31 Jul

FIVE POINTS TO CONSIDER BEFORE YOU LIST YOUR HOME

General

Posted by: MANJIT SINGH BHONDHI

FIVE POINTS TO CONSIDER BEFORE YOU LIST YOUR HOME

There are several things to consider before you take the plunge and put your home up for sale. This might sound obvious, but the first step is to call your mortgage broker, not your lender directly or your realtor.
You don’t have to look long for an unfortunate story of someone who didn’t understand their portability, penalty or transfer costs. Here’s how you avoid this scenario.

1. The anniversary date of your mortgage will depend on your penalty. If you are in a variable rate there usually (unless you took some kind of no frills product with an additional penalty for the appearance of a lower rate) will pay 3 months interest (so a monthly payment and a half) in a fixed rate it can be up to 1-4.5% of the outstanding mortgage balance. Remember we can estimate things, the only guarantee you will have of your penalty is when the lawyer requests the payout statement.

2. Just because a mortgage says its portable doesn’t mean you don’t have to completely re-qualify. Changing properties means complete requalification of everything; credit, income and property. Less than one per cent of mortgages actually get ported due to the changes in the market, or your circumstances.

3. If you have accumulated outside debt, you may not even qualify to purchase for more due to recent rule changes. You’ll need clarity on what the approximate net will be after anything that is required to be paid out to improve qualification.

4. If you list your property and want to buy first or need money for a deposit, you may need to change your mortgage first which you won’t qualify for if your property is already listed. This happens frequently when downsizers are selling.

5. Making a purchase requires a deposit that later forms part of the down payment, so understanding this before you go out shopping helps you plan for it

A little preparation helps the process go more smoothly, and Dominion Lending Centres mortgage specialists are here to help.

ANGELA CALLA

Dominion Lending Centres – Accredited Mortgage Professional

27 Jul

TOP 8 QUESTIONS ABOUT REVERSE MORTGAGES

General

Posted by: MANJIT SINGH BHONDHI

TOP 8 QUESTIONS ABOUT REVERSE MORTGAGES

Having completed dozens of reverse mortgage deals, there are some questions that I find I get over and over again.
So today I thought I’d write a piece on the 8 most common reverse mortgage questions that people in Canada have regarding reverse mortgages.

1- If I have an existing mortgage on the property, can I get a reverse mortgage?
Not only is this the most common question regarding reverse mortgages, it is actually one of the most common uses for a reverse mortgage – to pay off the current mortgage and eliminate that payment and help with monthly cash flow.
However, it is important to realize that you would need to qualify for enough to pay that existing mortgage in full.
For example: If you have $70,000 remaining on the mortgage, you would need to qualify for at least $70,000 to be eligible for a reverse mortgage.
If you owe $70,000 and qualify for $100,000 in reverse mortgage funds, the $70,000 would be paid first and you would be left with the remaining $30,000.
The good news is that the reverse mortgage funds can also be used to pay any penalties or charges for paying out your mortgage as well.
However, the existing mortgage must always be paid off using the reverse mortgage funds and you get to keep whatever is left. Essentially, you are swapping your mortgage with a reverse mortgage and keeping the excess cash.

2 – Can I pay the interest or make payments on the amount I receive?
Yes, you can make monthly interest payment if you choose and you can also pay up to 10% of the amount borrowed (1 payment per year) if you wish.
However, you also have the option to pay nothing at all until you sell the property or until you pass away. Most people choose this option but it is nice to know that you can pay the interest every month (essentially turn the reverse mortgage into the same thing as a Home Equity Line Of Credit).

3 – How do you determine how much I qualify for? I thought I could get 55% of my home value?
This is a common question that we get. It is important to note that you can qualify for up to 55% of the value of the property and not everyone will get this amount. The words ‘up to’ are very important in this statement.
To determine how much you qualify for, four different factors are used: The ages of all applicants, the property value, the property location (postal code) and the property type.
Here is a quick example for all 4 factors: Someone aged 80 will qualify for more than someone aged 60; someone in a city will qualify for more than someone in the countryside; someone with a property value of $500,000 will qualify for more than someone whose value is $200,000 and someone who lives in a detached house will usually qualify for more than someone who lives in a Condo.

4 – I’m 60 but my wife is 53, can we still qualify?
Unfortunately, no. Both applicants need to be 55 or over to qualify. Even if just one of you is on the title, because it is deemed a ‘matrimonial home’ (meaning that the husband and wife both have a legal right to the home, by nature of being married) both of you need to be 55 or over.

5 – What is involved in the application?
Reverse mortgages aren’t as difficult a process to go through as a traditional mortgage. However, you aren’t going to simply be given the money either – remember you are still talking about large amounts of money here and the lender is a Schedule A bank.
Your credit score and income are not usually significant factors in the application – but the lender will still check these. In addition to this, proof of identity and other such paperwork is required.
An appraisal is always required and is the first step – so the lender can identify the market value of your home and therefore how much they can lend. However, it is possible to get a ‘quote’ before this.

6 – What if I want to sell my home?
You can sell your house at any time if you have a reverse mortgage. The mortgage amount (plus any accrued interest and prepayment penalties, if any) would then be paid from the proceeds of the sale. The process would be exactly the same as if you had any other kind of mortgage or HELOC on the property.

7 – Will I still own my home? Yes, you will remain on the title for as long as you or your spouse live in the property and you can never be forced out of your home because of a reverse mortgage.
In fact, from this point of view a reverse mortgage is ‘safer’ than a traditional mortgage. Under a traditional mortgage, you could lose your home for not paying your monthly mortgage payments. Since no such payments exist for a reverse mortgage, there is no such risk.

8 – If I sell my house, can I re-apply for another reverse mortgage on my new property? Absolutely! As long as the property is your primary residence – but just remember that you would need to qualify for enough to pay any mortgage on the new property.
Reverse mortgages can be used for purchases in this way.

If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

MICHAEL SNEDDON

Dominion Lending Centres – Accredited Mortgage Professional

24 Jul

5 REASONS THE BANK MAY TURN YOU DOWN FOR A MORTGAGE

General

Posted by: MANJIT SINGH BHONDHI

5 REASONS THE BANK MAY TURN YOU DOWN FOR A MORTGAGE

Mortgage rules have become stricter over the past few years. Assuming you have a down payment, good credit and a good job, what could prevent you from obtaining financing for a home purchase?
Below are five less obvious reasons a bank may turn you down:

It’s not you, it’s the building
Hate to be the bearer of bad news, but even if you’re the perfect candidate for a loan, you can still be rejected by a lender if the building you’re considering flunks a bank’s requirements. There are myriad reasons a building can be rejected, but one possible reason could be the building construction or condition.
In downtown Calgary we have some condos that were built in the 1970’s using a technique called Post Tension. It has been discovered that the steel rods in the walls can corrode over time and the buildings could collapse. Some lenders are okay with an engineer’s report but others won’t consider lending in this type of building. A few years ago a condo was found to have water seeping down between the inner and outer walls from the roof. This resulted in a $70,000 special assessment for each condo owner. Before the problem and the cost were assessed most lenders refused to lend on this property.
If a condominium building does not have a large enough a reserve fund for repairs a lender may want to avoid lending in that building as well.

Your credit doesn’t make the cut
If you have a credit score of 680+ this probably won’t be a problem for you but for first time home buyers with limited credit this can be a major stumbling block to home ownership. Check your credit score before you start your home search.
Not having enough credit can also be a problem. If you have a Visa card with a $300 limit, that won’t cut it. A minimum of 2 credit lines with limits of $2,000 is needed; one revolving credit line such as a credit card and an installment loan such as a car loan or a furniture store loan.
A long forgotten student loan or utility bill from your university days can also cause problems if its showing as a collection.
You’re lacking a paper trail
You have to be able to show where your money comes from. A cash gift of the down payment for your new property without a paper trail isn’t going to fly with the bank. If it is a gift, we need to see the account that the money came from, a gift letter from a family member, and the account the money was deposited into.

Your job
Being self-employed or a consultant comes with its own set of obstacles. But the solution here, too, is about documentation. And be prepared to offer up more documentation than someone with a more permanent income stream. Two years of Notices of Assessment from the CRA will show your average income over a two-year period. This could be a problem if your business had a slow start and then really picked up in year two. The two-year average would be a lot lower than your present income.
Another stumbling block may be how you are paid. Many people in the trucking industry get paid by the mile or the load. Once again a two year NOA average should help.
In Alberta, many people are paid northern allowances, overtime and a series of pay incentives not seen in other industries. This can be a problem if you do not have a two-year history.
When you apply for a mortgage you need to stay at your position at least until after your home purchase is complete. Making a job change with a 90 day probation means you will need to be past your probation before the mortgage closes. If you make a career change , you may need to be in your new industry for a least a year before a lender will consider giving you a loan.
The property’s appraisal value is too low
This often happens in a fast moving market. The appraisers base their value on previously sold homes on the market in the last 90 days. If prices have gone up quickly your home value may not be in line with the appraisers value. If the home you want to purchase is going for $500,000 and the appraised value is $480,000, you have to come up with $20,000 PLUS the 5% down payment in order to make the deal work.
Finally, with all the potential problems that can arise, it’s best to contact a Dominion Lending Centres mortgage broker before you start the home search to make sure that you have your ducks in a row.

David Cooke

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional

21 Jul

TOP 3 MISCONCEPTIONS ABOUT REVERSE MORTGAGES IN CANADA

General

Posted by: MANJIT SINGH BHONDHI

TOP 3 MISCONCEPTIONS ABOUT REVERSE MORTGAGES IN CANADA

I recently read an article by Jamie Hopkins in Forbes magazine, entitled “Americans Don’t Even Know What Their Most Important Retirement Asset Is.”
The article highlighted three common misconceptions about reverse mortgages and unsurprisingly, they are prevalent in Canada as well as in the U.S.
Top 3 misconceptions about Reverse Mortgages:
1. The bank owns your home.
2. Your estate can owe more than your home
3. The best time to take a Reverse Mortgage is at the end of your retirement

Let’s examine each misconception in more detail.

1. The bank owns your home.
Over 50% of Canadian homeowners over the age of 65, believe the bank owns your home once you’ve taken a reverse mortgage. Not true! We simply register our position on the title of the home, exactly the same as any other mortgage instrument, with the main difference in the flexibility of not having to make P&I payments on the reverse mortgage.
2. Your estate can owe more than your home.
A reverse mortgage, unlike most traditional mortgages in Canada, is a non-recourse debt. Non-recourse means if a borrower defaults on the loan, the issuer can seize the home asset, but cannot seek any further compensation from the borrower – even if the collateral asset does not fully cover the full value of the loan. Therefore, when the last homeowner dies (and the reverse mortgage is due), the estate will never be responsible for paying back more than the fair market value of the home. The estate is fully protected – this is not the case for almost any other mortgage loan in Canada, which is full recourse debt. So read the fine print the next time you offer to co-sign for a loan for mom!
3. The best time to take a Reverse Mortgage is at the end of your retirement.
This is a common mistake that reflects an “old-school” financial planning mentality. For the majority of Canadians (without a nice government pension), the old school financial planning mentality is about cash-flow, and is as follows:
a) Begin drawing down non-taxable assets to supplement your retirement income.
b) Once your non-taxable assets are depleted, begin drawing down more of your registered assets (RSP/RIF) to supplement retirement income.
c) Once your registered assets are depleted, sell your home, downsize and re-invest to generate enough cash-flow to last you until you die.
The problem with the “old-school” financial planning model is two-fold:
1. 91% of Canadian seniors have no plans to sell their home (CBC News “Canadian Boomers Want To Stay In Their Homes As They Age).
2. You are missing out on a huge tax-saving opportunity by not taking out a reverse mortgage in the beginning of your retirement.
“Research has consistently shown that strategic uses of reverse mortgages can be used to improve a retiree’s financial situation, and that reverse mortgages generally provide more strategic benefits when used early in retirement as opposed to being used as a last resort.” – Jamie Hopkins, Forbes
In Canada, a reverse mortgage can be set-up to provide homeowners with a monthly draw out of the approved amount. For example: client is approved for $240,000 and decides to take $1,000/month. This is deposited into the clients’ bank account over the next 20-years. Interest accumulates only on the amount drawn (ie: not on the full dollar amount at the onset).
This strategy allows clients to draw down less income from their registered assets to support their retirement lifestyle. In turn, this can create some excellent tax savings, since home equity is non-taxable. Imagine lowering your nominal tax bracket by 5 – 10% each and every year over a 20 year period? The tax savings can be huge. You are also able to preserve your investable assets, which historically, can generate a higher rate of return when invested over a greater period of time.
In summary, Canada and the U.S. both have aging populations and both have misconceptions about reverse mortgages. Learning about these misconceptions will allow you to offer your clients the best advice on how to balance retirement lifestyle and cash-flow, with the desire for retirees to age gracefully within their own homes. If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Roland Mackintosh

ROLAND MACKINTOSH

Roland is a Business Development Manager with HomEquity Bank.

19 Jul

TIME TO BE HEARD CANADA

General

Posted by: MANJIT SINGH BHONDHI

TIME TO BE HEARD CANADA

I met with a client recently who wanted to get a pre-approval before he sold his home. His neighbour is a very grouchy man who causes my client and his family a lot of stress. He just wanted to sell his home and move into a new one away from this situation. I had to tell him no and explain that although he has good credit and a very stable job he does not qualify under the new rules. He was saddened to hear that and is now faced with a decision of should he stay and put up with the situation or should he rent out his home and then he himself rent somewhere else.
(Thank you, sir, for allowing your story to be shared)

What happened to cause this? Late last year the federal government made another round of changes to the mortgage rules. This was after we have already seen many previous rule changes over the last seven years. They dramatically increased the qualification rate with the intention that people be able to handle a higher mortgage payment when rates start to rise. They were also attempting to cool the hot real estate markets in Vancouver and BC. Additionally, they changed which properties can be insured which has meant that people with more than 20% equity in their homes have fewer choices of mortgage lenders and/or higher rates. Since that time, they have also increased the mortgage default insurance premium and tightened up lending guidelines. Before the dust has settled on those changes we have been told that further changes are under consideration.

Here is what we need from you. If you or someone you know have been adversely affected by the mortgage rule changes we need you to speak up. Let’s take our freedom of speech for a spin and let our MP’s know of how specific Canadians are being negatively impacted. TELLYOURMP.CA is the site set up that you can easily visit and share your story. Maybe you were turned down or unable to buy a home large enough or in a safe community for your family. Maybe a job loss or divorce means you are looking to purchase on a single income. Whatever the case, please speak up. Visit this website, write a letter, call your MP.
They are doing their best to keep the Canadian economy as strong as it can be but we are seeing a lot of unintentional negative consequences and good Canadians in ALL of Canada are being adversely affected.
TELLYOURMP.CA It will not take you long and it goes directly to your MP. The mortgage industry and all the banks and mortgage lenders are on record but they need to hear from the actual Canadians this is touching most.

Tell your story and don’t spare the details. Speak now in regards to the fallout from the last round of changes and ask for a cooling period before any further changes are implemented. Ask they consult with the wider financial community for input. We need all of you. Whether you are a first-time home buyer, unable to refinance to the best rates, cannot buy that next home you wanted, saw someone you care about be turned down OR if you are a part of an industry adversely affected. Let’s get noisy Canada!

PAM PIKKERT

Dominion Lending Centres – Accredited Mortgage Professional

17 Jul

HOW TO SHOP FOR A MORTGAGE

Mortgage Tips

Posted by: MANJIT SINGH BHONDHI

HOW TO SHOP FOR A MORTGAGE

For many people, a home will be the largest purchase of their life. It stands to reason then, that when you are shopping around for your mortgage you will want to take certain steps to ensure you are getting the sharpest rate and best product. We have a few pointers to make you a savvy shopper when you are out looking at different mortgages—get ready to take a few notes.

1. Do not always rely on the bank for the sharpest rates
Mortgage Brokers can often beat the bank rates by using different lenders. They can also often get you a SHARPER rate at your own bank simply because of the high volume that they do with them. Brokers have access to a number of different lenders giving you more options for not only the best rate, but also the best product for YOU.

2. Know your credit score
Your credit score is a large factor in your mortgage application. You need to know where you stand with your credit BEFORE you begin the process of shopping. All lenders will look at your credit history and score first then they build a file around that. A mortgage broker can obtain your credit score in mere minutes-all you have to do is ask.

3. Make it a one-stop shop
Avoid shopping from institution to institution. You may think that more options lead to better rates, but in fact lenders will frown upon you having your credit score pulled multiple times. This is where the benefits of using a broker come into play. They will pull your score ONE time only and use that to shop around with lenders for you. Really, it’s like having your own personal shopper!

4. Understand that the market will change.
Starting the shopping process knowing that the market you qualify in TODAY will adjust is key. Rates might be low right now, but new rules and implications can change things when you are up for renewal. Understand that you MUST be able to carry your mortgage payment on at a higher rate if new laws are put in place.

Keeping these 4 Savvy Shopper tips in mind when you are shopping for a mortgage can help set you up for success not only today, but for the future as well. Mortgages are not only about finding the best rate-but finding the best product too. A Dominion Lending Centres mortgage specialist can work with you and your unique situation to find you the best product for you—and as an added benefit do the shopping for you!

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional