Mortgages.ca

blog, Mortgage Education

Mortgage Pre-Approvals: Top 3 Common Myths [VIDEO]

If you’re preparing to take the next step in the home-buying process, a pre-approval consultation is a key first step that can save you time and money

pre-approvals consultation

Image Credit: Rawpixel

Pre-approvals are a CRUCIAL first step in your mortgage journey. If you’re a first time homebuyer, it’s completely normal to feel apprehensive about the process but this apprehension often stems from common myths (often learned through friends and family who are well-intentioned and eager to assist but may be misinformed). It is important to speak to a licensed and experienced mortgage broker who can provide prompt answers to your questions while understanding how home ownership fits within your long- and short- term financial goals.

 

The Pre-Approval Process

A pre-approval consultation is a very simple process that generally takes about 10-15 minutes via telephone or online application. In order to recommend the best mortgage rate and products, your broker will first need to determine your mortgage eligibility by verifying your employment and/or income (via tax returns, paystubs, and/or letter of employment).

For example:

If you are salaried/hourly, a broker will request:

  • most recent paystub
  • letter of employment
  • last two year T4s (tax returns)

 

If you are self-employed, a broker will request:

  • last two year T1 generals full
  • last two year notice of assessments (with confirmation of taxes up to date)
  • if incorporated, we will additionally ask for
    • last 2 year business financials
    • articles of corporation

 

Upon determining your mortgage eligibility, your mortgage broker will narrow down the products and rates for which you qualify and get you started on your mortgage journey.

 

Debunking the Myths

Click our video below to see James Harrison, President and Mortgage Broker for Mortgages.ca unpack 3 of the most common myths of mortgage pre-approvals:

  • Myth #1: Pre-Qualified = Pre-Approval
  • Myth #2: Pre-Approved = Unconditional Offer Time
  • Myth #3: Pre-Approvals Last Forever

 

For more information on how a mortgage broker can help you, contact Mortgages.ca today for your free, no-obligation consultation. You can contact us by phone at 647-795-8700 x 0, by email at info@mortgages.ca, or by visiting our website and clicking ‘Apply Now’ to speak to a mortgage broker today.

With a mortgage broker, you have nothing to lose and only great INSIGHTS to gain.

blog, Mortgage Education

How to Pay Down Debt & Increase Your Cash Flow

Owing money can quickly become a vicious cycle when most of your earnings go toward paying creditors instead of lining your own pockets.

Pay-Down-Debt-Increase-Cash-Flow

James Harrison, AMP
Mortgages.ca

 

Many Canadians have accumulated debt to finance major milestones or to pay for smaller day-to-day items. Though debt is quite common, you should keep a close eye on your loans and think about cutting down. According to the Bank of Canada, most Canadians now owe $1.70 for every dollar they earn. As interest rates climb, homeowners are focusing on paying off debt and saving money in 2019.  

The higher your debt load, the less cash flow you have. Before your bills become too much to handle, talk to a mortgage broker about debt consolidation options and your eligibility to refinance. Mortgage brokers have the knowledge and resources to advise you on the most effective ways to pay down debt and increase your cash flow.

 

Pay High-Interest Loans First

Loans like credit cards, lines of credit, high mortgage rate loans, and private company loans are harder to pay off because a bigger portion of your payment goes toward interest. You can save money by paying off these bills first. For larger amounts that take longer to pay, consolidating debts into a lower interest secure line of credit or mortgage line of credit will help you save money so that you can repay the debt quickly.

 

Refinance Your Mortgage

You can lower your monthly mortgage payment and increase your cash flow when you refinance your home loan. Rather than continue to pay unrealistically high interest rates, you can consult a mortgage broker to find a lender that offers lower rates so that you can put more money toward the actual loan. A broker can also advise you on the best options to reduce your monthly mortgage payment so you can save more money for other things, like childcare.  

 

Consolidate Your Loans

If you have too much credit card debt or high-interest debt, consolidating them into one low-interest loan will reduce your monthly expenses to one manageable bill.

 

Save for an Emergency Fund

Saving money can be challenging when you owe creditors, but having money for unexpected emergencies will reduce your risk of going further in debt. Increase your cash flow by putting part of your earnings away each month so that you’re better prepared in an emergency.

In today’s borrowing culture, Canadian homeowners have high debt. Multiple loans and high interest rates can negatively impact your credit rating if you cannot pay your bills. Before your debt load becomes overwhelming, talk to a mortgage broker. A broker can help you find effective ways to save money by refinancing your mortgage or consolidating debt to a lower interest rate line of credit, and you can avoid lowering your credit score.

 

For more information on how a mortgage broker can help you reduce your debt, click Apply Now, email us at info@mortgages.ca, or call 647-795-8700 x 0 today for your free, no-obligation consultation.

With the help of a Mortgages.ca broker, you have nothing to lose and only great INSIGHTS to gain.

blog, Mortgage Education

Buying a Second Home? It’s Simpler Than You Think!

Expanding your lifestyle to include a recreational property like a cottage, chalet or cabin is a simple process

 

By Steve Harrison
Mortgages.ca

 

Buying a Second Home

People tend to think securing financing for a second property will be an overwhelming and complicated process. But if you’ve already purchased a property (which, of course you have, this is your second property), you’re already very familiar with the process.

 

Process and rates are the same

For one, the approval process for buying a second property is similar to that of buying a primary residence, and the minimum downpayment is the same — which can be as little as five per cent of the total purchase.

Sometimes people are concerned they won’t be eligible for the same rates on a mortgage for a cottage, but a mortgage for your cottage is just like a mortgage for your primary home. Although purchasing any home with less than 20% down would have a mortgage insurance premium, there would not be a rate premium just because you’re buying a second home/cottage.

For some of our younger clients, the idea of buying a cottage is increasingly becoming more attractive. They choose to live in a smaller condo during the week, then spend weekends and holidays in a recreational home outside of the city. It’s a lifestyle choice that’s especially appealing for people who have the option to work remotely.

 

Refinancing to increase wealth

One great method to help with the down payment of your second home is to refinance the mortgage on your first property. Some clients don’t realize this is a viable option, but it’s a great way to use some of the capital in your current home to help land your dream vacation home.

Example:

Let’s say you’ve bought a home for $700,000 and you had a mortgage of $560,000. And now that home has increased in value since you bought it and is now worth $1 million, meanwhile you’ve got $500,000 left outstanding on your current mortgage.

That means you’ve got $500,000 of equity in your home. Assuming the person qualifies, they could refinance their current property to 80% (800k), which would give them 300k in cash to use towards a vacation home.  With the current refinancing rules, you’ll always have to leave 20% equity in your home.

 

Using a home equity line of credit

Alternatively, you can consider using a home equity line of credit to help finance the purchase of your second home.  For example, one of our clients recently used a home equity line of credit to buy a cabin. They had already refinanced their home to have the line of credit available, and when they found a great deal on a cabin up north, they were able to jump on it right away.

They paid cash for the cabin using the line of credit, which is a slightly higher rate than a mortgage on the cabin, but it worked for them and depending on your situation we can help you figure out what would work for you. Which leads me to my last point:

 

Make Sure to work with a licensed broker

As licensed mortgage brokers, we help our clients get the mortgage that’s right for them by negotiating on their behalf with banks, credit unions, and other mortgage providers for the best rates and products. Our services are free to home buyers, and our fees are paid by lenders. You have nothing to lose and great insights to gain!

Are you considering buying a second home? Apply Now or Contact Us via phone (647-795-8700) or email (info@mortgages.ca)

 

blog, Mortgage Education

Making the Most of Your Mortgage Broker

Source: Which Mortgage

The process of becoming a homeowner can be long and arduous, and your mortgage broker is one of your key allies in getting a mortgage in order to buy a home. But if done right, the relationship between you and your broker doesn’t stop once you have the keys.

 

mortgage-broker-meeting

 

Depending on how your individual mortgage is structured, you’re going to be up for a renewal at least twice over the life of your mortgage – and, for many people five or more times. That means many opportunities to reconnect with your mortgage broker, not only to get you the best interest rates available at the time, but to evaluate where your mortgage falls in your overall financial picture.

A good mortgage broker will definitely want to keep you as a client over the lifetime of your mortgage, so your broker will probably already have their own efforts in place to reach out to you every so often and checking in on how your mortgage payments are coming along. They might even have a newsletter of some kind, with helpful tips for homeowners. Either way, it’s only to your benefit to have a good relationship with your broker; here are some ways that you can make the most out of that relationship over a long period of time.

Be honest

When getting your mortgage, there’s no point in lying about your occupation, your income, or your debt. It’s all going to come out in the wash anyway, and your broker can’t place your mortgage application with the best lender for you if they don’t have all of the facts. Not to mention that you’re going to have to come clean eventually when the lender does their due diligence on you. If you don’t tell the truth and lie about details on your mortgage application, then you’re committing mortgage fraud, which is something that you want to avoid at all costs. This holds true after you’ve gotten your mortgage as well – be honest when it comes to what you want and don’t want for your next mortgage term. Remember that your broker works for you and is paid (by lenders) to deal with the situation that you present to them, not the situation that works best for them and/or is easiest to place.

Keep in touch

Months, even years, may go by, but don’t let your mortgage broker become a stranger. As mentioned, your broker may – and should – reach out to you every so often, but if they don’t, don’t be afraid to initiate contact with them, even if it’s just dropping a quick email to say hello or asking a simple question. This way, when you actually need something or it’s time to discuss renewal, your mortgage broker won’t have to think, “Who is this person?”

Don’t be shy

Things change. Your broker doesn’t expect your financial realities to be the same 10 years down the road as they were when you got your mortgage. If you’ve changed your plans and now want to own a farm or move out of province or even start thinking about investment properties, don’t hesitate to let your broker know. They can only help you develop a mortgage plan if they know what your plans are; otherwise, the options that they suggest for you might not work for your short-term and/or long-term goals.

Refer

If you’re happy with your mortgage broker, don’t keep them to yourself! A large part of a broker’s business is referrals, and often those referrals come from clients who they’ve previously worked with to get mortgages. If you know someone who is looking for a mortgage, maybe even someone who is unfamiliar with the role of a mortgage broker, offer to put them in touch with yours. It’s really a win-win-win situation: good for your friend who needs a mortgage, good for your broker who needs the business, and good for you, who just bought some goodwill from both parties.

Educate yourself

Part of the reason it’s beneficial to speak with a mortgage broker is so that you can learn about the wide range of products and services in the market that they can get for you. But if you do your own research into a mortgage product or subject before speaking with them about it, then you can have a much more productive conversation about the products and see how they apply to your situation. You’ll be able to ask more detailed questions, and will probably understand your broker’s responses a bit bitter. It never hurts to do some preliminary homework.

Just like your relationship with your realtor, the relationship with your mortgage broker is a long-term one. Knowing how to make the most out of that relationship over the life of your mortgage can really work out in your favour.

blog, Mortgage Education, Mortgage Refinance

The Smart Homeowner’s Guide to Refinancing

Mortgage refinancing is a tool you can use to improve your financial future

smart-homeowners-guide-to-refinancing

By Steve Harrison
Mortgages.ca

 

Over my 10 years in the mortgage industry, I’ve noticed that homeowners who refinance strategically can significantly improve their overall financial situations.

And you can do it, too. By refinancing whenever the math makes sense, you can make incremental gains that add up over time.

 

Why you should care about refinancing?

Whether you’re considering this option now or not, it’s important that you understand the basics. That way, when you’re faced with an unexpected financial challenge in the future, or an investment opportunity comes along, you’ll have a clear understanding of how your home equity can help you achieve your goals. The more you understand the short and long term benefits of refinancing, the more financially proactive you can be.

 

What is refinancing?

Refinancing is the process of ending a mortgage agreement in order to replace it with a new one. The first loan is paid off in full and a new loan is created, either with a new lender or the existing lender.

Whereas a straight switch to a new lender (also known as a transfer) can change only the interest rate or term of a mortgage, a refinance can involve increasing the total amount of the loan and/or changing the length of amortization.

 

Why refinance?

  • To Consolidate Debt

We often recommend our clients to refinance in order to consolidate other forms of debt they may be carrying. A mortgage is the cheapest way to borrow money, so it’s often beneficial to transfer accumulated debt — from credit cards, lines of credit, student debt, car loans — to a mortgage. This way you can avoid paying the higher rate of interest on those other forms of debt.  

  • To Access Home Equity

When clients need to take cash from their home equity, refinancing is the way to do it. This is a cheap way to access cash for investing in a rental property, sending a child to university, doing a major renovation, covering unexpected medical costs, or starting a business. Canadians can access up to 80 per cent of the value of their home by refinancing.

  • To Achieve Long Term Goals

In some cases, refinancing can help homeowners increase their long term wealth. For example, refinancing could make it possible for a homeowner to move from their starter house or condo into a new home, while keeping the starter home as an investment property, thereby increasing their net worth over time.

Other benefits include:

  • Access lower rates when rates have dropped
  • Lower monthly payments
  • Add a home equity line of credit

 

Should-I-Refinance

When should I refinance?

When your mortgage term is up, you have three options:

  • Renewing the loan with your existing lender at a similar rate with a similar term
  • Transferring your loan to a new lender at a different rate or term
  • Refinancing

When the math works out to your benefit, it’s a good time to refinance.

Unfortunately, if you have an immediate need access to your home equity, you can’t wait for the ideal time and you may be forced to break your existing mortgage. In that case, you’ll need to pay the penalties involved with breaking your mortgage. Pre-payment penalties can be significant, depending on the size of your outstanding mortgage. Still, despite penalties, it can still be beneficial to refinance.

Lenders sometimes offer refinancing promotions in which they pay the costs when you move your loan to their institution. A mortgage broker can alert you to those promotions and advise about whether the lender offering them is the right one for you.

 

What are the costs of refinancing?

The costs of refinancing include:

  • If you’re breaking your mortgage, prepayment penalties will apply (amounts vary)
  • Lawyer fees ($800-$1500)
  • Discharge fees ($300-$400)
  • Appraisal ($300-$400)

Occasionally, lenders will offer promotions in which they pay the costs associated with refinancing. Your broker can inform you of these temporary offers if they apply to your situation.  

 

Do I have to qualify for refinancing?

Yes. You’ll have to apply for a new mortgage, going through the process of providing proof of income, statements of debts and assets, and credit scores to your new lender.

 

Is there a downside to refinancing?

If there is a risk to refinancing, it’s the temptation to continue adding to consumer debt after consolidation. Lifestyle changes are sometimes necessary in order to avoid having to refinance again.

 

What are the steps to refinancing?

Though some see refinancing as time-consuming, I try to make the process as simple as possible. Here’s an overview of the steps to follow with your mortgage broker:

  1. Review your financial situation and goals
  2. Find the right refinancing loan
  3. Review documents
  4. Apply for the new loan
  5. Await review of your application by the chosen lender
  6. Once mortgage is approved, broker orders an appraisal
  7. You sign the loan commitment
  8. You see your notary or lawyer, who will oversee the loan disbursement

 

Advice is always free. Call or email us to set up a consultation anytime.

E: Info@Mortgages.ca
P: 647-795-8700

blog, Mortgage Education, Mortgage Refinance

Fixed vs. Variable: Which Mortgage is the Better Choice?

Compared to fixed-rate mortgages, variable-rate options cost less for the borrower — even when rates are expected to rise

variable-vs-fixed-consider-the-numbers

By James Harrison
Mortgages.ca

 

When you’re thinking about what kind of mortgage you need, you might be tempted to do what many Canadians do without giving it much thought: They choose a fixed rate.

Fixed-rate mortgages are the most common type of home loan. According to a report by Mortgage Professionals Canada, 72 per cent of Canadians who bought homes in 2016 or 2017 secured fixed-rate mortgages.

Especially when news media stories predict interest rate hikes in the near future, borrowers grasp onto fixed-rate mortgages. They’re willing to pay a rate premium in exchange for a consistent monthly payment and a feeling of certainty.

 

But they’re not doing themselves any favours.

 

The media hype around possible interest rate hikes is often inaccurate, and the fear is fuelled by banks who profit from locking borrowers in at the premium rates attached to fixed-rate mortgages. These loans are simply more profitable than variable-rate mortgages, so banks like to create the impression that a five-year fixed mortgage is the obvious choice.

The fact is, a variable-rate mortgage is almost always a better choice for borrowers who want to pay less for their loan. And that’s true even when rates are expected to go up.

 

Feeling the variable-rate jitters?

Many borrowers are feeling nervous now because the Bank of Canada has hiked the key interest rate five times since July 2017, from .50 to 1.75 per cent, and economists have predicted more raises in 2019.

Those nerves are understandable. But when you do the math, and when you know the history of how interest rates move in Canada, it becomes clear that a variable-rate mortgage can still save you thousands in interest payments compared to a comparable fixed-rate product.

Not only that, it’s possible to reduce the risk and maximize the benefit of a variable-rate mortgage by making strategic monthly payments that are a little higher than they need to be from day one.

But more on that smart strategy in a minute. First, let’s look at the reasons why variable mortgages are a better choice.

 

Why variable-rate mortgages cost less

Variable rates are typically lower than fixed rates. But the spread between the two types of mortgages can vary.

That’s because variable mortgage rates are tied to the prime rate. When the Bank of Canada’s prime rate goes up, variable mortgage rates follow. On the other hand, fixed mortgage rates are primarily influenced by the yield on government bonds of the same term. The two types of mortgage are influenced by different factors, so the spread fluctuates.

When rates for five-year fixed mortgages are at least 0.5 per cent higher than rates for comparable five-year variable mortgages, it makes more mathematical sense to choose a variable product.

The spread is important because when it’s 0.5 per cent or more, it’s extremely unlikely that rates will go up enough during the five-year term of a mortgage to make a variable mortgage more expensive than a fixed one.

We know it’s unlikely because we can look at how the Bank of Canada’s has historically adjusted its prime rate, which in turn causes variable mortgage rates to go up or down.

When the Bank of Canada implements federal monetary policy by adjusting the prime rate, it rarely does so quickly. It moves the rate up or down by 0.25 per cent with each adjustment, then it waits to see the effect on inflation.

As well, given historical trends, it’s extremely unlikely that rates will only go upward over the five-year term of a mortgage. They may go up for a while, but then they’ll go down again because of the cyclical nature of the economy.

 

We can apply our understanding of history and make some reasonable predictions about the future. Looking forward at the next five years, we see that while rates may go up a few times over the next two or three years, an economic recession is due in 2020 or 2021. Rate decreases are the federal bank’s likely response.

With the current spread between five-year fixed and five-year variable rates, the prime rate would have to go up by 0.25 per cent about seven or eight times over the next five years for you to start losing more with a variable-rate mortgage than you would with a fixed-rate mortgage. It would have to stay up, too, with no rate drops in between.

But that scenario is beyond imaginable for most people in the financial industry. If the prime rate were to go up — and only up — seven or eight times in less than five years, we’d be experiencing a widespread economic meltdown the likes of which we’ve never seen. It’s extremely unlikely.

 

The exception to the ‘variable is better’ rule

When we look at historical data, we can see the spread between fixed and variable mortgages is almost always greater than 0.5 per cent in Canada. Over the past decade, the spread has usually stayed between about 0.7 and 1 per cent.

There was a short period in 2016 when rates for fixed mortgages were low and the spread between fixed and variable was a mere 0.3 per cent. During that period, there was a strong reason to choose a fixed mortgage. But it’s extremely unlikely that we’ll see rates and spreads like that again anytime soon.

 

Why variable rate mortgages are more flexible

In addition to offering lower costs, variable rate mortgages allow borrowers more control and flexibility than a fixed mortgage.

In a variable mortgage, the borrower can break the mortgage at any time with only a three-month interest penalty. Compare that to fixed rate penalties, which are equal to either three-months interest or the IRD, or interest-rate differential calculation, whichever is higher.

For example, on a $500,000 variable-rate mortgage, the penalty for breaking it would be about $3,000 compared to a $20,0000 penalty on a comparable fixed-rate mortgage with a big bank.

No one plans to break a mortgage, but life happens. And avoiding a $20,000 penalty can make a dramatic difference in your life when you’re going through unexpected life changes.

In addition, a variable-rate mortgage allows you to lock into a fixed rate at any point. But it doesn’t work the other way. A fixed-rate mortgage cannot be changed to a variable one during the length of the term. You’re stuck with a fixed rate for the entire five years, no matter which way rates go.

How to reduce the risk of a variable mortgage

We suggest our clients choose a variable mortgage, but that they make monthly payments as if they had chosen a fixed one with a higher rate of interest.

That means they structure their household budgets in order to pay more than the minimum payment with each monthly payment. An extra $200 or $300 per month goes toward paying off principal instead of interest before rates have had time to increase. So the borrower saves thousands in interest over the life of the loan. And they pay down thousands more of the principal while they wait for any potential rate increase.

The strategy also builds in a buffer of three or four potential rate increases. Even if the prime rate goes up steadily for a year or two, the borrower is already used to a higher payment and their household budget is not affected by the rate changes.

In the 11 years I’ve been in the mortgage business, I’ve never once had a client regret going variable, but I’ve had many regret going fixed.

What to do if rates start to rise

The option to go fixed always exists for borrowers in variable mortgages. And when the news is full of predictions that interest rates are going up, clients sometimes call to ask about locking in to a fixed rate.

We never advise our clients to take the option of going fixed.

Instead, we suggest they increase their payments as if they did lock in. Or we suggest they break the current variable-rate mortgage and set up a new one with an even better variable discount.

What to look for in a fixed mortgage

As a licensed mortgage broker, I consider it my responsibility to explain the pros and cons of fixed-rate and variable-rate products. And I keep an eye on the spread, so I know I’m always giving up to date advice on which option makes more mathematical sense. But some borrowers will choose a fixed mortgage every time, no matter what the math indicates.

In that case, and also when the spread does drop below the 0.5 per cent mark, it’s important to choose the best possible terms for a fixed-rate mortgage, paying close attention to prepayment penalties.

While most borrowers have no intention of breaking their mortgage, about 60 per cent of Canadians do. So if you’re going fixed, you must look carefully at the penalties you’ll incur if you end up having to break it.

We recommend our clients choose non-bank lenders (also known as monoline lenders) when they do choose a fixed-rate mortgage. These dedicated mortgage lenders calculate IRD penalties differently than banks do. While banks use the posted rate to calculate the IRD, monoline lenders use a rate that’s an average of about 1.5 per cent lower. That means a significantly lower penalty when your loan is with a monoline lender.

 

How a mortgage broker helps

As a licensed mortgage broker, I help my clients get the mortgage that’s right for them by negotiating on their behalf with banks, credit unions, and other mortgage providers for the best rates and products. The cost of my services are free to home buyers. My fees are paid by lenders.

 

Interested in refinancing to reduce your mortgage costs? Call me to set up a free consultation.

blog, Mortgage Education

What Is Your Home Worth?

Everything You Need To Know About Home Appraisals

what-is-your-home-worth

By Scott Nazareth
Mortgages.ca

 

Getting an appraisal is a key part of the process of getting a mortgage. It’s one you should understand when you make an offer on a home, as the appraisal process can move quickly after you make a winning bid.

What is an appraisal?

Appraisals assess the current market value of a property.

Mortgage lenders sometimes require a formal appraisal to determine a home’s value for mortgage purposes — regardless of the price that has been paid for the property. They want to be sure a house is actually worth what they’re lending its purchaser.

This part of the buying process happens after your offer to purchase has been accepted, and before the mortgage has been finalized.

 

Who conducts an appraisal?

A licensed appraiser will determine the value of the home.

In Canada, there are two bodies that license and educate appraisers. They are the Canadian National Association of Real Estate Appraisers and the Appraisal Institute of Canada. Members of both associations are recognized by banks, credit unions, mortgage lenders, and mortgage insurers.

Lenders require that appraisals are done by companies on an approved list. A licensed mortgage broker ideally has knowledge of specific appraisers on the lender’s approved list and will be sure to choose one that is local, which ensures they’re up-to-date on neighbourhood factors that may affect a home’s value.

 

Who pays for an appraisal?

Usually, the purchaser pays the $300-$500 cost of an appraisal.

 

What is included in an appraisal?

1. Value

An appraiser will study the exterior and interior of your property, as well as the land surrounding it. They will also consider the value of secondary structures located on the land.

There are three main ways to calculate the value of a property: the direct comparison approach, the cost approach, and the income approach.

 

The direct comparison approach looks at comparable properties that have been sold in the recent past. Making adjustments by looking at the details of each property, the appraiser assigns a value that the property would reasonably earn on the open market.

The cost approach is a less common way of determining value for residential homes. It’s used when relevant comparable sales data does not exist. This method takes into account the value of the land, plus how much it would cost now to construct a similar home.

The income approach is used for multi-unit properties, where the income related to the property is a key determinant of its value.

 

It doesn’t matter which method your appraiser uses. What matters is the final number, because that affects how much a lender will agree to give you.

 

2. Rental income

When you purchase a rental property, you’ll have to declare what rent you’re going to charge. That can be substantiated by providing a rental agreement with someone who already lives there, or someone who will live there when you move in.

If there’s no rental agreement in place at the time of your purchase, an appraisal will calculate the rental potential by looking at similar properties in the immediate vicinity.

 

3. Photos

An appraisal will include photos of both the exterior and interior of a home, including the attic, piping, and insulation. However, it’s important to note that an appraisal is not the same as a home inspection. They may report on similar things, but an appraisal should never replace an inspection.

appraisals-do-not-replace-home-inspections

When is an appraisal required?

An appraisal is typically not needed when borrowers put less than 20 per cent down because the lender can take comfort from the fact that the loan is covered by insurance. But in some cases — when the value or the condition of a property is in question — the insurer can request an appraisal.

Most borrowers who put more than 20 per cent down are not covered by mortgage insurance, so an appraisal is required. When the property is not insured, there is no guaranteed value in it and the lender needs some other form of assurance that the loan will be repaid. An appraisal is part of that.

But there are two ways to avoid an appraisal.

One way is to use the automated valuation model. There must be enough relevant data for this model, which looks at a database of comparable sales and determine if your property’s price is within an acceptable range.

The other way is when the loan is a small percentage of the total purchase price. If you’ve put 50 per cent down, your lender may waive the right of appraisal.

 

What happens if something goes wrong with an appraisal?

Certain factors in a property’s construction can reduce the appraiser’s calculation of its value. For example, vermiculite insulation, Kitec plumbing, UFFI insulation, and knob-and-tube wiring can all bring your appraised value down.  This can make the property un-financeable for some lenders or may require it to be dealt with prior to closing or with purchase-plus or a hold back.

If an appraisal value is less than the purchase price, the purchaser must make up the difference.

For example, if you paid $749,000 for a home but an appraiser values it at $729,000, the bank will approve a loan based on the lower number. So you’ll have to come up with an extra $20,000 to make up the difference. If you can’t, you may no longer qualify to purchase the property.

Such a situation can be challenging on the short timeline of a home purchase, so it’s a good idea to have a contingency plan. It’s possible that you’ll learn that your home has a problem in the appraisal stage, and it’s never fun to be surprised at that point.

If you’re currently having challenges with an appraisal, contact us to find out how we can help.

Is it worth it to get a second opinion?

Yes. If you’re in doubt, it’s worth the peace of mind that comes with knowing your property was fairly and accurately assessed.

That’s especially true if your first appraisal comes in lower than expected. After a second opinion, the bank may choose one or the other of the reports, or they may take an average of the two. Either way, it’s worth knowing that your property was fairly assessed.

Does an appraisal affect my taxes?

No. It’s not the same as a tax assessment, and your home’s appraisal is not shared with tax assessors.

 

Do you have questions about appraisals or the mortgage process? Book a call to discuss how we can help with your mortgage needs.

blog, Mortgage Education

Don’t Sign That Renewal Letter!

When your mortgage term is nearly up, your lender will offer an easy renewal, but don’t be fooled into signing it

do-not-sign-that-renewal-letter

By James Harrison
Mortgages.ca

 

If your mortgage is up for renewal anytime soon, you can expect to receive a letter from your lender giving you the option to simply sign it and send it back for an easy renewal of your mortgage.

It may look innocuous. But it’s not. Whatever you do, don’t sign it.

The rate your lender is offering in that letter is probably half a per cent — or more — higher than the going rate. Depending on the size of your mortgage, that could cost you tens of thousands of dollars in additional interests charges, not to mention paying off thousands less in principal.

 

Consider your options with a broker

Don’t just sign the renewal letter and send it back. Instead, spend time making an informed decision about the biggest investment of your life.

The first step in your decision-making process is to reach out to a reputable broker. At Mortgages.ca, we help our clients consider their options by asking a few basic questions:

  • Who is your current lender?
  • How much is outstanding on your mortgage?
  • When is the renewal maturity date?
  • What are your financial goals in the next one to five years?

 

During a 10 to 20 minute call, with a bit of questioning, my clients eventually bring up something they hadn’t considered as a significant factor in their mortgage planning. They’re surprised to learn I can help them achieve their financial goals by managing their mortgage.

Most people don’t spend time thinking about the big picture and don’t have a knowledgeable sounding board for the discussion. I consider that a very important part of my role as a licensed broker. I ask questions to learn about their problems, then come up with solutions that will help them meet — and sometimes exceed — their financial goals.

 

Doing the work is worth it

Sometimes people think changing lenders is time-consuming, so they don’t question the renewal letter. They simply accept the bank’s terms without question. But exploring other options is well worth it. Would you trade 45 minutes for a few thousand dollars?

Whatever your informed choice turns out to be with your renewal, the process doesn’t have to be complicated. We can communicate by phone and email. In-person meetings aren’t needed — though they’re always possible.

 

Make an informed decision

When your mortgage term is over, you have three options:

  • negotiate with your lender for a better rate than the renewal letter offers
  • transfer your mortgage to a new lender to get a better rate and/or different terms
  • refinance to get equity out, or to reduce payments by changing the amortization period

 

Timing is important

I advise my clients to make sure their new mortgage is set up approximately three to six months prior to the renewal date.

It’s important to reach out as soon as you get a renewal letter. If you leave your research and decision-making to the last minute, your lender may automatically renew you into an undesirable mortgage — and possibly at a very high rate.

 

Is your mortgage coming up for renewal soon? Contact us about how I can help you make the right choice.

 

 

blog, Mortgage Education

Non-Resident Buyers: What You Need to Know About Buying Property in Canada

The rules for borrowing to buy property in Canada are a bit different for non-residents

Toronto Waterfront

Toronto is among the top places for non-residents to purchase property in Canada. Photo credit: Scott Webb via Unsplash

 

Who can buy real estate in Canada?

Canada welcomes buyers from anywhere in the world, and there are no restrictions to the types of properties people can buy.


What is a non-resident?

It has nothing to do with citizenship.
Lenders define a non-resident as someone who does not earn an income here and who does not file taxes in Canada.


How much does a non-resident need for a down payment?

Lenders typically ask for a larger down payments from non-residents of Canada than they do from resident borrowers. Exactly how much more depends on a few factors. For example:

U.S. Residents

If you’re living in the United States,  plan to use the property rather than rent it, and can provide proof of income and down payment, your down payment must be at least 20 per cent of the total purchase price.

Elsewhere in the world

If you’re living anywhere other than Canada or U.S. and can provide proof of income and down payment, your down payment must be at least 35 per cent of the purchase price. As well, your down payment cannot be a gift from another person or entity.

 

If you don’t have proof of income, you can still get a mortgage, but you’ll need a down payment of at least 50 per cent. A maximum mortgage of $750,000 is available to borrowers in this program, with a maximum amortization period of 25 years. (Note that If you already own property in Canada, you won’t qualify for this special program and will have to provide proof of income and a down payment of at least 35 per cent.)

The Bond

Many non-residents buy condos in Canada’s urban centres. Above, The Bond Condos in Queen West, Toronto. (Photo credit: Condos.ca)

What documents do non-residents need to qualify for a mortgage in Canada?

Unless you can put 50 per cent down, which exempts you from needing to provide proof of income, you’ll need:

  • Proof of income (letter of employment, pay stubs and income tax returns)
  • Proof of down payment (bank statements for the last 90 days)
  • Reference letter from a bank outside Canada
  • Report from an international credit bureau or bank statements for the last six months

 

Will lenders consider rental income as part of a non-resident’s income?

Lenders will not allow applicants to include rental income as part of their income to qualify.


What kind of mortgage rates and terms do non-residents get?

For the most part, provided they meet the mortgage eligibility criteria, non-residents can access the same mortgage products that are available to residents of Canada.

But there are a few restrictions:

  • Some lenders may charge a rate premium for non-residents
  • Non-residents cannot have amortization terms of more than 25 years
  • Non-residents cannot get home equity lines of credit
  • Non-residents cannot refinance


Do non-residents need to be in Canada at any point to secure financing for a home?

Usually, non-residents will need to be in Canada at least twice to complete the process of financing and buying property.

First, a buyer will need to visit Canada to open a Canadian bank account. (Note, there are exceptions to this rule. For example, some of our clients have found that, as HSBC Premier clients, they’ve been able to open accounts in Canada from their home countries.

Second, non-residents must be present at closing, as there are no power of attorney options for closing.

What taxes do non-residents pay when purchasing real estate in Canada?

Non-residents are subject to the same land transfer taxes as Canadian residents when they purchase property here. Those buying residential property in or near Toronto will be required to pay Ontario’s Non-Resident Speculation Tax, which is 15 per cent of the purchase price.

Want to learn more?

Buying a home from another country can seem like an overwhelming prospect because there’s so much to learn. But we’re happy to explain the details. As licensed mortgage brokers, we work with home buyers and a wide array of major lenders to match people with the perfect mortgage for their needs. Our services are free to the home buyer.

 

Ready to dig deeper?
Go to our online application form so we can assess your specific mortgage needs.

blog, Mortgage Education

Top 5 Reasons to Work With a Mortgage Broker

Purchasing or refinancing your home can feel pretty daunting – but it doesn’t have to be when you have the right resources.

Steve Harrison, mortgage broker with Mortgages.ca breaks down the top 5 reasons why working with a mortgage broker can save your time AND your wallet!