Mortgages.ca

Home Ownership, Mortgage Education

The Reverse Mortgage: Why It May or May Not Work For You

Popular opinion says reverse mortgages are bad for borrowers, but that’s one of many misconceptions about these loans.

What is a Reverse Mortgage

A 71-year-old with limited income came up with a plan to better her financial fortunes.

She decided to convert her basement into a rental suite. The money she’d make each month from taking on a tenant would supplement her CPP and Old Age Security payments.

Knowing that a bank loan wasn’t an option at her age and with her income, she decided to take out a reverse mortgage for 25 per cent of her home’s value. The renovation got done, a tenant moved in, and now she’s earning an income that boosts her financial security. The best part is she gets to stay in her home.

What is a reverse mortgage?

A reverse mortgage is a loan secured against the value of a home. Unlike a regular mortgage, borrowers aren’t required to make regular payments. In fact, they don’t have to pay it back at all until they sell their home. 

The money is tax-free and can be used however homeowners want. Anyone over 55 can apply for a reverse mortgage, with the eligible amount calculated by age and other factors.

Reverse mortgages really come in handy in situations like that of the 71-year-old who put the money back into her home, says James Harrison, president of Mortgages.ca

“She still owns her home and her home’s still going to appreciate in value, so it’s great,” he says. 

A reverse mortgage is also an ideal option for older pensioners who want to continue living independently as they age, Harrison adds. 

“If they can set this up, they can have full-time care and be able to stay in their home, and that’s a big thing.”

Why do reverse mortgages get a bad rap?

Depending on the reverse mortgage, there can be high or hidden fees. But Harrison says the benefits of a reverse mortgage outweigh any disadvantages, especially if borrowers consider a private loan as an alternative.

For starters, the entire value of a reverse mortgage can be taken in one lump sum, or in monthly or quarterly installments. 

Interest rates are also reasonable compared to private loans, Harrison notes. The 71-year-old who converted her basement to a rental suite secured a variable rate of prime plus 1.75 percent, or 4.20 per cent as of May 2020. Private loans can clock 10-12 percent interest plus high fees just to get set up.

“There’s a lot of flexibility in a reverse mortgage,” Harrison says. “You can do a three-year variable, five-year variable or fixed and when you want to sell and move, you pay it back and keep the rest.”

blog, Home Ownership, Mortgage Education

Should I Set Up a Home Equity Line of Credit?

Home equity lines of credit can be a financial lifeline when emergencies happen.

But waiting until retirement to set one up can throw homeowners a real curve-ball.

An older adult couple living in a million-dollar home called it quits on their careers after their mortgage was paid off.

They considered applying for a $600,000 home equity line of credit before retiring but decided against it in the end. They figured if they ever needed to access a large amount of cash, they could easily get it because of the equity they had in their home. A year later, they decided they wanted to spend less time in the city and more time enjoying the peace and quiet of lake life. They wanted to buy a cottage. 

Bad news came when they applied for a mortgage: their retirement income wasn’t enough to qualify. Had they secured that home equity line of credit before retiring, however, they could have used that to pay for their slice of heaven by the water.

Whether retirement is on the horizon or you have dreams of giving up corporate life for self-employment, it’s important to have the conversation with a professional about shoring up financial safety nets, including a home equity line of credit, before making the leap.

How does a home equity line of credit work?

A home equity line of credit is secured against the value of your home but approval is based on your income at the time you apply for it. 

You may never need to tap into it, but if you do, the interest rate with a home equity line of credit is better than with any credit card or unsecured line of credit. It really is the cheapest line of credit on the planet.

Paying off a home equity line of credit also comes with greater flexibility. The balance can be paid in full, unlike a mortgage, or you can choose to pay the interest only.

Home equity lines of credit also remain in place as long as you own your home.

When should you get a home equity line of credit?

Most people are never offered a home equity line of credit by their bank, but they should speak to a mortgage professional about applying for one as soon as they’ve built up equity in their home — and while they’re still earning a secure and stable salary.

The key is to be prepared for whatever life might throw your way, and that includes getting a home equity line of credit in place sooner than later regardless of career ambitions or retirement plans.

Home Ownership, Mortgage Education

Understanding Mortgage Deferrals during COVID-19

Heres what you need to know about pausing your mortgage payments

Getting through to a bank can be a test of patience right now.

Those trying to connect to a bank employee have two options: endure the long wait time by testing your music trivia knowledge against the on-hold soundtrack or hang up.

If you choose to hang up, its important to try again at another time, particularly if youre calling to defer mortgage payments during the COVID-19 pandemic.

What is a  mortgage  deferral?

Canadas six largest banks offered to pause mortgage payments for those who lost work or faced financial hardship after COVID-19 slowed our economy to a grind.

Large banks are allowing customers to postpone their mortgage payments for six months, and so far, more than 210,000 Canadians have requested the relief.

Some smaller non-bank lenders are offering mortgage payment deferral programs, too, but they may only suspend payments for a shorter time.

The strategy is to get everyone to just stay home,says James Harrison, president and mortgage broker with mortgages.ca. The thought is in six months well be back up and running and can make payments. But in the meantime, people can use that money to buy groceries and keep the lights on.

Whatever the case, its important to speak to someone directly about halting payments to ensure you and your lender are on the same page. Dont let the frustration of being on hold cause you skip payments without permission, assuming your bank will understand why.

What are the long-term effects of deferring mortgage payments?

Your credit score will nose dive if you dont make it official with your bank that you need a break from your mortgage payments. So stay on the line or try again, no matter how long it takes. Approval is typically automatic once you do speak to a bank employee.

However, keep in mind you will have to start paying your mortgage again. Payments will be higher when you do, Harrison warns, because interest is still accumulating on your principal and on the interest you were already paying. Do the math to ensure your mortgage will be manageable when payments resume.

A lot of people think its interest-free for six months and the government is covering it,he says. Theyre not.

The good news is deferring your mortgage officially — shouldnt affect your credit score. But it is up to banks to let credit monitoring agencies know whats happening on your behalf. Given the average bank employees workload right now, its best to get that guarantee in writing or ask for the name and employee number of the person helping you in case you need that information later.

Otherwise, this short-term gain could lead to long-term credit pain.

Home Ownership, Mortgage News

Changes to the Stress Test – What it means for buyers

 

 

 

The government has come out with another mortgage rule change. This time the rule change may actually increase affordability for people looking to purchase a property with less than 20% down. Now before you start jumping for joy let’s take a look at the numbers and how they will work out for increasing your affordability.

Currently, and until April 6th, the rule as it stands right now would require any buyer, whether insured or conventional, to use the bench mark qualifying rate of 5.19% or their actual rate plus 2%, whichever is higher.


The new rule, as of April 6th 2020, will allow “insured” buyers to use their 5yr fixed rate plus 2% and that number can be lower than the bench mark rate.


Using RBC as our industry benchmark, who’s current rate is 3.09%, if an insured buyer were to purchase something, they would qualify at 5.09% (3.09 plus 2%), instead of the current benchmark rate of 5.19%.

As you can see this difference here is 0.10% and will have a little impact on affordability.

Here is a real life example:

Jane Doe makes 100k/yr and wants to buy a condo in Toronto that has monthly condo fees of $400/month and property taxes of $200/month.

If Jane Doe puts 10% down, here is how the old versus new rules would look for her

(For our example, assume Jane has great credit and Zero Liabilities)

Old/Current rule = qualifying at 5.19%.

-Maximum purchase purchase Price = 500k

New rule = qualifying at 5.09%
– Maximum purchase price = $510k

So while it may not be a huge increase, it is still a net positive, especially for first time homebuyers. Want to find out exactly how much you can afford?

Apply Now

blog, Home Ownership, Mortgage Education, Mortgage News

CMHC’s New Incentives for First-Time Home Buyers

Everything You Need to Know About CMHC’s New Incentives for First-Time Home Buyers

First Time Home Buyers

James Harrison, AMP
Mortgage Broker
Mortgages.ca

 

Breaking into the Canada mortgage market as a first-time homebuyer can be daunting, especially when it comes to navigating incentives, offers, and financial hurdles. Luckily, CMHC’s newest Home Buyer Incentive Plan for 2019 is full of incentives tailored perfectly for first-time homebuyers, the most important of which are broken down below:

 

Payment for Equity

As part of the latest First-Time Home Buyer Incentive Plan, CMHC will pay 5% of the purchase price for an existing home and up to 10% for the value of a new home as part of a down payment assistance program in exchange for an equity stake. This means that the Government of Canada partners with you in a Shared Equity Mortgage, taking a share of the increase (or decrease!) in the property’s market value. To qualify for this incentive, first-time homebuyers must meet a short set of criteria:

 

  • Minimum down payment amount based on mortgage amount
  • Qualifying income is $120,000 or below
  • Total mortgage is no greater than four times the qualifying income
  • Homes must be below the purchase price of $500,000

 

The government’s equity stake, otherwise referred to as a Shared Equity Mortgage, is then repaid as a percentage of the selling price, which takes into account the gain or loss in property value.

 

Taking Advantage of Your Money: RRSP Withdrawals

The Home Buyer’s Plan, a federal program that acts as a first-time homebuyer incentive, allows you to use a $35,000 RRSP withdrawal (in one year) towards your new home purchase. Making your RRSP withdrawal requires you to fill out a Home Buyers Plan Redemption Form to declare the amount that is being withdrawn, whether in a single amount or in installments. 

 

Why First-Time Homebuyer Incentives?

In today’s housing market, it can take individuals years to save up enough for the minimum down payment of 5% on a home. With the help of the First-Time Home Buyer down payment assistance incentive and the RRSP withdrawal allowance, purchasing a home can come much sooner. 

 

These incentives, developed for Canada’s real estate market and the first-time homebuyer, offer a number of benefits that help one transition into home ownership, such as: 

 

  • Purchase a home with the future in mind
  • Reduce the financial burden without delaying property purchase
  • Shared equity mortgage means interest-free down payment assistance
  • First-Time Home Buyer Incentive allows choices for repayment based on property value, not interest
  • Savings on mortgage payments of up to $3,430 per year

 

Your first home is one of the biggest, most important purchases of your life. The Government of Canada has developed a system to help first-time homebuyers comfortably acquire and pay back a mortgage, with assistance that is based on property value, rather than an established interest rate. With CMHC’s First-Time Home Buyer Incentive, buying your first home just got much easier.

 

Apply now for a mortgage with Mortgages.ca and learn more! 

blog, Home Ownership, Mortgage Education

How To Pay Down Your Mortgage Faster

Paying down your mortgage will not only lower your debt, but it will also reduce the amount of money you spend on interest.

Happy Couple Saving Money

By: Scott Nazareth
Mortgage Broker

Your mortgage is one of the biggest and longest-running debts you pay. Your monthly payments can consume a big chunk of your earnings, reducing your cash flow. Paying down your mortgage will not only lower your debt, but it will also reduce the amount of money you spend on interest.

You can pay off your mortgage fast with lower interest rate loans and short amortization terms. Amortizations can range from thirty to thirty-five years. Many homeowners opt for longer time frames to lower their regular payments, but those increase the total amount of interest paid over the life of the mortgage contract. If a short timeline is not financially viable, here are some ways you can pay off a mortgage fast.

 

Lump Sum Payments

Paying a lump sum payment on your mortgage will shorten the time it takes to pay off your loan. Whether you put extra money down monthly, quarterly or yearly, the long-term savings will be substantial.

Every year, you can pay a lump sum of up to 20% of the outstanding principal. An annual lump sum payment will not only reduce the total amount of interest you pay, but it can also shave years off of the life of your mortgage.  For example, if you paid 10% of the remaining mortgage each year for five years, you will have paid 50% of the mortgage and halved the projected amortization period.

 

Accelerated Payment Plans

If your mortgage payment schedule only includes monthly payments, consider opting for an accelerated payment plan. An accelerated payment breaks your monthly bill into smaller amounts that are withdrawn weekly or biweekly. Accelerated plans with more frequent installments reduce the interest you’d pay over time. That is the equivalent of making one extra payment each year.

 

Same Payment on Lower Interest Loans

If your mortgage renewal has a lower interest rate, request to keep your monthly installments the same as they were with your previous rate. By maintaining a consistent payment plan on a lower interest loan, you will be paying more of your mortgage without impacting your budget. That will reduce the total interest you pay and the length of your mortgage.

 

Increase Mortgage Payments

When refinancing your mortgage, ask to increase your payments rather than accept the monthly rate set by the lender. Even a small increase of $100.00 more per month will lower the total interest you pay and take years off the life of your mortgage.

A home loan is typically the biggest debt most Canadians have, taking much of your hard-earned money, especially considering the interest fees. There are many simple and highly effective measures you can take to pay off your mortgage fast. Talk with a mortgage broker about the best mortgage renewal terms as well as strategies to lower debt so that you can be debt-free sooner.  

 

To find out how you can pay off your mortgage faster, contact one of our mortgage brokers for your free consultation by clicking on our ‘Apply Now’ button, emailing us at info@mortgages.ca, or by calling #647-795-8700 ext. 0 today.

 

With Mortgages.ca, you have nothing to lose and only great INSIGHTS to gain.