MarketWatch Newsletter July 2017

July 2017

IN THIS ISSUE What Determines Mortgage Rates In Canada? Going Away on Vacation? Mortgage Fraud

Hello and welcome to the July issue of my monthly newsletter! Thanks again for your continued support and referrals!

WHAT DETERMINES MORTGAGE RATES IN CANADA? Source: www.StevenPorter.ca
A generation ago, it wasn’t uncommon to see mortgage rates top double digits. But for a good portion of the last decade, the rates have remained historically low. While it’s always hard to predict where mortgage rates will go in the future, it is worth looking at their history and an explanation for what influences their fluctuation.
Variable mortgage rates Variable mortgage rates are determined by commercial banks’ prime rates, which are mainly swayed by the Bank of Canada’s key interest rate. That means an increase in the key interest rate almost automatically leads to a similar increase in variable mortgage rates. The Bank of Canada will typically raises its key interest rate in an effort to combat inflation. Fixed Mortgage Rates Fixed rate mortgage loans are primarily influenced by the yield on Canadian government bonds (bond yields) of corresponding maturity. The correlation between the fixed rates and the yield on five-year Canadian government bonds is almost a near match. This is the case because bond rates represent the benchmark for financial institutions’ cost of funds.
Factors Influencing Bond Yields There are a number of factors that influence government bond yields. Since they are guaranteed by the Canadian government, these bonds are generally among the least perilous assets. Since a large amount of bonds are traded daily in the market, the supply and demand game in the bond market determines their price, and therefore their yield.

	GOING AWAY ON VACATION? PROTECT YOUR HOME AND BELONGINGS WITH THESE TIPS Source: www.independenttraveler.com
		Summer is a popular time for people to go away to exotic locales or closer to home at a cottage on the lake. No matter your destination, it is key to do some due diligence and make sure your home is safe and protected while you are away. Here are some tips:

To give the impression you are at home in the evenings - install timers to turn on your interior lights. However, ensure the times work on a varied schedule as opposed to the exact times each day. Every would-be robber knows the hide-a-spare-key trick so remove your spare key and instead leave it with a trusted friend, family member or neighbour. Lock up any valuables including jewellery and other items in a fire-safe proof or at a safety deposit box at your bank. Shhh! Keep mum on your public social media profiles. Don’t advertise to the world of your absence on your open public social media profiles.

MORTGAGE FRAUD: HOW TO PROTECT YOURSELF WHEN PURCHASING OR REFINANCING A HOME Source: www.cmhc-schl.gc.ca
Beware of promises of "easy money" in real estate. Consumers who knowingly misrepresent information when buying or refinancing a home are committing mortgage fraud.
What is Mortgage Fraud? Mortgage fraud occurs when someone deliberately misrepresents information to obtain mortgage financing that would not have been granted if the truth had been known. This can include: Misstating your position or inflating your income or length of service at your job. Stating you are a salaried/full time employee when you are a contract, part time, hourly or commission-based employee or are self-employed. Misrepresenting the amount and/or source of your down payment. Purchasing a rental property and misrepresenting it as owner-occupied. Not disclosing existing mortgage and/or debt obligations. Misrepresenting property details or omitting information in order to inflate the property value. Adding co-borrowers who will not be residing in the home and do not intend to take responsibility for the mortgage. Another common form of fraud is when a con artist convinces someone with good credit to act as a "straw buyer". A straw buyer is someone who agrees to put his or her name on a mortgage application on behalf of another person. In return for their participation, straw buyers may be offered cash or promised high returns when the property is sold. Often, straw buyers are deceived into believing they will not be responsible for the mortgage payments. Consequences of Misrepresentation Borrowers who misrepresent information and straw buyers who allow a property to be purchased in their name are committing mortgage fraud and will be liable for any financial shortfall in the event of default. They may also be held criminally responsible for their misrepresentation.	What Can You Do to Protect Yourself? To protect yourself and your family from becoming victims of, or accomplices to mortgage fraud, be an informed consumer. This means: Never deliberately misrepresent information when applying for a mortgage. Never accept money, guarantee a loan or add your name to a mortgage unless you fully intend to purchase the property. If you allow your personal information to be used for a mortgage, even for a brief period, you could be held responsible for the entire debt even after the property is sold. Always know who you are doing business with. Use licensed or accredited mortgage and real estate professionals. Never sign legal documents without reading them thoroughly and being sure you understand them. If uncertain, obtain a second legal opinion or, if necessary, the services of a translator. Get independent legal advice from your own lawyer / notary. Talk to your lawyer / notary about title insurance and other alternative methods of protection. Your lawyer will advise you if anyone other than the seller has a financial interest in the home or if there are any outstanding liens or tax arrears. Contact the local provincial Land Titles Office to obtain the sales history of any property you are thinking about buying, and consider having it inspected and appraised. An accredited appraiser will provide the property sales and MLS history. If a deposit is required, make sure the funds are payable to and held "in trust" by the vendor's realty company or a lawyer / notary. Be wary of anyone who approaches you with an offer to make "easy money" in real estate. Remember: if a deal sounds too good to be true, it probably is.

Mortgage Architects	Steven Porter CRMS ABR SRES Broker Lic. No. M15001919 Mortgage Agent P 905-878-7213 C 905.875.2582 Brokerage #12728 14 Martin Street, Milton, ON, L9T 2P9
	5675 Whittle Road, Mississauga, ON, L4Z 3P8 Privacy Policy

Your buyer cannot sell their existing home, now what?

This scenario is becoming common place. As a Buyer of a Seller, if you find yourself in this position talk to a #MortgageBroker, we have #MortgageSolutions that can help.   I am now being consulted by buyers who have purchased homes without any conditions and cannot sell their existing homes. This could be as a result of the recent government housing policy announcements, increased number of listings, uncertain lending conditions and fewer bidding wars. As such, you need to understand all the issues and consequences to provide timely advice and do what is necessary to protect your clients and your deals. Here are 5 things to understand: What if the buyer cannot close? If the buyer cannot close, they will likely forfeit their deposit and be subject to a lawsuit from the seller, for the difference in the sale price if the seller now sells the property for a lower price than the buyer agreed to pay. What are some options available to the buyer? One option is to approach the seller and request an extension of their own purchase agreement, so that they have more time to sell their existing home without panicking. Another option is to sell or assign their agreement to a third party buyer, to have another buyer take over their agreement, pay them back their deposit, and close directly with the seller. Do you need the seller permission to assign this agreement to another buyer? Under the terms of the OREA re-sale agreement, no permission is required. However, it is best to be up front and work with the seller for a number of reasons. The seller salesperson could have a list of buyers who have already seen the property who may be willing to take over this deal. In addition, any new buyer would want to see the home and since your client does not yet own it, they have no right to show the home. By obtaining the assistance of the seller, you can show the home and hopefully arrange for a new potential buyer to take over. Who will pay the real estate commission? The real estate commission will still have to be paid on both transactions. Therefore, the original buyer will likely have to sell for more than they paid, just to break even. In my experience, this should be made clear when trying to arrange this with the original seller, that the buyer will not be making any profit on this re-sale, and is just looking for someone to take over their purchase obligation. Who pays land transfer tax? Land Transfer tax will only be paid once in this scenario, by the new buyer who finally closes the transaction with the seller. In my experience, it is best to deal with all these issues early in the process, by being up-front and honest with your seller and finding a solution that works for everyone. By working together, you can likely reduce the potential losses on all sides and in most cases, complete the transaction to the satisfaction of everyone. By Mark Weisleder. Mark Weisleder is a Partner, author and speaker at the law firm Real Estate Lawyers.ca LLP.

Debt Consolidation Mortgage

What Is a Debt Consolidation Mortgage? A debt consolidation mortgage is when you refinance your mortgage to incorporate all your high interest debts into one payment – your mortgage. Find an affordable home in need of TLC and transform it into that perfect home you always dreamed of; with new bathrooms, kitchen, and hardwood floors. Add the estimated costs of the renovation to your mortgage at the time of purchase to finance the entire renovation transformation without having to wait! Debt Consolidation Benefits • A much lower monthly interest rate that all your debts will now fall under • Lower monthly payments • The comfort and convenience of making only one monthly payment. • Improved credit score from making all your payments on time. Here’s an example showing the effect on your monthly payments:

Now all that’s left is to figure out precisely which solution is best for you, and wipe out all those high interest payments. You already have the mortgage, so if you also have some high interest debt you’d love to unload... Call me today!

Mortgage Architects	Steven Porter      CRMS ABR SRES Broker Lic. No. M15001919 Mortgage Agent P 905-878-7213 C 905.875.2582 Brokerage #12728 14 Martin Street, Milton, ON, L9T 2P9
	5675 Whittle Road, Mississauga, ON, L4Z 3P8 Privacy Policy

Could the new mortgage rules be costing you $15,000?

In November of 2016 the government introduced changes to the rules for what mortgages would qualify for the government backed mortgage insurance programs. The new criteria for mortgages to be insured will includes the following requirements:

• A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
• A maximum amortization length of 25 years;
• A property value below $1,000,000;
• For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the established amortization schedule; A minimum credit score of 600;
• A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
• If the property is a single unit, it will be owner-occupied.

If your mortgage does not meet these guidelines the lender can no longer insure the mortgage. This will have the biggest impact on anyone who is looking to refinance their mortgage to access the equity in their home.

Why is this important?

Lenders in Canada don’t lend their own money! They go into the marketplace to raise capital which they can then lend out to borrowers. If the cost of getting their capital goes up, these costs are passed on to the borrower as higher interest rates.

The cheapest source of mortgage funds come from government sponsored programs that allowed lenders to insure the mortgages that they set up. The lenders package up these mortgages and sell them to investors. This process is known as securitization. Because these mortgages were insured by the government the investors were willing to take a lower rate of return in exchange for knowing that their investment was guaranteed. This source of funds is used by both the banks, credit unions and non-bank lenders. And because the cost of getting the funds is the same for all lenders it created a lot of competition to offer the best rates in order to attract new mortgages to their companies.

With the changes the non-bank lenders had to look to alternative sources of getting the funds for mortgages that cannot be insured. Because these mortgages can’t be insured the non-bank lenders have higher costs of getting their funds. As a result the non-bank lenders had to increase interest rates on these mortgages to cover the additional costs. And even though the banks and credit unions could fund these mortgages from their deposits they have also increased rates on these types of mortgages.

With the rule changes lenders now look at mortgages as following into three different categories and set the interest rate they will charge the borrower based on which category that mortgage falls into. These categories are:

Insured – These are for purchases or switches of existing mortgages where the client will be paying the mortgage insurance fees. The maximum amortization for these mortgages is twenty-five years, borrower must qualify using the benchmark interest rate of 4.64% and the maximum purchase price is $1 million. These mortgages will offer the best interest rates.

Insurable – These mortgages meet the guidelines to be insured but the borrower has more than 20% to put down. In the past lenders were willing to cover the cost of bulk insuring these mortgages. With the new rules the lenders are looking to pass the cost of the mortgage insurance on to the borrower. In most cases the lenders are doing this by offering higher interest rates depending on the loan amount in relation to the purchase of the property. This is known as the loan to value. If the loan to value is less than 65% it is possible to get the same rates as an insured mortgage. As the loan to value increases the cost of the mortgage insurance increases so lenders will charge a higher interest rate to compensate for the additional cost of the insurance. When the loan to value exceeds 75% it is likely that you will be paying a similar interest rate to the mortgages that fall into the uninsurable category.

Uninsurable – This applies to any purchase where the property value is over $1 million and any refinance where the borrower is looking to access the equity in their home. These mortgages will attract the highest interest rate as it costs lenders more to obtain the money they need to make these loans.

Currently an insured five year fixed term is available at 2.59% while an uninsurable five year fixed term will be closer to 2.79%. So if your new mortgage falls into the uninsured category and you have a $350,000 mortgage it will cost you an additional $14,702 in interest over the life of your mortgage. Not $15,000 but pretty darn close. Source: Lawrie Thom

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and retired, licensed, real estate broker with 30 years experience in residential real estate. Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). Steven can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

10 Things to Know About Second Mortgages

When I talk about second mortgages, I don’t mean it in the sense of getting a mortgage on a second property. In this case I’m talking about a second mortgage, following an existing first mortgage secured by the same property. Second mortgages aren’t for everyone, so I’m going to highlight what I think are the top ten things you should know about them to determine if one is right for you.

1. Get the cash you need quick

A second mortgage is a great way to access any available equity quickly without having to break the terms you presently have in place for your first mortgage.  This way you will avoid any potential payout penalties associated with that first mortgage.

2. Types of second mortgages

Basically, you can get a home equity line of credit (HELOC) secured by a 2nd mortgage behind your first mortgage, or a 2nd mortgage that is a separate loan on the property. The HELOC is limiting, because it is only available for up to 65 percent of your home value and has strict qualifying requirements - whereas the 2nd mortgage loan can go as high as 95 percent of your property value depending on the lender, private lenders being the most flexible.

3. Private lenders have looser qualifying guidelines

If you are having problems qualifying for a 2nd mortgage with the lender who presently holds your 1st mortgage or any other lender for that matter, you may want to have a look at what private lenders have to offer by going through an independent mortgage professional. As you are not dealing with a large and potentially rigid institution, private lenders tend to be more flexible when it comes to qualifying and will work with you to find a solution that works for both you and them. Keep in mind - they lend on a smaller scale so, while their qualifying guidelines and document requirements are a bit looser, they tend to be more selective about the property they use to secure the mortgage. Talk to your favorite mortgage professional about how second mortgage lenders products are different than going through a typical first mortgage lender.

4. Higher rates and fees

While the HELOC usually comes with favorable terms like interest-only payments, an open term and a low variable interest rate, they are restrictive in their loan-to-value and qualifying guidelines. Private second mortgage lenders, on the other hand, are more adaptable in that they know they will not be paid out first in the event of a sale or a default. Because they are essentially taking on a greater risk being paid out second, they will likely charge higher interest rates and an upfront fee. But don't worry - there are still deals to be had. Some mortgage professionals have established relationships with a private lender that afford them competitive terms. Or, some first mortgage lenders have arranged special discounted rates through an exclusive relationship with a second mortgage lender, allowing them to offer a blended product for the customer that enables them to borrow more.

5. Watch out for renewal fees and increased payout penalties

Private lenders usually consist of an individual or group of individuals lending out their capital in the form of real estate secured financing (also known as mortgages). As private lenders are not a bank, they are not governed by the usual bank rules and can lend to higher loan-to-values, ask for less qualifying documentation and charge higher renewal and payout penalties at their discretion. This information will be disclosed in your mortgage commitment or in the documents you sign with your lawyer. So, whichever type of 2nd mortgage lender you choose to go with, ensure you fully understand all the terms and fees involved in borrowing those funds.

6. Short term is best

I recommend only using a second mortgage as a short-term financing solution. Higher interest rates, coupled with larger penalties and fees should propel you to find a less expensive financing solution if possible. If you have no other options available to you, know exactly what you are getting into and find out what is necessary to avoid private lending again. You may need to fix your credit or aggressively reduce your mortgage amount in order to build enough equity to eventually combine the two mortgages you have into only one, at a competitive rate with a lower payment amount.

7. When would taking a second mortgage make sense?

Most importantly, there has to be sufficient equity in your home to support a second mortgage as the “A” lenders will only allow you to refinance up to 80 percent of the home's present value. If you are in the first year or two of a closed fixed rate mortgage term, or your mortgage rate is higher than rates offered today, there could be a large penalty involved in accessing equity via breaking your term to refinance. In this case, a second mortgage could be a potential solution for you to access funds from your home. Alternatively, if current interest rates are higher than the rate on your existing first mortgage, instead of a second mortgage, you could consider refinancing your first mortgage to access home equity. I would ask your favourite mortgage professional for some savings calculations that should help you with your decision on how to obtain that equity, and if it's worth it to do so.

8.  One, two, me

If you have a second mortgage on your home, you are third in line to benefit from any equity available once the property sells and all costs associated with the sale (including any real estate fees) have been paid. Your first mortgage holder gets their mortgage balance owing, then the second mortgage is paid out, then the fees associated with selling. Finally, you will receive the remainder as proceeds of the sale. Second mortgage financing reduces the equity you have in your home and you should keep that in mind if you’re selling soon and want to maximize your profits earned.

9. Who you know makes a big difference

If you’re looking for a Home Equity Line of Credit, visit your personal banker as well as a independent mortgage professional to explore the options available to you as not all HELOCs are the same. I mentioned this as some lenders have what is called a “bundled product” which allows you to access home equity a number of different ways under one umbrella. This could include lines of credit, or various credit card accounts, fixed and variable rate mortgages, and more. When it comes to private financing, who you know matters more than what you know. Access to multiple private lenders, instead of just one or two, optimizes the best solution for your financing needs. In addition to access to more financing options, working with a mortgage professional who has experience with both private and second mortgage financing can also benefit you, especially if you're still unsure that it's the best solution available to you at this time.

10. Have an exit strategy

It is usually the intention of a majority of homeowners to pay down their mortgage balances as quickly as possible and a second mortgage can only cause delays in reaching that goal. Before you commit to second mortgage financing, ensure you have an exit strategy planned in order to protect your assets. Work with your mortgage professional on a plan that either has you paying off the 2nd mortgage financing quickly, or an eventual refinance solution in place to avoid the renewal of your second mortgage multiple times.
By Jackie Woodward 

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca