6 Home Purchase Closing Costs

When you purchase your home, there are 6 additional costs to account for. They include:

• Home Fire and Flood Insurance
• Title Insurance
• Legal Fees
• Adjustments
• Land Transfer Tax
• GST

Here’s an overview of what you can expect.

Home and Fire Insurance. Mortgage lenders will require a certificate of fire insurance to be in place by the time you take possession of your home. The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Title Insurance. This is a one-time fee of about $150 and it protects you against any issues, defects or fraud on your title. Your lawyer or notary helps you purchase this.

Legal Fees. Thirdly, you are required to pay legal fees. Your lawyer or notary will charge you anywhere from $700 to $1,000 to help with your purchase. There are also fees to register your title with the municipalities. All told, you’re looking at around $1,000 to 1,300, after tax.

Adjustments. An adjustment is a cost to you to pay the seller back for prepaying any property tax or condo fees on your behalf. Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using.

Land transfer tax. Land transfer tax, or property transfer tax (PTT) as it’s known as in British Columbia, is a fee that is charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.

In British Columbia, the PTT is 1% on the first $200,000 of purchase and 2% thereafter. However, if the property being purchased is over $2,000,000, then it is 3% on any value over $2,000,000.

GST. GST is only paid on new construction purchases. GST is 5% on the purchase price. However, there is a partial GST rebate on properties under $450,000.

Please don’t hesitate to contact a Dominion Lending Centres mortgage professional for your home financing and mortgage needs.

– by Eitan Pinsky

What is a Refinance?

Refinancing a home is one of those things where people understand what it is but have trouble explaining how it works. To put it simply, refinancing your home allows you to access the equity you have built up, by changing the mortgage amount.

Let’s say you bought a $300,000 condo and you paid 20% ($60,000) as your down payment and had a mortgage of $240,000. Over the next 4 years, you continue making payments and pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home- this is where a refinance could come into play.

What this means is you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a home worth $350,000, therefor your equity in the home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 is going to go from the lender to you. You are borrowing money from the lender, but adding that money back on top of your mortgage.

This is why people will refinance their home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest, because it is being added to the mortgage.

This is just one way people are able to use their home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity lines of credit, collateral charges, and purchase plus mortgages. Knowing this before you buy can be extremely beneficial, that is why it is important to work with a qualified Dominion Lending Centres broker!

– by Ryan Oake

All roads lead to June -Our House Magazine

What do you do when you’re tired of the 9-5 daily grind and want to strike out on your own? For gal pals April Brown and Sarah Sklash, it was obvious – buy an aging motel in the country and renovate it. If it sounds like a business plan that could never work, these two Millennials would prove you wrong.

“We were looking for a creative outlet and thought about doing something entrepreneurial for five years, but the timing was never right,” Brown told Our House Magazine. Welcome to the June Motel.

Brown and Sklash, who worked in public and relations and the government of Ontario in Toronto respectively, had frequently visited Prince Edward County. A day’s drive from Toronto or Ottawa, the pair started noticing the area was quickly becoming a food and wine destination. They’d been looking for a creative outlet for years but the timing was never right.

But at the start of 2016, the friends decided it would be the year they make some changes and venture out on their own. They brainstormed a bunch of ideas until an old 16-room motel called the Sportsman Motel came up for sale.

“We should buy that motel, it’s one of those lightbulb moments,” Brown recalled.

However, the two 33 year-olds had no interest in running the same motel. They had much bigger plans.
Having spent time south of the border in places like Florida and Palm Springs, they fell in love with the retro-looking motels they came across in their travels. This would be their inspiration.

“Really our idea was we wanted to reinvent the motel experience. We travelled to so many places that had done this so well,” Brown said.

The pair went all-in on the concept.

After running the 50-year-old motel as the Sportsman for a season, they spent the winter getting their hands dirty on a total remodel. As Sklash explained, they started with a tropical palm wallpaper design they liked, and the rest of the renovation took off from there.

The women designed the guest rooms themselves, but worked with interior designer Keri MacLellan of Four Walls Interior on the lobby. After months of sweat equity, the motel was completely remade and had a new name to fit the retro vibe. The June Motel.

Sklash noted the idea was to design the motel for “photo moments,” from the pink doors greeting guests as they drive up to the neon signs in the lobby.

“We wanted the whole design to be a place that people would want to share with social media,” she said, adding 90 per cent of guests discovered the motel through Instagram.

And that bit of strategy paid off. As soon the June Motel opened its doors, guests were sharing their experiences with the world. The motel got a ton of buzz and attention from major publications like Vogue and the Toronto Star.

The first year as the June Motel was a smashing success. And as Brown and Sklash get ready for their second full season, the motel is already booked full for weekends.

With one success under their belts, the entrepreneurs now have their sights on expanding their brand. They’re looking for property and new opportunities. “There’s such and appetite for unique accommodations within that millennial market, we figure why stop at one?”

Motel inspired? Before taking the leap, be sure to talk to a professional
April Brown and Sarah Sklash struck gold when they decided to buy an old motel and convert it into the June Motel in Ontario.

But the pair didn’t jump into the idea without coming up with a solid business plan. Besides doing their market research, they had to consider financing.

Brown and Sklash explained along with a bit of their own capital, they decided to do a vendor takeback mortgage, in which the seller finances the remaining amount owed on the property. They turned to local economic development agencies to help with the costs of the renovation. While the pair note buying a motel in the country costs less than an average home in Toronto, they recommend doing the research and coming up with a strong business plan.

That’s where Dominion Lending Centres Commercial can help out. David Beckingham, the president of DLC Commercial Capital Inc., noted commercial mortgages aren’t easy and can be a long process. He pointed out commercial brokers can help the buyer through the process, including the appraisal, environmental issues, accounting and presenting a deal to the lender they understand.

He suggested in a situation like the June Motel, DLC Commercial would offer new financing at more favourable terms that would repay the vendor takeback mortgage and provide new money to repay the equity the new owners have already put in.

“You need a commercial guy to look at it in a business way that can isolate and stabilize the issues,” he said, adding it’s important to have a professional who understands the market place and the nuances of the lenders.

– by Jeremy Duetsch

What does a “Rate Hike” actually mean?

TD Bank has increased it’s posted rates and RBC did the same on Monday. This increase, from 5.14% to 5.59% at TD, is the “biggest move in years.” The change came because of the bond yields increasing. We do expect every other lender to follow suit.

But, actual interest rates have not changed… so what exactly is going on?

The banks have specifically increased something called the “posted” rate.

A “posted” rate is used for three purposes:

• Fools clients into thinking rates are higher than they are by being displayed in the “Rates” section of a bank’s website.
• A ~5% decrease in affordability for many borrowers. The posted rate is the benchmark rate that lenders use for qualifying a mortgage (a bank’s “stress test”).
• It is used to calculate the bank’s mortgage penalty.

First, let’s address the clients who renew their mortgages when the banks send out renewal letters…

Did you know that 80% of homeowners renew with their current mortgage lender? Did you also know that the Bank of Canada published a study that says:

“Lenders have improved their ability to price discriminate… offering discount rates to different sets of consumers, based on their willingness to pay.”

Lenders know that at renewal, most clients do not shop around as they did when they obtained their initial mortgage, and are therefore less likely to offer their best rate to current borrowers.

So, this higher rate is for people who don’t know better. Please remember that the banks are not there for your client. A recent CBC article shows that the banks are there to make money first and provide advice second.

Second, for qualification, the lenders go by their “posted rate” to qualify a mortgage. If a client gets a variable at 3%, the lender is required to qualify them at the higher rate of posted/benchmark and 2% above their contract rate (in this case, 3%). However, with lenders increasing their posted rates, the client will have to be approved at 5.59% instead of 5.14%. This will affect home buyers and decrease affordability by about 5%.

Third, banks use the posted rate for their penalty calculations. The higher the posted rate, the higher someone’s potential penalty is when they pay out their mortgage. This increase in the posted rate will increase people’s penalties quite substantially for Bank Interest Rate Differential (IRD) penalties. This is definitely not in the clients’ best interests. A borrower could do much better by going with a variable rate penalty or a monoline IRD penalty.

BONUS: OK, so we now know that the Posted Rates have increased. What we don’t know is why…

The first reason for a lender to increase their rates would be when the bond yields increase. We have seen a slight increase but not that much, and definitely not enough to warrant such a high increase in a bank’s posted rate. Generally, when the bond market changes, the discounted rates will change. Discounted rates are the rates that clients actually see when they get their mortgages.

One sentiment is that TD and RBC are trying to warn people to lock in now so they can make more money and have greater “spreads” between the bond yields and mortgage rates.

If I had a crystal ball, or if I was a portfolio manager, I may have more info for you here… Alas, this is all I can say on this matter. If you have any questions, contact a Dominion Lending Centres mortgage professional who can help.

– by Eitan Pinsky

Reverse Mortgage – the pros and cons

You may be seeing and hearing a lot more regarding the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed and how different it is to its counterpart in the U.S. and how relevant it has become given our aging population in Canada.

Who are they best suited for? People age 55+ that own a house, townhouse, or condo and want to either increase their cash flow, or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

• Funds can be advanced as needed such as a line of credit with interest only accruing on the money advanced.
• No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
• No payments required. Borrower can retain more of their income and never worry about default or foreclosure.
• Changes in interest rates don’t affect the client’s monthly cash flow since there no payment required.
• Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
• Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
• Borrowers will never owe more than the fair market value of the home at the time it is sold
• There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
• With conservative house appreciation of just 2.5% to 3% per year over time will typically make up for the accruing interest on the reverse mortgage leaving clients with plenty of equity in the end.

Cons

• Client are choosing to have more income/cash flow TODAY, in return for having less savings in the home TOMORROW.
• All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time set up and legal fees run approximately $2,500.
• Rates are approximately 1.5% to 2% higher than a best rate secured line of credit.
• If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more, please contact a Dominion Lending Centres mortgage professional who can walk you through the entire process.

-by Michael Hallett

8 Things You Can Do To Get The Best Renewal

With 47 per cent of homeowners scheduled to renew their mortgages this year, 2018 is a year of change for lots of Canadians.
Here are the top 8 things you can do to get the best renewal:

1. Pull out your mortgage renewal now, and start early. When you are proactive instead of reactive you can see if there is anything on your credit score or lifestyle that we can modify to ensure you are positioned for the best renewal. You are only in a position to do this when you start early- in the last year of your mortgage you will have the most amount of options available. For example, there can be an inaccuracy in your credit report or you may be considering an income/job change that would impact your options. We can look at timing accordingly for you.

2. Do not just sign the renewal offered. Lenders can change the terms of your mortgage, and the renewal you are signing can cost you up to four per cent of your equity if you are with the wrong lender for your current life stage.

3. Most people think the best rate is the best renewal – WRONG. The terms are most important and with all terms moving or selling is the only reason most people think they would ever break a mortgage- THIS is simply not the case, a change in the interest rate market, divorce, health, job change, investment opportunity and many other reasons would contribute to a future modification being beneficial for a consumer.

4. Take into consideration lender history. The lender can have a higher prime then anyone because they know the cost to leave outweighs staying the course. The lenders are very smart with their calculated risks- and this is not something they have an obligation to disclose.

5. Remember your lender has a bias – their job is to handcuff you so they can make as much profit off you as possible- don’t be a victim.

6. Do not shop each lender on your own, it takes points off of your credit score. All lenders have different rates based on your score and you want to position yourself to get the best. By using a mortgage professional, they can shop multiple lenders protecting your credit using only one application, while the rate variation can be on average a half a percent!

7. Don’t get sucked into the online rate shopping- any monkey can post a rate online and you can drive yourself crazy looking at something that does not exists. In today’s complex mortgage market there are significantly different rates based on – insured mortgage vs uninsured mortgage, switch vs refinance, purchase or renewal, principal residence vs rental, salary or self-employed, 600 credit score or 700 credit score, amortization of 20 years to 30 years, type of property condo vs house, and leased land or freehold. The variations can mean a difference in thousands of dollars. Like diagnosing a medical condition, you can’t go online, you do have to put in the appropriate application and supporting documents to verify which options are available to you that will result in the lowest cost in borrowing.

8. Remember your mortgage is the largest debt and investment most of us have, when you contact an independent mortgage professional, we are going to invest all the work and expertise and advise you in your best interest regardless if we get your business. We may after our review advise you to stick with your existing lender, or make another recommendation for you. We are only here to enhance your finances and save you money, and there is no cost for our service.

– by Angela Calla

Subject to Financing- A Must!

With most people who are new to real estate and looking for their first home (or possibly second), one of the most significant times is when your offer to buy is accepted by a seller. Unfortunately, that moment is quickly followed by stress, as not many people know what comes next- securing financing. 99% of the time a realtor will ask you if you have been qualified by a bank or a mortgage broker before they write an offer on your behalf. What should be told to you, the client, by the realtor and your mortgage broker is that you need to have a subject to financing condition in your offer.

In order for someone to receive a mortgage from a lender, they need to meet the lender’s (and some times the insurer’s) conditions. Usually, these all revolve around a borrower’s down payment money, their income as well as employment, and the property they are making an offer on. If you make an offer on a home and it is accepted, but for example the lender doesn’t like the property because the strata board doesn’t have enough money in their contingency fund to fix the leaking roof in the next 12 months, they could turn down your application and not lend you money.

If you don’t have the money, you don’t get the home. That is why you have a subject to financing condition, so if for any reason, you can’t meet the lender’s requirements with your income, down payment, or if the property is unacceptable to them or the insurer, you can cancel your offer without any hassle or loss of deposit.

What happens if you make a subject free offer? If you make an offer on a home and it doesn’t have a subject to financing condition in it, that house is now yours once the offer is accepted. Your deposit is no longer yours, and you have to come up with the remaining money. If you cannot and are unable to complete the purchase, the seller may file a lawsuit against you for damages as they have now taken their home off the market potentially losing out on the ability to sell their home to someone else while they waited for you to get financing.

Always, always, always have a condition in your offer that states subject to financing and allow yourself 3 to 5 business days. If you go in without that fail safe and it turns out you really need it, you will potentially be on the hook and if the seller wishes, he or she can sue you for any potential losses. Subject to financing is a must! If you have any questions, contact a Dominion Lending Centres mortgage professional.

– Ryan Oake

Having your cake and eating it too – Our House Magazine

This article appears in the April issue of Our House Magazine

Looking for an escape from her daily job, one B.C.-based custom cake maker has found the perfect recipe for success.

Working inside a prison can be one of the most stressful jobs out there. And when you spend hours in a bleak environment where no one really wants to be, you need to find an outlet, a way to balance out the negative.
For Cheryl Arsenault, that escape came in the form of a food everyone loves: cake.
The Chilliwack B.C. resident and Corrections Canada employee wanted to find a hobby to fill her time away from work. A friend suggested they try a cake decorating class. It turned out to be a recipe for business success. She started bringing her tasty creations to work, and very quickly began getting requests.
“I went from just taking a couple of classes to a business in a very short period of time,” Arsenault told Our House Magazine.
Mostly through word of mouth, the baker and her business Mad Batters, has kept her busy. From a Super Mario design featuring a bubble gum machine to a Star Wars Stormtrooper mask, the majority of Arsenault’s cakes are for birthdays and anniversaries, but weddings also keep her on her toes.
Though her side business was taking off, it did bring an unexpected problem. Arsenault quickly realized her dining room table was no place for her edible works of art. And she was also going to need some heavy duty equipment if she was going to go to take her creations to the next level. She originally used a spare room in her townhouse, but last year she bought a home. And besides making room for her parents, she needed a home that could accommodate a commercial baking space.
So Arsenault turned her garage into that space, spending a few thousand dollars for things like commercial sinks, tables and an oven. She now spends up to 20 hours a week during the busy season working from home, pointing out the convenience of doing so means she can make her own hours.
“It’s a good business, I really enjoy having it at home!”

Looking to create your own home based business?

Dominion Lending Centres can help! Cheryl Arsenault somewhat stumbled on a side career making custom cakes for special occasions. While Mad Batters keeps her busy, the home-based business owner does have some advice for the novice entrepreneur.
Whether it be cooking or crafting, she suggested you’ll need to have the space in your home, don’t try to start it in your living room. And be prepared to spend a little money, especially if you need equipment. And that’s where Dominion Lending Centres Leasing can help.
The leasing division can fund all types of home businesses and the supplies that are needed to get started.

As Jennifer Okkerse, director of operations for DLC’s leasing division, explained, a $5,000 lease over a four-year term would be about $150 a month. She noted DLC Leasing would help arrange payments with vendors, all while building credit for the business. And if you wanted to expand to a store front operation, you would now be established among lenders for a small business loan. For more information about DLC’s leasing options, visit dominionlending.ca or email credit@dominionlending.ca.

– by Jeremy Deutsch

Are mortgage terms more important than rate?

Why are the terms more important than rate when it comes to a mortgage?

Simple. Seven out of 10 Canadians break their mortgages prior to the renewal date.
Taking the wrong mortgage when you could have qualified for a better one- is a costly mistake.

The biggest mistake anyone can make is they don’t think they need to make a change, or they’re the three-in 10 that won’t break a mortgage.

For those people I give you a short list of potential reasons why you might need to get out of a mortgage early.

1. Sale and purchase – maybe you get an offer you can’t refuse, either work or real estate related, maybe the zoning has changed, your neighbours or strata are unmanageable or maybe you want to grow your family
2. Take Equity out – get renovations done, help family members or buy another investment, pay CRA, or assessments on property
3. Pay off debt – maybe you are like the over 60% of Canadians living paycheque to paycheque and paying over 5% on credit cards or lines of credit. There are much more savings in interest and cash flow for you utilizing your equity.
4. Relationship changes – moving in together, divorce is at a 50% rate these days, kids (needing more space or need to move in together).
5. Health or life challenges – huge illness, unemployment or death of someone on title can be a burden enough.
6. Removing someone from title – a co-signer (3/10 homebuyers get help from a family member) or an ex-spouse.
7. Save money with a lower rate – the market is always changing. It may make sense to break early and go with a different term as the market changes.
8. Pay it off – maybe you won the lottery or got an inheritance.

Some of the above is not avoidable, but the one thing you totally can control is who you align yourself with when shopping for a mortgage. A Dominion Lending Centres mortgage broker will always be looking at all the factors involved in a mortgage without bias to help you make an educated decision on what best suits you.

-by Angela Calla

Mortgage Broker Value

Not surprisingly, borrowers often default to their own Banker. And why not? It’s an established and comfortable relationship. Perhaps it’s viewed as the path of least resistance. But is it the right lender for the borrower’s current specific needs? Perhaps not.

More sophisticated borrowers may be of a size or scale that they have their own internal resources in finance, quite capable of securing the required financing. They are likely only in the market infrequently however, and almost certainly not fully knowledgeable as to all of the financing sources available.

Aren’t all Lenders pretty much the same?
Borrower’s may think that all institutional lenders are pretty much the same. Offering comparable rates, and standardized borrowing terms. This is rarely the case. Lender’s often prefer one asset class over another. They may have a particular need for one type of loan. A specific length of loan term may be desirable, for funds matching purposes. Real Estate risk is a fact for real estate lenders. How they mitigate this risk differs however. It may be stress testing interest rates during the approval process. Sophisticated risk pricing models may be used, having regard to previous loss experiences. The lender may rely significantly on collateral value, or guarantees. The conditions precedent to funding will often differ from lender to lender.

A real world example
I had the pleasure last year in advising a client who had 3 sizable real estate assets, in 3 quite distinct asset classes. The borrower’s loan amount requirements were significant, however they were flexible on loan structure. Accordingly, I sought out competitive, but differing deal structures. My goal was to provide a competitive array of options. A number of “A” class lenders were approached, several/most of whom this particular borrower had no previous experience with. I shortened the list to 5 lenders, and received Term Sheets from each.

Each Offer was competitive on a stand alone basis, but they differed quite substantially, in the following ways:

• Loans were either stand alone, or blanket loans, or some combination.
• Length of terms offered, differed by asset class.
• There was as much as a 75 bps rate difference, from highest to lowest Offer.
• The amortization period depending upon asset class, ranged from 15 to 25 years.
• Loan amounts on individual assets differed as much as 20%.
• Third party reporting requirements differed between lenders.
• There were a combination of fixed vs. floating rate loan structures.
• Recourse was limited by some lenders, on select assets, or waived entirely, upon a higher rate structure.

Leverage Your Knowledge
These variances are striking, yet each of the 5 lenders were considering the precise same asset, at the same time, with common supporting information from which to base their analysis. How was the borrower to know which Offer to exercise? As a Broker, I can add value by helping the borrower to consider both their immediate and longer term strategic requirements, in the context of their overall real estate portfolio needs. This was precisely how this borrower landed on the most appropriate Offer for their particular circumstances. In this particular case we presented different, yet competitive, and uniquely structured options for the borrower’s consideration.

Consider a Dominion Lending Centres Mortgage Broker when next in the market for financing. Leveraging a Broker’s knowledge is a tremendous value proposition.

– by Alan Jensen