Spousal Buyout Mortgage?

If you happen to be going through, or considering a divorce or separation, you might not be aware that there are mortgage products designed to allow you to refinance your property in order to buyout your ex-spouse.

For most couples, their property is their largest asset and where the majority of their equity has been saved. In the case of a separation, it is possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program.

Here are some common questions about the spousal buyout program:

• Is a finalized separation agreement required?

Yes. In order to qualify, you will be required to provide the lender with a copy of the signed separation agreement. The details of asset allocation must be clearly outlined.

• Can the net proceeds be used for home renovations or to pay out loans? 

No. The net proceeds can only be used to buy out the other owner’s share of equity and/or to pay off joint debt as explicitly agreed upon in the finalized separation agreement.

• What is the maximum amount that can be withdrawn?

The maximum equity that can be withdrawn is the amount agreed upon in the separation agreement to buy out the other owner’s share of property and/or to retire joint debts (if any), not to exceed 95% loan to value (LTV).

• What is the maximum permitted LTV?

Max. LTV is the lesser of 95% or Remaining Mortgage + Equity required to buy out other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV). The property must be the primary owner occupied residence.

• Do all parties have to be on title?

Yes. All parties to the transaction have to be current registered owners on title. Solicitor is required to do a search of title to confirm.

• Do the parties have to be a married or common law couple?

No. The current owners can be friends or siblings. This is considered on exception with insurer approval. In this case, as there won’t be a separation agreement, there is a standard clause that can be included in the purchase contract that outlines the buyout.

• Is a full appraisal required?

Yes. When considering this type of a mortgage, it is similar to a private sale and a physical appraisal of the property is necessary.

If you have any questions about how a spousal buyout mortgage works, please contact your local Dominion Lending Centres mortgage professional. Be assured that our communication will be held in the strictest of confidence.

–  by Michael Hallett

Insured, Insurable & Uninsurable vs High Ratio & Conventional Mortgages

You might think you would be rewarded for toiling away to save a down payment of 20% or greater. Well, forget it. Your only prize for all that self-sacrifice is paying a higher interest rate than people who didn’t bother.

Once upon a time we had high ratio vs conventional mortgages, now it’s changed to; insured, insurable and uninsurable.

High ratio mortgage – down payment less than 20%, insurance paid by the borrower.

Conventional mortgage – down payment of 20% or more, the lender had a choice whether to insure the mortgage or not.

vs

Insured –a mortgage transaction where the insurance premium is or has been paid by the client. Generally, 19.99% equity or less to apply towards a mortgage.

Insurable –a mortgage transaction that is portfolio-insured at the lender’s expense for a property valued at less than $1MM that fits insurer rules (qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%).

Uninsurable – is defined as a mortgage transaction that is ineligible for insurance. Examples of uninsurable re-finance, purchase, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1MM, (re-finances are not insurable) equity take-out greater than $200,000, amortization greater than 25 years.

The biggest difference where the mortgage consumers are feeling the effect is simply the interest rate. The INSURED mortgage products are seeing a lower interest rate than the INSURABLE and UNINSURABLE products, with the difference ranging from 20 to 40 basis points (0.20-0.40%). This is due in large part to the insurance premium increase that took effect March 17, 2017. As well, the rule changes on October 17, 2017 prevented lenders from purchasing insurance on conventional funded mortgages. By the Federal Government limiting the way lenders could insure their book-of-business meant the lenders need to increase the cost. We as consumers pay for that increase.

The insurance premiums are in place for few reasons; to protect the lenders against foreclosure, fraudulent activity and subject property value loss. The INSURED borrower’s mortgages have the insurance built in. With INSURABLE and UNINSURABLE it’s the borrower that pays a higher interest rate, this enables the lender to essential build in their own insurance premium. Lenders are in the business of lending money and minimize their exposure to risk. The insurance insulates them from potential future loss.

By the way, the 90-day arrears rate in Canada is extremely low. With a traditional lender’s in Canada it is 0.28% and non-traditional lenders it is 0.14%. So, somewhere between 99.72% and 99.86% of all Canadians pay their monthly mortgage every month.

In today’s lending landscape is there any reason to save the necessary down payment or do you buy now? Saving may avoid the premium, but is it worth it? You may end up with a higher interest rate.

By having to wait for as little as one year as you accumulate 20% down, are you then having to pay more for the same home? Are you missing out on the market?

When is the right time to buy? NOW.

Here’s a scenario is based on 2.59% interest with 19.99% or less down and 2.89% interest for a mortgage with 20% or greater down, 25-year amortization. In this scenario, it takes one year to save the funds required for the 20% down payment.

• First-time homebuyer
• Starting small, buying a condo
• 18.9% price increase this year over last

Purchase Price $300,000
5% Down Payment $15,000
Mtg Insurance Premium $11,400 (4% as of March 17, 2017)
Starting Mtg Balance $296,400
Mortgage Payment $1,341.09

Purchase Price $356,700 (1 year later)

20% Down Payment $71,340
Mtg Insurance Premium $0
Starting Mtg Balance $285,360
Mortgage Payment $1,334.40

The difference in the starting mortgage balance is $11,040, which is $360 less than the total insurance premium. As well, the overall monthly payment is only $6.69 higher by only having to save 5% and buying one year sooner. Note I have not even built in the equity that one has also accumulated in the year. The time to buy is NOW. Contact your local Dominion Lending Centres mortgage professional so we can help!

Mortgage changes are coming—are you prepared?

We know – more changes?! How can that be! With this ever-changing landscape, mortgages continue to get more complicated. This next round of changes is predicted to take affect this coming October 2017 (date not yet available). These new rules contain three possible changes, the most prominent being the implementation of a stress test for all uninsured mortgages (those with a down payment of more than 20%). Under current banking rules, only insured mortgages, variable rates and fixed mortgages less than five years must be qualified at a higher rate. That rate, of course, is the Bank of Canada’s posted rate (currently 4.84%, higher than typical contract rates). Going forward, it will be replaced by a 200-basis-point buffer above the borrower’s contract rate. (source)

The other proposed changes include:
• Requiring that loan-to-value measurements remain dynamic and adjust for local conditions when used to qualify borrowers; and
• Prohibiting bundled mortgages that are meant to circumvent regulatory requirements. The practice of bundling a second mortgage with a regulated lender’s first mortgage is often used to get around the 80%+ loan-to-value limit on uninsured mortgages.
These two proposed changes are minor, and would only affect less than 1% of all mortgages in Canada. The main one, the stress testing, will have a far greater impact.

Why is this happening?

You may recall that the stress test requirements were announced by OSFI in October of 2016. This rule followed a long string of new rules that occurred in 2016. At the time, they primarily affected First Time Home Buyers and those who had less than 20% down to put towards a home. Now, those who are coming up to their renewal date or wishing to refinance may find that this will have an impact on them. They may not qualify to borrow as much as they once would have due to the stress testing implication. For example:

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $610,000.00.

Take off the existing mortgage amount owing and you are left with $145,000.00 that is available in the equity of the home provided you qualify to borrow it.

Current Lending Requirements

Qualifying at a rate of 2.94% with a 25-year amortization and with a combined annual income of 85K you would be able to borrow $490,000.00. Reduce your existing mortgage amount of 343K and this means that you could qualify to access the full 145K available in the equity in your home.

Proposed Lending Requirements

Qualify at a rate of 4.94% with a 25-year amortization and with a combined annual income of 85K you would be able to borrow $400,000.00. Reduce your existing mortgage amount of 343K and this means that of the 145K available in the equity in your home you would only qualify to access 57K of it. This is a reduced borrowing amount of 88K.

They have a mortgage balance of $343,000.00. Lenders will refinance to a maximum of 80% LTV (loan to value). The maximum amount available here is $488,000.00

As you can see, the amount this couple would qualify for is significantly impacted by these new changes. Their borrowing power was reduced by $88,000-a large sum of money!

With the dates of these changes coming into effect not yet known, we are advising that clients who are considering a renewal this fall do so sooner rather than later. Qualifying under the current requirements can potentially increase the amount you qualify for—and who wouldn’t want that?

For more information on how these changes affect you specifically, or to refinance your mortgage, get in touch with your local Dominion Lending Centres Mortgage Professional-they are well-versed in these changes and are ready to help you navigate through the complexities!

10 things NOT to do when applying for a mortgage – buying a home or refinancing

Have you been approved for a mortgage and waiting for the completion date to come? Well, it is not smooth sailing until AFTER the solicitor has registered the new mortgage. Be sure to avoid these 10 things below or your approval status can risk being reversed!

1. Don’t change employers or job positions
Any career changes can affect qualifying for a mortgage. Banks like to see a long tenure with your employer as it shows stability. When applying for a mortgage, it is not the time to become self employed!

2. Don’t apply for any other loans
This will drastically affect how much you qualify for and also jeopardize your credit rating. Save the new car shopping until after your mortgage funds.

3. Don’t decide to furnish your new home or renovations on credit before the completion date of your mortgage
This, as well, will affect how much you qualify for. Even if you are already approved for a mortgage, a bank or mortgage insurance company can, and in many cases do, run a new credit report before completion to confirm your financial status and debts have not changed.

4. Do not go over limit or miss any re-payments on your credit cards or line of credits
This will affect your credit score, and the bank will be concerned with the ability to be responsible with credit. Showing the ability to be responsible with credit and re-payment is critical for a mortgage approval

5. Don’t deposit “mattress” money into your bank account
Banks require a three-month history of all down payment being used when purchasing a property. Any deposits outside of your employment or pension income, will need to be verified with a paper trail. If you sell a vehicle, keep a bill of sale, if you receive an income tax credit, you will be expected to provide the proof. Any unexplained deposits into your banking will be questioned.

6. Don’t co-sign for someone else’s loan
Although you may want to do someone else a favour, this debt will be 100% your responsibility when you go to apply for a mortgage. Even as a co-signor you are just as a responsible for the loan, and since it shows up on your credit report, it is a liability on your application, and therefore lowering your qualifying amount.

7. Don’t try to beef up your application, tell it how it is!
Be honest on your mortgage application, your mortgage broker is trying to assist you so it is critical the information is accurate. Income details, properties owned, debts, assets and your financial past. IF you have been through a foreclosure, bankruptcy, consumer proposal, please disclose this info right away.

8. Don’t close out existing credit cards
Although this sounds like something a bank would favour, an application with less debt available to use, however credit scores actually increase the longer a card is open and in good standing. If you lower the level of your available credit, your debt to credit ratio could increase and lowering the credit score. Having the unused available credit, and cards open for a long duration with good re-payment is GOOD!

9. Don’t Marry someone with poor credit (or at lease be prepared for the consequences that may come from it)

So you’re getting married, have you had the financial talk yet? Your partner’s credit can affect your ability to get approved for a mortgage. If there are unexpected financial history issues with your partner’s credit, make sure to have a discussion with your mortgage broker before you start shopping for a new home.

10. Don’t forget to get a pre-approval!
With all the changes in mortgage qualifying, assuming you would be approved is a HUGE mistake. There could also be unknown changes to your credit report, mortgage product or rate changes, all which influence how much you qualify for. Thinking a pre-approval from several months ago or longer is valid now, would also be a mistake. Most banks allow a pre-approval to be valid for 4 months, be sure to communicate with your mortgage broker if you need an extension on a pre-approval.

– by Jennifer Fuentes

35% Down… The New Conventional Mortgage?

If you’re looking to buy a new home, one of the most difficult things can be putting together a down payment for the mortgage. So how much do you really need to put together before you can get into the home of your dreams? Let’s take a look at some of the different options, with their various pros and cons.

0% Down – A Thing of the Past?

If you’ve been in the housing market before, you might remember a time when banks offered extremely inexpensive mortgage options, including the “zero down payment” mortgage. Although these types of mortgages were extremely attractive for obvious reasons, you may remember a something called the Great Recession of 2008. The unfortunate downside to these mortgages was that far too many unqualified buyers were opting into mortgages they could not realistically afford. When these people defaulted en masse, it led, in part, to the collapse of the housing market. As a result, Canadian legislators moved to implement safety measures preventing such high-risk mortgages from being so freely available.

As a result, if you’re looking to buy a home through a federally-regulated lender, you will be required to make a minimum 5% down payment. On the other hand, most major credit unions do still offer zero down mortgages, primarily aimed at lower income families getting into the housing market for the first time. The benefits of this are obvious, requiring less money up front, but what are the downsides? The biggest drawback to this kind of mortgage is the high interest rate. Most of these plans carry an interest rate up to 150% higher than mortgages with 20% or more down. This interest can add up very quickly, in addition to mandatory insurance required for any mortgage with below 20% down. The cost over time of both these high interest rates and insurance can become daunting expenditures, dramatically reducing the attractiveness of these mortgages.

Mid-Range Down Payments – 20% Down

In the Canadian housing market, 20% down is a bit of a milestone. If you put together less than 20% for a down payment, you will be required to also purchase default insurance, a pricy addition your regular mortgage payments. However, if you have 20% or more, you will be exempt from this burden. Common wisdom dictates that, in the long run, you will save a substantial sum of money if you can put together at least 20% for a down payment, as it will reduce your monthly payments substantially.

If you fall somewhere between 0% and 20% in terms of your ability to put together a down payment, you might want to look into the climate of your housing market. For example, when moving into a very popular housing market, where prices are increasing at a fast pace, it could be more expensive to wait until you have a larger down payment, as the prices will increase at a rate which negates the benefits you’d receive by not having to pay insurance. In a mellower housing market, you may be better off saving up and avoiding the higher interest and insurance premiums of a lower down payment mortgage, since the cost of housing will not be likely to climb so quickly.

Whatever your specific situation, it helps to have professionals look into it with you and crunch the numbers to make sure that you’re making the best decision for you!

35% Down Payment – The Ideal Mortgage?

Further conventional wisdom dictates that if a 20% down payment is good, 35% must be even better. The importance of 20% is, of course, that the CMHC insurance is no longer required, but what if you’re situated so that you can afford an even larger down payment? Simply put, the more money you’re able to commit up front to a home, the less expensive it will be in the long run. Not only will you have less to pay off, but you will qualify for even more appealing interest rates. With lower interest rates and no insurance to worry about, the overall cost of your home will be substantially lower and you will be finished paying off your home far more quickly than if you were to put down the minimum.

Of course, not everyone is so situated that they can afford to put down 20-35% on a home. It’s important to note that, although there are benefits, a princely down payment is not required to get into the housing market. If you are a first-time buyer or belong to the low-to-mid income class, there are options available for you as well.

What’s truly important is to be able to take a frank, honest look at your finances, be clear about what you can and can’t afford, get professional assistance when needed, and do the math on what you’re getting yourself into. Buying a home should be an exciting experience, and it can be, provided you put in the necessary footwork! The mortgage professionals at Dominion Lending Centres are happy to help.

• – by Tracy Valko

What Happens When a Home Sale Falls Through?

Every homebuyer eagerly anticipates closing day. With the home purchase process completed, ownership of the property transfers from the seller to the buyer – you!

Closing date is negotiated as a condition of sale. You’ll typically have several weeks between the date that your agreement to purchase (sales contract) is signed and your closing date.

During that time, you and your real estate team will work to ensure that all the conditions of the sale are met so you can take possession on the agreed-upon date.

But what happens if a home sale falls through and you are unable to close?

Reasons why a home sale could fall through

It’s worth noting that the vast majority of purchase agreements close as expected. But the most common reasons why a sale may fall through are the following:

• The homebuyer fails to qualify for a mortgage.
• The homebuyer makes an offer to purchase a home based on the condition that they can sell their existing property first – and fails to do so.
• The homebuyer’s lender appraises the property at a value significantly lower than the agreed-upon purchase price. If the buyer can’t make up the shortfall from savings or the seller won’t lower the price, the buyer can no longer afford the property.
• There are title insurance or home inspection surprises. If a title report shows claims against the property or if a home inspection reveals serious flaws, it will jeopardize the sale.
• The homebuyer gets cold feet, changing his or her mind for any reason.

TIP: The best way to reduce the odds of failing to close on a home you want is to get mortgage pre-approval from the mortgage professionals at Dominion Lending Centres before you start house hunting.

Avoid making an offer on a potential money pit by scheduling a pre-sale inspection.

Your home sale falls through. Now what?

If you ever experience a sobering “it’s just not gonna happen” moment, contact your REALTOR® immediately.

If appropriate, they will send the seller’s agent a mutual release form, which releases both parties from the purchase agreement. As the buyer, you will endeavor to get your sales deposit back, and the seller is free to sell the home to someone else.

Problems arise if the seller refuses to sign the mutual release form.

Who gets the deposit?

If the seller refuses to sign the mutual release form, your deposit, which is held in a trust account, remains in trust until it is released by court order.

A disgruntled seller may decide to sue for damages that result from the failed purchase agreement. For example, they may end up selling the property to another buyer for less, resulting in a financial loss.

Or let’s say they purchased a home conditional on the sale of their existing home, and because you backed out, they either fail to close on that home or they must take out bridge financing to save the sale. They’ll probably want compensation for the extra costs and hassle.

While failure to close is an uncommon occurrence, it causes headaches for both buyers and sellers. Try avoiding it by getting mortgage pre-approval before you start house hunting, and by booking a pre-sale home inspection.

Most important, hire a real estate team. These experts can use their experience and professionalism to guide you through your sale, managing any bumps along the way.

Banks & Credit Unions vs Monoline Lenders

We are all familiar with the banks and local credit unions, but what are monoline lenders and why are they in the market?

Mono, meaning alone, single or one, these lenders simply provide a single yet refined service: to fulfill mortgage financing as requested. Banks and credit unions, on the other hand, offer an array of other products and services as well as mortgages.

The monoline lenders do not cross-sell you on chequing/savings account, RRSPs, RESPs, GICs or anything else. They don’t even have these products and services available.

Monolines are very reputable, and many have been around for decades. In fact, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders source their funds from the big banks in Canada, as these banks are looking to diversify their portfolios and they ultimately seek to make money for their shareholders through alternative channels.

Monolines are sometimes referred to as security-backed investment lenders. All monolines secure their mortgages with back-end mortgage insurance provided by one of the three insurers in Canada.

Monoline lenders can only be accessed by mortgage brokers at the time of origination, refinance or renewal. Upon servicing the mortgage, you cannot by find them next to the gas station or at the local strip mall near your favorite coffee shop. Again, the mortgage can only be secured through a licensed mortgage broker, but once the loan completes you simply picking up your smartphone to call or send them an email with any servicing questions. There are no locations to walk into. This saves on overhead which in turn saves you money.

The major difference between a bank and monoline is the exit penalty structure for fixed mortgages. With a monoline lender the exit penalty is far lower. That is because the banks and monoline lenders calculate the Interest Rate Differential (IRD) penalty differently. The banks utilize a calculation called the posted-rate IRD and the monolines use an IRD calculation called unpublished rate.

In Canada, 60% (or 6 out of every 10) households break their existing 5-year fixed term at the 38 months. This leaves an average 22 months’ penalty against the outstanding balance. With the average mortgage in BC being $300,000, the penalty would amount to approximately $14,000 from a bank. The very same mortgage with a monoline lender would be $2,600. So, in this case the monoline exit penalty is $11,400 less.

Once clients hear about this difference, many are happy to get a mortgage from a company they have never heard of. But some clients want to stick with their existing bank or credit union to exercise their established relationship or to start fostering a new one. Some borrowers just elect to go with a different lender for diversification purposes. (This brings up a whole other topic of collateral charge mortgages, one that I will venture into with another blog post.)

There is a time and a place for banks, credit unions and monoline lenders. I am a prime example. I have recently switched from a large national monoline to a bank, simply for access to a different mortgage product for long-term planning purposes.

An independent mortgage broker can educate you about the many options offered by banks and credit unions vs monolines.

– by Michael Hallett

Summary of the New Mortgage Market

There have been a lot of changes in the mortgage market over the past few months so many Canadian’s plans regarding homeownership may have shifted quite a bit from last year.

First, new qualification rules came to pass in October where even though actual contract rates are sitting at about 2.79% all Canadians have to now qualify at the Bank of Canada Benchmark rate of 4.64% to prove payments can still be met when rates go up in the future. That has taken about 20% of people’s purchase power out of the equation.

The second round of rules were implemented at the end of November with the government requiring banks to carry more of the cost or lending having to do with how they utilize mortgage insurance and the level of capital they have to have on reserve. This means it is more costly for banks to lend so they are passing some of that cost to Canadians.

We now have a tiered rate pricing system based on whether you are “insurable” and meet new insurer requirement to qualify at 4.64% with a maximum 25-year amortization (CMHC, Genworth, Canada Guaranty are the 3 insurers in Canada) or are “uninsurable” where you may have more than 20% down but can’t qualify at the Benchmark rate or need an amortization longer than 25-years to qualify or are self-employed so can’t meet traditional income qualification requirements. Canadians who are uninsurable will be charged a premium to their rate of anywhere from 15-40bps. So your rate would go from 2.79% to 2.94% at the very least.

Then in BC there was the announcement of the BC HOME Partnership Program (BCHPP) in January. We have finally had some clarification on how this works but the benefits are not as grand as the BC Government would like them to appear.

The BCHPP is a tool to assist First Time Homebuyers supplement their down payment by the government matching what they have saved up to 5% of the purchase price. While this may help some clients bring more money to the table we have to factor a payment on that “loan” into the debt-servicing mix so they will actually qualify for less by way of a mortgage. They have more down payment but can not get as high a mortgage so it’s very close to a wash.

Lastly, as of mid January, CMHC announced they are increasing mortgage insurance premiums on March 17th. Genworth and Canada Guaranty are likely to follow. The insurance premiums are based on a percentage of the mortgage amount requested and how much you have to put down. For people with 5% down the premium will go from 3.60% to 4.00% and if you want to take advantage of the BCHPP program the premium will go from 3.85% up to 4.5%

What does this all mean? Overall it is more costly and more confusing to get a mortgage today than we have seen in many years. With the complexity of the new mortgage market, now more than ever buyers need someone with extensive knowledge to help them sort through their options – such as your local Dominion Lending Centres mortgage professional.

If we can be of assistance to you or someone you know, please do not hesitate to contact us.

– by Kristin Woolard

2016 Property Assessments vs. Market Value

SHORT VERSION:

Do not rely on your provincial assessment for a fair market value of your property.

The value printed on that document was arrived at during a time in the previous year, the market may have changed a bit since then, and not in the direction you might think.

Do not rely entirely on the buyer’s opinion or the seller’s opinion in an unlisted private transaction for a fair market value.

Do not rely entirely on your neighbours, friends, or family members opinions for a fair market value of a property.

Do consider ordering a marketing appraisal, but do not rely on it 100%… maybe 98% though.

Do consider an evaluation by an experienced, active, local Realtor or two. This in combination with a marketing appraisal is the best indicator of current fair market value.

Gather professional opinions from Realtor(s) and an Appraiser – these are the people with their feet on the ground and their heads in the game.

Thank you.

LONG VERSION:

Provincial Property Assessment notices have arrived in the mail for BC residents (and other provinces), giving some homeowners a big smile and a bit more spring in their step (increased property taxes aside), while others wilt and lament at a modest gain or decrease in assessed value.

Hold on a sec, neither this assessment document nor either parties’ emotions, are tied to a current true market value. In fact provincial property assessments can be significantly too high or too low. In BC, values are determined in July of the previous year, and properties are rarely visited in person by provincial appraisers.

For this reason provincial property assessments should never be solely relied upon as any sort of relevant indicator of true market value for the purposes of purchase, sale, or financing.

Think of the assessed value instead as something akin to a weather forecast, spanning far larger and more diverse areas than the unique ecosystem that is your neighbourhood, your specific street, or your specific property. A weather forecast made the previous July, not the previous week. As this is when assessed values are locked in, a full six months prior to the notices being mailed out.

The BC Assessment Authority does offer some useful tools for a high-level view of the market. Go to http://evaluebc.bcassessment.ca/ and start typing an address. You’ll get a drop-down window where you can click on the address you want. Here’s what you can find out:

DETAILS ON ONE ADDRESS

These come up on the first screen and include: current and last year’s assessed value; size and rooms; legal description; sales history, and further details if property is a manufactured home or multifamily building. There’s also an interactive map as well as links to information on neighbouring properties and sample comparative sold properties.

NEIGHBOURING PROPERTIES

Here you can compare the assessed value of houses in the immediate neighbourhood. Clicking on any property brings up further details.

SAMPLE SOLD PROPERTIES

Find comparable properties and see what they sold for and how their sold price compares to their assessed value. This is a great research tool for owners, sellers and buyers.

These tools can be a starting point, but if you’re looking to set a selling price on your own property, always enlist a professional. Valuing your own property is not a do-it-yourself project. In a buying/selling transaction your are best to order an appraisal, which is a much more accurate reflection of current market value. It is timely and reflects value for zoning, renovations and/or other features unique to the property. An appraiser is an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question.

WHAT’S MY HOME REALLY WORTH?

Usually, market value is determined by what a buyer is willing to pay for a home, and what the seller is willing to accept.

A quick survey of recent sales and their relation to assessed values will often demonstrate no clear relationship between sale price and assessed value. It’s often all over the map. Some properties selling well below assessment, and others well above.

You also want an experienced and local Realtor to help you determine the selling price of your home. A (busy &  local) Realtor will have a far better handle on what is happening in your area for prices than does a government document, and in many instances will save you from yourself.

In theory a comprehensive current market review completed by a Realtor should not differ radically from the value determined by a professional appraiser.

Professional appraisers spend all day every day appraising properties, and their reports are often seen as less biased. Imagine your reaction, as a buyer, to the following statements…

1. The seller says their house is worth $500,000.
2. The sellers’ Realtor says it’s worth $500,000.
3. This house is listed at $500,000 based on a professional (marketing) appraisal.

Most buyers would consider #3 the most reliable of the above statements. And most buyers requiring financing will have the benefit of the lender ordering their own independent appraisal to confirm fair market value. Sellers rarely order an appraisal in advance, which can create some interesting situations.

In practice, Realtors are relied upon for listing price estimates. Most buyers don’t care much about what anybody else thinks the house is worth. Buyers care what they think it is worth. This is why we say that market value is ultimately determined by what a buyer is willing to pay for the home, aligned with what is acceptable to the seller.

It is important to note that there are two kinds of professional appraisals. There is the marketing appraisal, such as one ordered by a seller. And there is the financing appraisal, which is done so the bank is satisfied the house is worth what the buyer and seller have agreed it’s worth. The financing appraisal is a less in depth review and is essentially answering the question; is this property worth the agreed upon purchase/sale price.

A marketing appraisal goes deeper (and costs more) but a lender is not concerned with the actual market value over and above the purchase/sale price. A lender just wants the simple question answered. It is a rare day that the appraisal for financing has a value that differs significantly, if it all, from the sale price. Therefore one should not be surprised if, when buying a home, they find that the appraisal comes in bang on at the purchase price. As they do 99% of the time.

The 1% of the time that the value is off it is almost always a private transaction where the seller has had no professional guidance at all and has inadvertently set their price below market by relying on something as inaccurate as their BC Assessment document.

IN SUMMATION

Do not rely on your property assessment for a fair market value of your property.

The value printed on that document was arrived at during a point of time during the previous year, the market may have changed a bit since then, and not in the direction you might think.

Do not rely entirely on the buyer’s opinion or the seller’s opinion in an unlisted private transaction for a fair market value.

Do not rely entirely on your neighbours, friends, or family members opinions for a fair market value of a property.

Do consider ordering a marketing appraisal, but do not rely on it 100%… maybe 98% though.

Do consider an evaluation by an experienced, active, local Realtor or two. This in combination with a marketing appraisal is the best indicator of current fair market value.

Gather professional opinions from Realtor(s) and an Appraiser – these are the people with their feet on the ground and their heads in the game.

…and of course, when it comes time for your mortgage, visit a mortgage professional at Dominion Lending Centres!

Top 5 costly financial mistakes homeowners make with their mortgage

1. Not consolidating high interest debt into low interest mortgage.
2. Paying “fees” to get the lower rate
3. Not looking at their long term forecast
4. Taking a 5 year rate when 3-4 years can be cheaper
5. Having their mortgage with a lender that has high penalties and restrictive clauses.

Not consolidating high interest credit or vehicle loans in their mortgage. I hear this often “I don’t want to use the equity in my home” or “I can pay it off”. Many times when people end up with debts is due to inefficient budgeting and understanding what your income is and your debt payments are. There are many folks where monthly payment is the driving factor in their monthly budget. Making minimum payments can take you YEARS to pay off. Soon after people get mortgages, they are buying that new car at 0% interest and $600 month payments, then the roof or hot water tank goes and they put another $15,000 on credit, then someone gets laid off and boom…can’t make all the payments on all those debts that it took a 2 income family to make. It’s a true reality. Let’s look at an example:

Paying Fees to get the lower rate.
Dear rate chasers…they catch up with you somewhere. Nothing comes for free. Let’s face it, you go to the bank and their goal is to make money! A lender that offers you a 4.49% with a $2500 vs a 4.64% with no fee and you think “yes, score what a great rate!” Hold your coins… as you could be walking away poorer as the banker didn’t run the bottom line numbers for you. Chasing rates can cost you more money in the long run.

Your $500,000 mortgage was offered with two rates for the business for self guy who needed a mortgage where they didn’t look at the income so much: 4.49% and $2500 fee and $4.64% no fee. Lets see what it really looks like for a 2 year mortgage.

$502,500 (built in th $2500 feel) 4.49% – payments $2778 per month – $479563 owing in 2 years
Total payments: $66672
$500,000 (no fee) 4.64% – payments $2806 per month – $477634 owing in 2 years
Total payments: $67344.

Wait? So by taking the lower rate with the fee means I owe $1929 MORE in 2 years and only saved $672 in overall payments?

The long term financial planning side.
I counsel many of my clients to take 2-3 year year terms for a variety of reasons. Better rates, lower payments, capitalizing on the equity in your home to pay off a car loan or upcoming wedding. Did you know the average homeowner refinances every 3 years of a 5 year term and pays a penalty?

Taking a 5 year when 3 and 4 year rates might be a better option. Many times the 2-4 year rates can be significantly lower than the 5 year rates. Remember, the bank wants money and the longer you take the term, the more they make. True, many folks prefer or fit the 5 year terms, but many don’t. Worrying about where rates will be in 3-5 years from now should be a question, but not always the guiding factor in you “today” budget.
Here is an example of a $450,000 mortgage and what the difference in what you will owe on a 3 year term.

2.34% – payments are $990 every two weeks = $402,578 owing in 3 years
2.59% – payments are $1018 ever two weeks = $403,604 owing in 3 years.
Your paying $28 MORE every two weeks ($2184 total) and owe $1026 MORE in 3 years. Total LOSS $3210! Planning is key. Stop giving away your hard earned money!

Mortgage monster is in the penalties you pay when you fail to plan.
Since many families today are getting in with 5-10% as their downpayment.
If you got your mortgage with many of the traditional banks you know and your current mortgage is $403,750 and you need to break your mortgage (ie refinance to pay off debts) 3 years into the contract you potential penalty could be $12,672! Ouch. vs going with a mortgage broker who can put you with a lender that has similar rate you penalty would be significantly different – almost $10,000 dollars different!

Get a plan today! If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

– by Kiki Berg