SUMMARY OF THE NEW MORTGAGE MARKET

There have been a lot of changes in the mortgage market over the past few months so many Canadian’s plans regarding homeownership may have shifted quite a bit from last year.

First, new qualification rules came to pass in October where even though actual contract rates are sitting at about 2.79% all Canadians have to now qualify at the Bank of Canada Benchmark rate of 4.64% to prove payments can still be met when rates go up in the future. That has taken about 20% of people’s purchase power out of the equation.

The second round of rules were implemented at the end of November with the government requiring banks to carry more of the cost or lending having to do with how they utilize mortgage insurance and the level of capital they have to have on reserve. This means it is more costly for banks to lend so they are passing some of that cost to Canadians.

We now have a tiered rate pricing system based on whether you are “insurable” and meet new insurer requirement to qualify at 4.64% with a maximum 25-year amortization (CMHC, Genworth, Canada Guaranty are the 3 insurers in Canada) or are “uninsurable” where you may have more than 20% down but can’t qualify at the Benchmark rate or need an amortization longer than 25-years to qualify or are self-employed so can’t meet traditional income qualification requirements. Canadians who are uninsurable will be charged a premium to their rate of anywhere from 15-40bps. So your rate would go from 2.79% to 2.94% at the very least.

Then in BC there was the announcement of the BC HOME Partnership Program (BCHPP) in January. We have finally had some clarification on how this works but the benefits are not as grand as the BC Government would like them to appear.

The BCHPP is a tool to assist First Time Homebuyers supplement their down payment by the government matching what they have saved up to 5% of the purchase price. While this may help some clients bring more money to the table we have to factor a payment on that “loan” into the debt-servicing mix so they will actually qualify for less by way of a mortgage. They have more down payment but can not get as high a mortgage so it’s very close to a wash.

Lastly, as of mid January, CMHC announced they are increasing mortgage insurance premiums on March 17th. Genworth and Canada Guaranty are likely to follow. The insurance premiums are based on a percentage of the mortgage amount requested and how much you have to put down. For people with 5% down the premium will go from 3.60% to 4.00% and if you want to take advantage of the BCHPP program the premium will go from 3.85% up to 4.5%

What does this all mean? Overall it is more costly and more confusing to get a mortgage today than we have seen in many years. With the complexity of the new mortgage market, now more than ever buyers need someone with extensive knowledge to help them sort through their options – such as your local Dominion Lending Centres mortgage professional.

If we can be of assistance to you or someone you know, please do not hesitate to contact us.

4 STEPS TO A FINANCIALLY FIT YOU IN 2017!

Well, you have likely noticed that it is time for resolutions according to the plethora of fitness equipment and organizational plastic bins on sale in every flyer you open. It seems fitting that we take a 4 step approach to positioning yourself for financial fitness in 2017 as well.

So first of all, I am going to go ahead and assume you are human. Yes? If so then please know that you are not slacker! Almost every person I have met has something in their financial world they have been meaning to get to but have not so forget the past and let’s move onward and upwards!

Step 1 – Write down your goals. Study after study proves that actually writing out what it is you want causes the synapses in your brain to reconnect to work towards the goal even when you are not thinking about it.

Step 2 – Just do it! Seems I heard that somewhere before but anyways. It is now time to actually get everything in place.

* Will – Call around and get some quotes on having your will prepared with all the necessary paperwork by a reputable lawyer.

* Financial/Insurance Planner – People who work with a qualified financial planner do much better overall than those who wing it. Meet with a few of them and learn what you need to know so that your pennies turn into a comfortable future

* Accountant – The onslaught of cheap software makes it very easy to think you can do it all yourself when it comes to your taxes but a qualified accountant is essential in my opinion. They can literally save you thousands on your tax bill. That’s your money so you should keep it.

* Mortgage Professional – Your home is your largest asset and your largest debt obligation. Have your mortgage reviewed by a Dominion Lending Centres mortgage professional to make sure you are in the best mortgage product for your situation now and to meet your goals later.

You will have noticed a theme here. You don’t need to know about the law or investments or insurance or taxes or mortgages. All you have to do is find yourself a TEAM to protect your interests.

Step 3 – Time to automate-

Set up to meet your goals automatically. A regular withdrawal for your savings and other expenses is far less painful and way more likely to actually occur than if you have to sit down each month and choose to transfer the funds. If your goal is to pay down your mortgage, why not choose to increase your payments slightly rather than worrying about a lump sum later on. Bite sized is far easier.

If you are trying to keep a budget, there is an amazing app called mint.com. It is from the makers of Turbo Tax – you input all your credit/debit card info, your goals as far as savings or debt reduction, and a budget for each part of your life. Each purchase you make is automatically inputted into the correct category. You can see where you are spending and exactly how much and you will even get text notifications when you are close to your budget in a particular area.

Step 4 – Annual Review Day

So you have done the work and so now all you have to do is take 1 day a year off to review. Meet with all of your team to ensure you are where you need to be. Can you increase your mortgage? Is your will reflecting your new spouse or baby? Do you have enough insurance to protect yourself against disability or critical illness? Spoiler alert! We are all going to need life insurance, disability is the number one case of foreclosure and even out solid health care system does not cover all expenses so critical illness insurance can save your savings.

And there you have it, financial fitness in 4 steps! Your future self will thank you. As they say, the best time to plant a tree was 20 years ago, the second best is today.

HOW A DLC MORTGAGE BROKER CAN REALLY HELP YOU!

While it’s certainly easy to be intimidated by the prices that you might see as you browse MLS into the wee hours of the night, mortgage interest rates are still at a historical low.  If you’re looking at purchasing for the first time, you’re thinking, “What does that mean?!”

With rates as low as they are, the cost of borrowing associated with your mortgage is lower than ever before.  You also need to look at other fees that can be tied to different mortgage products.  For example, some mortgages don’t allow for additional or increased payments, while others allow you to pay down your principal mortgage amount by up to an additional 20% per year, saving you money over the lifetime of your mortgage. It’s important to recognize and understand these options and fees, and that is where a Dominion Lending Centres Mortgage Broker comes in.  Brokers and their agents are experts in the products that they offer and will work to save you the most money.

Don’t worry!  A Broker can also help you take advantage of low interest rates as a homeowner, too!  It could be the right time to look at your other financials and consider consolidating other outside debts to take advantage of the savings that could be available to you.  It isn’t hard to see the savings between a balance owed on a credit card at 19% or the balance owing on your car at 6.25% and consolidating one (or both!) with your mortgage balance at much lower interest rate.  A broker can look at your current mortgage terms and timelines and can help you save a considerable amount of money each year!

A Mortgage Broker’s service doesn’t stop there.  Since the demand for new homes is so high right now, a Mortgage Broker will also help both first-timers and home-owners peeking around the markets with a pre-approval before you start considering making an offer on a new home. This means that you can confidently make an offer on the home that you love without making a condition on financing.  In a busy market, where purchases often end in bidding wars, having your financing in line could make your offer stand out against the rest.

Since properties are being scooped up like hotcakes, homeowners can also take advantage of selling their homes to downsize and save for retirement, or vacations, or spoiling their grandkids!

Now if you’d rather “love it” than “list it”, you can benefit from today’s high demand, too!  If you have been thinking about adding that basement bathroom, or are in need of upgrading your furnace and air conditioning units, a Broker can help you take advantage of the equity that you have gained in your home since you bought it.  In the last year, the demand for homes has soared, which means that your home could be worth a good chunk more than you might think.  Regardless of if your mortgage is up for renewal or not, a Mortgage Broker can help you make sense of the mortgage that you’re in, and look at payout options that could work in your favour.  And a mortgage evaluation will always be free with a licensed Broker.

Today’s market has a lot of characteristics that can work in your favour, but can also throw a little wrench in your plans.  Always make sure to sit down with a licensed, local Dominion Lending Centres’ Broker to make sure you’re armed with the knowledge that you need to get the most for your money!

HOW YOUR CREDIT SCORE AFFECTS YOUR PURCHASE PRICE

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

5 COMMON MISTAKES TO AVOID WHEN SHOPPING FOR A MORTGAGE

Avoid these 5 common mistakes, and you will have no problem getting your mortgage faster, more efficiently, and with a clear understanding of the process:

1. Thinking banks are the first and best place to go for a mortgage

Mortgage brokers can often beat the bank rates by using different lending institutions. The bank is limited to one lender, but if you use a mortgage broker, they have the option to shop for you with multiple lenders to find you the best product.

2. Not knowing your credit score

Your credit score is a HUGE factor in your mortgage application. The first thing lenders look at is your history and your score—then from there they build your file.

You should know where you stand because so much of your lending availability is tied to your credit score. In mere minutes, a mortgage broker can help you obtain a copy of your credit report, and go through it to ensure the information is correct.

3. Shopping with too many lenders

When you shop from institution to institution you will have your credit score pulled multiple times. Lenders typically frown upon this and it may interfere with your mortgage application. If you go to a mortgage broker though, your score is pulled ONE time only.

4. Not keeping your taxes up-to-date

Plain and simple: If you are self employed or the mortgage application is requiring a 2 year income average to qualify (utilizing overtime wages and/or bonuses) and you haven’t filed your taxes and kept them up to date, you cannot get a mortgage. Lenders will ask for your notice of assessment if your tax filings are not up to date, and you will not get your mortgage until they are filed properly and a Notice of Adjustment from the latest year it is received.

5. Not understanding that the real estate market you qualify in TODAY will adjust in the future.

Rates may be at an all time low right now, but new rules, government regulation, and changes when you are up for renewal can change the circumstances. You must be able to carry your mortgage payment at a higher rate or with new laws imposed.

Remember, securing a mortgage isn’t always about getting the best deal. It’s about getting a home you want and establishing yourself as a homeowner. That means not overextending yourself and taking your qualifying amount to the maximum. Leave some breathing room because no one knows what the future may hold!

But one thing’s for sure – you should contact a mortgage professional at Dominion Lending Centres!