3 THINGS YOU MAY NOT KNOW ABOUT CASH-BACK MORTGAGES

About twice a year, one of the big Canadian banks likes to run an advertising campaign for their cash back mortgages. These are mortgages usually with 5 year terms where you receive a certain percentage back in cash. The percentage varies from 1% to 5% in most cases. You can use these funds to build a fence, landscape, buy window coverings etc. The idea is to be able to pay for some things that you would not be able to as you put all your money into the down payment and closing costs and need some help to get started.

1- There are multiple lenders who have cash back mortgages. Don’t jump at the first one you see. They all have different terms and conditions.
2. You are really getting a loan on top of your mortgage. The interest rate is calculated so that by the end of the term you will have paid the lender back the money they gave you and a little bit extra. Sometimes this little bit extra may be twice as much as you got in cash back.
3 – The average cash back mortgage is a 5 year term. Most Canadians move every 30 months. Therefore when you break a cash back mortgage you have to pay a penalty as per usual but you also have to pay back a portion of the loan that they gave you. If you are 36 months into a 60 month mortgage, you have to pay them back 2 years’ worth or 40% of the cash back. Combined with the penalty this can be a hefty sum. In addition, there are some lenders who require you to pay back 100% of the cash back if you want to break the term.

Before signing for a cash back mortgage it’s better to discuss your needs with your local Dominion Lending Centres mortgage professional. They can advise you on cash backs, line of credit, Purchase plus Improvements or Flex Down mortgages which may be better for your situation.

–DAVID COOKE

WHAT IS A MORTGAGE BROKER?

You may have noticed that there are many different terms for those of us who work in the mortgage industry besides “broker”.
Mortgage: specialist, expert, advisor, associate, officer, etc. I just want to clear up some potential confusion with all these monikers.
There are 2 main categories that these fall in to. Those that work for a bank to sell mortgage products available from that bank.
The other is for those like myself that work within a mortgage brokerage that has no direct affiliation with any one bank.
Each mortgage brokerage has agreements in place with multiple banks and mortgage lenders to be able to submit mortgage applications for consideration.
There are of course obvious differences between these but some may not be quite so apparent.

Mortgage Brokerage
All those working in the mortgage brokerage industry must be licensed by a provincial government agency, in Saskatchewan it’s called the Financial & Consumer Affairs Authority (FCAA).
While every province has their own set of guidelines, there are 3 different types of licenses offered by FCAA: mortgage associate, mortgage broker & principal broker.
The mortgage associate and broker are very similar as both advertise themselves to obtain clientele, work directly with the clients, mortgage lenders, mortgage insurers, realtors and lawyers in the service of their clients. The key difference is that an associate must work under a supervising mortgage broker to ensure they remain in compliance with FCAA regulations.
Each mortgage brokerage will have a principal broker (aka: broker of record) that oversees the operations of the brokerage as well as all the associates and brokers within the brokerage.
Most all those working in the mortgage broker industry are commission based. Our income is derived from the mortgage lenders that we submit mortgage applications to.

In order to apply for a license as a mortgage associate, applicants must complete an approved mortgage associate education course and provide a current criminal record check along with the required application documents.

Application for a license as a mortgage broker are the same as for an associate with the addition of a previous experience requirement.
The applicant must have been licensed as a mortgage associate for at least 24 of the previous 36 months.

In addition to annual applications for renewal, licensees must also:

• Purchase and remain in good standing with professional errors and omissions insurance
• Complete FCAA approved annual continuing education courses
• Provide FCAA auditors access to mortgage files for review whenever requested
• Advise FCAA of any changes to brokerage or contact information
• Immediately advise FCAA of any offences under the criminal code (other that traffic offenses)

Bank Branch Mortgage
Those that work in mortgage lending for a bank are normally paid by the hour or are salaried and may have a performance bonus structure.
Entry level positions do not require any education beyond high school. Training is provided on the job by the employer with supervision by the branch manager and more experienced staff.
There are no licensing requirements by any provincial or federal governing body and errors and omissions insurance is not required.
Many banks have mobile mortgage staff that may or may not conduct business within the branch and are often paid on a commission basis rather than hourly or salary.

If you have any questions, contact your Dominion Lending Centres Mortgage Broker near you.

–KEVIN CARLSON

MAKING THE MOST OF YOUR VARIABLE MORTGAGE

Working with your DLC mortgage professional can save you thousands of dollars by making the most of your variable rate mortgage in a shifting market.

In the past year we have seen an increase in the prime lending rate by 1%. For those home owners with variable rate mortgages who secured a low discount, savings can be gained moving to a new higher discount variable mortgage rate even if prime is higher than before.

How is that possible you ask?

Consider this. Ed and Anna refinanced their mortgage in 2016 at prime minus .15% (2.55% at the time). The original mortgage was $556,000 with payments of $2,206 per month. Since the prime lending rate has moved up the new effective rate is currently 3.55% (3.7% minus .15) with a payment of $2,442. Of that payment there is $1,533 per month in interest and $909 goes to principal pay down.

The current best rate is 2.75% (3.7% minus .95) so the new payment would be $2,233 per month. Of that payment $1,194 per month in interest and $1,039 towards principal pay down. If Ed and Anna choose to switch their mortgage to a new lender at the better rate in the end their payment is lower by around $100 and they save $340 per month in interest. They also have that bigger rate discount of .95% for the next 5 years so it puts them in a better place as rates move.

Even with the penalty for early pay out the savings is still thousands of dollars over the next term in their mortgage.

Consider making the most of your variable rate mortgage — contact a Dominion Lending Centres mortgage professional near you.

–PAULINE TONKIN

JIDD HAPPENS

You may have heard people say “s@@t happens. In the mortgage broker world, JIDD happens. These are unexpected events that can turn a happy homeowners’ life upside down. JIDD consists of:

Job Loss – often unexpected and with no time to save for emergencies, things get ugly pretty quick. E.I. payments can run out leaving you with the option of buying food for the family or paying your mortgage.

Illness – Cancer treatments can be so hard on a person that even if it’s only a 5 minute radiation treatment, you are left feeling unable to work for the rest of the day. Short term disability plans usually top out a 75 per cent of your average salary. However, when you’re ill, your bills don’t drop by 25 per cent. In fact, they often increase due to extra medication, medical equipment rentals etc.

Death – one of the borrowers dies leaving the other person to pay out the mortgage by themselves on one income.

Divorce – once again one income where there were two and often expensive legal fees and bills that get forgotten in a tangle of emotions and a spouse moving out.
While you can find a job again or get over an illness, often there’s a period of time when you need to catch up on your bills and this is when people fall behind in their mortgage payments.

What should you do if you are in one of these situations?
Call all your Dominion Lending Centres mortgage professional and tell them what has happened. Let them know as soon as possible. They will look up your mortgage and let you know who the lender is and who your mortgage was insured with. They can guide you through the process of contacting the lender and insurer to see how they can help you out.
What can CMHC, Genworth or Canada Guaranty do for you? Depending on your circumstances they will allow you a forbearance which is a temporary mortgage payment deferral. They also may change your mortgage amortization lengthening it to lower your payments. They may also take your missed payments and just tack them on to your mortgage balance without a penalty. All these options are available but you have to contact your mortgage professional in order to get the ball rolling. JIDD happens but you’re not alone.

–DAVID COOKE

RENOVATING? CONSIDER A REFINANCE PLUS IMPROVEMENTS

Let’s take a closer look at how a Refinance Plus Improvements mortgage can get you the extra cash you need to get your renovations completed.

The Standard Refinance

An everyday refinance allows the home owner to access up to 80% of the fair market value of the home. The value is typically determined by a Market Appraisal on the home. Here is how it would look:

• Current Appraised Value of the home: $250,000.00
• Max New Mortgage Amount: $200,000.00 ß 80% of present value
• Your current Mortgage Balance: $190,000
• Equity Available to you for the renovations: $10,000.00

*Note: some of the equity will cover closing costs (it is a new mortgage after all, so a new registration and fund advance needs to happen. If you are breaking a current mortgage, there could be a pre-payment penalty as well)

The remaining equity can be used towards your improvements. But what happens if it’s not enough to cover the improvement costs? You’re now stuck with either making sacrifices to your dream reno, covering the additional costs out of pockets, use a higher interest line of credit or not doing the renovations at all. None of which are a great options.

The Refinance Plus Improvements Mortgage

Here is how the Refinance Plus Improvements mortgage can make all the difference.

For argument sake, let’s assume for a moment that the home owner is thinking about renovating their kitchen and main bathroom. These are in no way a small improvement. They are quite significant improvements…new flooring, cabinets, counter tops and paint in the kitchen along with a full gut and renovation in the main bathroom.

After sitting down with a Mortgage Broker to determine mortgage affordability, the home owners next step is getting estimates for the renovations. After having multiple contractors quote on the work, the home owner settles on a contractor that has quoted $20,000.00 for the job (Labour and materials costs, all in, turn key project). Let’s also assume for a moment that the renovations are going to increase the value of the home by $30,000.00 (side note: Kitchen and Main Bathroom Renovations can have the biggest impact on the value of a home). Here is how it would look:

Refinance Plus improvements:

• Current Home Value: $250,000.00
• Post Renovation Home Value: $280,000.00
• New Max Mortgage Amount: $224,000.00
• Your Current Mortgage Balance: $190,000.00
• Equity Available for the renovations: $34,000.00

See the difference? The refinance plus improvements in this scenario can get the home owner access to an additional $24,000, far exceeding the improvements planned for home. No sacrifices required. No unsecured higher interest financing required. No need to tap into personal savings. Just a nice new mortgage with a low interest rate and one simple payment.

If you have questions about how a refinance plus improvements mortgage can make all of the difference with your renovations plans, please feel free to connect with a Dominion Lending Centres mortgage professional near you. We are always happy to chat mortgage strategy with you while at the same time shopping the market and rates on your behalf!

Happy Renovating!

–NATHAN LAWRENCE

BUILD A PLAN TO MOVE INTO YOUR HOME

There’s nothing quite like stepping into your dream home for the very first time.

You have achieved your goal of homeownership! However, the journey from home seeker to home buyer can be challenging – unless you have a well-defined plan and guidance from the right professionals. As a mortgage broker, here’s how I will help you reach your objective:

STEP 1 GETTING TO KNOW YOU
In the discovery phase, we will discuss your situation, the essentials and “nice to haves” you’d like in your new home, and how long you plan to live there. Based on your desired move-in date, we’ll work out a timetable for your home-buying process.

STEP 2 BUILDING A BUDGET
I’ll help you create a monthly budget and then calculate a down payment and mortgage payments that fit into it. Together, we’ll also work through a financial check-up that considers how changes in income and expenses could affect your plan.

STEP 3 CUSTOMIZING THE SOLUTION
There are many different types of mortgages, and it’s important to select one that matches your current needs and preferences. I will ask you a series of questions that should help to reveal your priorities.

STEP 4 TESTING SCENARIOS
Together, we’ll try out different mortgage scenarios, and I’ll show you how changes in income, property taxes, condo fees, loans and other variables affect your maximum mortgage amount and mortgage payments. My goal is to make sure you can comfortably afford your mortgage.

STEP 5 ARRANGING PRE-APPROVAL
It’s a good idea to get pre-approval for a mortgage before you find your dream home and make an offer — that way, you can be confident that financing is available. I’ll walk you through the paperwork and guide
you towards the most suitable lender.

STEP 6 ANSWERING YOUR QUESTIONS
Now it’s time to get serious with a Realtor and view properties that fit your price range. If you have any questions along the way, be sure to give me a call.

STEP 7 SEALING THE DEAL
I’ll work closely with your Realtor & Notary to make sure everything is in place for the closing. That’s the day you pay your down payment and get the keys to your new home.

STEP 8 IT’S TIME TO MOVE IN!
From start to finish, the plan we develop together will see you through the home-buying process. Even after you’ve settled into your dream home, we’ll periodically review your current situation to determine if we need to make any alterations to your original mortgage plan

–TERRY KILAKOS

DO YOU UNDERSTAND THE B-20 GUIDELINES?

A new survey has emerged showing that out of 1,901 owners and would be homeowners, 43% (more than two out of five) Canadians are not confident in their knowledge of the mortgage stress tests—despite them being in place for more than a year now.

We wanted to give you a brief set of notes regarding the guidelines. This is something you can use and reference whether you are a first-time home buyer or looking to refinance underneath these new guidelines. It gives a clear picture of what/how you are impacted as a buyer or someone who is looking to refinance.

Here’s what you need to know about B-20:

The average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power under these guidelines reduced 15-25%. Here is an example of the impact the rules have on buying a home and refinancing a home.

PURCHASING A NEW HOME

When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV. The maximum amount available is: $560,000 minus the existing mortgage gives you $145,000 available in the equity of the home, provided you qualify to borrow it.

Source (TD Canada Trust)

These guidelines have been in place since January 1, 2018 and we are starting to see the full impact of them for both buyers and those looking to refinance. Stats are showing that there is a slowdown in the real estate market, however there is also a heightened struggle for many buyers to now obtain approval under these new guidelines. It’s a difficult situation as the cry for affordable housing is still ongoing as the new guidelines may slow down the market but appear to further decrease the borrowing/buying power of individuals.
Keep in mind, this is just a brief refresher course on the B-20 guidelines. As always, if you have more questions or are looking for more information, we suggest that you reach out to your Dominion Lending Centres mortgage broker to discuss and get a full and detailed look at how it will impact you personally.

-Geoff Lee

APRIL HOME SALES RISE NATIONALLY, BUT NOT IN VANCOUVER

Statistics released Wednesday by the Canadian Real Estate Association (CREA) show that national home sales increased in April with most markets recording increases in both transactions and prices.

The number of homes sold rose 3.6% compared with March, on a seasonally adjusted basis. The rebound in sales over the past two months still leaves activity slightly below readings posted over most of the second half of 2018, having dropped in February of this year to its lowest level since 2012.

April sales were up in about 60% of all local markets, with the Greater Toronto Area (GTA) accounting for over half of the national gain.

Actual (not seasonally adjusted) sales activity was up 4.2% year-over-year (y-o-y) in April (albeit from a seven-year low for the month in 2018), the first y-o-y gain since December 2017 and the largest in more than two years. The increase reflects improvements in the GTA and Montreal that outweighed declines in the B.C. Lower Mainland.

“Sales activity is stabilizing among Canada’s five most active urban housing markets,” said Gregory Klump, CREA’s Chief Economist. “That list no longer includes Greater Vancouver, which fell out of the top-five list for the first time since the recession and is well into buyers’ market territory. Sales there are still trending lower as buyers adjust to a cocktail of housing affordability challenges, reduced access to financing due to the mortgage stress-test and housing policy changes implemented by British Columbia’s provincial government,” said Klump.

New Listings
The number of newly listed homes rose 2.7% in April, adding to the 3.4% increase in March. New supply rose in about 60% of all local markets, led by the GTA and Ottawa.

With sales up by more than new listings in April, the national sales-to-new listings ratio tightened marginally to 54.8% from 54.3% in March. This measure of market balance has remained close to its long-term average of 53.5% since early 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about three-quarters of all local markets were in balanced market territory in April 2019.

There were 5.3 months of inventory on a national basis at the end of April 2019, down from 5.6 and 5.5 months in February and March respectively and in line with the long-term average for this measure.

Housing market balance varies significantly by region. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers their ample choice. By contrast, the measure remains well below long-term averages in Ontario and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains.

Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) appears to be stabilizing, having edged lower by 0.3% y-o-y in April 2019. Among benchmark property categories tracked by the index, apartment units were again the only one to post a y-o-y price gain in April 2019 (0.5%), while two-storey there was little change in single-family home and townhouse/row unit prices from April 2018 (-0.3% and -0.2%, respectively). By comparison, one-storey single-family home prices were down by -1.4% y-o-y.
Trends continue to vary widely among the 18 housing markets tracked by the MLS® HPI. Results remain mixed in British Columbia, with prices down on a y-o-y basis in Greater Vancouver (GVA; -8.5%) and the Fraser Valley (-4.6%), up slightly in the Okanagan Valley (1%) and Victoria (0.7%), while climbing 6.2% elsewhere on Vancouver Island.

Among Greater Golden Horseshoe housing markets tracked by the index, MLS® HPI benchmark home prices were up from year-ago levels in the Niagara Region (6.2%), Guelph (5.1%), Hamilton-Burlington (4.6%) the GTA (3.2%) and Oakville-Milton (2.5%). By contrast, home prices in Barrie and District held below year-ago levels (-5.3%).

Across the Prairies, supply remains historically elevated relative to sales and home prices remain below year-ago levels. Benchmark prices were down by 4.6% in Calgary, 4% in Edmonton, 4.3% in Regina and 1.7% in Saskatoon. The home pricing environment will likely remain weak in these cities until demand and supply return to better balance.

Home prices rose 7.8% y-o-y in Ottawa (led by an 11% increase in townhouse/row unit prices), 6.3% in Greater Montreal (driven by a 7.8% increase in apartment unit prices), and 1.8% in Greater Moncton (led by an 11.5% increase in apartment unit prices).

Bottom Line:

The spring rebound in home sales is most evident in Toronto, where transactions climbed 11%, and prices rose 1.3%. Of 19 major markets tracked by the Ottawa-based real estate association, 16 recorded price gains last month.

One huge exception is Vancouver, which continues to soften. Benchmark home prices in that city were down 0.3% in April and have fallen 8.5% over the past 12 months. Even with the widespread rebound, national home sales are still below historical averages.

Economic fundamentals — from substantial employment gains to a sharp increase in immigration — remain supportive. Governor Poloz said earlier this week that he expects the housing markets to return to a more normal pace in the second half of this year. Benjamin Tal, the deputy chief economist at CIBC, reported yesterday that housing demand is stronger than suggested by official figures. Tal said incorrectly counting the number of students who live outside of their parents’ home for the majority of the year is problematic because it doesn’t provide a real sense of supply and demand in the country’s housing market.

Also supportive for housing is the dovish tilt globally from central banks that have helped bring down borrowing costs in recent months. Rates to renew a five-year mortgage aren’t much higher than they were when the mortgages were taken out, according to National Bank research. That means “no payment shock” for the 17.4% of mortgages renewing in 2019.

-Dr. Sherry Cooper

GOING LONG, 5 YEAR + MORTGAGES

Recently, Stephen Poloz, the governor of the Bank of Canada stated that he felt that lenders and by offshoot, mortgage brokers, were not being creative in promoting mortgages for periods of longer than 5 years. He feels that the longer the term the less risk there is and people will be able to qualify for a renewal better after 10 years than after only 5 years.
Here’s what he does not realize. No one really wants a 10 year mortgage. Why? Because on average, Canadians move every 3 years. It may be within the same city or town but they move. Newly married couples buy starter homes. Three years later they often have one or two children and now they need more room. They move up to a bigger place. A few years down the road and they are making more money and they want an estate home. That’s the way Canadian’s lifestyles work.
I have been a broker since 2005. You know how many 10 year mortgages I have obtained for clients? One. No one is interested in that long a commitment. Back in 2006 when I arranged for my one and only 10 year mortgage, the couple wanted stability. Fair enough. They knew that with their government jobs they would not be moving for a long time. At the time, a 10 year commitment meant that the Interest Rate Differential was the most common form of getting out of these mortgages and they could be very expensive. A few years ago, the government mandated that after 5 years, the 3 month interest penalty would kick in for 10 year mortgages.
The thing is that most people find the Pros don’t out-weight the Cons on 10 year mortgages.
Let’see:

PROS – stability, Knowing that your mortgage payments will not go up for a decade while your income should go up making payments seem smaller over time. This would free up money for other things like vacations, investments and family expenses.

CONS – People move every 3 years on average and don’t want to go through the hassle of porting their mortgage or paying big bucks to break it. Many people also feel that rates are going to go lower and don’t want to lock in for such a long period of time. I checked rates and there are a number of lenders offering 10 year mortgages, the best rate at this time is 4.09%. The problem is that while that’s an amazing rate for a 10 year, most people see 5 year fixed and variable rates below 3% and they feel that over 4% is too much.

My suggestion is that if this interests you , speak to your Dominion Lending Centre mortgage professional and discuss your personal situation to see if this is an option that would benefit you.

–DAVID COOKE

5 REASONS WHY YOU DON’T QUALIFY FOR A MORTGAGE

It’s not just because of finances.

As a mortgage broker I receive calls from people who want to know how to qualify for a mortgage. Most of the time it comes down to finances but there are other reasons as well.
Here are the 5 most common reasons why your home mortgage loan application could be denied:

1. Too Much Debt

When home buyers seek a mortgage, the words “debt-to-income ratio” quickly enters into the vocabulary, and it’s not without reason. Too much debt is a red flag to lenders, signifying you may not be able to handle credit responsibly.
Lenders will analyze how much debt you carry and what percentage of your income it takes to pay your debt. Debt ration is just as important as your credit score and payment history.
Two affordability ratios you need to be aware of:
• Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 32% of your gross monthly income.
• Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42% of your gross monthly income.

If you don’t have a good debt to income ratio, don’t give up hope. You have options available including lowering your current debt levels and working with your Dominion Lending Centres Mortgage Broker.

2. Poor Credit History

Some people don’t realize if they are late on their credit card/loan/mortgage payments the lender sends that information to the credit bureaus.
• Late/non payments on your credit report will make your score drop like a rock
• Exceeding your credit card limit, applying for more credit cards/loans will lower your score.
• Bankruptcy or Consumer Proposal will significantly impact your score, and stay on your credit report for up to 7 years.
Your credit history is a great way for a lender to tell whether you’re a risky investment or not. Lenders look not only at your minimum credit score, but also at whether you have a significant amount of late payments on your credit report.
Your Mortgage Broker will run your credit bureau to see if there are any challenges you need to be aware of.

3. Insufficient Income and Assets

With the high price of homes in the Vancouver & Toronto area, sometimes people simply don’t earn enough money to afford: mortgage payments, property taxes and strata fees along with their existing debt (credit cards, loans, lines of credit etc.).
You need to prove your previous 2 years’ income on your taxes with your Notice of Assessments (NOA). This is the summary form that the Federal Government sends back to you after you file your taxes, showing how much you filed for income and if you either owe money or received a refund.
If you can’t provide documentation to prove your income, then you will likely get denied for a home mortgage loan.
Some home buyers will need to provide more money for a down payment (perhaps a gift from their family) or try to purchase a home with suite income. In some cases, home buyers will need to add someone else on title of the home, in order to add their income to the mortgage application.

4. Down Payment is Too Small

A lender looks at the down payment as how much of an investment a buyer will be putting in their future home. Therefore, bigger is always better when it comes a down payment to satisfy your home mortgage loan application. Start saving now.
To qualify for a mortgage in Canada the minimum down payment is 5% for the purchase of an owner-occupied home and 20% for a rental property.
In Canada if you have less than 20% down payment, the federal government dictates that the home buyer must purchase CMHC Mortgage Default Insurance which is calculated as a percentage of the loan and is based on the size of your down payment. The more you borrow the higher percentage you will pay in insurance premiums.
For those with less than 20% down payment, the maximum amortization is 25 years, with more than 20% down payment 30-35 years (depending on the lender).

5. Inadequate Employment History

Most lenders will want to see a consistent employment history of 2 years when applying for a mortgage, because they want to know you’re able to hold down a job long enough to pay back the money they’ve loaned you.
To prove your employment, you will need to prove a Job Letter with salary details.

If you’ve been denied a mortgage, chances are it was because of one of the above five reasons. Don’t be deterred, with a little patience and some work on your end, you can put yourself in a position to get approved the next time you apply.

-Kelly Hudson