Mortgage Switches and Transfers

Mortgage switches and transfers are becoming one of the more popular sources of revenue for certain lenders which means great incentives for borrowers as the banks and financial institutions fight for your business.

When your mortgage is up for renewal, your lender will typically send you a letter either 6-months or 120 days before your mortgage matures. When it is up for renewal and matures, you will need to commit to a new term and commit to a new interest rate. Most of the time, the bank’s offer is in the letter they send, and you circle your choice and mail it back; simple and quick.

But what happens when your lender isn’t offering you their lowest rate? Or is hoping you just circle one of the options and don’t look into the other options that are out there and available to you?

Most lenders will allow you to finance up to $3,000 back into your mortgage balance for legal fees, admin fees, and costs associate with moving from your current lender to them. With the move being cash free, you can take advantage of very low rates offered to new potential clients in order to win their business.

The mortgage amount (other than the $3,000 for costs) will need to remain the same though. When you change the mortgage amount, you are refinancing your mortgage, which moves you into a new category and changes the process as well as the different interest rates that are available to you.

For more information on mortgage switches and transfers please reach out to a Dominion Lending Centres mortgage professional. We will be able to tell you what kind of low interest rates and new mortgage privileges we are able to give you access to!

– by Ryan Oake

Keeping Your Credit Score Healthy

There is a lot of misinformation floating around about credit bureaus, credit reports and credit scores – not only that, but a large amount of the clients I work with have never even seen their credit report or score before!

I’d like to shed a bit of light, as they say, on the importance of your credit score and what does (and does not) affect this ever-changing number.

Keeping Your Credit Score Healthy
There are a few ways that you can actively ensure that your credit score is kept at a nice high number:

• Pay your credit cards and other debts on time – this includes bills like your cell phone!
• Pay your parking tickets on time – many people don’t realize that unpaid tickets will affect your credit score.
• When meeting with your mortgage broker, go over your credit report line by line (a service I offer to every one of my clients). They will be able to help you catch any unsubstantiated credit checks, fraudulent activity, and any mistakes by your lenders – and have them removed from your report.
• Have a couple of credit cards or a line of credit on your report…but! Ensure they have reasonable credit limits for each card, and that are not using your limits to their max. *The unofficial rule is only use about 30% of your available credit.
• Don’t apply for credit too often.

My Score Falls Every Time It’s Checked
Not necessarily true. You can personally check your credit report as many times as you like, and your score will not change. What DOES affect your score is a lender or creditor looking into your credit report. The more times lenders check (especially in a short period of time), the greater chance your score is going to decrease. Research has shown that people who are actively seeking credit tend to be people who are at a greater risk of possibly not repaying their credit, or seeking credit beyond their repayment capabilities. Lenders who see a lot of credit report checks also view this as a potential risk of fraudulent behaviour, and will move (by not extending credit) to protect themselves against it.

Decreasing your credit score also functions as a protective mechanism for YOU if someone is trying to fraudulently use your identity to gain credit (for themselves) on your behalf.

The gist here is that you can apply to have your credit checked a few times a year by lenders, and expect to have little to no affect on your score.

Buying a Home? Use a Broker!
Of course, when you are in the process of applying for a mortgage, some people go to more than one bank; all of which will look into your credit report, all within a short amount of time.

One of the great benefits of using a Dominion Lending Centres mortgage broker is that your mortgage broker will only check your credit once. One check will negate many lenders checking your bureau because your broker knows which lenders will be the best for your personal situation and we can discuss your different mortgage options without needing to have multiple lenders look into your credit!

– by Eitan Pinsky

The Real Estate Bug

The Real Estate Bug is something slowly starting to creep it’s way into the demographic of people in my social circle. Some, not all, are beginning to move on from their “Travel Bug” brought on from graduating high school or post-secondary and onto The Real Estate Bug.

The Real Estate Bug doesn’t mean you are out writing offers on homes, nor does it mean you are about to buy your 4th pre-sale. You might not even be able to buy for another two to three years. It is instead the simple feel of being excited about the idea of owning a home soon and preparing yourself to take that leap.

More and more, people are beginning to reach out to find out what they can afford. They may be three months into their job or five years into their job. Savings have just started, or they have enough to make a down payment in the next couple weeks. Whatever the situation, younger people are becoming more interested in real estate because they know their time to buy is fast approaching.

If you don’t believe me, have a look at the scenarios below. This will show you just how much income you’ll need to afford a typical 1-bedroom condo:

Scenario 1
$300,000 purchase price
$30,000 down payment
$278,370 mortgage

Income: $65,000/yr or $31.25/hr

Scenario 2
$385,000 purchase price
$38,500 down payment
$357,241.50 mortgage

Income: $80,000/yr or $38.46/hr

Scenario 3
$450,000 purchase price
$45,000 down payment
$417,555 mortgage

Income: $91,000/yr or $43.75/hr

Now some of you reading this might be shocked at some of the income numbers thinking “how the heck am I going to buy a place when I make half of what is required?” Let me ask you this… Are you renting with someone? What is their income? Are you in a relationship? Could two of you share a 1-bedroom? Could you afford a 2-bedroom and rent out a room to help with your mortgage? Are parents able to co-sign to supplement income?

Buying with someone else immediately drops those requirements by 50%… If you would like to have a conversation, contact a Dominion Lending Centres mortgage professional near you.

– by Ryan Oake

Last Minute Credit Check

As I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

Once your offer on a home is accepted and you remove financing conditions, it is your obligation to secure the money needed to close the sale. There are usually a list of conditions one must meet and satisfy in order to obtain the financing they need from a lender. Once that is done, the mortgage will be sent to a real estate lawyer where they will be instructed to finalize everything. This is where all closing costs will be paid and all corresponding money will be sent to the proper parties involved.

However, before any of this is done, one more thing must happen…

Your credit report can be reviewed once again in order to verify your credit history is the same as it was when you were first qualified for a mortgage, sometimes months earlier.

So what happens if you made an offer on a home, got approved for financing, lifted all conditions, and because you also met all the lenders conditions, went out and bought new furniture for your home on a credit card? Well, you may not be able to receive your loan anymore…

If you increase the amount of money you are borrowing through any credit card or bank, miss payments on existing debt, or for any reason alter your credit history from the day you are approved until the final closing day at the lawyer’s office, you run the risk of not being able to complete your purchase.

If you plan on spending any money that isn’t cash and isn’t in a separate account needed for your down payment or closing costs, you need to talk to your broker because it could end horribly for all parties involved and potentially result in legal disputes.

This is the most important purchase and decision you may ever make, why things like this have never been explained in schooling or anything like that is beyond me. That is why it is important to work with an experienced, knowledgeable Dominion Lending Centres mortgage broker and make sure you fully understand the process you are about to embark upon.

– by Ryan Oake

Subject Free Offers; Still Risky!

The majority of my clients have stellar qualifications: established careers and businesses, excellent credit ratings, solid down payment funds, etc. They are truly awesome individuals who will almost certainly receive mortgage financing without a hitch.

Almost certainly.

With multiple offers, bidding wars, and over-asking-price bids now common as far afield from Vancouver proper as Port Coquitlam and beyond, clients find themselves, in the heat of the experience, contemplating a subject-free offer.

But there’s often an unanticipated hitch: the property itself.

A client would be hard pressed to find a Realtor to write an offer without a ‘subject to inspection‘clause, and for good reason. Similarly, a client should be hard pressed to find a Mortgage Broker advising an offer without a ‘subject to financing‘ clause.

This is because no banker or Broker can give a client 100% assurance of financing without factoring in the actual specific property details. Until an appraisal is reviewed and approved, the application is not complete. And there are some properties that some lenders simply will not lend against.

There are the obvious examples that lenders tend to exclude;

• Properties containing Asbestos, Aluminium wiring, Underground Oil tanks
• Re-mediated former grow-ops
• Re-mediated drug labs.

There are also less obvious ones;

• live-work units
• row-homes (attached non-strata properties)
• properties smaller than 450 sq ft
• properties on lease land, Government, First Nations, or Private.

Regarding the appraisal process, there is more than simply the valuation question to be answered. In fact, valuation is rarely the challenge in our market, as many properties ‘auto-approve’ when the value is below $750,000. (This is not true of ALL properties below $750,000 by a long shot; many lenders condition all strata properties for instance for a full appraisal no matter the purchase price.)

What is being looked at other than value in the appraisal report?

A key complication is a little thing called ‘Remaining Economic Life or REL’ (as opposed to the ‘physical life’) of the home. This refers to how long this specific house is likely to remain standing on this property under the current care it is receiving.

Perhaps we have an otherwise perfectly habitable home for decades to come ─ lots of remaining ‘physical life’. The problem is that lenders are looking for remaining ECONOMIC life rather than the remaining physical life. The question is not “How long can that house be standing there?” it is “How long does it make economic sense for that house to be standing there given current market conditions?”

There may be a problem if it is located in a neighbourhood where many of the older homes are being purchased to be demolished and replaced with multimillion dollar homes. That leaves the purchase looking like a speculative land play or potential knock-down. As such, the remaining economic life is perhaps 15 years or less stated in the appraisal report.

Or maybe the property is a ramshackle house in a state of disrepair. It looks like the bargain of the age on paper, and perhaps the purchaser is a contractor planning to bring the home back into a wonderful state of repair. However the appraisal must view the current remaining economic life of the home ‘as-it-sits’ not ‘as-is-planned’. We have seen homes like this with REL as short as five years.

What is this ‘Remaining Economic Life’ exactly?

Economic life is the total period of time which the improvements (house/buildings) contribute to the overall property value. The total economic life of a typical Lower Mainland home is generally accepted to be 65 years. Economic life and physical life can differ widely and physical life usually exceeds economic life. Renovations and updates can increase a property’s physical and economic life, and poor maintenance can shorten it. Increases in land value can also have a negative impact on remaining economic life. As older homes are torn down to make way for new ones, it makes less economic sense to keep the older one standing.

REL is the estimated time period which the improvements continue to contribute to property value. An appraiser estimates REL in part by interpreting the economic conditions, attitudes and reactions of buyers in the market.

The REL is calculated by subtracting the Effective Age from the Total Economic Life.

Economic Life – Effective Age = Remaining Economic Life

For example:

A 40-year-old home that has had substantial renovations may have an effective age of 30 years.

65 years – 30 years = 35 years Remaining Economic Life (REL)

How lenders view Remaining Economic Life (REL)

Few lenders will lend on a home with a remaining REL of less than 15 years. Also, the effective amortization will be set at the REL minus five years, which drives payments sky high, and often leaves client unable to qualify for such large mortgage payments should they even want to sign on for them.

Clients can run the risk at this point of their own awesomeness being part of the undoing of the mortgage approval. Clients with significant liquid assets and strong incomes buying a smaller, older home on the street of newly built monoliths will be viewed as most likely planning to knock the home down and build a new one.

The immediate thought: ‘But the land value alone… ’

Lenders are not in the business of writing conventional AAA-rate mortgages on properties that will be torn down. Instead this is viewed as ‘speculative’ or ‘investment/business’ lending with which come undeniably greater risks. Wherever one finds greater profits there are greater risks. Lenders price accordingly, which is why land/construction financing carries higher rates and additional fees.

A property with a habitable home standing on it is unquestionably easier to market and sell ─ and thus recover the loan balance from ─ should the lender have to step in and take over. And foreclosure is the last thing any Canadian lender wants to contemplate.

It will take on average 18 months of no payments before a lender has gained control of and sold a property through the foreclosure process. And at the end of it said lender must seek out the defaulting client and write them a cheque for the remaining equity that was in the property, all the while honouring the original interest rate in most cases.

It is nothing like the US system at all. (which is a wonderful thing for us)

So lenders avoid any whisp of risk, preferring security. Ideally in the form of a habitable home on a lot that is going to look decades from now much as it does today.

Clients would be wise to also minimize risk, by either writing offers that contain a ‘subject to inspection’ and a ‘subject to financing’ clause, or by having a detailed conversation with a skilled Broker well in advance of writing a subject-free offer.

If you have any questions, contact a Dominion Lending Centres mortgage professional near you today.

– by Dustan Woodhouse

4 Mortgage Steps to Overcoming High Consumer Debt

Client success stories are what make our job WORTH IT (We think most mortgage brokers would agree). So, with this in mind, we are sharing a recent client’s story that allowed them to not only purchase the home they wanted, but also pay down their own debt.

Mortgage Problem:

We had a young couple with two young children come to us looking to buy a detached home with a rental suite. They had several thousand dollars of consumer debt they had yet to pay off, and very little funding for the down payment. The husband was employed, and his wife ran a small business from their home. Their combined income was average, but with their significant amount of debt they weren’t sure they would be able to buy their dream home.

A close friend recommended that they visit a mortgage broker, and instantly we were able to see how we could help them not only find the down payment funding, but also help them pay down their debt.

Mortgage Solution:

Step 1: By the numbers.
First up, we looked at the numbers we would be working with to make this happen.

Purchase price of dream home: $600,000
Requested Mortgage Amount: $570,000
Loan to Value: 95%
Credit Score: 699 and 768

Step 2: Collect documentation.
For this particular mortgage we collected:
● Lease agreements for two suites (loft and basement)
● Notice of assessment and T1 generals from the last two years
● Standard income documentation for full-time employment
● Confirmation of self-employment for the last two years

Step 3: Calculate the total debt services ratio.
We took the above numbers and worked with them to present a debt service ratio that started out as 47.74% and brought it down to 42.5%

Step 4: Share the mortgage solution!
The down payment was provided by the parents and the rental income from the subject property was used. All their remaining debts were paid with $25,000 cash back from the lender who also provided an interest only payment Line of Credit to cover both the mortgage and consumer debt.

Our clients were thrilled to be able to purchase their dream home and to have their consumer debt under control. We are proud to be able to help couples like this to make their dreams become a reality, and really, all it took was 4 simple steps to get them into their home! If you have any questions, contact a Dominion Lending Centres Mortgage Professional near you.

– by Geoff Lee

Bridge Loans

If you have ever sold your home in order to help with the purchase of your next home, chances are you have heard of bridge financing. Bridge financing is an option available to homeowners if they find themselves in a little bit of a pinch when it comes to two different completion dates.

A situation where a bridge loan or where bridge financing can be useful, is when you put an offer on a home you plan on buying with a completion date for the first of the month. However, in order to purchase this new home you need the money you’ll receive from the sale of your current home. What do you do if it closes at the end of the month, 30 days after you are supposed to pay someone for their home with these proceeds?

A lender can offer you bridge financing, where they will advance you your down payment as a separate loan for up to 30 days, some 90 days or more on exception. This allows you to close on the new property, pay the seller, and keep the contract to sell your place 30 days later where the proceeds from your sale will pay out the bridge loan instead of being used to pay the seller directly.

You will need to have accepted offers on both the property you plan on buying as well as the one you are selling with financing conditions removed as well as enough funds to cover the deposit. In some circumstances, you may be able to borrow the deposit from another source if that was also supposed to come from the proceeds of the sale of your current home. If you have any questions, contact a Dominion Lending Centres mortgage professional today.

– by Ryan Oake

Reverse Mortgage – Common Uses

Here is the final blog in the REVERSE MORTGAGE series. If you missed the first two, you read them here and here:

Eliminate mortgage payment – Retired, or wanting to retire, but still have a mortgage and mortgage payment to make? Use a reverse mortgage to pay off the traditional mortgage, getting rid of that monthly payment.

Unexpected expenses – Home repairs, helping children, vehicle repairs, health care/home care, etc. A reverse mortgage gives you access to your tax-free equity whenever you need it. The equity can be used to pay for those expenses without the burden of adding a new monthly payment into your life.

Helping family – Home values have risen, and often the plan is to leave the house to children or grandchildren as an inheritance. A reverse mortgage is a way to access some of that inheritance money today, gift the money now and enjoy it with them as the family benefit much earlier in life.

Purchasing a new home – Some clients are moving to that just right, final home, but finding they cost more than anticipated. A reverse mortgage can be used to buy a new home, allowing clients to afford a much higher priced home, or keep more cash on hand.

Aging parents needing home care – As we age, sometimes a little additional help is needed to stay in the home. Instead of selling and moving to a care home or assisted living, some clients prefer to stay in the house and have in home care. A reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for those care costs.

Tax free retirement funding – By using the home as part of the financial plan, clients can preserve investments, pay less tax, and often have a greater net worth in the end.

If you or a family member would like to learn more about reverse mortgages, contact a Dominion Lending Centres mortgage professional near you.

– by Michael Hallett