Minister Morneau Announces New Benchmark Rate for Qualifying For Insured Mortgages

The new qualifying rate will be the mortgage contract rate or a newly created benchmark very close to it plus 200 basis points, in either case. The News Release from the Department of Finance Canada states, “the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.”

These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.
This follows a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to reflect the evolution of market conditions better. Overall, the review concluded that the mortgage stress test is working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages.

The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight. The earlier rule established the big-six bank posted rate plus 2 percentage points as the qualifying rate. Banks have increasingly held back from adjusting their posted rates when 5-year market yields moved downward. With rates falling sharply in recent weeks, especially since the coronavirus scare, the gap between posted and contract mortgage rates has widened even more than what was already evident in the past two years.

This move, effective April 6, should reduce the qualifying rate by about 30 basis points if contract rates remain at roughly today’s levels. According to a Department of Finance official, “As of February 18, 2020, based on the weekly median 5-year fixed insured mortgage rate from insured mortgage applications received by the Canada Mortgage and Housing Corporation, the new benchmark rate would be roughly 4.89%.” That’s 30 basis points less than today’s benchmark rate of 5.19%.

The Bank of Canada will calculate this new benchmark weekly, based on actual rates from mortgage insurance applications, as underwritten by Canada’s three default insurers.

OSFI confirmed today that it, too, is considering the new benchmark rate for its minimum stress test rate on uninsured mortgages (mortgages with at least 20% equity).

“The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

“In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” (Thank goodness, as the last thing the mortgage market needs is more complexity.)

The new rules will certainly add to what was already likely to be a buoyant spring housing market. While it might boost buying power by just 3% (depending on what the new benchmark turns out to be on April 6), the psychological boost will be positive. Homebuyers—particularly first-time buyers—are already worried about affordability, given the double-digit gains of the last 12 months.

Dr. Sherry Cooper

Mortgage Application Process & Required Documentation Explained

When a client is looking to get a pre-approval or doing a mortgage application for a home they just purchased the process is almost the same. Derek, Colten and I follow the same steps.

1). Get the application – The client will generally fill out our online application or meet with us in person. We collect their Names, Address, Birth Date, SIN#, Address History, Employment History, Assets & Liabilities.
2). Consent & Credit Check: We have the client sign a consent form. This allows us to check their credit and communicate their information to the lender of choice and keep their REALTOR and Lawyer informed along the process. We verify the credit score, typically we like to see a score of 620 or higher for an insured mortgage. We make sure that all payments are paid as agreed, that all credit facilities are under their limit and that any collections, judgements or other debts are paid as agreed and are reporting correctly on the client’s credit bureau.
3). Income Documentation: For employed clients we always request a letter of employment confirming the client’s start date, positions, wage/salary and GUARANTEED hours per week worked. The letter has to be on company letterhead. The letter is typically valid from 60 day from the day of issue. We will always request the clients two most recent paystubs. We verify and cross reference the information on the employment letter with the paystubs. We confirm the hours worked, the wage or salary and the year-to-date income. In some cases we will also request the two most recent years T4s. This would be to confirm overtime income or part time not guaranteed hours (we can take the lower of the most recent year or an average of the two years whichever is lower).

For self employed clients we will request the two most recent year T1 General Full Tax Returns *all pages* as well as the corresponding Notices of Assessment. We must also confirm that any income taxes owing are paid in full. If incorporated, we will require two years Accountant Prepared Financial statements (notice to reader), two years T2 Corporate tax returns and articles of incorporation and a corporate search.
4). Secondary Income Documentation: This type of income is usually Canada Child Benefit or Spousal support. For Canada Child Benefit we will request the children’s birth certificates, CCB statement and 3 months bank statements confirming the CCB deposits. For Spousal support, we will request the fully executed and notarized separation agreement and 3 months bank statements to confirm the amount deposited.
5). Down Payment Documentation: We will request 90 day bank history from any savings account, TFSA or RRSP. We verify account ownership and look for any large deposits made within the 90 day period. Typically any deposits over $2,500.00 will need to be verified or have to seed for an additional 90 days. For gifted funds we will request a gift letter from an immediate family member and confirmation of the gifted funds deposited into the client’s account. For Flex-down Mortgages, we will require a copy of the loan or credit facility used and that the funds have been deposited in the client’s account. For down payments coming from the sale of an existing home, we will require FIRM Offer to purchase, existing mortgage statement, & most recent property tax bill.
6). Existing Properties Not Being Sold – We will require and existing mortgage statement or title search and property tax bill.
The mortgage application process is simple. There is a lot of work that we have to do to make sure that the client’s are approved and won’t run into any snags. This is why we love working with our REALTORS who appreciate this process and want to make sure their clients have an amazing home buying experience.
7). Once we review all the documentation and information we perform our mortgage calculations and determine a maximum mortgage amount based on the amount of money the client is comfortable paying each month as well as a debt service ratio which typically needs to be under 44% for most borrowers. This ratio is a calculation of all of the client’s debt and housing payments divided by the clients eligible household income.
8). Once the pre-approval or approval is in place, it is very important that the clients maintain their credit standing, maintain their current employment as well as their current debt levels. This means that a client may not quit their job, change employers, buy any major purchases on credit as well as keep all their existing credit current and not miss any payments.

Please watch our video and like it on YouTube and refer to our “Documentation Checklist” for more information. Please feel free to share with your clients.
Click the link below for our YouTube video!

https://www.youtube.com/watch?v=aH3FJIIPHeE

Second Homes, Cottages and Vacation Properties

Getting a mortgage for a second home or vacation home is really quite simple.  There are two types of mortgage applications.   One for Type A properties (4 season homes, condos, single family) and type B properties (3 season cottages, seasonal access, floating foundations).  Let’s address each type.

Type A:

• 5% Down Payment for properties $500,000 or less.
• Maximum 1 unit (no duplexes under this program).
• Property must be owner occupied or occupied by an immediate family member.
• New Construction must have New Home Warranty
• Max Loan under this program for Manitoba is $600,000
• Strong Credit Bureau required.
• Down payment can be borrowed under flex-down guidelines.

Type B:

• 10% Minimum Down Payment
• Minimum credit score of 680
• Maximum Loan Amount of $350,000
• Down payment must be from client’s own resources.

This is an excellent program for clients who are looking to purchase a cottage or vacation property.  It is also wonderful for parents who are purchasing a home/condo for their children while they are going to school/university.  For a full list of type B property exceptions please contact us directly or refer to our handout.

Please watch our video and like it on YouTube and refer to our “Second & Vacation Homes” handout for more information.  Please feel free to share with your clients.

Click the link below for our YouTube video!

https://www.youtube.com/watch?v=-wS7A0mt4Rg

If you have any clients looking for a mortgage pre-approval or mortgage advice please have them visit our website or call Peter at 204.227.2744.

NEW TO CANADA PROGRAM

The New To Canada Program was designed for new Canadians  who want to purchase a house, condo or build a new home.  The clients must have:
1).  Immigrated or Relocated to Canada within the last 60months
2).  A valid work permit or permanent residency
3).  Have minimum 5% down payment
4).  Strong credit profile
5).  Obtained full-time PERMANENT employment and passed their probationary period.

If the clients do not have an established Canadian History (2 years preferred), they can submit secondary sources of credit i.e. 12 month rental receipts, cell phone bills or utility bills.  We can even request an international credit report from Equifax if available.

Should the clients have 10% down or more, they can submit a letter of reference from a recognized financial institution (In English preferably or translation costs will apply) OR 6 months of bank statements from their primary account.

Clients must have 5% down payment from their own resources, any gifted down payment funds will only be added to the clients own 5% down payment.   The exception is A down payment gran provided under a Genworth Canada approved Affordable Housing Program may be used as down payment at 95% LTV.
Please watch our video and like it on YouTube and refer to our “New To Canada Program” handout for more information.  Please feel free to share with your clients.

Click the link below for our YouTube video!

https://www.youtube.com/watch?v=IX0i7B6r6bQ

Getting A Mortgage After A Divorce Or Legal Separation:

When clients have decided to divorce or separate, what are their next steps?

It is very important that both clients keep up all credit payments including credit cards, loans, lines of credit and especially their mortgage payments.
They must prepare or have prepared a legal separation agreement. The agreement should be prepared by a lawyer or completed by one of the DIY versions available online and notarized.

The agreement should list how the assets are to be divided and any spousal or child support payable or receivable.

It is very important to note that when clients are planning on selling the marital home that they have the sale proceeds in hand before purchasing a new home. While it is possible to do a bridge loan for the down payment funds, it is usually very difficult to do as both parties would need to agree to and sign the bridge loan document.

If a client is struggling with their down payment, it is possible for them to qualify to withdraw their RRSPs under the HBP – Homebuyer’s Plan without any tax implication.

We are also able to help either party remortgage the marital home with only 5% Down/Equity.

Please watch our video and like it on YouTube and refer to our “Getting A Mortgage After A Divorce Or Legal Separation” handout for more information. Please feel free to share.

Click the link below for our YouTube video!
https://www.youtube.com/watch?v=M-7zhy7sYPs

Please Contact The Mainstream Mortgage Team for more information

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Today’s blog is so good.  It is so easy for a first time home buyer to get all caught up in the moment.  However, at calm and steadfast approach to home buying is required.   Love the house? GREAT!  Look at the roof, mechanicals, appliances and structure.  Even if some of these items require attention, get quotes and find out how serious the challenges are.

enjoy the blog…

5 MISTAKES FIRST TIME HOME BUYERS MAKE

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes First Time Home Buyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curve balls and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment, but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:

• Legal and Notary Fees
• Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
• Home Inspection fees

There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:

1. When was the roof last done?
2. How old is the furnace?
3. How old is the water heater?
4. How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
5. When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundational cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing… even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate you may be missing out on great opportunities that a Dominion Lending Centres mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Geoff Lee

Adjusting your payment frequency and payment amount is an excellent waty to pay your mortgage down faster and help decrease that pesky compounded interest!

Enjoy the blog….

PAYMENT FREQUENCY

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional near you.

Get Your Free Credit Report From Borrowell

Today’s blog is all about your credit. Your credit score can be very confusing. There are different credit reporting agencies, banks and credit unions can report to either or both, and your score never seems to be consistant. Free credit scores, such as the link above are a general scoring criteria and are not as indepth as the ones we pay for when we do your credit check for mortgage purposes. Today’s blogs have some tip and trick to ensure that your score is always optimal.

Enjoy the blog…

CREDIT REPORTS: YOU’VE SCORED! BUT ARE YOU PLAYING THE GAME?
For most people, your personal credit score and how a credit score is calculated are complete mysteries. How can you be expected to play and be successful if you aren’t even told the rules of the game? There are things borrowers can do to improve their score so they can access better mortgage products and save thousands of dollars, or qualify for their wonderful home when they otherwise might have trouble. Let’s stick handle through just some of the key things you should know about managing your credit score.

Amount owed and utilization accounts for 30% of your score. There are a lot of people that end up with high balances on their credits cards and struggle to meet the payments each month. If they manage to pay off their credit cards without seeing a mortgage broker to consolidate their debts, often the immediate response is to close the accounts. A better response is to cut up the cards and delete the numbers from your computer and devices and keep the accounts open. You want any remaining outstanding balances to be less than 75% of your total combined credit available, and if they are less than 35%, even better, because this keeps your utilization of available credit low and increases your credit score. Types of credit and the number of different credit products accounts for 10% of the score, so this is another reason you want to keep those accounts open. Cell phone providers are now reporting to the agencies that publish credit scores as well.

In some parts of the world where credit products are not well established, a borrower’s credit is evaluated based solely on how they have managed payments on their cell phone bills. It’s important to pay your cell phone bills on time; we’re all busy, so setup automatic payments to ensure a payment is not missed. My last word of advice for today is to monitor your credit score by purchasing your own credit report each year for about $25 so you know your score and to ensure the report is accurate. This will help you stay within the boundaries of the game.

There is a lot more to managing a credit score than I can get into in this short blog. If you would like to know more, contact me or your local Dominion Lending mortgage broker. We can provide advice to help you manage your credit score and put you in a better position to qualify for a mortgage with better rates. Know the rules of the game, plan ahead for your home financing, and play SMART.

Todd Skene