The Real Deal about Transfers and Switches.

Mortgage Tips Kristin Woolard 3 Feb

The Real Deal about Transfers and Switches.

Most people who are thinking about a transfer or switch want to take advantage of a lower interest rate or to get a new mortgage product with terms that better suits their needs.

Up for Renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch – great news! You won’t be charged a penalty. BUT you are still required to qualify at the current qualifying rate and need to consider potential costs around legal charges, appraisal fees and penalty fees (if applicable). In some cases, the lender will offer you the option to include these fees in your mortgage or even cover the costs for you.

Currently have a Collateral Charge Mortgage?

If you have a collateral charge mortgage (which secures your loan against collateral such as the property), these loans cannot be switched; they can only be registered or discharged. This means you would need to discharge the mortgage from your current lender (and pay any fees associated) before registering it with a new lender (and pay any fees associated).

Still locked into your Mortgage?

If you’re considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Typically, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments), but you want to be confident that the penalty doesn’t outweigh the potential savings before moving ahead.

Things to consider for a transfer or switch:

  1. You may be required to pay fees associated with the transfer or switch, including possible admin and legal fees.
  2. You will need to requalify under the qualifying rate to show that you can carry the mortgage with the new lender.
  3. You will be required to submit documents that may include, but are not limited to, the following (depending on the lender):
  • Application and credit bureau
  • Verification of income and employment
  • Renewal or annual statement indicating mortgage number
  • Pre-Authorized Payment form accompanied by VOID cheque
  • Signed commitment
  • Confirmation of fire insurance is required
  • If LTV is above 80%, confirmation of valid CMHC, Sagen or Canada Guaranty insurance is required
  • Appraisal
  • Payout authorization form
  • Property tax bill

If your mortgage is currently up for renewal, consider reaching out to your DLC Mortgage Expert. Not only can they advise you of any penalties or fees that may be associated with your desired transfer or switch, but they also have the knowledge and ability to shop the market for you to find the best options to meet your needs. This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product and terms are suitable for you now – and in the future.

 

  • Written by my DLC marketing team

Early Inheritance

General Kristin Woolard 13 Jan

Early Inheritance

Everyone knows that Canada’s real estate market has seen record appreciation over the past several years. Homeowners who have been paying down their mortgage while their value has been going up are likely sitting on a large chunk of equity.

I often find myself in conversation with people who are astonished that any First Time Homebuyers are able to get into the market at all these days. With the down payment requirements it can take years of savings to bank the minimum 5% down. And by the time it is gathered young buyers could be priced out of the market.

Then there is the Stress Test that forces buyers to qualify as if their interest rate was 2.00% higher than their actual rate. It sometimes seems impossible for young people to own a home of their own.

There is an ever-increasing trend in Canada where owners sitting on large amounts of equity are tapping into it to provide a larger down payment to their adult children – kind of like giving them an early inheritance.

But with many of these older Canadians in retirement with lower incomes than they had in their working days how do they qualify under the Stress Test? They may not want to sell their home to help their children.

There is an option for owners who are 55+ that many have not considered. With a Reverse Mortgage there is no need to qualify under the Stress Test. Borrowers can access up to 55% of their home’s value for any purpose and there is no need to repay the loan until the home is sold or the borrower(s) pass away.

Interest rates are higher than traditional mortgages so it is recommended that you get a demonstration of how much interest would accumulate in the estimated time before selling and down-sizing. But if the money is used to get your loved ones into a home of their own so they can start gathering equity too, it could be well worth it!

There are only 3 institutions in Canada that provide Reverse Mortgages so ask your mortgage professional which would be the best option for you if this is something you are considering.

 

  • Written by Kristin Woolard

Will I qualify at my mortgage maturity?

Mortgage Tips Kristin Woolard 13 Aug

Qualifying at Mortgage Maturity

With rates on the rise and many people facing an upcoming maturity date on their existing mortgage there are a few questions that keep popping up. The biggest is whether to break the existing term early to secure rates now before they go up any further.

That is a little difficult to answer. I need details on the current mortgage (rate, term, payment, lender etc.) and then I can run a mortgage analysis to take a detailed look at cost vs. savings so you can decide if it’s a good idea for you or not.

Another common question is whether you have to requalify at maturity under the new tougher qualifying rules, and if so, could you possibly lose that mortgage?

The short answer is no – not if you’re just going to stay with your existing lender. That bank will offer you their rates and you can simply select your preferred next term, sign their Renewal Agreement and carry on with them. As long as you’ve met all of your obligations and payments through the existing term they would love to continue charging you interest on the money you still owe them!

But if you have any need to make a change to that mortgage for any reason you would have to requalify. If your existing bank is not being competitive with their rate offering and you want to switch to a new lender. Or perhaps you want to consolidate debt or take equity out for much needed renovations. If you don’t qualify under the tougher requirements you will have no choice but to stick with your current lender and current mortgage.

Before making a decision to stay with your current lender or whether it makes sense to change your mortgage for any reason it’s always a good idea to talk to a mortgage professional that can get you the information you need to make a wise decision.

And you can always download my My Mortgage Toolbox from the app store and have some of those questions answered easily right from your phone. Us the QR code below to go to the app store or download the link from my website, www.kristinwoolard.ca.

  • Written by Kristin Woolard

Rental Income in Mortgage Qualification

Mortgage Tips Kristin Woolard 20 Jul

Rental Income in Mortgage Qualification

Banks are hyper-conservative when considering rental income in mortgage qualification. This is due to possible vacancies and loss of income for possible extended periods. While this is not likely, at least in the BC Lower Mainland, policy is created for lending across Canada and vacancy rates can be much higher in smaller communities.

Banks are also considering things like maintenance/repairs and the fact that tenants are harder on properties than owners – no pride of ownership – so the value can be negatively affected which is a risk to their security.

In most cases banks usually only count 50% of rental income to be added to a borrower’s annual income. Only 39% of total annual income needs to be enough to cover all property obligations so really only 39% of half the rent is used. The idea being that if the property couldn’t be rented for an extended period of time due to vacancy or a major repair the applicant would still be able to cover the property obligations comfortably.

 

For example, let’s say you own a rental house with these monthly payments:

Mortgage payment          – $1,500

Property taxes                  – $166.67 ($2,000/year)

Heating allowance           – $125

Property Obligations:     – $1,791.67/month

 

Say you rent it for $2,000/month – it pays for itself! Sounds good.

 

Here’s how the banks look at it they will only consider

Half monthly rent           – $1,000/month ($12,000/year)

39% of half                        – $390/month

Extra property cost         – $1,401.67/month – included in debt-servicing

 

If it’s a stand-alone rental property some banks will look at a rental offset which is a more generous way of looking at it. That’s where they consider a portion of the rental income offsetting the rental property obligations first, and then either adding the surplus to income or adding the shortfall as additional monthly debt. Most banks will not include a heating allowance and some even property taxes when calculating an offset.

But banks are still conservative and consider 50% to 80% of income for an offset in most cases. Taking the same example above at 50% offset that’s $1,000 off the mortgage payment so it is a $500/month residual mortgage payment that is to be included in qualification – not as much as the Add to Income method but that’s like having another car loan. And at 80% that’s still another $100/month payment that needs to be factored in.

So while investing in real estate is a solid gamble and can be profitable banks want to know borrowers are strong enough to maintain payments even in the worst-case.

As always, reach out if you have any mortgage questions – I’m here to help!

 

  • Written by Kristin Woolard

Time are a changin’ – But really for the worse?

Mortgage Tips Kristin Woolard 4 Jul

Times are a changin’ – But really for the worse?

All we hear about on the news these days is how dire things are in the world right now. With inflation still on the rise, the war in the Ukraine and the ongoing disruption of the supply chains it feels like all we hear is the alarm of Chicken Little – ‘the sky is falling!’.

But let’s get a little perspective… over the past 2 years with record low interest rates and pent-up demand coupled with the COVID driver in the real estate market, things have been going at break-neck speed. Ever hear the saying when you’ve been travelling at 150mph and slow down to 100mph it seems like you’ve almost stopped. But really, you’re still going 100!

The real estate market has cooled and mortgage interest rates have actually returned to more normal levels. Money has basically been on sale over the past 2 years and now that we’re seeing 5-year fixed rates at around 5.50% and Variable interest rates set to be close to 4.25% by mid July that’s basically on par with the new normal that was established after 2008/09 global economic melt down.

In my 20 years’ experience I’ve seen it usually takes about 2 years for a major market disruption to filter through the mortgage industry. Banks make policy adjustments, government reviews bank policy to ensure prudent lending practices are being adhered to and Canadians still need homes and with that, mortgages. And the floodgates of Immigration haven’t even been opened all the way yet…

So while it may feel like this isn’t the right time to do anything with your house or mortgage it might actually be the ideal time to let your home help you out.

Property values are still strong so you likely more equity in your home than you did 2 years ago. That means you have more power to accomplish financial goals now that you may not have had in 2019 or earlier.

If you still need to upsize to get the office space you need working from home more now, you can always port your existing mortgage and just add any extra money to it to buy that new home.

Interest rates are likely higher than what you have on your current mortgage so if you have to break your mortgage now for any reason that actually translates into a lower penalty to do so – likely only 3-months of interest.

And here’s the tough reality… we don’t know when the cost of living might start coming down. Groceries are almost double and don’t even get me started on gas! If you’re feeling the pinch maybe it is an appropriate time to see how using the equity in your home can help ease things. Refinancing your mortgage to pay off loans, credit cards and lines of credit could reduce your monthly out-put and give you some much-needed relief.

As always, a mortgage professional can help get you the information you need to make an appropriate decision. A mortgage analysis is free so why not see what your options are! And I’m here to help.

 

  • Written by Kristin Woolard

How to Save with a Variable Mortgage

General Kristin Woolard 7 Feb

How to Save with a Variable Mortgage.

When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.

When it comes to variable versus fixed-rate, it is important to understand what these mortgages are based off of. Fixed mortgages are so named as they are based on a fixed interest rate that is set for the duration of the term with fixed payments. On the other hand, variable-rate mortgages fluctuate with the Prime Rate. This can either mean fluctuations in your payment, or if you choose to have set payments, the interest portion of the payment.

In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of January 2022. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.

While a variable-rate mortgage is linked to the Prime Rate, which could cause fluctuations, historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

However, due to the uncertainty and potential fluctuations that can occur with a variable-rate mortgage, it comes down to the borrowers comfort. Some individuals have no wiggle room in their budget for potential changes in mortgage payments, or they do not like the uncertainty. For these clients, a fixed-rate would be the best choice.

On the other hand, clients who qualify for variable-rate mortgages have a unique opportunity to take advantage of lower interest rates. If you have a variable-rate mortgage, you can either set a fixed-payment so that, if the interest rate drops, it means you are paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance to decreases in the Prime Rate. However, since every 10% increase in payment can save three years off the amortization of a five-year term, having fixed payments provide extra benefits. After all, extra pennies towards the principle can help make a difference over the life of a 25 or 30 year mortgage.

Let’s look at the following example:

Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 1.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple years.

When reviewing this mortgage, it is more beneficial for them to keep the remaining variable-rate in place for two years. However, if they set the payments based on 3.34% or $739 bi-weekly, this allows them to pay an extra $72 on their mortgage per month. In 24 months, the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate.

Another benefit to variable-rate mortgages is that, if you choose to sell before the mortgage term is up, the penalty is typically only three months interest as opposed to much heavier interest rate differential (IRD) calculations used to determine fixed-rate mortgage penalties.

With this strategy they don’t have to feel pressure to lock-in today, plus they can continue taking advantage of the lower variable rate.

If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact a Dominion Lending Centres Mortgage Professional. Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.

 

  • Written by my DLC Marketing Team

 

To talk more about if a variable rate will be right for you, head over here and contact me anytime!

Renting Vs. Buying: What You Need to Know!

Mortgage Tips Kristin Woolard 28 Jan

Renting Vs. Buying: What You Need to Know!

When it comes to the Canadian housing market, there are lots of options for where to live! From renting an apartment to owning a single-family home, it all comes down to where you see yourself living and what you can afford! The beauty is, there is no right or wrong answer when it comes to renting versus buying but let’s break down the pros and cons of both and hopefully help you to decide which is best for you!

why do people rent?

One of the most common answers to this question is affordability. Most people rent because they believe it is cheaper than owning a home. This can be true in some cases, but there are also times when monthly rent costs are higher than monthly mortgage payments. Of course, there are also cases where rent is far more affordable than buying, especially when you factor in the cost of a down payment and maintenance on a home you own, rather than one you rent. Affordability is fairly dependent on an individual’s situation, but it is not the only decision factor for choosing to rent.

Another reason individuals may choose to rent is that they simply aren’t sure where they want to live, or maybe they cannot find a place that fits their needs. If you are new to an area, you may want to rent in the meantime so you can get to know the neighbourhoods and determine which area is the right fit for you. In some cases, you simply may be unable to find a home that is affordable to buy in the area you want or within a reasonable commute from your work.

For individuals who travel a lot for work or like to be free-floating, renting can be the perfect option but if you simply believe buying a home to be out of the question, it is time to take a hard look at your options because it may not be so far fetched!

pros and cons of renting:

To help you decide if renting is right for you, we have put together a little list of pros versus cons to help you see if it is the right fit.

Pros of Renting Cons of Renting
Less maintenance
Fewer repairs
Lower upfront costs
Short-term commitment for people unsure of where they want to plant roots
Protection from potential decrease in property values
Monthly payments may increase
Potential for being evicted / lease renewal not being approved
Paying to someone else’s mortgage instead of building your own equity
Requiring permission to paint or remodel

why do people buy?

According to the most recent data, Canada boasts an overall homeownership rate of 67.8%. Even for those Canadians aged 35 and under, more than 40% of households own their own homes. This is quite an impressive statistic! So, let’s look at why people choose to buy.

One of the main reasons that people choose to buy a home is to have the stability and peace of mind of owning the place you live. This means you are not at risk of being put in a situation where the landlord wants to move their parents into the basement suite and you have to leave or having to deal with increased costs if you go to renew a lease agreement.

For others, the benefit to buying comes in building up equity and ensuring that nest egg for your future. When you choose to rent, you are paying into someone else’s mortgage and into their future but when you work towards buying your own home, suddenly all that money you invested is going to your future instead. This is an extremely important aspect to consider in today’s age when many are having trouble with the idea of saving for retirement.

Now I get it, you may be thinking “if I can’t afford to retire, how can I afford to buy a house” but if you can afford to pay the high cost of rent in today’s market, then home ownership isn’t as far out of reach as you think. This is especially true if you buy a two-story home and rent out the basement, giving you ample living space upstairs but also additional income to pay your mortgage.

pros and cons of buying:

To further show the benefits and costs to buying, we have broken down some pros and cons to help you to determine if this is the right path for you.

Pros of Buying Cons of Buying
Freedom to renovate or modify your home as you wish
You are building up equity in a safe, secure investment as you pay down your mortgage
Potential for additional income if you have a rental suite
Stability and peace of mind from being in control of your investment and owning the place where you live
The risk of losing your home value when you sell
Responsibility for all ongoing costs, including mortgage principal and interest, property taxes, insurance and maintenance
Monthly payments can increase if interest rates go up at renewal time
Possibility of unexpected and potentially costly repairs

to rent or buy, that is the question!

Did you know? 4 in 10 households spend more than 30 per cent of their pre-tax income on rent, which is above the commonly accepted affordability threshold.

The latest National Bank report revealed that monthly mortgage costs for median-priced condos was higher than the average monthly rent for a similar unit in Toronto, Montreal, Vancouver, Victoria and Hamilton. At the same time, monthly mortgage payments were lower than rents in Calgary, Edmonton, Quebec City, Winnipeg and Ottawa. While this data does not include suburbs, it shows a staggering difference between mortgage payments and rent payments.

If someone can rent for $900 a month or pay a mortgage of $1200 a month, it may seem like a no brainer but it is important to remember that paying rent does not build equity! However, if you are unsure of where you want to live or cannot find a suitable and affordable home with a close enough commute to work, renting may be your only option. This is where checking listings and discussing with a real estate agent may open doors and where a mortgage broker can come in handy to help you determine if purchasing a home is viable in your near future.

yes, you can buy!

The reality is that in the long run, homeowners often fare financially better than renters because homeownership enables forced savings that accumulate over the years, growing into a sizeable nest egg.

If you are unhappy renting or really prefer the idea of owning your own home, you CAN. It is time to stop assuming you cannot make the leap from renting to buying – all you need is the right information and the right preparation!

To determine if you are able to purchase a home, a good place to start is the My Mortgage Toolbox app. This app is perfect for seeing what you can afford. Using the app to calculate minimum down payments and monthly mortgage costs can help you to get a good picture of the financial landscape and your options. Looking at your budget and evaluating your current rent costs and other monthly expenses can also help you to determine your affordability bracket.

Some other things to consider before buying include:

  • Your credit score – do you have good financial standing to be approved for a mortgage?
  • Your savings – do you have any money put away for a downpayment? If not, do you have wiggle room in your budget to start saving?
  • Your time – do you have the resources to maintain a home from the yard to any necessary repairs?

If buying a home to live in is out of the question due to the availability in your area or cost of homes close to work, another option is to consider an investment opportunity. Maybe you cannot afford to buy in the area you want so you rent in order to keep your commute short and be in a neighbourhood you love. However, you can still reap the equity benefits by investing in a vacation or rental property which would give you the necessary nest egg and help you feel more secure about your future financial situation. You could keep the investment property as long as you want! If you end up finding the perfect home in your area down the line, you could always sell your investment property and take the earnings for a down payment on the right home – or keep it as an extra security blanket!

Regardless of whether you choose to continue renting or make the leap to owning your own home, the most important factor is your financial security. What works for your friend or your parents may not work for you – and that is okay! However, educating yourself and looking into all the options will ensure that, at the end of the day, you are in the best situation for yourself.

 

  • Written by my DLC Marketing Team

Guarantor vs. Co-Applicant

Mortgage Tips Kristin Woolard 21 Apr

 

In times of a hot real estate market often family members want to help any way they can to give their loved one an edge. I am regularly asked about whether a direct relative can co-sign to help with qualification.

While it’s a wonderful gesture there definitely needs to be careful consideration of the impact of co-signing.

Being obligated on a mortgage for someone else means being responsible for payment should your family member find themselves in a position where they can’t make their mortgage payment. If you don’t step in your credit record will be severely impacted.

It also means that it could restrict your options should you need to qualify for a mortgage or other credit account yourself in the future. Your loved one’s mortgage will show up on your credit report and the full payment will need to be factored into future qualifying scenarios.

Then there is the question of being a Co-Applicant or whether it is better to be a Guarantor. This also needs to be considered as they are very different.

Both strengthen an application with a weakness such as short time on job, credit issues or not enough income. The major difference is a co-signer is also a co-owner in the home and legally has a right of ownership and a right to the equity in the property.

A guarantor is only ‘guaranteeing’ the mortgage on behalf of the applicant – agreeing to step in and make payment should the applicant be unable to for some reason. They do not an owner in the property itself.

In BC, any owner in a property that has already owned before has to pay Property Transfer Tax (PTT) on their share of ownership. If a co-applicant owns a home or has owned previously and is simply helping qualify I usually recommend ownership to be split 99/100th  ownership for the applicant and 1/100th ownership for the co-applicant so PTT is only due on 1/100th of the purchase price. This saves thousands in tax.

If a co-applicant wants to be dropped from the property and mortgage once the applicant can qualify on their own the co-applicant needs to legally sign off title in the home by filing a Transfer of the property at Land Titles. This usually costs a couple hundred dollars.

With a guarantor, once the applicant qualifies for the mortgage on their own they can either just replace the current mortgage with another without the guarantor or the lender of the current mortgage may agree to release the guarantor from the existing mortgage once they are satisfied the applicant now qualifies.

While it’s always nice to volunteer to help out when you can it’s a good idea to speak to a professional about what your participation in the process will mean to you. Know what you’re getting in to so you’re prepared for the future.