ANOTHER STRONG EMPLOYMENT REPORT SIGNALS REBOUND IN CANADIAN ECONOMY

It appears that the Bank of Canada’s optimism that the Canadian economy’s growth will pick up in the third and fourth quarters of this year is well founded. Not only was the employment report very robust for two consecutive months, but the jobless rate has fallen to its lowest level since at least 1976.

Also, Canada’s trade deficit, reported today, hit a six-month low in April, as exports continue to rebound from a recent slump. Consumer spending and business investment are also making a big comeback. Household spending has accelerated, despite concerns over bloated debt loads, assisted by easing rates on loans, substantial jobs gains, stabilizing housing markets and improving financial markets.

The Bank of Canada forecasts that growth will accelerate to an annualized 1.3% in the second quarter–following the meagre 0.4% expansion in Q1–and pick up further in the second half of this year, before accelerating back to above 2% growth by 2020. This comeback begs the question–why were markets expecting a rate cut by the bank in December? That expectation may well change after this morning’s Statistics Canada releases. Of course, one caveat remains, which is the uncertainty surrounding a trade war with China and Mexico. If the trade situation were to worsen, Canada’s economy would undoubtedly be sideswiped.

Canadian employment rose by 27,700 in May, bring the number of jobs created over the past year to a whopping 453,100. The jobless rate plunged to 5.4%, from 5.7% in April, the lowest in data going back to 1976. Economists had been forecasting employment to rise by only 5,000 last month after Canada recorded a record gain of 106,500 in April. The loonie jumped on the news.

The composition of the job gain was particularly heartening, as the rise was all in full-time employment. On the other hand, jobs by those who are self-employed increased by 61,500–the gig economy is alive and well.

The most substantial job gains were in Ontario and BC.

Wage growth continued to be strong in May as pay gains for permanent workers sere steady at 2.6%.

In direct contrast, the US jobs report, also released today, was weaker than expected. US payrolls and wage gains cooled as Trump’s trade war weighed on the economy. US employers added the fewest workers in three months, and wage gains eased, suggesting broader economic weakness and boosting expectations for a Federal Reserve interest-rate cut as President Donald Trump’s trade policies weigh on growth.

–DR. SHERRY COOPER

HOME BUYER TAX CREDIT

When you purchase a home as a first time home buyer, you have a third benefit on top of the First Time Home Buyers’ Program and the Home Buyers Program- the Home Buyer Tax Credit.

The Home Buyer Tax Credit allows you to claim $5,000 for the purchase of a qualifying home in the year if the following are true:

• you or your spouse or common-law partner purchased a qualifying home that is owner-occupied.
• you did not live in another home owned by you or your spouse or common-law partner in the year you bought the home you are claiming or in any of the previous four years.

If these two points are true, you can make the $5,000 claim on line 369 of the tax return for the year you made the home purchase in. This $5,000 claim can help save up to $750 in potential taxes owing to the government.

For more information, click the following link or reach out to a Dominion Lending Centres mortgage professional near you.

–RYAN OAKE

WHICH MORTGAGE LENDER IS BEST FOR YOU?

The following is a summary of the choices available for clients when looking at the four different types of lending groups.

So what exactly is a lender? By simple definition, a mortgage lender provides financing for a real estate purchase hence the word lend.

Which lender is best for you will all depend on who you are as a borrower, what your current situation is and what your situation will look like in the future.

Big Banks

Currently, mortgage brokers have access to TD Canada Trust and Scotiabank. Big banks 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 homeowners 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 homeowners. The drawback with both banks is that they are 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 neighbourhoods or cities, upgrading or downgrading home sizes, marital issues – these are all reasons why someone may need to break their mortgage early. 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 is that 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. The benefits? – 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, limited direct access with clients 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 homebuyer and even as a current homeowner. As always, please contact a Dominion Lending Centres Mortgage Professional if you wish to discuss any of these options further!

–CHRIS CABEL

HOME BUYERS’ PLAN

The Home Buyers’ Plan is a Canada wide program that allows individuals to withdraw a certain amount from their Registered Retirement Savings Plans (RRSPs) for the purposes of qualifying for a home or if you are planning to help a related person who may have a disability.

Currently, the maximum amount an individual can withdraw from their RRSPs under the Home Buyers’ Plan is $25,000. The Liberal party of Canada has promised to increase this to $35,000 in late 2019. Now, this does not mean that the most a person can withdraw from their RRSPs is $25,000. It just means the most you can withdraw tax free is $25,000 for the purchase or construction of a home.

There are 2 main conditions you will need to meet if you plan on using the Home Buyers Plan for the purchase of your own home:

1.) First-Time Home Buyer

You are considered a first-time home buyer if, in the four-year period, you did not occupy a home that you or your current spouse or common-law partner owned.

The four-year period begins on January 1st of the fourth year before the year you withdraw funds.

Example- if you withdraw funds March 19, 2019, the four-year period begins on January 1, 2015 and ends on February 28, 2019.

2.) Are You Buying or Building a Qualifying Home

You are if you buy or build it, or are considered as buying or building it, before October 1st of the year after the year of the withdraw. Also, that you buy or build it, alone or with one or more individuals.

The RRSPs you withdraw will also need to be repaid. Repayment starts the second year after the year you withdrew funds for the Home Buyers Plan. You will have 15 years to completely repay the entire amount you withdrew and the amount is calculated by the Canadian Revenue Agency and posted to your CRA Account.

To find out more information on how to withdraw funds as well as determine whether or not you qualify, you can visit their site here.

–RYAN OAKE

BROKERS MAKE A DIFFERENCE

While many people will go to their bank to obtain a mortgage or line of credit, they often feel betrayed by their favourite bank if their application is rejected. One big advantage that we have over banks is that we can send underwriter notes along with the application. Our questions and speaking at length with the borrower give us insight that the underwriter will never get from the facts and figures on the application.
A while ago, I had an application at a lender for a young man who wanted to buy his first home.

He worked in the construction trades and his income history was up and down over the past 3 years. He needed overtime to support his application and the two year average wasn’t there.

I went back with 3 years of Notices of Assessments, his recent pay stubs and pleaded the case for my client. The underwriter finally asked for an exception based on my confidence in the client. She trusted my judgement and the mortgage was approved.
This leads me to the idea that underwriter notes are very important and can mean the difference between an approval and a decline. If you have a chance, ask your underwriter how they like their notes; in point form or in paragraphs. Do they prefer emails or phone calls?

When a successful mortgage broker writes notes they start by stating what product they are asking for and giving their contact information. I put my contact info at the top of the notes and at the bottom so they don’t have to go searching for it if they have a question or need clarification. I then state what my client is trying to do; purchase their first home, refinance, a renewal or if it’s’ a switch, that they want to benefit from lower interest rates.
I then list the areas I want to highlight: Income, credit, property, down payment and start with their weakest link first and explain their situation. I had a client who had her down payment in a joint account with her father in Japan. I started with that knowing that a paper trail would be important. If the credit score is low, is it due to a past illness, divorce or job loss? I tell the underwriter right away. As a result, underwriters trust me and have given my clients a second look or asked for an exception. Finally, I finish up by summarizing the strong points in the file and thanking them for their consideration of my file.

I never yell or give my underwriters a blast if they decline a file. I will, however, ask why the file was declined so that I can better prepare my client for the disappointment and plan on how we can remedy the situation. Just as a FYI, a manager at a major bank told me that at one bank he worked for after hitting the send key he received a simple message back – either APPROVED or DECLINED with no explanation. Now who do you think mortgage clients should deal with? A bank or a broker?

–DAVID COOKE

DEBT: TO CONSOLIDATE OR NOT TO CONSOLIDATE? THAT IS THE QUESTION

If you are a Canadian living in debt, you are not alone. According to Statistics Canada, household debt grew faster than income last year, with Canadians owing $1.79 for every dollar of household disposable income to debt(1).

• Canadian households use almost 15% of income for debt re-payment(1).
• 7.3% of this re-payment goes towards interest charges (1)
• Interest charges are at their highest level in 9 years(1).
• The cost of living is projected to increase in 2020 (2)

So how can one ever get out of debt? Debt consolidation.

What is debt consolidation?
Debt consolidation means paying off smaller loans with a larger loan at a lower interest rate. For example, a credit card bill debt with interest of 19.99% can be paid off by a 5-year Reverse Mortgage with an interest rate of 5.74%* from HomeEquity Bank. (*rate as of May 2, 2019. For current rates, please contact your DLC Mortgage Broker).

A lot of confusion surrounds debt consolidation; many of us just don’t know enough about it. Consider the two sides:

The pros
• The lower the interest rate, the sooner you get out of debt. A lower monthly interest allows you to pay more towards your actual loan, getting you debt-free faster.
• You only have to make one monthly debt payment. This is more manageable than keeping track of multiple debt payments with different interest rates.
• Your credit score remains untarnished because your higher interest loans, such as a credit card, are paid off.

The cons
• Consolidating your debt doesn’t give you the green light to continue spending.
Consolidating helps you get out of debt; continuing to spend as you did before puts you even further into debt.
• A larger loan with a financial institution will require prompt payments. If you were struggling to pay your debts before, you may be still be challenged with payments. A CHIP Reverse Mortgage may be a better option; it doesn’t require any payments until you decide to move or sell your home.
• You may require a co-signer who will have to pay the loan, if you’re unable. Note that a Reverse Mortgage does not require a co-signer, as long as you qualify for it and are on the property title.

So how do you know if debt consolidation is the option for you? Start by contacting your mortgage broker and asking if the CHIP Reverse Mortgage could be the right solution for you.

SOURCES:

1 https://www.cbc.ca/news/business/household-debt-income-1.5056159

2 https://www.statista.com/statistics/271247/inflation-rate-in-canada/

https://www.bankofcanada.ca/2019/03/spending-shifts-and-consumer-caution/

https://www.cbc.ca/news/business/consumer-spending-consumption-canada-1.5006343

–ANDREA TWIZELL

THE PREDATORY LENDING SURGE IS HERE

As we’ve been reporting for months on our North East blog, instead of protecting many homeowners, the federal government’s restrictive mortgage rules are pushing people out of the safe mortgage market, and into the arms of secondary lenders.

By pushing people to the alternative lending market, they’re being pushed away from the safe harbour of high-quality lenders and into a less regulated and higher-interest area of the market.

To be clear: federal government policies are producing the opposite result of what the stated intention of the policies were.

What’s happened is the new rules, particularly the stress testing, have begun excluding many responsible Canadian homeowners who had previously qualified for mortgages, so many are unfortunately trying their luck with alternative lenders; either to handle their entire mortgage (highly inadvisable), or to top up a down payment.

In a recent paper for CIBC, economist Benjamin Tal says the data in Ontario shows people are increasingly looking to the alternative market for their mortgages.

“Over the past two years, mortgage originations provided by alternative lenders rose by a cumulative 27% while originations in the market as a whole fell by 11%,” Tal said in his report.

In pure dollar figures, he said the alternative mortgages now account for 7% of the market, up from 5% just two years ago.

This trend is worrying because desperate homeowners are seeking relief from these lenders, who will tell them they are suddenly able to qualify for a mortgage. There is, of course, a catch.

What these homebuyers may not realize is why they’re being accepted for those loans.

First, the alternative lenders tend not to be so strict when applying the stress test, because they don’t have to be. Regulation is looser on the alternative market, so by letting debt-to-income ratios climb much higher, it makes it easier for people to qualify for a mortgage. The catch is that by letting those ratios go higher, the homeowners are taking on more risk.

And more risk means lenders need to get something from consumers to make it worth their while. So, they’ll charge higher interest rates. They’ll tack on fees. They’ll add clauses to your mortgage that make it difficult—and costly—to refinance or get out of your mortgage.

Instead of paying in the 3% range, you’ll find yourself paying rates closer to 6%. Over the life of a mortgage, that’s thousands and thousands of extra dollars you’re flushing down the toilet, just on interest.

Someone who’s been denied a mortgage offered by a large bank or another first-tier lender and has been able to find a mortgage elsewhere may be relieved to be in their new home. But they’re sitting on a growing pile of toxic debt.

Things get even worse when homeowners find themselves on the private market.

Consider someone who’s been turned down for a traditional mortgage, and turned down again for a mortgage on the alternative market. Instead of paying that 6% on for an alternative mortgage, you’ll be looking at rates comparable to credit cards; in the double digits, sometimes as high as 21%.

To make matters worse, you’ll be trapped. These private lenders often set the value of your house much higher than anyone else would, essentially locking you in with them. Even if you’re able to turn your financial circumstances around, there’s no way you can refinance a loan for a property worth less than the mortgage is valued.

Until the government changes direction, consumers on the edge of the primary market are just going to have to wait a bit longer to build their nests, lest they get themselves into real trouble.

If a reputable broker is telling someone their file doesn’t work, there’s probably good reason for it. People aren’t turned down for mortgages because a bank or a broker doesn’t want their financing. They’re being turned down for specific reasons.

The whole purpose of these rules, like the enhanced stress test, was to keep people from taking on toxic debt. And what the rules are doing in practice is placing those marginal homeowners in a situation much worse than what they’re being protected from.

–TERRY KILAKOS

REVERSE MORTGAGES – TRENDING NOW

With approximately 1,000 people retiring every day in Canada, it’s not surprising that there has been an increased demand for Reverse Mortgages.
A Reverse Mortgage can assist people aged 55+ to realize their dreams in retirement. Whether they want to travel, help their kids or grand kids or even just supplement their monthly income, a Reverse Mortgage can be an effective way to have their home assist them to meet those goals.
There is a lot of misinformation out there however, that could make people hesitant to get into a Reverse Mortgage.
Many people think that the Bank will own their home but this is completely untrue. A Reverse Mortgage is just that – a Mortgage registered on the home’s Title, just like any other bank mortgage. The client retains full ownership and control of their home. They have the freedom to decide if and when to move or sell.
Another misconception is that you could end up owing more than your house is worth. In fact, due to the Reverse Mortgage lender’s conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. They will only issue a Reverse Mortgage up to 55% of your home’s value so there is lots of equity remaining to offset accrued interest charges even if you choose to make no payments at all.
In fact, over 99% of Reverse Mortgage clients have equity remaining in the home when the loan is repaid.
Many people view a Reverse Mortgage as a ‘last resort’. In fact financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.
Some people think that you cannot get a reverse mortgage if you have an existing mortgage. But many Reverse Mortgage clients use the funds to pay off their existing mortgage and other debts, freeing up cash flow for to use as they wish – and be free of regular mortgage payments too.
I personally have parents over 70-years that could be looking at the expense of Assisted Living for my Mom in the near future. They own their home outright and once both of them are retired that added cost could be too much for their pensions and could force them to sell their home before they’re ready.
I have advised them of the Reverse Mortgage option and we have decided to look into that possibility when the time comes. It is my belief that nobody should feel forced to sell their home and they will explore any options available to them so they have choices.
If you’d like more information on how a Reverse Mortgage may work for you, I recommend speaking with a Dominion Lending Centres Mortgage Professional to get all the facts.

–KRISTIN WOOLARD

6 WAYS TO GET A DOWN PAYMENT

When is it time to think about saving for a down payment? I would say about a year before you think about buying a home. While that’s ideal in today’s world, we often do not have much time to save for a down payment. Sometimes your landlord is planning on retiring and wants to sell the property. How do you get a down payment?

Here’s a few ways to get a down payment for your home:

1. Save – it’s old fashioned but it works. Open a Tax Free Savings Account (TFSA) and put a set amount into it. If you don’t have the discipline arrange for automatic deposits from your bank account. How much can you save $50 a week? That’s $2,600 in a year. Not enough. How about $200 a week?
   Stay at the Mom & Dad Hotel – while your parents may not be able to help you with a down payment they often have a spare room that you can stay in. One year of not paying rent would make a good down payment even if you chip in for groceries.
2. Extra Income – get a second job and bank every cent from it. I know of many young people who have a day job and are servers on the weekends.
3. Home Buyer’s Plan – the federal government will allow you to pull up to $35,000 from your RRSP account. This goes for your partner. You could put down $70,000 between the two of you. These funds need to be returned to your RRSP over the next 15 years. This is a great quick source for a down payment.
4. Take out an RRSP Loan – borrow an amount that you need for a down payment as an RRSP. Hold the funds for 90 + 1 days and you can withdraw the funds. The cons are that you now have more debt and you have to wait for 90 days. Most sellers want a possession day sooner than that.
5. Sell an asset. I had a client sell his vintage Cadillac Fleetwood for a down payment. Be sure to get a receipt or to sign a bill of sale with the purchaser to show where the funds came from. Rare stamps or coins, another property or vehicle are all acceptable assets.
6. The Bank of Mom and Dad – This may be the easiest way to get a down payment or it may not. Most parents are nearing retirement and trying to save funds. There can be creative ways to get a down payment. They might set up a a secured line of credit and use the equity in their home. You could make the payments over the next few years. Note: these payments must be included in your debt ratios. If they decide to gift you the funds and make the payments themselves a gift letter is all that’s needed. They could sell their home and move into a granny suite in the basement or over the garage.

Before you start it’s always a good idea to speak to your favourite Dominion Lending Centres mortgage professional.

–DAVID COOKE

ZERO DOWN PAYMENT MORTGAGE–DOES IT EXIST?

Did you know that you can buy a home with ZERO down payment?? If a home purchase is your goal this year but you aren’t able to save up enough of a down payment, you may qualify for a low or zero down payment mortgage. One of our Lenders is offering a great zero down program.

What is a Flex-Down Mortgage?
A Flex-Down Mortgage is a mortgage product that has a flexible down payment amount. There is still a down-payment required, but it will vary based on the property value.

• For a property valued under than or equal to $500,000, 5% down payment is required (sources available below)
• For a property valued at greater than $500,000 and less than $1 million –5% down payment is required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000.

Flex-down mortgages can only be on first mortgages, not second or third or used in refinance situations. As noted above, the total property value has to be less than $1 million. This type of mortgage will also have insurance included with it—the premium will be lesser of the premium as a % of the total new loan amount or the premium as a % of the top-up portion additional loan based on the rates at that time.

Those that choose to go with this type of mortgage product will have to meet requirements, just like any other mortgage. There are a few specifications with this product:

• You must show that you have standard income and employment verification papers
• A credit score of 650 or higher is highly recommended
• You must have no previous bankruptcies
• Some lenders may still require you to have some of the down payment from your own resources

Those considering this type of mortgage are recommended to have very little debt and be able to accommodate the additional cost of higher mortgage insurance (due to the higher risk to the lender on this type of mortgage). Typically, the insurance premium would be 0.2% higher on a flex down mortgage.

How it Works
You can borrow your 5% payment from a Line of Credit or even a credit card. This can then be used for your down payment. You have to disclose this to the Insurer and it will be on the application that goes to the Lender.

This is perfect for someone just getting into a new high paying job or for someone who is renting and can afford higher monthly payments but would take forever to save up the 5% down payment. This type of mortgage product can be an excellent option if you don’t quite have enough for the down payment. Are you interested in learning more about this mortgage product? Contact a Dominion Lending Centres mortgage professional who can show you how a Flex mortgage can make the home of your dreams happen sooner than you think!