CMHC Changes to Assist Self-Employed Borrowers

General Kristin Woolard 29 Jul

As a self-employed person myself I was happy to hear that CMHC is willing to make some changes that will make it easier for us to qualify for a mortgage.

In an announcement on July 19, 2018 CMHC has said “Self-employed Canadians represent a significant part of the Canadian workforce. These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect October 1, 2018.

Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.

Plain speak, we don’t look good on paper.

Normally CMHC wants to see 2-years established business history to be able to determine an average income. But they’ve said they will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.

Take for example a borrower that has been an interior designer with a firm for the past 8-years and in the same industry for the past 30-years but just struck out on his own last year. His main work contract is with the firm he used to work for but now he has the ability to pick up additional contracts from the industry in which he has vast connections.

Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates.

The other change that the insurer has made is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.

It is refreshing after years of government claw-backs and conservative policy changes to finally see the swing back in the other direction. Self-employed Canadians have taken on the burden of an often fluctuating income and responsible income tax management all for the ability to work for themselves. These measures will help them with the reward of being able to own their own home as well.

Refinancing in 2018

General Kristin Woolard 19 Mar

We are in a rising interest rate environment and it would be wise to consider where you are in your current term and where rates may land at maturity. What are the implications of refinancing now for a better rate? 

If you are 3-4 years into a 5-year mortgage term you still have 1-2 years left. If rates keep going up the way they have been you could be looking at rates at 4.5-5% when you’re up for renewal. They are currently at around 3.64% for a refinance. 

Let’s look at the two methods lenders have for determining your penalty if break your mortgage. They will either charge you 3-months of interest or an Interest Rate Differential (IRD). 

The first is fairly straight forward but an IRD is calculated if you pay out your mortgage and the bank has to lend that money back out at a lower rate. They will charge you the difference in interest on your remaining balance for the rest of the time remaining in your current term so they don’t lose any money.  

In a declining rate environment an IRD penalty can be quite hefty. But with rates on the rise the bank can lend that money out at a higher rate and make money so they can only charge you 3-months of interest. This can make breaking your mortgage and refinancing a lot less expensive.   

So, if penalty is not prohibitive then it would be prudent to consider tapping into your equity to accomplish goals such as consolidating higher-interest debt (credit cards, lines of credit, loans etc.), taking money out for investments or even home renovations. 

By refinancing now and securing a new rate for another 5-years while they’re still near historical lows could keep you sitting pretty while rates go up to their highest point and you could be in another declining rate environment when you get to the end of your new term. 

Definitely something to consider before that option is off the table. As always, I can do a free mortgage analysis for you to weight the costs vs. benefits. You can contact me here if you need any help. 

First Time Homebuyer Privileges

General Kristin Woolard 1 Mar

So, you’ve decided to jump into the real estate market – good for you! It will be extremely beneficial to start paying your own mortgage instead of a landlord’s.

If this is your first home purchase there are some definite advantages available to you.

There is a national program called the Home Buyer Plan where the Government of Canada will allow you to draw up to $25,000 from your RRSP for your down payment without having to pay the taxes on it. You will have to repay the amount you withdraw over the next 15-years by annual instalments. This program is available to all Canadians who haven’t owned a home in the previous 4-years.

The Province of BC a program for First Time Homebuyers (FTHB) as well. You can get an exemption from having to pay thousands in Property Transfer Tax (PTT) as a FTHB as long as you are a Canadian citizen, have lived in BC for the last 12-months and have never owned a home anywhere in the world.

PTT is calculated as 1% of the first $200,000 and 2% of the rest. So on $500,000 as a FTHB you will save $8,000.00! If your purchase is between $500,000-$550,000 you can still get a partial exemption.

If the home you are purchasing is brand new and you are buying it from a builder or developer you don’t have to pay PTT on a purchase up to $750,000. That’s even more savings.

There is also the BC HOME Partnership Program available until March 31, 2018 where the BC Government will match your down payment to a maximum of $37,500.  It is an interest free loan for the first 5-years and while it sounds great there are only a few circumstances where I’ve found it to be beneficial to my clients.

You will still have to come up with your minimum 5% down payment and 1.5% of the purchase price in addition to cover closing costs. Closing costs include legal fees, Title Insurance, Land Title registration, possible appraisal fee and pre-payment of some, if not all, property taxes for one year.

The overall costs of a home purchase can vary but if you’d like more information on what you can expect to need for your ideal home purchase just give me a call, I’d love to help.

The Simple Truth About your DSR

General Kristin Woolard 19 Feb

The Simple Truth About Your Debt-Service Ratio (DSR)

If you want to borrow money there is a simple way that banks determine if you can afford it. How much of your annual income can comfortably make the payments on what you owe to creditors? Simple, right?

The rule of thumb for unsecured debt (credit cards, loans and lines of credit) is that 42% of your gross annual income must be enough to cover those payments. Take it one step further for mortgages.

Banks – and even more importantly, mortgage insurers (CMHC, Genworth and Canada Guaranty) – need to ensure that you can cover your property expenses as well as your other credit payments.

The Gross-Debt Service ratio (GDS) determines how much of your annual income it takes to cover the property costs on a prospective purchase. These include the mortgage payment, annual property taxes, strata fees (if applicable) and a heating allowance. The rule is that 35% of your gross annual income must be able to cover these costs.

Then there is the second qualifier, the Total Debt-Service Ratio (TDS). This is how much of your annual gross income it will take to cover the property expenses above plus any other payments you are obligated to make on credit cards, lines of credit and or loans. The rule for TDS is that 42% of your annual income must be enough to cover all of this.

Now, if you are responsible with your payments you may get a bit of a break. If your credit score is 680 or higher (good for you) your ratios go up to 39/44. 39% to cover the property expenses and 44% to cover everything.

Here’s the kicker… these ratios are determined using a mortgage payment using the Bank of Canada Benchmark Rate (currently 5.14%) which means you have to prove you can cover payments should mortgage rates go up that high by the time your current mortgage is at maturity. That takes a bite out of pretty much everyone’s purchase power today.

Doesn’t sound so simple now, does it? That’s OK, that’s why I’m here. To help you determine what you qualify for ahead of making the decision to buy. Knowledge is power so let me help.

Buy vs. Rent

General Kristin Woolard 5 Feb

Yesterday I was enjoying the magic of the Super Bowl with friends in the comfort of my own living room and it occurred to me how privileged I am to have a place I can call home.

I have been a homeowner for years and am so happy not to have to answer to a landlord anymore. My mortgage payments are helping me to build the equity in my home, not to mention the appreciation in value I have been fortunate to experience.

As a First Time Homebuyer back in the day I remember how confusing and stressful the buying process was but wow, was it ever worth the exercise. If I’d just remained a renter I would have likely paid off someone else’s mortgage by now!

Today’s rental market is a tough one. There are not many options out there and if you do find your perfect place you are likely to pay at least $1,500.00 per month for a one-bedroom condo – that’s insane…

So how would it look to get into your own place? Let’s take an example of a one-bedroom condo in Port Coquitlam or Maple Ridge. You can get a decent place for $350,000.00. You would need at least 5% down ($17,500) and enough to cover closing costs (approximately $5,000.00). That may seem like a lot but there are many ways to put together that down payment. You can save, possibly get a loan for all or some of it, and you can even get a gift from a direct family member.

So if you were able to get your down payment and find your ideal new home, at today’s interest rate of 3.19% your monthly payment would be $1,670.00. That’s just $170.00 more a month than renting the same condo.

Jumping off the fence and getting into the market can seem like a daunting task but if you have the right team around you to help you navigate the process it becomes a lot easier to make some confident decisions. A realtor can help you find the right place, a mortgage broker can make sure you select the best mortgage and a lawyer will help protect your interests.

It all starts with a little research and if you, or anyone you know, needs a little help deciding if the time is now let me know. I’d be happy to help.

The New Mortgage Reality

General Kristin Woolard 29 Jan

The mortgage market is still adjusting to the new rules that came into effect on January 1, 2018. With all borrowers now having to qualify at the Bank of Canada Benchmark Rate (currently 5.14%) or the contract rate plus 2% regardless of how much down payment they have, we are seeing a drop of about 20% in purchase power across the board. The impact on consumers can be painful in some cases. Here are just two stories from clients I’m currently working with.

First a young mother who qualified about 3-years ago for a condominium but at the time she didn’t realize her RRSP was not accessible for her down payment. She had to pull out of the market to work on accumulating the required down payment.

Shift forward to today and she has received a gift from her parents of $285,000 for a down payment and wants to take another run at the market. You may think that having this much to put down would make a suitable purchase a no-brainer.

Unfortunately, she is currently on disability after a car accident. She receives pretty much 100% of her regular pay and carries no credit balances but having to now qualify as if her interest rate were 5.49% (contract rate of 3.49% plus 2%) she can only get a mortgage of $100,000 putting her maximum purchase at $385,000. In today’s Vancouver real estate market this likely puts her into an aging building about a 45-minute drive from her child’s school. She now wonders if it’s even worth it.

Case number two… a recently retired government worker.

He and his brother inherited their parents home this summer after their mother passed. They will sell the house this spring and my client will have about $400,000 to buy a modest retirement home.

Because of a reduced income and a higher qualifying-rate he now no longer has any bank options even though his payments will be quite manageable. We need a mortgage based on pure equity and these options are slim and come at a higher rate from only a few lenders. How fair is it that this gentleman with stellar credit will be basically penalized by having a higher rate and payment after years of public service?

The government’s efforts to protect the public from overextending themselves has gone too far with this last move. Canadians are extremely responsible when it comes to paying their mortgages. Less than 1/3rd of a percentage of mortgages are in default – we just make our payments, period.

Consumers who have been concentrating on building equity and down payments are feeling the brunt of the impact. Instead of being rewarded for their efforts they have been given fewer options. If this is the new mortgage reality, now more than ever a Mortgage Broker is truly an asset.

Get Ahead of the ‘Rate Train’

General Kristin Woolard 21 Jan

A recent article featured on brings up some interesting points to consider.

With approximately 47% of mortgages in Canada coming up for renewal in 2018 and in a rising rate climate it would be wise to consider the impact on our personal mortgage. What will these increases mean for you?

70% of Canadians are in 5-year fixed rate mortgages and the rates these people secured in 2013 are still similar to what is being offered in 2018 so a possible increase in payment that comes along with a slightly higher rate could be quite easy to handle.

However, in 2019 rates will likely be significantly higher than what consumers locked into in 2014. The payment shock could be substantial. Not to mention that increases in the Prime rate will also affect unsecured credit such as lines of credit and credit cards. And the Bank of Canada is certainly in an upward trend with the Prime.

Translation… as rates go up for mortgages and other credit accounts, so do payments.

What can you do? If your mortgage is maturing this year or in 2019 it is highly advisable to contact an experienced Mortgage Broker to evaluate your position. You will likely have seen a healthy appreciation in value in your home in the past few years so perhaps it’s time to get ahead of the “rate train” and consider consolidating your unsecured credit with your mortgage and lock in at today’s still low rates before you start to feel the pinch.

The latest rule changes that came into effect January 1, 2018 could also have an impact on your ability to qualify for what you need so getting a free evaluation will be more valuable than ever.

If you’d like to read the full article CLICK HERE and as always, feel free to contact me with any questions you may have.