Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage.

Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.

Mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.

Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.

Amortization is only one tool that your Dominion Lending Centres mortgage professional can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.

KRISTIN WOOLARD

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

The following is a summary of the choices available for clients when looking at the four different types of lending groups.

So what exactly is a lender? By simple definition, a mortgage lender provides financing for a real estate purchase hence the word lend.

Which lender is best for you will all depend on who you are as a borrower, what your current situation is and what your situation will look like in the future.

Big Banks

Currently, mortgage brokers have access to TD Canada Trust and Scotiabank. Big banks are especially appealing to first-time home buyers as it offers a sense of comfort knowing your mortgage is being dealt with a nationally recognized financial institution.

TD offers very fast review of documents with the ability for collateral charges, multiple branch locations and competitive privileges such as pre-payment abilities.

Scotiabank is also an advantageous option for homeowners as they have one of the most comprehensive and easy-to-use home equity lines of credit, referred to as their Scotia-Step.

Being able to access a Home Equity Line Of Credit (HELOC) and roll it into your mortgage offers simplicity and efficient methods of borrowing for homeowners. The drawback with both banks is that they are chartered banks. When a client decides to use them for fixed rate mortgages, specifically the 5-year terms, they can potentially be on the hook for penalties north of $10,000 due to breaking their mortgage early. Career changes, moving from different neighbourhoods or cities, upgrading or downgrading home sizes, marital issues – these are all reasons why someone may need to break their mortgage early. Being in a long term fixed rate mortgage with a chartered bank can be unpleasant.

Credit Unions

One of the biggest benefits of credit unions such as Westminster Savings or Coast Capital is that they are not federally regulated, they are provincially regulated. They are not required to adopt federal mortgage rule changes unless they want to. This can be an extreme benefit to those considering rental properties, those with unique income/employment situations or complex transactions that chartered banks do not or cannot work with.

Some of the negative attributes are, however, a reputation for slow review times of documents and mortgage applications, as well as portability. If you work for a company or in an industry that is known for relocation and re-assignment across provinces, you will pay a penalty to a credit union every time. This is something that is likely not to happen when working with charted banks or monoline lenders as they will have more flexibility in allowing you to port your mortgage to a new property in other provinces.

Monoline Lenders

Monoline Lenders are supported by mortgage brokers, and in turn, mortgage brokers are supported by monoline lenders. You cannot access mortgage products that a monoline lender offers without using a broker as they typically do not have physical branches or locations. They are funded by private investors dealing only in mortgage transactions, allowing their products to be more customized based on the investors’ risk tolerance. The benefits? – Extremely low-interest rates, very competitive privileges with pre-payment and portability, fast turnaround-times, and the best part, significantly lower penalties for breaking a mortgage.

With a big bank, a $10,000 penalty for breaking mortgage early may only cost you $3,000 with a monoline lender. This is highly advantageous to someone who wants the security of a long term fixed rate but isn’t 100% certain they will be carrying out their mortgage at that property for the full five years. The disadvantage is the almost blind trust a client must have. These monoline lenders do not have much brand recognition with the public, limited direct access with clients and usually do not have any physical locations to visit. This makes it hard for some people to feel comfortable using them as their mortgage provider.

Private Lenders

The benefit of a private lender is that anyone who has inconsistent income, unique properties, poor credit history or any type of severe risk in their application can get an approval. When a chartered bank says no, a credit union says no and a monoline lender says no, a private lender can say yes. The disadvantage? – your interest rate is going to be significantly higher and the privileges such as prepayment and portability are going to be significantly less. As well, with most lenders, they will pay the mortgage brokers commission themselves. In this case, you the borrower will be paying a fee to the broker.

This information is extremely powerful to you as a homebuyer and even as a current homeowner. As always, please contact a Dominion Lending Centres Mortgage Professional if you wish to discuss any of these options further!

CHRIS CABEL

Dominion Lending Centres – Accredited Mortgage Professional
Chris is part of DLC HomeHow Mortgage based in Calgary, AB.

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the three steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL
This should actually be the step BEFORE house hunting. Visiting your mortgage broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:
• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, two years notice of assessment and/or T4’s, a void cheque, and a number of other potential documents.
Once you are pre-approved it’s house hunting time for you! The benefit of having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.
When you do find just the right home for you, it’s on to step two.

STEP 2: APPROVAL
If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here. You may have to supply a few pieces of updated information but otherwise, it’s up to the lender to do the hard work at this point.
Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once they confirm that it aligns with the guidelines they have laid out for your loan, then it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.
Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

STEP 3: FINAL STEPS
Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the Lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:
• Void Cheque
• Two forms of identification
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.
All that’s left is to hand you the keys to your new home!
As one final step, keep asking questions at each stage of the mortgage process. You should check in with your Dominion Lending Centres mortgage broker if you have any questions along the way. They are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

6 WAYS TO GET A DOWN PAYMENT

When is it time to think about saving for a down payment? I would say about a year before you think about buying a home. While that’s ideal in today’s world, we often do not have much time to save for a down payment. Sometimes your landlord is planning on retiring and wants to sell the property. How do you get a down payment?

Here’s a few ways to get a down payment for your home:

1. Save – it’s old fashioned but it works. Open a Tax Free Savings Account (TFSA) and put a set amount into it. If you don’t have the discipline arrange for automatic deposits from your bank account. How much can you save $50 a week? That’s $2,600 in a year. Not enough. How about $200 a week?
   Stay at the Mom & Dad Hotel – while your parents may not be able to help you with a down payment they often have a spare room that you can stay in. One year of not paying rent would make a good down payment even if you chip in for groceries.
2. Extra Income – get a second job and bank every cent from it. I know of many young people who have a day job and are servers on the weekends.
3. Home Buyer’s Plan – the federal government will allow you to pull up to $35,000 from your RRSP account. This goes for your partner. You could put down $70,000 between the two of you. These funds need to be returned to your RRSP over the next 15 years. This is a great quick source for a down payment.
4. Take out an RRSP Loan – borrow an amount that you need for a down payment as an RRSP. Hold the funds for 90 + 1 days and you can withdraw the funds. The cons are that you now have more debt and you have to wait for 90 days. Most sellers want a possession day sooner than that.
5. Sell an asset. I had a client sell his vintage Cadillac Fleetwood for a down payment. Be sure to get a receipt or to sign a bill of sale with the purchaser to show where the funds came from. Rare stamps or coins, another property or vehicle are all acceptable assets.
6. The Bank of Mom and Dad – This may be the easiest way to get a down payment or it may not. Most parents are nearing retirement and trying to save funds. There can be creative ways to get a down payment. They might set up a a secured line of credit and use the equity in their home. You could make the payments over the next few years. Note: these payments must be included in your debt ratios. If they decide to gift you the funds and make the payments themselves a gift letter is all that’s needed. They could sell their home and move into a granny suite in the basement or over the garage.

Before you start it’s always a good idea to speak to your favourite Dominion Lending Centres mortgage professional.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.