Welcome to the June issue of my monthly newsletter!

This month’s edition looks at three steps to take you from pre-approval to homeowner and homeownership Vs renting. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

3 steps to take you from Pre-approval to getting the keys

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score, as well as paying off debts. You are now at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the three steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL

This should actually be the step BEFORE house hunting. Visiting your mortgage broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:

• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information when you visit your broker. To apply, including a letter of employment/pay stub, down payment verification, two years notice of assessment and/or T4’s. The broker may ask for additional documentation.

Once you are pre-approved it’s house hunting time for you! The benefit of having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.

When you do find just the right home for you, it’s on to step two.

STEP 2: APPROVAL

If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here. You may have to supply a few pieces of updated information but otherwise, it’s up to the lender to do the hard work at this point.

Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

STEP 3: FINAL STEPS

Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the Lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:

• Void Cheque
• Two forms of identification
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.

All that’s left is to hand you the keys to your new home!

As one final step, keep asking questions at each stage of the mortgage process. You should check in with your mortgage broker if you have any questions along the way. They are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

If you have any further questions about the approval process, please don't hesitate to contact us.

Is owning a home truly the best bet?

If you’re reading this and just bought your first home, or you’ve been a homeowner for years, there’s good news. You can feel confident you made the right decision for your long-term economic wellbeing. That’s according to the findings of a study by Mortgage Professionals Canada. 

The organization decided to take a deep dive and compare owning versus renting in Canada. The objective was to conclude which option would be the best financial decision in the long run.

As it turns out, the cost of ownership was lower than the cost of renting in more than three quarters of the 266 combinations or cases studied. This included locations and types of dwellings.

As of the second quarter of 2018, the monthly cost of owning was lower than the cost of renting for 72 (just 27% of the 266 cases).

Will the cost of renting increase faster than the cost of homeownership?

This study noted costs of homeownership include considerable amounts of repayment of the mortgage principal. This is a form of saving. When this saving is considered, the “net” or “effective” cost of homeownership is correspondingly reduced.

On a net basis, the cost of ownership is lower than the cost of renting in 202 of the 266 cases (76%), according to the study.

On average across the 266 cases, the monthly cost of owning exceeds the cost of renting an equivalent dwelling by $541 per month. But, when the principal repayment is considered, the net cost of owning is $449 less than the cost of renting.

MPC’s study also found the largest element of the ownership cost (the mortgage payment) is fixed for some time. The result is that the cost of renting will increase more rapidly than the cost of homeownership. The analysis projects the costs of owning and renting for five years and 10 years, assuming that all of the cost components (apart from the mortgage payments) rise by 2.5% per year. The study concluded that homeownership becomes increasingly advantageous over time.

The study concluded by the time the mortgage is fully repaid in 25 years (or less) the cost of owning will be vastly lower than the cost of renting. On average across the 266 cases, the cost of owning is projected at $1,549 per month versus $4,655 for renting equivalent dwellings.

HOMEOWNER TIPS

5 Ways to Stay Cool Without Air Conditioning:

1. When it’s cooler outside than inside, open your windows instead of using air conditioning. Use a window fan, blowing toward the outside, to pull cool air in through other windows and to push hot air out. When it’s hotter outside than inside, close your windows and draw window coverings against direct sunlight.

2. On hot days, delay heat-producing tasks, such as dishwashing, baking or doing laundry, until the cooler evening or early morning hours.

3. Caulk around window and door frames. Use weather stripping on exterior doors, and have a professional seal gaps where air can travel between the attic and your living space.

4. Use energy-efficient lighting in your home. CFL and LED light bulbs operate cooler and cost less to use because most of their energy produces light instead of heat. Incandescent light bulbs, on the other hand, lose 90% of their energy as heat.

5. Leafy shade trees planted on the east and west sides of your home can improve comfort and decrease cooling needs by blocking heat and sunlight. You’ll still have the benefit of heat from the sun in the winter, after the leaves fall. Check with your local garden centre for recommendations.

DID YOU KNOW...

There are two types of debt: secured and unsecured. When you borrow money to buy a house, the bank can take back the house to recoup their money if you don’t pay the debt. That means the debt is secured – it’s being balanced against something that you want to keep. This provides the bank a measure of security that it’s going to be able to recover the money they've loaned you.

Unsecured debt, on the other hand, means the bank can’t reclaim the thing you’re buying with the borrowed money. (Credit card debt is unsecured, and so are student loans.)

Anyone with a mortgage wants the lowest possible rate. But there’s an array of requirements for snagging the best all-around deal, and some of them are counter-intuitive.

Once people have chosen the term and rate type for their mortgage, they often find that rates for that same term can vary by a percentage point or more. Countless factors can keep borrowers from getting a rock-star deal. Here are the 10 obstacles to getting the best mortgage rate:

1. Rates vary by province

Ontario usually has the most competitive rates in Canada, partly because it has the greatest number of competitors. People living in the Prairies or the East Coast, for example, often pay one-tenth to two-tenths of a percentage point more than folks in Ontario. Other examples: Homeowners in Alberta sometimes have to put down more equity to get the lowest available rates (thanks to larger default risks in that province); borrowers in Manitoba have the cheapest six-month rates; borrowers in Quebec have some of the best 10-year rates.

2. A long rate hold

The further into the future your closing date, the longer the rate guarantee you’ll need. In turn, the higher a lender’s rate hedging costs and the higher your interest rate. The cheapest rates in the market are generally for “quick closes.” That typically means you must complete the mortgage in 30 to 45 days from applying. Applying one month from closing can shave off one-tenth to two-tenths of a percentage point from your rate, but the risk is that rates jump even more while you’re waiting.

3. You’re refinancing

Lenders love to finance purchases. So mortgages for new buyers sometimes have lower rates than mortgages for refinances. What’s more, refinances, which essentially require a whole new mortgage, often have lower rates than mortgage transfers, where you’re switching lenders but the key mortgage terms stay the same.

4. You’ve got an apartment condo or a typical property

Some lenders charge more for high-rise condos, especially in cities where condo markets are arguably overextended. The same goes for cottages, co-ops, hotel condos, former grow-ops, larger multiunit residences and other non-standard structures, which lenders view as higher risk.

5. The property isn’t your full-time dwelling

The cheapest rates in the country rarely apply to income-generating properties that the owner doesn’t live in. These deals are a statistically higher risk for lenders and investors, so expect a higher interest rate.

6. Your credit score isn’t high enough

The magic number is 680. That’s the most common minimum credit score to qualify for the best rates, especially if you have a higher debt ratio or a smaller down payment. But one number isn’t everything. To qualify for the best pricing you also need a two-year track record of managing your credit with no serious delinquencies.

7. You want flexibility

Some of the nation’s lowest rates come with strings attached, such as below-average prepayment privileges. This limits your ability to save interest by making lump-sum extra payments. Instead of prepaying 15 percent to 30 percent annually (which few people do anyway) a “no frills” rate might limit you to prepaying 5 percent or 10 percent. Restricted mortgages can also impose painful penalties, prohibit you from refinancing elsewhere before your term is up and prevent you from increasing your mortgage without penalty – useful if you buy a new house.

8. Your mortgage is not insured

In many cases, people with smaller down payments – less than 20 percent – get better rates. That’s because their mortgage must generally be insured. Lenders like insured mortgages because someone else shares the risk of the borrower defaulting.

9. Your mortgage is too big

For lenders, bigger mortgages mean potentially bigger losses on default. This added risk results in rate premiums and stricter lending limits, especially on million-dollar mortgages without at least 25-per-cent to 35-per-cent down payments.

10. Your income is too low

If you’ve just become self-employed, are on probation or you can’t prove one to two years’ worth of stable salaried income, it can cost you. You may also need a bigger down payment. Lenders want less than 40 percent to 44 percent of your provable income to go toward debt.

In looking at this list, you may surmise you’ll get the best deal if you have pristine credit, don’t care about mortgage restrictions and are buying a detached urban home in Ontario that’s closing in 30 days.

That all helps, but there’s plenty more that governs mortgage pricing. Step one is knowing how well qualified you are. The stronger you are as a borrower, the more likely you’ll find exceptions to the rate “rules” above.

If you have any questions please don’t hesitate to contact us.

Welcome to the May issue of my monthly newsletter!

This month’s edition looks at accessing your home’s equity to invest and getting to know your lender. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

ACCESSING YOUR HOME'S EQUITY TO INVEST

To tap into your home’s equity, it all starts with refinancing your home. If you own a home, the equity you have built up in it is one of the most valuable assets you have available to you. It is also much more accessible than taking out a large loan. In many cases, home equity loans and lines of credit can offer you a lower interest rate as compared to other types of loans while providing you with access to credit for investment purposes. You can view an excellent comparison of loans here.

Often times we see clients who refinance in order to:

• Renovate their home
• Purchase a secondary property for investment purposes
• Debt consolidation
• Business Development
• Assisting their children’s post-secondary education
• Financing through a “life event” such as illness

In this particular article, we are going to highlight the value of utilizing your home’s equity to reinvest in other investments such as:

• rental properties
• stocks
• bonds
• mutual funds
• RRSP’s
• RESP’s

The first question that people ask is how much can I borrow? Generally speaking, you can borrow up to 80% of the appraised value of your house. For example, if your home value of $650,000 assuming one qualifies, they can access up to 80% of $650,000 which would be $520,000, if their current mortgage is $450,000 they may be able to get a home equity line of credit for $70,000 (totalling $520,000).

Working with your mortgage broker, you can go through the refinance and approval process if this is something you are interested in accessing. It is always a good idea to consult with your broker and understand the personality of your mortgage—there may be limitations of how much equity you can access and the conditions relating to the refinancing. There are also potential costs associated with this type of refinance including:

• appraisal fees
• title search
• title insurance
• legal costs

Keep in mind that these potential costs can be rolled within your new loan amount and will not be “out of pocket.”

Now, if you have been approved and are utilizing your home equity for one of the above investments (after speaking to your financial planner/advisor first) and can expect to see a higher rate of return than the interest you are paying to borrow the money, then it is worth considering. We emphasize that you should always proceed with caution and get advice from sound professionals before choosing to invest your hard-earned money.

We have found that this type of investing works extremely well for many and is a safer and less risky way to access funds for further investment purposes. We recognize that this option may not be suitable or comfortable for some, but it is a viable way to capitalize on the equity sitting in your home and make it work for you! If you have questions or are interested in learning more, please do not hesitate to contact a mortgage professional near you.

GET TO KNOW YOUR LENDER

One of the biggest aspects of a mortgage is figuring out the best lender. Since every file is unique, a good mortgage broker will likely tell you there’s no “best” lender. Instead, it will be those unique qualities in your mortgage that will determine which lender you’re going to use.

In a typical mortgage, there are three potential types of lenders: the big banks, credit unions and monolines.

A Bank

A bank is a financial institution that accepts deposits, lends money and transfers funds. They are listed as public, licensed corporations and have declared earnings that are paid to stockholders. A key point: they are regulated by the federal government-Office of the Superintendent of Financial Institutions. Everyone knows the big banks and they are considered to be trusted. If you decide to use a fixed-rate mortgage from a big bank, keep in mind the penalty to break the mortgage will be larger than other lenders. The big banks are best for a variable rate, since the penalty will be smaller.

Credit Unions

Credit unions also deposit, lend and transfer funds. However, after that, we run into some differences between the two. Credit Unions have an elected Board of Directors that consist of elected members from their community. They are local and community-based organizations and unlike the banks, they are not federally but provincially regulated. The advantage to a credit union is they are not subject to the recent stress test rules announced for uninsured mortgages, so they can still service debt under the older rules. The credit unions calculation for penalties are typically friendlier to the borrower and if there are credit issues, they tend to be more understanding than the big banks.

Monolines

Monolines specialize in a single type of financial service, such as consumer credit, home mortgages, or a sole class of insurance. While monolines are often used by mortgage brokers because they are broker friendly, there are some advantages to the consumer. Monolines usually offer better-discounted rates, while how they calculate the penalties can be friendly to the client. The biggest knock is they’re just not as well-known or trusted like a bank. It should be noted the major investors in monolines are the big banks, so there’s nothing really to fear.

Now that you know a little about the lenders, you need to know how a mortgage broker can help. A typical broker will have access to up to 90 lenders. That can be a real advantage because if your mortgage isn’t fitting into the right box, a great broker will turn over every stone and work with the lenders to find a solution. And since a broker has a number of different lenders to choose from, they’ll understand each of the lender’s guidelines to get you the right mortgage.

HOMEOWNER TIPS

Choosing a Home Security Company:

Once the decision has been made to have a security system installed in your home, don’t simply open the phone book or go online and choose the very first company listed. It’s best to talk to friends and neighbours to see what company they use. Find out if they have been pleased with the company. Also make sure that you check with the Better Business Bureau to see if there have been any reports made against the company. Look for a company that has been around for several years and seek references from some of their existing customers.

DID YOU KNOW...

Mortgage repayments should not account for any more than 40% of your monthly income, preferably less. Anything more is considered “mortgage stress” because it leaves you with little, if anything, left over once other homeownership costs and living expenses are accounted for. I can help you stick to what you can afford.

Welcome to the April issue of my monthly newsletter!

This month’s edition looks at protecting your pre-approval and options for up or downsizing. Please let me know if you have any questions or feedback regarding anything outlined below.

Thanks again for your continued support and referrals!

Protecting your pre-approval

People mistakenly believe once they’ve been pre-approved or approved by a lender it’s all done.

But what they don’t realize a lender may pull their credit 30 days prior to close. They also don’t realize lenders can request updated documents in that time. And, if some of the original information that got you the mortgage approval in the first place changes, and for the worse, you could lose your financing. Here’s a short list of actions that could put your approval on pause:

Having additional credit reports pulled by another broker or lender

The lender will often pull your credit again right before financing. If the lender sees that other brokers or lenders have pulled your credit, the lender views this as credit seeking and it can put your funding in jeopardy.

Applying for additional credit elsewhere

The lender calculates your debt based on the amount of credit you have. If you are applying for new credit, the obvious assumption is that you are planning on using it. Don’t get any new credit until the closing date is passed.

Closing out credit accounts

Credit is not a bad thing… unless you are having a hard time managing it. Old credit shows a long history of being able to handle credit. Lenders like that, so don’t rush to cut up your credit cards just yet. If you can, make above your minimum monthly payments to get in a better standing with your current accounts.

Moving money around without a paper trail

When you settle with the bank on the contract of the mortgage, the lender will require bank statements showing your saved money. They look at the history along with the balance. If there are any unusual deposits, you will need to explain where the money came from. Be prepared to show a paper trail. If your downpayment comes from savings, keep in mind the bank will want 90 days bank statements to ensure the money is accounted for.

Increasing your debt

The lender always looks at your debt-to-income ratio. If you increase your debt, you can risk going over the maximum amount of debt compared to your income.

The biggest, and most common offence to this rule is buying a new car or obtaining a big box store credit card.

Don’t be tempted! If you want to keep your current pre-approval amount, keep your ratio steady.

Moving up or down the property ladder

At some point, the place that we thought would be our forever home for one reason or another just isn’t working. That’s the time to consider moving up in size or potentially downsizing depending on where you are in life.

If you’re feeling squeezed or have a little one on the way, your current digs may not be enough. If you want to upsize during your mortgage cycle, keep in mind you’ll be breaking your mortgage and will have to go through the entire qualification process again.

That means you will need to re-qualify at the current rates offered by lenders and be subject to government changes and recent “stress test” rules. You’ll also be breaking your mortgage which will come with a variety of penalties depending on the terms in your mortgage and the lender. You may be able to port the mortgage, essentially taking the existing mortgage and its terms and transferring it to another property, but not all mortgages are portable. You’ll need to talk to a mortgage broker to find out if this is an option for you.

Moving on UP

If you’re trying to move from a condo or apartment to a single-family home, it’s all about the pros and cons. First, you have to decide if you can afford to make the move and buy something bigger. A larger purchase price comes with larger closing costs. Depending on the province in which you reside, you’re Property Transfer Tax will be larger and you’ll be paying realtor fees on the sale of the home you’re leaving. Canadians typically pay between 2.5 and five per cent their home’s selling price in realtor fees.

Don’t forget the costs of owning a single family home. Unlike a strata, you are responsible for all the maintenance of your home. One rule of thumb is to consider saving one per cent of the purchase price of your home each year for maintenance. If your home cost $500,000, that would mean $5,000 a year in savings. The good news is you won’t have to pay a monthly strata fee and you won’t be kept up at night worrying about a special assessment for major repairs on the building.

Scaling it DOWN

There comes a time when owning a home becomes a little too much to handle. The cleaning, the yardwork and the maintenance can be a pain. And why keep extra bedrooms when they’re just collecting dust? It may be time to downsize. If you’re mortgage free, depending on where you live, you could actually be sitting on a gold mine. While you may be in for a windfall, there are costs to selling your existing home for something smaller and cheaper.

• Realtor commission (between 2.5 and five per cent depending on where you live in the country and what you are able to negotiate). In Toronto for example, the standard realtor rate is 5%. So for a $1,000,000 home, you would need to pay the realtor $50,000.
• Closing costs and legal fees – approximately 1.5 per cent of the purchase price
• Miscellaneous costs – $1,000-plus (moving expenses, upgrading appliances and buying new furniture)
• You also need to consider strata or condo fees and the potential for special assessments on the building and all the standard costs that come with buying a place, even if there’s no mortgage.

Another more recent option to the real estate landscape is reverse mortgage. A reverse mortgage is a loan secured against the value of your home. It is exclusively for homeowners aged 55 years and older. It enables the homeowners to convert up to 55% of the home’s value into tax-free cash. With a reverse mortgage, you maintain ownership of your home. You only have to repay the loan once you chose to move or sell.

Homeowner Tips

Exterior Renovations:

If you’re thinking of selling your home, or you simply want to spruce it up, exterior renovations can significantly increase its value and curb appeal. Aside from more expensive undertakings such as new roofing and siding, there are some projects you can take on yourself, such as creating attractive flower beds or purchasing a new front door. With each project completion, you will be happier with your home, and increase its appeal to buyers when it comes time to sell!

DID YOU KNOW…

There are eight preset dates per year on which the Bank of Canada makes decisions which affect variable rate and short term fixed rate mortgages. The last increase to the Prime rate by the Bank of Canada was in 2018. No increase is expected anytime soon.

Longer term, i.e. the five year term, fixed rates are influenced by the bond market, and this is arguably less predictable and more volatile.

The most recent Bank of Canada meeting was in March.