The past few weeks have been great ones for mortgage brokers. Noting better, than telling your clients that their rates are going down. It seems that 2019 will be a year of decreases instead of the predicted increases.

Enjoy today’s BLOG!

INTEREST RATE CUT MORE LIKELY THAN HIKE IN 2019

When the Bank of Canada decided this month to keep its benchmark interest rates stable at 1.75%, it signalled the weakening economy makes it unlikely a rate increase is anywhere on the horizon.

Inflation is not where it should be, we’re not in a deflation mode right now, but inflation is under control and there’s no real need for them to raise interest rates.

Because many of the economic indicators are pointing downward, this puts the bank in a position where it can’t raise rates. This makes refinancing a more attractive option for some homeowners this year.

A lot of economists are saying that Canada is heading back into another crisis, which is an indicator that rates may drop again. This new norm will probably stay around for a little while, but rates will eventually go up. And when it goes up, people have to be obviously prepared for it.

So, for now, homeowners shouldn’t worry too much about a sudden jump in rates. While this may be a new normal, if the economy begins a turnaround, they should be ready or a bump in rates, but I don’t think it’s going to happen the next couple of years.

Usually, Canada’s economy runs almost parallel to that of our southern neighbour’s. However, the two economies seem to have gone their separate ways lately.

There’s a divergence right now that is going to occur between the Canadian and U.S. economies. When people talk about the U.S. sneezing and Canada catches a cold—this is not what’s happening right now. There’s a divergence in the interest rates. Where in the States rates are going up, in Canada, rates cannot go up because of the way our economy is actually going.

The news isn’t all positive for Canadian homeowners though. Read our recent blogs on why too many Canadians are now ineligible for mortgages and why Montrealers in particular will see their municipal tax bills rise in the coming years. If you have any questions about mortgages, contact your nearest Dominion Lending Centres mortgage professional near you.

Terry Kilakos

Have questions about the new housing initiatives offered in the 2019 fiscal plan? We have answers. Please read DLC’s Chief Economist’s interpretation of the news.

Enjoy the blog….

FEDERAL BUDGET 2019–ACTIONS FOR HOMEBUYERS

In its fourth fiscal plan, the Trudeau government spent its entire revenue windfall leaving the deficit projection little changed. In this election budget, Finance Minister Bill Morneau announced $22.8 billion over six years in new spending initiative mostly for homebuyers, students and seniors. Trudeau promised in his first budget to have eliminated all red ink by this year. He will instead head for an October election with an annual deficit of nearly $20 billion. Ottawa is projecting a string of double-digit deficits through the end of 2022.

The key debt-to-GDP ratio is expected to be 30.8% this fiscal year and edges downward only very slowly to 30% over the four-year forecast horizon.

Today’s budget offered help to young homebuyers, many of whom find it very difficult to afford to purchase in some of our more expensive cities. There were two measures targeted at first-time homebuyers:

Maximum Withdrawal from RRSPs Is Increased

The simplest to understand is the $10,000 increase in the federal Home Buyers’ Plan (HBP) maximum tax-free withdrawal from RRSPs to $35,000, effective immediately. This allowable withdrawal for first-time buyers will now also apply to people experiencing the breakdown of a marriage or common-law partnership who don’t meet the usual requirement of being a first-time homebuyer.

The new limit would apply to HBP withdrawals made after March 19, 2019.

Those taking advantage of the higher HBP limit will have to keep in mind that the repayment timeline is unchanged. Home buyers must put the money back into their RRSP over 15 years to avoid full ordinary income taxation on HBP withdrawal. Now Canadians using these funds will have to repay a maximum of $35,000 – instead of $25,000 – over the same period.

The Boldest Move: The CMHC First-Time Homebuyer Incentive

A $1.25 billion fund administered by the Canadian Mortgage and Housing Corporation (CMHC) over three years will provide 5% of the cost of an existing home and 10% of the price of a new home through what amounts to an interest-free loan to be repaid when the property is sold. The money would go to first-time home buyers applying for insured mortgages. The key stipulations are:
• Users must have a downpayment of at least 5%, but less than 20%;
• Household income must be less than $120,000;
• The purchase price cannot be more than four times the buyers’ household income.
For example, say you’re hoping to buy a $400,000 home with the minimum required 5% down payment, which works out to be $20,000. With the new incentive, you could receive up to $40,000 (for a new home) through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. This would lower your monthly mortgage bill from over $1,970 to less than $1,750. The incentive is 10% for buyers purchasing a newly built home and 5% for existing homes.

Homeowners would eventually have to repay this so-called ‘shared mortgage,’ likely at resale, though it is unclear how this would work. CMHC might share in any capital gain (or loss)– receiving 5% or 10% of the sale price (not the purchase price). At the time of this writing, these details had not been hammered out.

These stipulations effectively limit purchases under this plan to properties priced at less than $500,000 ($480,000 maximum in insured mortgage and incentive, plus the downpayment), which is close to the national average sales price of $468,350 (which is down 5.2% from the average price one year ago). However, the national average price is heavily skewed by sales in Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive markets. Excluding these two markets from the calculations cuts close to $100,000 off the national average price, trimming it to just under $371,000. What this tells us is that the relief for first-time homebuyers is pretty meagre for young people living in our two most expensive regions.

Arguably, the max price point of $500,000 for this plan is where the affordability challenge only really begins in our higher-priced housing markets. The most acute affordability problems surround medium-sized and larger condo units or single-detached homes in the GTA and GVA; yet, most of these are beyond the price range covered by the CMHC plan. The impact, of course, would be broader in other regions, but affordability in many of those is historically quite normal. The most significant impact will be in low-priced new builds.

Also, mortgage applicants under this plan still have to qualify under the federal stress test, which ensures that borrowers will be able to keep up with the payments even if interest rates rise by roughly two full percentage. The incentive, however, would substantially lower the bar for test takers, as applicants would have to qualify for a lower mortgage.

Before the budget, many stakeholders had been arguing that with the rapid slowdown in the economy and the Bank of Canada unlikely to raise interest rates this year, the B-20 stress test is too onerous and should be eased.

The government is hoping to have the plan up and running by September.

Bottom Line: These housing measures are focused on the demand side of the market, rather than encouraging the construction of new affordable housing. And while the budget does earmark $10 billion over nine years for new rental homes, it does not propose tax breaks or reduced red tape for homebuilders.

Dr. Sherry Cooper
DR. SHERRY COOPER

Our Blog today comes from our colleague Kevin Carlson. In my opinion, he is quite correct in not blaming the mortgage stress test for the woes of Canadian Home owners. Consumer credit is too easily accessible and
I would make an argument that mortgage qualification guidelines apart from the stress test need to be changed.

This is a quick but excellent read! Enjoy the blog!

MORTGAGE STRESS TEST – NOT THE BAD GUY

Ever since the federal government regulator, The Office of the Superintendent of Financial Institutions (or OSFI) brought in the Mortgage Stress Test, there has plenty of blame heaped upon it for slowing home sales and new home starts. Even though it has slightly reduced how much of a mortgage I can approve my clients for, the initial logic is sound. The stress test attempts to protect Canadians from taking on more mortgage debt than they will be able to afford when their mortgage renews down the road.

What it doesn’t do is curb additional debt and other financial factors after the mortgage starts. Many clients do not consider long-term changes like, child care expenses, new vehicle loans, ongoing credit card and line of credit debt payments.

I work with many first and second-time homebuyers with wide-ranging financial details. The stress test is a limiting factor, but in no way is it the largest culprit in preventing my clients from getting mortgage they are requesting. credit cards, lines of credit and vehicle loans have a much larger impact on reducing the mortgage borrowing ability for most of my clients.

Here are some real-world numbers on two hypothetical first-time homebuyer scenarios that help to illustrate what consumer debts can have on a mortgage application.

1. Individual or couple – scenario 1
Buyer(s) with household gross income of $80,000 that have $17,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $250,000 detached home.
An additional monthly credit or loan payment of only $300 per month will prevent mortgage approval for this application.

2. Individual or couple – scenario 2
Buyer(s) with household gross income of $125,000 that have $33,000 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300 biweekly.
This application would be approved for the purchase of a $500,000 detached home.
An additional monthly credit or loan payment of only $500 per month will prevent mortgage approval for this application.

Credit cards, lines of credit and vehicle loans are exceedingly easy to obtain but could stand in your way when you are looking to buy your first or next home. Please consider carefully before financing anything. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

Kevin Carlson

Today’s BLOG comes from our Our House Magazine. My unbiased opinion *wink*, is that everyone should use a mortgage broker. Even if it just to get a second opinion. A good mortgage broker will tell you the truth if your bank has a good offer or explain why their own offering may be better!

Enjoy the article!

WHY I CHOSE A MORTGAGE BROKER? OUR HOUSE MAGAZINE – WINTER

Amanda Moss and her husband Robert have had a mortgage on various properties for almost 10 years. The Chilliwack B.C. couple was a few years into their mortgage term, but looking to pay off some extra bills and clear up some financing. They hadn’t considered the option of refinancing until Amanda got some advice of a friend. The friend recommended a mortgage broker to help them through the refinancing process. The couple is now back on sold financial footing thanks to the help of their Dominion Lending Centres mortgage broker.

Why did you choose a mortgage broker?

I happened to be on a girl’s trip to Seattle and I mentioned to a friend, because my husband and I both make decent income, we wanted to refinance. She said she had the perfect broker for me. When I got back to Seattle I called him right away.

How was your experience working with a mortgage broker?

I had a really great experience with Dominion Lending Centres and with my mortgage broker. He was very professional and went out of his way to reassure us through the process. Refinancing can be stressful, with so much paperwork and questions along the way, but our broker was always willing to provide advice and even dropped by our house to pick up documents. Overall it was a great experience!

What advice would you give someone in your situation?

Managing your finances can be very stressful. Our mortgage broker was able to lower our monthly payments which has allowed us to focus on our family and worry less about money. My husband and I found that dealing with a mortgage broker was easy, and also and provided us with multiple lending options, so that we could get the best rate possible. This was a nice change from just dealing with one bank. My advice to you is to be open to using a mortgage broker as they fight for you and your best interest.

Jeremy Deutsch

Today’s BLOG is full of great information. To Co-sign or Not to Co-sign. Co-signing a mortgage these days is a tremendous decision and responsibility. Many of our clients seem to think that if they simply get a co-signer that all will be well. That, simply isn’t the case.

It is really important to understand the process and what co-siging ACTUALLY means.

We hope you enjoy today’s BLog!

WOULD A CO-SIGNER ENABLE YOU TO QUALIFY FOR A MORTGAGE?

There seems to be some confusion about what it actually means to co-sign on a mortgage… and any time there is there is confusion about mortgages, it’s time to chat with your trusted Dominion Lending Centres mortgage professional!

Let’s take a look at why you would want to have someone co-sign your mortgage and what you need to know before, during and after the co-signing process.

Qualifying for a mortgage is getting tougher, especially with the 2017 government regulations. If you have poor credit or don’t earn enough money to meet the banks requirements to get a mortgage, then getting someone to co-sign your mortgage may be your only option.

The ‘stress test’ rate is especially “stressful” for borrowers. As of Jan. 1, 2018 all homebuyers with over 20% down payment will need to qualify at the rate negotiated for their mortgage contract PLUS 2% OR 5.34% which ever is higher. If you have less than 20% down payment, you must purchase Mortgage Default Insurance and qualify at 5.34%. The stress test has decreased affordability, and most borrowers now qualify for 20% less home.

In the wise words of Mom’s & Dad’s of Canada… “if you can’t afford to buy a home now, then WAIT until you can!!” BUT… in some housing markets (Toronto & Vancouver), waiting it out could mean missing out, depending on how quickly property values are appreciating in the area.

If you don’t want to wait to buy a home, but don’t meet the guidelines set out by lenders and/or mortgage default insurers, then you’re going to have to start looking for alternatives to conventional mortgages, and co-signing could be the solution you are looking for.

In order to give borrowers, the best mortgage rates, Lenders want the best borrowers!! They want someone who will pay their mortgage on time as promised with no hassles.

If you can’t qualify for a mortgage with your current provable income (supported by 2 years of tax returns and a letter of employment) along with solid credit, your lender’s going to ask for a co-signer.

Ways to co-sign a mortgage

The first is for someone to co-sign your mortgage and become a co-borrower, the same as a spouse or anyone else who you are actually buying the home with. It’s basically adding the support of another person’s credit history and income to those initially on the application. The co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default.
Another way that co-signing can happen is by way of a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.
Most lenders prefer a co-signer going on title, it’s easier for them to take action if there are problems.

More than one person can co-sign a mortgage and anyone can do so, although it’s typically it’s the parent(s) or a close relative of a borrower who steps up and is willing to put their neck, income and credit bureau on the line.

Ultimately, as long as the lender is satisfied that all parties meet the qualification requirements and can lessen the risk of their investment, they’re likely to approve it.

Before signing on the dotted line

Anyone that is willing to co-sign a mortgage must be fully vetted, just like the primary applicant. They will have to provide all the same documentation as the primary applicant. Being a co-signer makes you legally responsible for the mortgage, exactly the same as the primary applicant. Co-signers need to know that being on someone else’s mortgage will impact their borrowing capacity while they are on title for that mortgage. They’re allowing their name and all their information to be used in the process of a mortgage, which is going to affect their ability to borrow anything in the future.

If someone is a guarantor, then things can become even trickier the guarantor isn’t on title to the home. That means that even though they’re on the mortgage, they have no legal right to the home itself. If anything happens to the original borrower, where they die, or something happens, they’re not really on the title of that property but they’ve signed up for the loan. So they don’t have a lot of control which can be a scary thing.

In my opinion, it’s much better for a co-signer to be a co-borrower on the property, where you can actually be on title to the property and enjoy all of the legal rights afforded to you.

The Responsibilities of Being a Co-signer

Co-signing can really help someone out, but it’s also a big responsibility. When you co-sign for someone, you’re putting your name and credit on the line as security for the loan/mortgage.

If the person you co-sign for misses a payment, the lender or other creditor can come to you to get the money. The late payment would also show up on your credit report.

Because co-signing a loan has the potential to affect both your credit and finances, it’s extremely important to make sure you’re comfortable with the person you’re co-signing for. You both need to know what you’re getting into. I recommend looking into Independent Legal Advice between all co-borrowers.

Co-signing is NOT a life sentence Just because you need a co-signer to get a mortgage doesn’t mean that you will always need a co-signer.

In fact, as soon as you feel that you’re strong enough to qualify without your co-signer – you can ask your lender to reconsider your application and remove the co-signer from the title. It is a legal process so there will be a small cost associated with the process, but doing so will remove the co-signer from your loan (once you are able to qualify on your own), and release them from the responsibility of the mortgage.

Removing a co-signer technically counts as changing the mortgage, so you need to check with your mortgage broker and lender to ensure that the lender you choose doesn’t count removing a co-signer as breaking your mortgage, because there could be large penalties associated with doing so.

Co-signing is an option that could help a lot of people buy a home, especially first time home buyers who are typically starting their career and building their credit bureau.

A final mortgage tip: a couple of alternatives to co-signing that could help someone out:

providing gift funds for a down payment
paying off someone else’s debt, giving them more funds to pay the mortgage

Kelly Hudson

There are a lot of misconceptions about mortgages today. How much do I need as a down payment? The Zero down payment mortgage of the past no longer exists. How it used to work, was a lender would give you 7% Cash Back from the mortgage proceeds which used to be allowed for the down payment. In return, the borrower would have about a 1% higher interest rate & would have a stifling penalty should they ever had to pay out they mortgage early.

This was an option for people who didn’t have their down payment. However, statistic show that many people change their mortgage after 3 years. This either resulted in very high penalties for clients as you had to pay your regular penalty and a portion of the cashback.

Our BLOG Today from Geoff Lee, explains how a zero down payment mortgage could work using the FLEX-DOWN PROGRAM.

ENJOY TODAY’S BLOG!

ZERO DOWN PAYMENT MORTGAGE–DOES IT EXIST?

Did you know that you can buy a home with ZERO down payment?? If a home purchase is your goal this year but you aren’t able to save up enough of a down payment, you may qualify for a low or zero down payment mortgage. One of our Lenders is offering a great zero down program.

What is a Flex-Down Mortgage?
A Flex-Down Mortgage is a mortgage product that has a flexible down payment amount. There is still a down-payment required, but it will vary based on the property value.

For a property valued under than or equal to $500,000, 5% down payment is required (sources available below)
For a property valued at greater than $500,000 and less than $1 million –5% down payment is required up to $500,000 with an additional 10% down payment on the portion of the home value above $500,000.
Flex-down mortgages can only be on first mortgages, not second or third or used in refinance situations. As noted above, the total property value has to be less than $1 million. This type of mortgage will also have insurance included with it—the premium will be lesser of the premium as a % of the total new loan amount or the premium as a % of the top-up portion additional loan based on the rates at that time.

Those that choose to go with this type of mortgage product will have to meet requirements, just like any other mortgage. There are a few specifications with this product:

You must show that you have standard income and employment verification papers
A credit score of 650 or higher is highly recommended
You must have no previous bankruptcies
Some lenders may still require you to have some of the down payment from your own resources
Those considering this type of mortgage are recommended to have very little debt and be able to accommodate the additional cost of higher mortgage insurance (due to the higher risk to the lender on this type of mortgage). Typically, the insurance premium would be 0.2% higher on a flex down mortgage.

How it Works
You can borrow your 5% payment from a Line of Credit or even a credit card. This can then be used for your down payment. You have to disclose this to the Insurer and it will be on the application that goes to the Lender.

This is perfect for someone just getting into a new high paying job or for someone who is renting and can afford higher monthly payments but would take forever to save up the 5% down payment. This type of mortgage product can be an excellent option if you don’t quite have enough for the down payment. Are you interested in learning more about this mortgage product? Contact a Dominion Lending Centres mortgage professional who can show you how a Flex mortgage can make the home of your dreams happen sooner than you think!

Geoff Lee

Going through a divorce doesn’t mean you have to split from your home

When we tie the knot with our soulmate, we assume it’s going to be forever. It’s pretty much written in the vows. Unfortunately not all marriages have fairytale endings. In fact, a very significant amount of marriages in Canada end in divorce. The most recent data suggests 38 per cent of all marriages in Canada don’t last until death. The average marriage lasts 14 years, with 42 per cent of divorces occurring in marriages lasting between 10 and 24 years.
The reasons for the divorce rate are many and complicated and not really necessary to discuss here.
What we do know is, divorces can get ugly and be costly for both individuals involved. And if the marriage is years old, there’s likely a home or property that gets caught in the middle.
A typical divorce scenario sees that when the couple breaks up, the matrimonial home is sold and what’s left over is split. In almost all cases, even when one party wants to keep the home, the lawyers, the banks and the professionals always suggest selling the home. It makes sense, since most couples get a mortgage they can afford together, not on their own. But if the home is full of memories, or children are involved, it can be an extremely painful situation.
There is a unique alternative very few professionals even know exists.
All three of Canada’s mortgage insurance providers, Canada Mortgage and Housing Corporation, Genworth Financial and Canada
Guaranty, offer what’s called a spousal buyout program.
This program allows one party to refinance the matrimonial home up to 95 per cent of its appraised value, and pay out any debts related to the marriage.
Traditionally, you can only refinance on an existing mortgage up to 80 per cent of the appraised value.
The program is considered a purchase, so all the requirements and qualifications needed in a traditional mortgage still apply. In this case, you’ll also need a purchase agreement and a separation agreement with all the debts and payments spelled out.
The spousal buyout program is a one-time opportunity. It can be used to pay off other debts outside the separation agreement, but it depends on which one of the three insurers you use.
Even with a helpful loan-to-value ratio, some people still can’t afford to take on the home on their own. The program also allows people to bring on a cosigner, often a new partner or family member.
At the end of the day, divorce is unfortunate. The programs allows you to keep your home and your kids can stay where they’ve grown up. And that makes the situation at least somewhat more bearable.
If you do find yourself in a divorce and you’re not sure what to do about your home, contact a mortgage broker before making any decisions. They can help you.