Upgrading Your Home: Refinance Plus Improvements Mortgage Option

When it comes to mortgages and renovations it is important that you have your financing in place before you take the sledge hammer out of the garage! Lenders do not like coming into play half way through a renovation. Planning is essential to ensure you will have enough funds to cover the renovation costs.

Did you know there are mortgage products available that may help you with the costs of renovations above the 80% loan-to-value refinancing rule. The Refinance Plus Improvements Mortgage is a great way to incorporate the costs of improvements into your mortgage.

Here’s a list of typical Refinance Plus Improvements Guidelines:

1. The improvement funds above the 80% loan-to-value mark for the current as-is market value of your home will be held back by the lender until your renovations are complete.

2. Lending value is based on an Appraisal that states the As-Is Complete Value

3. You will need quotes upfront for the proposed improvements

4. You may need additional funds to pay deposits to contractors

5. Do not start demolitions before an Appraisal is done

6. Funds available are typically limited to 20% of the current appraised value up to $40,000 (ask a mortgage broker about other mortgage options if you require more funds)

7. Renovations typically will need to be complete within 90 days from the date the mortgage completes

8. You must meet the lenders credit and debt servicing requirements

Stay on Budget and on Time by Following these 5 Simple Steps:

1. Finalize the design before you start!

2. Contact Suppliers to make sure that they have the materials you have chosen in stock or that they can be delivered quickly

3. Obtain quotes from 2 or more reputable contractors

4. Apply and secure any permits that are required before your mortgage completion date

5. Give your contractor a deadline to ensure you don’t go over the allotted time to complete the improvements

Start the renovation planning by contacting your Dominion Lending Centres mortgage professional first!

 

KATHLEEN DEDILUKE

Dominion Lending Centres – Accredited Mortgage Professional
Kathleen is part of DLC Integrity Mortgage BC based in Nanaimo, BC.

Your Pay Went Up, But you Don’t Qualify for a Mortgage?!

confused-300x300I want to share with you a story. Below is the story of John, and if you ever want to own a home, you need to read his story.

John was a 25 years old. He was good with money. He went to school and he worked his butt off to support himself. John had been saving $250 every pay cheque for the past 2 years allowing him to accumulate $12,500. This was hard for John as he was barely making $15 an hour and was not left with much spending money after each payday. Six months ago, John started a new job working full time getting paid more than $25 an hour. With the increase in income, he bought a new car with monthly payments he could easily make. Financially, John was feeling confident.

John called his mortgage broker to tell him the good news. He had his 5% down payment, had his new full time job getting more than $25 an hour and was ready to put in an offer on a $250,000 condo. John was excited- he’d been saving for 2 years, he could finally move out and have his own home. Unfortunately, John’s mortgage broker informed him that even though he had the 5% down payment and full time job, he wouldn’t be able to buy a home for at least another two years!

What the heck happened?

Well, a couple things.

First, John’s credit report wasn’t strong enough and his score was too low because of unpaid parking tickets and short credit history. Second, John didn’t know about closing costs so his savings were short thousands of dollars. Third, John didn’t know about the ratios lenders look at when qualifying a potential borrower. His $450 a month car payment took away his ability to qualify for an additional $100,000. To top it all off, John wasn’t even guaranteed 40 hours a week at this new job. Due to this, John’s broker informed him that a lender will require a 2-year average income. Of course, 6 months ago John was only earning $15 an hour, giving him a 2-year average income significantly lower than what he had now.

How to avoid being like John:

Do an application with a Dominion Lending Centres mortgage broker, these are FREE. They’ll be able to tell you exactly what you can afford, exactly how much you need to have saved, and where your credit score needs to be and how to get it there. Many of you reading this are a year or two away from wanting to purchase your own home but even if you are 5 years away: call a mortgage broker, take 20 minutes, do an application, and get qualified!

Purchasing a home is one of life’s biggest and most stressful moments and you need to be prepared for it so you don’t waste time and money like John. This is my entire reason for being a mortgage broker; someone who can be an expert for others to rely on for help. Use a Dominion Lending Centres broker, find an expert, get qualified.

Ryan Oake

RYAN OAKE

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC.

 

Bank of Canada, October 19, 2016 – Bank on Hold as Housing Expected to Slow

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It is no surprise to anyone that the Bank of Canada maintained its target overnight rate at 1/2 percent today, judging that the underlying trend in total CPI inflation will edge upward to 2 percent starting early next year. Temporary offsetting factors, such as the fall in commodity prices and the decline in the loonie are dissipating. Slack in the Canadian economy will continue to put downward pressure on inflation. The risks to the inflation outlook are deemed to be roughly balanced.

Consistent with private-sector economists’ expectations, the Bank is expecting a strong rebound the second half of this year as the negative effects of the oil production cuts and the wildfires conclude. Consumer spending in the second half will be boosted by the July introduction of the Child Benefit, government infrastructure spending and accommodative monetary and financial conditions. The non-resource sector in Canada is growing solidly, particularly in the service sector and business investment continues to underperform.

As widely expected, the Bank once again cut its growth forecast for the Canadian economy. The central bank has been repeatedly disappointed by the poor performance of Canadian exports, hoping that the decline in the Canadian dollar since oil prices plunged in mid-2014 would boost manufacturing exports. While recent export data are improving, the bank has revised down its growth expectation for exports in 2017 and 2018 owing to lower estimates of global demand and the “composition of US growth that appears less favourable to Canadian exports, and ongoing competitiveness challenges for Canadian firms.” The US economy is forecast to strengthen from a very weak first half reflecting strong consumer spending boosted by rising employment and strong consumer confidence. Business investment, however, will remain anemic, as evidenced not just in the US and Canada, but globally as well.

Growth this year in Canada was revised down to 1.1 percent (from 1.3 percent in July). As well, 2017 growth is now expected to be 2.0 percent (down from 2.2 percent). For 2018, the growth forecast remains at 2.1 percent. The Bank now believes the economy will reach full capacity utilization around mid-2018, significantly later than earlier expected.

HOUSING SLOWDOWN HIGHLIGHTED

The Bank attributed the downward revision to the economic outlook in large measure to the federal government’s new initiatives “to promote stability in Canada’s housing market”. The Bank of Canada reported that these measures are “likely to restrain residential investment while dampening household vulnerabilities.” 

According to today’s newly released Monetary Policy Report, the housing initiatives will dampen this year’s GDP growth by 10 basis points and by 30 basis points next year. Government sources say they expect the growth in housing resales to decline 8 percentage points in 2017 from the forecasted 6.0 percent growth pace this year. Private estimates of the negative impact of the new housing measures on overall economic growth vary, but most expect the contractionary effect to be roughly a 30-to-50 basis point reduction in growth over the next twelve months. Given that baseline potential growth is less than 2 percent, this is a very material dampener.

Many are speculating that the new federal housing initiatives open the door to BoC rate cuts next year. Clearly, Governor Poloz sees the enhanced mortgage stress tests as mitigating his concerns of overextended homebuyers–forcing all buyers to qualify at the posted mortgage rate, well above current contract rates. Nevertheless, I believe it would take a material negative shock to growth for the Bank to cut rates. That shock might come  from a larger-than-expected contraction in housing activity among other sources.

 

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Morneau Takes Out The Big Guns to Slow Housing

house-back-300x182Yesterday, Ottawa unveiled major initiatives to slow housing activity both by potentially discouraging foreign home purchases and, more importantly, by making it more difficult for Canadians to get mortgages. As well, the Finance Minister is limiting the degree to which mortgage lenders can buy portfolio insurance on mortgages with downpayments of 20% or more. Ottawa has clearly taken out the big guns to slow housing activity, which is widely considered to be too strong in Vancouver and Toronto. Ironically, home sales have already slowed precipitously in Vancouver in recent months and the BC government introduced a new 15% land transfer tax on foreign purchases of homes effective August 6, the effects of which are yet to be fully determined.

The measures announced by Finance Minister Morneau are more far reaching than anything considered to date and could well have quite a significant impact. Not only are these initiatives intended to close loopholes for foreign investors, which might help to make housing more affordable for domestic purchasers, but they will actually make homeownership less attainable for the marginal borrower, which is often younger Canadian first-time home buyers.

Officials at the Department of Finance have been studying the housing market and have led a working group with municipalities and provinces, as well as federal agencies such as the Office of the Superintendent of Financial Institutions (OSFI) and Canada Mortgage and Housing Corporation (CMHC). This in-depth analysis has informed today’s announcement.

 Measures Aimed At Foreign Homebuyers

  • The income tax system provides a significant income tax benefit to homeowners disposing of their principal residence, in the form of an exemption from capital gains taxation.
  • An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.
  • The Canada Revenue Agency (CRA) will, for the first time, require all taxpayers to report the sale of a property for which the principal residence exemption is claimed.

Measures Affecting All Homebuyers

The Finance Department says in its press release that, “Protecting the long-term financial security of Canadians is a cornerstone of the Government of Canada’s efforts to help the middle class and those working hard to join it.” This is a “Nanny State” measure to protect people from themselves, as the Bank of Canada has long been concerned about the growing number of households with excessive debt-to-income ratios. It will make housing less attainable, at least in the short run. If it, therefore, substantially reduces housing demand, home prices could decline, ultimately improving affordability. This, of course, is not what the 70% of Canadian households that already own a home would like to see.

  • Broadened Mortgage Rate Stress Tests: To help ensure new homeowners can afford their mortgages even when interest rates begin to rise, mortgage insurance rules require in some cases that lenders “stress test” a borrower’s ability to make their mortgage payments at a higher interest rate. Currently, this requirement only applies to a subset of insured mortgages with variable interest rates (or fixed interest rates with terms less than five years). Effective October 17, 2016, this requirement will apply to all insured mortgages, including fixed-rate mortgages with terms of five years and more.
  • A buyer with less than 20% down will have to qualify at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. The Bank of Canada’s posted rate is typically higher than the contract mortgage rate most buyers actually pay. As of September 28, 2016, the Bank of Canada posted rate was 4.64%, compared to roughly 2% or so on variable rate mortgages.

For borrowers to qualify for mortgage insurance, their debt-servicing ratios must be no higher than the maximum allowable levels when calculated using the greater of the contract rate and the Bank of Canada posted rate. Lenders and mortgage insurers assess two key debt-servicing ratios to determine if a homebuyer qualifies for an insured mortgage:

  • Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
  • Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.

To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39% and a TDS ratio no greater than 44%. Qualifying for a mortgage by applying the typically higher Bank of Canada posted rate when calculating a borrower’s GDS and TDS ratios serves as a “stress test” for homebuyers, providing new homebuyers a buffer to be able to continue servicing their debts even in a higher interest rate environment, or if faced with a reduction in household income.

The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later.

  • Tighter Mortgage Insurance Rules

Lenders have the option to purchase mortgage insurance for homebuyers who make a down payment of at least 20% of the property purchase price, known as “low-ratio” insurance because the loan amounts are generally low in relation to the value of the home. There are two types of low-ratio mortgage insurance: transactional insurance on individual mortgages at the point of origination, typically paid for by the borrower, and portfolio (bulk pooled) insurance that is acquired after origination and typically paid for by the lender. The majority of low-ratio mortgage insurance is portfolio insurance.

Lender access to low-ratio insurance supports access to mortgage credit for some borrowers, but primarily supports lender access to mortgage funding through government-sponsored securitization programs.

Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

  1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
  2. A maximum amortization length of 25 years;
  3. maximum property purchase price below $1,000,000 at the time the loan is approved;
  4. 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 original amortization schedule;
  5. A minimum credit score of 600 at the time the loan is approved;
  6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
  7. property that will be owner-occupied.

These tighter mortgage insurance regulations will reduce the supply of mortgages and/or increase their cost to the borrower.

Consultation on Lender Risk Sharing

The Government announced that it would launch a public consultation process this fall to seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages could enhance the current system.

Canada’s system of 100% government-backed mortgage default insurance is unique compared to approaches in other countries. A lender risk sharing policy would aim to rebalance risk in the housing finance system so that lenders retain a meaningful, but manageable, level of exposure to mortgage default risk.

This proposal by CMHC has been floated for some time and, needless to say, the Canadian Bankers’ Association, is against it. The measure would certainly increase the risk associated with funding mortgages and therefore likely increase the capital required to be set aside against this additional risk. Therefore, in essence, it increases the cost to the lenders to finance mortgages. The lenders will undoubtedly attempt to pass off this increased cost to the borrower or reduce its supply of credit. Right now, the cost of mortgage insurance is borne by the taxpayer.

Bottom Line: These are very meaningful initiatives to slow housing demand, making it more difficult for Canadians to borrow. Finance Minister Morneau has taken out the big guns. I have no doubt that the pace of mortgage lending will slow from what it would otherwise be as a result of these government actions. However, these actions do nothing to address the shortage of housing supply in Vancouver and Toronto.

Housing has been a very important pillar for the Canadian economy, especially at a time when oil price declines have decimated the oil sector and manufacturing continues to struggle. This is a case of being very careful what we wish for– I’m concerned that we might see more of a slowdown in housing than the government was counting on, which will certainly affect jobs and growth and reduce tax revenues at a time when budget deficits are mounting and fiscal stimulus has yet to do its job.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Thinking of Selling? Costs you should know about!

Home For Sale

Often times it’s the simple math that will betray you when selling a property. In your head you do quick calculations, you take what you think your property will sell for and then subtract what you owe on your mortgage, and the rest is your profit! Well… not so fast, there are several costs that have to be taken into consideration when selling a home. It’s especially important to get these costs right when you are selling one property, and using the proceeds from that sale as a downpayment for another property.

So here is a fairly comprehensive list of costs you may incur when selling your home.

REAL ESTATE TRANSACTION COSTS

Although it may seem odd that you have to pay money to sell your home, that’s the reality, and selling a property isn’t cheap. If you use the services of a professional REALTOR®, the total commission cost is going to be anywhere between 4-6% of the purchase price, divided between the listing agent (the REALTOR® who represents you) and the buyer’s agent (the REALTOR® representing the buyer). It’s also good to note that GST is added to real estate commissions.

If you are looking for a way to get around paying real estate commissions, you might consider selling your house privately. To list your property with a FSBO company (for sale by owner), you are going to be anywhere between $400-$1,500 just for setup and a bit of marketing. From there, you may still have to negotiate a commission if potential buyers are working with a buyer’s agent.

MORTGAGE DISCHARGE FEES

If you have a mortgage on your property, there will be a cost to discharge it, the question is how much?

If you are breaking your mortgage in the middle of your term, you will be responsible to pay a penalty. On a closed mortgage, that penalty will be either 3 months interest or an Interest Rate Differential penalty, known as an IRD. Each mortgage contract is written up differently lender by lender, so it’s impossible to simply explain the math here and have you calculate your penalty on your own. In order to figure out your IRD ahead of time, you can either contact your lender directly, or you can contact me and I can help you through the process.

The IRD penalty is the wildcard in the whole process, because depending on how the lender calculates the penalty, penalties can range from $3,000 to $30,000. It is very important to know what you are dealing with here.

If you are currently in a variable rate mortgage, your penalty will be equal to 3 months interest. Even if you are in an open mortgage, or have a home equity line of credit secured to your property, there might not be a penalty to discharge, but there will most certainly be some kind of lender fee, usually between $250-$500.

LAWYER’S FEES

In order to discharge the title of your property, and to verify that the buyer is going to receive a clear title of your property, you are going to incur legal fees to sell your property. In a straightforward discharge, expect to pay between $500-$1000, less than when you purchased the property, but an expense none the less.

UTILITIES AND PROPERTY TAX

Although this might not come as a surprise, when you are selling your property, you are responsible for paying all the property taxes and utilities up to the day you no longer have possession. If you close in the middle of the month, you will be responsible for half the months taxes and utilities. If you are on equalized payments, and you have run a deficit with the utility company, expect to bring that bill current before your lawyer can discharge the mortgage!

CAPITAL GAINS TAX

If you’re selling your primary residence, you are in the clear. In Canada we don’t pay tax on the appreciation of our primary residences, however, if you are selling an income property, you will be responsible to pay taxes on half the gains at your marginal income tax rate.

PROPERTY REPAIR

If you are looking to sell your house quickly, you will want to make sure that it is in tip top shape, don’t underestimate the growing costs of fixing your property up before trying to sell it. It has been said that sellers should consider spending up to .5%-1% of the asking price on getting the property ready, making sure the small things are looked after will give people the feeling like the property was looked after . Low-cost, minor improvements like

  • Patch drywall and nail holes, repaint.
  • Fix or replace damaged flooring.
  • Repair plumbing leaks.
  • Replace burnt out light bulbs.
  • Replace outdated light fixtures.
  • Clean out and reseal gutters.
  • Keep up with the yard and garden.

MOVING

Don’t forget that once you do sell your house, it’s gonna cost you money (and time) to move. Depending on how much stuff you have, you are looking at some gas money and pizza for friends, or a few hundred to a few thousand for movers.

There you have it, by understanding these costs hopefully you will have a better idea of how much money you will actually have in your jeans after selling your house! Of course if you’re looking for a new mortgage for a new house – give the mortgage professionals at Dominion Lending Centres a call!

Michael Hallett

MICHAEL HALLETT

Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC.

 

A Take Charge Woman’s Guide To Surviving Financial Ruin and Other Odds and Sods During a Divorce

A Take Charge Woman's Guide to Surviving Financial Ruin and Other Odds and Sods During a DivorceIf you find yourself in the unfortunate position of getting divorced, have no fear, because help is here!

Divorce, while often times feels like a death, it is also the beginning of your new life.  And while it can be scary it can also be exhilarating and life changing.

As women, we often make the mistake of being too trusting or giving the proverbial “benefit of the doubt”.  But in a divorce that cannot happen.  In my career as a mortgage broker I have seen too many women have their credit ruined because they trusted that the ex spouse would pay the bills as agreed to.  BIG BOWL OF WRONG!!

If you have not done it before, then divorce is the time to take charge of your finances.  It’s vitally important to keep your credit intact and in good standing because, bad credit haunts you and follows you for 7 years.

Here are a few tips to keep you on track and ensure your credit does not take a beating like your poor little heart has.

  1. Ensure that if you have joint debt (credit cards, lines of credit etc.) that you know who is paying what.  DO NOT trust your ex to pay the bills, because as soon as some other woman (or man) comes along and he wants to wine and dine her, those debts take a back seat.  Often the debts don’t get paid or are paid late, and because you are jointly responsible, your credit takes a hard hit as well.  So if you have agreed as to who is paying what debt, ensure that you have yourself removed from that joint debt as soon as you can.
  2. If you have a mortgage and you are both equally responsible for the payments until you either reach a settlement or sell the house, make sure that you continue to make the payments from an account you can monitor.  That is have your ex pay his share of the mortgage to you and then you pay the full amount from an account that is in your name.  Recovering from a mortgage that shows late payments, NSF payments and missed payments, is a long hard process. Do not fall for the “I’m paying my share, don’t worry”
  3. Treat the divorce like a business.  Get everything that you can in writing.  The sooner that you hammer out an agreement the easier and quicker and most cost effective it will be. Even if you do not negotiate a separation agreement right away, ensure that you agree, who is responsible for what. It is crucial to keep your credit in good standing.  Divorce is already hard enough and emotionally draining without having to deal with creditor phone calls, and juggling missed payments.  And try getting your own credit card with a bad credit rating, you’d likely have more success getting a sitting with the Pope than a credit card!

Look, I am not trying to scare you, I am just reminding you to embrace your independence and take care of your financial well being.  Take charge of your finances.  It is such an empowering feeling to be in control of your bills and your money!

If there are children involved, remember this, they are children!  Do not make them a pawn in your divorce.  Do not pit your children against one parent.  It causes anxiety and confusion as they feel that they have to choose a parent and that they can’t love them both.  Your children only have one childhood.  Do not take that away from them.  Lastly do not talk badly about the ex in front of the children.  Talk about what a “loser” or “cheat” he is over wine with your friends when the children are not around.  It is an unfair and stressful position to put the children in.  Remember they did not choose you as parents and they are a casualty of the divorce, so make sure you children know, that they are loved, that they do not have to choose between the parents, and that lastly, none of it is their fault.

Finally know this.  It does get better and in time, you will likely acknowledge that getting divorced was one of the best decisions that you made.  When you feel yourself faltering and feeling nostalgic and missing your ex, simply remind yourself what brought you to the position of getting divorced in the first place. Give your head a shake and snap out of it!!!

Trust me; I know what I am talking about.  I have lived through divorce, bankruptcy as a result of divorce, cheating, bad credit etc.  You name it and I experienced it.  My climb back out of financial ruin was a situation that I would not wish on my worst enemy….OK maybe one or two!!!  The climb out was hard.  It made me who I am today (a pretty awesome ladyboss).

I hope that sharing this information will save you some grief in your own struggle.  There is life after divorce, there is love after divorce, there is money after divorce and there is mortgage help in just such a situation from Dominion Lending Centres.

Maria Kyle

MARIA KYLE

Dominion Lending Centres – Accredited Mortgage Professional
Maria is part of DLC Vintage Financial based in Duncan, BC.