax Credit (HBTC)

The First-time Home Buyers’ Tax Credit was introduced to assist Canadians in purchasing their first home. It is designed to help recover closing costs, such as legal expenses, inspections, and land transfer taxes, so you can save more for money for a down payment.

The Home Buyers’ Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. In addition, the home you purchase must be a ‘qualified’ home, described in more detail below. If you are purchasing a home with a spouse, partner or friend, the combined claim cannot exceed $750.

You will qualify for the HBTC if:

  • you or your spouse or common-law partner acquired a qualifying home; and
  • you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

Program in overview http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/369/menu-eng.html

Fact Sheet http://www.cra-arc.gc.ca/nwsrm/fctshts/2010/m01/fs100121-eng.html

 

The RRSP Home Buyers’ Plan – for first-time home buyers (HBP)

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year. You must qualify as a first-time home buyer, which generally means you and/or your spouse must not have owned a home in Canada for 4 years.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year – see here http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html#P233_15310

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

All the info here http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

And here’s some more info on how long the money must be in your RRSP before you withdraw it for the HBP.  Let’s say a qualified first-time home-buyer contributed to his RRSP near the end of February.  The buyer then finds a home with a willing seller, but is unable to get a possession date late enough to meet the following requirement: “Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.”

It turns out that the client actually has 30 days after possession to still take out his money from his/her RRSP and use it for the Home Buyer’s Plan.

Moreover CRA does not care if the buyer uses that money to buy a car, go on vacation or spend it on anything else, as long as he/she buys a qualified home and is a first time buyer.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/wn-eng.html

19 Jun

On Buying and Financing a Vacation Home

Buying & Refinancing a Home

Posted by: Garth Chapman

Questions to ask before buying a vacation home………

Buying a home is a big step in life that requires financial planning, saving and lots of upkeep. And yet, many people find that they like being a homeowner so much that they want to purchase a second home as a recreational or vacation spot. For those who are financially secure enough to do so, a vacation home can be a great investment for the entire family and increase wealth as property values continue to climb. Before jumping in with both feet, here are a few questions to ask yourself before applying for a loan or making an offer on a second home:
What will I use it for?

If you’re looking to purchase a property that you will only visit a few weeks out of the year, then it might not make financial sense to buy. Instead, you could consider renting during the time that you want to spend away from home. For the person who will be able to spend at least two months or more at their second property, it can be a good investment.

Beyond your personal or family use, you can consider buying a home that will be rented out as a vacation property. Instead of leaving the house vacant all year round, you can lease it to make some money or help pay off the mortgage. However, this may require additional insurance or coverage options to ensure that you are protected when someone else is staying in your second house.

Are you preapproved?
Before shopping for a home, the best way to see if you are financially able to purchase is by getting preapproved for a home loan by a lender. Taking on a second mortgage is a big responsibility, but you may have options to consolidate your debt. If you are financially secure enough for a second mortgage, you may keep them separate. Furthermore, you need to be confident that you can make a down payment. For a second mortgage, you may not have the same types of options for a home loan, which means you may need to make a down payment up to 20 percent. Other costs need to be accounted for as well, including maintenance, homeowners insurance and mortgage insurance (if required).

Are you sharing ownership?
It’s not uncommon for family, friends, or even business partners to go in together on a property for shared ownership. This can help cover all the additional costs if you can’t afford a second recreational house on your own. In theory, splitting up the expenses and sharing property sounds like a great idea. However, in practice, it can be complicated and stressful. For instance, if there are upgrades or repairs that need to be completed on the home, all owners might not agree on what should be done, while others might be unwilling to pay. In these instances, it may be unclear who will cover the cost, which can strain relationships and finances. Carefully consider these situations before agreeing to a joint ownership.