15 Jun

US EMPLOYMENT STRONG IN JANUARY, BUT WAGES LAG

General

Posted by: Krishna Menon

US Employment Strong In January, But Wages Lag

ob growth in the US in January was better than expected, rising 227,000–up from 157,000 in December–according to the Labor Department report on Friday in Washington. While payrolls have been strong, however, wage increases remain disappointingly muted. The unemployment rate rose a tick to 4.8 percent, and average hourly earnings grew 2.5 percent year-over-year, the weakest since August following a 2.8 percent gain the prior month.

At this stage in the US economic cycle, we would normally expected that wage pressures would be mounting and employment growth would slow. Federal Reserve policy makers, who left interest rates unchanged on Wednesday, suggested that there was still room for improvement in the jobs market, as they expect to gradually tighten monetary policy this year.

President Trump has pledged to bring people back into the labor force. The participation rate, which shows the share of working-age people in the labor force, increased to a four-month high of 62.9 percent in January. However, it is still low by historical standards as there were 5.84 million Americans in January who were working part-time though they would have preferred a full-time job. The President has promised to boost wages further through tax cuts, infrastructure spending and deregulation. As well, he plans to boost employment by “bringing jobs back” from lower-cost countries through import tariffs and pressure on American companies that produce outside the U.S.

During the election campaign, President Trump called the unemployment rate “phony” and argued that it overstated the strength in the US labor market. A broader measure of unemployment–which includes those people who are involuntarily working less than full-time as well as discouraged workers who have given up looking for a job–rose to 9.4 percent in January from 9.2 percent the prior month. Clearly, there are many people who had formerly been working in manufacturing jobs that have since moved to low-wage countries. Hence, Mr. Trump’s war on Mexico and China.

However, one crucial missing point here is that many of these (and other jobs) have been rendered obsolete by technological advances. Robots are doing the jobs of thousands of people and advances in artificial intelligence will only accelerate this process, which is impervious to trade restrictions.

Potential Trade War

President Trump has vowed to rip-up NAFTA, but his focus is really on Mexico. Nevertheless, Canada remains vulnerable to potential plans to introduce a 20 percent US border tax. Such a measure would be a radical shift away from free trade and could well trigger retaliatory tariffs, reducing trade and economic activity worldwide. The magnitude of the damage would be enormous and counter-productive, as it would push the US dollar up significantly.

Peter Navarro, the head of Trump’s National Trade Council, has recently suggested that Germany’s “excessive” trade surplus is evidence of a “grossly undervalued” euro. He  has now indicted Germany for alleged theft of American jobs. Chancellor Angela Merkel rejected this charge, telling reporters Tuesday that the euro’s exchange rate was the province of the European Central Bank and the German Government had long upheld the ECB’s independence. On the same day, President Trump accused Japan  and re-accused China of currency manipulation saying they “play the money market, they play the devaluation market and we sit there like a bunch of dummies.”

This protectionist sentiment in the new administration is extremely dangerous, not only to the global economy, but to geopolitical stability and Canada could well get caught in the cross fire. The fact is that no country has the power to sustain a unilateral devaluation of its currency. Even when central banks have acted in concert to drive a currency’s movement, it has been unsuccessful for more than a short period of time as market forces overwhelm central bank activity. All of this kind of rhetoric merely drives the US dollar upward, further devaluing the currencies of the US’s trading partners. In other words, it is self defeating. Nonetheless, tariffs and other protectionist measure run the risk of disrupting global trade flows and hence economic activity.

The Smoot-Hawley Tariff of 1930 helped to drive the US and the global economy into the Great Depression. It has long been held up as a cautionary tale about how a protectionist measure by the US can bring the global economy to its knees and intensify nationalism all over the world. The Republican Congress must prevent the Trump administration from getting the import tariff it is currently proposing.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

11 May

Has Your Credit Rating Been Tarnished? How-to Buy a House In Today’s Mortgage Market

General

Posted by: Krishna Menon

If you are one of the thousands of Canadians who has had to declare bankruptcy or enter into negotiations with creditors to settle your debt with a consumer proposal, it’s likely that your credit rating has gone through the dirt.

In the future, getting a mortgage can be challenging since your tarnished credit has the ability to limit your options. If you’re a credit-challenged buyer you need to research and plan carefully. In this case, there are a few things you need to know.

Wait It Out
If your bankruptcy or consumer proposal is underway when you decide to purchase a new home, know that mainstream lenders will not approve or even consider you until two years after you’ve been discharged. Even after the two-year mark you’ll need to be able to prove that your job is stable and that you have income.

We know that two years might seem like a long time, but waiting it out could be the best option and in your best interest. If you simply cannot wait for two years to pass, it doesn’t mean that you can’t get a mortgage, but there will be less even options for you including up to a 25 percent down payment.

Mortgage Rates
Getting a mortgage following a bankruptcy or consumer proposal will require you to pay a sub-prime rate premium, on top of your broker fees. The reason being it that all mortgages are priced by lenders depending on the level of risk a home buyer presents.

However, non-prime rates can be 4 or 5 percent, but this really depends on your employment and income stability and the reason why your credit was trashed in the first place. If your explanation for bad credit is considered reasonable then you could potential get a better rate. Let’s say your reason is due to medical illness, lenders may have more sympathy for you.

To increase your chances of getting an even lower rate, be ready to prove six to twelve months of on-time repayment for your utility or home-related bills.

Re-Establish Your Credit
Although your past may show signs of your inability or avoidance to pay your debts and bills on time, you can make this right through the bankruptcy or consumer proposal processes by re-establishing your credit. This is what will help you to earn back trust with lenders. For lenders to take you seriously, you should have:

● A minimum of two credit accounts (credit card, instalment loan, car loan, etc)
● At least two years of payment history on the two credit accounts
● A minimum credit limit of $1,000

Take Your Time
With a new mortgage and homeownership, comes more responsibilities and expenses. Buying a home isn’t an urgent thing when your credit is not in the greatest shape, but once your credit is repaired (at least between 650 to 680) and you have savings for your down payment this is the perfect time to jump right into it.

At this time, your mortgage payments will be more affordable and save you thousands of dollars in interest.

If you’re ready to get started or want to learn more before taking the next step contact us.

17 Feb

FINANCING SOLUTION – HOME EQUITY LINE OF CREDIT

General

Posted by: Krishna Menon

Financing Solution – Home Equity Line Of Credit

he Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this mortgage product is that you can slice the pie (the mortgage balance) into various segments. All of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). I can only assist with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher.  On secured LOCs the rate is Prime (2.70%) +0.50% which is 3.20%.  This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

Here is an example of a client I recently assisted. We were able to obtain a HELOC mortgage product from a Canadian charter bank.

  • Current residence (located in the Greater Vancouver area) appraised at $1.15MM.
  • Current mortgage balance, $445,000.
    Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
    They opted to secure the current outstanding balance of $445,000 into a variable-rate mortgage at Prime-0.45% or 2.25%.
    The additional equity of $475,000 was set up for access across 3 different LOCs; one at $159,000 and two at $158,000.
    These clients now have access to $475,000 for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.

But while a HELOC  allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. Using the home as a piggybank can backfire disastrously.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.

Please contact your Dominion Lending Centres mortgage professional to discuss the potential of structuring a HELOC mortgage product against your home.

 

MICHAEL HALLETT

Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC.

13 Feb

REMEDIATED GROW-OP – A GOOD INVESTMENT?

General

Posted by: Krishna Menon

It is forever in discussion in the Lower Mainland – is a former grow-op home a good investment? Prices are often much lower than similar properties so at first glance it seems so. But the stigma will follow the property in perpetuity, unless it’s razed to the studs and rebuilt. If it’s been remediated that means it’s perfectly fine now, right? Not to the banks.

This is an era where lenders are being very conservative with the Office of the Superintendent of Financial Institutions (OSFI) clamping down on policies. Prior to the sweeping mortgage rule changes that came into effect in July 2012 there were at least a dozen lenders with products for remediated grow-ops. That list has now been whittled down to about 5 credit unions in BC and a handful of private lenders.

What you can expect from these offerings is that no matter how much you can put down or equity you have the credit unions are requiring mortgage insurance (CMHC or Genworth) so you will have the premium added to your mortgage and you can expect a 0.50-1.00% bonus added to the interest rate – not to mention an additional lender fee on top of all that in some cases.

While the price of that home may be much lower than comparable properties without the stigma it can cost you in other ways.

Lenders are being conservative with a view to the re-sale marketability factor. If the stigma will stay with that home forever, will there be many people willing to buy it if you decide to sell – or if that bank needs to foreclose and sell the house itself. Not to mention, with so few and costly financing options how many potential buyers will brave that process.

Buyers that acquired remediated grow-ops prior to July 2012 who are now coming up for renewal are finding themselves with very few options. A recent client was hoping to secure a better rate, consolidate some credit debt and lower their payments was forced to simply renew with their existing lender at a higher rate than the rest of the market and it was just too expensive to tap into his equity.

If you make the decision to buy a beautiful home with a dubious past remember to always ask one of the qualified mortgage professionals at Dominion Lending Centres to help you find the best financing.

KRISTIN WOOLARD

Dominion Lending Centres – Accredited Mortgage Professional
Kristin is part of DLC National based in Port Coquitlam, BC.

11 Feb

Can I Get a Mortgage Even with Bad Credit?

General

Posted by: Krishna Menon

You may be asking yourself if you’d be eligible to get a mortgage even with bad credit? The answer to this is quite simple, Yes! However, the type of mortgage you will qualify for will Depend on a few factors such as your credit profile, down payment, income, as well as a few other factors.

Will I Qualify for a Bad Credit Mortgage in Canada?

Since you probably already know that bank mortgage loans can be harder to achieve due to the level of risk you may present, you need to know that when banks aren’t an option there are other lenders that can help you, regardless of your credit or payment history.

By getting in touch with a mortgage lender who specializes in help individuals with bad credit online or in person, you will stand a much better chance of getting the pre-approval and final approval you are hoping for. A few things that these types of lenders will take into consideration are:

  • Your range of income
  • Type of employment – full-time, part-time, temporary, permanent, self-employed
  • What type of buyer you are – a first time buyer, second time buyer, investor, etc

How Do I Qualify for a Mortgage in Canada with Less-than-Perfect Credit?

If you are concerned about qualifying for a mortgage because your credit isn’t that great, don’t be. If you have the ability to prove your income and employment stability, and that you can afford it, there are secure loans that are specifically designed for you.

However, you should know that as a high risk borrower you could be looking at mortgage rates between 5 and 20 percent. Therefore, it’s a good time to plan and save for your down payment well in advance to increase the chances of your mortgage application being approved. If you have a reliable co-signer with good credit history, this can also help you secure a lower interest rate and guarantee your approval.

Be Realistic – Stay Within Your Budget

Before you make a purchase, you’ll want to sit down and figure out a set price range, including the minimum to maximum down payment you can afford and the overall property purchase price. If you’re not that great at crunching number, a mortgage professional can help.

One thing many new buyers overlook it their debt-to-income (DTI) ratio. This is something that should also definitely be considered. For instance, you could have a high DTI and this will show lenders that you cannot afford to meet your monthly payment obligations. There are also a number of other financials that are important and need to be factored in:

  • Housing expenses
  • Homeowner or condo fees
  • Insurances
  • Interest
  • Principal loan amount
  • Recurring payments (alimony, child support, consumer loans, credit cards, student loans, vehicle loans, etc)
  • Taxes
  • Total debt ratio

Shopping Online for Bad Credit Mortgage Lenders in Canada

In today’s digital age, shopping for a bad credit mortgage expert is much easier than it used to be. Reading mortgage blogs can help you to educate yourself properly, so that you make the best decision. When you learn what mortgage leaders have to say you will develop an understanding about the different options available, including:

  • Open-rate mortgage
  • Variable-rate mortgage
  • Fixed-rate mortgage
  • Other special mortgages

Even if you’re a borrowers with good credit, bad credit or no credit at all you can still qualify. Consumer proposal or bankruptcy, don’t worry even you can qualify. Mortgage brokers can be helpful in finding you competitive rates and terms due to their large financial network connections offering numerous borrowing solutions. This alone will save you a lot of time and money.

If you’re a first time buyer with bad credit you’re wasting your time if you’re thinking of going to a bank or credit union to apply for a mortgage, they’ll probably say No. So, why not start with an alternate lender and use a mortgage broker to help you along your home buying journey.

3 Feb

WHAT DOES IT ACTUALLY MEAN TO CO-SIGN FOR A MORTGAGE?

General

Posted by: Krishna Menon

What Does It Actually Mean To Co-sign For a Mortgage?

There seems to be some confusion about what it actually means to co-sign on a mortgage and you know that where there is confusion, your trusted mortgage professional seeks to offer clarity. Let’s take a quick look at why you may be asked to co-sign and what you need to know before, during, and after the co-signing process.

So why are you being asked? Last year there were two sets of changes made to the mortgage world which can likely explain why you are receiving this request in the first place.

The first occurred early in 2016 whereby the overall lending standards were increased in regards to an individual’s management of their credit and the resulting responsibility of Canada’s financial institutions to ensure they are lending prudently. We have seen an increase in requests for co-borrowers to help strengthen applications when credit or job stability is an issue.

The second happened just in October. A new ‘stress test’ rate applies which has especially impacted borrowers with less than 20% down. They must qualify at a rate of 4.64% though their actual interest rate is much lower. This has decreased affordability for many which means they could be looking for a co-borrower to increase how much home they can qualify for.

If it was me, I would ask questions as to exactly why the applicant needs a co-borrower. If it is a credit issue then you need to assess if that an acceptable risk. If it is a matter of not enough income, you need to assess that instead. What is the exit strategy for you all from this joint mortgage?

What can you expect? You will be required to complete an application and have your credit pulled. As you are now a borrower the banks will ask you for all the documentation that the main applicant has already provided. This can include but will not be limited to:

  • Letter of employment
  • Paystubs
  • 2 years Notice of Assessments, Financial Statements and complete T1 Generals
  • Mortgage statements on all properties you own
  • Bank statements if helping with the down payment
  • Property tax bills
  • Lease agreements
  • Divorce/separation agreement

So you get the idea. You are now a full applicant and will be asked for a whole bunch of paperwork. It is not just a matter of saying yes. Once the application is complete and all conditions have been met with the mortgage, you will have to meet with the lawyer as well.

What do you need to be aware of?

  1. This is now a monthly liability according to the world. You will have to disclose this debt on all your own applications going forward. It can affect your ability to borrow in the future
  2. Each lender is different in their policy as to how soon you can come off the mortgage. Familiarize yourself with this. Are you committing to this indefinitely or only for a couple of years?
  3. Mortgages report on the credit bureaus so you could be adversely affected if there are late payments
  4. If the main applicant cannot make the payment for whatever reason, you are saying that you will. Make sure your budget can handle that for a few months.

A few things you may want to consider if you do agree to co-sign:

  • Ask for an annual statement to be sent to you as well on both the mortgage and the property taxes.
  • Consider a joint account for mortgage payments so that you can check in every so often to ensure all payments are being made on time
  • Talk about life insurance! If the worst occurs, then at least have enough of a policy in effect, with yourself as the beneficiary, to cover a year of mortgage, taxes and bills so that you are not hit with an unexpected series of expenses until the property sells.

So though you just want to help your loved one into their dream home, you are all better served if you know exactly what you are getting into and are prepared for the contingencies. We here at Dominion Lending Centres are ready to help!

PAM PIKKERT

Dominion Lending Centres – Accredited Mortgage Professional
Pam is part of DLC Regional Mortgage Group based in Red Deer, AB