Regulatory mortgage changes that will affect you

November 2, 2017
	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.
MORTGAGE TERMS YOU NEED TO KNOW:
	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
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
OSFI has implemented 3 new mortgage rule changes starting January 1, 2018:

CHANGE 1:

QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES

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.

STRESS TEST SUMMARY UNINSURED MORTGAGES Homebuyers/owners qualify for a mortgage using the benchmark rate, which is the Bank of Canada rate (currently 4.99%) OR the lender rate +2%, whichever is greater. INSURED MORT GAGES You must qualify for a mortgage at the Bank of Canada rate (currently 4.99%).

For example: Mortgage Amount $400,000 If Your Contract Rate is 3.44% Benchmark Rate 5.44% (3.44% + 2%) Monthly Payment $1,985.00 $2,427.00 Annual Income* $70,000.00 $85,000.00 *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%.

CHANGE 2:

LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS

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.

CHANGE 3:

RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS

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.

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.

Mortgage Architects	Steven Porter CRMS ABR SRES Broker Lic. No. M15001919 Mortgage Agent P 905-875-2582 E Steven@1800Mortgages.ca Brokerage #12728 14 Martin Street, Milton, ON, L9T 2P9
	5675 Whittle Road, Mississauga, ON, L4Z 3P8 Privacy Policy

MAKE YOUR MORTGAGE WORK FOR YOU

Source: www.cmhc-schl.gc.ca

We can offer you several choices to help find you the mortgage that best matches your needs. Here are some of the most common mortgage options: 

Interest Rate Type

You will have to choose between “fixed” or “variable”.

A fixed rate will not change for the term of the mortgage. This type carries a slightly higher rate but provides the peace of mind associated with knowing that interest costs will remain the same.

With a variable rate, the interest rate you pay will fluctuate with the rate of the market.

Amortization Period

Amortization refers to the length of time you choose to pay off your mortgage. Usually, the longer the amortization, the smaller the monthly payments.

Payment Schedule

You have the option of repaying your mortgage every month, twice a month, every two weeks or every week. You can also choose to accelerate your payments. This usually means one extra monthly payment per year.

Mortgage Term

The term of a mortgage is the length of time for which options are chosen and agreed upon, such as the interest rate. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

“Open” or “Closed” Mortgage

An open mortgage allows you to pay off your mortgage in part or in full at any time without any penalties.

Mortgage Brokers have access to multiple lenders, allowing you to get the best options and prices for your mortgage. They work independently, on your behalf, to search out the best lenders who understand and specialize in mortgage financing.

With a Mortgage Broker, you can be confident we won’t leave you alone to find a mortgage that’s right for you. We’re on your side every step of the way.

Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, a Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

 

Home Renovation Financing Options

There are many different reasons to renovate a home: to save energy (and save on utility bills), to make room for a growing family, to improve safety or increase the resale value of your home, or simply to bring a fresh new look to your home. There are also a number of different ways to finance your renovation. Read on to obtain information for a number of financing options, along with practical advice to consider before starting your renovation project.

Before You Begin

Whether you intend to finance your renovation yourself or borrow money, you should talk to a financial advisor and to your lender before you make firm plans. They can help you understand your options, and advise you on how much you can borrow and even pre-approve you for a loan. This information will help you plan realistically.

Explore Your Options

Your own resources: For smaller renovation projects, you may consider self-funding material costs, especially if you plan to do the work yourself.
Credit card: Likewise, you can use your credit card to pay for materials for smaller renovations. But be careful not to carry the balance for too long; credit card interest rates can exceed 18%.
Personal loan: With a personal loan, you pay regular payments of principal and interest for a set period, typically one to five years. You also have the option of a fixed or variable interest rate for the term of the loan. The interest rate on a personal loan is typically less than that of a credit card. Unlike a line of credit, once you pay off your loan you will have to reapply to borrow any new funds needed.
Personal line of credit: This is another popular choice for financing renovations. It is ideal for ongoing or long-term renovations since it lets you access your funds at any time and provides a monthly statement to help track expenses. A line of credit offers lower interest rates than credit cards, and charges interest only on funds used each month. And, as you pay off your balance, you can access remaining funds, up to the line of credit’s limit, without reapplying.
Secured lines of credit and home equity loans: These options offer all the advantages of regular lines of credit or loans, but are secured by your home’s equity. They can be very economical, since they offer preferred interest rates, however initial set-up costs including legal and appraisal fees usually apply. Lines of credit and home equity loans are usually limited to 80% of your home’s value.
Mortgage refinancing: When funding major renovations, refinancing your mortgage lets you spread repayment over a long period at mortgage interest rates, which are usually much lower than credit card or personal loan rates. This type of financing can allow you to borrow up to 80% of your home’s appraised value (less any outstanding mortgage balance). Initial set-up costs including legal and appraisal fees may apply.
Financing improvements upon-purchase: If you’re planning major improvements for a home you’re about to purchase, it may be advantageous to finance the renovations at the time of purchase by adding their estimated costs to your mortgage. CMHC Mortgage Loan Insurance can help you obtain financing for both the purchase of your home and the renovations — up to 95% of the value after renovations — with a minimum down payment starting at 5%.

Other Considerations and Options

Planning for the Unforeseen

It’s a good idea to set aside a percentage of your renovation funds to cover items not included in your renovation contract, for things you discover you’d like to add once work is under way, like extra or upgraded features, furniture, appliances and window coverings or for contingency. A separate fund lets you make decisions easily, without having to renegotiate your financial arrangements or reapply for new funds.

Grants and Rebates for Energy-Saving Renovations

Across Canada, renovation grants and rebates are available from the federal and provincial governments and local utilities, especially for energy-saving renovations. If you qualify, they may help pay for some of your project’s costs.

• CMHC Mortgage Loan Insurance for Energy-Efficient Homes: CMHC Green Home offers a premium refund of up to 25% to borrowers who either buy, build or renovate for energy efficiency using CMHC-insured financing.
• Provincial and Municipal Entities Offering Grants and Incentives
• Rebates and Incentives for Selected ENERGY STAR® Qualified Products in Canada

This content is provided for informative purposes only. It does not constitute or substitute financial or other advice. CMHC assumes no liability in connection with the information provided.

Mortgage Brokers have access to multiple lenders, allowing you to get the best options and prices for your mortgage. They work independently, on your behalf, to search out the best lenders who understand and specialize in mortgage financing.

With a Mortgage Broker, you can be confident we won’t leave you alone to find a mortgage that’s right for you. We’re on your side every step of the way.

Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects, a Certified Reverse Mortgage Specialist (CRMS); Seniors Real Estate Specialist (SRES) and Accredited Buyer Representative (ABR). He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

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

3 Easy Ways to Finance Your Home Renovation

Renovating your home is within financial reach; increase the value of your home with an updated bathroom or kitchen, new hardwood floors, or energy efficient solutions. Talk to Steven Porter today to see how you can finance your next renovation project! Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects 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

Want to make your holiday bills disappear?

Many Canadians suffer with their highest debt load in the month of January. Save thousands of dollars in interest by creating a pay down plan! Consolidate and restructure your debt into your mortgage so you are paying less interest and paying off debt sooner. Start the New Year on the right foot by saving money and taking advantage of historically low mortgage interest rates. Look at what you are paying on your credit cards and other debts. If you roll those high interest debts into a new or existing mortgage, your potential saving can be significant!

* Example interest rate is for illustration purposes only. Rate is subject to change.

You can use these savings to ease your monthly cash flow, or apply it to pay your debts down faster! For example, put $500.00 per month of your new cash flow into your mortgage payment and reduce your amortization from 25 to 15 years! I will assess your situation and determine if there are any penalties to break your current mortgage and evaluate if the savings outweigh the penalties

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

How To Avoid Huge Mortgage Penalties

You bought an investment property with the plan to hold it for 5 years.  The cheapest rate you found was on a closed mortgage, so you selected a 5-year term.  Three years later, you need to sell.  You call your bank and ask them “How much?”
That’s when your jaw hits the floor.

Early payment or pre-payment penalties charged by banks can be huge — thousands of dollars, or even TENS of thousands.  Basically, with a closed mortgage, you have agreed to be bound by the terms and conditions of your mortgage until the mortgage term is complete.  And that includes paying the bank a lot of interest.

Banks are not happy about losing all those interest payments just because you found a cheaper rate somewhere else.  So most mortgages include specific language that restricts what you can and can’t do, as well as any penalties they charge to let you out of the contract (if they allow you to at all!).

Do You Know What You’re Signing?

Some of you may have heard me talk or write before about how everyone should learn to read legal agreements.  Although most people want to defer that task completely to their lawyer, I highly recommend everyone make the effort.  Why?  Not so that you can replace your lawyer, but because they may not realize that a small detail is important to you.
You should always know EXACTLY what you’re signing and agreeing to,
especially it comes to banks and other lenders.

How Penalties Are Calculated?

Now a few of you may be thinking… aren’t mortgage pre-payment penalties standardized for all mortgages?  No they are not.  In fact, over the past few years, some lenders have become more ‘liberal’ with the interpretation of their vague penalty clauses in their contracts.

Traditionally, there is a very common method used to calculate any penalties you will owe if you decide to break your mortgage.  You will pay the GREATER of the following:

• 3 Months Interest – Basically you take your next 3 mortgage payments, break out the interest portion, add them up, and that is your mortgage penalty,    OR 
• The Interest Rate Differential (IRD) – This one sounds complicated, but it’s actually quite easy (or should be).  If you have 2 years left on a 5 year mortgage, find out what the lender’s current posted 2-year rate is, subtract that from your original rate, and multiply that by your mortgage balance.
  

Banks Get Greedy and Play Games

The problem is that over the last few years, mortgage lenders have begun playing a few tricks with the IRD calculation to increase their profits:

• Some use posted rates for IRD calculations, while others use discounted rates (which increases the penalty) 
• Some round up to the next longest mortgage term when determining how much time is left, others round down (which increases the rate difference and thereby the penalty). 
• Some have very vague penalty calculation language, which leaves it open to abuse 
• I’ve even seen one lender base the penalty a complicated formula involving bond rates!
  

Here is one example I posted to my social media accounts awhile back: 

• Customer fee to payout mortgage doubles 
• And there's a lawyer that is launching a class action lawsuit against CIBC because of unfair penalty calculation practices.
  

The average person has little to no chance of calculating the penalty themselves because often the formulas are not clear or they are very cryptic.  Often times, even when you phone their call centre, their telephone agents won’t be able to explain it to you.  That’s because someone at the head office is calculating it, often times in their favour.
In other words, their calculation methods are not transparent.

Now I’m not saying that all lenders do this.  Large banks are very customer-service oriented, and even if a penalty ends up being very large, they may reduce it to avoid ‘bad publicity’. But B and C level lenders are less likely to do this, as they do not advertise to the public (they are only available through brokers) and obviously it’s more profitable for them.

The Game Playing Gets Personal

Recently, my sister wanted some help with reducing her mortgage costs.  She was 4 years into a 5 year mortgage, and after a bit of research, I discovered rates had dropped almost 3% from what her original mortgage was locked in for.

She called the mortgage lender and asked them what the penalty would be to break the mortgage. But for some reason the amount didn’t add up to my calculation — it was over $1,000 more than what either 3 months interest, or the IRD would be.

We’re currently following up with the lender and will press them for exactly how they calculated it.  The mortgage contract language is in plain English and fairly clear, but it doesn’t specify certain things (like posted vs. discounted rates).  Even the call center rep couldn’t explain the formula.

Fortunately, her mortgage has a 20% pre-payment clause in it, so there is some leeway to reduce the penalty through some creative timing of payments.  I’ll explain how below…

How do you protect yourself?

If you’ve already got a mortgage, it’s not too late to reduce the penalties you have to pay. Here are a few tips to follow whether you are finding a new mortgage, or are trying to get out of your current one…

Read your mortgage contract – Find out how much you can pre-pay every year, and how much you can increase your mortgage payments. Find out EXACTLY how the penalty is calculated if you have to break your mortgage. Don’t accept vague language or you’ll end up paying for it.

Determine when you can break your mortgage – Some mortgage lenders do not allow you to break the mortgage at all, unless you are selling the property.  In other words, you are stuck making payments until the end of the mortgage term and you can’t refinance… even if you offer to pay a penalty!  This happened to me a few years ago, but fortunately I didn’t have much time left on the original mortgage term.

Calculate what your penalty should be – You can use the simple formula I gave above to calculate what your penalty should be.  But if you want to calculate it while playing the banks’ games.

Take advantage of any pre-payment clauses – Many mortgages include a clause that allows you to pre-pay your mortgage balance up to 20% per calendar year, without a penalty.  If you are facing a huge penalty, you may want to consider pulling funds temporarily from another source (e.g. family members or friends), paying down your mortgage by 20%, and THEN refinancing your property and paying the now reduced penalty.

It’s even better if you are close to a calendar year end because you can do it TWICE within a very short period of time. This is exactly what I will be helping my sister to do — pre-pay 20% before December 31, 2011, and then pre-pay another 20% in the New Year.  Then she’ll proceed with the refinance and save hundreds if not thousands. Yes, there may be interest costs on the temporarily borrowed funds, but those will likely be much less than the savings on the penalty.

I learned this trick years ago when I went to my TD Bank branch and wanted to refinance.  The teller was kind enough to show me how to do this. Unfortunately, many lenders will not because they receive a higher penalty. In fact, my sister’s current mortgage lender has said nothing about how to do this…

Check if your mortgage is CMHC insured – There’s a little known rule I discovered that states if you have a CMHC insured mortgage that has a term of longer than 5 years, you can pay off your mortgage, at any time after 5 years has passed, with only a 3-months interest penalty — no IRD!

Ask to speak to the bank manager – It’s amazing what can be accomplished when you go above somebody’s head.  Even if the bank manager can’t help you, go above them, and so on.  Many banks have complaint departments and you can contact them.  If none of these work, consider the next step…

Contact the Ombudsman for Banking Services and Investments – I didn’t even know this organization existed until I was researching this article.  What a great resource!  This organization works for FREE for consumers, and they help mediate complaints.  I found more than one blog post where the person went to the OBSI and was able to successfully negotiate reimbursement of a portion of their mortgage penalties, even after dealing with the bank directly had failed.

Go public – Most big lenders spend a fortune on advertising, but nothing spreads faster by worth of mouth than a bad experience.  If you go public (or threaten to), they may re-consider and adjust your final penalty. Many local newspapers across the country have ‘consumer advocate’ type columns that fight battles for consumers on a variety of topics.  While writing this blog post, I also did some research and discovered this problem has existed for over a decade, and the federal government has been very slow with enacting any sort of change. 

Conclusion

As with anything in the financial world, if you want to protect yourself , your best defense is to educate yourself and know what you’re signing. And don’t forget to read your mortgage documents!
Author Unknown

 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 Speicalist (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

A 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 F 416-900-8227 Brokerage #12728 14 Martin Street, Milton, ON, L9T 2P9
E	6505A Mississauga Road, Mississauga, ON, L5N 1A6 Privacy Policy

Annual reality check for your mortgage

Most of us tend to think of our mortgage as the ultimate “buy and hold” purchase. After all, who wants to spend any more time in the “borrower” chair than is absolutely necessary? You get a 5-year term, and then go on automatic pilot until it comes due again. You might wring your hands over your other finances, but your mortgage is set in stone, right?
Well, not exactly. In fact, it’s a great idea to have an annual mortgage review to see if it’s really working for you – especially in the context of the rest of your financial picture.  After all, a lot can happen in a year – especially during our “mortgage years”, when we tend to be juggling many commitments in our busy lives! Think of all the financial commitments we carry during these years: care of our children, tuition or school expenses, one or more cars, vacations, home renovations, travel… the list seems to go on and on.
Chances are that something in your financial life has changed since you took out your mortgage. Life doesn’t stand still, after all. The mortgage planners at Mortgage Architects – an elite firm of Canadian mortgage brokers – have identified a list of the most common reasons why a mortgage may need some adjustment:
•    You’re considering a move to a new home in the next year or two;
•    You wonder if you can tap into some of your equity for a special renovation project to upgrade your home;
•    You’re wondering if you can afford a vacation property;
•    You’re considering the benefits of investment property ownership;
•    You’re a bit concerned about a large expense looming in your future:  like university tuition, a wedding, a leave from work, a new career or business, a big vacation or a new vehicle, for example;
•    You’re making more money – or less money – than you were when you began your mortgage;
•    You’re carrying some credit card or other high-interest debt that is eating away at your monthly cashflow;
•    You’re worried that you’re not saving enough for your retirement years, and you’ve heard there’s a way to convert your non-deductible mortgage debt into deductible investment loans using a re-advanceable mortgage.  You’re interested in collecting annual tax refunds, paying off your mortgage faster, and having an investment portfolio for the future.
If any of these sound familiar to you – and if you have held your mortgage for a year or more – then it’s worthwhile to contact a qualified mortgage planner to give your mortgage a reality check.
At Mortgage Architects, the company’s mortgage planners provide this service free of charge and with no obligation.  They tailor each mortgage to their client’s current needs and long-term goals, with an overall focus on mortgage planning, Mortgage Planners believe that a mortgage is not just a single transaction done in isolation of your goals and overall financial situation, but that a mortgage can accomplish so much more when property structured and integrated into your overall financial plan.
Mortgage Planners look at the mortgage as a financial keystone - the right mortgage can build your wealth, protect you from a financial downturn, and save you thousands of dollars. That’s why an annual mortgage review is part of their overall service offering.  It’s also a smart financial move for Canadian homeowners. 

This article is brought to you by Steven Porter, Mortgage Agent/Planner of Mortgage Architects Inc., steven.porter@mtgarc.ca, 1-905-875-2582

7 ways your home can make money for you.

Who knew you could be living in a money-maker?

The roof over your head is likely the biggest asset you'll ever own. Trouble is you don't see any money from your house until you sell it – unless you follow the lead of some ingenious homeowners who have figured out a way to cash in on their homes while still living in it. You could be sitting on a pile of dough without even realizing them. Here's how you can make your home make money.

1. Become a landlord
The plan: Rent an apartment in your home. It could be a basement bachelor, a renovated attic, an entire floor or a detached, renovated garage. Renting an apartment can allow you to buy a house you might otherwise not be able to afford. "It also allows many seniors to hang on to their homes," says Susan Wankiewicz, executive director of the Landlord's Self-Help Centre, a nonprofit service that helps small-scale landlords in Ontario.

KA-ching!: Rents range from a few hundred dollars to more than $1,000 a month. When Rosalind Stefanac and her husband bought their first home in Toronto in 2002 for $300,000, they specifically looked for a property with an apartment that would help ease the mortgage payments. They rented out their basement apartment for $700 a month, which covered half the mortgage.

Reality check: It takes more than paint and wallpaper to make an apartment suitable to rent. Each municipality in Canada has individual standards regarding renting, and you'll need to ensure the space meets zoning codes. Stefanac spent about $10,000 on drywall, insulation, carpets, wiring and a new fridge – and it took 14 months of rent money to recoup the cost.

Being a landlord can also be stressful, especially when your tenant gets behind on the rent. After Stefanac's first tenant lost his job, he couldn't always make the rent and sometimes paid her partially with five- and 10-dollar bills. Carefully screen potential tenants by getting references, especially from previous landlords.

2. Put up a parking lot
The plan: Rent out your driveway or garage to people who need parking space (usually in major urban centres) or storage facilities for items that need to be kept indoors over winter, such as boats and motorcycles. Free classified ad websites such as www.craigslist.org and www.kijiji.ca have categories specifically devoted to parking and storage spaces for rent.

KA-ching!: Norm Gill, a retired school district employee whose Vancouver home is close to B.C. Children's Hospital (where parking spots go for $10 a day), rents out two spaces in his four-car garage for a total of $300 a month. "We built a new home and didn't realize how much it would cost, so this brings in a little extra money," he says. Rebecca Gruihn, a film student at York University in Toronto, rents out the parking space that comes with her apartment for $75 a month. "It's not a lot of money, but when you're a student, every bit helps," she says.


Make your property a star
The plan: Rent out your home as a set for a commercial, TV movie or feature film. Every province in Canada has a government-run film development corporation (British Columbia Film, for example) that lists properties available to location scouts and producers. All you need to do to get listed is send in photos of your home.

KA-ching!: Rental rates can vary from $500 to $5,000 a day, depending on the type of project (a feature film typically pays more than a TV production). When the Honourable Myra Freeman, lieutenant-governor of Nova Scotia, listed her Halifax home for sale in 2000, a location scout who went to the open house decided the 1970s details – yellow appliances, shag carpet and wallpapered rooms – were just right for the feature film Scotland, Pa., directed by Billy Morrissette and starring Christopher Walken. Freeman was pleased by the respect the film company showed for the property during the three-week-long shoot and says seeing a movie made in her home was an "exciting adventure." Over the past two years, Susan Harding-Cruz of Hamilton has earned $5,000 for renting out her home for three TV productions that each took three days to shoot.

Reality check: A movie shoot can upend your life, since you'll have to move out of your home during filming. You may have a crew of 50 people tramping through your house, so things can get broken. "This isn't for someone who is uptight about her home," says Harding-Cruz. "If you've got lots of precious things around, it might make you nervous." Check that the production company has adequate insurance to cover replacement costs. When one of Freeman's antique tables was badly scratched, the film company paid for a replacement.

4. Host a student
The plan: Host an international student in your home by providing a separate bedroom and three meals a day. Homestays, as they are called, can last anywhere from a few days to a year, and students can range in age from 10 to 60. The host family is expected to spend quality time with the student, helping him adjust to a new culture and often a new language.

KA-ching!: You can earn about $500 to $800 a month per student and can host more than one student, says Robin Wilson, managing director of Canada Homestay International, which has a network of 4,000 homeowners across the country. Laura Williams, a Vancouver-area energy manager and single mom to three teens, hosted a 16-year-old Brazilian boy and received $800 a month. "It was a positive experience for my kids," says Williams. "They loved getting to know Felipe and treated him just like a brother. And they are hatching plans to go visit him in Brazil now that he is back home."

Reality check: You, the homeowner, lose some privacy, and students may test their newfound freedom since they are away from their families, often for the first time. Felipe had trouble sticking to a curfew because he hadn't had one back home.

5. Run a bed-and-breakfast
The plan: Offer one or more rooms in your home to travellers who are visiting your area.

KA-ching!: Rates vary widely, from about $50 to $200 a night, depending on how luxurious the accomodations are and where you are located. Debbie Gaspich purchased her 150-year-old home, the Martin House Bed and Breakfast, in Jordan Village, Ont., (close to Niagara-on-the-Lake and the popular Shaw Festival) with the intention of continuing to rent out the rooms to pay for the renovation and upkeep of her large property. She began by renting just a couple of rooms and earned $7,000 in her first year. Today she rents five bedrooms, as well as a small cottage on the property, from May to October and earns $25,000 annually. She manages the B&B on top of a full-time job.

Reality check: Changing sheets. Preparing brunch. Keeping your home tidy. Engaging in small talk early in the morning even if you don't feel up to it. Running a B and B can require a lot of work and energy.

6. Go back to the land
The plan: If you own a large parcel of land in a rural area, you can rent it to farmers to raise crops or livestock.

KA-ching!: Depending on where you live and what the land is used for, rates can vary from $20 to $200 an acre, says Kevin Hursh, an agriculture consultant in Saskatoon. "There are different values for different crops – you can earn more if you rent your land to harvest soybeans instead of wheat or barley, for example." Six years ago, Tami and Daniel Blais sold their house in town and moved to a $130,000 country home that came with 160 acres outside Battleford, Sask. Instead of farming the land themselves, they rent 80 acres to a local farmer. The farmer keeps two-thirds of the profits and pays the other third (about $3,000 a year) to the Blaises as rent. "We use the money to pay our property taxes and insurance," says Tami.

Reality check: The odour of manure in the fields and the noise of combines swathing the crops may be a bit of a nuisance, but for most people in rural areas this is just part of country living. More concerning is the potential for pesticide drift when crops are sprayed. Also cattle or horses may get out and require rounding up.

7. Tap into your equity
The plan: Apply for a home equity loan. One-quarter of Canadian homeowners have borrowed against the equity in their home, according to a recent Ipsos-Reid survey. These loans are easy to qualify for and have lower interest rates than other types of loans (usually around prime). Plus, banks typically require that you pay only the interest expense of the loan.

KA-ching!: This is an easy way to get access to a lot of money without having to wait too long. "Many banks will lend you up to 80 per cent of the value of your home, 85% with some private lenders, minus any outstanding mortgage".

Reality check: Because they are so easy to acquire, you can land in more debt than you can handle. If the market turns downward and your $300,000 house is suddenly worth only $250,000, you've lost a lot of the equity in your home and still have the loan to repay.
by Anne Bokma

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

Prequalified or Pre-Approved for a Mortgage? The Shocking Facts

The first words of advice you'll hear when beginning your search as a homebuyer are "get prequalified or pre-approved  for a mortgage." The misleading fact about these two terms is that they are not interchangeable. 

When I actively practiced real estate brokerage, many times the terms Prequalify and Pre-Approval were brought up in the same breath by many lenders and so-called real estate industry experts. That meant they were the same thing to many real estate agents who in-turn advised their clients accordingly. 

After leaving real estate sales and entering a career in mortgage lending with one of the major banks, I LEARNED A SHOCKING TRUTH. Although Banks typically tell consumers and Realtors that they do mortgage Pre-Approvals, the fact of the matter is THEY DO NOT! At the very most, the bank will prequalify a potential borrower (depending who you're face to face with) and provide a rate hold certificate. Unfortunately, it's not worth more than the paper it's printed on. 

What does that certificate mean to you, the homebuyer? "Absolutely nothing." Buying a house armed with your new certificate and falsely thinking to yourself you have the mortgage in your back pocket is truly nothing short of betting on a craps shoot. 

"So what is the difference between a Prequalification and a proper mortgage Pre-Approval?" First, it depends on whose doing a prequalification for you. My experience with the bank was if you've got a down payment, a job and a pulse you're prequalified. Here's you guaranteed rate certificate. "What are your really getting?" The bank's current mortgage rate for the next "X" number of days, subject to: "read the fine print below", income and employment verification, down payment confirmation, credit history, etc. etc. Remember banks work for the banks. So, if you come back a month later with your Agreement of Purchase and Sale in hand (by the way this is only when most banks will run the numbers for you) and you don't qualify, you don't get the mortgage. "Next".

Admittedly, very few lenders provide mortgage Pre-Approvals. The process actually involves the lenders underwriter going through the same motions as if you had actually bought a home and applied for a mortgage. Income and employment are confirmed, downpayment, credit history and debt service ratios reviewed, etc. If everything meets the lender's approval. Then, essentially the lender ear-marks the mortgage funds for the prospective borrower to be advanced upon the purchase and closing of a home. With this type of mortgage Pre-Approval, the borrower is pretty much assured he is going to get a mortgage usually subject an appraisal. There is a cost to lenders preforming a mortgage pre-approval. The lender absorbs these costs on the expectation of receiving the future business. However, like many things, due to abuse lenders limit the use of this service typically to preferred brokers. 

There is a common misconception among homebuyers and real estate salespeople that once you're pre-approved for a mortgage, you don't need a "Condition of Mortgage Financing Approval" in your Offer to Purchase. A Pre-Approval does not guarantee you're going to get a mortgage, especially if you've only been prequalified without the benefit of supporting information. There are many variables the lender needs to consider approving you for a mortgage after you've made an offer. Things like the house itself, location, appraised value, etc. 

Congratulations! You were in a multiple offer on a property and you won the bidding. You only paid $10,000. over asking and that's still in the range you were Pre-Approved for. SURPRISE! The appraiser estimates the property is valued $10,000. under what you offered and the lender will only lend against the appraised value. So unless you've got the extra money under you mattress, you're not going to be able to close the deal. My advice to you is include a condition in your offer to purchase subject to you obtaining a mortgage. 

"How long do I need for a condition of finance in my offer?" Good question. This period can vary and is reflective of how well you've completed your mortgage shopping due diligence prior to shopping for a home. For example, the time typically allotted for satisfying a condition of financing approval in an offer is 5 banking days. As a homebuyer, if you have not met with a mortgage planner before to making an offer on a home, that means the broker and the lender only have five days in which to obtain all your necessary supporting documents from you including employment letters, pay statements, tax documents, contracts, appraisal, etc. If you happen to be self-employed the list is even larger and five days may not be enough time to obtain and review everything. Not to mention, if you didn't do your proper due diligence and  your financing is not approved, the seller and the sellers agent won't be impressed and will most likely loose confidence in your real estate agent for not ensuring you did your homework. Compare this scenario if you had gone the Pre-Approval route. You would have already submitted all your documents to the lender through your mortgage broker. Therefore the lenders conditions of mortgage approval would typically be limited to the review of the Agreement of Purchase and Sale, an appraisal of the property if required and approval by the mortgage insurer if it is an insured mortgage. The turn-around for approval in this case could be as quick as 24 hours.

The take-away here is "Buyer Beware". Do your due diligence and plan your home purchase. Start first by sitting with a licensed mortgage broker/agent. They work for you. Ask about the benefits of a proper Mortgage Pre-Approval. At the very least, provide all the necessary documents to your Broker/Agent and have him properly prequalify you. Ask him whether or not you need to include and condition of financing approval in an offer to purchase a home. Ask Why or Why Not? 

Armed with your Pre-Approval Certificate or at least, the confidence of being properly prequalified for a mortgage, find a good real estate agent that actively works in the area you wish to buy in. Better still, if you don't know a good Realtor, ask your mortgage broker/agent for a recommendation. Mortgage Brokers/Agents regularly work together with Realtors and are more than happy to refer you to two or three good Realtors they have successfully done business with in the past.

Visit http://www.stevenporter.ca/solutions/ShoppingAids and download my easy Mortgage Checklist to begin your home search. Or email me, I'm always available to answer your questions. 

Steven Porter, CRMS ABR SRES CNE is a licensed Mortgage Agent with the Mortgage Architects. Steven is also a licensed, non-selling real estate broker, Accredited Buyer Representative and Seniors Real Estate Specialist with 30 years residential, commercial and investment  real estate experience. Steven works with together with Realtors across the west GTA in a noncompeting capacity, assisting customers and clients achieve financial independence through home ownership. Steven can be reached at 1-905-875-2582 or EMail at steven.porter@mtgarc.ca