1 Jul

Understanding Mortgage Types

General

Posted by: Matthew J. Charlton

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 classifications:

INSURED (High-ratio – Less than 20% downpayment)

If you put less than 20% downpayment, you will need mortgage loan insurance. This insurance protects your lender in the event the borrower can’t make their mortgage payments and, in most cases, gives the applicant access to the lowest rates.

The current mortgage loan insurance companies are CMHC, Sagen and Canada Guarantee.

  • Maximum 25-year amortization
  • Purchase price not over $1M
  • Applies to Purchases & Eligible Switches
  • Must not exceed GDS/TDS 39/44
  • CMHC only GDS/TDS 35/42 if your beacon is under 680
  • Must be Owner-occupied (but can have a rental unit)

INSURABLE (Greater than 20% downpayment while meeting the following criteria)

This mortgage type may not need mortgage insurance but would qualify under the mortgage insurers rules. The borrower doesn’t have to pay an insurance premium but the lender has the option to if they choose.
This mortgage meets all the qualifications of an insured mortgage (stated above), however, the LTV (Loan to Value) is equal to or less than 80.00%. 

UNINSURABLE (Conventional – downpayment of 20% or more)

If your downpayment is 20% or greater, then mortgage default insurance is not required, and you, the borrower have access to more flexible terms. In some circumstances where location or condition of the property is a concern, the lender may request mortgage loan insurance as a condition of financing regardless of the LTV. In these cases, you would have to follow the insurers rules. Uninsurable files follow the rules below and are subject to a potentially higher interest rate.

• Maximum 30-year amortization
• Purchase prices over $1M (subject to sliding scale, lender specific)
• Purchase/Refinance/Switch
• Possibility of exceptions on qualifying ratios
• Owner-occupied/Cottages/Second Homes/Rentals

Insured mortgages are the safest type of mortgage loan for the lenders and the most cost-effective way of lending mortgage money. Clients seeking or in need of an insured mortgage will typically get the best interest rate offering on the market.

Insured as well as Insurable mortgages may be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable there is a greater risk to the lender/investor. This increased risk results in a slightly higher interest rate to account for the increased risk.

 

The mortgage contract has your signature on it and it is important to understand any contract you are signing. Get in touch and I would be happy to discuss your situation and answer any questions surrounding mortgage conditions or jargon to ensure the best results for YOU!

 


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8 Jun

Banks & Credit Unions Vs Monoline Lenders

Buying Property

Posted by: Matthew J. Charlton

Institutional Lenders comprise Schedule 1, 2 and 3 banks, credit unions, loan and trust companies, finance companies or other corporations constructed to lend money on real estate. The Lender may also be referred to as the mortgagee.

Schedule 1 (banks that are Canadian owned)
Schedule 2 (branches or subsidiaries of foreign banks)
Schedule 3 (foreign owned banks operating in Canada)

It’s likely that you already know what’s offered by the big banks and local credit unions, but have you heard of monoline lenders? Here’s why they’re in the market:

Monoline lenders provide a single (hence ‘mono’) yet refined service: personalized mortgage financing. Banks and credit unions, on the other hand, offer diverse products and services in addition to mortgages.

The monoline lenders will not cross-sell you on chequing/savings accounts, RRSPs, RESPs, GICs or anything else. These products and services are not even available to them.

If you are questioning the reputability of monolines, rest assured that many of these lenders have existed for decades. In fact, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many monoline lenders source their funds from Canada’s big banks, as these banks are always interested in diversifying their portfolios and making money for their shareholders through alternative channels.

Monolines are also known as security-backed investment lenders. Every monoline lender secures mortgages with back-end mortgage insurance provided by one of the three insurers in Canada.

During the origination, refinance or renewal period, monolines are only accessible through mortgage brokers. A licensed mortgage professional (such as myself) is the only one who can secure a mortgage for you through a monoline lender. However, once the loan completes, you can communicate with your new lender directly via phone, email, or online with any servicing questions you may have.

With no physical location, your lender saves on overhead costs, and these savings give you with the benefit of reduced rates and penalties.

Banks and monoline lenders primarily differ in their exit penalty structure for fixed rate mortgages. Monolines offer a much lower exit penalty because they calculate the Interest Rate Differential (IRD) penalty differently from banks. The banks utilize a calculation called the posted-rate IRD while the monolines use an IRD calculation called unpublished rate.

In Canada, 6 out of 10 households break their existing 5-year fixed term around 38 months in. This means an average penalty of 22 months against the outstanding balance. Given that the average Ontario mortgage is $300,000, the penalty from a bank would be around $14,000. The exact mortgage with a monoline lender would be $2,600. So, in this case, the monoline exit penalty is $11,400 less.

Looking for a lending institution that meets your specific needs? Get in touch and I can help you.


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5 Jun

Staying Out of the Penalty Box

Mortgage Tips

Posted by: Matthew J. Charlton

When it comes to mortgages, it is easy to focus on the rates and your current situation, but the reality is that life happens – when it does, rates won’t be the only thing that matters.

First and foremost, the most important thing to remember is that a mortgage is a contract. That means there is a penalty involved if the contract is ever broken. This is something that you agree to as a homeowner when you sign a mortgage commitment, but it can be easy to forget – until you’re paying the price.

Why break your mortgage?

You’re probably wondering why you would ever break your mortgage contract. Well, you might be surprised to find out that 6 out of 10 mortgages in Canada are broken within 3 years, and there are typically 9 common reasons this happens:

  • Sale and purchase of a new home
  • To utilize equity
  • To pay off debt
  • Cohabitation, marriage and/or children
  • Divorce or separation
  • Major life events (illness, unemployment, death of a partner)
  • Removing someone from title
  • To get a lower interest rate
  • To pay off the mortgage

It is always important to think ahead when signing a mortgage agreement, but not everything can be planned for. In case of an unexpected event, it is important to understand the next steps if you do indeed need to break your mortgage.

Calculating penalties

Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation (typically used for Fixed rate mortgages) or the sum of three months’ interest to determine the penalty (typically used for Variable rate mortgages). You will likely be assessed the greater of the two penalties, unless your contract states otherwise.

INTEREST RATE DIFFERENTIAL (IRD)

In Canada, there is no one-size-fits-all rule for how the Interest Rate Differential (IRD) is calculated, and it can vary greatly from lender to lender. This is due to the various comparison rates that are used.

Typically the IRD is based on the following:

  • The amount remaining on the loan
  • The difference between the original mortgage interest rate you signed at and the current interest rate a lender can charge today

In this case, these penalties vary greatly as they are based on the borrower’s specific mortgage and the specific rates on the agreement, and in the market today.

Let’s assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to break your mortgage as it is not always the most viable option.

THREE MONTHS’ INTEREST

In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above – balance of $200,000 on your mortgage, an annual interest rate of 6% – three months’ interest would be a $3,000 penalty. A variable- or adjustable-rate mortgage is typically accompanied by only the three-month interest penalty.

Paying the penalty

When it comes to making the payment, some lenders may allow you to add this penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty up front.

Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid penalties. If you cannot avoid a penalty, do note that, while calculators can be great tools for estimates, it is best to call your lender representative for the accurate number in determining penalties – or feel free to reach out to me.


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4 Jun

What to expect at your closing meeting with your Lawyer

Buying Property

Posted by: Matthew J. Charlton

Purchasing a new property? Refinancing with a new lender? There are a few things you’ll need to know. Closing day is your final step before receiving your requested funds and, if applicable, getting the keys to your dream home.

If you’re Refinancing your mortgage, the closing process is more streamlined and may include paying-out funds. On closing day, your new mortgage closes at your new rate, any debts you want paid out are automatically paid out by a legal service or lawyer, and any additional funds that you added into your refinance are paid out to you either by certified cheque or direct deposit from the legal service or lawyer handling the closing of your refinance.

During this last step, you can expect to:

  • Sign documents that your new lending institution will have prepared for you. Your Lawyer will present these documents, which relate to your mortgage loan and other home purchase details, to you. 
  • (If purchasing property) Have the remaining money necessary for the house purchase (downpayment plus closing costs), which you should clear using a bank draft. Please provide your Lawyer with your bank draft to close the transaction.
  • Once the funds have been successfully received, the Lawyer/Notary registers the purchase. This is done at the Land Title Office, and you will be listed as the property’s new owner.

Learn more about Title Insurance here.

  • The seller receives their due amount, and you (the new homeowner) get the keys and Title Deed. Congrats!

If you are working with a proactive lawyer (or notary), they will have your required documents prepared well before your expected closing day. In this case, they can give you the option to sign these documents and submit the necessary bank draft beforehand.

This makes sure you have peace of mind on closing day. Once you get your new home keys and deed, you’ll have time to celebrate!

Your Lawyer may work simultaneously with me to close your new mortgage offer.

While this all may seem like a straightforward process, it’s still important to prepare.

You may be required to provide the following identification Note: If meeting remotely, you will also be required to show your ID items at the time of your video conference to the lawyer conducting the virtual meeting:

    • Two pieces of ID, either a valid Driver’s Licence, front and back OR a valid Passport including the signature page). Please ensure the ID shows the complete document, including all edges.
    • Void Cheque
    • Copy of Insurance Binder and any additional requirements asked of you by the lawyer. (If applicable)
    • Credit Card or Birth Certificate. Please provide the front and back, ensure any credit cards are signed on the back and that the ID is complete, showing all edges.
    • Hydro, Gas or Tax Statement for proof of address.
    • Statement from a Bank Account/Credit Card/Mortgage/Loan showing your name and current address. A downloaded copy of your statement from your bank is acceptable.

Prepare Closing Documents

Your Real Estate Lawyer will prepare closing documents which, if applicable, will include a transfer of land. Before the closing date, you must have all of your paperwork ready – you will have already done this during the homebuying process with me. This paperwork generally includes mortgage documents including my contact information, sales agreement, proof of title search (completed by your Lawyer) and proof of homeowner’s insurance for full replacement cost. Don’t forget that you are going to need valid photo ID with your full legal name.

Close the Sale

Your Real Estate Lawyer will hold a meeting with you several days prior to the closing date to sign your purchase and mortgage documents. Your Lawyer will walk you through the documents and have you sign the required legal papers. At this time, if purchasing property, you must have deposit money or downpayment funds needed to close the sale.

At this point, your Lawyer should have all the documents required by the Seller’s lawyer to transfer the title. You will have time to review everything with your Lawyer. 

It’s finally time to close the sale! On this date, your Lawyer will provide the Seller’s lawyer with the money necessary to complete your purchase. Your Lawyer will then send the documents to Land Titles for registration. Once the Sellers have received the money from your Lawyer, they will speak with their Realtor and confirm that the keys can be given to you. Your Realtor will get the keys from the Seller’s Realtor and arrange to provide them to you. All of this typically happens before noon on closing day.

Need a Lawyer to assist you with this process? Get in touch, I’d be happy to recommend a qualified law firm!


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3 Jun

Pre-qualification vs Pre-Approval vs Rate-hold

Buying Property

Posted by: Matthew J. Charlton

The homebuying process can feel like jumping through many hoops, but familiarizing yourself with frequently used terms can make purchasing a home much easier.

Even if it’s not your first time as a homebuyer, there are many common questions that people have regarding mortgage rates and the steps necessary to secure a property.

For instance, when it comes to mortgage Pre-qualification, Pre-approval, and Rate-holds, the difference between the three is a bit fuzzy for most people. Here’s what everyone should know about each one: 

What does it mean to pre-qualify?

Getting pre-qualified for a mortgage is regarded as the preliminary step in the homebuying process. This initial step should not be confused with getting pre-approved which comes later on. A mortgage Pre-qualification is an easy process that can be done online or over the phone, and it won’t cost you anything. This step takes just a few minutes, as it is simply a quick overview of your financial situation including your income, assets and debt.

Your credit report isn’t factored into Pre-qualification, and your Pre-qualification Report will not provide you with detailed insight into how much home you can afford. However, this stage of the process is your chance to let me know about any specific needs or goals you may have. I can also give you a good idea of the mortgage rates and options most suitable for you. You will also receive an estimate of the mortgage amount you are likely to get approved for.

What does it mean to get pre-approved?

The Pre-approval stage gives you a more in-depth look at where you stand financially. Many serious borrowers regard the Pre-approval process as the first step towards the goal of securing a mortgage approval. A few lenders still offer a traditional Pre-Approval Commitment letter, which is a conditional guarantee that the lender will accept your application if you provide information that is consistent with your supporting documents and your borrower profile meets their lending criteria. However, this Commitment is not the norm; most lenders no longer rigorously examine your supporting documents upfront. Instead, many now provide Rate-holds. If we were to work together for this process, I would pre-approve you and bring up apprehensions a lender may have with your capability of managing a mortgage. Doing this will equip you with valuable information such as the type of home you can afford and the mortgage payments you can reasonably handle. You will need to present me with specific documentation (including an official mortgage application) to prepare for your new lender, which will be followed by an assessment of your financial status (including current credit rating and report). Please note that if you pull your credit report more than three times within six months, this may lower your credit rating. Rest assured that to identify your ideal lender option, I may only need to pull your credit report once. If you’re interested in getting pre-approved, don’t hesitate to reach out to me!

The handful of lenders that do provide a Pre-approval will likely offer a mortgage rate guarantee for a set length of time, which protects you from possible rate increases – this resembles a Rate-hold, which is explained below. This process generally has no application fee, and you will in no way be obligated to me or the lender.

Getting pre-approved gives you the freedom to search for a home valued at or below your purchase price based on a current assessment of your financial profile.

What is a mortgage Rate-hold?

A Rate-hold (offered by some lenders) is a specific mortgage rate that is locked-in by the lender for a certain number of days. Usually, a Rate-hold guarantees your mortgage rate for up to 120 days, but 90- and 60-day Rate-holds are also common. The main benefit of a Rate-hold is having access to your locked-in mortgage rate if mortgage rates increase within your Rate-hold period (or the discount against the prime rate if you choose a Variable rate). In the case of mortgage rates declining, you will still have access to the lower mortgage rates currently on the market, meaning there is no downside to getting a Rate-hold.

Although a Rate-hold guarantees you an interest rate for a specified period, it does not mean your mortgage application has been approved. A lender may refuse to lend to you if you fail to meet specific criteria, which is why getting pre-approved is strongly recommended. Conversely, with some lenders, when you get pre-approved, you can be automatically signed up for a Rate-hold.

How long does a mortgage Pre-approval take?

While getting pre-approved typically takes a few days, it may take longer in certain circumstances, e.g., if you are self-employed or have poor credit.

You will need to provide me with documentation to prove your identity, income and assets. Although it may take some time, it’s worth ensuring that you have all of your documents (such as a letter of employment and relevant bank statements) in order. Your lender and I will also require enough time to review your application, check your credit report and find the best mortgage rate and product you qualify for.

Once you have purchased a home and are ready to get a mortgage, you will have to go through the full mortgage application and underwriting process. It could take anywhere from a few days to several weeks to get through all of this. Fortunately, you will already have submitted most of the necessary documents through the Pre-approval process with me, saving you valuable time at this stage.

How long is a mortgage Pre-approval/Rate-hold good for?

Your Pre-approval or Rate-hold depends on the lender. The typical approval period is 90 or 120 days, giving you plenty of time for house hunting. If finding your ideal home takes you longer than your Rate-hold period, you may be asked to re-submit documents.

The caveat to this is a noticeable change in your income or assets. A mortgage Pre-approval/Rate-hold is based on your financial situation at the time it’s given. A change in employment status or switching jobs, buying a car, taking on a new loan, or getting divorced could cause your Pre-approval to be denied. Getting denied can happen even after your mortgage is officially approved. To ensure a smooth process, please avoid major financial decisions or purchases immediately after getting pre-approved.

Note: Some lenders do not offer Rate-holds or Pre-approvals and instead only accept live files where you’ve already located a property to purchase, have an accepted offer and have signed an agreement of purchase and sale.

Mortgage Pre-qualification vs. Pre-approval

As you probably know by now, Pre-qualification is not the same as Pre-approval. When I pre-qualify you for a mortgage, I only look at a snapshot of your financial status. At this stage, I can only roughly estimate the mortgage you can afford based on how you answer several questions about your job, income, assets, downpayment, debt and expenses. Getting this part out of the way before you even start searching for a home will give you an idea of what’s within your budget, and it will likely be more helpful than a mortgage affordability calculator. Pre-qualification can also raise red flags sooner than later, giving you time to make necessary changes. 

A Pre-approval, on the other hand, is primarily based on a thorough look at documentation proving your financial situation. Pre-approval is a more formal step toward getting a mortgage, and it can also give you bargaining power when buying a home.

The Bottom Line

Knowing the right terms is the first step to getting a great deal on your mortgage. A Pre-qualification is a quick investigatory tool for homebuyers, while a Pre-approval or Rate-hold is a more formal process that may lock in a rate for a given number of days. Wherever you’re at in the homebuying process, feel free to get in touch!


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15 May

Why you need a home inspection.

Home Tips

Posted by: Matthew J. Charlton

A home inspection isn’t a legal requirement when you buy a home in Canada. Yet, it’s certainly a wise decision for the largest purchase you will likely ever make.

Here are five reasons why you should opt for a home inspection when buying a home, even if it is a brand-new build.

1. Things unseen

The home you want to buy may have a gorgeous skylight, cathedral ceilings and a huge primary bedroom.  But the home’s aesthetics can hide big problems.

When you tour a house, you aren’t climbing into the crawl space or looking at the furnace. A home inspector isn’t wowed by beautiful staging. He or she will look at what’s in your walls, not what’s on them.

2. Realistic budget for home maintenance

Many home inspections include the items that will need to be replaced within the next five years.

Paying for a home inspection can help you come up with a realistic home maintenance budget. If you know that the windows and roof are nearing the end of their lifespan, you can plan for that.

3. A solid negotiation tool

Getting a home inspection gives you a huge amount of leverage. You can ask the sellers to fix some or all of the issues found during the inspection. Or you can renegotiate the sale price or ask the seller to contribute more towards closing costs.

With a home inspection, you have the upper hand in the deal. This gives you a lot of power to get a better deal on the purchase. Of course, you can also choose to back out of the sale if there are big, expensive issues that you’d rather not deal with.

4. Can be an eye-opener

A home inspection will reveal the big picture when you might be focused on the location and the open kitchen plan. You don’t want to be blind to the potentially big issues like foundation cracks or electrical problems that can lurk unseen.

5. Peace of mind

Lastly, and most importantly, a home inspection gives you peace of mind. You’ll be able to finalize the sale of a home knowing exactly what you’re getting yourself into. That way, you don’t uncover any major surprises shortly after moving in—even new builds are subject to issues.


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7 May

Required Documents

Mortgage Tips

Posted by: Matthew J. Charlton

Documents Required to Qualify for a Mortgage

Mortgages can sometimes feel like endless stacks of paperwork and PDF documents, but being prepared in advance can save you time and stress! Getting your mortgage pre-approved is part of this prep-process, and will make things easier in the long run.

In order to get pre-approved and secure a Rate-hold, I will need to review and assess your supporting  documents outlined below. It is important to ensure you’re pre-approved and have a Rate-hold secured (for up to 120 days), before moving ahead and working with your Realtor to find your new property.

To prepare for the mortgage pre-approval process, there are a few must-have documents that you will need to organize and have available prior to submission.

  1. Letter of Employment: One of the key aspects for financing approval is employment stability. Lenders want to see a letter from your employer (on company letterhead) that details when you started working at this company, how much you make per hour or your annual salary, your guaranteed hours per week, and any probation if you are new. This can be completed by your direct manager or the company HR department.
  2. Previous Two Pay Stubs: In addition to the employment letter, you must also provide your most recent two pay stubs. These must indicate the company name, your name and all tax deductions.
  3. Supporting Documents for Additional Income: If you have any other income, such as child support, long-term disability, EI, part-time income, etc., the lender will want to see any and all supporting documentation for verification.
    1. Note: If you are divorced or separated and paying child support, it is important to also bring your finalized and signed separation or divorce agreement. In some cases, they may request a statutory declaration from your lawyer.
  4. Notice of Assessment (NOA) from Canada Revenue Agency: Lenders will also want to see your tax assessment for the previous year. If you do not have a copy, you can request one from the CRA by mail (4-6 weeks) or you can login to your online CRA account to access it.
  5. Your Previous Years T4: Along with your tax filing and assessment notice, lenders will also want to see your previous years T4 slip to confirm your income.
  6. 3-Month (90 day) Bank Account History: Lastly, it is important for lenders to see 90 days history of bank statements for any funds that you are using towards the down payment. As saving up for a down payment takes time, there should be no issues providing these documents. If you received the money from the sale of a house or car, or as a gift from your family, you will need proof of that in the form of sales documents or a gift letter.

The above documents are required for any potential buyer who is a typical, full-time employee. But what if you only work part-time? Or maybe you are self-employed? Here is what you will need:

Part-time employee

You will still require all of the above documents (letter of employment, previous pay stubs, supporting documents for any additional income and 90 days of bank history).

However, the difference between a full-time employee and a part-time employee, is that if you only work part-time, you will need to supply THREE years worth of Notice of Assessments, versus just one. You will also need to have been working for at least two years in the same job to use part-time income.

If you have both a full-time and a part-time job, you can use that income too, assuming it has been at least two years.

Self-employed

If you are self-employed, the requirements for documents to lenders is slightly different. You will need to provide them:

  1. 3-Month (90 day) Bank Account History: Lenders need to see 90 days history of bank statements for any funds that you are using towards the down payment.
  2. T1 Generals: Also known as the Income Tax and Benefit Return
  3. Statement of Business Activities: This is used to illustrate the business income versus expenses and should include financial statements for your business.
  4. Notice of Assessment from Canada Revenue Agency: Similarly to part-time income, if you are self-employed you will also need to provide the previous three years of assessments.
  5. If Incorporated: You will need to supply your incorporation license and articles of incorporation.

Here’s a condensed list of some of the documents typically needed depending on your situation:

  • Agreement of Purchase and Sale
  • MLS Listing
  • Contact information for your lawyer: name, address, and phone number  (Don’t have a Real Estate Lawyer? I’d be happy to introduce you to one!)
  • 2 pieces of personal identification for all parties involved
  • Income and employment verification
  • Recent pay stub(s)
  • Letter of employment
  • T4(s)
  • Notice of Assessment(s) if self employed (NOAs)
  • Proof of Down Payment: 3-month history of savings/investments
  • Gift letter with bank statement
  • Void cheque
  • Copy of home insurance policy

When it comes to mortgages, preparation is key. By completing the pre-approval process and securing your Rate-hold, it can prevent any delays or issues with subject-to-financing clauses in the mortgage agreement. While you can walk into a bank, fill in an application and get a rate for a potential mortgage, this is just a ‘rate hold’ meaning it is a quote on the rate so you can qualify for the same rate later. This is not a pre-approval and does not guarantee financing.

To save yourself the headache down the line, get in touch today to start the pre-approval process! Plus, in most cases, my services are free to you. 


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5 May

Pay Off Your Mortgage Faster

Mortgage Tips

Posted by: Matthew J. Charlton

Mortgages in Canada are generally amortized between 25 and 35 year terms. While this seems like a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

With a little bit of thinking ahead, and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:

  • Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to approximately 21.
  • When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
  • Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage as a lump-sum payment and watch the results.

By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years faster!


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2 May

Reverse Mortgages and What to Know

Lifestyle

Posted by: Matthew J. Charlton

When most of us dream of retirement, we imagine ourselves in our homes – sharing a meal with family or just relaxing in a comfortable spot.

But retirement can also bring financial strain. Seniors often face the challenge of managing with less cash flow than they anticipated or coping with unforeseen expenses.

For many Canadians who are looking to retire but currently facing a high debt-load and ongoing expenses, as well as reduced income, it can be a challenge. This is where the reverse mortgage can help!

This product is also a great option for anyone wanting to assist their elderly parents. Instead of selling the home and moving them to a care home or assisted living, a reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for in-home and ongoing care costs.

The goal of the reverse mortgage is to allow Canadians over 55 years to tap into the equity of their home, which assists in comfortable financial living. With a reverse mortgage, borrowers are not required to make regular payments. This allows them a considerable inflow of cash, without having to pay off what they owe! The only time payment will be required is when you sell or move out of your home.

Reverse mortgages are designed to allow you to access up to 55% of your home’s equity, thereby allowing you to convert your home equity into cash. This can be done as either a one-time lump sum payment, or you can choose to structure it to receive monthly payouts. Beyond being able to cash in on your home’s equity, a reverse mortgage has additional benefits including:

  • No monthly mortgage payments
  • No income or credit qualifications
  • Very low / little paperwork required
  • Title and ownership of property remain in homeowner’s name
  • Flexible options to break term early if needed (sell or move at anytime)
  • Penalty waived in the event of death or care home placement to preserve the estate
  • Money can be received as a lump sum, or over time or combination
  • Receive the money tax free

If you are struggling financially, or want to have a little extra equity on hand to pay off existing debts, gift money to family, expand your quality of life or simply increase your investment portfolio, contact me today! I would be happy to discuss the possibility of a reverse mortgage in further detail with you and ensure it is the best product to suit your needs.


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1 May

Second Homes, Vacation Homes & Investment Properties

Buying Property

Posted by: Matthew J. Charlton

So, you are looking to purchase another property! Congratulations! This is a great opportunity for you to expand your financial portfolio and ensure stability for the future. However, before you launch into this purchase there are a few things you should know, depending on which type of property you are looking to purchase.

SECOND PROPERTY WITH INTENTION TO RENT

Buying a property for the purpose of renting it out to someone else comes with different qualifying criteria and mortgage product options than traditional home purchases. Before you look at purchasing a rental property, there are a few things to consider:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used to qualify and determine how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income and subtract your expenses.
  3. Interest rates usually have a premium when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

VACATION PROPERTY

While vacation properties are not always the perfect investment, they are popular options for people who want to get away from it all and build memories in! If you’re motivated to head down that road, buying a vacation property is essentially like purchasing a second home.

If you are considering buying a unit within a hotel as a vacation spot (known as “fractional ownership”), it is important to note that if there is any mention of using your vacation home to provide rental income it will be treated like an investment property.

If you are dreaming of your very own vacation home, there are ways to make it happen! Let me walk you through your options.

When it comes to taking on a vacation property, you will need to have a minimum down payment of 5% of the purchase price. If you are purchasing a non-winterized vacation home, or will not have year-round access, then you will be required to put down 10%. 

You must also have sufficient credit score to qualify if not putting 20% down. In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry the mortgage of your existing live-in home and your new vacation home.

When purchasing a vacation home or property, most lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. This is done through mortgage refinancing, which means getting a re-evaluation on your home and then redoing your mortgage based on the current value. This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. Keep in mind, when using some of your current equity, it will increase the principal amount and the interest payments on your mortgage as the mortgage is now refinanced at a higher amount.

Another option to unlock your home equity is through a line of credit or a HELOC (Home Equity Line of Credit). This option allows you to borrow money using the equity in your property, with the property as collateral. A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. In Canada, you are able to borrow up to 65% of your home’s value using this method. Your HELOC balance AND current outstanding mortgage cannot exceed 80% of your home’s value when added together.

SECONDARY PROPERTY

Most people are trained to stay out of debt and don’t tend to consider using the equity in their home to buy an investment property, but they haven’t realized the art of leveraging. If you’re using equity from your primary residence to buy a secondary property, keep in mind that the interest you’re using is tax deductible. Consider that you’re buying an appreciating asset, and if you put a real estate portfolio and a stock portfolio side-by-side, they don’t compare.

WHO IS A GOOD CANDIDATE?

You might be surprised to learn that you don’t need to make six figures to get in the game. Essentially, you just have to be someone who wants to be a little smarter with their down payment. Before taking on a secondary property remember that the minimum down payment is 5% of the purchase price – unless you are intending to rent, in which case it is 20% down.

When it comes to purchasing a secondary property, whether for investment or rental or vacation, it can be a great opportunity! As your mortgage broker I can work with you to find the best solution for your unique needs.

AIR BNB ON YOUR MIND?

More and More Canadians are hopping on the short-term rental train as Air bnb’s popularity has sky-rocketed over the last few years. It’s not a bad way to earn extra money, but don’t forget there are a few things to consider:

  • Check strata/city bylaws
  • Contact your insurance provider to get correct coverage
  • Discuss with me to see if a short-term income property can affect your approval
  • Consider tax implications, and talk to an accountant.

The more services you provide as a host, the greater the chance that your rental operation will be considered a business.

If you are ready to purchase a second home, vacation or investment property, I would be happy to take a look at your current mortgage, equity and review your options to help you find the best fit. Get in touch, the keys to success are right around the corner with a little bit of expert advice.


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