Brokers More Important Than Ever

Nearly half of all existing mortgage in Canada will be up for renewal in 2018. Stated in a Financial Post article by Armina Ligaya, CIBC Capital Markets estimates 47% of all existing mortgages will need to be refinanced in 2018. All of this coming on the heels of rising interest rates and changes to key mortgage regulations.

With this renewal number hovering around 50%, almost double from previous years, big banks will be fighting hard to keep their clients and handle their mortgage- as they should. However, is staying with the bank you got your mortgage with 1, 2, 3, even 5-years ago in your best interest?

Think of the rising housing prices, the rule changes to back-end insured mortgages, the multiple stress tests as well as the implementing and removing of programs such as the B.C. Home Partnership Program. All of which has just happened in the past couple of years.

With all these changes, should you not be speaking with a licensed mortgage broker to determine what is in your best interest?

The options that are available through other lenders can be quite advantageous. From opening up Home Equity Line Credits with a big bank, to Manulife One Account access and the lowest interest rates available on Switch Mortgages where lenders will help compensate the administrative costs.

One of the more common scenarios we are seeing is people upgrading their homes with marriage, children, or promotions/relocation with work. Clients know it is happening in the near future but do not have an exact timeline. Wanting a 5-year fixed mortgage but worried about the possibility of upgrading after just 2-years, we usually suggest working with a Monoline Lender. Sticking with a Big Bank like CIBC or RBC and having this scenario happen could potential result in penalties of $10,000-$15,000 where that same penalty might only be $3,000 with a Monoline Lender.

It is always best to consult with a Dominion Lending Centres mortgage broker before signing your bank’s renewal letter. We offer free pre-qualifications, no client-relationship contracts, and credit assessments to see your eligibility on receive A-Rates, all without your credit score taking a hit.

Ryan Oake

Are mortgage terms more important than rate?

Why are the terms more important than rate when it comes to a mortgage?

Simple. Seven out of 10 Canadians break their mortgages prior to the renewal date.
Taking the wrong mortgage when you could have qualified for a better one- is a costly mistake.

The biggest mistake anyone can make is they don’t think they need to make a change, or they’re the three-in 10 that won’t break a mortgage.

For those people I give you a short list of potential reasons why you might need to get out of a mortgage early.

1. Sale and purchase – maybe you get an offer you can’t refuse, either work or real estate related, maybe the zoning has changed, your neighbours or strata are unmanageable or maybe you want to grow your family
2. Take Equity out – get renovations done, help family members or buy another investment, pay CRA, or assessments on property
3. Pay off debt – maybe you are like the over 60% of Canadians living paycheque to paycheque and paying over 5% on credit cards or lines of credit. There are much more savings in interest and cash flow for you utilizing your equity.
4. Relationship changes – moving in together, divorce is at a 50% rate these days, kids (needing more space or need to move in together).
5. Health or life challenges – huge illness, unemployment or death of someone on title can be a burden enough.
6. Removing someone from title – a co-signer (3/10 homebuyers get help from a family member) or an ex-spouse.
7. Save money with a lower rate – the market is always changing. It may make sense to break early and go with a different term as the market changes.
8. Pay it off – maybe you won the lottery or got an inheritance.

Some of the above is not avoidable, but the one thing you totally can control is who you align yourself with when shopping for a mortgage. A Dominion Lending Centres mortgage broker will always be looking at all the factors involved in a mortgage without bias to help you make an educated decision on what best suits you.

What does a “Rate Hike” actually mean?

TD Bank has increased it’s posted rates and RBC did the same on Monday. This increase, from 5.14% to 5.59% at TD, is the “biggest move in years.” The change came because of the bond yields increasing. We do expect every other lender to follow suit.

But, actual interest rates have not changed… so what exactly is going on?

The banks have specifically increased something called the “posted” rate.

A “posted” rate is used for three purposes:

• Fools clients into thinking rates are higher than they are by being displayed in the “Rates” section of a bank’s website.
• A ~5% decrease in affordability for many borrowers. The posted rate is the benchmark rate that lenders use for qualifying a mortgage (a bank’s “stress test”).
• It is used to calculate the bank’s mortgage penalty.

First, let’s address the clients who renew their mortgages when the banks send out renewal letters…

Did you know that 80% of homeowners renew with their current mortgage lender? Did you also know that the Bank of Canada published a study that says:

“Lenders have improved their ability to price discriminate… offering discount rates to different sets of consumers, based on their willingness to pay.”

Lenders know that at renewal, most clients do not shop around as they did when they obtained their initial mortgage, and are therefore less likely to offer their best rate to current borrowers.

So, this higher rate is for people who don’t know better. Please remember that the banks are not there for your client. A recent CBC article shows that the banks are there to make money first and provide advice second.

Second, for qualification, the lenders go by their “posted rate” to qualify a mortgage. If a client gets a variable at 3%, the lender is required to qualify them at the higher rate of posted/benchmark and 2% above their contract rate (in this case, 3%). However, with lenders increasing their posted rates, the client will have to be approved at 5.59% instead of 5.14%. This will affect home buyers and decrease affordability by about 5%.

Third, banks use the posted rate for their penalty calculations. The higher the posted rate, the higher someone’s potential penalty is when they pay out their mortgage. This increase in the posted rate will increase people’s penalties quite substantially for Bank Interest Rate Differential (IRD) penalties. This is definitely not in the clients’ best interests. A borrower could do much better by going with a variable rate penalty or a monoline IRD penalty.

BONUS: OK, so we now know that the Posted Rates have increased. What we don’t know is why…

The first reason for a lender to increase their rates would be when the bond yields increase. We have seen a slight increase but not that much, and definitely not enough to warrant such a high increase in a bank’s posted rate. Generally, when the bond market changes, the discounted rates will change. Discounted rates are the rates that clients actually see when they get their mortgages.

One sentiment is that TD and RBC are trying to warn people to lock in now so they can make more money and have greater “spreads” between the bond yields and mortgage rates.

If I had a crystal ball, or if I was a portfolio manager, I may have more info for you here… Alas, this is all I can say on this matter. If you have any questions, contact a Dominion Lending Centres mortgage professional who can help.

5 Things to know before buying a Rural Property

After several years as a home owner, my friend was set to buy the home of his dreams. He always wanted to own an acreage outside of town. He had visions of having a few animals, a small tractor and lots of space.
As a person with experience buying homes, he felt that he was ready and that he knew what he was getting into. Wrong. As soon as you consider buying a home outside of a municipality there are a number of things to consider, not the least being how different it is to get a mortgage.

Zoning – is the property zoned “residential”, “agricultural” or perhaps “country residential”?

Some lenders will not mortgage properties that are zoned agricultural. They may even dislike country residential properties. Why? If you default on your mortgage the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away so there are many obstacles to this.
If you are buying a hobby farm, some lenders will object to you having more than two horses or even making money selling hay.

Water and Sewerage – if you are far from a city your water may come from a well and your sewerage may be in a septic tank. A good country realtor will recommend an inspection of the septic tank as a condition on the purchase offer. Be prepared for the inspection to cost more than it cost you in the city. Many lenders will also ask for a potability and flow test for the well. A house without water is very hard to sell.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land. Anything above this amount and it will not be considered in the mortgage. In other words, besides paying a minimum of 5% down payment you could end up having to pay out more cash to cover the second out building and the extra land being sold .

Appraisal – your appraisal will cost you more as the appraiser needs to travel farther to see the property. It may also come in low as rural properties do not turn over as quickly as city properties. Be prepared to have to come up with the difference between the selling price and the appraised value of the property.

Fire Insurance – living in the country can be nice but you are also far from fire hydrants and fire stations. Expect to pay more for home insurance.

Finally, if you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage broker before you do anything. They can often recommend a realtor who specializes in rural properties and knows the areas better than the #1 top producer in your city or town.

David Cook

Why We Chose a Mortgage Broker

For Arthur Dubreuil, the recent purchase of his new house will sound like a similar story for many homebuyers. Looking to upsize to meet the needs of his growing family, the Toronto area resident looked east outside the city for a more affordable option. What he found was a perfect affordable 2,000 square-foot home on an acre of land in the community of Cobourg, Ont.
“The price point and what you get for the value moving out of the city… we couldn’t have something like that in the city,” Dubreuil said. So when it was time to get financing, he turned to a trusted source, a Dominion Lending Centres mortgage professional he used in the past.

With the help of a mortgage broker, Dubreuil was able to move in to his new home at the beginning of the year. And with a three year-old son getting ready to start school soon, he figures his family will be in their new home for many years to come.

Q: Why did you choose a mortgage broker?
A: I got pre-approved at the bank before I did anything. The interest rates were higher with the bank then by choosing my mortgage broker. I used my broker prior with my last home when I got my first mortgage. It seems like things are a lot clearer using a broker rather than using a bank. They’re [the banks] not very forthcoming. When I went to the bank they were telling me all these different things, basically the mortgage and rate were not negotiable. My broker found me the cheapest rate he could find. He actually got me a better rate.

Q: How was your experience working with a mortgage broker?
A: It was good. I had no issues, everything was professional. He was very straightforward with me, especially when it came to details about buying a house. Especially with these new rules and regulations put in place. He talked me through what my options were, and it worked out well.

Q: What advice would you give someone I your situation?
A: I just gave my buddy some advice, he’s doing the exact same thing but buying his first home. I told him everything you need to do. Clear away any debts and speak to everybody before you actually make a choice of what you want to do and get a mortgage. Go through your options rather than not. A lot of people just stick with the banks because they’re big and they’re trusted.

What is a Refinance?

Refinancing a home is one of those things where people understand what it is but have trouble explaining how it works. To put it simply, refinancing your home allows you to access the equity you have built up, by changing the mortgage amount.

Let’s say you bought a $300,000 condo and you paid 20% ($60,000) as your down payment and had a mortgage of $240,000. Over the next 4 years, you continue making payments and pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home- this is where a refinance could come into play.

What this means is you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a home worth $350,000, therefor your equity in the home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 is going to go from the lender to you. You are borrowing money from the lender, but adding that money back on top of your mortgage.

This is why people will refinance their home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest, because it is being added to the mortgage.

This is just one way people are able to use their home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity lines of credit, collateral charges, and purchase plus mortgages. Knowing this before you buy can be extremely beneficial, that is why it is important to work with a qualified Dominion Lending Centres broker!

6 Home Purchase Closing Costs

When you purchase your home, there are 6 additional costs to account for. They include:

• Home Fire and Flood Insurance
• Title Insurance
• Legal Fees
• Adjustments
• Land Transfer Tax
• GST

Here’s an overview of what you can expect.

Home and Fire Insurance. Mortgage lenders will require a certificate of fire insurance to be in place by the time you take possession of your home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Title Insurance. This is a one-time fee of about $150 and it protects you against any issues, defects or fraud on your title. Your lawyer or notary helps you purchase this.

Legal Fees. Thirdly, you are required to pay legal fees. Your lawyer or notary will charge you anywhere from $700 to $1,000 to help with your purchase. There are also fees to register your title with the municipalities. All told, you’re looking at around $1,000 to 1,300, after tax.

Adjustments. An adjustment is a cost to you to pay the seller back for prepaying any property tax or condo fees on your behalf. Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using.

Land transfer tax. Land transfer tax, or property transfer tax (PTT) as it’s known as in British Columbia, is a fee that is charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.

In British Columbia, the PTT is 1% on the first $200,000 of purchase and 2% thereafter. However, if the property being purchased is over $2,000,000, then it is 3% on any value over $2,000,000.

GST. GST is only paid on new construction purchases. GST is 5% on the purchase price. However, there is a partial GST rebate on properties under $450,000.

Please don’t hesitate to contact a Dominion Lending Centres mortgage professional for your home financing and mortgage needs.

Eitan Pinsky

Dominion Lending Centres – Accredited Mortgage Professional

Mortgage Insurance 101

When you purchase a property, you may be a little overwhelmed by all the insurance offers related to the purchase of said property. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing, and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance (there are three mortgage default insurers in Canada – CMHC, Genworth, and Canada Guaranty) is solely for the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 8 Benefits of using Mortgage Life Insurance

1. Peace of Mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you pass on.
2. Mortgage Paid Off in the Case of Death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.
3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.
4. It Protects your Family’s Finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.
5. Lost Wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time (ex. up to 3 years). Unexpected life events such as a serious car accident can result in missed mortgage payments because of loss of wages as you need to recover from injuries.
6. Portability –certain Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.
7. The Younger you are, the Less Expensive– Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.
8. Good Health = Coverage for Unexpected Illness Later on –After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are regarding the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if later you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact your mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

Geoff Lee

Dominion Lending Centres- Accredited Mortgage Professional

Generally, whether you choose a HELOC or a reverse mortgage, tapping into your home equity is a big decision that needs to be discussed with your family. However, having the extra money in one’s later years, when health issues and home retrofitting are needed the most, can make a big difference in our clients’ quality of life.

Time to Lock in a Variable Rate Mortgage?

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localized spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions, contact a Dominion Lending Centres mortgage specialist.

Tracy Valko

Dominion Lending Centres – Accredited Mortgage Professional
Tracy is part of DLC Forest City Funding based in London, ON.