Bank of Canada Rate Change – Should I lock in?

First Time Home Buyers Nathan Lawrence 13 Sep

This past week the Bank of Canada increased their lending rate for the 2nd time in as many months.  The changes in the Prime Lender Rates means that those with a variable mortgage rates will have seen that their mortgages rates adjusted alongside the changes to Prime Rate.  For those of you with variable rates, the first thing that probably crossed your mind was “should I lock in?”

 

Even though your interest rate may have increased, it does not mean that you should immediately lock into a fixed rate mortgage.  An associate of ours from B.C, Dustan Woodhouse had this to share earlier this week about the increase:

 

“If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a really great place to be.

 If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider converting to a fixed rate, BUT…

Keep in mind the penalty to prepay (i.e. refinance or sale of property) a variable early is ~0.50% of the mortgage balance, whereas if in a (4yr/5yr or longer) fixed rate mortgage the penalty can be closer to 4.5% of the mortgage balance ***depending upon which specific lender you are with and how long of a term you lock in for.

It is usually to the lenders greater benefit that you lock into a fixed rate, rarely is it to your own benefit.”

 

I could not have summarized it any better myself, so I won’t try.

 

So what should you do?

The first thing that you should be doing is avoiding the immediate draw or feeling of “I need to lock in”.  There are several different aspects of your mortgage and personal financial situation that should be considered prior to locking in.  There are many questions to ask yourself prior to locking in and most of which the lenders are unlikely to ask you. Your lender is re-active, not pro-active – you need to be pro-active. And sometimes being pro-active results in no action being taken at all.

Simply because the Bank of Canada increased interest rates twice, this does not immediately mean that they will do it again.  There are many economic factors outside of their control that will impact their decisions regarding future potential increases.

Presently, the key is not to react quickly.  If you have questions about your specific situation and how the increase may impact you, feel free to give us a call to chat about things in more detail.  Allow us the opportunity to ask the questions that need to be asked prior to making a quick switch.

 

Food for thought…

Back in 2010 rates increased 0.25% three times, and that sat stagnant for nearly five full years before two 0.25% decreases back downward.

In other words the last time Prime was pushed as high as it stands today, it sat there for five full years. And was then cut.

 

The next Bank of Canada meeting is October 25, 2017.

I will be watching and waiting.

 

Mortgage Terms Decoded

First Time Home Buyers Nathan Lawrence 28 Jun

If you are a first-time home buyer there is a good chance you’ve never heard some of the common words associated with mortgages. A good mortgage agent will guide you through and explain each step of the process to you, and if you don’t understand something be sure to ask questions. To help you prepare for your first mortgage pre-approval meeting here are some terms you’ll want to understand.

Mortgage Term

This is the length of time you are locked into your mortgage with a specific lender before you have to renew.  Many first-time homebuyers choose a term of 5 years; however, other term lengths are available such as 1-year, 3-years, 7-years, etc. The length of the mortgage term that you choose will also effect your interest rate that you receive. When deciding on your term length it is important that you speak with your mortgage broker about your long-term and short-term goals. Your mortgage term can also be broken but there can be some expensive penalties to do so, you’ll also want to ask your mortgage broker about these as they can vary greatly from lender to lender.

Amortization

This is the total length of time you will have your mortgage until it is paid off in full (granted you don’t refinance, move, or make any changes to payments). Most mortgages are amortized over 25 years. If you use a mortgage calculator online (such as this one) you can see the difference the amortization can make on your payment.

Down Payment

This is the percentage of your home purchase that you will have to pay to your lender. The minimum down payment in Canada is 5% (for a $200,000 home this would $10,000). The majority of first time home buyers use a 5% down payment but there are some benefits to putting a larger down payment on your home which you can ask your mortgage broker about. When saving it is also important to not forget about closing costs, most lenders will want to see 1.5% of your home purchase saved in your bank account as well as your down payment (so to purchase a $200,000 house you’ll actually need $13,000 saved).

Rate

Everyone always focuses so much on this four-letter word, the lower your interest rate the lower your mortgage payment will be. A good mortgage broker will find you the lowest rate possible; however, they will also make sure that the mortgage features you receive are just as good (these can at times be just as important as the interest rate).

Purchase Plus Improvements – You just found your dream home!!…. sort of

First Time Home Buyers Nathan Lawrence 8 May

In a competitive real estate market or a market that is suffering from a lack of available listings, the Purchase Plus Improvements mortgage could be your saving grace.  Regardless of whether you’ve just started your search for a new home or if you’ve been hunting for months, this is something that you should be thinking about each time you walk into a potential house.

Of all the homes that you’ve looked at so far, you have likely walked into at least one home by this point and said to yourself “Well this house looks great, but if it wasn’t for that incredibly dated _______”.  You fill in the blank here…Kitchen, bathroom, flooring, basement, etc.   If you have passed up the opportunity to purchase that potentially perfect property because of the costs of required improvements, it’s important that you know there is a solution to your problem.  Enter, the Purchase Plus Improvement Mortgage.

In a nutshell, a purchase plus improvements mortgage allows you (the home buyer) to roll the costs of improvements into your mortgage.  The new mortgage allows you the ability to finance those much-needed repairs and get you into that home of your dreams!   The mortgage comes with a great interest rate and one simple mortgage payment.  Had you chosen to purchase the home and not include the renovation costs into the mortgage, then you might end up financing the improvements on a higher interest rate unsecured debt which also give you a second payment to make each month.

The first step to take is a conversation with your Mortgage Broker about specifically how that Purchase Plus Improvements Mortgage would apply to your application and specific situation.  Understanding the types of improvements that can be included in the financing will help you better understand which potential houses might work great for you.

Working with your Realtor, the Mortgage Broker will help guide you through the final approval process.  The main difference between a Mortgage vs. a Purchase Plus Improvements Mortgage is the need for quotes.  As part of the verification process, your Mortgage Broker and the Lender will need to see a quote for the work that is planned for the improvements.  The quotes will provide us with the cost and plan details required to secure the final approval.  Getting you into a house of your dreams!

If you have questions about how a Purchase Plus Improvements Mortgage could work for you, take the time to connect with our team anytime!!

Acceptable Sources of Down Payment Funds

Down Payment Nathan Lawrence 17 Apr

The down payment plays a big role in a home purchase, but did you know that there are rules regarding where those funds can come from?  Here is a breakdown for you outlining the main types of acceptable sources of down payment funds along with information regarding what is required:

  • Your Personal Savings!
    • This being one of the most common sources of down payment funds. You’ve been diligent for the past few years, setting money aside every month.  Lenders (and your Mortgage Broker) LOVES you!  This is easily confirmed with a 90 day account history for the account or investment holding the funds.  Any large deposits showing (i.e. CRA income tax return) would need to be verified with supporting documents
  • RRSPs
    • Are you a first-time home buyer? Did you know that you can access up to 25k of RRSP investments for purchasing a home?  The funds being withdrawn from the RRSP need to have been in the investment for 90 days or more before they can be pulled out.  This is important for planning purposes, so discuss in more details with your Mortgage Broker.
  • Gift from an immediate Family member
    • Many house hunters are lucky to have parents, grandparents or siblings who are ready and willing to help make their dream of homeownership a reality. A gift from a family member is an accepted source for the down payment.  A gift letter will need to be signed by you and the family member gifting the funds, confirming that it is a gift and that there are not terms of repayment.  You need to provide 90 days of bank statements showing they have provided you the gift and some lenders may call the family member to verbally confirm it is a gift.  (Note that gifts are not always accepted on purchases of Non-owner occupied purchases; i.e. Rental properties)
  • Equity from another property or Home Equity Line of Credit
    • If you own your previous home and are planning to keep it as a rental property, you may have built up equity in that property over the years which could be used for the down payment on the new property. Discuss the options of refinancing that property with your Mortgage Broker and use those refinance proceeds for the down payment on the new property.
  • Sale of a current home
    • Selling your current home to purchase a new home? The equity that you have built up over the years will become available to you for the new purchase when it sells.  Using the proceeds from the sale is an easy option.  Your Mortgage Broker will need the firm offer for the sale of that home along with the current mortgage statement to confirm how much you will have access to.  Closing dates do not line up?  No worries, ask your Broker about bridge financing options.
  • Borrowed Down Payment
    • This one is a bit more difficult. There are minimum credit score requirements and fewer lenders these days that will accept a down payment from an unsecured borrowed sources.  If this is something that you are interested in, take the time to discuss the options with your mortgage broker to see if you will qualify for this type of down payment.  You will still be required to show that you have the 1.5% of the purchase price in savings to cover the closing costs)
  • Sale of an Asset
    • Have a vehicle, trailer, camper or other large value item that you are currently selling? This is a reasonable source for the down payment, but there is an important catch you need to be aware of.  Once you sell the item and deposit the funds into your bank account, your Mortgage Broker needs to be able to verify them.  So document the sale!! Paperwork, sales contract, receipt, something that confirms what was sold, for how much (needs to match the deposit into your account) and when it sold.  Without some form of confirmation, a lender may not accept it.

If you are unsure about your down payment or what is required, feel free to contact a Dominion Lending Centres Mortgage Specialist in your area.  We are here to answer all of your questions and guide you through the home buying process!

Best of luck with your search for your next home or investment property!!

Down Payment Verification – 5 Key Points

Down Payment Nathan Lawrence 17 Apr

By: Nathan Lawrence

One of the essential aspects of every mortgage application is the discussion pertaining to your down payment. Home purchases in Canada require a minimum down payment of your own funds to be put towards the deal. Your stake in the purchase.  It is important that during the discussions with your Mortgage Broker that all the cards are on the table pertaining to your down payment. Be upfront about your down payment and where it is coming from. Doing so can save you time and stress later on in the process.Most home buyers are aware that they will require a certain amount of money for a down payment.  What many do not realize is that lenders are required to verify the source of the funds to ensure that they are coming from an acceptable source.   Here are a few facts to keep in mind:

  1. Lenders require a 90-day bank account history for the bank account holding the down payment funds. The statements must include your name, account number and statement dates.
  1. A common hesitation that we often hear from clients is that their bank statements include a lot of personal details. As professionals, we completely understand our clients concerns pertaining to your personal information and we always ensure that information is protected.  Statements provided with blacked out names, account numbers or any other details are not acceptable.  Unaltered documents are a requirement of confirming the down payment funds.
  1. All large or unusual deposits need to be verified to ensure the source of those large deposits can be confirmed and can be used towards the down payment.
  • Received a gift from an immediate family member? Easy, Gift Letter signed.
  • Sold a vehicle? Easy, provide receipt of sale.
  • CRA Tax Return? Easy, Notice of Assessment confirming the return amount.
  • Transfer of funds from your TFSA? Easy provide the 90-day history for the TFSA showing the withdrawal.
  • Friend lent you money for the house purchase…. Deal Breaker.
  • A large deposit into your account that you cannot provide confirmation for…. Deal Breaker!
  1. You were told that your minimum down payment was 5%, great! However, did you know that you are also required to show that you have an additional 1.5% of the purchase price saved to cover closing costs like legal fees?
  1. Ensure that the funds for the down payment and closing costs stay in your bank account once you’ve provided confirmation. Those funds should only leave your account when they are provided to your lawyer to complete the purchase.  Lenders have the right to request updated statements closer to closing to ensure that the down payment is still there.  If money is moved around, spent or if there are more large deposits into your account, those will all have to be confirmed.

The last thing that anyone wants when purchasing a property is added stress or for something to go wrong late in the process.  Be open with you Mortgage Broker, we are here to help and to guide you through the process.  Not sure about something pertaining to your down payment funds?  Ask us.  We are here to work you through the buying process by making sure you know exactly what you need to do.Thinking about buying a home, rental or vacation property?  Talk to a dedicated Dominion Lending Centres Mortgage Specialist in your area to find out about what your down payment requirements will be.  For more information about acceptable down payment sources, check out our blog post on exactly that!!  Click Here!

The Costs of Closing

First Time Home Buyers Nathan Lawrence 8 Feb

So you’ve saved for a down payment for the new home you would like to purchase and have enough money in your piggy bank; however, before you put an offer on your dream home make sure you’ve considered saving for one more thing. This is the closing costs for your home purchase.

Most mortgage lenders will want to see 1.5% of the purchase price of your home in your bank account to cover the closing costs. So in reality you need to have a little bit more than the minimum 5% down payment saved and should have actually saved a minimum of 6.5% total. So where is all this money going? A number of different places actually.

Home Inspection

It is a good idea to hire a home inspector to inspect the property you plan to purchase. A home inspection usually costs between $350-$400 but could save you thousands if they uncover a leaky roof, electrical issues or mold. This is always a good condition to put in your offer to purchase as a safety precaution and will give you the ability to back out of the deal.

Rural Properties

Rural properties will have a few inspections that you will want to complete, these include:

  • Well Flow & Water Quality Test: $250
  • Septic Tank Test (Pumped): $150-$200
  • Septic Field Inspection: $275-$300
  • Fuel Cost if Oil Tank: Cost will vary
  • Propane Cost if propane heat: Cost will vary

Appraisal

Sometimes depending on the property you are purchasing the lender will require an appraisal. You can usually expect this if you purchase a private listing or are buying an estate sale. The minimum cost of an appraisal is $300.

Mortgage Default Insurance

If your down payment is less than 20% CMHC is going to require mortgage insurance. You won’t need to pay this amount up front as it will be added to your mortgage and reflected in your monthly payments. There will also be HST on this amount. The HST component can not be added into the mortgage and will be part of the closing cost adjustments made by the lawyer on closing.

Legal Fees

A home purchase requires a lawyer to register the title of your property, do a lien search, complete the land transfer tax, distribute funds, etc. On average it is a good idea to set aside $1,000 to $1,500 for legal fees as an estimated amount.

Land Transfer tax

Land Transfer tax is based on the value of your home and can be calculated online and is based on a special equation. First time home buyers can qualify to get a rebate of up to $4,000 on land transfer tax.

Property Tax and Other Utilities

If the previous owner pre-paid any of the property taxes or utilities these will be refunded to them and charged to you. You will usually get a break down of these amounts a couple of days before closing. Also some utility companies will require a deposit to set up a new account, these can range from $50 to $200 and are usually refunded back to you after a period of time.

Moving Costs

Finally don’t forget about the cost to hire a moving truck or people to move your home for you. This cost will vary depending on the size of moving vehicle you require and how far you are moving.

Furnish & Decorate Your Home on a Budget!

First Time Home Buyers Nathan Lawrence 12 Oct

After buying your first home there is a good chance your piggy bank is running low and you might not have the budget to spend money on lavish furniture and décor. The most important thing to keep in mind is that everything will come together with time. Here are our top tips for making your home yours on a budget:

  1. Do one Room at a Time

Rather than trying to decorate your whole home at once focus on doing one room at a time. Focus on the rooms that you entertain in first, these include your living room and dining room. After this you can tackle your kitchen, bedrooms, rec room, etc.

  1. Paint, Paint, Paint

Make your home yours by painting it colours that you love! Painting is one of the most inexpensive upgrades you can make. Make sure the colours you choose flow throughout your home and don’t clash. If you own furniture and décor already you can choose a colour that complements it so you don’t have to buy new things. Also try painting cabinets to give your kitchen or bathroom an updated look for a lot less than purchasing new cabinets (make sure to research how to do this properly though or hire a professional!).

  1. Thrift Stores are your Friend

Look in thrift stores or on Kijiji for second hand furniture that is in good condition for your home. You’ll be amazed at how many people are selling their furniture to upgrade and you will be able to get it for a fraction of the cost of new furniture. Eventually you will be able to get your dream living room suite but for now just find something functional that matches your home and style.

  1. Simple Accents

Dress up your second hand furniture by splurging on some throws and pillows that you love, this will pull the look of your room together and give it a more polished and finished look. Find some drapes or blinds to hang on the windows or make your own by visiting a fabric store. Invest in a couple of wall art pieces to really give your home a wow factor, this can get expensive quickly so look for clearance items or if you’re creative make your own!

  1. Organization

Focus on the organization of your home. Make sure you invest in closet and cupboard organization. If everything has a place to go it means chances are it will more likely get put away. This will help keep the clutter out of sight and give your home a neater and cleaner feel!

I Want to Buy a Fixer Upper … But how do I afford the Fixing Part?

First Time Home Buyers Nathan Lawrence 26 Sep

So you found the perfect home, but it needs a little TLC. Maybe you need a new roof, new furnace, new windows, or a kitchen update. All of these renovations can add up quickly and like many first time buyers, you may not have the money to cover the costs of these expensive renovations.

The good news is that there is a solution! It’s called a purchase + improvements mortgage. This allows you to purchase the home and get extra money to do the repairs as part of your total mortgage. Rather than having to come up with $10K or $20K to pay for improvements, this can be added into your mortgage. Your interest rate will also be lower than if you were to apply for an unsecured personal line of credit or putting the renovation costs onto your credit cards.

A few particulars to understand …

  • Estimates for the work will be required to get an approval for improvements.
  • Lenders and CMHC look for improvements that will add value to the home.
  • Improvements are typically required to be completed within 60-90 days from time of purchase.
  • The money for the improvements is released to you after the work is completed so you may require a way of carrying some costs until the work is done.
  • The improvements can be completed by yourself or a contractor. If doing the work yourself, only the costs of materials can be covered.
  • Depending on the scope of the work, applicable permits may be required.

 

Lenders don’t mind lending money to do improvements as it adds to the value and marketability of the home. A purchase plus improvement mortgage is a great way of turning that home with potential into your dream home. When getting pre-approved for your mortgage take the time to speak with your realtor and mortgage broker about how a purchase plus improvement mortgage may work for you!

Should I Get Pre-Approved?

First Time Home Buyers Nathan Lawrence 20 Jul

If you’re wondering what the answer to that question is, it’s simple, yes! A pre-approval is even more important as a first time buyer, not only will it help you understand mortgage financing it will also make you more confident when you go and write an offer on a house.

What is a pre-approval?

Quite simply a pre-approval looks at your income, assets, liabilities, and credit score and approves you for a maximum mortgage amount.  It looks at your current situation and determines if you would be a good borrower by assessing your ability to repay the mortgage loan. There are strict rules in Canada about mortgage lending which are based on your personal debt ratios that are calculated as a percentage of your debt payments vs gross monthly income.  Therefore, even if you have a good job with a large income it does not guarantee you will get a mortgage loan if you are also carrying a large debt load. Speaking with a mortgage broker will help you understand your unique situation.

Why a pre-approval can help

If you can say that you’ve been pre-approved when writing an offer it gives you a better advantage over someone that has not been pre-approved. This lets the seller know that you are a serious buyer who is able to secure financing on the property (which is important unless you can pay cash).

Also by getting a pre-approval you will have started your mortgage application and your mortgage agent will be able to request a lot of the required documentation ahead of time. Once you have an accepted offer the mortgage agent only has to get information on the property before submitting it for a full approval. This can save a considerable amount of time and can ensure your mortgage approval goes quickly and smoothly.

What a Pre-Approval Isn’t

One thing you have to remember about a pre-approval is that it is not a full approval. There are two things that the lender considers when approving a mortgage loan. The first is the borrower and their ability to repay the loan. The second is the property; in the event that a home owner defaults on the mortgage loan, the lender wants to ensure that they have a marketable property that they are able to resell. When getting a pre-approval you haven’t found a home yet so the process only assess the borrower. Once you have an accepted offer on a home it is then submitted to the lender for full approval with both the borrower’s details and the property details. This is why it is important to include a financing condition in your offer in case the lender does not approve the property or another unforeseen aspect of the application.

Getting pre-approved for a mortgage is the smartest way to approach securing a mortgage on a new home. It will give you time to meet with a mortgage agent that can answer any of your questions regarding mortgage financing. It will also put you in a stronger position when putting an offer in on a home and can make you more confident that the mortgage approval stage will go smoothly.