As a mortgage borrower – particularly if this is your first time embarking upon homeownership – there’s no doubt you have a load of questions related to the mortgage process. Aside from the most common questions, such as those relating to mortgage rate, the maximum mortgage amount you’ll be able to receive, as well as how much money you’ll need to provide for a down payment, the following five questions and answers will help you dig a little deeper into the mortgage financing process.
1. Can I make lump-sum or other prepayments on my mortgage without being penalized? Most lenders enable lump-sum payments and increased mortgage payments to a maximum amount per year. But, since each lender and product is different, it’s important to check stipulations on prepayments prior to signing your mortgage papers. Most “no frills” mortgage products offering the lowest rates often do not allow for prepayments.
2. What mortgage term is best for me? Terms typically range from six months up to 10 years. The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate and a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this isn’t always the case. Sometimes there are other factors – either in the financial markets or in your own life – you’ll also have to take into consideration. If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you’ll be able to afford your mortgage payments should interest rates increase.
3. Is my mortgage portable? Fixed-rate products usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current rate. With variable-rate mortgages, however, porting is usually not available. This means that when breaking your existing mortgage, you will face a penalty. This charge may or may not be
reimbursed with your new mortgage. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods.
4. What amortization will work best for me? The lending industry’s benchmark amortization period is 25 years, and this is also the standard used by lenders when discussing mortgage offers, as well as the basis for mortgage calculators and payment tables. Shorter timeframes are also available. The main reason to opt for a shorter amortization period is that you’ll become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. A shorter amortization also affords the luxury of building up equity in your home sooner. While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irr egular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be your best option.
5. How do I ensure my credit score enables me to qualify for the best possible rate? There are several things you can do to ensure your credit remains in good standing. Following are five steps you can follow: 1) Pay down credit cards. This is the #1 way to increase your credit score. 2) Limit the use of credit cards. If there’s a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 3) Check credit limits. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. 4) Keep old cards. Older credit is better credit. Use older cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score by making the credit bureau aware of each situation.
Victor Anasimiv is your Dominion Lending Centres mortgage broker in the Comox Valley.
Some lenders are advertising the option of skipping a mortgage payment more often these days – one major bank even created a TV ad!
But unless this is your only option, it’s not recommended that you skip a payment because, like most ads that sounds too good to be true, this option is as well.
The banks want you to think they’re advertising the option to skip a payment to do you a favour. But it’s important to realize that lenders are in the business of making money. They’re not going to create an ad that doesn’t benefit them in the long run.
And it’s not like you can simply choose to skip any payment at will when you need it most. You actually have to prepay your mortgage in order to take advantage of this mortgage vacation option.
You can miss a regular mortgage payment as long as you have already prepaid that amount by doubling up any mortgage payment, increasing your mortgage payments or making lump sum payments. It’s important to know how much you can prepay each year before making extra payments – this varies from lender to lender.
And if you’re going through the trouble of prepaying your mortgage, you want to make the savings work to your advantage by actually paying your mortgage off quicker – not diminishing those savings by taking a mortgage vacation.
The number of eligible payments covered by your payment vacation will be based on a
combination of your prepaid amount and your current regular monthly mortgage payment. There is also typically a maximum payment vacation permitted per mortgage term, regardless of how much you have prepaid your mortgage.
Other considerations to think about when looking at the mortgage vacation option include:
If you happen to already be in arrears on your mortgage, you can’t take advantage of this option.
It’s always important to read the fine print and ask questions when using a tool advertised by your lender. Better yet, speak to me, Victor Anasimiv your local mortgage professional as I can help advise you on your best options.
As a mortgage broker I offer independent, unbiased mortgage advice. I will ensure you have the right mortgage product, term and rate for your mortgage needs.
As always, if you have any questions about the information above or your mortgage in general, contact Victor Anasimiv, who is your Dominion Lending Centres mortgage broker in the Comox Valley.
Since home refinancing has been limited to a maximum 80% of the value of your home, an increasing number of buyers are looking at Purchase Plus Improvements products to meet their home financing needs.
This may be an option worth examining if you would like to buy a new home that needs updating. Whether you’re purchasing a home that needs just a small renovation or a major redo, a Purchase Plus Improvements mortgage can help you transform an ordinary house into your dream home.
How Purchase Plus Improvements works
Conditions of the program include:
As always, if you have any questions about the information above or your mortgage in general, contact Victor Anasimiv, your Comox Valley mortgage broker.
Since most couples have a joint mortgage – one where both names are on the mortgage and title of the home – when separation or divorce proceedings get underway, many wonder what will happen with the home.
When the marriage comes to an end, there are two obvious options concerning the home: 1) sell the property and split the proceeds according to your agreement and go your separate ways; or 2) one person buys the other party out of the mortgage and the title of the property.
The first option is a straight-forward transaction where you put the house up for sale, sell and split the proceeds. The second option, however, is slightly more complicated.
The decision between the options is a personal one borne out of the specific circumstances of the parties involved. Perhaps there are young kids involved that need to stay in the house, the market is down and there will be a loss on the property that neither party can afford, one party can afford to buy the other party out, etc.
Once the decision is made, how do you go about buying the other person out of a mortgage? Well, essentially, you’re refinancing your mortgage using a single income (the person who’s buying the other party out of the house) and qualification, versus the original purchase, which was based on joint income and qualification.
If you’re the one buying your partner out, the first step is to ensure that you can afford the mortgage payments.
This is imperative because the lender will ask for proof that you’re capable of covering the mortgage in order for you to apply on your own. In addition to covering the mortgage amount, you’ll have to come up with whatever dollar amount you have agreed on to buy the other partner out. This may come out of the equity in your home if it’s sufficient.
In essence, if you can afford the mortgage on your own, the most common means of buying out your partner post-separation and transferring title out of the joint name and into your name, is to refinance. I can help you through each step of this process. And although the maximum refinance on a home is 80% of the appraised value, given the unique circumstances surrounding separation, you can often refinance up to 95% of your home’s value.
If you’re not in a financial position to buy your ex-partner out of the house, and you agree to both stay on title and have payment arrangements, there’s one warning to be taken very seriously – just because one person is responsible for the payments (even with a court order), if the mortgage goes into default, both parties on the mortgage will be affected.
The most important piece of advice when dealing with a mortgage during a separation is to become informed. Know your options, talk to professionals about your options, and make an informed decision regarding your home and mortgage.
As always, if you have any questions about the information above or your mortgage in general, contact Victor Anasimiv, your Comox Valley mortgage broker.
Here are the Top 5 Mortgage Mistakes people make when trying to secure financing for their home:
- Failing to choose the best product for their situation
- Automatically renewing their current mortgage with their existing lender
- Signing documents without reading them
- Taking it to the limit – running up credit
- Not planning for your mortgage application
Understanding how the mortgage process works and how lenders qualify your loan will help you avoid the above mistakes. As always, if you have any questions or concerns, contact Victor Anasimiv, who is your IslandMortgageSpecialsit.ca
The following article was written by Danny Bradbury, Special to Financial Post
If you’re self-employed and about to apply for a mortgage, be prepared for some serious form-filling. Getting financing isn’t as easy as it used to be, say mortgage brokers — and for the 15% of Canadians who earn money for themselves without a steady employer’s salary, it’s harder still.
“Back in the day, five years ago you could hold up three fingers and say ‘I promise I earn $100,000, and many lenders would take your word for it,” says Claire Drage, a senior mortgage agent with Mortgage Alliance in Greater Toronto. But things have changed, she warns. “It will take more paperwork, more documentation, more justification from the borrower on why they should be approved.”
Since 2008, the government has lowered the maximum amortization period from 40 to 25 years, and reduced the maximum gross and total debt service ratios to 39% and 44% respectively. Then, last October, the Office of the Superintendent of Financial Institutions’ B-20 rules put the underwriting practices of federally regulated financial institutions under scrutiny.
“Generally these changes have made for more rigorous review of documentation which does impact the self-employed borrower programs to a greater extent than salaried borrowers,” says Gary Siegle, Alberta-based VP of the Prairies for mortgage services firm Invis.
The self-employed often hinder themselves with creative accounting to lower their income. “They may have a different way of reporting all their income, reducing all their taxes as much as possible. Those are the ones that are more challenging,” says Daryl Harris, a broker at Verico One Link Mortgage & Financial in Winnipeg, and chair of the Canadian Association of Accredited Mortgage Professionals. Those not reporting cash jobs also reduce their provable income, making it harder to get a mortgage.
“Even though you’re self-employed and you benefit from amazing tax breaks, and your personal income tax return is incredibly low, you still have to prove to the lender that you can afford to pay this mortgage back,” adds Ms. Drage.
For those that find it hard to prove their income, stated income programs are an option. Designed for those with less than three years’ business operation, it requires at least a 10% downpayment, and not all lenders support it. TD Canada Trust, for example, looks instead at documented income such as T1 financials, business financials, and notices of assessments.
Changing attitudes among lenders makes it more difficult for the self-employed to deal with top-tier banks, says Don Barr, president of Verico Select Mortgage in Victoria. “It is forcing a lot of stuff out of the ‘A’ business and into the alternative business,” he says. Alternative lenders, some of which are not federally regulated, may take a less rigid approach when assessing self-employed applicants. However, the trade-off is often a higher interest rate.
There are several things to remember when applying for financing:
• Loan-to-value matters. Offering a 10% downpayment will make the process far more difficult. They care more than ever about up-front equity.
• Keep up with your payments. Make sure that you are up to date with the CRA before applying to a lender.
• Be organized. Ensure that all your accounting and tax documentation is up to date, and that you are reporting
• Pay off your credit. Get those outstanding cards and lines of credit paid down before you let your lender score you.
• Be prepared to adjust your expectations. You may have to adjust your target price after talking to a lender.
• See if your lender will ‘gross up’ your income. Some lenders may add a percentage when assessing your taxable and/or non-taxable income to allow for business expenses you incur.
And above all, start early in the process, preferably with a pre-approval before you look for a home, because one thing’s for sure: you’ll be doing more hoop-jumping than you think.
Canadians are paying off mortgages quickly — so is Ottawa’s crackdown really necessary?
Garry Marr | 13/05/22 | Last Updated: 13/05/22 6:53 PM ET
More from Garry Marr | @DustyWallet v
Home building to plunge 30% by 2015, costing 150,000 jobs, mortgage industry warns
The Canadian Association of Accredited Mortgage Professionals predicts Toronto faces an especially big slowdown, with construction to drop off more than 50%
A report by the Canadian Association of Accredited Mortgage Professionals released Wednesday paints us as a very conservative lot not in need of increased government regulation.
The group notes of the mortgages paid off in 2010-2013, the original amortization length was on average 17.9 years but ended up with an actual amortization length of 11.7 years.
Despite the fact Canadians pay off their mortgages quickly, the federal government has continually cracked down on amortization of insured mortgages it backs. The length of amortizations — a longer amortization lowers monthly payments and allows consumers to qualify for larger mortgages at the expense of paying more interest — has been dropped from a high of 40 years to the present 25 years.
Consumers may have gotten the message. Amortization lengths have shrunk since Ottawa started dropping the maximum length. From 2005-2009, mortgages paid off during the period had an average original amortization lengths of 19.9 years compared with an average actual amortization length of 12.8 years.
Now CAAMP is arguing that changes to government rules have actually gone too far and have resulted in a 15% decline in new home construction this year from highs reached in 2011 with a further 25% to 30% predicted by 2015, which would cost 150,000 jobs.
“We need a balance, we are moving out of balance and that’s what these numbers are showing,” said Jim Murphy, chief executive of CAAMP. “We’re now in situation where we have had eight or nine months of data. A lot of officials felt the market would come back better than it has.”
“[Ottawa] is making an argument they want the market to slow but we are seeing significant slowing on resale and the new side although not yet on prices,” said Mr. Murphy.
CAAMP is calling for the government to ease the rules for first time home buyers. Under the group’s plan, first-time buyers would get to amortize over 30 years as long as they could actually qualify for 25 years.
“We are concerned about the effect of all of this on first-time home buyers,” said Mr. Murphy, adding his group would like to see an increase in the tax credit for new homeowners and an increase in how much can be taken out of an RRSP to purchase an initial home. “It’s not just one thing, all the changes have been cumulative.”
Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors, said the government still has to be concerned because of the record household debt.
“You have record debt at a time of record low rates so there is no question it sets you up for a shock,” said Mr. Rabidoux, who doesn’t disagree with CAAMP that the new rules have cost jobs. “I still think they are right to tap on brakes. There will be bleed out on the economy. You either bleed it out now and go through a weak period of economic growth or keep going until there is a crisis.”
Will Dunning, chief economist for CAAMP, acknowledged there may be other factors at play in our lowered amortization lengths. “What we have been hearing is a lot of people took longer amortizations even though they could have qualified for 30 years because they wanted a better cash flow situation. But as they get a chance, they pay [the mortgage] off more quickly.”
Even first-time buyers plan to dig deep to pay off their mortgages early. Mr. Dunning said from 2010-2012, first-time buyers who took an extended amortization had a contract with an average amortization of 31.7 years but plan to pay it off in 25.1 years. The study is based on data compiled by Maritz Research Canada of 2,000 Canadian consumers in April 2013.
That survey came on the same day as a Bank of Montreal report that suggested 48% of Canadians intend to buy a property in the next five years, almost unchanged from 2012 and a sign of the resiliency of the market, according to the bank.
“The relative strength of the Canadian housing market continues to bolster homeowners’ confidence, while improving affordability across all regions reflects that Canadians are making responsible choices when it comes to financing a home,” said Martin Nel, vice-president of lending and investments at Bank of Montreal.
Fixed mortgage rates have a lot to do with affordability. Even with the banks abandoning their public advertising of a five-year rates below 3%, mortgage brokers are still offering deals as low as 2.7% for that term and banks are advertising four-year terms for rates as low as 2.99%. The CAAMP survey found 85% of purchasers in 2012-2013 opted for a fixed rate product.
I bet you think that the more serivces you have with your bank, the better the deal you will get when your mortgage comes up for renwal. Makes sense – right?
According to evidence in a 2011 Bank Of Canada paper titled: “Discounting in Mortgae Markets” BOC economists found that borrowers who switched lenders get a better deal than exisitg bank customers, because new customers offer the banks an oppourtunity to sell more products.
Existing customers assume that they will get a good deal as they are loyal to that lender….But they dont.
Unfortunately the loyal bank customer assumes they will get the lowesest discounted interest rate on their mortgage renewal and therefore they are more likely to think there is no need to shop around at their mortgage renewal time.
This Bank of Canda study found that mortage brokers find the best rates for their clients, as our business is very competiteive, and brokers get access to significant interest rate discounts, whereby reducing a borrowers interst costs.
Contact Victor Anasimiv, an Accredited Mortgage Professional before your mortgage comes up for renwal!
1. How much is in the Reserve Fund?
Make sure the reserve fund for the condo building is proportionate to the age of the building. A general rule of thumb is to invest in condos that have a reserve fund of 10% of their operating budget.
2. Who is the Developer?
CMHC advises reviewing paperwork such as a disclosure statement, technical audit and documents regarding the condo bylaws.
3. Research the Company’s Financial and Legal History.
Check out the financial and legal history of the developer or contact your local BBB and local condo boards to see if ther are any lawsuits between condo owners and the developer.
4. Who Manages the Condo Association?
Many condo associations are choosing registered firms to manage budgets, building maintenance and homewoner complaints.
5. What Does the Master Insurance Cover?
Master insurance policies can be either “bare walls-in” or “all-in” coverage. Ask what areas of the building are “common-areas” and therefore covered with Master Insurance.
With mortgage rates still hovering near historic lows, chances are you’ve considered breaking your current mortgage and renewing now before rates rise any further.
Perhaps you want to free up cash for such things as renovations, travel or putting towards your children’s education? Or maybe you want to pay down debt or pay your mortgage off faster?
If you’ve thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give me a call to discuss your options.
In some cases, the penalty can be quite substantial if you aren’t very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term.
People often assume the penalty for breaking a mortgage amounts to three months’ interest payments so, when they crunch the numbers, it doesn’t seem so bad. In most cases, however, the penalty is the greater of three months’ interest or the interest rate differential (IRD).
The IRD is the difference between the interest rate on your mortgage contract and today’s rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months’ interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead.
Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a “cash back” mortgage can influence penalties.
While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you’ll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate commitment before it’s too late, and here lies the significant future savings.
As always, if you have questions about breaking your mortgage to secure a lower rate, or general mortgage questions, I’m here to help!