MORTGAGE PROTECTION PLAN

Insurance coverage is something that everyone is “pitched” at some point or another in their life. Unfortunately, a lot of us have a negative attitude towards insurance or warranty as it is perceived as being a cash grab. Yes, if you are purchasing a flat screen T.V., that extra 2-year warranty for $100 might be a little excessive. However, when it comes to covering monthly mortgage payments or the outstanding balance of your mortgage upon death or injury, yes, it is important to have.

Every single person is offered life and disability insurance when applying for a new mortgage. As a mortgage broker, it is our obligation to offer you Manulife’s Mortgage Protection Plan. Even if it is something you do not want or do not have a need for- we still require a signature confirming it was offered. Reason being, is when John Smith breaks his foot two years down the road and can’t work to cover his mortgage payments, Manulife needs to confirm that the client passed on the opportunity to have their payments covered.

Now, is Manulife’s mortgage Protection Plan, or, MPP as it is known, the most comprehensive coverage out there? No.

Is MPP better than any coverage you are ever going to receive from a bank directly? Yes.

Manulife’s MPP is a 60-day money back guarantee, with coverage that follows you lender to lender. It will cover disability injuries preventing you from work, and is underwritten before your coverage begins, not when a claim is made.

Most banks do not allow you to take their mortgage insurance to another lender. So, if after 10-years of paying your premiums you decide to leave your bank and go to a credit union, your coverage is no longer in affect and all that money you spent on your monthly premiums is now worth nothing. Scariest part about bank coverage, is the health evaluation is done when a claim is made, not when you sign up. Can you imagine not making a claim for 20-years and then being declined on coverage because you have developed health issues not relevant when you signed up in your 20’s?

If Manulife Mortgage Protection Plan is not for you, there are insurance brokers out there we have access to who can offer alternative solutions. The biggest thing though is to make sure you have SOME coverage, because you won’t know you need it until you do. If you have any questions, contact a Dominion Lending Centres mortgage professional for help.

IS YOUR LINE OF CREDIT KILLING YOUR MORTGAGE APPLICATION?

Some of the last round of changes from the government regarding qualifying for a mortgage were that if you have a balance on your unsecured line of credit, then to qualify for mortgage the lenders require that we use a 3% payment of the balance of the line of credit.

Simple math is,  if you owe $10,000 we have to use $300 as your monthly payment regardless of what the bank requires as a minimum. Given that the banks hand out lines of credit on a regular basis it is not uncommon for us to see $50,000 lines of credit with balances in the $40,000 range. That amount then means we have to use $1,200 a month as a payment even though the bank may require considerably less.

So what if it is a secured line of credit? Again we have clients telling us that they don’t have a mortgage only to realize they do have a Home Equity Line of Credit (HELOC). A home equity line of credit by all definition is a loan secured by property, the actual definition of a mortgage.

Again, it’s something the bank will require little more than interest payment on because it is secured. The calculation here can also upset the calculation for your next mortgage, as what is required by many lenders is to take the balance of the HELOC. Let’s say the balance is $200,000 and you convert it to a mortgage at the bench mark rate, which today is 5.34% with a 25-year amortization. That without any fees today is equal to $1202.22 per month, so what in the client’s mind may be a $400 or $500 dollar interest payment for the purpose of qualifying will be almost three times higher.

This one change to supposedly safe guard the Canadian consumer has lately been the thing we have seen stop more mortgages than just about anything else. If you have any question, contact a Dominion Lending Centres mortgage professional for answers.

5 TIPS ON HOW TO GET OUT OF DEBT AND INTO YOUR OWN HOME

To get out of debt, you need a plan and you need to execute that plan. That’s why I’ve created this simple, five-step, get-out-of-debt checklist that can help you leave that financial burden behind you.

As you work on your plan, you’ll need to make all necessary adjustments to your budget along the way so you don’t overspend and slide back into debt. Plus, if you don’t have an emergency fund, consider setting some money aside in savings beforehand.

Keep this checklist someplace where you’ll see it often (like your refrigerator door ), and make it your goal to check a task off the list each day (or each week), depending on how quickly you want to become debt-free.

1- Make a list
Take all your bills and put them in a chart that includes: the name of creditor, interest rate, balance, minimum monthly payment. Figure out how long it will take you to pay the balance down to zero. Many credit card statements now feature this.

2. Lower your rates
This is easier than you think. Call up each of your credit card companies starting with the ones with the highest interest rates and ASK them to lower your interest rate. You can tell them that other credit cards are offering lower rates and you wanted to let them keep your business. They won’t give you an answer on the phone but you should receive a letter with a new lower rate within a couple of weeks. Another possible solution is a balance transfer. Often a credit card company will allow you to transfer your balance from another card to theirs and they charge you 0% for 6 months. They assume that you will see zero being added and will spend more. Show them that you are disciplined and keep paying the balance down as if it was still at 19%. Consider getting a debt consolidation loan. If you have a home with equity you can often get a very good rate and clear up all your debts. Often you can get these loans at considerably less than your credit cards. Once again, keep your monthly payments up as if you were still paying a credit card of 19% interest and your balance will go down quickly.
Next contact your car loan company. If you have been paying your loan on time they may lower your rates. Now you are ready to tackle the utility companies. In Alberta the gas/electric companies really want your business. You can often get a better rate just by threatening to switch. This also works with cellphone companies. They often have better plans than the one you are on but will only offer it when you say you are going to leave.

3. Get your Number
What is the amount you need to pay off all your debts? Now that you have a number in mind you can set a goal. Can you pay this off in six months? 12 months? two years?
Get your credit score number. How much does it have to improve before you can qualify to buy a house? Check with your Dominion Lending Centres mortgage broker for help getting this.

4. Make a plan
What will be your target debt? Is it the credit card balance with the highest interest rate? The lowest balance? Set a short term goal to pay one card off in a manageable amount of time. One down and three to go sounds better than tackling all the debt at once. Pay each debt off one by one. Does your community library offer debt counselling financing planning courses? Consider signing up for one.

5 – Monitor your progress
How quickly are the debts coming down? Is your credit score going up? It should if the debts are coming down.
Do you have to adjust your plan to make your deadlines? Don’t be discouraged. Large companies make plans and set budgets and then adjust them quarterly based on how the previous three months performance was.
Stick with your plan and if you show some self-discipline you can achieve your goals in time. Finally, tell your local Dominion Lending Centres mortgage broker what your goal is and what your timeline is. They will be happy to help you along the way. Nothing makes them happier than to tell people like you that they are approved for home financing.

FIRST TIME MORTGAGES: EXPECTATIONS VS. REALITY

First-time homebuyers are one of our favourite clients! It’s great to work alongside them and teach them the in’s and out’s about real estate, owning a home, and helping them cross “homeownership” off their bucket list. One thing that we find though, their expectations are often not aligned with reality. We are always honest with our clients about the reality of the situation, but we thought it would be helpful to clear up a few of those “expectations”.

1. Expectation: They have enough saved for their down payment

Reality: This seems to be the first “shocking” point to many first-timers. It’s also one of the most heartbreaking ones to explain to them too. Many times, they have saved for several years and come in with what they think is a sizable down payment…but, in reality, it’s less than what is needed. They will often have their sights set on a home that is well out of their price range. They have also potentially failed to account for stress-testing measures. As a general rule of thumb, 5% is the minimum on a property with a purchase price of less than $500,000. However, 20% or more is the ideal in order to avoid your mortgage being classified as a high-ratio mortgage and require mortgage insurance.

2. Expectation: Once you have the down payment you are all set!

Reality: There are many different costs associated with moving, buying a home, and other fees that many first-time buyers may not be aware of. A few fees to consider include:

• Legal Fees
• Property Transfer Fees
• Moving Costs (moving van, moving crew)
• Appraisal fee
• Searches and Title Insurance
These will total approximately 1.5-2% of purchase price.

3. Expectation: Costs will stay the same when going from renting to owning a home.

Reality: This is not true in most cases. Many people forget to account for the day-to-day and general upkeep associated with home ownership. These can include repairs on the home, insurance, property taxes, extra utility costs, etc. This is why we always encourage first-time buyers to sit down and look at their budget and “practice” the strains and additional costs. This allows you to see if you are truly ready financially for home ownership and also alleviates stress down the road.

4.Expectation: We qualified for (blank) amount of dollars—let’s use all of it.

Reality: This is rarely a recommended or smart decision. Pick a price range that you are comfortable house shopping for that would allow you to accommodate things like home renovations, upgrades, and updates. Looking at homes that still fit your needs but may just need a little more work can significantly decrease the amount you are borrowing. If you are open to different options when house-hunting, you can save money in the long run.

These are just four examples of how a first-time mortgage holders’ expectation are rarely the reality. However, there are other areas that we find they may have questions in or not be aware of. The mortgage industry is one that is forever changing, and it can be difficult to stay on top of all of the changes! If you have a question, concern, or just want to know about what to really expect when you are going through the mortgage process contact me George Macris Mortgage Broker at Dominion Lending Centres 514 651-2395 or by email at gmacris@dominionlending.ca

DON’T FORGET THE CLOSING COSTS WHEN YOU PURCHASE A HOME

The purchase price you negotiate when buying or selling a home is just one part of the total cost for buying a home. In addition to the purchase price there are several other fees – known as closing costs – all of which you need to factor in to your purchase price.

Closing costs tend to be hidden costs when buying a home. It’s not a set number, but a compilation of various administrative, legal fees and other one-time expenses associated with the purchase of a home that are due on the completion date.

These costs can add up, so you’ll need to factor these costs into your cash-on-hand budget.

Many first-time home buyers under estimate the amount of cash they will need for closing costs. Typically, you’ll want to budget between 1.5% and 4% of the purchase price of a resale home to cover closing costs.

Of course, these are estimates — the actual amount you will need could be higher or lower, depending on factors like where you live, the type of home you’re buying, or if it’s a new construction (+5% GST).

To help you plan the purchase of your property, here’s a snapshot of the extra fees you can expect to pay once you’ve settled on the price of your home.
o Legal Fees
o Title Insurance
o Fire Insurance
o Adjustments
o Property Transfer Tax (PTT)
o GST
o and more…

Here’s an overview of what you can expect.

Legal Fees: Legal/Notarial Fees and Disbursements. The lawyer/notary is the person who goes through all the paperwork and makes sure that everything is legitimate and binding. They confirm that all the items that were agreed to by the buyer, seller/builder, and lender are written and worded correctly. Your legal representative should also be able to walk you through each document that you sign so that you understand what you’re agreeing to. Legal fees range from $500 to $2,500. You will also need to reimburse them for their out-of-pocket costs that they incurred while handling the various searches and registrations, including title insurance (see below), property and execution searches, and the registration of the mortgage and deed. These disbursements are repaid to the lawyer on the closing date, as well as incidentals such as couriers, certified cheques, and photocopying, the land transfer tax, the down payment, and any interest adjustments.

Title Insurance: Title refers to the legal ownership of the property. The deed is the physical legal document that transfers the title from one person(s) to another. Both the title and deed of the home must be registered with a land registrar.

Most lenders require title insurance as a condition of granting you a mortgage. Your lawyer or notary helps you purchase this.

Title insurance protects you from title fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects. It can also protect you against fees and costs that were not caught in the searches your lawyer conducted prior to the sale (Yes this can happen!).

Title insurance premiums range from $150-$500 depending on the value of the property.

Fire/Home Insurance: Mortgage lenders require that you have fire/home insurance in place by the time you complete the purchase of your home.

Property insurance protects you in case of fire, windstorms or other disasters. It covers your home’s replacement value. The amount required is at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Adjustments: An adjustment is a cost to you to pay the seller for the seller prepaying for something related to the house including property taxes, condo fees, heat etc. on your behalf.

Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using. These adjustments are prorated based on the date you complete your purchase of the home. The most common adjustments are for property taxes, utility bills and condo fees that have been prepaid.

Property transfer tax (PTT) in British Columbia, is a tax charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.
• In British Columbia, the PTT is 1% on the first $200,000 of purchase, 2% over $200,000 & 3% on any value over $2,000,000.

GST is a federal value added tax 5% on the purchase price of a new home. If someone has lived in the home, the home isn’t subject to GST.
• There is a partial GST rebate on new properties under $450,000.

Interest Adjustment Costs: Most lenders expect the first mortgage payment one month after completing the purchase of a home. If you close mid-month, please note some lenders expect the first payment, or at least the interest accrued during that time, on the 1st day of the next month. When arranging your mortgage, ask how interest is collected to the interest adjustment date.

Other closing costs: Will your new home need furniture? Carpets? Lighting? Window coverings? Appliances? Do you have the equipment you need to maintain the lawn and gardens? Are you hiring movers or renting a truck? Will you need boxes, bubble wrap and tape for the move?

While these and other out-of-pocket costs aren’t part of the real estate transaction, you still need to budget for them. Plan your expenses as much as possible. If necessary, decide what you can put off buying until later, after you move in and get settled. If you have any questions, reach out to me George Macris Mortgage broker at Dominion Lending Centres 514 651-2395 or by email at gmacris@dominionlending.ca

LAST MINUTE CREDIT CHECK

As I’ve said many times, one of the single greatest determining factors in whether you can become qualified for a mortgage and the interest rate at which you do, is your credit history. Many people unfortunately don’t know this, and can be completely blind-sided when it comes time to qualifying.

However, the truly unsettling idea about credit scores and their relation to home financing is the fact that most people do not even know they are extremely important even after you have been approved…

Once your offer on a home is accepted and you remove financing conditions, it is your obligation to secure the money needed to close the sale. There are usually a list of conditions one must meet and satisfy in order to obtain the financing they need from a lender. Once that is done, the mortgage will be sent to a real estate lawyer where they will be instructed to finalize everything. This is where all closing costs will be paid and all corresponding money will be sent to the proper parties involved.

However, before any of this is done, one more thing must happen…

Your credit report can be reviewed once again in order to verify your credit history is the same as it was when you were first qualified for a mortgage, sometimes months earlier.

So what happens if you made an offer on a home, got approved for financing, lifted all conditions, and because you also met all the lenders conditions, went out and bought new furniture for your home on a credit card? Well, you may not be able to receive your loan anymore…

If you increase the amount of money you are borrowing through any credit card or bank, miss payments on existing debt, or for any reason alter your credit history from the day you are approved until the final closing day at the lawyer’s office, you run the risk of not being able to complete your purchase.

If you plan on spending any money that isn’t cash and isn’t in a separate account needed for your down payment or closing costs, you need to talk to your broker because it could end horribly for all parties involved and potentially result in legal disputes.

This is the most important purchase and decision you may ever make, why things like this have never been explained in schooling or anything like that is beyond me. That is why it is important to work with an experienced, knowledgeable Dominion Lending Centres mortgage broker and make sure you fully understand the process you are about to embark upon.

call me at 514 651-2395 or email me at gmacris@dominionlending.ca with any questions

4 MORTGAGE STEPS TO OVERCOMING HIGH CONSUMER DEBT

Client success stories are what make our job WORTH IT (We think most mortgage brokers would agree). So, with this in mind, we are sharing a recent client’s story that allowed them to not only purchase the home they wanted, but also pay down their own debt.

Mortgage Problem:

We had a young couple with two young children come to us looking to buy a detached home with a rental suite. They had several thousand dollars of consumer debt they had yet to pay off, and very little funding for the down payment. The husband was employed, and his wife ran a small business from their home. Their combined income was average, but with their significant amount of debt they weren’t sure they would be able to buy their dream home.

A close friend recommended that they visit a mortgage broker, and instantly we were able to see how we could help them not only find the down payment funding, but also help them pay down their debt.

Mortgage Solution:

Step 1: By the numbers.
First up, we looked at the numbers we would be working with to make this happen.

Purchase price of dream home: $600,000
Requested Mortgage Amount: $570,000
Loan to Value: 95%
Credit Score: 699 and 768

Step 2: Collect documentation.
For this particular mortgage we collected:
● Lease agreements for two suites (loft and basement)
● Notice of assessment and T1 generals from the last two years
● Standard income documentation for full-time employment
● Confirmation of self-employment for the last two years

Step 3: Calculate the total debt services ratio.
We took the above numbers and worked with them to present a debt service ratio that started out as 47.74% and brought it down to 42.5%

Step 4: Share the mortgage solution!
The down payment was provided by the parents and the rental income from the subject property was used. All their remaining debts were paid with $25,000 cash back from the lender who also provided an interest only payment Line of Credit to cover both the mortgage and consumer debt.

Our clients were thrilled to be able to purchase their dream home and to have their consumer debt under control. We are proud to be able to help couples like this to make their dreams become a reality, and really, all it took was 4 simple steps to get them into their home! If you have any questions, contact me George Macris Mortgage broker at Dominion Lending Centres Mortgage Professional near you. 514 651-2395 or gmacris@dominionlending.ca

SUBJECT FREE OFFERS; STILL RISKY!

The majority of my clients have stellar qualifications: established careers and businesses, excellent credit ratings, solid down payment funds, etc. They are truly awesome individuals who will almost certainly receive mortgage financing without a hitch.

Almost certainly.

With multiple offers, bidding wars, and over-asking-price bids now common as far afield from Vancouver proper as Port Coquitlam and beyond, clients find themselves, in the heat of the experience, contemplating a subject-free offer.

But there’s often an unanticipated hitch: the property itself.

A client would be hard pressed to find a Realtor to write an offer without a ‘subject to inspection‘clause, and for good reason. Similarly, a client should be hard pressed to find a Mortgage Broker advising an offer without a ‘subject to financing‘ clause.

This is because no banker or Broker can give a client 100% assurance of financing without factoring in the actual specific property details. Until an appraisal is reviewed and approved, the application is not complete. And there are some properties that some lenders simply will not lend against.

There are the obvious examples that lenders tend to exclude;

• Properties containing Asbestos, Aluminium wiring, Underground Oil tanks
• Re-mediated former grow-ops
• Re-mediated drug labs.

There are also less obvious ones;

• live-work units
• row-homes (attached non-strata properties)
• properties smaller than 450 sq ft
• properties on lease land, Government, First Nations, or Private.

Regarding the appraisal process, there is more than simply the valuation question to be answered. In fact, valuation is rarely the challenge in our market, as many properties ‘auto-approve’ when the value is below $750,000. (This is not true of ALL properties below $750,000 by a long shot; many lenders condition all strata properties for instance for a full appraisal no matter the purchase price.)

What is being looked at other than value in the appraisal report?

A key complication is a little thing called ‘Remaining Economic Life or REL’ (as opposed to the ‘physical life’) of the home. This refers to how long this specific house is likely to remain standing on this property under the current care it is receiving.

Perhaps we have an otherwise perfectly habitable home for decades to come ─ lots of remaining ‘physical life’. The problem is that lenders are looking for remaining ECONOMIC life rather than the remaining physical life. The question is not “How long can that house be standing there?” it is “How long does it make economic sense for that house to be standing there given current market conditions?”

There may be a problem if it is located in a neighbourhood where many of the older homes are being purchased to be demolished and replaced with multimillion dollar homes. That leaves the purchase looking like a speculative land play or potential knock-down. As such, the remaining economic life is perhaps 15 years or less stated in the appraisal report.

Or maybe the property is a ramshackle house in a state of disrepair. It looks like the bargain of the age on paper, and perhaps the purchaser is a contractor planning to bring the home back into a wonderful state of repair. However the appraisal must view the current remaining economic life of the home ‘as-it-sits’ not ‘as-is-planned’. We have seen homes like this with REL as short as five years.

What is this ‘Remaining Economic Life’ exactly?

Economic life is the total period of time which the improvements (house/buildings) contribute to the overall property value. The total economic life of a typical Lower Mainland home is generally accepted to be 65 years. Economic life and physical life can differ widely and physical life usually exceeds economic life. Renovations and updates can increase a property’s physical and economic life, and poor maintenance can shorten it. Increases in land value can also have a negative impact on remaining economic life. As older homes are torn down to make way for new ones, it makes less economic sense to keep the older one standing.

REL is the estimated time period which the improvements continue to contribute to property value. An appraiser estimates REL in part by interpreting the economic conditions, attitudes and reactions of buyers in the market.

The REL is calculated by subtracting the Effective Age from the Total Economic Life.

Economic Life – Effective Age = Remaining Economic Life

For example:

A 40-year-old home that has had substantial renovations may have an effective age of 30 years.

65 years – 30 years = 35 years Remaining Economic Life (REL)

How lenders view Remaining Economic Life (REL)

Few lenders will lend on a home with a remaining REL of less than 15 years. Also, the effective amortization will be set at the REL minus five years, which drives payments sky high, and often leaves client unable to qualify for such large mortgage payments should they even want to sign on for them.

Clients can run the risk at this point of their own awesomeness being part of the undoing of the mortgage approval. Clients with significant liquid assets and strong incomes buying a smaller, older home on the street of newly built monoliths will be viewed as most likely planning to knock the home down and build a new one.

The immediate thought: ‘But the land value alone… ’

Lenders are not in the business of writing conventional AAA-rate mortgages on properties that will be torn down. Instead this is viewed as ‘speculative’ or ‘investment/business’ lending with which come undeniably greater risks. Wherever one finds greater profits there are greater risks. Lenders price accordingly, which is why land/construction financing carries higher rates and additional fees.

A property with a habitable home standing on it is unquestionably easier to market and sell ─ and thus recover the loan balance from ─ should the lender have to step in and take over. And foreclosure is the last thing any Canadian lender wants to contemplate.

It will take on average 18 months of no payments before a lender has gained control of and sold a property through the foreclosure process. And at the end of it said lender must seek out the defaulting client and write them a cheque for the remaining equity that was in the property, all the while honouring the original interest rate in most cases.

It is nothing like the US system at all. (which is a wonderful thing for us)

So lenders avoid any whisp of risk, preferring security. Ideally in the form of a habitable home on a lot that is going to look decades from now much as it does today.

Clients would be wise to also minimize risk, by either writing offers that contain a ‘subject to inspection’ and a ‘subject to financing’ clause, or by having a detailed conversation with a skilled Broker well in advance of writing a subject-free offer.

If you have any questions, contact a Dominion Lending Centres mortgage professional near you today.

BRIDGE LOANS

If you have ever sold your home in order to help with the purchase of your next home, chances are you have heard of bridge financing. Bridge financing is an option available to homeowners if they find themselves in a little bit of a pinch when it comes to two different completion dates.

A situation where a bridge loan or where bridge financing can be useful, is when you put an offer on a home you plan on buying with a completion date for the first of the month. However, in order to purchase this new home you need the money you’ll receive from the sale of your current home. What do you do if it closes at the end of the month, 30 days after you are supposed to pay someone for their home with these proceeds?

A lender can offer you bridge financing, where they will advance you your down payment as a separate loan for up to 30 days, some 90 days or more on exception. This allows you to close on the new property, pay the seller, and keep the contract to sell your place 30 days later where the proceeds from your sale will pay out the bridge loan instead of being used to pay the seller directly.

You will need to have accepted offers on both the property you plan on buying as well as the one you are selling with financing conditions removed as well as enough funds to cover the deposit. In some circumstances, you may be able to borrow the deposit from another source if that was also supposed to come from the proceeds of the sale of your current home. If you have any questions, contact me George Macris Mortgage Broker at Dominion Lending Centres 514 651-2395 or email me at gmacris@dominionlending.ca