Rate Holds Explained

Have you ever heard of the term rate hold? If you have ever worked with a mortgage broker, chances are, you have!

Rate holds are something that the majority of lenders offer to potential clients purchasing a new home who need a mortgage. Rate holds are generally not given out for people refinancing their mortgage or looking to transfer it from one lender to another.

120 days is the longest rate hold available with lenders. Once you have created an application with a mortgage broker, they can submit it to an available lender offering rate holds on an interest rate you want to take advantage of- all without a property attached.

This rate hold does not commit you to working with a lender, does not commit you to working with the mortgage broker who submitted it, and does not hurt your chances of receiving an approval down the road (assuming you and your mortgage broker have not submitted multiple rate holds and plan to use a third or fourth lender).

For example, day one you submit your application to a lender for a fixed interest rate of 3.24% for 5-years, and on day 60 that interest rate moves to 3.54%, as long as your mortgage closes in the next 60 days, you are protected and can keep your 3.24% rate. If rates go down, not up, you can also take advantage of the lower interest rate.

Once the 120 days expires, there is nothing stopping you from submitting another rate hold, it will just be subject to current interest rates the day of submission. If you have any questions, contact a Dominion Lending Centres Mortgage Professional who can help.

– by Ryan Oake

10 SECRET “To-Do’s” After you file Consumer Proposal or Bankruptcy

Many people go through challenges in life that affect their finances. Divorce, job loss, health issues top the most common reasons. I commend you on getting your finances sorted out and back on track. The moment you FILE that consumer proposal or bankruptcy is the time to start rebuilding your credit history. YES, there are companies that can help with that. Too often I see people waiting YEARS to pay off their debt program before getting credit again, which sets you back two years.

Mortgage Lenders/Banks view Bankruptcy, Consumer Proposal and Debt Programs all the same…bad credit management.

When will it come off my Credit Bureau?

Consumer Proposal Programs:
Transunion and Equifax state that it will take three years for a consumer proposal to fall off your credit score after it has been completed. So if your proposal takes you four years to pay, then your score will be damaged for seven years in total. If you are able to pay off your proposal quicker than your credit rating after a consumer proposal will get better faster. The key is that it will stay on your credit bureau for three years from completion.

Bankruptcy

A first bankruptcy for six years from the date of your discharge
A second bankruptcy for 15 years

TEN SECRET “To-Do’s” you must adhere too:
A mortgage is something most people will have for a very long time. The rules for mortgages have tightened up in the past few years. A LOT.
Once you have filed a debt program…you MUST adhere to these 10 rules.
Excuses don’t fly with Lenders.
You need to prove to THEM you are financially capable.
They owe you nothing.

1. If you go bankrupt or file a consumer proposal while you have a mortgage, the Lender will see this when they review for your renewal and could deny your renewal and you will need to prepare to look for another lender/bank or they charge super high renewal rates. If you are considering either option or are currently in a proposal, please contact me to review your options far in advance of your renewal.
2. No NSF charges on your bank accounts. Get yourself an overdraft to protect yourself.
3. No missed mortgage payments – EVER
4. No late payments on anything that reports to your Credit Bureau; credit cards, car loans, student loans or cell phone bills.
5. No collections for any reason. Pay that issue and sort it out later.
6. Double Bankruptcies or one Consumer Proposal and a Bankruptcy will make it difficult to get a mortgage. You can’t get around this anymore. It would be mortgage fraud. Lenders can look this up easily via the Bankruptcy Records Search.
7. If you have a Bankruptcy that has property included, it will be VERY difficult for you to get a mortgage without at least 25% down payment (for a purchase) or equity (refinance). On top, you will likely be in an Alternative mortgage for a very long time with higher rates and fees.
8. Get two tradelines. Credit Card, Car Loan or Line of Credit. You need to have two years of history and two of them with spending limits of at least $2,500.
9. Don’t spend to the limits. Only use a max 50% of available credit.
   Use a Mortgage Broker who specializes in Credit Repair; who can review your file with you on a semi-annual basis to keep you on track as mortgage rules change.
10. You need to look “squeaky clean” until your Bankruptcy or Consumer Proposal is removed from your credit bureau.

Contact a Dominion Lending Centres mortgage professional to be your partner once you have filed…or if you’re just in contemplation and the Banks have said NO to your debt consolidation, we will have solutions for you.

– by Kiki Berg

Construction Mortgages

In case you didn’t know, construction mortgages are available through mortgage brokers! Even though the options for lenders are slim, it can still be accomplished.

Unlike regular purchase mortgages where the funds are released on closing, the funds for construction mortgages are released in stages. With typically 15-month construction periods, here are the following advances:

1.) Optional First Advance Prior to Start (Uninsured Mortgages Only)- 65% of vacant land value.

2.) Optional First Advance at 15% Complete (Insured Mortgages Only)- Excavation and foundation complete.

3.) First Advance Received at 40% Complete- Roof on, building is weather protected, access secured.

4.) Second Advance Received at 65% Complete- Plumbing, drywall complete, furnace installed, etc.

5.) Third Advance Received at 85% Complete- Kitchen cupboards installed, bathroom completed, doors hung, etc.

6.) Fourth Advance Received at 100% complete.

Appraisals are done at every stage and the cost of each is deducted from each advance from the lender. If you have any other questions regarding construction mortgages, please feel free to reach out to a Dominion Lending Centres mortgage professional near you.

– by Ryan Oake

The Mortgage Insurance Market & Wholesale Lenders

The Canadian mortgage market used to be very simple. We had the big banks, credit unions, and trust companies.

However, almost 20 years ago, the Canadian government made three major changes to the Canadian mortgage industry. First, the government and CMHC put their weight behind Canadian mortgages by guaranteeing an insurance payout to lenders in the event that a borrower does not pay. Yes, the Canadian taxpayers are on the hook if CMHC goes under.

Second, Canada also began to allow lenders to pay for mortgage insurance for their borrowers, even though the insurance was not required. Borrowers would not know that their mortgage is insured, rather the lender would pay for, and insure the mortgage on the “back end” in order to make the mortgage less risky. I.E: if the borrower did not pay, the insurer would pay the lender (just as they would pay if the borrower had less than 20% down payment and was charged for insurance themselves).

And third, Canada allowed its lenders to bundle up their mortgages and sell them to investors. The securitization of mortgages (the process of taking the mortgages and transforming them into a sellable asset) allowed investors to purchase many mortgages at once, knowing there would be a specific return. The return here would be just less than the interest rate on the various mortgages (less because the lender has to make a little bit of money for creating the mortgage bundle or security).

Now, mortgage investors are looking at two things: investment return and mortgage risk. The lower the risk of an investment, the lower the return an investor may be willing to see. Because Canadian lenders can insure their mortgages against default (non-payment), investors are very keen on purchasing these mortgages. Thus, investors provide lenders with a lot of inexpensive money to lend out, which in turn, provided for better interest rates for borrowers.

As an aside, an example of investors may be one of Canada’s large banks, an American bank, pension funds, and/or other financial institutions.

The result was the emergence and major growth of mortgage finance companies, called wholesale lenders or monoline lenders.

Monoline lenders, encouraged by access to cheap capital, set up efficient mortgage underwriting (approval) operations and were able to provide flexible mortgage products and better-than-the-banks interest rates for their clients.

The overwhelming majority of wholesale lender mortgages are back-end insured by the lender, packaged up, and sold to investors.

What is interesting here is that wholesale lenders will insure mortgages transferred from one institution to another – something that banks do not do. This allows for better interest rates when renewing with a wholesale lender than if renewing with your current bank lender.

If you have any questions related to mortgages, contact your Dominion Lending Centres mortgage professional today.

– by Eitan Pinsky

It’s all about the property

With all of the rule changes imposed by the federal and provincial governments around mortgage financing and real estate it may be more difficult to access financing. But don’t take it personally – sometimes it’s not you it’s the property.
When lenders underwrite your application for approval they look at you as a borrower but they also evaluate the property.

Here are some things to consider before you purchase.
The type of property — house, condo, duplex, heritage, etc.
1. Especially for condo properties the lender (and insurer if required) will look at the age of the building, the history of maintenance or lack there of and the location for marketability. Some lenders will limit their exposure with a maximum number of units in a building or avoid lending on buildings after a certain age for the property.
2. Properties with more than 4 units in them such as a 5-plex will be considered commercial real estate and the lender will evaluate on that basis.
3. Heritage homes (registered or designated) require a more detailed review and special consideration for financing.
4. Leasehold and co-op properties also have specific requirements for the maximum loan to value so more down payment may be required. More documentation will be required and interest rates will vary.

The location of the property— lenders always consider their risk in each market.
1. If the location limits the potential resale value for the building in the event of default by the borrower they may not lend on that property. Some lenders will reduce the loan amount for a building located out of major market areas or add a premium to the interest rate.
2. For properties with water access only or with no access to municipal utilities (water, heat, light and sewer) more details are required to assess the lender risk. Insurance coverage, water testing, seasonal access and condition of the property will be strong considerations.

The use for the property— personal or investment, recreational, previous activities.
1. If the owner occupied house has a suite then rental income may be considered.
2. If the house is purchased for investment then rental income is considered and the interest rate for rental rather than owner occupied is assigned. In these cases the rental income can increase the resale value of the property. However, the appraisal of the property will be reviewed to ensure the condition of the property and if any renovations were completed to add value.
3. There are lending options for a previous grow-op that come with higher interest rates and costs
4. In the case of a condo the property may have a commercial component in the building (shops below) or allowable space in the unit for business (live/work designation). In these cases some lenders may not have an appetite for financing. In some cases the lender may allow with approval by the insurer (CMHC, etc).
5. Purchasing a second home for recreational use will require a review if it is seasonal or year-round access.
6. If the property requires renovations the extent and cost to value of the property will be considered.

It is very important before you start looking at any property to talk with a Dominion Lending Centres mortgage broker. This allows you to discuss the specific requirements for any variation in the type of property you may want to purchase and allow ample time for a full financing review before subject removal on a purchase.

For example:
If you shift from a standard condo to a lease-hold property your down payment amount will likely change.
If you want to move to a small rural town or to a small island you may have to pay a higher rate or have less options and more documentation required on the property.
If you buy a home in one province but may be transferred to another province, some lenders such as credit unions are provincially based so you can’t port the mortgage.
If the condo you wish to buy has no deprecation report, a low contingency fund or big special levies pending, these will all be a red flag for the lender and should be a strong consideration for you as a buyer. A more thorough review will be required.

Always consult an experienced independent mortgage broker as your trusted advisor for all of your financing needs. You will appreciate the difference in the level of expertise to help you make an informed decision.

– Pauline Tonkin

What is the difference between a Mortgage Broker and a Mortgage Specialist

With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.

Sooooooo… what is the difference between a Mortgage Specialist & a Mortgage Broker? At the surface they sound the same
• They both arrange mortgages
• They both can offer advice and help you select a mortgage, right?

WRONG!!! There are many differences… Let’s check some of them out!

• A Mortgage Broker works for you! Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage. Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
o Bank specialists are employed and paid by the bank and work on the bank’s behalf.

• A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including: Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks) and private lenders.
o Usually Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.

• A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. (In BC, Mortgage Brokers must be licensed by FICOM) They continue to maintain their good status to keep that license by taking professional development education courses.
o Bank specialists are not licensed and require no formal training. There are no standards for educational requirements (although most Lenders do provide some in-house training).

• Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
o A bank specialist can only offer their own institutions products, good or bad.
o Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.

• Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
o When you see a bank specialist, the mortgage negotiating is typically left up to you.
o Will the bank specialist negotiate on your behalf or the banks?

• For conventional financing, the services of a mortgage broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage. Therefore, brokers are motivated to get the best terms and rates for their clients.
o Bank specialists are paid by the bank
o Some banks offer bonuses if specialist gets their client to pay higher interest rates or sign up for other bank services.

• Mortgage Brokers work on a referral basis and are self employed. Most of their business is done through word of mouth referrals, therefore a Dominion Lending Centres Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.
o A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.

• Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
o Bank specialists are generally only available during regular banking hours.

• Mortgage Brokers are focused on your mortgage
o Specialists are trained and rewarded on cross selling. Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation.

–  by Kelly Hudson

All About Pre-Approvals

Are you in the market for a new home? That’s great – but if you’re not already pre-approved from your mortgage broker, be sure to read on.

Pre-approvals are very important for two reasons.

They give you confidence in knowing that a specific amount of financing is available for you.
A pre-approval can put you in a positive negotiating position against other home buyers who aren’t pre-approved.
Not all pre-approvals are the same, though. There are essentially three different kinds.

• The first occurs when you meet with a mortgage professional and tell them how much you make. They’ll say something along the lines of “Great, you’re pre-approved.” The mortgage professional has only looked at your income. There is no real pre-approval.
• The second kind is when a mortgage professional asks you how much you make and then pulls your credit bureau. This allows a mortgage professional to lock in your mortgage rate for up to four months. This pre-approval still isn’t a sure thing.
• The third kind of pre-approval – and the one that we do – is a lot more encompassing. We get all of your papers prepared right off the bat, which allows us to eliminate any unforeseen issues with your approval. Sure, it’s more work up front – but we do this because it’s the right thing to do.

If you’d like to get a pre-approval, contact a Dominion Lending Centres mortgage professional! We’re here to help.

– By Eitan Pinsky

Mortgage Protection Plan

Insurance coverage is something that everyone is “pitched” at some point or another in their life. Unfortunately, a lot of us have a negative attitude towards insurance or warranty as it is perceived as being a cash grab. Yes, if you are purchasing a flat screen T.V., that extra 2-year warranty for $100 might be a little excessive. However, when it comes to covering monthly mortgage payments or the outstanding balance of your mortgage upon death or injury, yes, it is important to have.

Every single person is offered life and disability insurance when applying for a new mortgage. As a mortgage broker, it is our obligation to offer you Manulife’s Mortgage Protection Plan. Even if it is something you do not want or do not have a need for- we still require a signature confirming it was offered. Reason being, is when John Smith breaks his foot two years down the road and can’t work to cover his mortgage payments, Manulife needs to confirm that the client passed on the opportunity to have their payments covered.

Now, is Manulife’s mortgage Protection Plan, or, MPP as it is known, the most comprehensive coverage out there? No.

Is MPP better than any coverage you are ever going to receive from a bank directly? Yes.

Manulife’s MPP is a 60-day money back guarantee, with coverage that follows you lender to lender. It will cover disability injuries preventing you from work, and is underwritten before your coverage begins, not when a claim is made.

Most banks do not allow you to take their mortgage insurance to another lender. So, if after 10-years of paying your premiums you decide to leave your bank and go to a credit union, your coverage is no longer in affect and all that money you spent on your monthly premiums is now worth nothing. Scariest part about bank coverage, is the health evaluation is done when a claim is made, not when you sign up. Can you imagine not making a claim for 20-years and then being declined on coverage because you have developed health issues not relevant when you signed up in your 20’s?

If Manulife Mortgage Protection Plan is not for you, there are insurance brokers out there we have access to who can offer alternative solutions. The biggest thing though is to make sure you have SOME coverage, because you won’t know you need it until you do. If you have any questions, contact a Dominion Lending Centres mortgage professional for help.

– by Ryan Oake

Vacant Possession

DISCLAIMER: This post is written for buyers, in other words people who do not currently own a tenanted property.
This post is not suggesting in any way that the rights of an existing tenant be infringed upon

Purchasing a residential property?

Two words that matter this Spring; Vacant Possession

Your contract had best contain a ‘Vacant Possession’ clause.

Why?

Mortgage lenders will not concern themselves with your best intentions; it is not about what will be – it is purely about what is.

And if the property is tenanted at the time of possession, then you are effectively applying for a rental mortgage. This means a minimum 20% down payment, higher interest rates, and far more stringent qualifying criteria.

‘But wait, we only have 5% down and we plan to give notice and move in 60 days after we take possession’

There is virtually no lender that will approve this under any circumstances, and this has to do with the recent changes made by our federal government. The lenders want to trust you, the lender wants to help you, the lender wants to approve you, but the new government guidelines eliminate lenders’ ability to be flexible. Lenders must answer to Big Brother, and Big Brother is very rigid.

Vacant Possession – demand it.

‘But wait, we’re buying the property as a rental anyways, so it’s a good thing that it already has a tenant… right?’

No, an existing tenant is rarely a good thing.

How is their lease written?
Does it protect you?
Are rents reflective of current market rents?
Is there a provision for annual rent increases?
Your costs will be increasing every year, cover yourself.
What is your duty for notice to evict the tenant?
Why is the seller refusing to give simple notice?

Don’t risk inheriting the seller’s errors and/or headaches.

Whether your new purchase is meant to be owner occupied, or an investment property, demand vacant possession or walk away.

If you have any questions, contact your local Dominion Lending Centres mortgage professional.

– by Dustan Woodhouse