Variable Rate? To Lock In Or Not?

General Mustapha Maynard 4 Mar

This post applies if you are taking a new mortgage, whether it’s for a purchase, refinance, or renewal. The variable remains the main contender.

But what about all the economists saying if you are currently in a variable rate mortgage then you should rush to ‘lock in’?

You mean the economists that are employed by profit driven shareholder owned institutions that directly benefit from your locking-in (banks) via instantly increased profit margins and massively higher (up to 900% higher) prepayment penalties that 2/3 mortgage holders will trigger?

A bit biased, that crowd.
Also they are generalists, they’re not specialists.

But what about independent real estate experts?

While these experts may have their finger on the pulse of many facets of the real estate market, many remain totally unaware of how exactly mortgage prepayment penalties are calculated, and just how likely you are to trigger them.

Also generalists, are unaware of many nuances of mortgage products.

So what’s my game?

I’ve never really had game, so to speak. And I don’t stand to profit from your locking in, or from your staying variable. In fact as I type this on a stunning day I’m wondering just what I’m doing in my office at all.

I’m just a Mortgage Broker offering an opinion. An opinion that reflects my personal policy, an opinion shaped through 25 years of experience with my own mortgages, an opinion based on 11 years of experience with 1,673 client’s mortgages.

I’ve seen a few things, mortgage specific things.

I’ve watched 2/3 of my clients break their mortgages and trigger penalties. Almost every single one of them a small and relatively painless penalty thanks to staying variable.

But what about these rising rates?

If you are currently in a Prime -.65% to Prime -1.00% variable then to lock-in would be to inflict an immediate rate hike on yourself that might take the government another 12-18 months to pull off… if they pull it off.

Stay variable.

If you are in a Prime -.35 or shallower mortgage, we should discuss restructuring that into a Prime -1.00% mortgage and reducing your rate by .65% or more.

Staying variable.

My crystal ball says yes, perhaps another two or three 0.25% hikes through 2019, but at that point the odds favour (heavily) an economic contraction that will in turn trigger a corresponding reduction in interest rates.

It is my theory, and that of others smarter than I, that the fed is pushing rates up aggressively to beat said economic contraction, because they want to have the tool of ‘reducing interest rates’ back in their toolbox when the rainy days come. And we are overdue for stormy economic times. And when those times arrive it will not be prudent to be locked-in.

In short, life is variable – your mortgage should be as well. If you have any questions, contact me today Mustapha Maynard Mortgage Consultant.

High Ratio vs Conventional Mortgages

Mortgage Advice Mustapha Maynard 14 Feb

There are two different types of mortgages when it comes to their balance in relation to the value of your home- high ratio or conventional.

When you applying for a mortgage, lenders use a ratio called loan to value. Your loan to value is exactly what it sounds like, the size of your mortgage in relation to the value, written as a percentage.

For example, if you have a $500,000 home and your mortgage is $300,000 and your down payment/equity is $200,000, your loan to value is 60%. This means that the bank owns 60% of your home and you technically own 40%, because if your house sold for $500,000, you would only get $200,000 as the remaining amount goes to the lender to pay out your mortgage.

When some one says high ratio and conventional mortgages, that is referring to your loan to value. If your loan to value is more than 80%, you have what is called a high-ratio mortgage. A high-ratio mortgage is when you own less than 20% of your home. You will also be required by law to pay what is called mortgage default insurance to help protect the lender if you were unable to maintain your mortgage payments.

A conventional mortgage is when you own 20% or more of your home and your mortgage amount is less than 80% of the value of your home. You do not need to pay mortgage insurance premiums if you purchase a home with 20% or more as well. When refinancing your home and borrowing against your equity, lenders are not allowed to increase your mortgage to an amount above 80% of your homes value. This means, if you own less than 20% of your home, you cannot refinance or take equity out.

You are also not allowed to purchase a rental property and receive a high ratio mortgage as you are required to put 20% down. Conventional and high ratio mortgages will also affect your interest rates as most lenders incentives high ratio buyers to work with them by offering lower interest rates.

There are several other categories when looking at loan to value and what each one can give you in terms of borrowing power, however, when it comes to high ratio and conventional, these are the biggest differences.

If you have any questions relating to high ratio or conventional mortgages, contact me today.

 

What Questions to Ask When Considering a Refinance

Mortgage Advice Mustapha Maynard 7 Feb

Many of my clients and friends regularly ask me when or if they should consider a refinance. Here are 4 quick questions that I ask of them. The answer they give me, will very quickly tell me if we should be taking a deeper look at the mortgage refinance options available to them.

What do you believe the current value of your home is and what is the outstanding balance on your mortgage?
Have you ever heard your mortgage broker or banker talk about “loan to value”(LTV)? They are looking to determine what your outstanding balance of your mortgage is as a percentage of your property value. The reason we look at your LTV is because there are limits in Canada with respect to how large your mortgage can be based on the current value of your home. This gives your mortgage broker insight into how much equity or money you have access in the event that you were to refinance your mortgage.

What is the maturity date of your mortgage and your current rate/term length?
Understanding who your current lender is, what your maturity date is, and what your rate/term details are, will help your mortgage broker determine what type of penalty you might have for breaking your current mortgage contract. Knowing your rate will also give them the details they require to calculate the interest savings that you would receive from a refinance. When looking to refinance, your mortgage broker should be factoring these potential costs and overall interest savings into their overall benefits analysis when trying to determine if refinancing is the right option for you.

How is your household monthly cash flow impacting your short and long term financial goals?
Budget, budget, budget… this is one of those tools that we all know we should do, but it often gets very little of our attention each month. By understanding how much net income you have coming in each month and where that cash is going (cash flow) we can look at how a restructured mortgage could help. If you are finding that all of your money is disappearing each month and you’re having trouble getting by, a new mortgage can help restructure your monthly debt payments giving you some added breathing room. It is important to note that sometimes it is not about debt payments and it can be about high household expenses. Taking the time to assess your spending and cutting it back if necessary, might be enough to get you back on track. Check out our blog post on basic budgeting tips and tricks.

Looking at your outstanding debt, what are the current interest rates that you are paying and are you only making the minimum payments each month?
A quick snap shot of your current debt load, respective interest rates and monthly payments can give us some insight into how a refinance can save you interest. By understanding what your financial picture looks like and the amount of interest that you are currently paying to service that current debt, we can very quickly estimate how much interest you could save with a refinance. If you take a number of those high interest rate credit cards and roll them into a new, low interest rate mortgage, the savings can very quickly become quite substantial.

In closing, a refinance is a financial tool that can make a significant difference in your current financial picture. If you have reviewed the questions above and would like to take a closer look at your situation, there is never a better time than the present to make a change that will have a positive impact on your future.

Take the time to have a conversation with a Dominion Lending Centres mortgage broker who can give you some insight into how a new mortgage could help you with a brighter financial future.

Documents you need for your mortgage pre-approval

Mortgage Advice Mustapha Maynard 4 Feb

Being fully pre-approved means that the lender has agreed to have you as a client (you have a pre-approval certificate) and the mortgage broker has reviewed and approved ALL your income and down payment documents (as listed below) prior to you going house hunting. Many bankers will say you’re approved; you go out shopping and then they  say ‘sorry you not approved’ due to some factor. Get a pre-approval in writing!
Excited! Of course. You are venturing into your first or possibly your next biggest loan application and investment of your life.

What documents are required to APPROVE your mortgage?
Being prepared with the RIGHT DOCUMENTS when you want to qualify for your mortgage is HUGE; just like applying for a job or going for a job interview. Come prepared or don’t get hired (or in this case, declined).
I assist all my clients along the way to ensure any questions are asked and YOU are prepared UPFRONT and fully PRE-APPROVED before you go house hunting.
No stress, no running around, no surprises.

Why is this important?
You can have a leg up against the competition when buying your dream home as you can have a very short timeline (ie: 1 day to confirm vs 5-7 days) for “financing subjects”.
Think? You’re the seller and you know the buyer doesn’t have to run around finding financing and the deal may fall apart. This is the #1 reason deals DO fall apart. You will likely get the home over someone who isn’t fully approved and has to have financing subjects. The home is yours and nobody’s time is wasted.
If you just walked into the bank, filled an application and gave little or no documents, and got a rate – you have a RATEHOLD. This is NOT a pre-approval. This guarantees nothing and you will be super stressed out when you put an offer in, have 5-7 days to remove financing subjects and you need to get any or all of the below documents. That’s not fun is it? Use a Dominion Lending Centres mortgage broker ALWAYS. We don’t cost you anything!
When you get a full pre-approval, you as a person(s) are approved; ie: the broker did their work of reviewing (takes a few days) to call your employer, review your documents, etc. All we have to do is get the property approved, which takes a day or two. Much less stress, fastest approval…faster into your home!

Here is exactly the documents you need MUST have (there is NO negotiation on these) to get your mortgage approved with ease. Keyword here is EASE. Banks/Lenders have to adhere to rules, audit files and if you don’t have any of these or haven’t been requested to supply them…a big FLAG that your mortgage approval might be in jeopardy and you will be running around like a crazy person two days before your financing subject removal.
Read carefully and note the details of each requirement to prevent you from pulling your hair out later.
Here is the list for the “average” T4 full-time working person with 5-15% as their down payment (there is more for self-employed, and part-time noted below):

  1. Are you a Full-time Employee?
    Last 2 paystubs: must show all tax deductions, name of company and have your name on it.
  2. Any other income? Child Support, Long Term Disability, EI, Foster Care, part-time income? Bring anything that supports it. NOTE: if you are divorced/separated and paying support, bring your finalized separation/divorce agreement. With some lenders, we can request a statutory declaration from lawyer.
  3. Notice of Assessment from Canada Revenue for the previous tax filed year. Can’t find it? you can request it from Rev Can to send it to you by mail (give 4-6 weeks for it though) or get it online from your CRA online Account.
  4. T4’s for your previous 2 years.
  5. 90 day history of bank statement showing the money you are using to put down on your purchase.
    Why 90 days? Unless you can prove you got the money either a sale of a house, car or other immediate forms of money (receipt required)…saved money takes time and the rules from the banks/government is 90 days. They just want to make sure you aren’t a drug dealer, borrowed the money and put it in your account or other fraud issues. OWN SOURCES = 90 days. BORROWED is fine, but must be disclosed. GIFT is when mom/dad give you money. Once you have an approval for “own sources” you can’t decide to change your mind and do gifted or borrowed. That’s a whole new approval.

Down Payments
Own Sources: For example “own sources” include if you are a first time buyer and your money is in RRSP’s then, have your last quarterly statement for the RRSP money. If your money is in three different savings account, you need to print off three months history with the beginning balance and end balance as of current. The account statements MUST have your NAME ON IT or it could be anyone’s account. I see this all the time. If it doesn’t print out with your name, print the summary page of your accounts. This usually has your name on it, list of your accounts and balances. Just think, the bank needs to see YOU have X$ in your (not your mom’s or grandparents) account.

GIFT: If mom/dad/grandparents are giving you money…then the bank needs to know this as the mortgage is submitted differently (this is called a GIFT).

If you are PART-TIME employee? All of the above, except you will need to bring three years of Notice of Assessments. You need to be working for two years in the same job to use part-time income. You can have your Full-time job and have another part-time gig… you can use that income too (as long as it’s been two years).

If you are Self Employed?

  1. two years of your T1 Generals with Statement of Business Activities
  2. Statement of Business Activities.
  3. 3 years of CRA Notice of Assessments
  4. If incorporated: your incorporation license, articles of incorporation
  5. 90 day history of bank statement showing the money you are using to put down on your purchase.

 

Pre-Approvals & Pre-Qualifications

Mortgage Advice Mustapha Maynard 30 Jan

Throughout the mortgage and home buying process, there are many steps and many checkpoints a buyer will need to complete before they can move on to the next one. A buyer will not be able to close on a purchase if they do not have a lawyer. Financing conditions need to be lifted after confirmation from a mortgage broker that a file is broker complete. A buyer should never write an offer on a home until they have a realtor working for them. Most importantly, a buyer should never be looking at property they are considering buying until they have been pre-qualified and pre-approved.

Now, one thing we need to make clear- pre-qualified and pre-approved are two different things. Pre-qualified is when someone completes a mortgage application with a mortgage broker or a bank representative and is told how much they can afford. Pre-approved is when someone has written confirmation from a lender stating they are willing to lend based on what is stated in an application and the applicant’s current credit history.

The difference?

Pre-qualifications are based solely on the knowledge and experience (sometimes even opinion) of a broker or bank rep. A pre-approval on the other hand is backed by the lender actually willing to give you the money. When someone says they are pre-qualified, that means they have taken an application with a mortgage broker or bank and in broker or bank rep’s opinion, they can afford “x” amount on a home. A pre-approval is a written letter from a lender stating based on applicants current credit history, declared income on application and current assets, we will lend “x” amount pending confirmation everything stated in the application is verifiable and the property meets all lender requirements.

As you can probably tell, one can be more reliable than the other, especially if you are working with a mortgage broker or bank rep that is inexperienced in the industry. Pre-approvals also usually come with a rate hold. What a rate hold does is guarantee you the interest rates that lender is offering today for a certain amount of time (usually 120 days), and if you put an offer on a place within that time period, they will give you that previous rate even if they went up. If rates go down, they will allow you to access the lower interest rate as well.

You must always get yourself pre-qualified before you begin looking at homes so you know what you can afford. Once you have and you are actively looking, it is very important you try and get a pre-approval before you write an offer. It will give you that extra confirmation your application is acceptable, and protect you against interest rate increases while you look.

If you require a pre-qualification, pre-approval, or want to speak with someone about your current situation, please give a Dominion Lending Centres mortgage professional a call.

FIRST TIME HOME BUYERS!!

General Mustapha Maynard 29 Jan

Your First Home. What a THRILLING thing that is to think about!! One of the best parts about our job is helping individuals purchase their first home. We know that the process can seem daunting at first, but we have an in-depth understanding and knowledge of what steps are required to make the process go smoothly. Follow these and you will be turning the key into your new home before you know it.

Image result for first time home buyer

1. Find a Fantastic Mortgage Broker
Finding a mortgage broker who can help with your pre-approval process can allow you to determine the price point of home you can really afford. Finding a mortgage broker right off the bat can also give you an advantage over working with your bank:

  • Mortgage Brokers work for you, not the bank or lender
  • They have access to multiple lenders and are not limited to one single product
  • They are an expert in the field. They focus on mortgages and mortgages alone!

2. Get Comfortable With The Numbers
There are two numbers that all first-time homebuyers should keep in mind: 39 and 44. These two numbers can help you budget and determine what you can truly afford when looking to purchase a home. Why 39 and 44? Here’s why:

  • A maximum of 39% of your total income can go towards your housing costs. This will cover your mortgage payment, property tax payment, heating costs, and strata fees.
  • A maximum of 44% of your total income can go towards your housing costs and total debt payments. This will include ALL housing costs and all debt repayments (credit cards, car loans, student loans, etc.)

Now, here are a few other key numbers that can help you in your house hunting:

3. Know What Your Down Payment Needs to Be
You know the numbers, now let’s look at what you need to know about the down payment itself. First, if you have less than 20% down payment your mortgage will be insured and have insurance premiums added to your mortgage. If you are considering putting the minimum down, that would be 5% if the property is worth $500,000 or less. A down payment of 10% is required for any amount over $500,000. Here’s a quick example of what this looks like:

Purchase Price of $600,000

5% of $500,000                                   $25,000

10% of $100,000                                             $10,000

Total Down Payment:                                   $35,000

4. Take Advantage of The RRSP Home Buyers Plan
The Canadian government’s Home Buyers’ Plan (HBP) allows for first time home buyers to borrow up to $25,000 from you RRSP for a d own payment, tax-free! You are able to combine this with your partner if you are both first time home buyers you can both access the $25,000 from your RRSP for a combined total of $50,000. Certain qualifications do apply for you to use this plan, we have laid them out here for you to review.

5. Don’t Forget About the Closing Costs!
This is one so many people overlook! Closing costs are something that can add up quickly when you are purchasing a home. Here is an approximate breakdown of the funds you will need:

  • Legal Costs: $1000
  • Title Insurance: $200
  • Appraisal: $350
  • Property Transfer Tax: Pending on purchase price

An additional few facts on property tax for you to consider:

This is an approximation of what your closing costs may be, but it is always good to budget for them beforehand.

6. Have your Documents Ready to Roll
Mortgages = paperwork! There are a number of documents that you will need to have to give to your mortgage broker. This will vary depending on your employment situation and where your down payment is coming from, but here is a general list you can follow:

  • Most Recent paystub
  • Letter of Employment
  • NOA’s (2 years)
  • T4’s (2 years)
  • Down payment verification—up to 3 months of bank statements
  • Contract of Purchase and Sale (Your realtor will provide this)
  • Property Disclosure Statement (Realtor will provide)
  • if you are self-employed you may also have to show:
    o T1 Generals
    o Articles of Incorporation
    o Financial Statements

7. Start Working on Your Credit Score
Yes, your credit score does directly impact your ability to get a mortgage. Lender’s want to see that you can responsibly manage credit and debt repayment before loaning you a large sum of money to purchase a home. Your credit score will be a determining factor in the terms and rate associated with your mortgage.

Just what impacts your credit score? Good question! Here are a few things:

  • Late payments will lower your score
  • Collections, judgements, consumer proposals, bankruptcy this will lower your score
  • Exceeded limits on credit cards
  • Ideally, you will be able to show a minimum of 2 active and current trade lines
  • The longer your trade line is, the better increase in your score!
  • Lenders also like to see a minimum of $2,000 limit on your credit cards.

Understanding and using this knowledge can help make your first home buying experience a great one! Once you have gone through the pre-approval process with a mortgage broker the fun part begins! Upon you receiving your preapproval, you can begin the house hunting. From there, you can put an offer on your dream home (yay!) Once your offer is accepted, we go through the mortgage process with you and then it’s moving day for you!

This is an exciting time for first time homebuyers—we enjoy getting to help our clients go from start to finish and helping them get the keys to their first ever home. If you have questions or are looking to find out just how much you will qualify for you can check out our mortgage calculator OR you can reach out to a Dominion Lending Centres mortgage professional directly!

MORTGAGE ADVICE AND OPTIONS MEAN YOUR’RE IN CONTROL

Mortgage Advice Mustapha Maynard 9 Nov

Today, you and your spouse go looking for a new home. You’re excited because after years of scrimping and saving, you can finally afford your own place.

You’ve engaged a realtor and he’s called you to say that he’s found your new home. You visit the property and while its not perfect, your realtor insists that this is the home for you. He says there’s nothing else available that’s better suited and urges you to make an offer. He mentions at one point that he’s actually the owner of the property he’s showed you. You make an offer at the price he suggests and, hey presto, the offer is accepted!

You move in at the end of the month, happy that you’ve at least got a roof over your head.

It all sounds pretty unbelievable, doesn’t it? You can’t really imagine doing that, can you?

Let’s look at a similar scenario; one where you make a very similar choice.

A month or two earlier, you casually mention to your mum and dad that you’re going to start looking for a home. They’re both pleased and proud – they ask about your mortgage financing – and recommend you go see their account manager at Big Blue Blank.

Like most Canadians, you prefer going to the dentist over applying for credit, so after you meet with Cal from Big Blue, you’re pleased and relieved when he calls you later that day to say you’ve been pre approved for financing at a fixed rate. He’s even guaranteed the rate for 90 days! When you end up buying that not so perfect home, the mortgage is in place in a blink of an eye.

This time, the whole scenario is way more familiar, isn’t it? Why is the second scenario any more acceptable than the first?

A Mortgage Brokers’ value proposition is based upon the ability to offer independent advice about multiple products provided by multiple lending partners.

How we demonstrate that proposition is by providing both advice and options; advice on not only obtaining the right financing, but also repayment strategies and strategies to handle a changing interested rate environment.

By combining options on rates, terms, repayment privileges and to minimize penalties, we provide you with the one thing you didn’t get in either of the two scenarios – informed choice.

Dealing with a broker, any broker, gives each of us back something we are always looking for; control.