30 May

Changing Your Financial Direction

General

Posted by: Clarissa Yap

Did You Know? The average Canadian owes $23,000 in consumer debt and has at least 2 credit cards. Source: CBC.ca

If you live paycheque to paycheque, the idea of somehow having enough money to invest and eventually have financial freedom seems about the furthest thing possible.

But experts in financial education like to point out, no matter your income and place in life, a few changes to the way you’re living life can make all the difference. It’s never too late to start learn and reverse course. If you’re still not convinced, here are a few simple ideas to get you started:

PRETEND YOU EARN LESS THAN YOU DO

Give yourself a cut in pay. The goal is to put 10% in savings from each paycheque into your savings account. The easiest way is to do an automatic direct transfer from your chequing account to your savings every pay day.

CREATE A BUDGET

In order to stop living paycheck to paycheck, you need to know where that paycheck is going. Creating a budget is simple with Google docs, or look into other online tools and sites to get started.

BUILD AN EMERGENCY FUND

Once you have your budget in place, review it and break it down into non-discretionary expenses (rent, groceries, utilities, etc.) and discretionary expenses (eating out, entertainment, clothes, etc.). See where you could cut down on discretionary spending and put that money towards your emergency fund. Even starting with just a little amount is great and helps you build the habit of saving.

CONSIDER DOWNSIZING

It may be time to consider a lifestyle change. Consider moving to a smaller place. Get rid of that cost of going to that expensive gym with a trip to the local park. Think about if you really need that brand new car or if a used one would work just as well.

PAY DOWN DEBT

If you have a lot of credit card or unsecured debt, try paying the minimum on all but one of them and aggressively pay down that one card. Once it’s paid off, attack the next one. If you’re so deep in debt that you can’t fight your way out, consider consulting with a company who specializes in debt consolidation. They will help you negotiate your debt into smaller amounts that you can begin to pay off.

DON’T FORGET YOUR FUTURE

Putting at least 3% of your paycheck into a retirement fund is a great idea, or maybe when you get your first raise instead of thinking of it as free money, simply put it into a fund and forget about it. You’ll be glad it’s there when you need it in the future.

Written by DLC Marketing Team
30 May

Changing Your Financial Direction

General

Posted by: Clarissa Yap

Did You Know? The average Canadian owes $23,000 in consumer debt and has at least 2 credit cards. Source: CBC.ca

If you live paycheque to paycheque, the idea of somehow having enough money to invest and eventually have financial freedom seems about the furthest thing possible.

But experts in financial education like to point out, no matter your income and place in life, a few changes to the way you’re living life can make all the difference. It’s never too late to start learn and reverse course. If you’re still not convinced, here are a few simple ideas to get you started:

PRETEND YOU EARN LESS THAN YOU DO

Give yourself a cut in pay. The goal is to put 10% in savings from each paycheque into your savings account. The easiest way is to do an automatic direct transfer from your chequing account to your savings every pay day.

CREATE A BUDGET

In order to stop living paycheck to paycheck, you need to know where that paycheck is going. Creating a budget is simple with Google docs, or look into other online tools and sites to get started.

BUILD AN EMERGENCY FUND

Once you have your budget in place, review it and break it down into non-discretionary expenses (rent, groceries, utilities, etc.) and discretionary expenses (eating out, entertainment, clothes, etc.). See where you could cut down on discretionary spending and put that money towards your emergency fund. Even starting with just a little amount is great and helps you build the habit of saving.

CONSIDER DOWNSIZING

It may be time to consider a lifestyle change. Consider moving to a smaller place. Get rid of that cost of going to that expensive gym with a trip to the local park. Think about if you really need that brand new car or if a used one would work just as well.

PAY DOWN DEBT

If you have a lot of credit card or unsecured debt, try paying the minimum on all but one of them and aggressively pay down that one card. Once it’s paid off, attack the next one. If you’re so deep in debt that you can’t fight your way out, consider consulting with a company who specializes in debt consolidation. They will help you negotiate your debt into smaller amounts that you can begin to pay off.

DON’T FORGET YOUR FUTURE

Putting at least 3% of your paycheck into a retirement fund is a great idea, or maybe when you get your first raise instead of thinking of it as free money, simply put it into a fund and forget about it. You’ll be glad it’s there when you need it in the future.

Written by My DLC Marketing Team
23 May

Reasons People Break Their Mortgage

General

Posted by: Clarissa Yap

9 Reasons People Break Their Mortgage.

Did you know, approximately 60 percent of people break their mortgage before their mortgage term matures? While this is not necessarily avoidable, most homeowners are blissfully unaware of the penalties that can be incurred when you break your mortgage contract – and sometimes, these penalties can be painfully expensive.

Below are some of the most common reasons that individuals break their mortgage. Being aware of these might help you avoid them (and those troublesome penalties), or at least help you plan ahead!

sale and purchase of a new home

If you already know that you will be looking at moving within the next 5 years, it is important to consider a portable mortgage. Not all mortgages are portable, so if this is a possibility in your near future, it is best to seek out a mortgage product that allows this. However, be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage.

Important Note: Whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.

to utilize equity

Another reason to break your mortgage is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college.

This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.

to pay off debt

Life happens and so can debt. If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), rolling these into your mortgage can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.

Again, be aware that if you do this during your mortgage term, the penalties could be steep and you won’t end up further ahead. It is best to plan to consolidate debt and organize your finances when your mortgage term is up and you are able to renew and renegotiate.

cohabitation, marriage and/or children

As we grow up, our life changes. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.

divorce or separation

A large number of Canadian marriages are expected to end in divorce. Unfortunately, when couples separate it can mean breaking the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.

major life events

There are some cases where things happen unexpectedly and out of our control, including: illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for breaking the mortgage.

removing someone from title

Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.

Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.

to get a lower interest rate

Another reason for breaking your mortgage could be to obtain a lower interest rate. Perhaps interest rates have plummeted since you bought your home and you want to be able to put more down on the principle, versus paying high interest rates. The first step before proceeding in this case is to work with your DLC mortgage broker to crunch the numbers to see if it’s worthwhile to break your mortgage for the lower interest rate – especially if you might incur penalties along the way.

pay off the mortgage

Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run – enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.

Some of these reasons are avoidable, others are not. Unfortunately, life happens. That’s why it is best to seek the advice of an expert. Dominion Lending Centres have mortgage professionals across Canada wanting to be part of your journey and help you get the best mortgage for YOU.

Written by DLC Marketing Team
16 May

The Rate Debate

General

Posted by: Clarissa Yap

One of the first questions that potential buyers want answered is: “What is your interest rate?”

It is easy to think that this is the most important question, but there is a lot more to your mortgage contract than just the rate. And so, the rate debate continues!

The rate debate is a hot topic in the mortgage world. Not just the rates itself, but the importance of the rate versus other factors in the mortgage – such as terms and penalties. As a borrower, it can be easy to get caught up in one thing but, if you’re not paying close attention, ignoring other factors could cost you in the long run.

Before we get into these other factors, let’s talk rate. While not the only factor, it does continue to be an important decision criteria with any mortgage product. The interest rate is the percentage of interest you are paying on the principal loan; lower interest rates means more money to the mortgage and who doesn’t want that?

VARIABLE VS. FIXED

There are two types of mortgage rates: variable-rate and fixed-rate. A fixed-rate is just that – a fixed amount of interest that you would pay for the term of the mortgage. A variable-rate, on the other hand, is based off of the current Prime Rate, and can fluctuate depending on the markets.

Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.

Fixed-Rate Mortgage: First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The pros of this type of mortgage are that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage: As mentioned, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate), this means that should Prime drop and interest rates lower, they are paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.

BEYOND RATES

When considering your mortgage, other considerations such as penalties can be important factors for deciding on a mortgage product. If you have two competing products, say 5.09% interest fixed-rate and a 3.7% interest variable-rate, it seems as though it is a pretty easy decision. But, what about the ability to make extra payments? And what are the penalties?

It is easy to think that nothing will change throughout your 5-year mortgage term, so you probably haven’t even considered the penalties. However, when looking at the fixed versus variable rate mortgage, penalties can be quite different. Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation.

Given that nearly 70% of fixed mortgages are broken before the term ends, this is an important variable. Fixed-rate mortgages are typically okay when the penalty is your contract rate versus the Benchmark rate. However, when penalties are based on the Benchmark rate (sometimes called the Bank of Canada rate), it is typically much higher than your contract rate, resulting in greater penalties.

In some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate. While the interest rate is lower, lower penalties are sometimes best should anything happen down the line.

CONVENTIONAL VS. HIGH-RATIO MORTGAGE

Another consideration beyond just the interest rate, is whether or not you will be obtaining a conventional or a high-ratio mortgage. Whenever possible, it is recommended to put 20 percent down payment on a new home. This results in a conventional mortgage. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product.

So, what does this mean?

High-ratio mortgages need to be insured by either Genworth Financial, the Canada Mortgage and Housing Corporation (CMHC), or Canada Guaranty. This is due to the Bank Act, which will only allow financial institutions to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Insurance on the mortgage is important to protect the lender should you default on your payments, leaving the insurer to deal with the borrower.

The difference between conventional and high-ratio mortgages is that high-ratio mortgages require insurance, which results in an insurance premium. This is added to and paid along with the mortgage, but is an important factor when considering your monthly payments. These premiums are based on the loan to value (LTV), which is the amount of the loan versus the value of your home.

All high-ratio mortgages are regulated to have mortgage insurance, but some homeowners with a conventional mortgage may choose to pay for mortgage insurance to get a better rate.

SMART QUESTIONS TO ASK

To ensure you understand your mortgage contract, and how it could affect you now and in the future, we have compiled a few smart questions to ask before you sign.

  1. What is my interest rate? Can I qualify for a better one?
  2. Do you recommend fixed or variable-rate?
  3. What are the penalties for breaking my mortgage?
  4. Are there any pre-payment penalties?
  5. Will I require mortgage insurance? If so, what are the premiums?
  6. What will my monthly payment be?
  7. Is my mortgage portable?

These are just a few examples of good questions to ask. It is important to do your own research and be diligent with any contract you are signing. Contacting a Dominion Lending Centres mortgage broker today can help ensure you understand what you are agreeing to, and that you are getting the best mortgage product for you!

Written by DLC Marketing Team
16 May

The Rate Debate

General

Posted by: Clarissa Yap

One of the first questions that potential buyers want answered is: “What is your interest rate?”

It is easy to think that this is the most important question, but there is a lot more to your mortgage contract than just the rate. And so, the rate debate continues!

The rate debate is a hot topic in the mortgage world. Not just the rates itself, but the importance of the rate versus other factors in the mortgage – such as terms and penalties. As a borrower, it can be easy to get caught up in one thing but, if you’re not paying close attention, ignoring other factors could cost you in the long run.

Before we get into these other factors, let’s talk rate. While not the only factor, it does continue to be an important decision criteria with any mortgage product. The interest rate is the percentage of interest you are paying on the principal loan; lower interest rates means more money to the mortgage and who doesn’t want that?

VARIABLE VS. FIXED

There are two types of mortgage rates: variable-rate and fixed-rate. A fixed-rate is just that – a fixed amount of interest that you would pay for the term of the mortgage. A variable-rate, on the other hand, is based off of the current Prime Rate, and can fluctuate depending on the markets.

Fixed rates are typically tied to the world economy where the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.

Fixed-Rate Mortgage: First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The pros of this type of mortgage are that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage: As mentioned, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate), this means that should Prime drop and interest rates lower, they are paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.

BEYOND RATES

When considering your mortgage, other considerations such as penalties can be important factors for deciding on a mortgage product. If you have two competing products, say 1.65% interest fixed-rate and a 1.95% interest variable-rate, it seems as though it is a pretty easy decision. But, what about the ability to make extra payments? And what are the penalties?

It is easy to think that nothing will change throughout your 5-year mortgage term, so you probably haven’t even considered the penalties. However, when looking at the fixed versus variable rate mortgage, penalties can be quite different. Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation.

Given that nearly 70% of fixed mortgages are broken before the term ends, this is an important variable. Fixed-rate mortgages are typically okay when the penalty is your contract rate versus the Benchmark rate. However, when penalties are based on the Benchmark rate (sometimes called the Bank of Canada rate), it is typically much higher than your contract rate, resulting in greater penalties.

In some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate. While the interest rate is lower, lower penalties are sometimes best should anything happen down the line.

CONVENTIONAL VS. HIGH-RATIO MORTGAGE

Another consideration beyond just the interest rate, is whether or not you will be obtaining a conventional or a high-ratio mortgage. Whenever possible, it is recommended to put 20 percent down payment on a new home. This results in a conventional mortgage. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product.

So, what does this mean?

High-ratio mortgages need to be insured by either Genworth Financial, the Canada Mortgage and Housing Corporation (CMHC), or Canada Guaranty. This is due to the Bank Act, which will only allow financial institutions to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Insurance on the mortgage is important to protect the lender should you default on your payments, leaving the insurer to deal with the borrower.

The difference between conventional and high-ratio mortgages is that high-ratio mortgages require insurance, which results in an insurance premium. This is added to and paid along with the mortgage, but is an important factor when considering your monthly payments. These premiums are based on the loan to value (LTV), which is the amount of the loan versus the value of your home.

All high-ratio mortgages are regulated to have mortgage insurance, but some homeowners with a conventional mortgage may choose to pay for mortgage insurance to get a better rate.

SMART QUESTIONS TO ASK

To ensure you understand your mortgage contract, and how it could affect you now and in the future, we have compiled a few smart questions to ask before you sign.

  1. What is my interest rate? Can I qualify for a better one?
  2. Do you recommend fixed or variable-rate?
  3. What are the penalties for breaking my mortgage?
  4. Are there any pre-payment penalties?
  5. Will I require mortgage insurance? If so, what are the premiums?
  6. What will my monthly payment be?
  7. Is my mortgage portable?

These are just a few examples of good questions to ask. It is important to do your own research and be diligent with any contract you are signing. Contacting a Dominion Lending Centres mortgage broker today can help ensure you understand what you are agreeing to, and that you are getting the best mortgage product for you!

Written by DLC Marketing Team
9 May

Your Home Buying A-Team

General

Posted by: Clarissa Yap

There are four major components to any successful home buying A-Team: your mortgage professional, realtor, home inspector and lawyer. Each of these individuals is important to various aspects of the home buying process.

MORTGAGE PROFESSIONAL

While many people think a real estate agent is the most important person when it comes to buying a new home, your mortgage professional comes first. This is especially true for anyone looking to pre-qualify for a mortgage before searching for their forever home! Not only does pre-qualification help you establish your budget, but it can also lock in a low rate for you for up to 120 days while you search for your perfect home.

When it comes to choosing a mortgage professional, there has been a recent upward trend in using a mortgage professional to arrange mortgage financing. Many banks are cutting back on staff and centralizing operations to save money. While this doesn’t affect the day-to-day finances, it can create a headache when it comes time to discussing and finalizing a mortgage agreement.

You may not know much about mortgage professionals, but they are steadily gaining popularity due to providing top-notch service and unbiased advice. Also, unlike individual banking representatives who often move from one branch to another, mortgage specialists work to form lifelong relationships with their clients. The dedication of mortgage professionals to their clients and their unique position in the mortgage market often results in finding lower rates for their customers and providing the best possible plan to ensure their clients financial success.

One of the reasons mortgage professionals are able to find their clients such amazing deals when it comes to mortgage interest rates is that they operate independently of any single financial institution. Banks are only able to access their rates – no one else’s. Mortgage brokers, on the other hand, have access to MORE rates and lenders than the bank! In fact, a typical broker has access to over 90 lenders! This means they are able to shop around, on your behalf, to find the most affordable option thereby saving you tons of time and money in the long run.

So, not only can a mortgage professional shop around for you AND save you money on your interest rate, their services are almost always free to the homebuyer! This is because mortgage professionals get paid by the lenders directly! What else can you ask for? Better rates, personalized service, flexibility and products at no cost to you. Some people may argue that the fee is built into the payment, but this is not so. It costs the banks approximately 40 per cent less to generate a mortgage through an agent than a branch, as there is no overhead to pay if the bank doesn’t get a client’s business. Instead, the mortgage broker bears the entire cost of day-to-day business activity and the bank simply pays for the privilege of gaining you as a client.

Your mortgage professional has also developed relationships with numerous realtors and is also able to recommend a qualified realtor to help you through the home-buying process.

WHO CAN FUND YOUR MORTGAGE?

Mortgage professionals have access to a variety of lenders to ensure they find you the best rate, but who exactly are these lenders?

BANKS

A bank is a financial institution that accepts deposits, lends money and transfers funds. Banks are listed as public, licensed corporations and have declared earnings that are paid to stockholders and are regulated by the federal government’s Office of the Superintendent of Financial Institutions. Most Canadians know the five big banks: BMO, Scotiabank, CIBC, RBC and TD Canada Trust. Big banks are great options for variable rate mortgages as they have smaller penalties if you have to break the mortgage for any reason. When it comes to fixed-rate mortgages however, the penalty can be quite large when compared to different types of lenders.

CREDIT UNIONS

Credit unions also deposit, lend and transfer funds much like a bank, but beyond that there are some major differences between the two.

Credit Unions have an elected Board of Directors that consists of elected members from their community. They are local and community-based organizations and, unlike the banks, are provincially regulated versus federally.

One major advantage of getting your mortgage through a credit union versus a bank is that the credit unions are not subject to the recent “stress test” changes for uninsured mortgages (excluding Quebec). This is due to the fact that credit unions are provincially regulated and the stress test is a federal regulation. Of course, your ability to pay down your debt will still be tested, but not at the higher rate.

Another advantage of using a credit union is that the calculation for penalties when it comes to breaking a mortgage agreement are typically friendlier to the borrower, and, if there are credit issues, they tend to be more understanding than the big banks.

MONOLINES

A monoline is a type of financial service that specialises in consumer credit, home mortgages or a sole class of insurance. While these businesses typically do not have branches and are mainly accessed through a mortgage professional, there are some advantages to the consumer when it comes to using a monoline lender.

The first is that monolines usually offer better discounted rates and how they calculate the penalties can be friendly to the client. The biggest strike against them is they’re just not as well-known or trusted as a bank. It should be noted, however, the major investors in monolines are the big banks, so there’s nothing really to fear.

ALTERNATIVE LENDERS

If for any reason you are not able to get approved for a mortgage through traditional lender channels, there is another option – Plan B. In fact, these secondary lenders make up almost 10 percent of mortgage transaction volume! That said, there are a few things to know.

The first is that alternative lenders often provide higher interest rates than A-lenders as it is a more risky investment. In addition, most B-lenders will charge a one-time fee of 1% of the loan amount. However, if you have no other options this is still a viable way to get approved!

Mortgage professionals have access to a fair number of alternative mortgage lenders (B-lenders) who offer excellent solutions above and beyond the traditional branch-based options. When mortgages are arranged through an agent with an A-lender, the charge is covered by the lender directly. However it is important to note that there may be a fee when sourcing an alternative mortgage lender.

WHAT DOES A LENDER NEED TO KNOW?

Before a mortgage can be approved, there are a few things that your lender or mortgage professional needs to know.

INCOME AND JOB STABILITY

The first thing that your mortgage professional or lender will ask for is details surrounding your income and job stability.

Your income will determine how much money you can borrow. In most cases, 35 percent of your gross income for salaried, non-self-employed or commissioned people is used to determine how much you can borrow to cover the cost of the mortgage payments, taxes and any applicable maintenance. All other debts (car loans, credit cards and lines of credit, etc) must not exceed an additional seven per cent of your gross income.

It is also important to note that sticking with your employer while going through the home buying process is crucial. Any changes to your employment or income status can stop or greatly delay the mortgage approval process.

CREDIT HISTORY

Your credit history and credit score are used to show that you pay your bills on time. A great credit score includes keeping a balance on credit cards at any given time that is below 30 percent of the total card limit – and paying it off monthly. A credit rating above 680 puts you in a good position to get financing while a score below will result in higher interest rates or a more challenging mortgage acquisition.

If you’re new to the world of credit, consider the 2-2-2 rule. Lenders want to see two forms of resolving credit (ie: credit cards) with limits no less than $2,000 and a clean payment history for two years.

WHAT DO YOU NEED ONCE YOUR OFFER IS ACCEPTED?

Once you have put in an offer on your dream home and it has been accepted, there are a few things you will need to finalize your mortgage agreement.

INCOME CONFIRMATION

Supplying your income details to the lender for pre-approval helps to determine your budget and how much you can borrow. Once you are ready to finalize the mortgage, you will need to confirm this information. For salaried individuals this can be done by submitting a letter of employment, your most recent pay stub, your last two years income and Notices of Assessment from Revenue Canada.

DOWN PAYMENT CONFIRMATION

The lender will require that you prove the source of your down payment. You’ll have to send in bank statements, RRSP statements, stocks, etc that show the previous three-month history of your accounts. If there are any large lump-sum deposits, you’re likely to be asked to show where the deposit originated. You’ll also be asked to demonstrate that you have access to 1.5 percent of the purchase, in addition to the down payment, to ensure you are able to cover closing costs such as: legal fees, Title Insurance, property tax prepayment and Property Transfer Tax.

CONTRACT OF PURCHASE AND SALE

This is a copy of the accepted offer of the home you intend to purchase and a copy of the MLS listing sheet. The purchase contract will also be accompanied by a Property Disclosure Statement and a Strata Form B Disclosure if applicable.

REAL ESTATE AGENT

As you may already know, a real estate agent is one of the most vital members of your homebuying A-Team! In fact, in today’s competitive real estate market, it can be very difficult to acquire property WITHOUT the help of a realtor.

One of the reasons realtors are integral to the home buying process is that they can provide access to properties that never even make it to the MLS website. Realtors also gain access to information about homes that may come onto the market before a listing is even signed.

Most importantly though, a realtor understands the ins-and-outs of the home buying process and can tell you how to be successful in your endeavors to purchase a home by guiding you through the process from the first viewing to having your bid accepted.

HOME INSPECTOR

While a competitive market can make a home inspection more difficult, it is a highly recommended part of the home buying process! Having a home inspection done is important to ensure that there are no hidden surprises which may crop up after the sale is finalized. A home inspector can determine what’s behind the walls and look for any signs of mold, leaks or old wiring that could cost you down the road. A good home inspector can often be recommended by your mortgage professional or realtor who may know of many reliable options for getting your inspection done.

While most people assume home inspections are just for the buyer, that’s not always the case. If you’re selling a home, you might want to consider a home inspection too! Any issues that come up during an inspection by a potential buyer can lead to delays and kill a deal all together but scheduling a certified inspection prior to putting the home on the market could save you time and ensure a smooth process once you do start getting offers!

LAWYERS AND NOTARIES

Once you are ready to finalize financing and purchase a home, you will need a lawyer or notary to draw up the documents and register them on file for you. Since the visit to your legal professional is the last step in the entire process, it’s extremely important that this be handled with care. Mortgage professionals can recommend a qualified lawyer or notary who specializes in real estate transactions that can help streamline this process.

If you are looking to get help with your mortgage, contact one of Dominion Lending Centres Mortgage Professionals today for expert advice you can count on!

Written by DLC Marketing Team

2 May

Benefits of Home Ownership

General

Posted by: Clarissa Yap

So, you have decided to utilize your buying power in the Canadian retail market and are looking to purchase a home – congratulations! This is a great step towards ensuring your future.

As a potential homeowner, there are some amazing benefits that we think you should be aware of right out of the gate:

  1. Homeownership is the single largest source of savings for Canadian households.
  2. Your payments build equity (as opposed to renting, where your money goes to the building owner).
  3. Equity you build in your home can be used as security for other loans.
  4. The return on investment is substantial – in fact, the average price of a house for sale on the Canadian real estate market has increased every year since 1998.
  5. While other investments can prove volatile, investing in real estate is a solid use of your hard earned money.

Buying a home is not just about equity and investments, but it is about the future. While it is important to know what a mortgage is and how much you qualify for (and can afford), ensuring your new home is so much more than numbers. In these changing times with the cost of living constantly increasing, having home equity to fall back on can have a huge impact on your quality of life. Not only that, but owning your own home gives you a sense of pride, a feeling of security and the freedom to design the perfect living space for yourself – without having to ask permission from strata or a landlord! Moving into your first apartment or moving on up to your first house is an incredible step in the journey of life!

Now, as excited as you are to get started, you probably have some questions! Let us take you through some of the most important things to know when it comes to home ownership to ensure your experience is as smooth as possible – and provides the best possible outcome for you!

WHAT EXACTLY IS A MORTGAGE?

It is amazing how many people really don’t know what a mortgage is. Maybe you weren’t sure you would be in a position to have one or maybe you just never asked! Never fear – we have the answers.

To keep it simple, a mortgage is a loan that is specific to properties and homes. This type of loan uses the home or land you purchase as security in the event the loan cannot be paid. Mortgages are registered as legal documents and can be obtained through a variety of sources (or lenders) including banks, credit unions and alternative lenders or through the use of a mortgage broker!

MORTGAGE TERMS TO KNOW:

Principle The principal is the amount of the loan that is actually borrowed.
Interest Rates As with any loans (credit cards, lines of credit, etc) interest will be incurred. This is the amount that the lender charges for the privilege of funds borrowed. The amount of your interest payment will depend on the interest rates, which vary depending on terms and conditions of the mortgage and the borrower’s credit history.
Mortgage Payments These can occur monthly, semi-monthly (twice a month), bi-weekly (every other week), accelerated bi-weekly or weekly and are made to the lender. These payments encompass both payments to the principal amount borrowed, as well as interest charges.
Amortization Period This is the number of years it will take to repay the entire mortgage in full and is determined when you are approved. A longer amortization period will result in lower payments but more interest overall as it will take longer to pay off. The typical range is 15 to 30 years.
Term Term is the length of time that a mortgage agreement exists between you and the lender. Rates and payments vary with the length of the term. The most common term is a 5-year, but they can be anywhere from 1 to 10 years. Generally a longer term will come at a higher rate due to the added security. A “Fixed Mortgage” means you are locked in at the interest rate agreed for a longer length of time.A “Variable Mortgage” features an interest rate that is adjusted periodically to reflect market conditions.
Maturity Date The maturity date marks the end of the term. At this time, you can repay the balance of the principle or renegotiate the mortgage at the current rates. Note: If you choose to repay or renegotiate the mortgage before the term is up, penalties may be charged.

HOW MUCH DO I QUALIFY FOR AND WHAT CAN I AFFORD?

One of the biggest factors to purchasing a home is knowing how much you qualify for when it comes to a mortgage – and how much you can afford!

To determine the amount of the mortgage you qualify for, banks will utilize a set of ratios which determine the amount of your income that will be used to pay down the debt. These ratios are Gross Debt Servicing (GDS) and Total Debt Servicing (TDS).

It sounds confusing, but let us help break this down for you!

GROSS DEBT SERVICING (GDS) RATIO

The first ratio, Gross Debt Servicing (GDS) is the percentage of gross income that is required to cover housing costs. If you are looking at getting an insured mortgage (less than 20 percent down payment on the purchase price) the limit is 32% GDS. For uninsured mortgages (20 per cent or more down payment) the limit is 39% GDS.

To calculate this, you would take any home-related expenses (mortgage payments, property taxes, utilities and strata fees when applicable) and divide them by gross monthly income to get your GDS percentage.

Gross Monthly Income $4,500.00
Mortgage Payment $1,000.00
Property Taxes $200.00
Heating Expenses $150.00
Total Expenses $1,350.00
Gross Debt Servicing (GDS) 30%

The rate of 30% GDS is well within the requirements and would be approved.

TOTAL DEBT SERVICING (GDS) RATIO

The other ratio banks use is known as Total Debt Servicing (TDS). This is the percentage of your gross income required to cover housing costs (same as with the GDS) but also any other debts. The guidelines for an insured mortgage (less than 20 percent down) has a limit of 40% TDS while an uninsured mortgage (20 per cent or more down) is 44% TDS.

To calculate this, you would take all home-related expenses (mortgage payments, property taxes, utilities and strata fees when applicable) and other debts (credit cards, personal loans, student loans, car payment or a line of credit) and divide them by gross monthly income to get your TDS percentage.

Gross Monthly Income $4,500.00
Mortgage Payment $1,000.00
Property Taxes $200.00
Heating Expenses $150.00
Student Loan Payment $100.00
Car Payment $300.00
Total Expenses $1,750.00
Total Debt Servicing (TDS) 39%

The rate of 39% TDS is well within the requirements and would be approved.

DECLARING YOUR INCOME

In order to get approved for the mortgage, you need to declare your income so the bank can compare it to your expenses and determine the ratios noted above.

If you are employed with a company, you would provide an employee statement declaring minimum guaranteed gross wage OR last two-year average if there were bonuses or commissions that put your income above your guaranteed wages. If the most recent year was lower, that year will be used instead of the average.

If you are self-employed, you would provide the average of your last two years of income based on line 150 of your tax returns. It is important to know that there are programs available for self-employed borrowers in cases where the two-year average does not qualify them for a mortgage. Just ask your mortgage broker!

BE SMART!

There are many cases where buyers will qualify for more than they intend on spending – but don’t get greedy! It is vastly more important, especially for your first home, to stay within a budget that you can afford each month instead of overextending yourself simply because it is available to you. The most important aspect is that your payments are reasonable and affordable. There are always options to move to a larger home in the future!

 

Written by My DLC Marketing Team