3 Mortgage Terms You Need to Know

Prepayment, Portability and Assumability

Prepayments

One of the most common questions we get is about mortgage prepayments. The conditions vary from lender to lender but the nice thing about prepayments is that you can pay a little more every year if you want to pay off your mortage faster. A great way to do this is through prepayments.

They’re always something to ask your broker about because each lender is very different. You can always do an increase on your payments and that means that you pay a little bit more each week or each month when you make your mortgage payment. You can also make a lump sum payment. Perhaps you get a bonus every year or you get a lot of Christmas money. You can just throw that on your mortgage. It goes right on the principle so you’re not paying interest on those extra funds. Paying a big chunk at once also means that a higher percentage of future payments will also go towards the principle.

Portability

Portability means that if you sell your house and you want to take your current mortgage and move it to your new house you can. The one thing about portability that we always have to keep in mind is that we can’t decrease the mortgage amount but we can do a little bit of an increase often through a second mortgage or an increase we call a blend and extend. It just gives you the flexibility of moving the mortgage from one property to the next property. It also gives you the flexibility of being in control of where you mortgage is going and not having to break your mortgage every time you decide to move.

Moving a mortgage to a new property avoids things like discharge fees, the legal cost of registering a new mortgage and the possibly of a higher interest rate. It’s great to be able to keep that rate for the full term rather than having to break and pay those penalties half way through.

Assumability

Assuming a mortgage comes into play more often where there are family ties. Say your parents have a mortgage and you move into that house. Rather than you going out and getting a new mortgage and your parents having to pay those discharge fees, you have the ability to assume their existing mortgage at that current rate. All you have to do is apply and make sure you can actually afford the mortgage at what they’re paying. You have to be able to be approved on the remaining balance on the mortgage just like you would on any other mortgage. Just because your parents have an eight hundred thousand dollar mortgage doesn’t mean you’ll be able to take that over.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

– by Tracy Valko

Reverse mortgage – Some common misconceptions

The words reverse mortgage carry some negative connotation. What does it really mean? What makes reverse mortgage different than a regular or demand mortgage in Canada? There are no payments required if 1 applicant lives in the home. Payments can be made if they wish, they are truly optional.

No medical required and limited income and credit requirements.
Clients can receive up to 55% of the value of their home in tax free cash, depending primarily on their age, property type as well as location.

COMMON MISCONCEPTIONS & OBJECTIONS:

I heard they were restrictive and bad for seniors.

Much of the negative press around reverse mortgages originated out of the U.S. The rates, fees, and restrictions are quite different from what is offered in Canada. The reverse mortgage providers in Canada follow the same chartered bank rules as other major lenders.

The bank will own my house.

This is only a mortgage; the title and deed remain in the client’s name. The owner will not be asked to move, sell, or make payments for as long as at least 1 applicant lives in the property.

I’ll lose all my equity.

The maximum the lender can finance is 55% of the value of the home. The average advance is more like 35% of the value, leaving ample equity to fall back on. If the real estate market increases at an average of about 2% to 2.5% per year over time, clients will find their home value increasing just as much over time as the balance owed.

The costs are too high.

The closing costs are the same as a regular mortgage, approximately $1,800, includes the appraisal and lawyer fee.

A line of credit is better and cheaper.

A line of credit is a great solution for someone with good credit, cash flow and most importantly someone with a regular income.

I paid off my mortgage, I don’t want more debt.

Leveraging money from your home is not debt. It’s the equity accrued over the duration of ownership. Only the interest is debt.

Why are the rates higher than a regular mortgage?

Other lenders can lend out money at lower costs. This is because they have other services to sell the client to help recoup their cost. The regular mortgages also require a regular repayment frequency; thus, the lender is constantly receiving funds back to re-lend.

I heard they have high penalties and you can’t get out very easily.

This is well suited for seniors looking to keep the reverse mortgage in place for 3 or more years. There might be other solutions for a timeline that is shorter. Penalties are always waived upon death of the last homeowner. Penalties are reduced by 50% if selling and moving into a care facility.

I don’t need money very much so it’s not worth it.

The newest program offered is called Income Advantage. It allows clients to access money on their own timeline, when they need it or a pre-determined auto-advance. Borrower only pays on the amount advanced. The minimum advance required is $25,000.

If you’d like to talk to see if a reverse mortgage is a good fit for you, please don’t hesitate to reach out to a Dominion Lending Centres mortgage professional.

– by Michael Hallett

The Most Important Question This Spring

Short Version:

The most important question a home-seller must ask their Broker or their banker this Spring:

‘Do I QUALIFY to port my mortgage?’

You must re-qualify to port your mortgage to a new property, and you must re-qualify under stringent new rules.

How stringent?

Long Version:

Let’s say you have impeccable credit, a $100,000 income, and bought a house with a basement suite last year – you may have a mortgage of ~ $675,000…which you qualified for in 2017.

In 2018, you new maximum mortgage amount is closer to ~$530,000.

And if rates were to move up another 0.50% you’d be capped at ~$490,000.

If rates were to move up a full percentage point ~$455,000

Either way, even with no further upward movement, the family in this example, were they to enter into a binding sale agreement without confirming their qualifications would not be able to re-enter the market at the same price point.

Key Point – Do not ask if your mortgage is ‘portable’ (99% are). Ask if you currently qualify to move your mortgage to a new property. This will require an actual application and full review.

Key Point – The federal government has created a dynamic in which qualifying rates have shifted radically, and more precisely the ground has shifted under tens of thousands of middle class Canadians feet. You have been protected from yourself, and you don’t even know it.

Key Point – Since Jan. 1, 2018, you’re subject to the new stress test. Even though you have impeccable credit, have never missed a payment, and even got a 3% raise last year – too bad.

Conclusion

Don’t list your home for sale without having something in writing from your current lender confirming that you QUALIFY to move your existing mortgage to a new property. If you have any questions, contact your local Dominion Lending Centres mortgage professional.

And if you’ve personally been caught in this ‘portability trap’, by all means make your voice heard. Share your story with me directly and also here; www.tellyourmp.ca

– by Dustan Woodhouse

Getting on the Property Ladder

As property prices continue to rise across Canada, the conversation around “how to climb the property ladder” has made a subtle shift to “how to get on the property ladder in the first place.” Especially if you’re single.

Whereas before it was assumed anyone would qualify to buy a starter home (or condo), nowadays with increased housing prices and the government making it tougher to qualify for a mortgage through a financial stress test, becoming a homeowner isn’t a walk in the park. Qualifying for a mortgage on a single income is becoming increasingly difficult.

Unfortunately, just because you have a proven ability to pay rent on time doesn’t mean you will qualify to make mortgage payments in the same amount. So if you are looking to get into the housing market, but don’t qualify on your own, maybe you should consider co-ownership as an option!

So what is co-ownership anyway? Well, co-ownership is when more than one applicant takes on the financial responsibility of owning a property together. Co-ownership can take on many forms. Obviously owning a home with your spouse or life partner is the most common form of co-ownership, while having your parents co-sign on a mortgage is another. But for the sake of this article, let’s think past these arrangements.

Did you know that there are really no limitations with whom you can purchase a property? This is assuming they meet the lending criteria.
Maybe a brother, sister, cousin, neighbour, co-worker, friend, your mechanic, financial advisor, or some distant relative just happens to be looking to get into the housing market as well? There is a good chance that by combining your incomes together, you will qualify for a mortgage that neither of you would qualify on your own. Bringing someone else into the picture, or even a group of people, can significantly increase the amount you qualify to borrow on a mortgage. Most lenders will accept up to four applicants on a mortgage, while some lenders have even gone as far as launching products designed to make buying with friends and family easier. Buying a property with someone(s) in a co-ownership arrangement is becoming way more commonplace.

However, before making the decision to buy a house with someone, there is no doubt going to be a list of things you are going to want to work through. You will want to get everything out in the open and ask yourself questions like…

• Do I trust this person?
• Can I live with this person?
• Am I comfortable making decisions about the home with this person?
• How will conflict be managed when it arises?
• What happens if either party runs into financial trouble?
• What is the exit plan?

The more you work through ahead of time, the better chance you have at successfully co-owning a house with someone. A lot of people who purchase a property in a co-ownership agreement treat it like a business arrangement.
If you’d like to talk more about what this would look like for you personally, please don’t hesitate to contact a Dominion Lending Centres mortgage specialist. They can walk you through the process step by step and get you (and your partner in real estate) the best mortgage available to you!

– by Kris Grasty

Getting pre-approved for a mortgage this Spring

Apparently, as per the weather experts, March has a lot of snowfall and surprisingly so does April!
Hearing this on the radio gives you a wave of emotions: holy cow, oh great, I wonder how many vacation days I have left and when can I take down my Christmas lights.
Good news, those same weather experts are predicting a hot summer and you know what that means! Buy your fan(s) now before they run out and check out a pool, size and budget appropriate, for the backyard. So glad we have a compressor to blow that thing up every year; three rings take a lot of breath!
Normally by April you are thinking about moving because you need a bigger home, you need to down size, or its time to leave the basement of your family home.
Those weekends where you have little to do so you opt to go out, get a coffee and go to show homes and see how they decorate because the DIY on TV is all reruns. While you are there, you start to picture yourself living there and then begin to wonder, “can I do this?” Do I want to want to do all the landscaping, do I need a developed basement now or later, where are the schools? Maybe should I think about an already established community with lots of schools, trees, or place that my cat and I can live.
Working with your Dominion Lending Centres Mortgage Professional, we will review your options, your affordability, possible extra costs that you may have missed and finally, get you pre-approved!

Prequalified or rate hold, what is the difference?
Your broker has asked you for supporting documentation that will confirm your income, you do indeed have a down payment, and your debt is not more than you can handle along with possible new housing costs. This is so they can start the application to ensure the numbers are good and we can begin.

• Rate Hold – it is just that, a rate that lender is offering and, based on the application submitted to them, it shows the numbers are in alignment for them to hold a rate for you. This rate can be held anywhere from 90 – 120 days. Remember, they have reviewed the application submitted only and no other supporting documentation.
• Prequalified – it is just that, the lender has reviewed the supporting paperwork along with the application and is in happy to provide you with a prequalified letter stating they not only are they holding the rate for 90 – 120 days, depending on which lender, but you have met their criteria for lending.

o Although once you present you offer they may still have a few more items they want to check:
▪ You still working? – you will need a current paystub
▪ You still working at the same place?
▪ You didn’t buy a new car, right? Ugh!
▪ You didn’t get new furniture and finance it with the store, right? Ugh!

Ask your advisor about the DO’s and DON’Ts; this one single sheet of paper will make or break a deal!
Prequalified or rate hold, now you know the difference.

– by Karen Penner

Spring Into Action: Refinance Your Mortgage With the Help of a Mortgage Broker

We sprung forward last earlier this month by changing our clocks one hour ahead. For some, their microwave and oven clocks are once again displaying the correct time since the last time we needed to adjust our clocks (in the Fall). Patience is a virtue – except for when it comes time to refinance a mortgage!

The Spring is a busy time for mortgage brokers across the country. We welcome this change in season knowing that we are in the best position to give families mortgages that make sense for them.

This is the time of year that banks begin to send out their mortgage renewal notices. Some people will simply sign the documentation sent over from their bank and take on a new mortgage at the rate the bank has suggested. However, this may not be the best rate for which you and your family can qualify.

What is a Mortgage Renewal?

A mortgage renewal is when the current terms of your mortgage come to an end and you sign on for a new mortgage term.

The time is now to spring into action, up to three months ahead of your mortgage renewal deadline. By shopping around for the best mortgage rate for your financial circumstances, you may save yourself thousands of dollars. To do that, you may want to consider working with a seasoned professional – your local mortgage broker.

The benefits of working with a mortgage broker to help find a mortgage solution that works best for you are three-fold.

A mortgage broker gives you a second opinion.
While your current mortgage lender claims to have your best interest at heart, getting a second opinion on your financial situation does not hurt. There may be new options and products available for you that your current lender is forgetting or unable to offer. A second opinion on your changed financials may be able to save you money or highlight some new options that may be better suited to your needs.

A mortgage broker does the work for you, at no cost.
Some people are still concerned that hiring a seasoned professional to look at your finances and find new mortgage rates will cost a lot of money. This is a myth! Mortgage brokers provide their services at no charge (yes, free!) and take a fee from the lending institution, not the client. So, let us look around for the best mortgage rates available to you on your behalf – all at no cost to you.

A mortgage broker does ONE credit check but can check MULTIPLE lenders without lowering your credit score.
One of the biggest advantages to having a mortgage broker shop around on your behalf is having them conduct one credit check and then using that information to shop around among several different lenders. If you wanted to shop around on your own, you would have to allow each institution to run a credit check and, as a result, lower your credit score. Working with a lender also means a lot less paperwork for you, too!

In short, a Dominion Lending Centres mortgage broker does the legwork on finding the best mortgage rate for you, at no cost and with only one credit check. Be sure to spring into action this Spring to and get a jump on your mortgage renewal process.

– by Max Omar

March is fraud awareness month

You may have heard that March is Fraud Awareness Month. Authorities are trying to raise awareness of identity theft , phishing schemes and other forms of fraud. What you may not know is that as many as 1 in 5 Canadians are committing mortgage fraud whether they know it or not.

Fraud for Shelter

Is defined as any time a person “intentionally provides inaccurate, fraudulent or incomplete information to a lender in order to secure a mortgage that they might not otherwise be granted,” according to the Canadian Bankers Association.

You may intend on paying off the mortgage according to the terms in the contract but you may have fudged the numbers a bit to help you obtain the mortgage. Perhaps you borrowed the down payment money and intend on paying it back but you did not declare it as a gift; you may ask a friend to go on the application as a co – borrower when they won’t be living in the house with you. You might be friends with your boss at a small company and ask him to fudge your income to show you make $50,000 instead of $40,000 or alter your employment letter to show you make more than you do or have been on the job longer than you actually have been. This is all fraud.

What can happen to you if the truth comes out? Not only will the lender call the loan and you have to find alternative financing within 24 hours, but you could end up with fraud showing on your credit report. Imagine how unhappy your employer would be if they find out?

Fraud for Profit
You want to buy a rental property but you only have enough for a 5% down payment, nowhere near the 20% required to purchase a property that you don’t intend to live in.

Something that also happens too often is a friend or acquaintance tells you that they want to buy a property, but their credit won’t be in good shape for another 3-6 months. They offer to pay you $5,000 to use your name and credit to purchase the home and then they will take you off title when everything is good. Don’t fall for this. You are what the RCMP call a “straw buyer”. What they do is buy a home from another member of their gang at an over inflated price. They then make 2 or 3 monthly payments and then they take off leaving you stuck with a home you can’t sell for that price and obliged to make up any shortfall between the foreclosure selling price and the amount the lender mortgaged the home for.

Title Fraud
In this case, you are the victim. If you own a home free and clear, the fraudsters steal your identity, take out a mortgage on your property without you knowing it and take off with the funds leaving you to prove that you didn’t refinance your home The legal bills and the damage to your credit rating will be ongoing for a year or two at least.

In conclusion, mortgage fraud is a concern to all of us. It affects us directly as fraudulent mortgages cost lenders on average $300,000 each; a cost that is passed on to us with higher interest rates and fees. Be careful and be aware. Mortgage fraud is a problem for all Canadians who are home owners or potential home owners. If you have any questions, contact a Dominion Landing Centres mortgage professional near you. For more information on mortgage fraud click here.

-by David Cooke

But They Said It Was Portable…

The question most often asked: ‘Is my mortgage portable?’

The answer most often given: ‘Yes.’

This answer is increasingly wrong.

In reality you qualify to move ~80% of the balance… maybe.

If you are thinking of:

• Moving (upsizing or downsizing)
• Locking a variable-rate mortgage into a fixed-rate product

… you would be well served to keep reading.

The above question is incomplete. To be fair, you would have no way of knowing this. The person answering it should know better than to give you a one-word answer.

The proper question: ‘Do I need to re-qualify for my current mortgage to move to a new home?’

The proper answer: ‘Yes, your mortgage is portable, but only if you re-qualify under today’s new and more stringent guidelines.’

The person answering the portability question should only be your Dominion Lending Centres mortgage specialist. They alone can answer the question accurately, and only with a complete and updated application, along with all supporting documents to confirm the maximum mortgage amount under current guidelines.

Too many clients learn this lesson the hard way. They sell their existing property before speaking with their Mortgage Broker, and in some cases they also enter binding purchase agreements under the mistaken assumption they can just port their mortgage.

Key Point – Do not ask if your mortgage is portable (99% of them are). Ask if you currently qualify to move your mortgage to a new property.

Key Point – The federal government has created a dynamic in which there are two different qualifying rates for mortgage approvals. And the one used yesterday to get you into a five-year fixed rate mortgage is not always the same one that is used if you want to move that same mortgage to a new home down the street, even just one day later.

Key Point – One day into your five-year fixed mortgage, you are now subject to the stress test. In a nutshell, the stress test applies the higher qualifying rate and effectively reduces your maximum mortgage approval by ~20%.

Meaning that you may only be able to port 80% of the current balance to another property… just one day later.

So, what’s the fix?

The best fix – The government could add a simple sentence to their lending guidelines along the lines of ‘If a borrower qualified for their mortgage at the five-year contract rate at inception, then the borrower shall be allowed to re-qualify at that original rate when moving their mortgage to a new home.’

Currently this fix does not exist.

The current fix – Well it’s no big deal at all. You simply pay a penalty to break your current five-year fixed mortgage and then apply for a new five-year fixed mortgage. Said penalty amount? Typically, around 4.5% of the mortgage balance – i.e., a $14,000 penalty on a $300,000 mortgage balance.

Seems reasonable, right?

It’s entirely unreasonable. This is a horrible ‘fix’, because it is not a fix at all. If you bought with 5% down, and then a few months later were transferred to another province and had no choice but to move, this represents your entire down payment vanishing due to an oversight by the federal regulators.

If you have been personally caught in this ‘portability trap,’ it felt more like total devastation than it did ‘anecdotal’. And by all means you should make your voice heard. Share your story with via www.tellyourmp.ca

– by Dustan Woodhouse

What Is a “Monoline” Lender?

What usually follows once someone hears the term “Monoline Lender” for the first time is a feeling of suspicion and lack of trust. It’s understandable, I mean why is this “bank” you’ve never heard of willing to loan you money when you’ve never banked with them before?

In an effort to help you see the benefits of working with a Monoline Lender, here is some basic information that will help you understand why you’ve never heard of them, why you want to, and the reason they are referred to as lenders, not banks.

Monoline Lenders only operate in the mortgage space. They do not offer chequing or savings accounts, nor do they offer investments through RRSPs, GICs, or Tax-Free Savings Accounts. They are called Monoline because they have one line of business- mortgages.

This also plays into the reasons you never see their name or locations anywhere. There is no need for them to market on bus stop benches or billboards as they are only accessible through mortgage brokers, making their need to market to you unnecessary. The branch locations are also unnecessary because you do not have day-to-day banking, savings accounts, investment accounts, or credit cards through them. All your banking stays the exact same, with the only difference of a pre-authorized payments coming from your account for the monthly mortgage payment. Any questions or concerns, they have a phone number and communicate documents through e-mail.

Would it help Monoline Lenders to advertise and create brand awareness with the public? Absolutely. Is it necessary for them to remain in business? No.

Monoline Lenders also have some of the lowest interest rates on the market, the most attractive pre-payment privileges, and the lowest pre-payment penalties, especially when compared to a bigger bank like CIBC or RBC. If you don’t think these points are important, ask someone whose had a mortgage with one of these bigger banks and sold their property before their term was up and paid upwards of $12,000 in penalty fees. An equivalent amount with a Monoline Lender would be anywhere from $2,000-$4,000 in fees.

Monoline Lenders are not to be feared, they should be welcomed, as they are some of the most accommodating and client service-oriented lenders around! If you have any questions, don’t hesitate to call your local Dominion Lending Centres mortgage professional.

– by Ryan Oake

Keeping Your Credit Score Healthy

If you haven’t seen your credit score, you’re not alone.

Many of our clients don’t know about their credit score or even know what it is when we first meet with them. During our initial consultation, we go over your complete credit report with you. As an added bonus, we’ll even teach you how to read it.

So, how can you make sure you have a great credit score? Here are a few tips to get you started.

1. You need to have credit. It may be surprising – but your credit score goes up as more credit is available to you. We recommend at least two facilities: a credit card and a line of credit (or 2 credit cards).
2. You also have to pay your bills when they are due. That goes for your internet, cell phone and even parking tickets.
3. It also helps to start as soon as possible. The longer you have a clean record of paying your credit card, loans or other credit facilities, the better your credit becomes.
4. Finally, make sure to carry a low balance. One of the least known ways to hurt your credit is to have high utilization.

Don’t ever hesitate to contact a Dominion Lending Centres mortgage professional about your mortgage related needs when you’re buying a property anywhere in Canada.

– by Eitan Pinsky