Improving your credit score

Your credit score is a big factor when you apply for a mortgage. It can dictate how good your interest rate will be and the type of mortgage you qualify for.

Mortgage Professionals are experienced helping clients with a wide range of credit scores so we can find you a mortgage product even if your credit is far from perfect.

The good news about your credit score is that it can be improved:

• Stop looking for more credit. If you’re frequently seeking credit that can affect your score as can the size of the balances you carry. Every time you apply for credit there is a hard credit check. It is particularly important that you not apply for a credit card in the six months leading up to your mortgage application. These credit checks may stay on your file for up to three years.
• If your credit card is maxed out all the time, that’s going to hurt your credit score. Make some small monthly regular payments to reduce your balance and start using your debit card more. It’s important that you try to keep your balance under 30% or even 20% of your credit limit.
• It’s also important to make your credit payments on time. People are often surprised that not paying their cell phone bill can hurt their credit score in the same way as not making their mortgage payment.
• You should use your credit cards at least every few months. That’s so its use is reported to credit reporting agencies. As long as you pay the balance off quickly you won’t pay any interest.
• You may wish to consider special credit cards used to rebuild credit. You simply make a deposit on the card and you get a credit limit for the value of that deposit. They are easy to get because the credit card company isn’t taking any risks.

Contact a Dominion Lending Centres Mortgage Professional if you have any questions.

– by Tracy Valko

The role of the insurer in a mortgage

Any time a down payment for the mortgage is less than 20%, it is required that the mortgage must be insured thru an Insurer. Why does this mortgage need to be insured, who provides this type of insurance, what does this insurance mean, who is the beneficiary, how much does this insurance cost? All these questions need to be addressed when your down payment is less than 20%.
To start, we need to know certain terms.
High Ratio Mortgage – Also known as insured mortgage is any mortgage where the down payment is less than 20%, also defined where the loan to value ratio is more than 80%.
Conventional Mortgage – Any mortgage where the down payment or equity is 20% or more and in other words the loan to value ratio is less than 80%.
There are three companies in Canada that provide this type of insurance, Canada Mortgage Housing Corporation, Canada Capital and Genworth.
The insurance is needed to provide flexibility to buyers in Canada to purchase a property with as little as 5% down payment at the same time the lender is the beneficiary as it protects them in case the borrower defaults on the loan.
The insurance premium is paid once as a lump sum at the time of the purchase of the property and can be added to the mortgage. Premium amount depends upon the down payment and the insurer and can be anywhere from 1.8% to 4.5% of the borrowed amount.
Since insured mortgages are less risk to the lenders, they in turn can offer lesser and more attractive interest rates and mortgage terms.
Another thing to keep in mind is that this insurance is NOT the same as Mortgage Life Insurance. In your life insurance, the beneficiary is the person who you select to be; usually a family member so in case anything happens to you then your family is protected, and your mortgage loan is paid off. But in High Ratio Mortgage Insurance the lender is protected in case the loan defaults. If you have any questions contact a Dominion Lending Centres mortgage professional near you.

– by Asif Qureshi

What’s an acceptable down payment for a house?

Ask people this question and you will get a variety of answers.  Most home owners will say 10% is what you should put down. However, if you speak with your grandparents, they are likely to suggest that 20% is what you need for a down payment.

The truth is 5% is the minimum down payment that you can make on a home in Canada. If you are planning on buying a $200,000 home then you need $10,000.

It all can be explained by the creation of the Canadian Mortgage and Housing corporation (CMHC) by the Canadian government on January 1^st, 1946. Before this time, you needed to have 20% down payment to purchase a home . This made home ownership difficult for many Canadians. CMHC  was created to ease home ownership. This was done by offering mortgage default insurance. Basically what CMHC does is it guarantees that you will not default on your mortgage payments. If you do, they will reimburse the lender who gave you the mortgage up to 100% of what the homeowner borrowed. In return lenders allow you to purchase a home with a smaller down payment and a lower interest rate.

CMHC charges an insurance premium for this service to cover any losses that may occur from defaulted mortgages. This program was so successful that CMHC lowered the minimum down payment to 5% in the 1980’s.

However, if you have little credit history or some late payments in the past they may ask you to provide 10% instead of the tradition 5% if they feel there is a risk that you may default at some time.

You should also be aware that the more money you put down, the lower your monthly mortgage payments will be. You also can save thousands in mortgage default insurance premiums by putting 20% down.  At this time,  home buyers who put 5% down have to pay a fee of 4% to CMHC or one of the other mortgage default insurers to obtain home financing. On a $400,000 home this is close to $16,000.

If you can provide a 10% down payment the insurance premium falls to 3.10% and if you can provide 20% it drops to zero.  While 20% can seem like an impossible amount to save, you can use a combination of savings, a gift from family and/or a portion of your RRSP savings to achieve this figure. The best recommendation that I can make is to speak with your Dominion Lending Centres mortgage professional to discuss your options and where to start on your home buying adventure.

– by David Cooke

Knowing When Less Is More

No one wants to be told that they are not allowed to have something. We live in Canada; as Canadians, our focus has always been to strive for better and for more. That said, there appears to be a growing trend around co-sharing which means people are increasingly moving away from owning their own cars, bikes, offices and, even, homes.

Don’t believe me? Watch this video about communal pod-shares, or this one about a car-sharing company in Edmonton. The trend is here and growing.

While this lifestyle is not for everyone, it speaks to an interesting trend about doing more with less.

In Edmonton, we have the luxury of living in a city that offers affordable housing in every corner of the city. Although we have the benefit of local properties that give us more bang for our buck, times are changing.

The federal government made some changes last year that greatly affected people’s ability to qualify for a mortgage. This month, more changes are expected which will make it even that much more difficult to qualify for a mortgage. New and existing homeowners are rushing in droves to secure five-year fixed mortgage rates ahead of future Bank of Canada rate hikes, and others regulation changes.

The government is essentially continuing its stress-test for all uninsured mortgages (those with a down payment of more than 20%), which will affect a small percentage of new homeowners.

For those looking to get into their first home, however, this might be a good opportunity to look at the growing trend of doing more with less. Qualifying for a mortgage on a home worth more than $500,000 will likely be unattainable on a single, or even double, income. Looking at homes that offer more bang for you buck, including smaller starter homes could get your real estate investment off on the right foot.

We’ve been able to enjoy low interest rates for many years now. Unfortunately, they are up and will likely continue to increase. As such, your $500,000 mortgage in five years could actually cost you more in monthly payments – even as you pay down your premium. It is simply a reality that many cannot afford and should be taken into account as you take the plunge into buying property.

To discuss your mortgage rates, and to secure a low rate for 120 days, do not hesitate to call a Dominion Lending Centres mortgage specialist. We can also look at your current finances to better understand what price range of home you can afford.

– by Max Omar

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.

– by Eitan Pinsky

What is the Canadian Mortgage and Housing Corporation (CMHC)?

The Canadian Mortgage and Housing Corporation (CMHC) is a corporation that most are semi-familiar with, but do not know what CMHC actually does.

CMHC is Canada’s authority on housing. They contribute to the stability of the housing market and the financial system. They also provide support for Canadians in housing need and offer objective housing research and advice to Canadian Governments, Consumers and the Housing Industry.

CMHC offers a variety of different services, all pertaining to Canadian Housing. These services include:

1. Policy and Research
One of CMHC’s cornerstone services is the provision of market analysis information, housing-related data and information, and key housing sector data and information. They are one of Canada’s leading sources of reliable and objective housing market analysis and information. Their research and activities support informed business decisions, policy development for governing bodies and housing program design and delivery.

2. Affordable Housing Measures
CMHC (on behalf of the Government of Canada) also is the primary funder for affordable housing endeavors across Canada. Each year, CMHC invests approximately 2 billion on behalf of the Canadian government to help provide safe, affordable, stable housing opportunities for each province and territory. CMHC oversees approximately 80% of the existing social portfolio administered by provinces and territories, and manages the remaining 20% independently to fund federally housing units such as housing cooperatives. They also work under the IAH (Investment in Affordable Housing) Act, which allows for cost-matching the federal investment to allow for new construction, renovation, homeowner assistance, rent supplements, shelter allowances, and more.

3. Consumer Assistance
The final key services that CMHC offers to Canadians is providing relevant, timely information that can be accessed and used by the public. On their website you can access detailed information on topics such as the:

• CMHC green building and renovation practices
• Homeowners How-To Guides
• Housing Related Research
• Homeowner grants and opportunities

4. Mortgage Loan Insurance
In addition to the above, CMHC is also the #1 provider of Mortgage Loan Insurance to Canadians. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5%* – with interest rates comparable to those with a 20% down payment. In addition to CMHC, there are also 2 other primary mortgage loan insurance providers, Genworth Canada and Canada Guaranty.

CMHC strives to promote mortgage literacy and provide home buyers with in depth knowledge and tools to help them prepare to purchase a home.

Essentially, CMHC is the Canadian Government’s organization that seeks to inform and educate Canadians on the housing and mortgage industry. It reports to the Parliament of Canada through a Minister, governed by the Board of Directors. CMHC makes recommendations based on it’s data and surveys to advise and assist the government of Canada in making decisions that directly impact the mortgage and housing industry. For instance, the date and information provided by CMHC provided information that led to:

February 2016:
Minimum down payment rules changed to:

• Up to $500K – 5%
• Up to $1MM – 5% for the first $500K and 10% up to $1MM
• $1MM and greater requires 20% down (no mortgage insurance available)
  Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of 750K or less.

July 2016
Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non-residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

October 17, 2016: STRESS TESTING
INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

January 1, 2018: B-20 GUIDELINE CHANGES
The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%

While CMHC does not implement or guide the mortgage/housing changes, they play an integral part in them. They provide the cornerstone of data that the provincial and federal governments use to determine updates, rules, and changes to help to regulate the industry. So, well we may not always like what the data indicates and implicates, it does serve to regulate and make the process of owning a home easier for Canadians. If you have any questions, feel free to contact your local Dominion Lending Centres mortgage professional.

– by Geoff Lee

Which Lender is Right for You?

The following is a summary of the choices available for clients when looking at the four different types of lending groups. Which one is best will all depend on who you are as a borrower, what your current situation is now, and what your situation will look like in the future.

Big Banks

Currently, mortgage brokers have access to TD Canada Trust and Scotiabank. These are especially appealing to first-time home buyers as it offers a sense of comfort knowing your mortgage is being dealt with a nationally recognized financial institution. TD offers very fast review of documents with the ability for collateral charges, multiple branch locations, and competitive privileges such as pre-payment abilities. Scotiabank is also an advantageous option for home owners as they have one of the most comprehensive and easy-to-use home equity lines of credit, referred to as their Scotia-Step. Being able to access a home equity line of credit (HELOC) and roll it into your mortgage offers simplicity and efficient methods of borrowing for home owners. The draw back with both banks is that they are in fact chartered banks. When a client decides to use them for fixed rate mortgages, specifically the 5-year terms, they can potentially be on the hook for penalties north of $10,000 due to breaking their mortgage early. Career changes, moving from different neighborhoods or cities, upgrading or downgrading home sizes, marital issues, these are all reason why someone may need to break their mortgage early and being in a long term fixed rate mortgage with a chartered bank can be unpleasant.

Credit Unions

One of the biggest benefits of Credit Unions, such as Westminster Savings, or Coast Capital to name a few, is they are not federally regulated, they are provincially regulated. They are not required to adopt federal mortgage rule changes unless they want to. This can be an extreme benefit to those considering rental properties, those with unique income/employment situations, or complex transactions that chartered banks do not or cannot work with. Some of the negative attributes are, however, a reputation for slow review times of documents and mortgage applications, as well as portability. If you work for a company or in an industry that is known for relocation and re-assignment across provinces, you will pay a penalty to a Credit Union every time. This is something that is likely not to happen when working with Charted Banks or Monoline Lenders as they will have more flexibility in allowing you to port your mortgage to a new property in other provinces.

Monoline Lenders

Monoline Lenders are supported by mortgage brokers, and in turn, mortgage brokers are supported by Monoline Lenders. You cannot access mortgage products that a Monoline Lender offers without using a broker as they typically do not have physical branches or locations. They are funded by private investors dealing only in mortgage transactions, allowing their products to be more customized based on the investors’ risk tolerance. Extremely low interest rates, very competitive privileges with pre-payment and portability, fast turnaround-times, and the best part, significantly lower penalties for breaking a mortgage. With a big bank, a $10,000 penalty for breaking mortgage early, may only cost you $3,000 with a Monoline Lender. This is highly advantageous to someone who wants the security of a long term fixed rate but isn’t 100% certain they will be carrying out their mortgage at that property for the full five years. The disadvantage is the almost blind trust a client must have. These Monoline Lenders do not have much brand recognition with the public, they have limited direct access, and usually do not have any physical locations to visit. This makes it hard for some people to feel comfortable using them as their mortgage provider.

Private Lenders

The benefit of a Private Lender is that anyone who has inconsistent income, unique properties, poor credit history or any type of severe risk in their application, can get an approval. When a Chartered Bank says no, a Credit Union says no, and a Monoline Lender says no, a Private Lender can say yes. The disadvantage- your interest rate is going to be significantly higher and the privileges such as prepayment and portability are going to be significantly less. As well, with most lenders, they will pay the mortgage brokers commission themselves. In this case, you the borrower will be paying a fee to the broker.

This information is extremely powerful to you as a home buyer and even as a current home owner. As always, please contact a Dominion Lending Centres Mortgage Professional if you wish to discuss any of these options further or how they may be of benefit to you!

– by Ryan Oake

Bank vs. Credit Union – A who is who in borrowing

Banks and Credit unions are often grouped together into one category under “financial institutions”. While they may have several similarities in terms of financial service offerings, in the world of mortgages the banks and credit unions have little in common. As mortgage professionals, we work with both of them and are well versed in the differences between the two. To start with, we will first need to look at the definition of each institution.

A BANK

A bank is a financial institution that accepts deposits, lends money and transfers funds. They are listed as public, licensed corporations and have declared earnings that are paid to stockholders. A key point: they are regulated by the federal government-Office of the Superintendent of Financial Institutions.

A CREDIT UNION

Credit unions also deposit, lend and transfer funds. However, after that, we run into some differences between the two. Credit Unions have an elected Board of Directors that consist of elected members from their community. They are local and community-based organizations and unlike the banks, they are not federally but Provincially regulated.

Now that we have to clear definitions, we are going to focus on just one of the differences between the two: Who they are regulated by. Credit Unions are not regulated by OSFI therefore, they are not always subject to the mortgage lending rules imposed by the federal government (at least not right away). Take for example the recent changes to the B-20 guidelines. Since Credit Unions are not classified as a Federally Regulated Institution, they currently do not need to comply with the implications listed in the new rule changes. What does this mean for the consumer? Let’s walk through an example.

Say you have a dual income family with a combined annual income of $85,000. The current value of their home is listed at $700,000 and they have a mortgage balance of $415,000. Lenders have agreed to refinance to a maximum amount of 80% LTV (loan to value). That gives us a total of $560,000 minus the existing mortgage and you have $145,000 available provided you qualify to borrow it.

Now let’s put the Bank and the Credit Union toe-to-toe:

Difference between Bank and Credit Union when Refinancing

That means you are able to qualify for $105,000 LESS with the bank when refinancing!

Take the same scenario listed above and let’s apply it to purchasing:

Difference between Bank and Credit Union when Purchasing a Home

Again, you have a reduced amount of $105,000 towards the purchase of your new home.

A few disadvantages to Credit Unions that you should be aware of:

• You cannot port your mortgage out of province
• With the introduction of the new B-20 guidelines, there has been an increased demand for Credit Unions. This increasing demand has led to higher rates and sometimes these are not the most competitive for the client. Working with a broker can ensure that you receive the best rate and product for your situation.
• Credit Unions also have a typically lower debt qualification ratio for how much house you can afford and how much debt you can carry

With those considerations, there are limitations to what Credit Unions are able to offer you. As always, working with a Dominion Lending Centres mortgage professional is one of the best ways to ensure you are not only getting the sharpest rate, but also the best product for you and your unique situation. Give us a call today-we would love to talk to you about your options and how we can help you.

– by Geoff Lee