Mortgages.ca

blog, Home Ownership, Mortgage News, Mortgage Refinance, Uncategorized

Urgent Message on Mortgage Rates

As many of you may have seen in the media recently:

 

“Rates are going up,” and “Mortgage rates have to go up.”

 

We all know the media tends to focus on the negative – but rest assured, rate changes are nothing new for us as Mortgage Brokers, and this news does not change our client recommendations.

 

Is inflation high right now? Yes. But for the Bank of Canada to even consider raising the prime rate, we’d need to see sustained inflation for 6+ months to move the needle in any meaningful way.

 

For reference: a 0.25% increase in the prime rate = $12 increase per month per $100,000 mortgage borrowed.

 

Below just a few of the many reasons to maintain your variable rate mortgage – or refinance and get a new variable.

 

 

1) The primary reason: Once you lock into a fixed rate, your future potential prepayment penalty goes up 900% on average.

 

No client plans on breaking their mortgage, but over 70% of Canadians do for one reason or another, and over 85% of Canadians will either move or refinance every 3.5 yrs. In other words, the probability is high. Simply put, life happens.

 

2) If you lock in, you are self-imposing a rate increase that is 4 times greater than any Bank of Canada rate increase, as the average fixed rate is 1.00% higher than variable on average.

 

3) The prime rate would have to go up 9 times in the next 5 years for you to lose money comparatively (when comparing fixed to variable today).

 

4) If you are concerned about your payments going up, give me a call. We can lock into a variable rate around product 1.20 to 1.45% with a fixed payment 🙂 Win-win. We are happy to help with that at Mortgages.ca.

 

5) If you think that the prime rate will go up, simply increase your payments now (maybe $200-300 a month). This way, you are paying off principal instead of interest while you wait, and you maintain the FAR superior terms and conditions of the variable product!

 

Pay off your mortgage (ie: put it in your pocket – not the bank’s profit margin).

 

6) The Banks/lender will call you to fear monger you into locking in your variable rate to a fixed within weeks of any prime rate increase:

 

Why? Because it is what is best for them, not you. The fixed rate is more profitable for the banks, especially the 5-year fixed.

 

Don’t get mad. They are a business, and a very successful one at that. Just buy more of their stock and enjoy the dividends.

 

The prime rate goes up and down – not that often, but it happens. The bottom line is that those who take a variable rate mortgage, pay less total interest than those who go fixed (every time for the last 50 years). PLUS they benefit from far superior terms and conditions – if life happens.

 

Life is Variable – Your mortgage should be too!

 

Stay strong – and stay the course 🙂

 

blog, Home Ownership, Mortgage News, Uncategorized

The ABC’s of Private and B-lending

The ABC’s of Private and B-lending

 

When it comes to securing a mortgage, most of us might think big banks are the only option. But what happens if those household-name financial institutions turn down your mortgage application?

 

The good news is dreams of home ownership, refinancing and/or debt consolidation don’t have to be put on hold. B-lending and private lending may be options when prime lending isn’t.

 

What is B-lending and Private Lending?

 

B-lending and private lending are alternative sources of mortgage financing for people who have bruised credit, or are purchasing or renewing a mortgage on a property that’s not in a prime location or may be designated mixed-use. B-lenders are major institutional players in the mortgage industry. They’re generally more forgiving of poor credit, approving mortgages for one- to three-year terms.

 

“If you don’t fit into A- or prime lending, we look to B-lending,” says Vern Bovell, mortgage agent with mortgages.ca. “It takes a short time for your credit score to take a hit but it takes a long time to bring it back up. If you have bruised credit, it takes one to two years to rebuild, and hopefully by then, we can put the client back into prime lending.”

 

Private lenders are individuals or mortgage investment companies who lend money based on the property, not the client. So if a person’s job status is in flux, it’s not a consideration for approval. “They want to know the condition of the property, the location of the property and equity on the property,” Bovell explains. “The more equity you have, the more likely you have a deal.”

 

Like B-lending, private lending is only temporary. Terms are typically one year. Conditions of a private mortgage include a fee for the loan, payments each month, plus interest at rates that are slightly higher than prime rates. That one-year private mortgage ultimately buys a client time to either improve their income status or sell the property, Bovell notes. After that, the loan is paid back and the homeowner ideally moves back to the prime lending space.

 

Who can apply for B-lending and Private Lending?

 

Candidates for these mortgages include borrowers whose credit rating has been affected by a previous bankruptcy or consumer proposal, or missed or late credit card and loan payments. Those with “unprovable income” would also be eligible for mortgages from alternative lenders. That includes people who are self-employed with a lot of write-offs, in the early years of their startup and lack a long enough income history for approval, and those earning lower incomes or who are often paid in cash.

 

The best way to determine which lender is best for you, however, is to connect with a qualified mortgage agent. “When certain criteria aren’t met, a client won’t qualify for prime lending,” Bovell says. “But I can have a conversation with alternative lenders who may provide a mortgage and that’s a definite benefit for borrowers.”

 

blog, Home Ownership, Mortgage News, Uncategorized

Get to Know Our West Coast Team

Matt Imhoff Has Always Liked Numbers and Math

 

The mortgage broker at our mortgages.ca Vancouver office is also a big fan of planning and helping people with the big decisions in life. Take purchasing a home, for example.

 

It all makes Imhoff the ideal person to lead the mortgages.ca team, now three strong and growing, on the West Coast.

 

“I’ve always been a planner and when you have a finger on the pulse of when decisions need to be made, I can help my clients with the bigger things,” Imhoff says. “It’s really about quarterbacking the whole purchase process and feeling more confident in what you’re doing by being aware of everything.”

 

Canadian Industry Leaders in Your Backyard

 

Imhoff, who’s licensed in British Columbia, Manitoba and Ontario, thrives on knowing what’s going on in the industry. When he’s not helping clients find the right financing for their home, he’s sharing his knowledge with other mortgage brokers in an effort to better them and the industry as a whole.

Imhoff’s knowledge is often tapped into by Mortgages Professionals Canada, which has hosted him as both a guest speaker and panelist in their continuing education courses.

 

He also has a knack for finding and developing talent. In the short time our Vancouver office has been operating, Imhoff has added two additional brokers, Eddie Han and Adam O’Neil, to the team. Both bring with them the extensive and diverse customer service experience that clients have come to expect from the mortgages.ca team.

 

The team will expand again soon with another new broker who is in the final stages of the licensing process. Imhoff is currently scouting and coaching others to join our B.C. office. Together, they’ll help residents achieve their dreams of home ownership and support our Ontario office when people living there are looking to move or expand their real estate portfolio out West.

 

“We’re putting together a strong team with people who always put the client No. 1,” Imhoff says. “They focus on breaking things down in a way that’s easy for our clients to understand. This is about expanding and having brokers licensed in the province you’re living and working in.”

 

The Benefits of Working With a Local Broker

 

It’s advantageous to work with someone who, quite literally, knows the lay of the land, he added. That could be knowing Vancouver’s neighbourhoods or, on a larger scale, the geography of B.C. right down to when and where potential threats to deals, including this summer’s devastating forest fires, are happening.

 

“It’s being aware of these things and doing extra due diligence versus a broker who doesn’t know the area and can put the client at risk,” Imhoff says.

 

What it comes down to is taking care. And that’s what Imhoff and his team do best.

 

“It’s not about me and what I’m making in commission,” he says. “It’s about (clients) and are they being taken care of? I want any interaction, big or small, to be positive. I’m on their team regardless of which direction they go.

 

“This isn’t about a transaction,” he adds. “This is a lifelong relationship in which they know they can trust me to help them.”

 

Upcoming Mortgage Professionals Canada continuing education course featuring Matt Imhoff of mortgages.ca:

 

Mortgage Professionals Canada 2021 Fall Virtual Mortgage Symposium, Oct. 13 and 14, 2021

 

Everything you should know about Prepayment Penalties Pt. 2

 

blog, Home Ownership, Mortgage Education, Mortgage News, Uncategorized

Taking Another Look at the First-Time Home Buyer Incentive

Taking another look at the First-Time Home Buyer Incentive

 

What if someone offered you five to 10 per cent toward your down payment on your first home? It might just be enough to make owning property a reality, even if one day you do have to pay back that hand up at market value. Now, what if that someone was the federal government?

 

The idea of the government having a stake in your home, even if it is as little as five to 10 per cent, might make some squeamish. But Matt Imhoff, a Mortgage Broker with Mortgages.ca, suggests giving some serious thought to what that financial assistance can do for you, especially right now.

 

What is the First-Time Home Buyer Incentive

 

Ottawa unveiled the First-Time Home Buyer Incentive about a year ago with the intention of making home ownership more affordable for those just entering the market. It’s a shared-equity mortgage with the Government of Canada offering first-time buyers five to 10 per cent toward the purchase of a newly constructed home; five per cent toward the purchase of a resale or existing home; or five per cent toward the purchase of a new or resale mobile or manufactured home.

 

The buyer needs at least five per cent of their own money to qualify, but personal and federal contributions can’t add up to a down payment of more than 19.9 per cent. The intention is to help first-time buyers reduce their mortgage payments rather than add to the financial burden that can come with home ownership and, now, the uncertainty of a pandemic.

 

It’s not a forgivable loan, however. Anyone tapping into the program has to pay back the government based on the property’s fair market value at the time of repayment. That’s either when the homeowner decides to sell or after 25 years — whichever comes first.

 

Doing the Math on the First-Time Home Buyer Incentive

 

“For me, the benefits I really see are that it does reduce what your mortgage payment is,” Imhoff says. “So if someone is buying with five per cent down and not using the program and someone is buying with 10 per cent with program, it means a lower payment.”

 

That’s a particularly helpful scenario for growing families, he notes. Parental leave and the reduced income it brings can be less stressful with lower mortgage payments, for example. The savings on mortgage payments could also be used to pay off other debt or go into a vacation (when things open up), education or retirement account. But the biggest selling point might just be the fact you can pay off your mortgage quicker.

 

Let’s look at the numbers:

 

Not using the First-Time Home Buyer Incentive

 

Purchase price: $500,000
Down payment (5%): $25,000
Mortgage loan insurance premium (4%): $19,000
Total mortgage: $494,000

 

Payments (five-year fixed at 2.09%): $2,113/month

 

Balance after five years: $414,608
Payments over five years: $126,802

 

Using the First-Time Home Buyer Incentive (5%) – Existing Property/Resale Home

 

Purchase price: $500,000
Down payment (5%): $25,000
First-time Home Buyer Incentive (5%): $25,000
Mortgage loan insurance premium (3.1%): $13,950
Total mortgage: $463,950

 

Payments (five-year-fixed at 2.09%): $1,985/month

 

Balance after five years: $389,387
Payments over five years: $119,089

 

Note: The government shares in five per cent of the value of your property. This is paid either in 25 years, when you sell the property or if you decide to refinance.

 

Using the First-Time Home Buyer Incentive (10%) – New Construction

 

Purchase price: $500,000
Down payment (5%): $25,000
First-Time Home Buyer Incentive (10%): $50,000
Mortgage loan Insurance premium (2.8%): $11.900
Total mortgage: $436,900

 

Payments (five-year fixed at 2.09%): $1,869/month

 

Balance after five years: $366,685
Payments over five years: $112,145

 

Note: The government shares in 10 per cent of the value of your property. This is paid either in 25 years, when you sell the property or if you decide to refinance.

 

In short, paying $128 or $244 less a month on your mortgage, depending on whether you choose the five or 10 per cent incentive, means having $7,700 or $14,600 more in your pocket over the next five years while still coming out ahead on your mortgage balance.

 

Not convinced yet? Imhoff is happy to go through the pros and cons with clients, and discuss payback scenarios. “If a property goes up in value and the government gets five to 10 per cent of that, you still have 90 to 95 per cent,” he says. “I can look at the numbers to show people. I’m sure anyone who takes advantage of the program isn’t going to be kicking themselves if their property goes up significantly and they have to pay back the government.”

 

Expanded Program Now Live!

 

First-time home buyers purchasing a home in the Toronto, Vancouver, or Victoria Census Metropolitan Areas are now eligible for a qualifying annual income of $150,000 versus $120,000 previously, and an increased total borrowing amount of 4.5 times their qualifying income, up from four times previously.

 

For more information, please visit the following link:

 

https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive

 

Written by Matt Imhoff

 

blog, Home Ownership, Mortgage Education, Mortgage News, Uncategorized

Change to the Stress Test

 

A New Stress: What the new mortgage stress test really means

 

There’s a reason it’s called a mortgage stress test. And as of June 1, it’s about to get a little more stressful.

 

That’s when homebuyers applying for an uninsured mortgage — typically, those with at least 20 per cent down — will need to show they can withstand a contract with an interest rate of 5.25 per cent or two per cent more than their actual mortgage rate, depending which is higher. That’s up from the current qualifying rate of 4.79 per cent.

 

Homeowners looking to renew their mortgage, tap into the equity in their home by refinancing to take on additional debt, or expand their real estate portfolio by purchasing additional property will also need to prove they can handle can navigate rising interest rates, especially if they’re forgoing mortgage insurance.

 

What does the new mortgage stress test rate mean?

 

Put in context, the new qualifying rate of 5.25 per cent is about four times the average mortgage interest rate at the moment. It was determined based on the average five-year rate posted by Canada’s Top 5 banks.

 

The change is meant to insulate homeowners when the ultra-low interest rates ushered in by the economic travails of the pandemic start to return to normal, pre-pandemic levels.

 

It appears to be only a slight increase over the previous stress test rate at a glance. But that 46-point difference translates to a five per cent reduction in affordability or purchasing power, explained Scott Nazareth, a mortgage specialist with Mortgages.ca. “At face value, it’s something to indicate to the market that it’s being consistently monitored and these changes are a reactive approach to the rise in property values, especially in the Great Toronto Area and Vancouver area.”

 

How to avoid the stress of the new mortgage stress test

 

If the new stress test is a concern, Nazareth encourages homebuyers and homeowners with uninsured mortgages to get their financing in order now.

 

There is a workaround for those who aren’t yet at that point, however: Credit unions are provincially regulated, so they don’t fall under the purview of federal mortgage stress tests.
But Nazareth suggests the most foolproof hack of them all: “Don’t let the stress test stress you out,” he says. “Feel free to reach out to a mortgage professional to help navigate the rules.”

 

 

Uncategorized

Alternative Lending: Intro to B-Lending

 

Has your bank turned you down for mortgage financing?

 

You are not alone, for as long as the mortgage industry has been around, rules and regulations have put a cap on affordability and increased scrutiny and due diligence to reduce risk for lenders. In the most recent years, the stress test has reduced purchasing power across the board for all borrowers by creating a buffer between the contract rate of the 5 year fixed product and the MQR or mortgage qualifying rate which is meant to model affordability based on a future rise in rates. The MQR is now determined dynamically every week based on an average of the 5 year fixed posted rates across the top 5 banks in Canada (TD, BMO, RBC, Scotiabank and CIBC).

The spread between the contract rate and the MQR is currently sitting at more than 3% for high ratio purchases. This means that if you were to lock in to a 5 year fixed today on a 500k mortgage, you would need to qualify to carry a payment of $2849/month (MQR) vs $2020/month (1.59%).

 

Ratios

 

Debt servicing ratios are used to determine how much of your outgoing monthly liabilities and total debt correlate to your total monthly income. For banks, credit unions and AAA lenders the ratios are 39/44 (GDS/TDS). The ratios are determined by your ability to carry your monthly mortgage payments (based on MQR), your other liabilities like car loans, credit card debt, relative to your income. For unsecured/revolving loans, like a credit card or line of credit lenders will factor in a carrying cost of 3% of the outstanding balance for servicing ratios. For example, if you owe $15,000 on a line of credit, your monthly carrying cost would be factored in at  $450/month. 

 

So where did this 39/44 (GDS/TDS) ratio come from? The mortgage default insurers, CMHC, Sagen (previously Genworth) and Canada Guaranty. When purchasing with less than 20% down your mortgage in the majority of cases must have mortgage insurance. When purchasing with more than 20% down, if the mortgage is amortized at 25 years or less, which is the limit for default mortgage insurance – the lender may opt to purchase this for you, at their cost. 

 

At Alternative Lending institutions, lenders will typically allow higher debt servicing ratios giving you more affordability to purchase or refinance. Ratios typically are 45/50 (GDS/TDS) but can be as high as 55/70 (GDS/TDS) depending on factors like net worth, loan to value ratios, and uncaptured income. The more skin in the game or equity you have, the better negotiating ability you have with an alternative lender. Based on these ratios alone your affordability can increase as much as 20%.

 

Amortization

 

Amortization is the total length of time calculated to payback the loan, it’s the time frame your mortgage payment is based on. At banks, credit unions, monolines and other AAA lenders the maximum amortization period is now capped at 30 years for mortgages with a minimum of a 20% down-payment and a cap of 25 years for a downpayment of less than 20% requiring default mortgage insurance. Did you know that in the past even high-ratio mortgages with less than 20% down used to be amortized up to 40 years? The longer the amortization period, the more purchasing power an individual has due to the lower carrying cost of the debt. 

 

Alternative Lenders can offer amortizations up to 35 years and in some cases 40 years to reduce your mortgage payments and in turn increase your affordability.

 

Employment Income Guidelines

 

Permanent full time employees with a base salary or guaranteed hours can utilize all of their income in most cases to qualify as long as they have at least 3 months of continuous employment and not be on probation. However, as we know, the job market and nature of work has changed to include many different types of income. Employees on contract, seasonal workers, self employed persons with less than 2 years of employment, self employed persons who take advantage of tax strategies to reduce taxable income, low-income high net worth individuals and more, face scrutiny and sometimes an outright decline based on the fact they do not fit the parameters of a big bank, credit union or other AAA lender. The risk parameters baked into the underwriting guidelines at these lenders create an opportunity for other products/solutions to address this market need. 

 

Many self employed individuals previously were allowed to take advantage of Stated Income Programs designed to help cash businesses/self employed entities whose taxable income did not reflect the true return from their business activities. Alternative lenders have embraced the stated income program to allow a self employed individual to use as much of their GROSS income before deductions/taxes as is reasonable to qualify. Alongside the higher debt servicing ratios and longer amortization periods this is an optimal solution for self employed individuals.

 

Aside from employment income, there are other types of income that are accepted such as the Child Tax Benefit,Disability Benefits, Spousal Support to name a few at both AAA and B lenders. As we have noted however, there are stricter guidelines for use of this income, such as the percentage of total income allowed for Spousal Support (capped at 30%)  or the minimum age required for the children to use the CCB (capped at 12 years). B-Lenders offer more flexibility here as well.

Mortgage Hack: B Lenders allow for contributory income from non-title owner occupants of a property, such as a sibling, spouse, grandparent etc. If you are in a situation where you are buying a house occupied by a family, and lets say your sister contributes $300/400 a month from her part time job to the expenses, AAA lenders will require her to be on the application to use the income, some B lenders will allow up to $500/month to be added for persons that are not on the application.

 

Rates

 

Rates, Rates, Rates – it’s all we hear about on the news and in regular discourse. Rates are low! Rates are going down, rates are going up etc. At the time of writing, the 5 year fixed rate average is about 1.89% across both high ratio/conventional files spanning multiple products and lenders. Now, being in the mortgage industry for over 7 years, many of my clients are surprised to learn that interest rates are not customized based on a client’s credit profile. If you have Tom with a 700+ beacon score getting a mortgage and Sally with a 880 beacon score getting a mortgage, they will likely be offered the same rates. Rates are sometimes determined by minimum thresholds related to credit scores, for example (620- 680) will have a rate at 1.89% whereas 680+ will be 1.79%. However within the ranges, there is no further tailoring regarding rates. 

 

The ranges in a rate matrix exist for B Lenders, where the higher your credit score, especially if its above 700+  will provide you the best rate, and the lower you go, the rates become more case-by-case, based on the risk to the lender. Beacon scores less than 525 at most lenders are entirely priced on a case-by-case basis. For applicants on the higher end of the rate spectrum we are seeing rates as low as 2.74% for 1-2 year terms. Pretty good right? Let’s talk fees…

 

Fees

 

When arranging a mortgage at a bank, you are typically not charged any fees aside from the appraisal cost and perhaps account fees for banking products you choose to bundle in with your mortgage. A mortgage broker that facilitates a mortgage with you and a bank will receive a finders fee and is compensated fully by the lender. Alternative lenders do not provide the same compensation to brokers, in most cases, brokers will charge a broker fee. This broker fee can range depending on the complexity of the deal from 0.5% to 2% of the outstanding loan amount and is deducted from the advance of funds on closing. 

 

In addition to a broker fee, lenders will typically charge a lender fee ranging from 0.5% to 1.5% depending on the product selection/risk parameters. Alternative Lenders/B Lenders unlike banks normally see their clients choose short term mortgages, between 1-3 years mostly. An exit strategy is discussed up front in most cases how to transition from a B Lender to an A Lender. This means less profit for the lender, so they have incorporated fees into their business model to account for the additional risk they face when underwriting files more leniently.

 

Summary

 

Working with the professionals at Mortgages.ca provides you access to a myriad of products and solutions. We create custom mortgage solutions for our clients and unlike your bank or financial institution we can offer you products from multiple lenders that may be able to help you achieve your goals faster than if you were limited to the product selection from one lender. We work with over 50 lending institutions, from big banks to private lenders and everything in between.

 

Contact us today if you want to find out the optimal way to maximize your affordability and take advantage of the opportunities in your local real estate market. Whether a long time employee or newly self employed we will be here to help guide you through the process, educating you along the way. Don’t just take it from me, check out the testimonials from some of our clients to hear what they have to say 🙂