WHAT TO DO IF YOU’RE DENIED A HELOC ??- Check this out !!

The COVID-19 crisis has undoubtedly thrown a wrench into a lot of people’s finances. Many have seen a drop in income because their investments have lost value, while others may need to supplement their cash flow in order to help out family or friends who have lost their jobs or taken a pay cut.

Many are therefore turning to a Home Equity Line of Credit (HELOC) in order to increase their cash flow during these difficult times. A HELOC is a revolving line of credit that’s secured against your home, with the amount you can borrow depending on the amount of equity you own in your home. The more equity you own, the more you can borrow, up to a maximum of 65% of the property’s appraised value.

Why a HELOC?

Even pre-pandemic, a HELOC was an incredibly popular finance solution, and there are many reasons why HELOCs are so popular. HELOCs, allow you to release the equity held in your home while allowing you to continue living there. Furthermore, they typically have lower interest rates than other loans (currently around 3.45%), which, coupled with the fact that you can opt to make interest-only payments, means low monthly repayments.

Sounds great, right? Unfortunately, more and more people are seeing their HELOC applications denied. You must first qualify in order to be approved for a HELOC and many banks are putting more stringent measures in place to protect themselves from the economic impacts of COVID-19. Therefore, many people are finding themselves denied a HELOC due to insufficient monthly income, a low credit score, or the wrong debt-to-income ratio.

What if you’re denied?

So, what’s the alternative for people looking to increase their cash flow in the current climate? The CHIP Reverse Mortgage is a strong alternative for homeowners aged 55+. Like the HELOC, it allows you to draw money from your home (up to 55%) while still living in it, however, it also has some unique advantages.

Firstly, it’s much easier to qualify for a reverse mortgage than a HELOC, as the qualification criteria is purpose-built for those who are retirees or those who may not have a regular monthly income. This makes the reverse mortgage a much more attractive option for those who feel stressed about whether or not they may qualify.

Furthermore, the money received from a reverse mortgage is tax-free and you’re only required to pay back the loan once you sell your home or move out, which means no monthly repayments (and therefore no penalties for missed payments!). You can even use your reverse mortgage to consolidate other loans, avoiding the monthly repayments you’re making for these as well. Without having to make regular payments, you’re free to enjoy the improved monthly cashflow that a reverse mortgage can provide!

And with a reverse mortgage, it’s impossible to default and lose your home or end up owing more than the value of your home, due to the conservative lending practices provided by HomeEquity Bank, which ensures there is still equity left in the estate for your heirs to enjoy.

If you’d like to learn more about how the CHIP Reverse Mortgage can help you increase your cash flow as an alternative to a HELOC, contact your DLC Mortgage Broker for more information.

WHAT TO DO IF YOU’RE DENIED A HELOC- Check this out !!

The COVID-19 crisis has undoubtedly thrown a wrench into a lot of people’s finances. Many have seen a drop in income because their investments have lost value, while others may need to supplement their cash flow in order to help out family or friends who have lost their jobs or taken a pay cut.

Many are therefore turning to a Home Equity Line of Credit (HELOC) in order to increase their cash flow during these difficult times. A HELOC is a revolving line of credit that’s secured against your home, with the amount you can borrow depending on the amount of equity you own in your home. The more equity you own, the more you can borrow, up to a maximum of 65% of the property’s appraised value.

Why a HELOC?

Even pre-pandemic, a HELOC was an incredibly popular finance solution, and there are many reasons why HELOCs are so popular. HELOCs, allow you to release the equity held in your home while allowing you to continue living there. Furthermore, they typically have lower interest rates than other loans (currently around 3.45%), which, coupled with the fact that you can opt to make interest-only payments, means low monthly repayments.

Sounds great, right? Unfortunately, more and more people are seeing their HELOC applications denied. You must first qualify in order to be approved for a HELOC and many banks are putting more stringent measures in place to protect themselves from the economic impacts of COVID-19. Therefore, many people are finding themselves denied a HELOC due to insufficient monthly income, a low credit score, or the wrong debt-to-income ratio.

What if you’re denied?

So, what’s the alternative for people looking to increase their cash flow in the current climate? The CHIP Reverse Mortgage is a strong alternative for homeowners aged 55+. Like the HELOC, it allows you to draw money from your home (up to 55%) while still living in it, however, it also has some unique advantages.

Firstly, it’s much easier to qualify for a reverse mortgage than a HELOC, as the qualification criteria is purpose-built for those who are retirees or those who may not have a regular monthly income. This makes the reverse mortgage a much more attractive option for those who feel stressed about whether or not they may qualify.

Furthermore, the money received from a reverse mortgage is tax-free and you’re only required to pay back the loan once you sell your home or move out, which means no monthly repayments (and therefore no penalties for missed payments!). You can even use your reverse mortgage to consolidate other loans, avoiding the monthly repayments you’re making for these as well. Without having to make regular payments, you’re free to enjoy the improved monthly cashflow that a reverse mortgage can provide!

And with a reverse mortgage, it’s impossible to default and lose your home or end up owing more than the value of your home, due to the conservative lending practices provided by HomeEquity Bank, which ensures there is still equity left in the estate for your heirs to enjoy.

If you’d like to learn more about how the CHIP Reverse Mortgage can help you increase your cash flow as an alternative to a HELOC, contact your DLC Mortgage Broker for more information.

CMHC MAKES IT HARDER TO QUALIFY FOR AN INSURED MORTGAGE – Check this out !!

CMHC Makes It Harder To Qualify For An Insured Mortgage

Once again, the Canadian Mortgage and Housing Corporation (CMHC) is tightening the criteria to get a mortgage with less than a 20% down payment. Any potential home buyer with less than a 20% down payment must purchase default insurance on their loan and have a minimum down payment of 5%. CMHC is a federal Crown Corporation that provides such default insurance. Its mandate is to help Canadians access affordable housing options. Providing mortgage insurance to home buyers is one of its main activities. Mortgage default insurance protects lenders in the event a borrower ever stopped making payments and defaulted on their mortgage loan–a very infrequent occurrence in Canada.

There are private providers of default insurance as well–Genworth Financial Canada and Canada Guaranty. CMHC is the only insurer of mortgages for multi-unit residential properties, including large rental buildings, student housing and nursing and retirement homes. It is the largest provider of mortgage default insurance by far and is also the primary insurer for housing in small and rural communities.

Investment properties are not eligible for mortgage insurance. Because of this, the buyer needs at least a 20% down payment to buy an investment property. Homes costing more than $1 million, as well, are not eligible for mortgage insurance. Typically, the lender chooses the mortgage insurer.

Why is CMHC Tightening Qualifications?

The economics team at CMHC has predicted that owing to the pandemic lock down, home prices will likely fall by 9% to 18% over the next 12 months. They also believe that it will take at least two years for prices to return to pre-pandemic levels. The CMHC forecast for the economy is more pessimistic than many other forecasts, particularly that of the Bank of Canada, which asserted yesterday that the outlook for the economy was better than their April forecast suggested. Moreover, CMHC acknowledges the high degree of uncertainty associated with any forecast at this time. The Crown Corporation highlights the post-shutdown job losses, business closures and the drop in immigration that adversely affect Canadian housing.

They also have emphasized the 15% of existing mortgages that are now in deferral and believe there is a risk that 20% of all mortgages could be in arrears when deferrals end. Their stated justification for tightening qualification requirements is “to protect future home buyers and reduce risk“.

What Are These Changes In Underwriting Policies

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

• The maximum gross debt service (GDS) ratio drops from 39 to 35
• The maximum total debt service (TDS) ratio drops from 44 to 42
• The minimum credit score rises from 600 to 680 for at least one borrower
• Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes

CMHC goes on to say that “to further manage the risk to our insurance business, and ultimately taxpayers, during this uncertain time, we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing. Consultations have begun on the repositioning of our multi-unit mortgage insurance products.”

Here’s What We Know So Far

Anecdotal reports suggest that it is likely that private default insurers will not match CMHC’s lower debt ratios. They might, however, be more selective in their approval processes.

Canadian fiscal and monetary authorities are expending huge sums to keep the economy afloat, cushion the blow of the shutdown, and to make sure ample credit is available. These actions are intended to minimize unnecessary insolvencies. It is, therefore, surprising that a federal Crown Corporation would take these pro-cyclical actions now.

The exact impact of these changes will not be known until more details are available: How the Big Banks will respond with their own prime mortgage underwriting rules; how these new rules will apply to the securitization market; and how far the private default insurers will go along with these new rules.

Suffice it to say that this batters buyer and seller confidence and, all other things equal, has a net negative impact on the near-term housing outlook.  Most importantly, in my view, these changes are unnecessary to protect the prudence of Canada’s home lending practices. Mortgage delinquency rates are meager, and even the Bank of Canada’s forecast is for delinquencies to remain less than 1% of all outstanding mortgages. Moreover, home buyers with jobs who meet former qualifications would undoubtedly have a longer than two-year time horizon when buying their first homes. They were already qualifying at the posted rate that is more than 250 basis points above the contract rate. If anything, the pandemic recession assures that interest rates will remain very low over the next two years.

7 MISCONCEPTIONS ABOUT REVERSE MORTGAGES- Check this out !!

The Top 7 Misconceptions About Reverse Mortgages

How much do you really know about reverse mortgages? Maybe you know that reverse mortgages can help Canadians 55+ access the equity in their home, tax-free. Maybe you know that tens of thousands of Canadians are using a reverse mortgage as part of their financial plan. But did you know that there are 7 common misconceptions when it comes to understanding reverse mortgages in Canada. As Canada’s leading provider of reverse mortgages, HomeEquity Bank can help set the record straight.

1. If you have a reverse mortgage, you no longer own your home

Nothing could be further from the truth. You always maintain title, ownership and control of your home – HomeEquity Bank simply has a first mortgage on the title.

2. You will owe more than the value of your home in the end

Also, untrue. Every CHIP Reverse Mortgage from HomeEquity Bank comes with a No Negative Equity Guarantee(1) which states that as long as you – the homeowner – have met your obligations, the amount you will have to pay on the due date will not exceed the fair market value of your home. In fact, over 99% of HomeEquity Bank’s customers retain equity in their home when they decide to sell, with over 50% of the home’s value remaining after the loan is paid back (on average).

3. Only people younger than 62 can apply for a reverse mortgage

In Canada, the CHIP Reverse Mortgage is available to Canadian homeowners aged 55 and older. In fact, as you age you are more likely to qualify for a higher amount on your loan. A reverse mortgage is a lifetime product and as long as the property taxes and insurance are in good standing, the property remains in good condition, and the homeowner is living in the home full-time, the loan won’t be called even if the house decreases in value.

4. Failure to make payments can result in eviction

This myth is one of the most common when it comes to reverse mortgages. The CHIP Reverse Mortgage does not require any monthly payments, meaning you can’t miss payments in the first place.

5. Arranging a reverse mortgage is very expensive

This is also untrue. Much like a conventional mortgage, an appraisal of your property and independent legal advice is required, and your responsibility to pay for. The only remaining cost is a one-off closing and administration fee. When you compare this to the costs of “rightsizing” to another home, you will find a much more affordable option in a reverse mortgage.

6. Reverse mortgages have much higher interest rates than conventional mortgages

While it’s generally true that interest rates are a bit higher than a traditional mortgage, the difference is not excessive. Plus, making monthly mortgage payments is simply not a viable option for many retired Canadians, and – even if it were – many would struggle to qualify for a traditional mortgage in the first place. For these reasons, many retired Canadians are choosing reverse mortgages over conventional solutions.

7. You won’t be able to pass on your home to your children

The idea that your children won’t be able to inherit your home is a complete myth. Your heirs will always have the option of keeping the property by paying off your reverse mortgage after you pass away. Plus, HomeEquity Bank’s No Negative Equity Guarantee, (1) states that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, HomeEquity Bank covers the difference between the sale price and the loan amount. Therefore, you will never owe more than the fair market value of the home.

To find out how much you could qualify for, try our reverse mortgage calculator, or contact your DLC Mortgage Broker.

Check this out !!

Virus Anxiety and The Canadian Housing Market

As though things weren’t volatile enough, a new wave of virus terror is wreaking havoc on global financial markets. The novel coronavirus, COVID-19, continues to spread causing panic in worldwide stock and bond markets for the seventh day. Share prices have plummetted in Asia, Europe, the U.S., and Canada. The sell-off is fueled mostly by concern that measures to contain the virus will hamper corporate profits and economic growth, and fears that the outbreak could get worse.

Interest rates are falling sharply, hitting record lows reflecting a movement of cash out of stocks and commodities like oil, into the safer havens of government bonds and gold. In Canada, the 5-year bond yield has fallen to 1.16% this morning, down more than 50 basis points (bps) year-to-date and down 65 bps year-over-year (see chart below). Mortgage rates are closely linked to the 5-year government bond yield, so the further downward pressure on mortgage rates is likely. Oil prices have fallen sharply, hitting the Prairie provinces hard. Crude oil WTI prices have fallen to just over US$45.00 a barrel compared to $62.50 earlier this year.

The Canadian dollar has also taken a beating, down to 0.7468 cents US, compared to a high of 0.7712 early this year.

The Canadian economy was already battered as today’s release of fourth-quarter GDP data shows. Statistics Canada reported that the economy came to a near halt in Q4 as exports dropped by the most since 2017 and business investment declined. Household spending was a bright spot–a reflection of a strong labour market and rising wages.

Monthly data for December, also released this morning, came in stronger than expected, showing the economy had some momentum going into 2020 before the coronavirus reared its ugly head.

The weak 0.3% growth in Q4 was expected as a series of temporary factors including a week-long rail strike, manufacturing plant disruptions, and pipeline shutdowns slowed growth. Even though December posted an uptick, the first quarter will no doubt be hampered by the rail blockade and now virus-related supply and travel disruptions as well as reduced tourism.

Bottom Line: Panic selling in the stock market is never a good idea. The TSX opened down more 550 points this morning following yesterday’s outage. Trading on Thursday was suspended around 2 PM for technical reasons.

None of this is good for psychology or the economy.

The Bank of Canada meets next Wednesday, and clearly, their press release will address these issues. It’s unlikely the Bank will cut rates in response on March 4, but if the economic disruption continues, rate cuts could be coming by mid-year.

The new stress test will be in place on April 6. If rates were at today’s level, the qualifying rate for mortgage borrowers would be more than 40-to-50 basis points lower than today’s level of 5.19%. This will add fuel to an already hot housing market.

MORTGAGE RENEWALS WITH THE SAME LENDER ARE ON THE RISE, BUT SHOULD YOU JUST SIGN ON THE DOTTED LINE?

If you’re in a mortgage that’s coming up for renewal in the coming months and you’re considering just staying with your current lender, you wouldn’t be alone.
According to the Canadian Mortgage and Housing Corporation’s (CMHC) Residential Mortgage Industry Report released in the summer, in 2018, the number of mortgage renewals with the same lender increased by 16 percent over the previous year.
The report suggested one of the factors that may have contributed to large increases in loan renewals with the same institution is the tighter approval criteria. In other words, people are worried they may not qualify for a new mortgage if they switch lenders, so they’re staying put.
You’ll remember in the fall of 2017, OSFI, (the Office of Superintendent of Financial Institutions) the agency that regulates the financial industry, announced tighter rules on mortgages. The biggest change related to uninsured mortgages, or homebuyers with 20 percent or more for a down payment. These people are now required to go through a “stress test” or qualify using a minimum qualifying rate.
The changes came a year after a similar stress test was introduced for insured mortgages.
If the tighter mortgage rules still have you stressed as you face a mortgage renewal, the CMHC report noted the approval rate for the same lender renewals remained stable at 99 percent. Renewals are not specifically subject to the new stress test and are more likely to meet current lender criteria, the reported noted.
So, does that mean you should just automatically renew your mortgage with the same lender when your term is up? Not necessarily. You need to reach out to a mortgage professional to get the best advice.
For starters, most lenders, especially the big banks, will send you a renewal letter when there’s about three months left on the term. Sometimes that letter could come with six months left. Typically, the lender will offer you a rate at that time and all you’ll have to do is sign at the bottom line to rollover your mortgage.
But beware, lenders often offer a higher rate than a new client because they’re hoping the ease of renewal will keep you from seeking out a new lender and lower rate.
In some cases, it may be best to just sign and rollover your mortgage. There are a few things to consider. If you decide to change lenders, you’ll basically have to go through an approval process again. That entails getting all your documents, lawyer’s fees, and appraisals.
You’ll have to ask yourself, is it worth the effort to save a few basis points off your rate or a few hundred dollars over a term to make the switch?
For some, it won’t be. But, if a switch can lead to saving thousands of dollars, it would certainly be something to consider. While everyone’s situation is different, the larger the mortgage, the bigger the savings will be if you can find a lower rate.
Often, homeowners will just use a bank their parents recommend for their first mortgage. But they might find themselves not happy with the service or terms of the mortgage and may just want to switch to a different lender as the mortgage comes up for renewal.
If that’s a situation you find yourself in, you have options, and a Dominion Lending Centres mortgage broker can help you make the best decision.

Check this out !!

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.

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME?? Check this out !!

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax-Free Savings Account (TFSA) or investment money.

• Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
• Any large deposits outside of “normal” will need to be explained (i.e. tax return, the bonus from work, sale of a large ticket item). If you have transferred money from one account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

• Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
• Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

• Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
• If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
• You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
• Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your current home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

• If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

• Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
  Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

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 curveballs 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 the 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 and multiple lenders to find the sharpest rate and the best product for your lifestyle.

PAYMENT FREQUENCY

MORTGAGE PAYMENT FREQUENCY- Chk this out !!

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 your 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 is 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 is 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.