What is a Monoline?

General Victor Anasimiv 27 Apr

When shopping around for a mortgage, you may be tempted to simply walk into the bank or credit union you’ve been dealing with for years, thinking that that’s your best or only option.  But it’s in your best interest to explore all options.  While banks and credit unions do offer great rates and products, another important type of lender to be aware of is what’s known as a monoline lender.

What is a monoline?  As the name suggest, they are a lender than provides one service – mortgages.  This is their specialty.  They do not try to cross-sell on the wide array of other products typically offered by other institutions – credit cards, lines of credit, GICs, etc.  They arrange mortgage financing, and they do it well.

As they specialize in only mortgages, it’s possible that you may not have heard of them.  But not to worry as monolines are very reputable, and many have been around for decades. In fact, First National, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders actually 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.  In that sense, they are just as secure as a big bank.

Monoline lenders can only be accessed by mortgage brokers.  There is no ‘bricks & mortar’ branch that a person can walk into and talk to a representative about mortgages.  Since there are no costs associated with renting or leasing a building or paying for branch staff, this saves on overhead which in turn saves you money.  As with most things these days, everything can be handled by phone or email.  Just pick up your smartphone and call or email with any questions.  Or better yet, ask your mortgage broker for help!  That’s the great thing about having me as your mortgage broker.  I’m here to help for the life of your mortgage.

One of the most important differences between banks and monolines would be the way that pre-payment penalties are calculated.  In Canada, it’s estimated that about 60% of 5-yr mortgage terms are broken before they are over.  It is a great idea to be aware of this difference in penalty calculation.  The difference lies in how the lender calculates what is known as an Interest Rate Differential (IRD), which is based on the spread between your contract rate and the prevailing interest rate at the time the mortgage is broken.  The larger banks are notorious for using a very prohibitive method of calculating this penalty. While a big bank will use their posted rate, a monoline will typically used their unpublished rates.  As posted rates are higher than unpublished rates, the corresponding IRD will be higher. I will save the specific calculations for a future article that examined penalties more closely, but the important take-away here is that this slight difference could save you as much as $10,000 or more in certain instances.

There is certainly something to be said for familiarity.  Some clients prefer to bank with an institution they’ve heard of or banked with for years.  Others might prefer to go with a different lender in order to diversify.  But it’s important to at least be aware of all options available when it comes time to get a mortgage.  As your mortgage broker, it is my duty to educate you about these options and answer any questions you may have.  Contact me today!

Pre-Approvals Don’t Approve Anything

General Victor Anasimiv 6 Apr

Although going through the pre-approval process is important, the actual term ‘pre-approval’ is often misunderstood.  The term is actually a bit of a misnomer – as nothing has actually been approved, per se.  I prefer to use the term ‘pre-qualified’.  A pre-approval is really nothing more than a rate hold.  At this point, the lender hasn’t underwritten the deal.  That is, nothing has been confirmed with respect to strength of a client or quality of a property.  Based on the information provided by a client, I can ‘pre-qualify’ them and let them know the maximum mortgage they would qualify for, subject to the lender’s final approval.

All too often clients hear the phrase “You’ve been pre-approved….” and assume they have their financing sorted.  An important point to be clear on is that while you may be pre-approved for a certain mortgage amount, there are several variables that can derail a final approval once you write an offer on a property. This is why you should always include a ‘subject to financing’ clause in your offer to purchase.  This is arguably the single most important clause in a contract (an inspection being a close second), because without the financing, how will you complete your purchase?

The pre-approval process should be considered more of a personal pre-screening process than anything.  With most lenders pre-approvals involve no formal review of documents, but as your Mortgage Broker, I can preview them to catch any significant areas of concern such as:

  • Taxes not filed
  • Unpaid taxes
  • Issues with credit history
  • Employment still in a probationary period
  • Source of downpayment

Furthermore, government changes to lending guidelines and policies can render a pre-approval invalid just a few days later, without warning.

By all means, ask for a pre-approval, as it gives you a good idea of your maximum mortgage amount and locks down a rate for you.  In some cases, a vendor may take a potential buyer more seriously with a pre-approval in hand.  Plus, here in BC, a pre-approval is a requirement if you are interested in applying for the new BC HOME loan program.  But please be aware that a pre-approval is not an absolute guarantee of mortgage financing.

If you would like to discuss your options and get a better idea of what you can afford, contact me today!

Mortgages in 2017 – The Only Constant is Change

General Victor Anasimiv 23 Mar

The process of qualifying for a mortgage is not as it was 12 months ago.  There have been a lot of important changes to guidelines that have been imposed in the last few months.  As a result, Canadians must adjust their plans for homeownership accordingly.

First, in October, came the introduction of the ‘stress test’.  Previously, when opting for a 5-yr fixed mortgage, the most commonly chosen option, borrowers could qualify at their contract rate. With this ‘stress test’, unless borrowers have at least 20% saved for a down-payment, they are now required to qualify at the Bank of Canada benchmark rate, which is currently 4.64% (much higher than the current typical contract rate of 2.69%).  The government’s intention was to ensure that borrowers could handle sharp interest rate increases.  However, their approach is a little too heavy-handed, as this rule essentially decreases one’s purchasing power by about 20%.  If you could qualify for a mortgage of $300,000 before this change, your new maximum is about $240,000.

Then, at the end of November, came the changes to portfolio (‘back-end’) mortgage default insurance.  In Canada, there are 3 mortgage insurers – CMHC, Genworth & Canada Guaranty.  When purchasing a home with less than 20% down-payment, the client is required to pay an additional premium for mortgage default insurance.  With more than 20% down, this premium is still payable, but the cost is typically covered by the lender (ie. ‘back-end’ insured).  With the November changes, the government now requires banks to carry more of the cost of lending with respect to how they utilize mortgage insurance and amount of capital they must have on reserve. This means it is more costly for banks to lend so they are passing some of this cost on to borrowers.  In most cases, they’ve done this by introducing a tiered rate structure when the mortgage loan is under 80% of the property value (80% loan-to-value or LTV).  The loan is ‘insurable’ if it is for a purchase or transfer, the borrower qualifies at the benchmark rate and amortization is 25 years or less.  If contract rate or extended amortization is required to qualify, if the borrower is self-employed and can’t meet traditional income qualification requirements, or if the purpose of the loan is a refinance, this loan is now considered ‘uninsurable’ and carries a rate premium anywhere between 0.10-0.30%, based on the exact LTV.

This change has drastically altered the type of files many monoline lenders can handle.  Monolines are simply banks that deal exclusively with mortgages.  This pushes more business towards the bigger banks and essentially decreases competition in the mortgage marketplace.  As options for borrowers decrease, this will have an added slight upward effect on interest rates.

One final change with very relevant consequences just came into effect last week.  CMHC, followed by the other 2 insurers, raised the default insurance premiums, effective March 17th.  The premiums are calculated as a percentage of loan amount, with the exact percentage varying based on LTV.  For example, at 95% LTV (5% down payment), the insurance premium has increased from 3.6% to 4.0%.

What does this all mean? Overall it is now more costly and more confusing to get a mortgage than in the past. 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.  As your local Dominion Lending Centres mortgage professional, it’s my job to help you understand how these changes apply to you.  And the best part is that this advice doesn’t cost you a dime.  It’s definitely worth the call.

If I can be of assistance to you or someone you know, please do not hesitate to contact me – 250-338-3740 or anasimiv@gmail.com

What is a HELOC?

General Victor Anasimiv 17 Feb

The Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this type of mortgage product is that you can slice the pie (the mortgage balance) into various segments, yet all of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). As a mortgage broker, I can only assist you with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher. On secured LOCs the rate is typically Prime (2.70%) +0.50% which is 3.20%. This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.  However, if you are eligible, it is definitely worth investigating.

Please contact me today to discuss the potential of structuring a HELOC mortgage product against your home.

No Frills Mortgages

General Victor Anasimiv 16 Feb

What You Need to Know About No Frills Mortgages

You’ve been offered an amazing rate and you just can’t believe how much you will save. You’re super excited and getting ready to go sign off on the papers when you randomly run into a mortgage broker and mention the deal you scored. The broker says to you that’s an awesome rate, any idea what the penalty calculation is if you need to refinance in the future?. Wait what…isn’t it the same as the last mortgage I had?

Maybe but maybe not. There are a lot of new mortgage products available on the market that offer lower rates while giving up other benefits. These mortgage options may have higher penalties, lower prepayment privileges or even worse they could have a bone fide sale clause.

I don’t blame a consumer for always thinking rate first. The industry as a whole is guilty of shoving rates in our face anytime they possibly can. It’s the easiest part of a mortgage to compare and easiest to advertise. But definitely not the most important part.

Being aware of all the terms and conditions is the key to finding your best mortgage option. You should be aware that there are mortgages that may come with one or more of the following terms:

* Sales only clause, meaning you may not be able to refinance your mortgage until your term is up

* A higher set pay out penalty. Meaning you may have to pay more than the standard 3 months interest or Interest Rate Differential penalty.

* Smaller prepayment options

* and more!

Always ask these 5 Questions when offered a mortgage:

1. How is the pay out penalty calculated if I break the mortgage?

2. Can I refinance with another lender before my term is up?

3. Is the mortgage registered as a Standard or Collateral charge on my land title?

4. What are my prepayment privileges?

5. Is the mortgage portable and assumable?

Bottom line is that knowing all the fine print is essential in making an educated mortgage decision. We never know what is going to happen in life and saving a little bit on your mortgage rate may cost you more in the long run.

Contact me today to discuss your mortgage options!

-contributed by Kathleen Dediluke, fellow DLC broker

Using RRSPs for Down Payment

General Victor Anasimiv 15 Feb

Using RRSPs for Your Down Payment

Are you a first time home buyer and looking to use your RRSP’s as a down payment? Here’s a few things you need to know:

1. To use this program you must have not owned a home in the last 4 years but did you know that if your spouse owned a home previously and you didn’t live in the house then you may still qualify.

2. RRSP contributions need to be in the RRSP account for at least 90 days before they can be used. If you are a monthly contributor to the account then only the amounts there for more than 90 days can be used for down payment.

3. You can borrow money to put into an RRSP and have it be there 90 days to use for down payment. Using this method of acquiring the RRSP means that you must be sure of two things, one being that the lender is ok with you taking it out in 90 days. Secondly that it isn’t put into an account that will not have fees to take the money out, money market funds or simple 90 day term certificates shouldn’t cost you any penalty.

4. You can withdraw up to 25000 dollars from your RRSP to put down on a home. Locked in LIRA’s are not eligible for this program so make sure before you start down this path that you know what type of account you have your money located in at the bank.

5. You have to pay the amount you borrowed back to the RRSP account over the next 15 years. If you took 15000 dollars out you would need to repay $1,000 a year to the account. Failing to pay this money back may result in CRA taxing it as income.

6. You can contribute to your 2016 RRSP up until March 1st and receive a tax deduction for the contribution, this also applies if you borrowed the money to contribute. Theoretically you can also take the tax refund and apply it back to the loan or use it for your new home.

Contact me today so we help you take advantage of this opportunity to enter the home owners market…We’ve got a mortgage for that!

-contributed by Len Lane, fellow DLC broker

BC First Time Home Buyers’ Program

General Victor Anasimiv 14 Nov

There are multiple types of assistance for First Time Home Buyers (FTHBs).  There is the BC FTHB Program, which is not the same as the FTHB Tax Credit, which is also different from the Home Buyers Plan.  I will explain the other items in follow-up posts, but for now let’s focus on the BC First Time Home Buyers program.

The FTHB Program in British Columbia allows for buyers to reduce or eliminate the property transfer tax they would pay when purchasing their first home.  The property transfer tax is a tax that is payable to transfer title of your purchased home into your own name.  This is not the same thing as your annual property taxes.

The property transfer tax is charged at a rate of 1% on the first $200,000, 2% on the portion of fair market value greater than $200,000 and up to and including $2,000,000, and 3% on the portion of fair market value greater than $2,000,000. For example, if you purchase a house/condo worth $450,000, you will pay a property transfer tax of $7,000 (1% of $200,000 plus 2% of $250,000).

This tax can potentially be a substantial additional closing cost when purchasing a home.  In order to qualify for this First-Time Home Buyers’ Program and be exempt from paying your property transfer tax, you must:

·      Be a Canadian citizen or permanent resident

·      Have Lived in B.C. for 12 consecutive months up until you register the property OR filed at least 2 income tax returns as a B.C. resident in the past 6 years.

·      Have never owned any portion, of any home or residence, anywhere in the world at any time.

·      Have never received a first-time home buyers’ exemption or refund.

If you qualify for the program, the purchase property must also qualify, such that:

·      It is located in B.C.

·      It is your principal residence (not an investment property)

·      Lot size is smaller than 0.5 hectares (53,819.60 sq. ft.)

·      It has a fair market value of $475,000 or less.  If fair market value is greater than $475,000, but less than $500,000, it is eligible for a partial exemption. To find out what that portion would be, give me a call and I can figure that out for you.  I’m here to help.

 

 

New Changes to Mortgage Qualification

General Victor Anasimiv 25 Oct

On October 17th, 2016, new federal mortgage rules came into effect. Here’s a brief rundown of the changes and how they might potentially affect your mortgage borrowing now or in the future.

Change # 1 – A new stress test is now required for all insured high-ratio mortgages (less than 20% down-payment) regardless of the term or whether is it a fixed or variable rate mortgage. You must now qualify at the Bank of Canada rate which today is 4.64 per cent.

Change # 2 – Restricted insurance for low ratio or conventional mortgages. This means that many lenders will require the above insured mortgage stress test even for a conventional mortgage. While the exact effects of this change are to be determined as each lender adapts, this could potentially limit the choices available for consumers and we may see increased interest rates for some products.

Change # 3 – New reporting requirements for the sale of primary residences to the CRA regarding the capital gains exemption. Everyone who sells a home will now be required to report the sale on their tax return. This move was made to prevent foreign buyers from selling a home in Canada without paying capital gains tax.

These changes and the effects they may have on your purchasing power are a good reminder of how important it is to have a mortgage broker on your side with your best interests in mind. Did you know that you can only access many of the largest mortgage lenders in Canada by working with a mortgage broker? I work with Canada’s leading financial institutions including banks, trust companies, and credit unions. 

I also have lenders available that specialize in providing mortgages for clients who are self-employed, contract employees, have seasonal income, have trouble proving income, or lack some of the standard documentation.

I am an expert in finding the best mortgage for all Canadians, but understand that sometimes you may have challenges in your past that I can work through with you, to get you back on track. You deal with me directly through the entire process, from our very first conversation right until the mortgage process and funding is complete.

I am also there after funding to manage your mortgage ensuring that you are paying the lowest overall cost on your mortgage going forward.

If you have questions about how these new mortgage rules might affect you or about anything else, please give me a call at 250-338-3740 or email anasimiv@gmail.com

It’s About More Than Just a Good Rate

General Victor Anasimiv 25 Oct

When you decide that it’s time to start looking for a mortgage, it’s hard not to be attracted to flashy ads from the banks when they have their low interest rates in big colourful bold print.  Act now!  Limited time offer!  Lowest rate ever! 

While low interest rates are good, especially on a purchase as big as a home, there’s more to this story.  Is shaving a couple hundredths of a percent off your rate worth any features you may be giving up, or the increased penalties you’ll face should you need to break your mortgage early?

Low rate mortgages usually come with no frills and prohibitive pre-payment penalties should you need to break your mortgage early.  While they may work for some people, they definitely won’t for everyone.   Did you know that almost 40% of mortgages are broken early for various reasons? What if you need a bigger house as your family grows or need to relocate due to work before your term is up?  Portability, or the ability to move your mortgage to your next home, isn’t always an option with these mortgages.

Most mortgages come with the option to pay off a percentage of your original mortgaged amount or increase the amount of your payments, without penalty.  These percentages may shrink with low-rate mortgages.

My intention isn’t to scare with you with these scenarios.  As I said, these low-rate products do work really well for some people.  But saving 0.05% on your interest rate on a $300,000 mortgage only translates to savings of $8/month.  Is that really worth the other perks you may be taking a pass on?  What I do want is for you to be informed and confident in the decision you’re making.  And that’s where I come in.  You should have a professional like me on your side who is knowledgeable about the various products, terms and rates available, and which one might be the best fit for you.  Give me a call, I’m here to help.

250-338-3740 / anasimiv@gmail.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Top 5 Dont’s prior to mortgage closing

General Victor Anasimiv 31 Aug

Very recently I had a client change her career between the time I had secured her mortgage financing and the date the mortgage funded. Just two days before funding I received a call from the lender asking me to reconfirm her employment as there was a discrepancy on a solicitor document related to her employment. I immediately followed up with my client and indeed; she went from being a practicing nurse to teaching nursing. While one may think that is not too big of a deal, especially if the income is almost the same, the fact remains that it is not the same job that was stated on the mortgage application nor is her new employment in the same field. The fact that she was on a rather long probationary period as a new instructor only made this situation worse.

After numerous emails, phone calls and new income supporting documents to support the application the deal funded on time and my client is happy in her home.

This situation resulted in unnecessary stress for all involved and it could have been avoided. But it did make me think of other issues that could mess up a mortgage closing and here they are…The top 5 things not to do before your mortgage closes:

#1 Don’t quit your job or change industries without consulting your mortgage broker first!

#2 Don’t do anything that would reduce your income. Getting a raise is good but dropping from Full Time to Part Time status is not a good idea.#3 Don’t apply for new credit. While you are excited about getting into your new home, now is not the time to buy all new furniture on credit or buy a new vehicle or any large purchase. Wait until the mortgage funds and then you may go shopping!

#4 Don’t get rid of existing credit. For the same reason why it is not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile.

#5 Don’t co-sign for a loan or mortgage for someone else. You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to one’s liabilities and may very well throw the debt servicing ratios way out of line.

 

Once the mortgage has funded the borrower is free to change careers, close all their credit facilities or buy a new truck…just don’t do it before or during the mortgage application period.