Mortgages & Home

Tighter rules coming – Mortgage Matters

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Last week, The Office of the Superintendent of Financial Institutions (OSFI) proposed a further tightening of mortgage underwriting guidelines for all lenders that are federally regulated.

The announcement came almost exactly one year after OSFI said it would review its B-20 guidelines and further scrutinize underwriting standards.

The most significant change will be a stress test for all uninsured mortgages — any mortgage where there is more than 20 per cent equity in the property.

Currently, only insured mortgages (less than 20 per cent equity), variable rate mortgages,

Home Equity Lines of Credit and fixed term mortgages with terms less than five years are qualified at a higher rate.

That rate is the Bank of Canada’s qualifying rate which has recently been increased to 4.84 per cent. The new guidelines will be replaced by a qualifying rate that is 200 basis points or two per cent above the contract interest rate of the mortgage.

In October 2016, new stress test requirements were suddenly implemented for insured mortgages but now the new proposal will apply the stress test to all mortgages in an effort to cool the hot housing markets in Canada.

Why is it important for you to be aware of these changes? Because they are going to affect you. In a nutshell, you will qualify for 25 per cent less of a mortgage than you did prior to the changes.

This will potentially reduce your purchasing power when it comes to buying a home.

With the proposed changes the following information may not matter when it comes to qualifying for a mortgage.

  • That you have excellent credit
  • Or a large down payment
  • A long established relationship with your current financial institution
  • Excellent net worth – savings, investments, equity in other real estate

The new guidelines will require lenders to only look at the net income on your tax return — Line 150 — and the source of that income for qualifying purposes.

Other proposed changes include:

  • loan-to-value (LTV) measurements will be adjusted for local market conditions and risks
  • the prohibition of co-lending arrangements that are “designed, or appear to be designed to circumvent regulatory requirements such as bundled first and second mortgages programs

OSFI has said that its proposed changes will be available for public input until August 17, 2017 and the updated B-20 guidelines for mortgage underwriting will be issued in the fall and come into effect shortly after.

Bottom-line: Very soon, it’s going to become much more complicated than it already is to qualify for a mortgage.

If you need assistance in navigating this very complicated mortgage world please give me a call.

Jul 15, 2017 / 11:00 am | Story:

The Bank of Canada increased the overnight lending rate by 0.25 per cent on Wednesday.

The overnight rate determines what rate banks lend money to each other and any changes in this rate gets passed along to consumers by changing the rates on some of their lending products.

Variable rate mortgages, home equity lines of credit (Heloc), unsecured lines of credit and student loans all have interest rates that are based on a lenders prime lending rate.

When this happens, it typically means that your rate is going to increase as well, but not always by the same amount.

It can also mean that not every lender will adjust their prime rate the same way – even now we have one of the major banks prime rate being 0.15 per cent higher than everyone else’s on a variable rate mortgage.

By the time you read this, many lenders will have already announced an increase in their prime lending rate so keep an eye out for further updates on your lenders’ prime rate and what date any rate changes will affect your mortgage rate.

The best advice I can give if you currently have a variable rate mortgage . . .

Don’t panic!

Get some independent advice from your mortgage broker (not your lender), on what this increase means for you and your personal situation.

Lenders and the media can create a panicked frenzy which might encourage you to think about locking in now in fear of rates going up even further. This could mean more profit for the lender, a longer commitment from you and difficultly breaking that mortgage later!

Make a Plan:

You need to do a financial benefit analysis based on what your short and long-term plans are.

If you are planning to move in the next few years, then a variable rate might still be a better option with the lowest penalty, but if you are in your forever home and have a key focus on being mortgage free by a specific timeline such as retirement or sooner, then a fixed term mortgage may be more suitable.

Everyone’s situation is different, so having a customized mortgage that meets your needs, and not the lenders’, is always the way to go!

Do the Math:

A lender might be calling you to get you to lock in your amazing variable rate so don’t base your decision on fear. Let’s review the math, the facts and then decide what is right for you.

It’s important to note that the prime rate and, in turn, your variable rate mortgage and fixed term mortgage rates are impacted by two different sets of economic drivers.

Therefore, increases in fixed rates don’t mean the same increase in prime rates and vice versa.

Please reach out if you would like an independent complimentary consultation.

Jul 1, 2017 / 11:00 am | Story:

Buying and investing in real estate has always been attractive for those looking to generate additional income and benefit from the wealth created with increases in property values over time.

Is investing in real estate right for you?

The Attraction

Diversification is key to anyone’s investment portfolio whether you are talking about mutual funds, TFSAs, stocks, bonds, RESPs, RRSPs, etc.

Diversification helps balance risk and provides a level of confidence that your investments are still going to be there when you are ready to liquidate them, such as at retirement, etc.

Some would consider adding real estate, other than their principal home, to their portfolio to ensure full diversification.

A real-estate investor can still use a relatively small amount of down payment or capital to purchase a property, and this can provide an attractive return on investment (or ROI). This return is generated from a combination of monthly income and property value increases.

The monthly income is generated by taking the rent collected from tenant and then deducting all the expenses. To ensure that there is a positive cash flow, smart real estate investors work with a mortgage broker and REALTOR® that can assist with the analysis.

Equity is built in the property by way of appreciation of value over time as well as with each mortgage payment.

With mortgage interest rates at record lows and an abundance of potential tenants in many areas, there is a high demand for real-estate investors to take the plunge.

Here’s another way to look at it as well. Real estate investment is also beneficial for those who have a hard time saving money, as it can act as a sort of forced savings account.

Essentially, as you pay down the principal of a mortgage, you’re reducing debt and building equity. Then, when you go to sell the property, the money you receive back from the sale is considered your forced savings.

So What is the Risk?

Like any investment, there is risk and it is possible to lose money in real estate, albeit relatively low.

Real estate has shown to appreciate steadily over the long term, and has for the past 25 years, so the chances of someone losing money on a purchase are pretty slim.

However, keep in mind that doing your due diligence before an actual purchase is key.

You must take into consideration certain factors when choosing a property, such as:

  • desirability of location
  • stability of the market in that area.

Financing Options and How do I get started?

One more attraction is the fact that it really only requires part of your time, is flexible, and the skills can be learned.

The process is relatively easy, and I’ll walk you through that step by step. The first step is to build your Real Estate Investment Plan, which would include talking about your acquisition and exit strategies.

Call me for more information on how to see if you are ready to purchase a rental property and build your investment plan.

Jun 17, 2017 / 11:00 am | Story:

Discount mortgage broker rate sites have been making an appearance online during the past few years.

While these rate sites and discount mortgage brokers appear to be making offerings that are significantly lower than what the big banks are offering or even a local mortgage broker, there are a few points to consider before you decide to apply online.

Many of these low-rate mortgages are no-frills or low-frills and are packed with restrictive conditions and potential land mines.

If you commit to one of these products without reading all of the fine print, which most often happens, you could find yourself in a difficult situation in the near future since 60 per cent of Canadian mortgage holders break their mortgage around the 38-month mark.

Don’t assume that online rates are better than “offline” rates. Your local mortgage broker can shop the market and secure the best deal and also has the products available that are being advertised.

We will review all the pros and cons with you to ensure that the product is the best fit for your circumstances and you can live with the restrictions.

Many online brokers are long distance and if you have a problem with your application, it could prove challenging to resolve.

These online brokers work on volume, so there could be a lack of service to you and your mortgage. They are working with many clients at one time and may not provide the personal service that you require.

Don’t apply to too many. For each application you zip through online, you generate another inquiry on your credit report. Too many of these could cause a lender to reject you.

When you use the services of a local mortgage broker, generally only one inquiry is made no matter how many lenders review your application.

First-time homebuyers, or people who have limited knowledge about mortgages, are better off consulting a “live” mortgage broker that is close to your area, someone you can “touch and feel” and most of all trust. 

As a first-time buyer, you likely don’t know what you don’t know and that’s why you should be consulting someone who can walk you through the process.

Mortgages are complicated, so it’s important to ensure that not only do you get a great rate, but also ensure you can live with the terms and conditions of the mortgage.

If you would like a review to make sure a mortgage is a good fit for you please give me a call.

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