19 Oct

Four Legal Pot Plants, What Are Lenders Doing?

Posted by: Garth Chapman

As we all know, recreational marijuana is now legal in Canada. The law is set, but implementation and how policies and guidelines will impact our industry are yet to be determined. Generally, 30 grams for personal possession, basically an ounce baggie for those who might relate and up to 4 plants at home.

For realtors, mortgage brokers and their clients we are facing many months of the lenders sorting out their guidelines. If a borrower or seller voluntarily discloses they have been growing four legal marijuana plants, which should produce more than 30 grams, as a point of interest, how will the lenders, mortgage insurers and home insurers react?

Lenders:

As of today, many lenders do not have a policy. Some say yes four plants will be OK, some say case by case, and some say four plants will be a hard no. For the common existing house stigmatized as a “grow-op”, there are still very few lender options. We do have a couple of lenders for fully remediated grow-ops, and CMHC does consider those applications.

Mortgage Insurers:

CMHC says they will carry on the same as they have been. Genworth and Canada Guaranty are saying either, case by case or the policy will be determined shortly.

Home Insurers:

As or right now we have not been able to get any consistent information on this subject. However, home buyers and homeowners are encouraged to check with their provider for their policy information.

For those folks growing up to four plants and looking for financing, expect your clients to get mixed results from banks and many lenders. Some lenders are considering air quality tests, home inspections, statutory declarations and other means to determine if the home has been impacted or damaged by four plants. For now, we have identified willing lenders. CMHC will consider the applications.

Please contact your Jencor Mortgage Agent or me if your clients have any questions on how the new legalization laws affect their options or to avoid complications with four plant files.

Croft Axsen – Jencor Mortgage Corporation

24 Feb

Looking for your best mortgage rate? Here are 20 questions to ask

Interest Rates

Posted by: Garth Chapman

An excellent article in the Globe and Mail describes the new complexities in Canada’s mortgage market. It used to be that most borrowers with decent credit and income would receive roughly the same interest rate offer. But those days are gone. Read on…

Looking for your best mortgage rate? Here’s 20 questions to ask

“What’s your best mortgage rate?” was once a fairly straightforward question. These days, it’s impossible to respond intelligently to it without asking a litany of other questions.

That’s true today more than ever thanks to recent federal rule changes. Ottawa’s changes to regulations have jacked up lenders’ costs – and the lowest mortgage rates – on refinancings, amortizations over 25 years, million-dollar properties, single-unit rental properties and mortgages where the loan-to-value ratio is between 65.1 and 80 per cent.

So be prepared to play a game of 20 questions to find your best rate in today’s market. Note that thanks to new mortgage rules, which make it more expensive to lend to people who the government deems higher risk, the last six questions on this list have taken on a whole new importance.

Here are those questions:
1) What’s the term?
• Mortgage contract length (“term”) and rate type (fixed or variable) are usually the biggest factors impacting your rate.
• As of this writing, the cheapest five-year fixed rate, for example, costs 50 basis points (bps) more than the cheapest five-year variable rate. (Note: 100 basis points equals one percentage point, so 47 bps equals 0.47 percentage points.)

2) Is the mortgage for your primary residence, a second home or a rental that you won’t live in?
• If you rent out the property and don’t live there, you’ll pay up to 25 bps more than if it were your primary residence.
• The cheapest rates are seldom available on second homes or unusual properties.

3) Can you adequately prove your income?
• If you can’t, forget about the lowest rates. In most cases you’ll pay at least 150 bps more.

4) Where is the property located?
• The province matters. The lowest one-year fixed rate in New Brunswick, Newfoundland, Prince Edward Island, Northwest Territories, Nunavut and Yukon is over 30 bps more than in Alberta, British Columbia and Ontario.
• The city matters, too. You’ll cough up at least 10 bps more than the lowest market rate (on the term you want) if your property is rural. The reason: if the borrower doesn’t pay, it’s harder for the lender to sell a rural property.

5) When is the closing date?
• The longer you want your rate guaranteed, the more you’ll pay. A 90– or 120-day rate hold typically costs at least 10 bps more than a 30-day rate hold

6) Can you live with prepayment restrictions?
• Some lenders now charge 10 bps above their lowest rates if you want to prepay an extra 5 to 10 per cent on your mortgage.
• One of the country’s lowest rates currently allows no prepayments at all.

7) Can you live with portability headaches?
• If you move to a new home, certain deep discount lenders will force you to close your old property and new property on the same day (good luck with that). Otherwise you’ll pay a penalty.
• Remember that if you’re using the equity in a property you’re selling for the down payment on your new property, and that new property closes before your old one, you’ll usually need extra cash or a bridge loan. Not all lenders offer bridge loans.
• You’ll often pay 5 to 15 bps more, compared to the lowest market rate, to have a full 90 days of porting flexibility and access to bridge loans.

8) Can you live with refinance restrictions?
• If you want the freedom to refinance early with any lender, some lenders will charge you 10 bps more than their lowest rates for that privilege.
• If you want to cash out more than $200,000 in equity, you’ll often pay at least 15 bps more than the cheapest market rates.

9) Can you live with a large penalty?
• More than three-quarters of the fixed mortgages sold in this country do not have, what I’d term, “fair” penalties. In other words, if you break the mortgage contract early, you’ll often pay through the nose (more on that).
• Some lenders offer both high– and low-penalty options, with the low-penalty mortgages costing 10 bps more. But even with that rate premium, you’d likely still pay less than if you broke a fixed mortgage with a high-penalty lender, like a major bank.

10) What type of property is it?
• A few lenders charge 5 to 10 bps more for high-rise condos, depending on your equity and other factors.

11) Do you want good rates when you renew and/or if you refinance early?
• Some lenders try to stick their renewing or refinancing customers with horrid “special offer” rates (they’re not so special, trust me).
• If you want a lender that’s highly competitive after you close, you’ll often pay at least 10 bps more than the cheapest market rate.

12) Do you have any credit flaws like bankruptcy, consumer proposal or unpaid debts?
• If so, some lenders won’t even touch you. The ones who will, will charge 50 to over 200 bps more than the lowest rate in the market.

13) Do you have a property address already or is it a pre-approval?
• You’ll almost never get the best rate on a pre-approval (more on that below). Expect to pay at least 10 to 20 bps more than rock bottom rates if you haven’t purchased your property yet.

A pre-approval is really merely a rate hold, UNLESS all of the documents that will ultimately required have been collected, AND your complete file has been fully underwritten by a mortgage lender. Most lenders will no longer underwrite pre-approvals because only about 15% of those become live purchases, but experienced Mortgage Brokers will have at least one lender that will).
The rate held on pre-approvals are referred to as a ‘Rate Hold’ and it will always be higher than that same lender will offer on a ‘live purchase’ on the same day to the same borrower. That is because the lender must hedge against potential rate increases over the period of time the rate is held for, which is normally 90 days and can be 120 days.

14) How big is the mortgage, as a percentage of your home value?
• If you’re a well-qualified borrower, “loan-to-value” (LTV) is the second-most-important factor in determining the rate you’ll pay.
• If your LTV, for example, is 80 per cent instead of 65 per cent, you’ll often pay at least 15 bps more than the best market rates.
• Oddly enough, someone with an 80 per cent LTV will pay up to 20 bps more than if they had a 95 per cent LTV. Why? Because mortgages with less than 20 per cent equity cost lenders less, since borrowers must pay for their own default insurance.

15) Can you pass the government’s “stress test”?
• If you’re getting an insured mortgage (which is usually required if you have less than 20 per cent equity), you must prove you can afford a payment at the Bank of Canada’s five-year “benchmark” rate. That rate is roughly two percentage points higher than your actual “contract rate.”
• If you can’t do that, but you have at least 20 per cent equity, some lenders will let you qualify on your “contract rate” instead, which is much easier, but you’ll pay at least 15 bps more.

16) What is your credit score?
• If your credit score is less than 680, it could cost you a minimum of 10 bps more. A few lenders won’t deal with you at all, and others will limit their rate specials to borrowers with scores of 700 or 720.
• By regulation, a sub-680 credit score will also limit the amount of debt you can carry if you want a competitive rate.

17) Are you purchasing, refinancing or merely switching lenders?
• A refinance today costs 15 to 50 bps more than the lowest market rate on a purchase.

18) What is/was the property’s purchase price?
• Many lenders now charge 15 bps more if your property value is more than $1-million.

19) Is your mortgage already insured?
• If it is, and you’re simply switching lenders with no changes to the mortgage, you’ll save at least 10 bps compared to average discounted rates.

20) How long of an amortization do you require?
• Many lenders, including big banks, are now charging 10 bps extra for amortizations over 25 years.

The above list of questions is by no means exhaustive. And there are always exceptions. One is if you’re asking for a renewal rate from the lender who presently holds your mortgage. If you send them a copy of various competitor’s rates, you won’t need to answer all these questions to get their lowest rate.

Ottawa’s new mortgage rules have made factors such as healthy credit scores, purchase price and amortization lengths more important. The changed regulations have led some lenders to advertise as many as 10 different rates for a five-year fixed mortgage alone.
Today’s landscape requires lenders and mortgage brokers to factor in more criteria than ever before when setting rates. So if you see a red– hot bargain advertised on a lender or broker’s website, it’s bound to have caveats. Get ready to ask–and answer–plenty of questions.

13 Feb

Changes to Canada’s mortgage rules since the 2008 financial crisis

Real Estate Market

Posted by: Garth Chapman

Actions taken since the 2008 financial crisis to address the federal government’s concerns about Canada’s housing market.

July, 2008:
• After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.

February, 2010
• Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90% of a home’s value, down from 95%.
• The move also set a new 20% down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.

January, 2011:
• The Conservative government tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage from 35 years to 30 years.
• The maximum amount Canadians could borrow via refinancing was further lowered to 85% of a home’s value.

June, 2012
• A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages.
• A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage.
• Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value.
• Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.
• Limit the maximum gross debt service (GDS) ratio to 39% and the maximum total debt service (TDS) ratio to 44%.

December, 2015
• The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.
• The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10% from 5% for the portion of a home’s value from $500,000 to $1-million.

October, 2016
• Borrowers who take out insured mortgages that are fixed-rate loans of five years or longer will be subjected to a “stress test,” by qualifying at the Bank of Canada’s Benchmark rate (then about 2% higher than a typical 5-year fixed rate). This same stress test is already in place for all mortgage terms of less than 5 years and for those taking a Variable Rate.
• Ottawa unveiled new measures aimed at portfolio insurance, a type of bulk insurance that banks use for mortgages with down payments of 20 per cent or more. Starting Nov. 30, the federal government will now require portfolio-insured mortgages to qualify under the same criteria used for the insurance taken out on homeowners with small down payments. Portfolio-insured mortgages will now be limited to a maximum amortization period of 25 years and a maximum purchase price of less than $1-million. It requires all portfolio-insured mortgages to be owner-occupied, prohibiting insurance on rental homes and investment properties. This change handed the banks a huge advantage over the Monoline mortgage lenders, and increased their market share and ultimately allowed the banks to increase mortgage interest rates.

January, 2018
• Home buyers with a down payment of 20% or more will be subject to stricter qualifying criteria (also known as a “stress test”) that would determine whether a homebuyer would be able to afford their principal and interest payments should interest rates increase. REFINANCING an existing property (20%+ Equity) will also be subject to the stress test. For qualification, the stress test will use either the 5-year benchmark rate published by the Bank of Canada or the customer’s actual mortgage interest rate plus 2.0%, whichever is the higher. Estimated reduction in borrowing for the average borrower, 15-20%
• OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets” like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.
• Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.

23 Aug

When Your Mortgage Term Matures, First Get a Second Opinion

General

Posted by: Garth Chapman

In 2018 the mortgages of 47% of Canadians will mature. Roughly 70% of them will simply sign the mailed renewal offer from their bank. Without even attempting to negotiate the rate. On average those borrowers will pay 0.25% above the then-current market rate. That’s an extra $52 per month on a $400,000 mortgage. But it doesn’t have to be this way…

Calling your Mortgage Broker when your mortgage is about to mature is akin to getting a second opinion on a medical diagnosis. So when your mortgage is soon to mature, for the sake of your financial health, please do make that second opinion call to your Mortgage Broker. He or she might advise you that your existing bank is making you the best offer you are likely to get and recommend that you take that offer. Or they may simply help guide you in negotiating a better offer from your existing bank. Or they may advise that they believe they can find you a mortgage better suited to your needs and objectives. Often a good Mortgage Broker can make that assessment on the first phone call. In those cases think of us as providing a sound professional second opinion.

When should you start thinking about this?

Most of us will find that much has changed in our life, career and financial position during the 3, 4 or 5 years since we took out or last renewed our mortgage. That means that a proper review of that mortgage against those new realities is in order, and the good news is that process is really a pretty easy one.

Virtually all banks and mortgage lenders will hold an interest rate for you to protect against possible rate increases for up to 120 days (4 months). So a little before 4 months in advance of the maturation date of your mortgage is when you should begin the process. If you’re a Jencor Client then you will receive in the mail 4 months ahead a letter advising you of your upcoming renewal. In this way we ensure that our clients are properly prepared in advance to ensure they make the best decision.

What are your rights and opportunities when your mortgage matures?

First a quick description of what the words mean. The mortgage ‘term’ is the time period of the current mortgage contract. This is distinct from the ‘amortization’ period, which is the number of years to go until your mortgage is totally paid off. So with that in mind, mortgage term maturity in Canada means that the term you signed with the bank for your mortgage is up, and you can then in most cases either renew with that bank or you can transfer (aka Switch) your mortgage to any of a few dozen other mortgage lenders, generally without cost.

So in effect, on the mortgage maturity date you will be a ‘free agent’. Let’s take this sports analogy a little further. When you are a free agent, assuming you are a good player (ie good credit, income etc) the other teams (ie banks) will want you to change teams and play for them (ie take over your mortgage from your existing bank). So this means you can move your mortgage to any other team (ie bank) to get the best deal for your needs, and usually without any costs as the new bank will pick up the Appraisal and legal costs for the mortgage transfer since they are growing their market share by talking some business away from a competitor.

An important thing to know is that the single biggest motivator or goal for banks in the mortgage business is growing their share of the overall mortgage market. That’s a key reason they put money on sale (by lowering interest rates) when the real estate markets are busier in spring and summer.

A sports Agent knows all the teams in the league, and they know their athlete client’s capabilities and needs and goals. The Agent then negotiates with the teams that fit their athlete client best to find the best fit, and then negotiates with the team(s) selected to get the best contract for their client.

Just like an athlete, you too have an ‘Agent’, your Mortgage Broker, whose role in this process is to assess your needs and objectives, to gather your information, and then to present you in your best light to the banks who have the mortgage products that will best fit you, and then to negotiate with those other banks to get you the mortgage that best fits your needs. And finally to shepherd the mortgage completion through to the end to ensure everything goes according to plan, so you don’t have to.

So what are the details of how your Mortgage Broker will act for you in this process?

Your Mortgage Broker will work with you to understand what your needs, objectives and preferences are. These will include things like Pre-payment Penalties, Portability, Bridge financing, Variable or Fixed rate selections, Term length, Pre-payment Privileges, Increase Payment privileges, Payment holidays, and more.

If you are an existing Client of your Mortgage Broker then this will mean a simple update of your previous Application and gathering the documents required, less of course the ones they have from your earlier file. If you a new Client then it’s a fresh Application and gathering your documents. Expect to spend 15-20 minutes to get acquainted and allow the Broker to learn what they need to know to allow them to minimize the documents and time needed from you going forward, then again about 15-20 minutes on the Application, and usually that much again providing the required documents.

So it can be from less than an hour, to perhaps a couple of hours in complex scenarios. It really isn’t much of a time commitment on your part, especially when you consider the value that comes to you as a result, and with how significant your mortgage is in your overall financial picture, we think it’s time well spent.

And then they will review what your bank and the other banks are offering on rate and on terms and the above and present you with your best options based on the needs and objectives you determined together. That will allow you to make an informed decision on which mortgage is best for you going forward.

As I wrote above, your Mortgage Broker may advise you that your existing bank is making the best offer and their best advice is to take that offer, or they may help you to negotiate a better offer from your existing bank. In the event your current mortgage lender is not making a competitive offer or their terms are not appropriate for your needs, or if you simply want to move to another lender, then your Mortgage Broker will recommend the best alternative(s) for you.

If you decide to Transfer (aka Switch) your mortgage to another lender your Mortgage Broker will complete the Application process as I described above and ‘book’ your file, and within as little as 2-3 days, will present you with a Mortgage Commitment from the lender best fit for you, and then guide you through signing those via a thorough review of the documents.

And here is a National Post article on the subject. This piece makes the point about how banks use our fears to get a surprisingly large percentage of people to sign their mortgage renewal notice, and usually at higher than market rates. And all without even the tiniest sliver of the review of their Client’s needs and objectives that you now know is so important.

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 2^ndmortgage 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.

16 May

If you have a mortgage on a property in Fort McMurray, and you might need to arrange for a payment holiday or other help of any kind, here’s what to do

Mortgage Tips

Posted by: Garth Chapman

If you have a mortgage on a property in Fort McMurray, and you might need to arrange for a payment holiday or other help of any kind, call your mortgage lender – they are all expecting you to call. If you are unsure how to handle that call, just phone your Mortgage Broker (even if you did not have your mortgage arranged by a Broker you can still call one for advice). Here are the numbers for all the mortgage lenders/banks:

ATB Financial 1-800-332-8383
BMO 1-877-225-5266
Bridgewater Bank 1-866-243-4301
B2B Bank 1-866-684-5637
CIBC 1-888-264-6843
Canadiana 1-877-315-1633
CFF Bank 1-855-767-3031
CMLS Financial 1-888-995-2657
Equitable Bank 1-866-407-0004
First National Financial 1-866-557-5509
First Calgary 1-888-488-0794
Home Trust 1-855-270-3630
HomEquity Bank 1-866-522-2447
ICICI 1-888=424-2422
Manulife 1-855-518-7546
MCAP 1-800-265-2624
Merix 1-877-637-4911
National Bank 1-800-361-9522
Optimum Mortgage 1-866-441-3775
PC Financial 1-888-723-8881
Scotiabank 1-866-280-0012
Street Capital Financial 1-877-416-7873
Radius Financial 1-866-550-8227
RMG 1-866-809-5800
Royal Bank of Canada 1-800-769-2511
TD Canada Trust 1-866-222-3456
Tangerine 1-888-826-4374

And just in case your mortgage was arranged by Jencor Mortgage you can reach us at 1-877-245-3636

24 Feb

When Your Mortgage Term Matures, First Get a Second Opinion

Mortgage Tips

Posted by: Garth Chapman

When should you start thinking about this?

What are your rights and opportunities when your mortgage matures?

So what are the details of how your Mortgage Broker will act for you in this process?

Renewing your mortgage? Here’s why you should pick up the phone

I hope you found this helpful and of value!

22 Jul

The Devil In The Fine Print – some mortgages have restrictions

Mortgage Facts & Stats

Posted by: Garth Chapman

Not all mortgages are created equal. In fact most mortgages, even within a single financial institution, will vary from one another. Pre-payment privileges, portability, increased payment and extra payment privileges, payment holidays, and all sorts of other issues come into play.

Your own particular needs and desires must be understood by your Mortgage Broker or Banker and then be considered what deciding which of these and many other specific rights and obligations are important or even necessary for you to have in your mortgage. Make sure these issues are addressed and explained fully so you will make the best decision possible for your borrowing needs.

One key clue to just how restrictive a mortgage is likely to be is simply the interest rate. Most often the lower it is the more restrictive the mortgage itself will be.

There is an excellent article on this topic in Canadian Mortgage Trends here The Devil In The Fine Print

19 Jul

Why you should care about the banks’ posted rates on mortgages

Mortgage Facts & Stats

Posted by: Garth Chapman

There are not very many Canadians these days who would accept the posted rate for a mortgage, but that doesn’t mean no one should care when the banks drop their posted rates.

What’s key about the posted rate is that it is used by the Bank of Canada to create what is called the ‘qualifying rate’. The prime rate is 2.45% as of the last change on March 30, 2020 and you can obtain a Variable Rate mortgage at rates that are below the Prime Rate, although the discounts to Prime have gone from nearly 1.0% to about 0.25% with the advent of COVID-19. And remember, you will qualify based on the ‘Stress Test rate’ — meaning you must borrow based on a higher monthly payment which ultimately means you will be restricted to taking on a smaller mortgage than in the good old days when you qualified on the actual rate of your new mortgage.

If you took a fixed rate mortgage, as 75% of Canadians have been doing for at least 5+ years, and you want to pay off the mortgage now, you would be subject to a mortgage penalty based on a very complex calculation call IRD (Interest Rate Differential). Ostensibly this is to make the bank whole for you breaking your contract early as the bank would have contracted to pay a given interest rate to the entity that provided the funds for your mortgage for the entire term. When you break the term the bank is still obligated to the payments they committed to. And that’s fair enough, but many would argue that the IRD calculations are not in keeping with the above concept. And that’s because they use the Posted Rate in calculating the penalty. In fact there is a class-action lawsuit winding its way through B.C. courts now on this very issue Class-action lawsuit against CIBC for mortgage penalties

Read on here for the skinny on this subject in this Financial Post article Why you should care about the banks’ posted rates on mortgages

19 Jul

It’s taxes versus a mortgage for the self-employed

Income Tax

Posted by: Garth Chapman

Canada’s government as been acting since 2009 to tighten mortgage lending requirements in their ongoing efforts to ensure Canadians do not face the ruinous housing collapse endured by Americans and many Europeans since the collapse of 2008. As a signatory to the Basil Accords along with the USA and all the Euro nations Canada’s government is obligated to comply its banks to adhere to much stricter underwriting guidelines and due diligence. And this has made it tougher for all Canadians to obtain mortgage financing. Since Guideline B-20 came into effect in 2012 those of us (myself included) who are self-employed (BFS or Business For Self in industry parlance) have been heavily impacted.

Most self-employed Canadians will, usually following the advice of their Tax Advisers, will focus on lowering their taxable income via the use of various expenses to their business. This is effected easily both with incorporated businesses and for those operating as proprietorships. This results in lower line 150 income on the personal tax return, sometimes by significant amounts.

Prior to B-20 guidelines being in effect, such borrowers could qualify by simply ‘declaring’ their income, in effect adding back those deductions, and along with proving their self employed status and often backing up the numbers with bank statements showing the scope of cash flowing through those accounts.

There is an excellent piece on the tougher hurdles Canada’s self-employed now face in getting a mortgage, and what they can do to improve their prospects here in the Globe and Mail’s article It’s taxes versus a mortgage for the self-employed

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