Have you spoken to a mortgage broker lately? You have a great opportunity at each renewal of your mortgage. When it’s time to renew your mortgage you have the freedom to do a number of things that are not possible at any other time without a financial penalty.

Have you looked at your mortgage amortization lately? Let’s say that you started your present mortgage 10 years ago and you had a 30-year amortization. You now have 20 years left on your mortgage but your situation has changed. Your children have grown up and one is ready to leave for college and another one will follow in a couple of years. An easy way to help the kids out would be to refinance your home. However, the rules have changed and if the value of your home has not risen a lot and you have not paid down the balance, you may not have the 20+% you need to withdraw the equity.

Another possible solution would be to use the amortization on your mortgage to help you achieve your financial goals.
You can extend the amortization and lower your monthly payments thus freeing up cash flow.

Here’s an example. With a balance of $400,000 on your mortgage:

By adding 5 years to your mortgage you can lower your payments by $320 a month. If that’s not enough and you have more than 20% equity, in other words, your mortgage is less than 80% of the value of the home, you can extend your mortgage to 30 years with most lenders.

This will free up $520 a month. When your children graduate you or your mortgage broker can contact the lender and have your amortization lowered again. Note that changing the amortization can result in costs. Check with your Dominion Lending Centres mortgage broker before you make any changes to your mortgage.

If a buyer can’t obtain a mortgage due to poor credit, employment history, lack of down payment or income, most lenders will consider lending if there is someone to act as co-signor or guarantor for a mortgage. The two options provide different requirements.

So which is best – co-signer or guarantor? People often use the terms guarantor and co-signer interchangeably, but they have very different responsibilities and rights. A co-signor is basically a co-owner – he/she is registered on the title and is equally responsible for payments (although it’s often a given that the co-signor will not make the payments). A guarantor, on the other hand, personally guarantees payments will be made if the original applicant defaults, but he has no claim to the property because he/she is not on title.

Lenders require a co-signor or guarantor for a mortgage for different reasons. A co-signor is used when you need to support income. If the original applicant’s qualifying ratio doesn’t meet the lender’s standards, a co-signor is required to bridge the income gap. A co-signor, because their name is also on the title, must sign all of the mortgage documents and can expect to remain on the title until the applicant qualifies for the mortgage on his or her own. Or, in the case of two spouses, the co-signor might remain on title indefinitely. Keep in mind that removing someone from the title involves legal fees.

A guarantor is usually called upon if the applicant qualifies by income, but has a slight credit blemish or has yet to establish credit. It’s also an option for couples where one spouse is an entrepreneur and they don’t want to risk losing the house should the business go bankrupt — they simply keep that person’s name off the mortgage.

Guidance for guarantors
A guarantor has to be stronger financially than a co-signor because they promise to carry the entire debt should the homeowner default. As a result, guarantors are carefully scrutinized, undergo a credit check and must also disclose assets, liabilities and income.

Therefore, it’s important for guarantors to know all of the circumstances of the person they’re acting for and be confident the applicant will make the payments. Before signing, all guarantors should seek advice from a lawyer who is independent of the real estate transaction.

It’s also smart to secure creditor insurance in case things go wrong. The applicant and guarantor should discuss collateral or come up with a repayment plan up front should the guarantor be called on to cover the debt.

When a guarantor wants out
Some lenders offer early release policies that free the guarantor from obligation (usually after 12 months) if the borrower is up-to-date with payments and has established good credit. Sometimes a guarantor can remain under obligation for several years.

Before agreeing to act on behalf of an applicant, guarantors need to evaluate the time commitment they’re willing to make. If, for example, they want to buy their own home in a few years or take on any major debt, such as a car or boat, they may not qualify because of their guarantor status.

Regardless of whether you wish to be a co-signor or guarantor, for a mortgage you should always consult your mortgage professional at Dominion Lending Centres and a lawyer before acting.

Your credit score is one of the largest factors when applying for a mortgage. It can dictate how good your interest rate will be and the type of mortgage you qualify for.

Mortgage Professionals are experienced in helping clients with a wide range of credit scores so we can find you a mortgage product even if your credit is far from perfect.

The good news about your credit score is that it can be improved:

• Stop looking for more credit. If you’re frequently seeking credit that can affect your score as can the size of the balances you carry. Every time you apply for credit there is a hard credit check. It is particularly important that you not apply for a credit card in the six months leading up to your mortgage application. These credit checks may stay on your file for up to three years.
• If your credit card is maxed out all the time, that’s going to hurt your credit score. Make some small monthly regular payments to reduce your balance and start using your debit card more. It’s important that you try to keep your balance at least under 75% of your credit limit. To further increase your score, you can keep your balance under 25% of the limit.
• It’s also important to make your credit payments on time. People are often surprised that not paying their cell phone bill can hurt their credit score in the same way as not making their mortgage payment.
• You should use your credit cards at least every few months. That’s so its use is reported to credit reporting agencies. As long as you pay the balance off quickly you won’t pay any interest.
• You may wish to consider special credit cards used to rebuild credit. You simply make a deposit on the card and you get a credit limit for the value of that deposit. They are easy to get because the credit card company isn’t taking any risks.

Contact a Dominion Lending Centres Mortgage Professional if you have any questions.

After already being a homeowner for several years, my friend was set to buy the home of his dreams. He always wanted to own an acreage outside of town. He had visions of having a few animals, a small tractor and lots of space.
As a person with experience buying homes, he felt that he was ready and that he knew what he was getting into. He would find out quickly that he was wrong. As soon as you consider buying a home outside of a municipality there are a number of things to consider, not the least being how different it is to get a mortgage.

Zoning – is the property zoned “residential”, “agricultural” or perhaps “country residential”?

Some lenders will not mortgage properties that are zoned agricultural. They may even dislike country residential properties. Why? If you default on your mortgage the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away so there are many obstacles to this.
If you are buying a hobby farm, some lenders will object to you having more than two horses or even making money selling hay.

Water and Sewerage – if you are far from a city your water may come from a well and your sewerage may be in a septic tank. A good country realtor will recommend an inspection of the septic tank as a condition of the purchase offer. Be prepared for the inspection to being more costly compared to an inspection being done in the city. Many lenders will also ask for a potability and flow test for the well. A house without water is very hard to sell.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land. Anything above this amount and it will not be considered in the mortgage. In other words, besides paying a minimum of 5% down payment you could also end up having to cover the costs of the second out building and the extra land being sold.

Appraisal – your appraisal will cost you more as the appraiser needs to travel farther to see the property. It may also come in low as rural properties do not turn over as quickly as city properties. Be prepared to have to come up with the difference between the selling price and the appraised value of the property.

Fire Insurance – living in the country can be nice but you are also far from fire hydrants and fire stations. Expect to pay more for home insurance.

Finally, if you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage broker before you do anything. They can often recommend a realtor who specializes in rural properties and knows the areas better than the #1 top producer in your city or town.

The interest rate you pay on loans for every major purchase you make throughout your life depends on various factors and is dependent on your creditworthiness – everything from the mortgage on your home to your car loan or line of credit.

Given today’s ever-changing mortgage requirements and rising interest rate environment, your credit score has become even more important.

Your first step towards credit awareness and well being is to know where you stand. Request a free copy of your credit report online from the two Canadian credit-reporting agencies – Equifax Canada and TransUnion Canada – at least once a year.

This will also help verify that your personal information is up to date and ensure you haven’t been the victim of identity fraud.

Newly established credit

If you’re new to credit, you may wonder why your credit score pales in comparison to your friend’s.

Payment history is a key factor for both Equifax and TransUnion. As well, if you don’t talk to your friends about money, you may not realize that their financial situations are different from yours. Your friend with the better credit score may carry less debt than you, for instance.

Using credit properly helps keep your credit score healthy, as well as comes in handy when you don’t have the cash immediately on hand to pay for an expense. Planning for expenses helps alleviate reliance on credit – and the payment of interest.

If you use credit cards and lines of credit to your full advantage, you’ll never have to pay interest on these revolving credit products. In fact, you can use the borrowed money for free if the full amounts are paid on time.

Forgot to pay a credit card bill?

Your credit generally only takes a hit after you miss two consecutive payments.

You’ll likely see a drop of 60-100 points on your credit score instantly, and your credit card provider may end up increasing your interest rate.

Every point counts, however, so you obviously don’t want your credit score to take a hit, particularly if you plan on applying for a major loan – such as a mortgage or car loan.

Know your creditworthiness

Following are some key components that help determine your credit score.

• Credit card debt. Aside from paying bills on time, the number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Credit card usage has a more significant impact on credit scores than car loans, lines of credit and so on.
• Credit history. More established credit is better quality If you’re no longer using your older credit cards, the issuers may stop updating your accounts. If this happens, the cards can lose their weight in the credit formula and, therefore, may not be as valuable. Use these cards periodically and pay them off.
• Credit reporting errors. Always dispute any mistakes or situations that may harm your credit score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau(s) aware of the situation.

Do you have questions about your credit score or creditworthiness? Contact your local Dominion Lending Centres mortgage specialist.

Refinancing a home is one of those things that people understand but have trouble explaining how it works. To put it simply, refinancing your home allows you to access the equity you have built up by increasing the mortgage amount.

Let’s say you bought a $300,000 condo with a 20% down payment ($60,000) and had a mortgage of $240,000. Over the next 4 years, you continue making payments and pay down the $240,000 you owed and now that amount is only $230,000. Your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home – this is where a refinance could come into play.

What this means is you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity ($350,000 – $230,000 owing – $60,000 initial down payment= $60,000). You have a mortgage of $230,000 on a home worth $350,000, therefore your equity in the home is $120,000.

To access that $120,000, you can refinance your mortgage. So let’s say you want to go back and take $50,000 from the $120,000 you have built up. Your new mortgage would go from $230,000 to $280,000, and that $50,000 is going to go from the lender to you. You are borrowing money from the lender, but adding that money back on top of your mortgage.

This is why people will refinance their home to make larger purchases. The bank will lend you the money now and get it back in the future, plus interest because it is being added to the mortgage.

This is just one method of using your home to access cash. Other ways people can do this, especially if they are looking to complete renovations, is through home equity lines of credit, collateral charges, and purchase plus mortgages. Knowing this before you buy can be extremely beneficial, that is why it is important to work with a qualified Dominion Lending Centres Professional!

Five-year fixed mortgage rates continued their upward march last week as the five-year Government of Canada (GoC) bond yield they are priced on hit its highest level in seven years. Meanwhile, five-year variable-rate discounts deepened, further widening the gap between five-year fixed and variable rates.

When I started working in the mortgage industry in 2005, variable rate mortgages saved you more money than fixed-rate mortgages 95 out of the past 100 years. First time home buyers were worried about what their home costs would be and avoided variable rate mortgages (VRM’s) because of the risk of rates going up higher than the fixed rate, but experienced homeowners often took a VRM at mortgage renewal time.

However, in the past 5 years, most people have gravitated towards fixed rates because the gap between fixed and variable rates was small enough that the cost of uncertainty outweighed the potential reward for most borrowers.

Once again, the gap is widening. While fixed-rate mortgages are going up due to the bond yield, variable rate mortgages have moved in the other direction.  Two years ago a VRM would be offered at Prime rate +.20%,  but later it reverted to Prime -.30%. In recent months, rates have dropped even further with some lenders offering Prime -1.0%!  You now have a choice between a 5-year fixed rate of 3.44-3.59% depending on the lender and a variable rate with a discount that calculates out to 2.45%. With a gap this large, it’s worth considering if you are risk tolerant enough to have a VRM.

Even if you are skittish, you can ask your Dominion Lending Centres mortgage broker to notify you if rates are going up and switch you to a fixed rate if they go above a certain percentage. Will your bank do that for you? I don’t think so. Be sure to have this discussion with your broker when your mortgage comes up for renewal or if you are considering a home purchase.

You may be seeing and hearing a lot more about the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed, how different it is to its counterpart in the U.S., and how relevant it has become given our ageing population in Canada.

Who are they best suited for? People aged 55+ that own a house, townhouse, or condo and want to either increase their cash flow or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

• Funds can be advanced as needed, saving you interest cost as you would only need to start paying interest on the amount that is advanced.
• No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
• No payments required. The borrower can retain more of their income and never worry about default or foreclosure.
• Changes in interest rates don’t affect the client’s monthly cash flow since there are no payments required.
• Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
• Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
• Borrowers will never owe more than the fair market value of the home at the time it is sold.
• There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
• With a conservative estimation of house appreciation at just 2.5% to 3% per year, the interest cost of a reverse mortgage will typically end up being recovered over time. This leaves clients with plenty of leftover equity in the end.

Cons

• Clients are choosing to have more income/cash flow TODAY, in return for having fewer savings in the home TOMORROW.
• All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time setup and legal fees come to approximately $2,500.
• Rates are approximately 1.5% to 2% higher than the best rate secured line of credit.
• If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more, please contact a Dominion Lending Centres mortgage professional who can walk you through the entire process.

Why are the terms more important than the rate when it comes to a mortgage?

It’s simple – 7 out of 10 Canadians break their mortgages prior to the renewal date.
Accepting a mortgage from the wrong lender when you could have qualified for a better one is a very costly mistake.

The biggest mistake anyone can make is thinking that they’re the 3 in 10 that won’t break their mortgage.

For those people, I give you a short list of potential reasons why you might need to get out of a mortgage early.

1. Sale and purchase – maybe you get an offer you can’t refuse – work or real estate related. Maybe the zoning has changed, your neighbours or strata are unmanageable or maybe you just want to grow your family.
2. Take Equity out – maybe you need to get some renovations done, help family members, purchase another investment, pay CRA or assessments on the property.
3. Pay off debt – maybe you are like over 60% of Canadians living paycheque to paycheque and paying over 5% on credit cards or lines of credit. There are much more savings in interest and cash flow when utilizing your equity.
4. Relationship changes – divorce is at a 50% rate these days or maybe you’re on the more positive side and getting married or moving in together. Having children could also require more space (oops we’re having twins!).
5. Health or life challenges – major illness, unemployment or death of someone on title can be a burden enough.
6. Removing someone from title – a co-signer (3/10 homebuyers get help from a family member) or an ex-spouse.
7. Save money with a lower rate – the market is always changing. It may make sense to break early and go with a different term as the market changes. Having the flexibility to do so is a major advantage.
8. Pay it off – maybe you won the lottery or got an inheritance.

Some of the above are not avoidable but the one thing you totally can control is who you align yourself with when shopping for a mortgage. A Dominion Lending Centres mortgage broker will always be looking at all the factors involved in a mortgage without bias to help you make an educated decision on what best suits you.

Not surprisingly, mortgage borrowers often go straight to their own Banker. And why not? It’s an established and comfortable relationship. Perhaps it’s viewed as the path of least resistance. But is it the right lender for the borrower’s current specific needs? Perhaps not.

Aren’t all Lenders pretty much the same?
Borrowers may think that all institutional lenders are pretty much the same, offering comparable rates and standardized borrowing terms. This is rarely the case. Lenders often prefer one asset class over another. They may have a particular need for one type of loan. A specific length of loan term may be desirable for funds matching purposes. Real Estate risk is a fact for real estate lenders. How they mitigate this risk differs, however. It may be stress testing interest rates during the approval process. Sophisticated risk pricing models may be used, having regard to previous loss experiences. The lender may rely significantly on collateral value or guarantees. The conditions precedent to funding will often differ from lender to lender.

A real-world example
I had the pleasure last year in advising a client who had 3 sizable real estate assets in 3 quite distinct asset classes. The borrower’s loan amount requirements were significant, however, they were flexible on loan structure. Accordingly, I sought out competitive yet differing deal structures. My goal was to provide a competitive array of options. A number of “A” class lenders were approached, several/most of whom this particular borrower had no previous experience with. I shortened the list to 5 lenders and received Term Sheets from each.

Each Offer was competitive on a stand-alone basis but they differed quite substantially in the following ways:

• Loans were either stand-alone, blanket loans or some combination.
• Length of terms offered differed by asset class.
• There was as much as a 75 bps rate difference from highest to lowest Offer.
• The amortization period depending upon asset class ranged from 15 to 25 years.
• Loan amounts on individual assets differed as much as 20%.
• Third party reporting requirements differed between lenders.
• There was a combination of fixed vs. floating rate loan structures.
• Recourse was limited by some lenders on select assets or waived entirely upon a higher rate structure.

Leverage Your Knowledge
These variances are striking yet each of the 5 lenders was considering the same asset at the same time with common supporting information from which to base their analysis. How was the borrower to know which offer to exercise? As a Broker, I can add value by helping the borrower to consider both their immediate and longer-term strategic requirements in the context of their overall real estate portfolio needs. This was precisely how this borrower landed on the most appropriate Offer for their particular circumstances. In this particular case, we presented different yet competitive and uniquely structured options for the borrower’s consideration.

Consider a Dominion Lending Centres Mortgage Broker when next in the market for financing. Leveraging a Broker’s knowledge is a tremendous value proposition.