What are your post-COVID goals? Is one of them to become a sun-loving snowbird south of the border or in another part of the world? A reverse mortgage can help you achieve that goal. Contact me by email at firstname.lastname@example.org or by phone at 6041-319-6573, and visit us at www.ourreversemortgage.ca for more information. Let us help you find a solution like Delores!
Many things in our world have changed permanently and the real estate market is no exception.
Shortly after Canada shut down due to the pandemic, interest rates spiked briefly and the Bank of Canada reduced the overnight rate by 150bps to cushion the economic shocks from both COVID-19 and the sharp drop in oil prices. Lenders scrambled to adjust their Variable rate offerings and then Fixed rates went into free fall.
As an example of what we are seeing, there are now rate offerings as low as 1.99% for 5-year Fixed products for applicants with a very specific borrower profile, and as low as 2.29% for standard 5-year Fixed products.
Lenders are also being very picky about income verification in light of the work stoppages that have occurred and, in particular, are scrutinizing applications by self-employed individuals to ensure their businesses haven’t been affected irrevocably by the pandemic.
Coming into 2020, we were looking at what was set to be the strongest real estate market in the past 30-40 years. What will the easing of quarantine restrictions mean for the market post-pandemic? A lot of pent-up demand. Many people had already made the decision to make a move in 2020 – myself included – and having to put off their purchase will make them want to move quickly when they perceive it is safe to do so.
Something else has changed as well. With many companies shifting to the platform of employees working from home for at least part of the work week, many people have realized that if this is the new reality they need more space to accommodate one or even two people working from home. It’s a struggle to be effective when you’ve got to share common space with a spouse and/or children. This will add to the demand we are anticipating.
The market is now starting to become much more active, with more listings coming online all the time. Realtors have taken significant safety measures for presenting properties from upscaling their virtual tours online to providing masks and gloves for on-site viewings.
All and all, it is looking like we are gearing up for a very busy ‘spring’ market in July and August. If you are considering a move, please reach out to me for a free analysis of what your purchase power is.
As the full impact of the COVID-19 crisis starts to be felt, I wanted to ensure you have as much information as possible on the relief measures that are being put into place.
First, if you are facing loss of income due to quarantine or workplace closure you may be able to seek EI benefits and you do not have to be laid off to qualify. CLICK HERE for full details. I hear there will be long waits to get through to set up benefits but it could be well worth the wait.
Second, the big six banks are taking coordinated action to assist Canadians during this crisis including mortgage payment deferrals up to six months, as well as relief on other credit products for consumers facing hardship.
Also, CMHC has reintroduced their Insured Mortgage Purchase Program to buy back up to $50 billion in insured mortgage pools, and the Bank of Canada has also pledged to purchase billings in mortgages to help the banks with liquidity – all in an attempt to maintain the strength of Canada’s economy. CLICK HERE for a report from BNN Bloomberg for more details.
Further, the Federal Government has extended the tax filing deadline to June 1st and the deadline to pay outstanding taxes interest-free is extended to July 31st. There is also an extension for businesses to pay taxes or installments without penalties or interest either. The new deadline is July 31st. CLICK HERE for a link to this announcement.
I’ll keep you posted as new measures are introduced, and I’m hoping you and your family weather this storm in full health.
As always, let me know if you have any mortgage-related questions or concerns. I’m happy to help.
With 2020 just a day away I realized this is a time most of us reflect on the past year and set new goals for the upcoming year. Many people have resolutions to live healthier and exercise more but how many of us plan for a healthier financial picture?
Depending on how good – or bad – 2019 was for you this is definitely a time to evaluate our personal and financial strengths and weaknesses and set a plan for making improvements and accomplishing goals.
Coming out of the Christmas season many of us may be feeling the pinch of higher credit card balances and lower savings account balances while seeing winter heating bills that keep us eyeing the thermostat.
For a number of years now I’ve taken the time to go through my bank statements to see just where my money is going. Often small choices add an extra monthly bill for a service that is perhaps not really essential anymore. Things like subscriptions to apps or services that we don’t actually use. Even $10.00/month wasted per subscription can add up if we have a few of those. Time to shut them down.
This is also the time of year I take a look at my cell, TV and internet bills to see just where they stand. I once heard that getting in touch with these service providers at least once per year to see if they have any current promotions that you can take advantage of can really make a difference. The last time I called Telus I found out I could renew my plan early on their current promotion and it saved me $75.00 per month!
If you are able to lower your monthly cash output, why not consider putting the exact amount you are saving each month towards an investment, like an RRSP or a TFSA? If you’re able to handle the payments as they were why not start paying yourself instead.
And if the bills and credit card balances still seem overwhelming why not consider letting your home help you out of a jam. Tapping into equity to consolidate and lower your overall payments can be very effective as long as you’re not doing this on a regular basis. We should be careful of using our home as an ATM.
But if this is something you are considering it is well worth contacting a mortgage professional to do an in-depth analysis of your situation. Getting a break down of cost vs. benefit can paint a clear picture of whether refinancing is a good idea for you at the present time. The analysis only takes a few minutes to calculate but if there is a cost effective option for you it could take a lot of stress off your shoulders.
As always, let me know if you have any questions or concerns mortgage related. I’d love to help.
With approximately 1,000 people retiring every day in Canada it’s not surprising that there has been an increased demand for Reverse Mortgages.
A Reverse Mortgage can assist people aged 55+ realize their dreams in retirement. Whether they want to travel, help their kids or grand kids or even just supplement their monthly income a Reverse Mortgage can be an effective way to have their home assist them to meet those goals.
There is a lot of misinformation out there however, that could make people hesitant to get into a Reverse Mortgage.
Many people think that the Bank will own their home but this is completely untrue. A Reverse Mortgage is just that – a Mortgage registered on the home’s Title, just like any other bank mortgage. The client retains full ownership and control of their home. They have the freedom to decide if and when to move or sell.
Another misconception is that you could end up owing more than your house is worth. In fact, due to the Reverse Mortgage lender’s conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. They will only issue a Reverse Mortgage up to 55% of your home’s value so there is lots of equity remaining to offset accrued interest charges even if you choose to make no payments at all.
In fact, over 99% of Reverse Mortgage clients have equity remaining in the home when the loan is repaid.
Many people view a Reverse Mortgage as a ‘last resort’. In fact financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.
Some people think that you cannot get a reverse mortgage if you have an existing mortgage. But many Reverse Mortgage clients use the funds to pay off their existing mortgage and other debts, freeing up cash flow for to use as they wish – and be free of regular mortgage payments too.
I personally have parents over 70-years that could be looking at the expense of Assisted Living for my Mom in the near future. They own their home outright and once both of them are retired that added cost could be too much for their pensions and could force them to sell their home before they’re ready.
I have advised them of the Reverse Mortgage option and we have decided to look into that possibility when the time comes. It is my belief that nobody should feel forced to sell their home and will explore any options available to them so they have choices.
If you’d like more information on how a Reverse Mortgage may work for you or to see if you qualify, you can visit my dedicated Reverse Mortgage website at www.ourreversemortgage.ca.
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 rumors 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 – and I can help!
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.
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.
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 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.