12 Oct

FIXED-RATE MORTGAGE: WHAT LENDERS YOU SHOULD DO IT WITH AND WHY

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Posted by: Sangeeta Sangeeta

FIXED-RATE MORTGAGE: WHAT LENDERS YOU SHOULD DO IT WITH AND WHY

25-year amortization or 30 years? Insured or Uninsured? With an A Lender or B Lender? These are just a few of the questions people have to decide on when they are pursuing a mortgage. But the biggest question of all: Fixed Rate or Variable Rate?

With the instability of the market, and the Bank of Canada’s continuous rate hikes, many people now are flocking towards a fixed rate mortgage over a variable rate. What this means is that they are choosing to essentially “lock in” at a rate for the term of their mortgage (5 years, 10 years, 1 year…you name it). Now there are benefits to this…but there are also disadvantages too.

For example, did you know that 60% of people will break their mortgage by 36 months into a 5 year term? Whether it’s due to career changes, deciding to have kids, wanting to refinance, or another reason entirely, 60% of mortgage holders will break it.

And just like any other contract out there, if you break it, there is a penalty associated with it. However, there is a way to avoid paying more than is necessary. This applies directly to a fixed rate mortgage and we can help you decide what lenders you should go with.

If you have a FIXED RATE MORTGAGE:
There are two ways your penalty will be calculated.

Method #1. If you are funded by one of the Big 6 Banks (ex. Scotia, TD, etc.) or some Credit Unions, your penalty will be based on the bank of Canada Posted Rate (Posted Rate Method) To give you an example:

With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.59%
Bank Discount given: 2% (estimated amount given*)
Contract Rate: 3.59%

Exiting at the 2-year mark leaves 3 years left. For a 3-year term, the lenders posted rate. 3 year posted rate=3.69% less your discount of 2% gives you 1.44%. From there, the interest rate differential is calculated.

Contract Rate: 3.59%
LESS 3-year term rate MINUS discount given: 1.69%
IRD Difference = 1.9%
MULTIPLE that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.7%

For that mortgage $300,000 mortgage, that gives a penalty of $17,100. YIKES!

Now let’s look at the other method (one used by most monoline lenders)

Method #2:
This method uses the lender published rates, which are much more in tune with what you will see on lender websites (and are * generally * much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.34%
Time left on contract: 3 years

To calculate the IRD on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
=0.30% IRD
MULTIPLY that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that you would have a penalty of $2,700 on a $300,000 mortgage.

That’s a HUGE difference in numbers, just by choosing to go with a different lender! Knowing what you know about fixed-rate mortgages now, let a Dominion Lending Centres Mortgage Broker help you make the RIGHT choice for your lender. We are here to help and guide you through the mortgage process from pre-approval onward!

5 Oct

THE PROS AND CONS OF CO-SIGNING FOR A MORTGAGE

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Posted by: Sangeeta Sangeeta

THE PROS AND CONS OF CO-SIGNING FOR A MORTGAGE

If you keep up on the news you know that qualifying for a mortgage is getting tougher and tougher. Someone who would have sailed through the application process 10 years ago could find themselves declined for a mortgage today.
Often I find applicants can afford the monthly payments but they can’t prove that their income is stable. If they waited another 6 months to a year, they could but they would miss out on a great opportunity to buy a home now. Buyers who have recently switched jobs, receive overtime or get a portion of their income from tips are the people who need co-signers to make the deal work. A strong co-signer can be more persuasive to a lender than offering to put more money down.

I also have found that people with “thin” credit are being asked for co-signers. These are applicants who have one credit card but no car loans or other credit facilities showing on their credit bureau report. Often they are recent university graduates who recently started work.
Rick Bossom, an accredited mortgage professional with Bayfield Mortgage Professionals in Courtenay, British Columbia, says that it’s an alternative to lenders just turning the deal down in cases where the borrowers are just on the edge of qualifying.

“They’re close but they just need a little bit more and that’s why the co-signing thing would come up. It’s not like they’re really, really bad, they’re just not quite there.”

What does a co-signer do? Their job is to continue payments in the event that the main applicant(s) default on the mortgage. In essence, they are saying that if you skip out on the payments, they will take up the slack.
As a result, lenders want to have co-signers on the application just as if they would be living in the home and making the mortgage payments. If they have mortgage payments of their own, they have to show that they can financially afford to pay both mortgages and any other monthly obligations that they may have like car payments.

One thing that surprises primary applicants, as well as their co-signers, is the amount of information required from the co-signers. They will have to provide an employment letter, recent pay stub, a credit bureau report at a minimum. If they are self-employed company income documents will also be required.
It’s always best for the primary applicant to have a conversation with the co-signer or co-signers to inform them of this in advance. The co-signers should also be aware that this will tie up their credit for the term of the mortgage. If they are planning on buying a vacation home or making a large purchase, they may be declined based on their financial obligation to your mortgage.

However, there is one feature that banks don’t tell you about but your Dominion Lending Centres mortgage professional will tell you. There’s the ability to remove the co-signer from the mortgage after 12 months of successful on-time mortgage payments. Co-signers don’t have to stay on the mortgage for the whole term.

Make sure that you mention that you are interested in taking your co-signer off the mortgage in a year and your mortgage broker can pick a lender who will allow this. It’s really nice to be able to remove your co-signer and thank them for their help without tying up their credit capacity for 5 years.

 

28 Sep

4 MORTGAGE STEPS TO OVERCOMING HIGH CONSUMER DEBT

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Posted by: Sangeeta Sangeeta

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.

The purchase price of a 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 a Dominion Lending Centres Mortgage Professional near you.

22 Sep

FIRST TIME MORTGAGES: EXPECTATIONS VS. REALITY

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Posted by: Sangeeta Sangeeta

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 is 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, consider meeting with a Dominion Lending Centres mortgage broker.

15 Sep

KEEPING YOUR CREDIT SCORE HEALTHY

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Posted by: Sangeeta Sangeeta

KEEPING YOUR CREDIT SCORE HEALTHY

There is a lot of misinformation floating around about credit bureaus, credit reports and credit scores – not only that, but a large amount of the clients I work with have never even seen their credit report or score before!

I’d like to shed a bit of light, as they say, on the importance of your credit score and what does (and does not) affect this ever-changing number.

Keeping Your Credit Score Healthy
There are a few ways that you can actively ensure that your credit score is kept at a nice high number:

  • Pay your credit cards and other debts on time – this includes bills like your cell phone!
  • Pay your parking tickets on time – many people don’t realize that unpaid tickets will affect your credit score.
  • When meeting with your mortgage broker, go over your credit report line by line (a service I offer to every one of my clients). They will be able to help you catch any unsubstantiated credit checks, fraudulent activity, and any mistakes by your lenders – and have them removed from your report.
  • Have a couple of credit cards or a line of credit on your report…but! Ensure they have reasonable credit limits for each card, and that are not using your limits to their max. *The unofficial rule is only use about 30% of your available credit.
  • Don’t apply for credit too often.

My Score Falls Every Time It’s Checked
Not necessarily true. You can personally check your credit report as many times as you like, and your score will not change. What DOES affect your score is a lender or creditor looking into your credit report. The more times lenders check (especially in a short period of time), the greater chance your score is going to decrease. Research has shown that people who are actively seeking credit tend to be people who are at a greater risk of possibly not repaying their credit, or seeking credit beyond their repayment capabilities. Lenders who see a lot of credit report checks also view this as a potential risk of fraudulent behaviour, and will move (by not extending credit) to protect themselves against it.

Decreasing your credit score also functions as a protective mechanism for YOU if someone is trying to fraudulently use your identity to gain credit (for themselves) on your behalf.

The gist here is that you can apply to have your credit checked a few times a year by lenders, and expect to have little to no affect on your score.

Buying a Home? Use a Broker!
Of course, when you are in the process of applying for a mortgage, some people go to more than one bank; all of which will look into your credit report, all within a short amount of time.

One of the great benefits of using a Dominion Lending Centres mortgage broker is that your mortgage broker will only check your credit once. One check will negate many lenders checking your bureau because your broker knows which lenders will be the best for your personal situation and we can discuss your different mortgage options without needing to have multiple lenders look into your credit!

7 Sep

BRIDGE LOANS

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Posted by: Sangeeta Sangeeta

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 a Dominion Lending Centres mortgage professional today.

31 Aug

WHAT HAPPENS WHEN YOUR CREDIT CARD ACCOUNT IS CLOSED

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Posted by: Sangeeta Sangeeta

WHAT HAPPENS WHEN YOUR CREDIT CARD ACCOUNT IS CLOSED

I have been working in the mortgage industry since 2005. I have had all sorts of clients over the years. Every once in a while I get someone who has a car loan, a couple of credit cards but there’s a collection from a credit card, a dentist or some other creditor. When I ask why this has not been paid, I am told that they had a dispute with this firm and they are not going to be pushed around. The client doesn’t care if the account is sent to collection, they won’t pay it just on principle.

While I admire people who stick to their guns, they are on a slippery slope and things will not work out well for them. Sometimes they think that because the account is closed they don’t have to pay any more. This is totally wrong.

CREDIT SCORES WILL DROP
As the creditor has reported your late or missing payment, your score goes down with the credit reporting agencies every month until you get to 120 days late or the creditor closes the account. However, they may send your account to a collection agency who will add their fees to the account and threaten or harass you. While you may not owe the money to your original creditor, they have sold the debt to someone else. You still owe your original amount and probably more with interest accruing every month.

Something that most people do not realize is that this refusal to pay an account means that you won’t get a mortgage or any new credit lines until the problem is resolved. The longer you hold out, the more likely that you will need to use a B- lender for your next mortgage and car loan. I have seen car loans with 26% interest and mortgage with 16% interest over the years.
My advice is don’t ignore the problem. Get it resolved as soon as possible. I know that you want to stick to your guns but it’s going to end up costing you a lot of money. If you have any questions, contact a Dominion Lending Centres mortgage broker near you.

24 Aug

7 SURE-FIRE WAYS TO GROW YOUR CREDIT SCORE

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Posted by: Sangeeta Sangeeta

7 SURE-FIRE WAYS TO GROW YOUR CREDIT SCORE

Have you ever wished for a simplified guide on how to actually GROW your credit score? Well today is your lucky day! We have had years of experience working with individuals who come to us with poor or damaged credit and we have found 7 steps that prove to be tried and true in fixing it.

First off though—why are we so focused in on credit scores? Simply put, your credit score details your history of borrowing money. It shows how timely you are on payments; how responsible you are with it and how you manage it.

In a Nutshell: Your credit score represents to the lender that you have proven yourself capable of paying your bills on time and are responsible when managing credit. You credit score will also impact the interest rate that you receive. So, when we are talking about mortgages, your credit score=very important.

Now that we have that covered, here are our 7 sure-fire ways to grow your credit and make the mortgage application process, a breeze:

1. Have at least 2 credit lines at all times
This means that you should always have 2 “tradelines” going. Whether this be 2 credit cards, a credit card and a line of credit and a car loan etc. You want to show that you can manage credit, and this is one easy way to do it. As an added note, the limit on the credit lines will need to be set at a minimum $2,000.

2. Make your payments on time each and every month
No skipped payments! You should ALWAYS make the minimum payment required on all your lines of credit each month.

3. Do not let your credit be pulled too often.
This one is something people often forget about. Having your credit pulled for new credit cards, car loans, and other things frequently raises a red flag for lenders and can significantly lower your credit score

4. Do not exceed 50% of the available credit limit on your credit card or credit line.
We know this one can be hard to do. One easy way to monitor this is to only use a credit card for certain fixed bills such as a cable/internet bill, cell-phone bill, etc. This way you can easily keep track of what credit you have used and what is available still.

5. If you have missed a payment, get back on track right away.
If you did, by chance, miss a payment, do not fret. Instead, get back on track with your month by month payments. Lenders would look at the one missed payment as an abnormality versus a normal occurrence if you are back on track by the following month.

6. Make sure each partner has their own credit.
We cannot tell you how frustrating it can be for couples when they realize that all their credit cards and lines of credit are only under one name…leaving the other person with no proven track record of managing credit! We advise clients to both grow their credit by making sure all joint accounts report for you both.

7. Do not exceed the Credit limit.
It is important to not go over or exceed the credit limit you have been given. Having overdrawn credit shows the lender that you are not able to responsibly manage credit.

If you follow these 7 steps and are responsible with your credit, you will have no problem when it comes time to purchase a home! In need of more advice? Contact a Dominion Lending Centres Broker-they will be more than happy to help you.

17 Aug

4 KEY THINGS YOU NEED TO KNOW ABOUT A SECOND MORTGAGE

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Posted by: Sangeeta Sangeeta

4 KEY THINGS YOU NEED TO KNOW ABOUT A SECOND MORTGAGE

Many homeowners are vaguely aware of the fact that you can take out a second loan on your home. You hear your friends mention it or perhaps a family member close to you has gone through the process—but do you truly know what it means to take out a second mortgage? We have taken all the questions we get asked about second mortgages and compiled it into four key points.

A SECOND MORTGAGE IS BASED ON THE EQUITY IN YOUR HOME
The total loan amount that the second mortgage lender will offer you will depend on the equity that has been built up in your home. Second mortgages allow you to access up to 95% of the equity you have in your property. For instance:

House Value $850,000
95% LTV (maximum mortgage amount) $807,500.00
First Mortgage $550,000.00
Amount Available Through Second $257,500.00

INTEREST RATES WILL VARY AND BE HIGHER THAN YOUR FIRST MORTGAGE
This is because when a lender agrees to a second mortgage, they are taking a higher risk as he gets second priority in case of default. With that being said, we have options and solutions such as working with private lenders that can help you obtain a reduced rate and the right product for your mortgage situation. Typically, you can expect an interest rate of 6.95%-19.95% with lender and broker fees included.

YOUR PAYMENT CAN BE AS LOW AS INTEREST ONLY PAYMENTS
One of the advantages of selecting to use a second mortgage is the fact that the payments are attractive. You can pay interest only payments or you can also select to pay the interest plus the principal loan amount. You can work with your mortgage broker to discuss options and what would work best with your situation.

THERE ARE ADDITIONAL FEES TO CONSIDER
Since we want to have you understand ALL the fees associated, it is important to know that setting up a second mortgage will require you to pay: *note dollar amounts are approximations

An appraisal fee to assess the value of your home: $300
Legal fees to set it up: $2,000
Lenders & Broker fees: 1-5%

Second mortgages are a great option for many and may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, talk to your Dominion Lending Centres mortgage broker. We can guarantee they can guide you the process from start to finish!

10 Aug

THE 3 STEPS THAT TAKE YOU FROM PRE-APPROVAL TO YOUR NEW HOME

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Posted by: Sangeeta Sangeeta

THE 3 STEPS THAT TAKE YOU FROM PRE-APPROVAL TO YOUR NEW HOME

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the 3 steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL

This should actually be the step BEFORE house-hunting. Visiting your broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:

  • Have you fill out an application (or you might be able to fill out one online)
  • Pull your credit
  • Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information and documents when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, 2 years notice of assessment, T4’s, a void cheque, and a number of other potential documents (click HERE to see our article outlining what you might be asked for).

Once you are pre-approved it’s house hunting time for you! The benefit to having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.

When you do find just the right home for you, it’s on to step 2…

STEP 2: APPROVAL

If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here! You may have to supply a few pieces of updated information (such as an updated paystub or bank statement) but otherwise, it’s up to your mortgage broker and lender to do the hard work at this point.

Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once the lender confirms that the property aligns with their guidelines it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.

Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step #3.

STEP 3: FINAL STEPS

Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:

  • Void Cheque
  • 2 forms of ID
  • The balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.

All that’s left is to hand you the keys to your new home!

As one final step, keep asking questions at each stage of the mortgage process. You should check in with your Dominion Lending Centres mortgage broker if you have any questions along the way they are happy to guide you through the process of not only getting a mortgage but also having a mortgage too!