The Latest in Mortgage News: New Data on Financial Distress in Canada

A significant number of Canadian households reported being late on a debt payment or missing it entirely, according to a new report from Statistics Canada.

The 2016 data from the agency’s Survey of Financial Security shows that more than 1-in-10 Canadians (11%) with some form of debt reported skipping or making a late non-mortgage payment.

According to StatsCan, those more likely to miss or skip a debt payment include:

• Those aged 55 to 64 years old (8.1% missed payments compared to 3.9% of 24-to-44-year-olds and 4.2% of 45-to-54-year-olds.)
• Those in the lowest quintile of income groups (6.8% missed payments compared to 2.1% of those in the highest quintile)
• Those living in the Prairies (6.8% missed payments compared to 3.2% of those in Ontario and 3.4% of those in Quebec)
• Lone-parent families (9.4% missed payments compared to 2.4% of those with no children and 4% of couples with children)

Debt-to-asset ratio as a measure of financial distress

The report also noted that a high debt-to-asset ratio is a better indicator of a household’s financial distress compared to the commonly reported debt-to-income ratio (which reached a near-record level in Q1 of this year).

“Families with a higher debt-to-asset ratio are more likely to report having experienced a variety of financial problems, like skipping or delaying payments, or using payday loans,” the report reads.

Case in point:

• About 16% of families with a debt-to-asset ratio above 50% of their assets missed or delayed a non-mortgage payment
  • vs. 7% of families with a debt-to-asset ratio of less than 25%
• About 1.7% of families in the lowest debt-to-asset category missed or delayed a mortgage payment
  • vs. about 7% for those with a debt-to-asset ratio above 50%

Overall, 4% of those with a mortgage skipped or delayed a mortgage payment in the year preceding the survey.

But as RateSpy’s Rob McLister noted in a post, “That said, actual mortgage arrears are just 0.25%, meaning only 2.5 out of 1,000 are 90+ days past due on their mortgage. This suggests that some of the folks who skipped a mortgage payment presumably used their lender’s skip-a-payment feature.”

And in other news…

Two-Thirds of Canadians are Concerned About Country’s Housing Market: Poll

The survey was based on a poll of 1,000 Century 21 real estate agents who were asked to gauge the mood of their clients.

Slightly more than 68% said their clients are “somewhat” or “very concerned” about current market conditions (18.1% being very concerned). On the flip side, just 15.6% reported their clients as being “optimistic” or “excited.”

Buyers were found to be significantly more optimistic compared to sellers, with 57.7% of buyers reporting to be excited or calm about prices and taxes and 28.8% being concerned, compared to 38.6% of sellers who reported being excited or calm and 38.7% being concerned.

A slow housing market in the West—particularly Calgary and Edmonton—is clearly taking a toll on the mood of clients. The survey found the Prairies to be the most pessimistic region, where 77% were reported as being somewhat or very concerned.

B.C. Home Sales Forecast to Rise in 2020: BCREA

Residential home sales for 2019 are expected to be down 9% compared to last year, but pent-up demand is expected to lead to a turnaround in 2020, according to the British Columbia Real Estate Association (BCREA).

It forecasts a decline to 71,400 units this year before rising 14% in 2020 to 81,700 units, shy of the 10-year average of 84,800 units.

“The shock to affordability from restrictive mortgage policies, especially the B-20 stress test, will continue to limit housing demand in the province this year,” said BCREA’s chief economist, Cameron Muir. “However, a relatively strong economy and favourable demographics are likely creating pent-up demand in the housing market.”

SOURCE OF FUNDS

Over the past several years, investigators have been working on an ongoing investigation relating to criminal money laundering in Canada. Looking at B.C. alone, billions of dollars have been laundered through B.C. casinos by criminal organizations and parked in high end B.C. real estate over the past decade or more.

With government citing limited resources and a lack of funds available to conduct a proper investigation, criminals have been able to manipulate and take advantage of the Canadian and B.C. legal system for years and it is now finally coming to light the impact it has had on our economy, most notably our real estate market.

One of the measures the government implemented several years ago to help crack down on this was sourcing the funds people were using for the down payment on their home purchases. Lenders are required by the federal and provincial government to collect a minimum of 30 days of transaction history for every bank account where money comes from to help complete a purchase on real estate. Most lenders are still requiring 90 days and they are also required, by the government, to source any large deposits above $1,000 that are unrelated to employment income.

If you have e-transfers and transfers between your own accounts within the 90 day period, the lender will require a 90 day history of the account in which funds were deposited from. That means, if you have a savings account reserved just for a down payment, but you put $1,000 a month in there from your chequing account, brought in $5,000 from a TFSA, and put in $3,000 in cash all before you wrote an offer on a home, a lender is going to want to see 90 day history of your savings, your chequing, and your TFSA account as well as an explanation on where the $3,000 cash came from.

Most people find this frustrating and rightfully so, you are handing over personal information over a long period of time. However, due to the extreme affect money laundering has had on our economy, these rules are likely not going anywhere. When preparing your down payment, be prepared that the lender will be required to collect a 90 day history of every account you have where money is coming from to help cover your down payment. This is not because the lender feels like it, this is because the government regulators who review the loans the banks give out need to see that the lender verified the money was legitimate.

Also, with your T4’s and Notice of Assessments usually going into lenders, if you are just starting a new job and were making $20,000 a year while in school and now have $150,000 in savings for your down payment a year out of school, the lender is allowed to ask for a full year history because your income does not justify the savings you have.

Be prepared! Lenders are required to source down payment funds and with more and more news coming out every month on money laundering, the rules may only get more rigid. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

–RYAN OAKE

7 STEPS TO BUYING A HOME

It’s important to understand the home buying process, so here’s a 7-step checklist.

Step 1: Down Payment
The hardest part to buying a home is saving the down payment (a gift from the Bank of Mom & Dad also works).
• For purchases under $500,000 minimum down payment is 5%.
• Buying between $501-999,000 you need 5% on first $500,000-PLUS 10% down payment for anything over $500,000.
• Buying a home over $1 million you need 20% down payment.

For any home purchases with less than 20% down payment, you are also required to purchase Mortgage Default Insurance.

Step 2: Strategize, Define Your Budget and get Pre-Qualified
Unless you can afford to buy a home, cash in hand, you are going to need a mortgage.
You need to get pre-qualified, which should not be confused with the term pre-approved.
The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. The bank may love you… but they also must love the property you want to buy.
Pre-qualifying will focus on gathering documentation to prove the information on your mortgage application including credit, debt load, income/employment, down payment etc.

Mortgage brokers will make sure you get a great mortgage rate. Just as important as rates are the terms of your mortgage which should include:
• prepayment options (10-20%)
• penalties
• portability
We also discuss what type of mortgage fits your current situation
• fixed vs variable?
• life of the mortgage (amortization) 25 or 30 years etc.
• payments – monthly, semi monthly, accelerated bi-weekly

Step 3: Set Your Budget
Keep in mind that just because you’re pre-qualified for a certain amount of mortgage, doesn’t mean you can actually afford that amount. Prepare your own monthly budget to be sure.
Typically, your total home payments (including mortgage, property taxes, strata fees & heat) should not exceed 32-39% of your gross (pre-tax) income.

Step 4: Find the Right Property – Time to Engage a Realtor
Once you have been prequalified for a mortgage, based on your budget… you need to find a realtor.
Selecting the right real estate agent is a very important step in the home buying process. When you work with an agent, you can expect them to help you with many things, including:
· Finding a home
· Scheduling tours of homes
· Researching the market, neighbourhood and home itself
· Making and negotiating your offer to purchase, and counter-offers
· Providing expert advice on home buying
· Handling the offer, gathering documentation and closing paperwork
I recommend interviewing at least three realtors. You will quickly decide who has your best interests in mind. Do you want to deal directly with a realtor who’s going to work with directly when you go home hunting, or do you want to deal with a BIG name realtor, who has buyers & sellers realtors working under them? There are advantages to each – you need to decide what is the best fit for your situation.
Get referrals for realtors from friends and family… OR ask me, I have a group of realtors that I know and trust.

Step 5: Mortgage Approval
Once you have found the property you would like to call home, your mortgage broker will send your mortgage application and property information to the lender who is the best fit for your situation, based on your input.
If the lender likes your financial situation and the property, they will issue a “commitment” letter outlining the terms of the mortgage. The lender will send you a list of documents, so they can verify and validate all the information you told them on the mortgage application.

Step 6: Time for the Solicitor (Lawyer or Notary)
Once the lender has reviewed and approved all your mortgage documentation and the property documentation, your file will be sent to your solicitor (in B.C. you can use a lawyer or notary). They will process all the necessary title changes and set up a time for you to meet, review mortgage documents and sign.

Step 7: Get the Keys
On the closing day the documentation for your home purchase will be filed at the land titles office by your solicitor. Typically, the possession date is 1 or 2 days later, giving time for the money (down payment & mortgage) to get to the home seller. On possession day you set up a time to meet with your realtor to get the keys.
Congratulations you’re done – you now own your home!!

Mortgages are complicated, but they don’t have to be… speak to a Dominion Lending Centres mortgage broker!

–KELLY HUDSON

HOW A SIDE HUSTLE CAN CHANGE YOUR HOME-BUYING OUTLOOK

So you want to buy a house, but you’re short on the downpayment. Have you ever considered getting into some sort of “side hustle.”

The term side hustle describes something you do to make extra cash outside your full-time job.
Anyone can make a hundred bucks on the side by literally doing anything – mowing lawns, walking dogs, shoveling snow, babysitting, tutoring, making deliveries, becoming an Uber driver, selling products on Amazon, participating in focus groups, blogging, vlogging, marketing – truly an infinite number of things you can do.

Even though a side hustle is extra income, it will be difficult to use when qualifying for a larger mortgage since brokers need to see a two-year history of that income first.
What that extra cash can help you with is for a downpayment and hustle income is super charged. Why? Lets find out.

Option #1:
You work your regular 40-hour work week and during your off time you like to indulge. This means eating out at restaurants/take-out, shopping, going to the movies, clubbing, etc. We’re talking about $200 a week on these activities.

Option #2:
You work your regular 40-hour work week and during your off time you work towards developing your side hustle. Let’s assume you are able to work a few nights a week and make $200 a week extra income. Obviously you still want to have some fun, so on your “off time” you only spend $100 a week on these activities.

Let’s look at the scenarios after one full year of working.
In this case, your full-time job pays $40,000 a year after tax.

Option #1:
You have made $40,000 but spent $10,400 on fun. Now you are left with $29,600 to live off of while also saving for a down payment.

Option #2:
You have made $40,000 from your full-time job and $10,400 from your side hustle but spent $5,200 on fun. Now you are left with $45,200 to live and try and save for a down payment.
That puts an extra $15,600 in your life that can be utilized on paying down debt and/or saving for downpayment.

Now that you have the idea that a side hustle may work in your favour, brainstorm some ideas and start making that extra money! If you have any questions, contact your local Dominion Lending Centres mortgage professional.

–CHRIS CABEL

WE’RE NOT JUST A MORTGAGE COMPANY

Well, it finally happened. I was meeting with a financial advisor today and they looked at my business card and asked “Why does it say Dominion Lending Centres and not Dominion Mortgage Company?”

I have been waiting 7 years to hear this question. I had an answer all ready for today. I said “that’s because we are not just a mortgage company, we’re a lending company. This provided me with a segue into a conversation about how we do equipment leasing, factoring and cash advances.

I meet plenty of small business owners who are trying to build their business and also buy a home. In one case, the business owner had opened a machine shop. He bought $100,000 or more of equipment. As he did not have a long established business, lenders insisted that he put the loans in his own name. As a result, he had lots of business loans outstanding and was still showing little income. As he had incorporated, we were able to free up his credit by having DLC Leasing purchase the equipment and he leased it back. This provided a good tax break his accountant liked and it freed up his personal credit, which I liked.

Long story short , Dominion Lending Centres is a small/ medium business owners best friend.
We can help you get into a house where other companies see obstacles. If you are in a situation like this, contact your local Dominion Lending Centres mortgage professional and get some help.

–DAVID COOKE

A BANK THAT MAY NOT BE FAMILIAR TO YOU

Quiz time! Who is the largest non-bank mortgage originator in Canada with over $100 billion dollars in mortgages under administration? Answer – First National Financial Corporation. If you’ve never heard of them before, don’t feel bad. The only way to get a First National mortgage is through the broker channel. They do not have any branches anywhere in Canada. How did First National become #1?
Service – First National are fast. They will accept your application, underwrite it and if approved you will get a response within 4 hours. The industry average is 24 hours. Mortgage brokers use First National for clients who have very good credit salaried income and need an approval or pre-approval quickly.

Another nice feature of First National is that they will provide pre-approvals. Many lenders do not want to spend the time and money to provide these but First Nat have always provided pre-approval that are underwritten. What this means is that an underwriter has reviewed your application and if everything in it is straight forward they foresee no problems with an approval for the specified amount of money.

Additionally, if the home you are purchasing is 5 years old or older, a First National mortgage may be for you. They offer Echelon Home System Warranty Program. This is a warranty on your electrical, heating and cooling systems as well as your plumbing. Most hot water tanks have a 6 year warranty. After that it can cost you $20 a month for a warranty program with your utility company. Echelon is free for the first 12 months and then it costs you only $17 a month. Any calls you make for repair work have a $50 call fee but everything else is covered by the warranty. Imagine your hot water tank breaking down on Sunday afternoon. In addition to paying a service call fee of probably $100 you would be paying time and a half for weekends. The tank alone could be $800+. It’s worth it.

Finally, First National introduced something new in fall 2018, a second mortgage. If you have a need for funds for renovations or something else substantial and you are part way through your First National mortgage term you can now obtain a second mortgage. No need to break your mortgage and incur penalties. When your first mortgage term ends, the second mortgage is rolled over into your first mortgage so you don’t have two different expiration dates for your mortgage. This is unheard of for a non-bank to do.
Remember, you can only get First National through the broker channel. Be sure to ask your Dominion Lending Centres mortgage professional if this would be a good mortgage for you.

–DAVID COOKE

HOW TO GET A 5% DOWN PAYMENT FOR A $500,000 PURCHASE

We have seen a return of the buyers’ market and many people are asking, how long will this last? While some renters without a down payment might be asking, how can o put a plan in place to own?

With the cost of living so high, and student debts coming out of school, many consumers question how they’re going to come up with a down payment for a home.

Here are some ways you can get it done.

• Decide how much you can save and pick a plan that works for you:  a) A 36-month plan saving $700/month will get you $25,200 (you will need about $2,000 for closing costs if you qualify as a first-time homebuyer) b) A 24-month plan savings $600/month for $14,400
• Get a gift from a family member
• Borrow the down payment, or a portion (which may also help with credit building)
• A combination of all of the above

For those of you that want to partner with government for down payment and profit of home ownership, a new government program can be a helpful tool provided it stays past the October election. https://www.cmhc-schl.gc.ca/en/nhs/shared-equity-mortgage-provider-fund

You might me reading this and thinking, ‘yeah right, that is not reality.’ Or for some people, you know it might just be exactly what will help them move forward.

Perhaps you have graduated from school and your parents don’t charge you rent. Imagine if you could put one of your paycheques every month aside and try living within those means and budgeting accordingly.

Or say you have a partner and one of you just started work in a specific trade and the other’s paycheque went towards the “home purchase plan.”

Also, if you are within the qualifications to buy, you will be earning a combined household income of $125,000-plus per year, so taking those funds right from your paycheque into your RRSP will have additional tax benefits too where you can use the refund for closing costs or amp up your down payment.

Here’s an example of how this worked for a lab technician and chef with a two-year old daughter.

They did a combination plan as they moved up to Canada from the U.S. two years ago, both got stable jobs and had no outside debt. They were paying $1700 a month rent. They used a $10,000 line of credit they took to put into investment to help establish Canadian credit. After getting the line of credit and placing it into a safe investment, they:

1. Set up an RRSP and placed $600 a month on the loan and $700 a month into their RRSP.
2. Now this family is used to having a cash outlay of $3,000 per month which will be the actual expectation they have for when they buy a home.
3. With this plan, they take a mortgage for a test drive, save money on taxes, establish a great credit score and worked away toward their goal.

Are there holes in the plan? Yes, home prices may go up, there was interest on the loan they paid and they may have to adjust or modify their plan. Their employment can change, however, this practice will only benefit them no matter what life brings their way and there is a sense of empowerment when you have a plan and can see how you can get there.

Do you or someone you care about want to know how they can be set up with a multifaceted plan to help them move forward with a goal of owning a home?

–ANGELA CALLA

MORTGAGE BROKER HISTORY AND MORTGAGE APPLICATIONS

In the past, we had banks (bank as a catch all for credit unions and trust companies) and Mortgage Brokers.

Writing mortgage applications is extremely difficult; there are a lot of moving parts in a mortgage. Because of this, banks employ mortgage specialists whose sole role is to provide mortgage advice.

On the other hand, previous to 20 years ago, a Mortgage Broker’s main job was to get financing when a bank declined a borrower’s application. Basically, Mortgage Brokers were a borrower’s last resort: “if you can’t get financing from the bank (RBC, TD, Scotia, etc.), come speak to me.” This is generally why we see older generations having never used mortgage brokers – they didn’t have a need.

But, there have been many changes over the decades. In most cases, Mortgage Brokers can provide better interest rates for most mortgage applications. This is specifically due to wholesale lenders.

But, when it comes to prime (bank or Monoline Lenders) financing, Mortgage Brokers find they are sometimes at a disadvantage when banks make “exceptions” to regulatory mortgage rules. Mortgage Brokers are sometimes held to a higher standard because all of our files are picked at with a fine-toothed comb.

For example: in 2016/7 CIBC, which does not procure mortgages from Mortgage Brokers, underwent a mortgage audit. The regulator found that every single one of the 50 mortgages audited failed their audit… and CIBC hardly even got a slap on the wrist. As an side, remember when banks would provide financing for foreign students with no income? Yeah… that was primarily CIBC!

Notwithstanding, Mortgage Brokers (by definition) have access to many different types of lenders and are not beholden to the employer institution. Non-prime lenders can lean more heavily on a specific property and less so on the strict guidelines that the government requires.

Long story short, Mortgages Brokers have access to many different lenders, but in come cases, a bank specialist can get something done that a Mortgage Broker cannot do due to the bending mortgage rules. Notwithstanding, in 99% of cases, if all rules are followed (which are being more strictly enforced since 2018), Mortgage Brokers have more access and more complete solutions to bank specialists.

–EITAN PINSKY

4 HOME IMPROVEMENTS THAT WILL PAY YOU BACK

Some home improvements provide more of a payback when you sell the house down the road.

Here’s a list of the four home improvements which will provide the biggest payback when you sell.

1.  Adding square footage – while this can be a very expensive project, adding to the size of a house can re-coup between 50-83% of your initial investment. Putting a bonus room on top of your front facing garage increases the square footage without having to enlarge the foundation.
2. A deck addition – adding a deck makes a house feel larger and allows you to enjoy your backyard during the warmer months. Typically you can get between 65-90% of your investment back .
3. Re-modeling the kitchen – one of the most important rooms in the house is the kitchen. A well done project will get you between 50-120% back when you sell the house but remember not to over-do the project. A million dollar kitchen in a $500,000 home won’t be fully appreciated by future buyers.
4. A bathroom addition – the second room buyers check out is the bathroom. While re-modeling a bathroom will recoup a lot of the renovation costs adding a second bathroom to a one bathroom home is huge. Many home owners find that they get between 80-130% of the cost of the project.

If you are thinking about buying a home or renovating your present home, speak to your Dominion Lending Centres mortgage professional about how they can help you to finance any of these projects in your mortgage and pay low interest rates.

–DAVID COOKE

Housing Market Continues Slow Recovery in May: CREA

National home prices just about kept pace with inflation in May, according to the Canadian Real Estate Association (CREA).

Property prices increased 1.8% to $508,000 year-over-year, or $397,000 when you exclude two of Canada’s most expensive cities: Toronto and Vancouver. The benchmark price, which many consider to be a more accurate reflection of the “typical” home, remained stable at $624,400, rising under 1%.

CREA is concerned that the stress test, where borrowers must qualify at 2% higher than their contract rate, is crushing market demand.

“The mortgage stress test continues to present challenges for homebuyers in housing markets where they have plenty of homes to choose from but are forced by the test to save up a bigger down payment,” says Gregory Klump, CREA’s chief economist. “Hopefully, the stress test can be fine-tuned to enable homebuyers to qualify for mortgage financing sooner without causing prices to shoot up.”

But prices are growing in most markets across the country, save the Western provinces.

Cities like the Greater Vancouver Area, the Fraser Valley, Calgary, Edmonton and Regina were all down compared to May 2018. But markets in Ontario and the Eastern provinces posted price gains, with the exception of Barrie, a commuter city just north of Toronto.

Furthermore, the decline in British Columbia is almost certainly a temporary blip, since benchmark prices are up at least 57-80% from five years ago. That’s still an annual increase of about 10-15%.

In fact, the only cities showing a decline from five years ago are in the prairie provinces, which have been hurt by low oil prices and a glut of inventory from overbuilding when times were good.

The only clear consequence of the stress test is that it’s pushing buyers into less-expensive and denser living situations, such as apartments. As has been the case since the lending rules were tightened in January 2018, apartments and townhouses have outpaced detached homes in terms of price growth.

For example, home prices rose 8% year-over-year in Ottawa, led by a 12% increase in townhouse prices. And while overall prices rose just 2% in Greater Moncton, apartment prices are up 16%.

For more data on this month’s national housing situation, check out the infographic below:

–DANIELLE KUBES