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.

In a terse statement, the Bank of Canada maintained its benchmark overnight rate for the fifth consecutive meeting and stated that economy was performing in line with the projections in the Bank’s April Monetary Policy Report (MPR). Following a slowdown in economic activity late last year and in the first quarter of this year, the Bank’s press release said that evidence was mounting that economic growth was rebounding in Q2. “The oil sector is beginning to recover as production increases, and prices remain above recent lows. Meanwhile, housing market indicators point to a more stable national market, albeit with continued weakness in some regions.” The central bank was referring primarily to the weakness in home sales and prices in the Greater Vancouver Area.

The strength in the jobs market is an indicator that businesses see the deceleration in growth as temporary. Recent data show an uptick in consumer spending and exports in the second quarter, and business investment has improved. However, inventories rose sharply in Q1, which could dampen production growth in the next few months.

The recent escalation of trade conflicts between the US and China is heightening uncertainty and economic prospects. Also, “trade restrictions introduced by China are having direct effects on Canadian exports. In contrast, the removal of steel and aluminum tariffs and increasing prospects for the ratification of the new NAFTA agreement (Canada’s acronym for which is CUSMA–Canada-US-Mexican Agreement) will have positive implications for Canadian exports and investment.”

Inflation has edged up to 2% as expected, boosted by the carbon tax on gasoline.

Bottom Line: Overall, the Governing Council’s optimism that the economy is rebounding has been reinforced, although they acknowledged increasing global risks. The Bank’s future decisions will remain data dependent, and they will be especially attentive to developments in household spending, oil markets and the global trade environment. It is widely expected that the Bank will remain on hold at least until after the October federal election.

The central bank does not share the view of some economists that the economy is headed for recession and rate cuts are necessary. Today’s overnight rate remains below the Bank’s estimate of the neutral rate at about 2.5%, so barring a negative exogenous shock to the Canadian economy, the next rate move could well be to increase overnight rates, but not until after the election.

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.

 

Working with your DLC mortgage professional can save you thousands of dollars by making the most of your variable rate mortgage in a shifting market.

In the past year we have seen an increase in the prime lending rate by 1%. For those home owners with variable rate mortgages who secured a low discount, savings can be gained moving to a new higher discount variable mortgage rate even if prime is higher than before.

How is that possible you ask?

Consider this. Ed and Anna refinanced their mortgage in 2016 at prime minus .15% (2.55% at the time). The original mortgage was $556,000 with payments of $2,206 per month. Since the prime lending rate has moved up the new effective rate is currently 3.55% (3.7% minus .15) with a payment of $2,442. Of that payment there is $1,533 per month in interest and $909 goes to principal pay down.

The current best rate is 2.75% (3.7% minus .95) so the new payment would be $2,233 per month. Of that payment $1,194 per month in interest and $1,039 towards principal pay down. If Ed and Anna choose to switch their mortgage to a new lender at the better rate in the end their payment is lower by around $100 and they save $340 per month in interest. They also have that bigger rate discount of .95% for the next 5 years so it puts them in a better place as rates move.

Even with the penalty for early pay out the savings is still thousands of dollars over the next term in their mortgage.

Consider making the most of your variable rate mortgage — contact a Dominion Lending Centres mortgage professional near you.

Pauline Tonkin
PAULINE TONKIN
Dominion Lending Centres – Accredited Mortgage Professional
Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC.

Let’s take a closer look at how a Refinance Plus Improvements mortgage can get you the extra cash you need to get your renovations completed.

The Standard Refinance

An everyday refinance allows the home owner to access up to 80% of the fair market value of the home. The value is typically determined by a Market Appraisal on the home. Here is how it would look:

Current Appraised Value of the home: $250,000.00
Max New Mortgage Amount: $200,000.00 ß 80% of present value
Your current Mortgage Balance: $190,000
Equity Available to you for the renovations: $10,000.00
*Note: some of the equity will cover closing costs (it is a new mortgage after all, so a new registration and fund advance needs to happen. If you are breaking a current mortgage, there could be a pre-payment penalty as well)

The remaining equity can be used towards your improvements. But what happens if it’s not enough to cover the improvement costs? You’re now stuck with either making sacrifices to your dream reno, covering the additional costs out of pockets, use a higher interest line of credit or not doing the renovations at all. None of which are a great options.

The Refinance Plus Improvements Mortgage

Here is how the Refinance Plus Improvements mortgage can make all the difference.

For argument sake, let’s assume for a moment that the home owner is thinking about renovating their kitchen and main bathroom. These are in no way a small improvement. They are quite significant improvements…new flooring, cabinets, counter tops and paint in the kitchen along with a full gut and renovation in the main bathroom.

After sitting down with a Mortgage Broker to determine mortgage affordability, the home owners next step is getting estimates for the renovations. After having multiple contractors quote on the work, the home owner settles on a contractor that has quoted $20,000.00 for the job (Labour and materials costs, all in, turn key project). Let’s also assume for a moment that the renovations are going to increase the value of the home by $30,000.00 (side note: Kitchen and Main Bathroom Renovations can have the biggest impact on the value of a home). Here is how it would look:

Refinance Plus improvements:

Current Home Value: $250,000.00
Post Renovation Home Value: $280,000.00
New Max Mortgage Amount: $224,000.00
Your Current Mortgage Balance: $190,000.00
Equity Available for the renovations: $34,000.00
See the difference? The refinance plus improvements in this scenario can get the home owner access to an additional $24,000, far exceeding the improvements planned for home. No sacrifices required. No unsecured higher interest financing required. No need to tap into personal savings. Just a nice new mortgage with a low interest rate and one simple payment.

If you have questions about how a refinance plus improvements mortgage can make all of the difference with your renovations plans, please feel free to connect with a Dominion Lending Centres mortgage professional near you. We are always happy to chat mortgage strategy with you while at the same time shopping the market and rates on your behalf!

Happy Renovating!

Nathan Lawrence
NATHAN LAWRENCE
Dominion Lending Centres – Accredited Mortgage Professional
Nathan is part of DLC Lakehead Financial based in Thunder Bay, ON.

In a speech early this week, Bank of Canada Governor Stephen Poloz said that it is time for some fresh ideas for Canada’s mortgage market. He suggested that changes could include encouraging longer than 5-year duration fixed-rate mortgage loans, the creation of a market for private mortgage-backed securities and the launch of shared-equity mortgages for first-time homebuyers proposed in the March federal budget.

Taking these in turn, only two percent of all fixed-rate loans issued in 2018 had durations longer than five years. For borrowers, this would mean less interest-rate risk if they dealt with fewer renewals; however, this is not the full story.

Firstly, 65% of all 5-year mortgage holders break their mortgage by around month 33. Also, some banks and many mortgage brokers offer fixed-rate loans with durations of 7, 8, or even 10 years. However, the borrower pays dearly for this insurance against rising rates. Since the introduction of mortgage stress tests, many borrowers have trouble qualifying for loans as it is. Most want lower, rather than higher, monthly payments and demand for longer-duration mortgages is so low because they cost a full 100 basis points or more above existing 5-year mortgage loans. Besides, interest rates have been low and even falling over most of the period since 1982. Fear of significant rate spikes has diminished dramatically.

Poloz agrees there is some momentum in Canada towards the creation of a private market for mortgage-backed securities. He said it would provide a more flexible source of long-term funds for mortgages not insured by CMHC. To the extent that enhanced sources of capital would reduce the cost of funding for lenders, it might reduce the rate spread between 5-year and longer-duration mortgages, making them more attractive. But, again, perceived rate risk and the actual less than 5-year duration of most mortgages begs the question of why Poloz is providing an answer to a question no one is asking.

Indeed, data show that Millennials in Canada are buying homes in Canada’s most expensive cities. Royal Bank economists found that “apart from a short-lived slowdown in 2015 resulting from changes in the temporary foreign worker program, the population aged 20-to-34 in Vancouver, Toronto and Montreal has grown solidly over the last dozen years. …The inflow of millennial immigrants is poised to grow in the coming years. Canada will increase its annual immigration target from 330,000 in 2019 to 350,000 in 2021, and our largest cities will likely get the lion’s share of newcomers. In recent years, Vancouver, Toronto and Montreal together welcomed approximately half of all new immigrants aged 20-34.”

Finally, the shared-equity mortgage for first-time homebuyers may well prove to be unpopular. A similar program was offered in British Columbia a few years ago, and there were very few takers.

The BC Home Owner Mortgage and Equity Partnership program, introduced in late 2016, was cancelled effective March 31, 2018, due to lack of interest. The province anticipated that the program would provide 42,000 loans over three years. However, as of January 31, 2018, there were fewer than 3,000 loans approved.

The new federal program will provide a larger downpayment for first-time buyers, but it only applies to homes priced just over $500,000 or less, which might help in some parts of the country, but in higher-cost regions homes that cheap are slim pickings.

Canadians don’t want to share the equity gains in their homes, as most first-time buyers don’t imagine that their home equity could decline. Governor Poloz, himself, forecast in the same speech that he’s confident Canada’s housing market will return to growth later this year. Population and job growth has been rapid pointing to the resumption of growth in depressed housing markets later this year.

Poloz is a champion of the B-20 guidelines, saying they have done what they were intended to do–remove the froth from bubbly housing markets. During the press conference following his speech, reporters asked if the governor would support a reduction in the roughly 200 basis point spread between the qualifying rate and the contract rate to which he responded in essence– a resounding, no.

Dr. Sherry Cooper
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.