If you're in a fixed rate mortgage, this news does not impact you. Mind you 'impact' is too strong a word to use for the subtle shift in the Bank of Canada rate that occurred this past Wednesday.
In Short
The math is as follows:
A payment increase of ~$13.10 per $100,000.00 of mortgage balance. (unless you are with TD or a specific Credit Union, in which case payments are fixed and change only at your specific request)
i.e. – A mortgage balance of $400,000.00 will see a payment increase of ~$54.40 per month
Personally, we are staying variable, for a variety of reasons...
The Long Version
Qualification for variable rate mortgages has been at 4.64% or higher for some time. This required a household income of greater than $70,000.00 for said $400,000.00 mortgage .
Can 99% of said households handle a payment increase of $54.40 per month? Yes.
Will 99% of households be frustrated with this added expense? Yes.
Ability and annoyance are not the same thing.
Have these households enjoyed monthly payments up to $216.80 lower than those that chose a fixed rate mortgage originally? Yes.
Are 99% still saving money over having locked into a long term fixed from day one? Yes.
Should You lock in?
A more important question is ‘why did you choose variable rate mortgage to start with’? And this may lead to a critical question ‘Is there any chance you will break your mortgage before renewal’?
The penalty to prepay a variable mortgage is ~0.50% of the mortgage balance.
The penalty to prepay a 5-year fixed mortgage can increase by ~900% to ~4.5% of the mortgage balance. A massive increase in risk.
There are many considerations before locking in, many of which your lender is unlikely to discuss with you. It’s to the lenders advantage to have you locked into a fixed rate, rarely is it to your own benefit.
At the moment decisions are being made primarily out of fear. Fear of $13.10 per month per $100,000.00
What about locking into a shorter term?
Not a bad idea, although this depends on two things:
1. Which lender you are with as policies vary.
2. How many years into the mortgage term you are.
If your net rate is now 2.95%, and have the option of a 2-year or 3-year fixed ~3.00% – this may be a better move than full 5-year commitment.
Do not forget the difference in prepayment penalties, this is significant.
Bottom line – Know your numbers, know your product, and stay cool.
These are small and manageable increases.
P.S.
It was a bit disappointing to see logic and fairness fail to enter the picture, after the last two Federal cuts to Prime in 2015 of 0.25% each the public received cuts of only 0.15% each time.
Every single lender moved in unison, not one dropped the full 0.25%.
Amazingly, not a single lender saw fit to increase rates by the exact same 0.15% on the way back up. Every lender has instead increased by 0.25% - a full 100% of the increase passed on to you, the borrower.
Not cool man, not cool at all.
We share all the pain of increases, and get only part of the pleasure of decreases.
-Dustan Woodhouse
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and real estate broker-consultant with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; Steven@1800Mortgages.ca or online at 1800Mortgages.ca
Showing posts with label #MortgageBroker. Show all posts
Showing posts with label #MortgageBroker. Show all posts
Friday, 19 January 2018
Thursday, 2 November 2017
Regulatory mortgage changes that will affect you
November 2, 2017
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CHANGE OF SPACE: OSFI
Steven Porter and Mortgage Architects continues to update our customers as new information arises on the regulatory changes announced by the Office of Superintendent of Financial Institutions (OSFI) on October 17, 2017.
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MORTGAGE TERMS YOU NEED TO KNOW:
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Insured Mortgage / High Ratio Mortgage = Less than 20% down payment
Non Insured Mortgage / Conventional Mortgage = 20% or greater down payment / equity
Bank of Canada Rate = the 5 year fixed posted rate (currently 4.99%)
Contract Rate = the actual rate offered by the lender to the consumer
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Benchmark Rate/Qualifying Rate = Stress Test: Bank of Canada Rate OR Contract Rate
+2%, whichever is greater
LTV (Loan To Value) = the size of a mortgage compared to the value of the property securing the loan
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OSFI has implemented 3 new mortgage rule changes starting January 1, 2018:
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CHANGE 1:
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QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES
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Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate.
The minimum rate will be the greater of the five-year benchmark rate
published by the Bank of Canada OR the lender contractual mortgage
rate +2.0%.
How does this affect the mortgage consumer with a
down payment of 20% or more?
The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.
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For example:
*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.
Do I still have the option to refinance my home?
Yes, homebuyers will still have the ability to refinance up to 80% of the value of their property. You will have to pass the same stress test which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%.
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CHANGE 2:
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LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS
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Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.
What does this mean?
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.
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CHANGE 3:
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RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS
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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”.
What does this mean?
For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OSFI.
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HOW CAN STEVEN PORTER AND MORTGAGE ARCHITECTS HELP?
Now, more than ever, new homebuyers and existing homeowners are going to rely on mortgage brokers for their guidance and expertise in navigating through these regulatory changes.
There are differences amongst the many lenders that we have access to and the greatest value a broker can provide is the knowledge of the lending environment and in choosing which lender is best suited for your needs.
Mortgage Architects will continue to educate our mortgage professionals as new data arises. This way you can be kept up to date with all of the latest information. The content in this document is current as of the date at the top of the page.
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Brokerage #12728
14 Martin Street, Milton, ON, L9T 2P9 |
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Tuesday, 31 October 2017
Are we Pre-Approved? Not what you might think it means…
Many clients think that having a mortgage pre approval puts them in a position to write offers on properties without inserting a ‘condition to receiving and approving financing’ clause.
Nothing could be further from the truth.
Being ‘pre-approved’ can all too easily create a false sense of security.
Although going through the pre-approval process is itself important the actual term ‘pre-approval’ is not exactly accurate. In fact it should at the very least be called a ‘conditional pre approval’ or more accurately still a ‘rate hold’.
Here is a typical lender response following submission of a file for Pre-Approval;
"Thank you for choosing TD Canada Trust, please note that a rate hold only has been approved at this time. The Rate of X.XX% with a term of X years has been processed. Once clients have a valid signed purchase and sale agreement in place, please resubmit for full credit adjudication and decision. Rate will be held for 120 days. Current credit bureaus will be required at time of re-submission."
An important point to be clear on is although you may be pre-approved at a certain rate (which is typically held for 120 days from the date of application), not much else other than this rate has any degree of certainty. There remain a number of conditions to be met as well as variables which can enter into the equation when you actually write an offer on a specific property and as such it is imperative that one always includes a condition clause in their offer along the lines of ‘subject to receiving and approving financing’.
Often clients are reluctant to write an offer on a property without feeling that they are 100% pre-approved. Although this is an understandable desire, and in some cases clients may be led to believe that this is the case by their lenders, the fact remains that until the lender reviews all related documents not just those that come from the client but also those that come from the appraiser and the Realtor, there is no 100% certainty of approval.
This would be why we always try to insist that clients include, arguably the single most important condition clause in their Offer to Purchase ‘subject to receiving and approving financing’. (I am being repetitive with this statement for a reason)
The preapproval process should be considered more of a pre-screening process than anything. It should always involve review and analysis of the client's current credit report, it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted, (ideally all of those documents should be reviewed and approved by your mortgage broker in advance of the offer being written). Clients should also come away from this process with a clear understanding of the maximum mortgage amount they qualify for along with the various related costs involved in their specific real estate transaction. In the Province of Ontario, the Land Transfer Tax is an important one. Equally as important; with the completed application, the broker is able to lock in rates for up to 120 days. One specific advantage of an independent Mortgage Broker being that your rate can be locked in with a few different lenders giving you a safety net of one lender has an issue with the property, perhaps over an illegal suite, restrictive covenant, etc.
Why is the lender not fully underwriting my application?
With the Banks, Credit Unions, etc. the actual conversion rate of pre-approvals to ‘actual mortgages is less than 10%. It is for this reason that an actual live underwriter very rarely completely reviews a pre-approval application. It is not an efficient use of resources. Therefore the bottom line is that the client is really only getting the opinion of the front-line individual with whom they are directly speaking. That individual will not be the same person that underwrites and approves the actual transaction. This is true of every mainstream "A" lender channel that I can think of.
It is due to this disconnect between intake of application and actual underwriting of a live application that the ‘subject to receiving and approving financing’ clause in the purchase/sale agreement is so vital.
Another significant factor which over the past four years, and in particular since Nov 1st, 2016 has undermined the solidity of a client pre-approval is the relentless pace of change with regard to lending guidelines and policies implemented not only by the Federal Government, OFSI, but also by the lenders themselves. In other words it is very easy to walk out of a lenders with a pre-approval for a certain mortgage amount only to have it rendered meaningless a few days later when the banks change internal underwriting guidelines with no warning and very little notice to the general public.
Setting aside these concerns there still exists the general concept that although the client may have excellent credit, an excellent job, and a strong down payment –the bank still needs to approve of the property which the clients wish to purchase. Is it on lease land, is it an age restricted building, was there a significant special assessment within the previous five years, have there been building envelope issues, is the property it remediated former marijuana grow-op, is the ‘economic life’ of the dwelling too short to meet lender guidelines, is the property subject to a current rezoning or development application, is the home in a floodplain, is it sitting on a log foundation, the list goes on.
This is perhaps the simplest point I can make – perhaps you the client are ‘pre-approved’ but most certainly the subject property is not – and there are several properties that a lender will not touch these days.
Take nobodies word that you are pre-approved, look for an email from your broker stating ‘File Complete’ which should arrive no later than your condition removal date ideally.
Written by Dustan Woodhouse.
Posted and edited to reflect mortgage lending in Ontario by Steven Porter, Mortgage Agent, Mortgage Architects. Steven can be reached at 905-875-2582 or by email at Steven@1800Mortgages.ca
Nothing could be further from the truth.
Being ‘pre-approved’ can all too easily create a false sense of security.
Although going through the pre-approval process is itself important the actual term ‘pre-approval’ is not exactly accurate. In fact it should at the very least be called a ‘conditional pre approval’ or more accurately still a ‘rate hold’.
Here is a typical lender response following submission of a file for Pre-Approval;
"Thank you for choosing TD Canada Trust, please note that a rate hold only has been approved at this time. The Rate of X.XX% with a term of X years has been processed. Once clients have a valid signed purchase and sale agreement in place, please resubmit for full credit adjudication and decision. Rate will be held for 120 days. Current credit bureaus will be required at time of re-submission."
An important point to be clear on is although you may be pre-approved at a certain rate (which is typically held for 120 days from the date of application), not much else other than this rate has any degree of certainty. There remain a number of conditions to be met as well as variables which can enter into the equation when you actually write an offer on a specific property and as such it is imperative that one always includes a condition clause in their offer along the lines of ‘subject to receiving and approving financing’.
Often clients are reluctant to write an offer on a property without feeling that they are 100% pre-approved. Although this is an understandable desire, and in some cases clients may be led to believe that this is the case by their lenders, the fact remains that until the lender reviews all related documents not just those that come from the client but also those that come from the appraiser and the Realtor, there is no 100% certainty of approval.
This would be why we always try to insist that clients include, arguably the single most important condition clause in their Offer to Purchase ‘subject to receiving and approving financing’. (I am being repetitive with this statement for a reason)
The preapproval process should be considered more of a pre-screening process than anything. It should always involve review and analysis of the client's current credit report, it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted, (ideally all of those documents should be reviewed and approved by your mortgage broker in advance of the offer being written). Clients should also come away from this process with a clear understanding of the maximum mortgage amount they qualify for along with the various related costs involved in their specific real estate transaction. In the Province of Ontario, the Land Transfer Tax is an important one. Equally as important; with the completed application, the broker is able to lock in rates for up to 120 days. One specific advantage of an independent Mortgage Broker being that your rate can be locked in with a few different lenders giving you a safety net of one lender has an issue with the property, perhaps over an illegal suite, restrictive covenant, etc.
Why is the lender not fully underwriting my application?
With the Banks, Credit Unions, etc. the actual conversion rate of pre-approvals to ‘actual mortgages is less than 10%. It is for this reason that an actual live underwriter very rarely completely reviews a pre-approval application. It is not an efficient use of resources. Therefore the bottom line is that the client is really only getting the opinion of the front-line individual with whom they are directly speaking. That individual will not be the same person that underwrites and approves the actual transaction. This is true of every mainstream "A" lender channel that I can think of.
It is due to this disconnect between intake of application and actual underwriting of a live application that the ‘subject to receiving and approving financing’ clause in the purchase/sale agreement is so vital.
Another significant factor which over the past four years, and in particular since Nov 1st, 2016 has undermined the solidity of a client pre-approval is the relentless pace of change with regard to lending guidelines and policies implemented not only by the Federal Government, OFSI, but also by the lenders themselves. In other words it is very easy to walk out of a lenders with a pre-approval for a certain mortgage amount only to have it rendered meaningless a few days later when the banks change internal underwriting guidelines with no warning and very little notice to the general public.
Setting aside these concerns there still exists the general concept that although the client may have excellent credit, an excellent job, and a strong down payment –the bank still needs to approve of the property which the clients wish to purchase. Is it on lease land, is it an age restricted building, was there a significant special assessment within the previous five years, have there been building envelope issues, is the property it remediated former marijuana grow-op, is the ‘economic life’ of the dwelling too short to meet lender guidelines, is the property subject to a current rezoning or development application, is the home in a floodplain, is it sitting on a log foundation, the list goes on.
This is perhaps the simplest point I can make – perhaps you the client are ‘pre-approved’ but most certainly the subject property is not – and there are several properties that a lender will not touch these days.
Take nobodies word that you are pre-approved, look for an email from your broker stating ‘File Complete’ which should arrive no later than your condition removal date ideally.
Written by Dustan Woodhouse.
Posted and edited to reflect mortgage lending in Ontario by Steven Porter, Mortgage Agent, Mortgage Architects. Steven can be reached at 905-875-2582 or by email at Steven@1800Mortgages.ca
Monday, 23 October 2017
Understanding the tax implications of co-signing a child's mortgage
One of the most common ways a parent can help out a child is to either gift or loan them money to assist them in financing their first home. Alternatively, parents who either can’t afford to make a gift or loan, or perhaps simply don’t want to, may still be in a position to do the next best thing — guarantee the mortgage on their kid’s home.
The Canada Revenue Agency recently responded to a taxpayer inquiry involving such a loan guarantee. In the case in question, two taxpayers we will call Jack and Diane were getting a divorce and Diane wanted to buy her own home. Her parents co-signed for the mortgage so she could purchase the new home since she already owned an existing home with Jack that they were trying to sell.
Diane’s parents neither lived in the new home nor contributed any money toward the purchase of the home, nor did they pay for any of the utilities, property taxes or repairs. Diane and her parents also signed a document stating that the parents “have no financial interest in the home.” Notwithstanding all this, however, Diane’s parents hold legal title to the new home since they were required to co-sign for the mortgage.
Diane’s parents also own their own home in another city, which they have lived in for many years. Diane and her parents would like to leave their names on the title of the new home since they want to avoid paying land transfer tax to have their names removed from the property.
Diane wrote to the CRA because she wanted assurance that if she later sold the home at a profit, that gain could be sheltered by her principal residence exemption and wouldn’t be subject to capital gains tax in her parents’ hands despite her parents being on title as legal owners.
The CRA responded that according to the definition of “principal residence” in the Income Tax Act, “the property must be owned by the taxpayer at any time in the year” to qualify as a principal residence.
The Tax Act, however, doesn’t define the word “owned” so we are left with the two most common forms of ownership – legal and beneficial. In most cases, the legal owner will also be the beneficial owner. However, it is certainly possible for someone to have legal title to something, in that title is registered in their name, yet have someone else be entitled to the use and benefit of the property, known as “beneficial ownership.”
The CRA concluded that if it is truly Diane and her parents’ intention that Diane be the sole beneficial owner of the home and that her parents merely hold legal title because they were required to do so as guarantors of the mortgage, Diane, as the beneficial owner, and not her parents, would be responsible for reporting any future capital gain at the time the home is sold. This means that presumably Diane could use her principal residence exemption to avoid paying tax on any future gain at the time of sale.
by Jamie Golombek, business.financialpost
- Posted by Steven Porter, Mortgage Agent - Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca
Wednesday, 18 October 2017
Canadian Financial Institution Regulator Further Tightens Mortgage Lending Rules
OSFI (Office of the Superintendent for Financial Institutions) has published its update for the tightening of mortgage lending regulations known as Guideline B-20 and set the date for January 1, 2018 that it will apply.
The revised Residential Mortgage Underwriting Practices and Procedures will include several key changes that the regulator says is part of its expectation that federally-regulated mortgage lenders remain vigilant in their underwriting practices:
-Stress test - the minimum qualifying rate will now include uninsured mortgages and is to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
-Enhanced LTV (Loan to Value) measurement - federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
-Restriction of certain lending arrangements - federally regulated financial institutions 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.
Mortgage industry experts expect that, following a brief run-up in activity fueled by buyers rushing to lock-in existing qualifying criteria, the change will have a dampening impact on the housing market shortly after it comes into effect in January. It has the potential initially to rock the market because non-insured mortgages represent a large share of the mortgage market.
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and retired, real estate broker with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca
Monday, 16 October 2017
The hidden trap of mortgage penalties
It's easy to get caught in the posted mortgage rate trap at the big banks.
No, you won't have to pay the posted rate on your next mortgage. Pretty much nobody does that any more, according to mortgage planner Robert McLister. The real danger is that posted rates will be used to calculate the penalty if you ever have to break your mortgage, probably costing you thousands of extra dollars.
A mortgage penalty compensates a lender for the interest payments it loses out on when you break a mortgage contract. "That's the intention," said Mr. McLister, who is also former editor of Canadian Mortgage Trends. "But in many cases, it overcompensates. It's punitive in many cases."
As we head into another round of quarterly bank earnings reports, it's worth thinking for a moment about how those wonderful profits and dividends for investors are generated. One way is by using posted instead of lower discounted rates when calculating how much to penalize a client breaking a mortgage.
With houses as expensive as they are today, it's crucial to get the lowest mortgage rate you can. Keep the same level of focus when inquiring about mortgage penalties. Although it's hard to imagine the need to break a mortgage on a house you're just buying or living in happily, it can happen. Mr. McLister said roughly 70 per cent of people adjust their five-year fixed rate mortgage before maturity, although many do it to refinance or move to a bigger house rather than to break the mortgage outright.
Mortgage penalties are straightforward if you have a variable-rate mortgage – expect to pay the equivalent of three months' interest in most cases. With a fixed-rate mortgage, the penalty is set at the higher of three months' interest or a calculation called the interest rate differential, or IRD. The must-ask question when negotiating a fixed-rate mortgage: Do you use discounted or posted rates to calculate these penalties?
This is important because using posted rates can result in a much higher penalty. For some real world numbers, let's use the mortgage prepayment calculators all lenders now provide on their websites. They show penalties for paying all or a portion of your remaining mortgage balance (to find them, Google your lender's name and "mortgage prepayment calculator").
Let's use an example of someone who, three years ago, set up a $250,000 five-year mortgage and has a balance owning of $200,000. Assuming an original mortgage rate of 3.64 per cent with a discount of 1.5 percentage points, the mortgage prepayment calculators at several big banks showed penalties ranging from $5,000 to $7,600 or so.
A check with some alternative lenders found penalties ranging from $1,800 to $2,800. These are very rough comparisons because lenders differ a fair bit in what information they ask you to supply. But you get the picture – the big banks apply penalties with a sledgehammer.
As well as producing revenue for lenders, inflated mortgage penalties also help trap clients who might otherwise move their business to another lender. Imagine you want to refinance your mortgage or buy a bigger home and your bank won't come across with a competitive rate. You say you'll change banks, only to find out how prohibitively expensive it is to break your mortgage.
Mr. McLister said some banks have a stated policy of offering clients only a small discount off the posted rate if they want to add on to their mortgage to buy a more expensive house. You may be able to negotiate something better than a trivial discount, but your bank knows your leverage is limited because of the penalty you face if you go.
Alternative lenders often have better rates than the big banks, and they typically have cheaper penalty fees. Why do so many people use their banks for mortgages, then?
Mr. McLister speculated that some borrowers like the convenience of having their mortgage where they bank, and of being able to go into a branch to talk about their mortgage. If you prefer transacting online, some alternative lenders don't have great websites.
One thing you do not need to worry about if you borrow from an alternative financial institution is that your lender will go bankrupt. "It's funny that people look at mortgages and think, I need a safe lender." Mr. McLister said. "If a lender goes out of business, pretty much nothing is going to change except for the name of your new lender."
By Rob Carrick – Globe and Mail
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and real estate broker/consultant with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; steven@1800Mortages.ca or online at 1800Mortgages.ca
Tuesday, 19 September 2017
Top 3 Misconceptions About Reverse Mortgages
1. The Bank Owns Your Home.
2. Your Estate Can Owe More Than Your Home
3. The Best Time to take a Reverse Mortgage is at the End of Your Retirement
Let’s examine each misconception in more detail.
1. The Bank Owns Your Home.
Over 50% of Canadian homeowners over the age of 65, believe the bank owns your home once you’ve taken a reverse mortgage. Not true! We simply register our position on the title of the home, exactly the same as any other mortgage instrument, with the main difference in the flexibility of not having to make P&I payments on the reverse mortgage.
2. Your Estate Can Owe More Than Your Home
A reverse mortgage, unlike most traditional mortgages in Canada, is a non-recourse debt. Non-recourse means if a borrower defaults on the loan, the issuer can seize the home asset, but cannot seek any further compensation from the borrower - even if the collateral asset does not fully cover the full value of the loan. Therefore, when the last homeowner dies (and the reverse mortgage is due), the estate will never be responsible for paying back more than the fair market value of the home. The estate is fully protected – this is not the case for almost any other mortgage loan in Canada, which is full recourse debt. So read the fine print the next time you offer to co-sign for a loan for mom!!
3. The Best Time to take a Reverse Mortgage is at the End of Your Retirement
This is a common mistake that reflects the “old-school” financial planning mentality.
For the majority of Canadians (without a nice government pension), the old school financial planning mentality is about cash-flow, and is as follows:
a) Begin drawing down non-taxable assets to supplement your retirement income.
b) Once your non-taxable assets are depleted, begin drawing down more of your registered assets (RSP/RIF) to supplement retirement income.
c) Once your registered assets are depleted, sell your home, downsize and re-invest to generate enough cash-flow to last you until you die.
The problem with the “old-school” financial planning model is two-fold:
1. 91% of Canadian seniors have no plans to sell their home (CBC News “Canadian Boomers Want To Stay In Their Homes As They Age).
2. You are missing out on a huge tax-saving opportunity by not taking out a reverse mortgage in the beginning of your retirement.
“Research has consistently shown that strategic uses of reverse mortgages can be used to improve a retiree’s financial situation, and that reverse mortgages generally provide more strategic benefits when used early in retirement as opposed to being used as a last resort.” - Jamie Hopkins, Forbes
In Canada, a reverse mortgage can be set-up to provide homeowners with a monthly draw out of the approved amount. For example: client is approved for $240,000 and decides to take $1000/month. This is deposited into the clients’ bank account over the next 20-years. Interest accumulates only on the amount drawn (i.e.: not on the full $ amount at the onset).
This strategy allows clients to draw down less income from their registered assets to support their retirement lifestyle. In turn, this can create some excellent tax savings, since home equity is non-taxable. Imagine lowering your nominal tax bracket by 5 – 10% each and every year over a 20 year period?! The tax savings can be huge. You are also able to preserve your investable assets, which historically, can generate a higher rate of return when invested over a greater period of time.
In summary, Canada and the U.S. both have aging populations and both have misconceptions about reverse mortgages. Learning about these misconceptions will allow you to offer your clients the best advice on how to balance retirement lifestyle and cash-flow, with the desire for retirees to age gracefully within their own homes. - by Roland Mackintosh, Business Development Manager, HomEquity Bank
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and retired, real estate broker with 30 years experience in residential real estate. Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca
Tuesday, 12 September 2017
Could you benefit from someone co-signing your mortgage?
Qualifying for a mortgage is getting tougher, and if you have poor credit or are otherwise unable to meet a lender's requirements to get a mortgage, then getting someone to co-sign your mortgage could be the way to go.
If you can’t afford to buy a home or aren’t in a position to get the best mortgage rates and terms, then the conventional and conservative wisdom is to wait until you can afford to buy a home or take advantage of the best deals in the marketplace. In some housing markets, however, waiting it out could mean missing out, depending on how quickly property values are appreciating in the area.
If you don’t want to wait any longer to buy a home but don’t meet the guidelines set out by lenders and mortgage insurers, then you’re going to have to start shopping for alternatives to conventional mortgages, and co-signing could be just the ticket for you.
Why you might need a co-signer?
You might remember moving out of your family home and looking for your first apartment. Maybe you just started your first full-time job and found the perfect place but without solid employment or credit history, a landlord wouldn’t rent a place to you unless you got someone to be a guarantor, a person who would essentially guarantee that they would pay the landlord if you were to stop paying your rent.
Co-signing a mortgage operates in much the same way; you’re not a strong enough applicant on your own and you need someone else who has a better track record to support your application. This can be because you have something negative on your credit report such as missed payments or a past bankruptcy, or because you just started a new job and are still on probation.
Rick Bossom, an accredited mortgage professional with Bayfield Mortgage Professionals in Courtenay, British Columbia, says that it’s an alternative to lenders just turning the deal down in cases where the borrowers are just on the edge of qualifying.
“It’s always going to be about the capacity and the quality of the borrower. The reason why a lender's going to ask for a co-signer is that the original borrower just isn’t strong enough,” he says. “They’re close but they just need a little bit more and that’s why the co-signing thing would come up. It’s not like they’re really, really bad, they’re just not quite there.”
And, as mortgage broker Jackie Woodward writes, “A suitable co-signer has to look good where the main borrower doesn’t.” In other words, if the primary applicant has weak credit, then the co-signer’s credit has to be strong. If the primary applicant’s soft spot is their debt or income, then the co-signer has to be strong in those areas.
Ways to co-sign a mortgage
Co-signing can play out in a couple of ways. The first is for someone to co-sign your mortgage and become a co-borrower, the same as a spouse or anyone else who you are actually buying the home with. It’s basically adding the support of another person’s credit history and income to those initially on the application. The co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default.
Another way that co-signing can happen is by way of a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.
More than one person can co-sign a mortgage and anyone can do so, although it’s usually the parent(s) or a close relative of a borrower who steps up and is willing to put their neck on the line. Lenders also tend to look more favourably on family members as opposed to a (seemingly) random person who is co-signing. Ultimately, however, as long as the lender is satisfied that all parties meet the qualification requirements and can lessen the risk of their investment, they’re likely to approve it.
Before signing on the dotted line
One thing that Bossom says surprises both primary applicants and co-signers is the amount of information that’s requested from co-signers. It's a complete vetting process because there are a number of things that can go wrong if things go south for the borrower, and as mentioned, being a co-signer makes someone responsible for the mortgage, the same as the primary applicant.
This could be a scary thing for an older parent who is close to retirement, or have their own plans on what to do with their money. Being a co-signer will impact their own ability to borrow money, which could be an issue if they decide that they want to renovate their home, get a car, or take out any other type of loan. And even if the primary applicant doesn’t go into default, if they ever get behind on their mortgage payment, then the credit of the co-signer could be affected. Even though being a co-signer isn’t meant to last for the life of the mortgage, and often not even the full length of the current mortgage term, co-signers should know that being on someone else’s mortgage will temporarily impact their borrowing capacity.
“They’re allowing their name and all their information to be used in the process of a mortgage, which is going to affect their ability to borrow anything in the future,” Bossom says. “They have to know that for the time they’re going to be a co-borrower, they could be adversely affected.”
If someone is a guarantor, then things can become even trickier because the person isn’t on title to the home. That means that even though they’re on the mortgage, they have no legal right to the home itself.
“If anything happens to the original borrower, where they die, or something happens, they’re not really on the title of that property but they’ve signed up for the loan. So they don’t have a lot of control,” Bossom says. “That’s a very scary thing.”
For this reason, he says, it’s much better for a co-signer to be a co-borrower on the property, where you can actually be on title to the property and enjoy all of the legal rights afforded to you.
In most cases, a co-signer is a bit older and more established, and the amount of required information could prove problematic if the co-signers themselves aren’t able to qualify for the mortgage for whatever reason. For example, the co-signers may own their home outright so have very little debt, but may be retired so have a limited income. Or there might be an issue if the borrower(s) need mortgage insurance through Canada Mortgage and Housing Corporation (CMHC), and the co-signer already has a mortgage that’s insured by CMHC, because CMHC limits the availability of their homeowner mortgage loan insurance to only one property per borrower/co-borrower at any given time (although there are other mortgage insurers available if the lender is willing to use one of the alternatives).
Co-signing isn’t something to be taken lightly, and even if the relationship is that of a parent/child, it may be worth looking into a formal legal agreement between all co-borrowers to clarify that the primary applicants are the ones living in the home and responsible for making the mortgage payments.
Not a life sentence
Just because you need a co-signer to get a mortgage doesn’t mean that you will always need a co-signer. In fact, as soon as you feel that you’re strong enough to qualify without your co-signer – whether that period of time is two years or two weeks – you can ask your lender to reconsider the application and remove the co-signer from the title.
It is a legal process so there will be a relatively small cost associated with the process, but doing so will remove the co-signer from your loan, and release them from the responsibility of backing what is, for most people, a rather large amount of money. Removing a co-signer technically counts as changing the mortgage, so you’ll have to check with your mortgage broker and lender to ensure that it doesn’t count as breaking your mortgage and that there is no additional cost associated with doing so.
Co-signing isn’t the norm but it’s an option that could provide a lot of people with a little leg up onto the property ladder. - whichmortgage.ca
Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR) and retired, real estate broker with 31+ years experience in residential real estate. Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca
Tuesday, 8 August 2017
MarketWatch Newsletter - August 2017
August 2017
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Hello and welcome to the August issue of my monthly newsletter!
Thanks again for your continued support and referrals!
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Source:
www.mortgagearchitects.ca
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Dust off the picnic table and fire up the grill! But before you arrange a backyard party for your friends and family, check out these tips below to help set the stage for your best backyard bash yet.
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1. Put It On Cruise Control
By setting up a well-stocked buffet table and drink station, the party will essentially run itself. Everyone can serve themselves and you’ll also create a spot for them to mingle.
2. Keep Everyone Comfortable
A good way to keep guests outside comfortably throughout the day and into the night is to provide ample supply of things like water, sunscreen, and bug spray. As night approaches, a few light blankets will help keep the chill away.
3. Bring the Inside Out
If you really want to be ‘entertaining’ you should consider bringing your sturdy, indoor utensils and dishes outside for the party instead of using disposable ones.
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4. Get the Yard in Order
Whether you’re having a few close friends or the entire neighbourhood over, tidy up the yard and patio area so everything looks neat.
5. Consider the Food Ahead of Time
A buffet is great for keeping the flow of the party moving, but it’s also wise to think of the menu and how to prep it in time. You’ll need to know about food allergies. You may want to prepare foods ahead of time, and you might even want to make the sides a potluck to ease your workload.
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Source:
www.mortgagearchitects.ca
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Are you contemplating hardwood floors, a new kitchen or energy efficient solutions for your
existing or new home? Are you wondering how to pay for this renovation project? Take a look at these affordable financing solutions to renovate the home of your dreams!
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Mortgage Refinancing
Despite a few increases of late, you can still take advantage of record low interest rates and spread your renovation financing repayment over a long period of time by refinancing your mortgage.
Benefits:
Financing improvements upon-purchase
Finance your renovation project at the time of a new purchase by adding the estimated costs to your mortgage with CMHC Mortgage Loan Insurance. You can obtain financing with only 5% down payment for both the purchase of your home and the renovations for up to 95% of the value after renovations!
Benefits:
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Secured Line of Credit & Home Equity Loans
Use a secured line of credit or home equity loan to pay for your renovation. Securing your renovation loan against the equity in your home can typically be up to 80% of the property value; accessible at any time.
Benefits:
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Talk to me today to review your renovation financing options!
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Source:
www.mortgagearchitects.ca
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Summer can bring humidity and high temperatures. Remember to keep it cool to ensure a happy and healthy summer. Here are some tips to cool off this summer
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Close your blinds
Utilizing curtains can save you up to 7 percent on your bills and lower indoor temperatures. This is especially effective for south- and west-facing windows.
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Use a fan instead of turning on the AC
Fill a mixing bowl with ice and position it in front of a large fan. The air whips off the ice at an extra-chilled, temperature.
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Start grilling
Your stove and oven bring excess heat into your home. A summer time BBQ is the perfect way to gather with friends and keep the heat outside of your home.
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14 Martin Street, Milton, ON, L9T 2P9 |
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