Rates On The Rise Both Variable & Fixed

With the Bank of Canada in a mood to raise rates, it’s a similar feeling for the bond market, which impacts fixed rates. In every interest-rate market there are many factors leading to an increase and we are hoping to provide a little bit of clarity on what is happening and what it means to you and your loved ones. We tell you this in advance to be proactive to take care of you, as our mortgage family, so as you hear the news about the changes you have comfort we are here to lead with clarity.

At this time, we see fixed rates increasing as the bond market increases.

Why do we note this information and how does it relate to you?

If you are in a variable rate, you will want to:

1. Review your lock-in options by contacting us or your lender directly (every lender has different policies in allowing us to help or not). Knowing it’s unlikely the prime rate will reduce and fixed rates are on the rise, there could be a sweet spot to review your options now.
2. If you decide not to lock in, it’s time to review your discount to see if a higher one can be obtained elsewhere.

Locking in won’t be for everyone, especially if you are making higher payments and your mortgage is below $300,000, which most people fit and will continue on that path. Also if your discount is more than .6 below prime you may want to wait and watch the market. Locking in will be around a 1% higher rate than you are likely presently paying. If knowing you can likely lock in around 4% now is most attractive to you, this may be your time.

If you are in a fixed rate:

1. If you obtained your mortgage in the last year, stay put.
2.  If you are looking to move up the property ladder or consolidate debt, get your application in to us ASAP so we can hold options for up to 120 days.
3. If you are up for renewal this year or know someone who is, secure your options now with us to weight out the savings prior to renewal with us keeping a watchful eye on the market.

Keep in mind that if you or someone you care about has an average mortgage of $350,000 and got it a few years ago at 2.49% now a qualified applicant can expect about 3.89% which is a payment increase of $254 dollars a month, so increasing your payment now will protect your equity, and you from future payment shock.

Please reach out to a Dominion Lending Centres mortgage professional so we can help ensure you or a loved is on the right path in our ever changing market.

– by Angela Calla

Are you behind on your CRA Taxes?

Nothing weighs heavy on one’s shoulders than owning a home and getting behind on your Canada Revenue taxes. Most banks will not be able to help you refinance your home to pay them off as CRA has first dibs on your house and assets. We have clients owing anywhere from $5,000- $300,000 in back taxes and have threatening letters from CRA that would keep anyone up at night.

There are options and strategies we can assist with financing your CRA debts:

1: We use alternative lenders that charge higher fees/rates for a 1-year term

2: Short term 2nd mortgage to pay off your CRA debts and then refinance back with your lender.

Find out who we can help with a no-obligation application. Let a Dominion Lending Centres mortgage professional get you back on track!

Some CRA notes on penalties for filing late:

The first time you file late you’ll pay:

• a late-filing penalty –5% of the amount of tax you owe, plus 1% for every month that your return is late, for up to 12 months. That adds up to a maximum of 17% of the tax you owe.
• interest – at the prescribed interest rate on the amount you owe, beginning on May 1. You’ll also be charged interest on any late-filing penalties. Interest is compounded daily, not monthly or annually. The prescribed interest rate can change every 3 months.
• If you miss the deadline again, the late-filing penalties are doubled. For example, if the CRA charged you late-filing penalties for any of the 3 previous years, you would pay a penalty of up to 50% made up of 10% of the taxes you owe, plus 2% of the taxes you owe for each full month that your return is late, to a maximum of 20 months.

– by Kiki Berg

7 things every self-employed individual should know — Before you apply for a mortgage

Self-employed individuals are quickly becoming one of the most common clients that we handle. Daily we have successful business owners come into our offices who enjoy the perks of being an entrepreneur. One of these includes fantastic write-offs that allow them to bring their income down to a low tax bracket.

However, this benefit can also mean that the same business owner may have a hard time qualifying for a mortgage all because their income is significantly reduced on paper… how frustrating ‘eh? But these savvy business owners know that there is advanced planning that is involved in being able to qualify for conventional financing. Back in 2015, Statistics Canada reported that there were about 2.7 million people self-employed in Canada… which is an astounding 14% of the total population of Canada! What does that stat mean? Two things:

1. That being self-employed is a more than viable way of earning income in today’s world.
2. That 14% may not fit into the conventional lending “box”

The Conventional Lending Box
To fit into this box, self-employed individuals must meet certain qualifications. For example, they must be able to provide:
>Two most recent years of personal tax returns
>Two most current years Notice of Assessments
>Two most current years financial statements
>Statement of Bank Account Activity
>Investment Income Statement
>Photo ID

Now, the one area that raises a red flag in the above is the tax returns. As we previously mentioned, their income claimed on the return itself might be significantly different than their actual income. Tax deductions related to business often reflect meals, rental spaces, credit card interest etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what their actual take home pay is. However, the conventional lending box requires income to justify the mortgage. So how do we pull this off?

The Unconventional Lending Box
Now please keep in mind that “unconventional” in this box just means that as a self-employed individua,l you are going to work with a Mortgage Broker to find an alternative to allow you to show that you can justify the mortgage. There are several well-known and consistently used pieces of advice that we would like to pass along to you:

1. If you are organized and planning (think 2 years out) you can plan to write off fewer expenses in the two years leading up to the property purchase. Yes, you will pay more personal taxes. However, your income will be higher, and it will be easier to qualify you for the mortgage amount you are seeking.
2. Set up your finances through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time you spend doing your own taxes will not be nearly as efficient both financially and time-wise as a professional. Make sure that you discuss with them what your goals are so that they can set up your taxes properly for you!
3. Choose your timing carefully. If you are leaving for an extended holiday within the two years before purchasing, your two-year average income may fluctuate. Plan your vacations and extended trips away with income in mind.
4. Consider using Stated Income. You have the option to state your income. This is based on you being in the same profession for 2+ years before being self-employed. The lender looks at the industry and researches the mean income of someone in that profession and with your experience. You will be required to provide additional documents such as bank statements, showing consistent deposits and other documentation may be asked of you to show your income.
5. Avoid Bankruptcy at all cost…. or if you do declare bankruptcy have all your discharge papers on hand to present to the lender and ensure you have two years of re-established your credit.
6. Mortgage Brokers can state income with lenders at the best discounted rates. But if you do not qualify with A lenders using stated income, then a broker will work with you to utilize a B Lender who are more lenient but may come with higher interest rates and applicable lending and broker fees.
7. Last but not least, if A or B lenders don’t fit, private financing can be looked at as an alternative option in order to get you into the market and offer a short-term solution to improve credit or top up your reporting income. Then you and your broker can refinance into an A or B lender at that time. Just keep in mind that private lending will have a higher rate associated with it , with lender and broker fees added on as well, if you choose to go with this option.

So, to all of our self-employed, hard-working, determined individuals, take heart! You can qualify for the mortgage you want, it just takes a little more planning to get everything in order. Keep in mind to that every lender has different guidelines as to how they view self-employment. Working with a Dominion Lending Centres broker leading up to your property purchase can help you ensure you get the mortgage you want.

– by Geoff Lee

CMHC Changes to Assist Self-Employed Borrowers

As a self-employed person myself, I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Plain speak, we don’t look good on paper.

Normally CMHC wants to see two years established business history to be able to determine an average income. But the agency said it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example a borrower that has been an interior designer with a firm for the past eight years and in the same industry for the past 30 years, but just struck out on his own last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts from the industry in which he has vast connections.
Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that CMHC has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

– by Kristin Woolard

Your HELOC and declining property values

Home Equity Lines of Credit (HELOC) for many years have been a way for Canadians to unlock equity in their homes and use the money for investing, paying for children’s education or quite simply lowering their monthly interest payments on high interest credit cards. This is all great if the property values remain steady, but if there has been a big upswing in value and the HELOC has been increased, here’s what can happen if the values start to reduce.
The bank can call a HELOC at any time meaning they can tell you that you have to pay it off which for most would mean refinancing the property and turning it all back into a mortgage.
The bank can freeze the HELOC meaning you can’t use it as they may see that your equity is no longer as large as it has been in the past.
And of course, they can raise the interest rate on the HELOC at any time, most Canadians enjoy the great rate of prime plus .50% or 1% on their HELOC but that can change at any time. The Banks can decide they want more and increase that percentage at any time, plus of course we are in a rising interest rate period and the bank of Canada will most likely increase prime at least three times in the next year. With prime currently at 3.70 per cent,  your HELOC could easily be over 5% in the coming year.
A HELOC has to be used with some caution especially when using it for investing; a declining real estate market can easily wipe out any gains in equity and cause one or more of the above scenarios to occur.

– by Len Lane

Bank or Mortgage Broker?

Mortgages are like vehicles. A bank is similar to the brand, Ford or Toyota for example. How long you have a mortgage before it’s time to renew is like the model, a Fusion or Camry. The rate is similar to the car’s paint color, and the mortgage benefits such as prepayment privileges and portability are like the car’s benefits; 4-wheel drive, hatchback, four doors instead of two, etc.

A bank is like a sales person at a Ford or Toyota dealership. He or she is an expert, they know everything about every car on their lot; engine size, warranty, all available colours, and their fuel ratings. He or she can match any car to your needs and lifestyle, as long as it’s sold at their lot.

But what if they don’t have the most fuel efficient car? What if you don’t like the design or you need four doors and a trunk and all they have is two doors and a hatchback? Are you still going to buy from that dealership just because you went there first? No, you’re going down the street to check out the Chevrolet, maybe even BMW, Mazda, or the new Chrysler dealership. That sales person doesn’t want you to go buy from another lot down the street, but you are buying to satisfy your needs, not the dealership’s needs of selling their own cars.

Now imagine a dealership that sold every single make and model of vehicle. Imagine you could choose one of their sales people, and have them work only for you. They know just as much or even more about every make and model, they do all the research for you and tell you what you need to look for, they ask you the important questions; they have your best interest. That is a mortgage broker, your own personal expert.

Now, you may not need a personal expert to buy a car. But what about mortgages? Is a 0.10% lower interest rate a lot? Or will a 20% prepayment privilege instead of 10% be more advantageous? Can you switch lenders and move your mortgage? $15,000 or $5,000 penalty? How is it calculated? Fixed or variable? Is a collateral charge good or bad? 2-year term or 5-year? Big bank or monoline lender? How about credit unions? The list goes on.

So, a bank or mortgage broker? Put it this way; would you buy from the first dealership you visit or hire an expert? If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

– by Ryan Oake

Legalized Marijuana and the Canadian Housing Market

October 17th will be an important day in Canada’s social history. It’s the day when we are going to have legalized marijuana across the country. We will be the second major country in the world to do this. How does this affect mortgage brokers like myself? When someone comes to me to obtain financing for a home purchase and the sellers have disclosed that they smoked pot in the house or grew a few plants , how will this affect their home purchase?

A few years ago, someone disclosed that their home had been a grow-op six years previously and their home insurance company cancelled their policy citing safety issues. I could see this happening with both lenders and mortgage default insurers like CMHC, Genworth and Canada Guaranty. A recent article by a member of the Canadian Real Estate Association suggested that both lenders and insurers might ask for a complete home inspection. It was suggested that sellers who have grown a few plants might want to get a head of a problem and have an inspection before they list the property. If there are any issues of mold or electrical systems that are not up to code, they can remedy this and have a quick sale.

I contacted both CMHC and Genworth Canada to find out if any policy changes are in the works. CMHC told me that there’s nothing planned beyond what is already on the books. If there’s been a grow operation it needs to be inspected and remediation done before they will insure. Genworth says that nothing has been announced as of yet. Any changes will result in an official announcement to all brokers.
Mortgage brokers may want to call their realtor referral partners and discuss this with them to see if local real estate authorities have any changes planned. If nothing else it will be good to touch base with your realtors to find out how the market is in your area.

If you are thinking about smoking pot in your home or want to grow a few plants , contact your local Dominion Lending Centres mortgage professional first to find out if this could affect your house value or sale in the future.

– by David Cooke

A bride and a mortgage broker – Our House Magazine

Dominion Lending Centres’ leading lady in the new national commercial campaign has a few questions of her own. As a young Canadian looking to get into the housing market, Laura Steponchev has a candid Q&A with one of our pro’s.

You could say Laura Steponchev is a pretty typical Canadian millennial. The aspiring actress moved to Toronto from Regina five years ago to pursue her career. And over the years, she’s moved around quite a bit. Steponchev lived on her own for a while, and loved it, but paying the bills was tough and she needed to be more reasonable. She got a roommate, but he moved in with his fiancé, and she moved out of that condo and into an old house in Greektown with four other roommates. She eventually met her boyfriend, and they soon moved in together. The couple decided they wanted a place of their own, so they moved into his parents’ house in the ‘burbs.
“Living with your partner comes with its own troubles, but living together with your inlaws – that’s a whole new ballgame,” she said.
Steponchev wants to get into the market, but she’s got a lot of questions.

Our House Magazine teamed up with Dominion Lending Centres mortgage broker to answer some of those questions and help Steponchev on the path to homeownership.

Q. I understand that first-time homebuyers are granted a five-per-cent down payment – I am not a first-time buyer any more. What am I looking to save for a down payment now?
A. First-time homebuyers are not the only ones who can purchase a home with as little as five per cent down. As long as the home you are purchasing will be your residence, you can still put only five percent down. But all lenders and mortgage insurers (CMHC, Genworth and Canada Guaranty) will want you to have an additional 1.5 per cent of the purchase price to ensure you can cover closing costs such as legal fees, Property Transfer Tax, Land Title registration etc.

Q. What’s the minimum down payment you would recommend to have before looking?
A. As long as you have the minimum five per cent down and 1.5 per cent of the purchase price for closing costs, that’s all a lender and mortgage insurer will want you to have. However, I recommend having a bit more as a buffer against unexpected costs. Remember, with a move there are utility hook-up costs, moving costs, home inspection and so on. Having an additional $5,000 above your down payment and lender-required 1.5 per cent will help make it a smoother move.

Q. What kinds of interest rates are we looking at?
A. Rates will vary day-to-day, but we are still at almost historical lows right now, and they are on the rise. Rates are offered and guaranteed for a period of time called a term. Terms can vary from one to 10 years with some lenders and are priced according to each individual lender’s pricing structure.
The most popular are five-year fixed and five-year variable. Where right now we see five-year fixed rates as low as 3.04 per cent and five-year variable rates as low as 2.36 per cent for qualified applicants, be aware that it is not all about rate. Some of the more appealing lower rate offerings come with additional terms that may not work for you, such as higher penalty structures or bona fide sale clauses that could have you stuck if you want or need to pay out your mortgage mid term.
As always, it is advisable to speak with an experienced mortgage broker to find out more about the terms of any rate offering to make sure you know all the implications that could apply to your situation.

Q. Realistically, what should our budget be?
A. Conservatively, the government has said that 35 per cent of your combined annual gross income should be enough to cover property expenses (mortgage payment, property taxes, condo fees, heating costs), and 42 per cent of your gross annual income needs to be enough to cover the property expenses plus any other credit payments (loans, credit cards, lines of credit).
In reality, every person’s situation is different, so, before you decide to take the leap into home ownership, it is a good exercise to detail your current budget to get a starting point for what supports a comfortable lifestyle. Be sure to include a savings plan into that monthly budget, not only for retirement but you will likely have maintenance costs with your new home or you may want to do some updating.
Now replace your rent payment with property costs (detailed above) and see how your monthly cash flow will be. Is it comfortable, or would you be pinched? Ultimately, it is no fun to be house rich and cash poor, so, if you would feel pinched, it might be an idea to downsize your purchase price to a more realistic level.

Q. In this economy and as a millennial, we’re told that owning a home is a very distant reality (especially due to that darned avocado toast).
Are our dreams of owning our own place just that – dreams?
A. Not at all! In my experience, millennials are very determined when they set their sights on a goal and really just need enough information to formulate a realistic plan. If a home purchase is in your future, my recommendation is to get in touch with a mortgage broker and start building that plan – sooner rather than later.
You may already be qualified and just don’t know it, or there may be tips and tricks you are unaware of that could bring that dream closer sooner. Or it may be that it could take you a year or two to get into a really strong position to enter the market. You just won’t know until you try.
I can tell you personally, it is a very satisfying professional experience when I work with clients from dream to reality, not matter how long it takes. It’s an exciting experience every time!

– Jeremy Deutsch

Rising Interest Rates and the Impact on Real Estate Values

Rising Interest Rates and the Impact on Real Estate Values. Is there a direct connection? In a post entitled Interest Rates and Property Values. What’s the Connection?, I suggested that there was. An example was given which suggested that mortgage lenders would be directly impacted by a rise in rates, as their underwriting parameters, most notably debt service coverage requirements, are directly impacted. An inability for a buyer to secure the required financing amount, in an environment of increasing interest rates will, I argue, impact their willingness to offer as high a purchase price. Arguably a lower debt level will necessitate a greater amount of equity. This directly diminishes an investors cash-on-cash return. The inevitable result will be a softening of values, since buyers will want to offer less.

Are there Other Factors?
The above noted rationale, for establishing the link between interest rates and values, does however ignore other factors which may impact market sentiment.

A recent study by Manulife Asset Management raises some interesting observations. In their March 2018 report entitled Canadian Commercial Real Estate Outlook, Manulife’s study observed that in fact there was no consistent relationship between real estate values and interest rates. One of their important findings was that although interest rates have been rising since November 2016, largely as a result of economic growth and higher inflationary pressure, capitalization rates actually declined. Why? Well apart from the sentiments of an individual buyer and lender, which is what I referenced in my earlier post, Canadian investors enjoyed improving real estate fundamentals. Yields were seen to be attractive in comparison to other investments, and there was a rise in foreign investment. All contributed to a support for commercial real estate fundamentals and stable or enhanced values.

Capitalization Rate Refresher
You may recall that capitalization rates are comprised of a nominal “risk-free” rate (often associated with a Government of Canada benchmark bond yield), plus a risk premium attributed to a specific property type or asset. If, as it appears, overall capitalization rates have declined, could it be that the “risk-free” rate is falling as well? I will encourage you to take a look at the Manulife report and come to your own conclusions. From a lender’s perspective, I do not doubt that rising rates have a bearing on what a buyer will pay for a property. I suspect real estate appraisers will be like-minded. The Manulife study does however caution us that there are macro-factors at play as well, and a strong economy is supportive of longer term stability, and indeed growth, in the Canadian Commercial real estate market.

– by Allan Jensen