19 Mar

MORTGAGE UPDATE 1: FINANCIAL EFFECTS OF COVID-19

Latest News

Posted by: Jennifer Koop

UPDATE 1:  FINANCIAL EFFECTS OF COVID-19

Since being labeled a pandemic per the World Health Organization (W.H.O.), the effects of COVID-19 have begun to ripple through the world’s economy – including Canada – and causing a number of different effects. To help keep you up to date on what is going on financially, we have compiled a list of recent announcements by the Ministry of Finance, the Bank of Canada, and OSFI:

  • Minister Morneau announced a new Business Credit Availability Program, adding $10 billion of additional support financing, through Business Development Bank of Canada and Export Development Canada, to support Canadian Businesses. Click here for more.
  • The Bank of Canada lowered the overnight rate from 125 to 75 bps, to reduce the interest cost burden for businesses and consumers alike. The bank also increased its Government of Canada bond buyback program. Click here for more.
  • OSFI reduced the Domestic Stability Buffer from 2.25% to 1%, thereby freeing up $300 Billion additional lending capacity for Domestic Systemically Important Banks (D-SIBS). Click here for more.

In addition, Dominion Lending Centres in-house Chief Economic Advisor, Dr. Sherry Cooper, has been providing in-depth information on this situation as it evolves. You can find her latest articles on the situation below:

 

If at any time you would like to discuss your mortgage needs please contact us at 705-349-0502 or start your application here HOW TO APPLY 

 

9 Mar

What You Need to Know Before You Buy

General

Posted by: Jennifer Koop

What You Need to Know Before You Buy

Spring is one of the busiest seasons for retail activity as the good weather gives people lots of time for decluttering, showing the home, garage sales, packing and moving into your new space! Buying a home is an extremely exciting and fulfilling adventure, but before you get started let’s go through some of the most important things you need to know before you buy a home.

First Things First, Are You Ready to Own a Home?

This is likely the largest financial decision you will ever make and there are a few questions you can ask yourself to ensure you are ready:
• Are you financially stable?
• Do you have the financial management skills and discipline to handle this large of a purchase?
• Are you ready to devote the time to regular home maintenance?
• Are you aware of all the costs and responsibilities that come with being a homeowner?
If you answered ‘yes’ to the above questions, congrats! You’re on the right track. Let’s look at some of the most important things to know:

Securing Your Down Payment

A down payment is the largest, upfront cost that comes with purchasing a home. The minimum on any mortgage in Canada is 5 percent but putting down more whenever possible will lower the amount being borrowed. Note: If you are putting down less than 20 percent, default insurance will be mandatory to protect the investment.

If you have a nest egg of savings that you can apply towards the down payment, then you are ready to move on! If not, RRSPs can be a great resource towards a down payment for a first-time home buyer (up to $35,000). Another option is a gift from a family member, which requires a Gift Letter stating that the money does not have to be repaid and a snapshot showing that the gifted funds have been transferred.

If these are not options for you, then you can still work on ensuring you have a good credit score and determining your budget while saving for a down payment in the meantime.

Getting Your Credit in Order

Ensuring your finances and credit is in order will make it easier to qualify for a mortgage and can be done while you’re saving for your down payment. Ensuring good credit simply involves paying your bills on time (rent, utilities, car payments) and ensuring your credit cards are paid monthly as well as keeping the balance below 75 per cent of the available limit. If you’re new to the world of credit, consider the 2-2-2 rule. Lenders want to see two forms of resolving credit (ie: credit cards) with limits no less than $2,000 and a clean payment history for two years. Another important note is to avoid making any credit mistakes or other major purchases (such as a new car) until after you have mortgage approval and have closed the deal on your new home.

Don’t Use Your Maximum Budget

Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

Get Pre-Approved

A mortgage pre-approval determines the actual home price you can afford and is different from the pre-qualification in that it requires submission and verification of your financial history. A pre-approval can determine the maximum you can afford to spend, the monthly mortgage payment associated with your purchase price range and the mortgage rate for your first term. Getting pre-approved also guarantees the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping.

Article courtesy of Dominion Lending Centres March Newsletter

22 Jan

WEAK NEW LISTINGS SLOW CANADIAN HOME SALES AS PRICES CONTINUE TO RISE

General

Posted by: Jennifer Koop

WEAK NEW LISTINGS SLOW CANADIAN HOME SALES AS PRICES CONTINUE TO RISE.

Sellers Housing Market  Now in the Greater Toronto Area (GTA)

Statistics released today by the Canadian Real Estate Association (CREA) show that national existing-home sales dipped between November and December owing to a dearth of new listings, especially in the GTA.

National home sales edged down 0.9% in the final month of 2019, ending a streak of monthly gains that began last March. Activity is now about 18% above the six-year low reached in February 2019 but ends the year about 7% below the peak recorded in 2016 and 2017 (see chart below).

There was an almost even split between the number of local markets where activity rose and those where it declined, with higher sales in the Lower Mainland of British Columbia, Calgary and Montreal offsetting declines in the Greater Toronto Area (GTA) and Ottawa.

Actual (not seasonally adjusted) activity was up 22.7% compared to the quiet month of December in 2018. Transactions surpassed year-ago levels across most of Canada, including all of the largest urban markets.

The December decline in home sales is not a sign of weakness but is instead the result of diminishing supply. Excess demand continues to push up prices in most regions of Canada. Demand has been boosted by low interest rates, strong population growth and strong labour markets that have triggered significant gains in household incomes. Mitigating this, in part, is the mortgage stress-test, which continues to sideline some potential buyers.

According to Gregory Klump, CREA’s Chief Economist, “The momentum for home price gains picked up as last year came to a close. If the recent past is prelude, then price trends in British Columbia, the GTA, Ottawa and Montreal look set to lift the national result this year, despite the continuation of a weak pricing environment among housing markets across the Prairie region.”

New Listings

The number of newly listed homes slid a further 1.8% in December following a 2.7% decline the month before, leaving supply close to its lowest level in a decade.

Slightly higher sales and a drop in new listings further tightened the national sales-to-new listings ratio to 66.3%, which is well above the long-term average of 53.7%. If current trends continue, the balance between supply and demand makes further home price gains likely.

 

December’s drop was driven mainly by fewer new listings in the GTA and Ottawa–the same markets most responsible for the decline in sales. Listings available for purchase are now running at a 12-year low. The number of housing markets with a shortage of listings is on the rise; should current trends persist, fewer available listings will likely increasingly weigh on sales activity.

With new listings having declined by more than sales, the national sales-to-new listings ratio further tightened to 66.9% in December 2019 – the highest reading since the spring of 2004. The long-term average for this measure of housing market balance is 53.7%. Price gains appear poised to accelerate in 2020.

Considering the degree and duration to which market balance readings are above or below their long-term averages is the best way of gauging whether local housing market conditions favour buyers or sellers. Market balance measures that are within one standard deviation of their long-term average are generally consistent with balanced market conditions.

Based on a comparison of the sales-to-new listings ratio with the long-term average, just over half of all local markets were in balanced market territory in December 2019. That list still includes Greater Vancouver (GVA) but no longer consists of the GTA, where market balance favours sellers in purchase negotiations (see chart below). By contrast, an oversupply of homes relative to demand across much of Alberta and Saskatchewan means sales negotiations remain tilted in favour of buyers. Meanwhile, an ongoing shortage of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were 4.2 months of inventory on a national basis at the end of December 2019 – the lowest level recorded since the summer of 2007. This measure of market balance has been falling further below its long-term average of 5.3 months. While still within balanced market territory, its current reading suggests that sales negotiations are becoming increasingly tilted in favour of sellers.

There remain significant and increasing disparities in housing market activity across regions of Canada. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and providing fertile ground for price gains. The measure is still within balanced market territory in British Columbia but is becoming increasingly tilted in favour of sellers.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8%, marking its seventh consecutive monthly gain. It is now up nationally 4.7% from last year’s lowest point posted in May. The MLS® HPI in December was up from the previous month in 14 of the 18 markets tracked by the index. ( see table below).

Home price trends have generally been stabilizing in the Prairies in recent months following lengthy declines but are clearly on the rise again in British Columbia and Ontario’s Greater Golden Horseshoe (GGH). Further east, price growth in Ottawa and Montreal has been ongoing for some time and strengthened toward the end of 2019.

Comparing home prices to year-ago levels yields considerable variations across the country, although for the most part has been regionally split along east/west lines, with declines in the Lower Mainland and major Prairie markets and gains in central and eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) rose 3.4% y-o-y in December 2019, the biggest year-over-year gain since March 2018.

Home prices in Greater Vancouver (-3.1%) and the Fraser Valley (-2%) remain below year-ago levels, but declines are shrinking. Elsewhere in British Columbia, home prices logged y-o-y increases in the Okanagan Valley (+4.2%), Victoria (+2.3%) and elsewhere on Vancouver Island (+4.2%).

Calgary, Edmonton and Saskatoon posted y-o-y price declines of around -1% to -2%, while the gap has widened to -4.6% in Regina.

In Ontario, home price growth has re-accelerated well above consumer price inflation across most of the GGH. Meanwhile, price gains in recent years have continued uninterrupted in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index accelerated further into positive territory on a y-o-y basis. One-storey single-family home prices posted the most significant increase (3.6%) followed closely by apartment units (3.4%) and two-storey single-family homes (3.3%). Townhouse/row unit prices climbed a slightly more modest 2.7% compared to December 2018.

The actual (not seasonally adjusted) national average price for homes sold in December 2019 was around $517,000, up 9.6% from the same month the previous year.

The national average price is heavily skewed by sales in the GVA and GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from calculations cuts more than $117,000 from the national average price, trimming it to around $400,000 and reducing the y-o-y gain to 6.7%.

Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres.

13 Jan

SIGH OF RELIEF AS DECEMBER JOBS REPORT REBOUNDS

General

Posted by: Jennifer Koop

SIGH OF RELIEF AS DECEMBER JOBS REPORT REBOUNDS

Welcome Rebound in Labour Markets in December

For this notoriously volatile data series, it is particularly true that ‘one month does not a trend make.’ Following last month’s dismal employment report, job growth rebounded in December, erasing almost half of the earlier decline (even more if you exclude transitory factors in November). As well, the unemployment rate reversed much of its November spike, capping the second-best year of job growth since the recession and supporting the Bank of Canada’s view that the Canadian economy is resilient.

Canada’s economy created 35,200 net new jobs in December, bringing the total number of jobs added to 320,300 in 2019, the second-most since 2007. The jobless rate ticked down three basis points to 5.6% and wage gains decelerated to a still-healthy 3.8% from a year earlier.

All of the job creation was in full-time employment in the private sector. Provincially, employment gains in December were led by Ontario and Quebec; British Columbia led declines. Construction jobs increased markedly, with BC and Ontario contributing the most to the rise. Following two months of decline, employment in manufacturing was little changed in December. The trade war has hit manufacturing hard, and even though a trade deal will be signed by China and the US next week, it does not eliminate the bulk of the tariffs imposed in the past year.

In December, BC continued to have the lowest jobless rate in the country at 4.8% (see Table below). Ontario and Quebec are now running neck-in-neck following a period of stronger job growth in Quebec. Atlantic Canada remains in the last place with secularly high unemployment rates–a long-standing situation.

 

Bottom Line: the December employment report confirms the Bank of Canada’s current policy stance that despite headwinds, the Canadian economy remains relatively resilient and that further interest rate cuts are unnecessary. This assessment can change on a dime in today’s uncertain world, but for now, the central bank is likely to remain on hold. Interest rates have risen in the past six-to-eight weeks owing to market forces. The fourth-quarter GDP growth in Canada has slowed markedly on weakness in consumer and business spending; hence the Bank will be monitoring closely upcoming data. We are forecasting roughly 1.8% growth in the economy in 2020, about in line with the 2019 pace. With very tight labour markets, the output gap has closed, and the economy will run at the longer-run potential growth pace consistent with our forecast.

Consumer Confidence Down

Canadian consumers appear to be less sanguine about the outlook than economists. In an end-of-year survey for Bloomberg News by Nanos Research Group, 55% of Canadians said there’s at least a “somewhat likely” chance of a recession this year. Only 33% reported a recession is unlikely, with 12% unsure. According to Bloomberg News, ” the downbeat perceptions reflect a pervasive sense of caution that has dogged the country’s households for more than a year and impacted their behaviour.”

Excluding housing, annual growth in total household consumption has averaged 1.1% in real terms over the past four quarters, the slowest pace outside recession since at least 1962. Another sign of cautiousness: savings rates are inching higher and are now at their highest level since 2015.

Bloomberg reports that “there are also indications that consumer worries have levelled off. The results are little changed from a similar poll taken at the end of November. A separate gauge of consumer confidence — the Bloomberg Nanos Canadian Confidence Index — saw a rebound in December from a two-month slide, as stock markets surged at the end of last year and sentiment around real estate recovered.”

Not surprisingly, recession concerns are most pronounced in prairie provinces like Alberta, where almost three-quarters of households see a chance of a 2020 contraction. Alberta has been hard hit by the plunge in oil prices since mid-2014 and is only slowly recovering. A majority of respondents in British Columbia and Ontario are also concerned a downturn is imminent. Quebec was the only province where optimists outnumbered pessimists.

Consumer confidence in the US has also declined, yet the stock markets in both countries continue to post record highs. We are in the eleventh year of economic expansion, the longest expansion on record, although it is not the strongest. Unlike the US, Canada has benefitted from a surge in immigration in the past three years, boosting growth.

Canadian housing markets have rebounded considerably from the Jan 1, 2018 imposition of the B-20 mortgage stress tests and fiscal stimulus is likely in the next budget, cutting taxes for the middle class and boosting government spending. Such stimulus will likely forestall further weakening in the economy.

 

Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres.

18 Dec

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME

General

Posted by: Jennifer Koop

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

  • Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
  • Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

 

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

  • Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
  • Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
  • If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
  • You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
  • Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

  • If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

  • Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
    Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

 

This article is courtesy of Kelly Hudson, Dominion Lending Centres

2 Dec

MORTGAGES FOR EXPENSIVE HOMES – NOT AS EASY AS IT SOUNDS

General

Posted by: Jennifer Koop

MORTGAGES FOR EXPENSIVE HOMES – NOT AS EASY AS IT SOUNDS

Large home purchases that require a mortgage present unique challenges in the Canadian Mortgage market. Sliding scales, director approval, multiple reviews, it all adds up to difficultly getting larger mortgages approved, unless you’re working with an experienced mortgage broker.

In 2012 the government of Canada removed the mortgage insurers ability to approve mortgages of $1 million (or more) with less than 20% down payment. As a result of this change, the minimum down payment for homes over $1 million starts at 20% of your purchase price and increases.

Since any home purchase over $1 million cannot be insured against default, the lender applies a sliding scale to reduce their potential for loss if the borrower defaults. Consequently, large mortgages present a unique challenge, especially in the Vancouver/Toronto market.

Depending where you live, most lenders consider home purchases over $500-750,000 to be large enough for them to want to mitigate their risk. In larger urban centres like Vancouver & Toronto, lenders will consider purchases up to $1 million before increasing the down payment with sliding scale.

Sample sliding scales for Vancouver/Toronto:

  • 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
  • 20% down payment on $1,250,000, plus 50% down payment on the balance over $1,250,000
  • 20% down payment on $1,500,000 plus 40% down payment on the balance over $1,500,000
    Every lender has their own risk level for expensive home purchases.

As you can see, the typical lender sliding scale for jumbo mortgages is very punitive and can result in a much higher down payment when purchasing a home over $1 million.

Lenders want to alleviate the higher risk on purchases of expensive homes, because there is a smaller pool of potential buyers compared to lower home prices. This makes expensive homes more vulnerable to market corrections. If there is a price correction, it can be more difficult for lenders to get their money back, should they need to foreclose.

  • Housing prices in Vancouver have been on the decline since 2016/2017: BC housing market shows signs of moderation as some property values drop by 10 per cent

Lenders are risk adverse! When they perceive a risk, they are either going to charge higher interest rates OR lessen their risk with a sliding scale, requiring home buyers to put a larger down payment on properties over their threshold.

Example:

  • Base line with no sliding scale home purchase $1,500,000
    Minimum 20% down payment = $300,000
  • Down payment required for a home purchase with Sliding Scale 20% down payment on the first $1,000,000, plus 40% down payment on the balance over $1,000,000
    20% down payment on $1,000,000 = $200,000
    40% down payment on $500,000 (amount over $1M) = $200,000
    Down payment required $400,000
    20% down payment = $300K versus sliding scale $400K down payment required – Yes sliding scale can make a big difference in your required down payment!

Sliding scale is designed so that as a property’s price increases, you need a larger down payment.

  • Therefore, the maximum loan/mortgage amount available decreases on a proportionate basis.
    To minimize the size of your down payment, you need an experienced mortgage broker who works with a multitude of lenders, giving you the most flexibility with sliding-scale.

Other points to keep in mind with a large mortgage:

  • Pay attention to the terms and conditions of your mortgage, especially your prepayment penalties.
    Larger loan amounts amplify the differences in the penalties charged by different lenders.
  • Most large mortgage loans must be escalated up the ranks for management approval. This means it can take lenders an extra day (or two) to get your approval back so your subject removal date may need to be longer.
    Typically, I recommend 10 business days for subject removal on large mortgages.
    Another important point to keep in mind, when real estate prices flatten or drop, lenders can become much more conservative when underwriting higher-end real estate. As such, there can be wide disparity in the value different lenders will assign to a property.

Partnering with a Dominion Lending Centres mortgage broker will help ensure that you and your property are matched with the lender who is offering the best fit for your situation.

If you know anyone looking for a high-end home, who needs a mortgage, we can help them arrange the financing. We’ll work together to figure out a budget and down payment (based on sliding scale). Then, we will work with a lender for a pre-approval, so we have a clear picture for affordability.

Article courtesy of Kelly Hudson, Dominion Lending Centres

27 Nov

5 MISTAKES FIRST TIME HOME BUYERS MAKE

General

Posted by: Jennifer Koop

5 MISTAKES FIRST TIME HOME BUYERS MAKE

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes First Time Home Buyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curve balls and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment, but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:

  • Legal and Notary Fees
  • Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
  • Home Inspection fees

There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:

  1. When was the roof last done?
  2. How old is the furnace?
  3. How old is the water heater?
  4. How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
  5. When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundational cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing… even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate you may be missing out on great opportunities that a Dominion Lending Centres mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

 

Article courtesy of Geoff Lee, Dominion Lending Centres.

21 Nov

Principal & Interest

General

Posted by: Jennifer Koop

PRINCIPAL & INTEREST

Principal and interest are the two components that make up a mortgage payment. Principal is the portion of your payment that goes towards paying down the outstanding balance of your mortgage. Interest is the other portion of your payment which goes directly into the pockets of your lender and does not contribute to paying down your mortgage balance.

What some people may not realize is that a compounding interest rate (what the majority of all mortgages are) is weighted differently depending on how many years you have left on your mortgage.

If a young couple were to purchase their very first home, lets say $500,000 for example, and they had a $100,000 down payment, their mortgage would be $400,000. If they had today’s interest rates, their mortgage would be around 3%, compounded semi-annually, over 25 years with their interest rate re-negotiable every 5-years if they keep the same term. Assuming they were able to get 3% for the entire 25-years, their monthly payments would be $1,892.98 a month for the life of their mortgage.

Their first payment however is not $1,892.98, with 97% of it going to paying down the $400,000 balance and 3% going towards interest. The very first payment would actually be broken down as $993.81 of interest and $899.17 going towards paying down the principal balance of $400,000.

Now, it wont stay like this forever, the very last payment before the first 5-year term is up would be broken down as $854.62 going towards interest and $1,038.36 of the $1,892.98 going towards paying down the principal. It wouldn’t be until year 10 where the interest portion dips below $500.

If you can, any pre-payments you make each month will directly pay down the principal balance outstanding. This will also in turn, allow for less interest to be charged as interest is always calculated based on the current balance outstanding. In the later years, it may not be as advantageous, but in the first 5-10 years, it can be extremely beneficial.

If you want to see the break down of principal and interest portions inside your own mortgage, feel free to reach out to a Dominion Lending Centres mortgage professional near you.

18 Nov

Payment Frequency

General

Posted by: Jennifer Koop

PAYMENT FREQUENCY

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

 

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

 

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

 

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

 

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

 

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

 

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

 

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

 

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional near you.

 

Article courtesy of Ryan Oake, Dominion Lending Centres, Mortgage Professional

8 Oct

My Muskoka Mortgage – Jennifer Koop – Fixed vs. Variable Mortgage

General

Posted by: Jennifer Koop

Fixed Rates Outweighing Variable

We are currently in a very unique situation when it comes to 5-year fixed and 5-year variable interest rates. For the first time in almost a decade, the lowest 5-year fixed interest rate is more than 0.30% lower than the lowest available variable interest rate for new mortgages. For some, their current variable rate is 0.80% higher than what a new 5-year fixed interest rate could be.

Why is this important?

Variable mortgage penalties are only equivalent to 3 month’s interest. On a $400,000 mortgage with a net variable rate of 3.10%, the penalty would only be $3,100 ($775 per $100,000 of mortgage debt).

What are the savings to switching to a lower rate?

The following is an excerpt from an email we have sent several clients recently. The numbers have been adjusted from their originals to protect clients.

$2,152.76 current monthly payment
$437,857.16 current outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$3,800 approximate penalty to break mortgage including discharge fee (legal fees and appraisal covered)

$2,061.88 new monthly payment on 5-year fixed rate
$437,857.16 new outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$90.88 savings per payment

Interest paid with current lender for remainder of term: $50,847.29
Principal paid with current lender for remainder of term: $52,485.19
Remaining balance at end of term: $385,371.97

Interest paid with new rate for remainder of term: $44,025.53
Principal paid with new rate for remainder of term: $54,944.71
Remaining balance at end of term with new rate: $382,912.45

For $3,800, this client has the potential to save almost $6,800 in interest, save $90.88 a month, while at the same time owing less on their total balance at the end of their term.

Now, this might not be for everyone. Variable, as you know, can go up and down. Locking into a 5-year fixed rate also takes away your ability to get out of your mortgage for only 3 months interest penalty compared to staying in a variable rate. For some people, maintaining the variable for an opportunity of having that rate drop below current 5-year fixed rates is worth waiting too.

There is no right or wrong decision. It is how you want your monthly payments structured and how much risk you want to allow for, both in rate variances and potential penalties.

To find out what kind of savings you could see with moving your variable rate into a fixed rate, please, contact a Dominion Lending Centres mortgage professional today.

Ryan Oake

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC