It was only days ago that the Federal Government announced that it would provide increased flexibility to lenders to defer mortgage payments during the COVID-19 crisis. Shortly thereafter, the big 6 banks announced they would be allowing up to 6 months of mortgage payment deferrals to assist those impacted by COVID-19. The monoline lenders followed suit. Since then, they have all been doing as best they can to accommodate the massive volume of calls and emails, while implementing new programs daily to help handle these inquiries. I have been completely immersed in trying to help my clients who are seeking payment relief during these times. Lenders are updating us daily/hourly as to what the best course of actions is, and I encourage you to contact your mortgage advisor, or me, if you don’t have one, for current advice. Here is what I have learned so far:

• Many people are under the impression that the government is offering mortgage payment forgiveness or mortgage compensations of some kind. This is not the case. Any deferred payment will be added to your mortgage in one way or another, with interest. A payment deferral will cost you a lot more in the long run. ***This is not “free” or “government” money***

• I have heard about 2 clients being offered 6 months of deferred payments with no questions asked. Understand this is not the norm. You will likely be asked about your employment status and other reasons for requesting deferral. Many lenders will ask about your net worth status and liquid assets available. (If you do your regular banking with the same lender that holds your mortgage, they can likely assess this internally). Whether or not your mortgage is default insured, collaterally charged, your loan-to-value ratio, and if you have been set up on accelerated payments or applied any lump sum payments in the past will be considered. Many clients are offered a one-month deferral only and encouraged to re-apply with new status each month. ***PS to Alberta residents *** I’ve had clients in the oil and gas industry asked by the lenders if their layoff was directly due to COVID-19, or other factors. GREAT QUESTION. I believe the answer is circumstantial to your working environment, but I’m trying to find out more.

• Regardless of how urgent your situation is, it is going to take time to get a response. It can be frustrating to wait on hold, or wait for an email response, but please contact them before you miss a payment, as to not damage your credit.

• Mortgage distress, like any kind of distress, is relative. For some people, mortgage distress is due to worry about the coming disastrous economic effects of COVID-19 on their job or business. For other people, mortgage distress is being suddenly laid off with no income and unable to pay their Mortgage on Tuesday. Both are valid concerns, however, some lenders are prioritizing and only dealing with those not able to pay their mortgage payment due within the next 7 days. If you don’t have concern about missing your next payment, consider sending an email or filling out a form for a call back later. I know waiting can be frustrating. In these times, exercising a little patience and freeing up the phone lines could help your friends and neighbours keep their home.

• If you believe you have some equity in your home, you might be able to avoid all of this by speaking to a mortgage advisor and setting yourself up to access equity for fallback more affordably. You should do this before there are any negative changes to your income or home value. I would suggest NOW. You may be able to refinance to draw out an emergency fund, set up a home equity credit line, a reverse mortgage, or even private financing to bridge the gap at this time.

• Self employed and commissioned workers: Many lenders require “proof” that you’ve been laid off or impacted by COVID-19. in order to defer payments. For many of you, that is something that you won’t be able to document for months. I encourage you to speak with a mortgage advisor NOW to explore your financing options outside of deferred payments.

I hope this information helps! Do not hesitate to call or email me for further advice.

Sarah

The Bank of Canada announced a 50bps cut to the overnight rate on Friday at an unscheduled meeting. The overnight rate, or policy rate, can have an impact on the Prime lending rate at the banks, as we saw 2 weeks ago at the BOC’s regularly scheduled meeting. The banks have not responded to this second cut yet, and we are not sure if or by how much they will correspondingly reduce the prime lending rate. It is unlikely to be a full 50 bps. Furthermore, there is another scheduled meeting in April, and many economists are expecting another drop in the overnight rate. This also may or may not drive the Prime rate down further. Changes to the Prime lending rate impact variable rate product borrowers and credit line holders.

Variable Rate Mortgages:

A variable rate mortgage product is issued with a set differential to the prime rate for a specific period of time (ie: Prime less 0.60% for a 5 year closed term). This means that with changes to the prime rate, your monthly payment (sometimes) and overall cost of borrowing fluctuates. Home Equity Credit lines are similar, however they are usually priced at Prime PLUS a differential, have no set term and require interest only payments (no amortization).

The prime lending rate may go down, but the differential (the set discount to prime over a 5 year closed term) offered for new mortgages is, and will likely continue go up in the short term if the Prime lending rates continue to fall.

In my opinion, waiting to see if the Prime rate falls again BEFORE you secure a variable rate mortgage product does not really benefit you, unless you time this absolutely perfectly.

Fixed Rate Mortgages:

A fixed rate mortgage term is issued with a guaranteed rate, payment, and cost of borrowing for a set period. The most common period is 5 years. 5 year fixed mortgage rates are impacted in most part by the 5 year bond rate, along with a few other factors related to the lender’s cost of doing business. I will get into that another time. The sharp 5 year fixed rate drop we had last week was a quick response to corresponding bond yields. Almost as quickly, many lenders who dropped their 5 year fixed rate, have already gone back up slightly.

In short, my recommendation is that if you are considering a new purchase within the next few months, getting pre-approved and securing a “ceiling” rate right now would be a good idea. If you have been thinking about an early renewal to take advantage of new lower fixed rates, you should be calling your mortgage advisor ASAP. 

Here is a short glossary of some of the other “interest” terms you might be hearing about in the news:

Benchmark Rate:  The Bank of Canada conventional 5 year rate. This rate is meant to be a cross-section of posted bank rates. Historically much higher than contract rates available, this rate is used in qualifying applicants.

Contract Rate:  The actual interest rate that the mortgage holder pays.

Overnight Rate:    The interest rate at which major financial institutions borrow and lend one-day (or over-night) funds among themselves; The Bank sets a target level for that rate. The target for the overnight rate is often referred to as the Bank’s Policy Interest Rate.

Prime Rate:   The annual interest rate that Canada’s major banks and financial institutions use to set interest rates for variable loans and lines of credit.

Qualifying Rate:   The rate used by mortgage stress tests to determine an applicant’s affordability. Typically the benchmark rate, or the contract rate plus 2%

As always, do not hesitate to call or email if you have questions.

Sarah

By Angela Calla Dominion Lending Centres – Accredited Mortgage Professional

WHAT THE ELECTION RESULTS MEAN FOR YOUR MORTGAGE

With all the news we have seen on the election, I thought I would sum it up from a mortgage industry perspective.

What the liberal win means for your mortgage:

1. We will see the continuation of the First Time Home Buyers’ Incentive. Check out the link for more information here

2. Property Transfer Tax modifications were on the platform, so we will await the date that change is applicable.

3. Consumers will still be able to withdraw up to $35,000 from their RRSPs as part of the government’s Home Buyers’ plan.

4. Bank of Canada Rates may not decrease as expected this year – unless there is a significant downtown in the market suddenly- based on the snapshot of recent activity that doesn’t appear as likely. It certainly makes it easier for the lenders not to pass the decrease down the line to the consumer.

5. We will likely see a national housing tax implemented in addition to the provincial ones already in place.
For items 1, 2 & 5, here is a link.

It doesn’t appear we will see any of the changes to the stress test or amortization hoped for by many.

While the constant in our market will always be change, mortgage professionals are here at the frontlines to help you navigate the market to your advantage and save you money. Please reach out to me with any mortgage questions on how we can help you or those you care most about.

By Geoff Lee DLC GLM Mortgage Group

Co-signing on a loan may seem like an easy way to help a loved one (child, family member, friend, etc. ) live out their dream of owning a home. In today’s market conditions, a co-signor can offer a solution to overcome the high market prices and stress testing measure. For example, if you have a damaged credit score, not enough income, or another reason that a lender will not approve the mortgage loan, a co-signor addition on the loan can satisfy the lenders needs and lessen the risk associated with the loan. However, as a co-signor there are considerations.

1. If you act as a co-signor or guarantor, you are entrusting your entire credit history to the borrowers. What this mean is that late payments on the loan will not only hurt them, but it will also impact you.
2. Understand your current situations—taxes, legal, and estate. Co-signing is a large obligation that could harm you financially if the primary borrowers cannot pay.
3. Try to understand, upfront, how many years the co-borrower agreement will be in place and know if you can make changes to things mid-term if the borrower becomes able to assume the original mortgage on their own.
4. Consider the implications this will have regarding your personal income taxes. You may have an obligation to pay capital gains taxes and we would highly recommend talking to an accountant prior to signing off.
5. Co-signors should seek independent legal advice to ensure they fully understand their rights, obligations and the implications. A lawyer can lay it out clearly for you as well as help to point out any things you should take note of.
6. Carefully think about the character and stability of the people that you are being asked to co-sign for. Do you trust them? Are you aware of their financial situation to some degree? Are you willing to put yourself at risk potentially to take on this responsibility? Another consideration is to think about your finances down the road and determine how much flexibility will be needed for yourself and your family too! If you have plans of your own that will require a loan, refinancing your home, etc. being a co-signor can have an impact.

Co-signing for a loan is a large responsibility but when it is set-up correctly and all options are considered, it can be an excellent way to help a family member, child, or friend reach their dream of homeownership. If you are considering being a co-signor or wondering if you will require a co-signor on your mortgage, feel free to reach out. I am always happy to answer any questions and guide you through processes like this.

By Todd Skene- DLC Home Smart Mortgage

The most common question we get for mortgages is “what is your best rate?” Now imagine we walked into our local coffee shop and asked “what is your best price?” Doesn’t happen. There are all kinds of different coffees and lots of ways to make them. The same goes for mortgages.

Getting a coffee at the lowest price is usually not going to get you the coffee that meets your needs. You want quality beans, flavour, extra features like a shot of caramel, maybe make it a macchiato, froth on the top, an alternative milk option, and the list goes on.

The same goes for mortgages. Lowest rate mortgages may come with a lack of portability, the inability to make extra payments, and they may lock you into a good rate today without the flexibility for better rates in the future. They may be the lowest rate without the lowest monthly payment amount, they may be for term lengths that are too long and have significant penalties when the mortgage needs to be broken.

The lowest rate mortgage may be collateral charge mortgages that allow a bank to foreclose on your property because you were delinquent on your credit card payments while you went on an extended vacation in Europe and forgot to keep track while you were having so much fun drinking coffee at a popular little hole in the wall café in some small ancient village. The 4 strategic priorities that every mortgage needs to balance are lowest cost, lowest payment, maximum flexibility, and lowest risk.

So the next time you need a mortgage, treat it like your coffee order, don’t ask for the best rate, ask how you can get the best mortgage that meets your needs.

I often have people ask why so much documentation is required for mortgage financing. Along with an employment letter, you are asked to provide a copy of the offer to purchase/sale agreement, MLS feature sheet, a pay stub, your most recent Personal Tax Notice of Assessments (NOA), T4’s, confirmation of down payment, etc. “Why is this required, doesn’t the employment letter satisfy this condition”? Unfortunately the employment letter is not sufficient.

A pay stub confirms what was written in the employment letter along with year to date earnings, overtime, special allowances/bonus/commissions received, etc. T4’s confirm previous years earnings and Personal Tax Notice of Assessments (also know as NOA’S) confirm taxes have been filed for previous years income and no personal taxes are owing to Revenue Canada. No taxes owing to Revenue Canada is important as Revenue Canada can place a lien on a property for taxes in arrears, ahead of the mortgage claim on title.

A realtor will provide an offer to purchase/sale agreement and MLS feature sheet. The purchase agreement confirms the financial agreement and what is included with the house while the MLS provides property details required by the lender; this enables the lender to establish whether or not one has paid fair market value for the property.

Finally, a lender will ask for a 30-90 day (depending on whether or not the mortgage is insured or uninsured) history of where down payment has originated to confirm it is from own sources and not borrowed. This process is required by the government due to anti money laundering laws, which require the confirmation of the source for all funds used for down payment.

Before shopping for a home contact me to have yourself pre-approved so that you can go out shopping, search for the home of your dreams and confidently make an offer: sarah.boudreau@jencormortgage.com

403-245-3636 Ext 5703

By Debra Carlson DLC Jencor Mortgage

It’s common for a first-time homebuyer to be overwhelmed when it comes to real estate industry jargon, so this BLOG is to help make some of the jargon understandable.

To help you understand the process and have confidence in your choices, check out the following common terms you will encounter during the homebuying process.

1. Amortization – “Life of the mortgage” The process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero. Typical amortizations are 25 years or if you have over 20% down payment – 30 years.
2. Appraisal – An estimate of the current market value of a home. A property is appraised to know the amount of money that a lender is willing to lend for a buyer to buy a particular property. If the appraised amount is less than the asking price for the property, then that piece of real estate might be overpriced. In this case, the lender will refuse to finance the purchase. Appraisals are designed to protect both the lender and buyer. The lender will not get stuck with a property that is less than the money lent, and the buyer will avoid paying too much for the property.
3. Closing Costs – Costs you need to have available in addition to the purchase price of your home. Closing costs can include: legal fees, taxes (GST, HST, Property Transfer Tax (PTT) etc.), transfer fees, disbursements and are payable on closing day. They can range from 1.5% to 4% of a home’s selling price.
4. Co-Signer – A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
5. Down Payment – The portion of the home price that is NOT financed by the mortgage loan. The buying typically pays the down payment from their own resources (or other eligible sources) to secure a mortgage.
6. Equity – The difference between the price a home could be sold for and the total debts registered against it (i.e. mortgage). Equity usually increases as the mortgage is reduced by regular payments. Rising home prices and home improvements may also increase the equity in the property.
7. Fixed Interest Rate – a fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
8. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS)
   a) GDS – Typically mortgage lenders only want you spending a maximum 35-39% of your gross income on your mortgage (principle & interest), property taxes, heat and 50% of your strata fees.
   b) TDS – typically, lenders want you spending a maximum 39-44% of your gross income on your GDS – PLUS any other debt obligations you have (credit card debt, car payments, lines of credit & loans).
9. High-ratio mortgage / Conventional Mortgage – a high ratio mortgage is a mortgage loan higher than 80% of the lending value of the home. A conventional mortgage is when you have more than 20% down payment. In Canada, if you put less than 20% down payment, you must have Mortgage Default Insurance (see below) and your mortgage affordability (GDS & TDS) is “stress tested” with the Bank of Canada’s qualifying rate (currently 4.64%).
10. Interest Rate – This is the monthly principal and interest payment rate.
11. Mortgage – A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
12. Mortgage Broker – A professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.
13. Mortgage Default Insurance – Is required for mortgage loans with less than a 20% down payment and is available from Canadian Mortgage & Housing Corp. (CMHC) or 2 other private companies. This insurance protects the lender in case you are unable to fulfill your financial obligations regarding the mortgage.
14. Open / Closed Mortgage
    a) An open mortgage is a flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term, because of the flexibility the interest rates are higher.
    b) Closed mortgages typically cannot be paid off in whole or in part before the end of its term. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged.
15. Pre-Approval – A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
16. Refinance – Refinancing is the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
17. Term (Mortgage) – Length of time that the contract with your mortgage including interest rate is fixed (typically 5 years).
18. Title – The documented evidence that a person or organization has legal ownership of real property.
19. Title Insurance – Insurance against losses or damages that could occur because of anything that affects the title to a property. Insurance Title insurance is issued by a Title Company to insure the borrower against errors in the title to your property.
20. Variable Rate Mortgage or Adjustable Rate Mortgage (ARM) – A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions, the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

Any questions or concerns, feel free to contact me anytime!

By Pauline Tokin,  DLC Canada Inc.

A recent article in the Huffington Post addressed the pricing strategy for the Big Six Banks, BMO, CIBC, National Bank, RBC, Scotia and TD and who really sets interest rates.  RBC announcing a rate drop in January and the other banks soon followed.  For consumers the banks are seen as leaders of the pack and everyone waits to see what else they will do.  The reality is the bank rates were higher than the market for some time.

The Huffington article states “Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.”

The drop in rates was a measure to bring bank rates in line with the non-bank lenders who have already been offering lower pricing. The only difference is the banks have high market share of the business and more profit each year so they can afford to spend money on media and other forms of advertising. The media attention helps them to capture more business with a rate drop after a lag time of passing on higher rates to consumers. The informed consumer working with an independent mortgage broker will already know the market and what mortgage product is best for their needs.

However, interest rates are not the only consideration when choosing a mortgage. Each time you make a purchase, renew your mortgage or take equity out to renovate, invest or other reasons, it is always best to consult with your mortgage broker for a review.

One of the big factors is the cost to exit that mortgage before maturity. Life happens. There are costs to breaking the contract early in the event of sale, marital break-up, death or need to consolidate other debts. Bank penalties for early payout are higher than non-bank penalties by a factor of 4 times. By reviewing your needs with your trusted mortgage broker, we can discuss all of the options available from lenders including bank and non-bank, to ensure you are making an informed decision.

By Kristin Woolard DLC National

WHAT IS AN UNINSURABLE MORTGAGE?

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 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can 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 that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.