13 Apr

Self-Employed and Seeking a Mortgage

General

Posted by: Mark Couto

Approximately 20% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

Qualifying for a Mortgage
In order to obtain a mortgage as a self-employed individual, most lenders require personal tax Notices of Assessment and respective T1 generals be included with the mortgage application for the previous two years. Typically, individuals who can provide this proof of income – and with acceptable income levels – have little issue obtaining a mortgage product and rates available to the traditional borrower.

Self-Employed Categories

1) For those self-employed individuals who cannot provide the Revenue Canada documents, you will be required to put down 20% and may have higher interest rates.

2) If you can provide the tax documents and don’t have enough stated income, due to write-offs, then you have to do a minimum of 10% down with standard interest
rates.
– If you are able to put down less than 20% down payment when relying on stated income, the default insurance premiums are higher.

3) If you can provide the tax documents, and you have high enough income, then there are no restrictions.

Documentation Requirements

For those individuals who are self-employed, you must provide the following, in addition to your standard documentation:

– For incorporated businesses – two years of accountant prepared financial statements (Income Statement and Balance Sheet)
– Two most recent years of Personal NOAs (Notice of Assessments) and tax returns
– Potentially 6-12 months of business bank statements
– Confirmation that HST/Source Deductions are current

Calculating Income

When it comes to calculating income for a self-employed application, lenders will either take an average of two years’ income or your most recent annual income if it’s lower.

If you’re self-employed and looking to qualify for a mortgage, or simply have, reach out to a Dominion Lending Centres mortgage professional today! We can work with you to ensure you have the necessary documentation, talk about your options and obtain a pre-approval to help you understand how much you qualify for.

(Courtesy DLC – Our House)

5 Apr

Make Your Mortgage Work for You

General

Posted by: Mark Couto

When it comes to mortgages, it can be easy to get overwhelmed by the sheer number of options! Fortunately, we are here to help! Below are some of the mortgage details that you should understand to ensure that you are getting the best mortgage for YOU:

Interest Rate Type

Interest rate is one of the major components to your mortgage and it is important to decide whether you want a fixed-rate, variable-rate or protected (capped) variable-rate mortgage.

A fixed-rate mortgage is ideal for new home owners or those on a fixed income who are more comfortable with a stable monthly payment.

A variable-rate mortgage is ideal for individuals who have room in their budget and want to take advantage of potential interest rate drops – keep in mind, with this mortgage you pay more if the rates go up!

Lastly, the protected (capped) variable-rate mortgage operates similarly to variable-rate, except with a maximum (or capped) rate allowing you to take advantage of interest rate decreases while never paying above a set amount should the rates rise.

Amortization

This is the life of your mortgage and is typically a 25-years period whereby you would pay off the entirety of the loan. You can choose a shorter term, which would result in higher payments but allow you to pay less interest over the lifetime of your mortgage and be mortgage-free faster! Or, you can opt for a longer amortization period, which allows for smaller monthly payments.

Payment Schedule

This is the frequency that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly or even weekly payments. There are many great calculators on My Mortgage Toolbox app (available through Google Play and the iStore) that can help you calculate and compare these payment schedules to see what works best for you.

Mortgage Term

The standard mortgage term is 5-years and refers to the length of time for which options are chosen and agreed upon, such as the interest rate. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

Open vs. Closed

Open mortgages give you the option to increase mortgage payments or make lump sum deposits on your loan. A closed mortgage does not allow additional payments without penalties.

High Ratio vs. Conventional

A conventional mortgage is where you put the standard 20% down on your home. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product. High-ratio mortgages need to be insured due to financial institutions only being allowed to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Therefore, if you choose a high-ratio mortgages over a conventional one, you will pay a monthly insurance premium.

Contact a DLC mortgage expert today to get started on your homebuying journey with expert advice and solutions to suit YOUR unique needs!

(Courtesy DLC Our House)

31 Mar

What is the First Time Homebuyer Incentive?

General

Posted by: Mark Couto

The first-time homebuyer incentive program is a shared-equity mortgage with the Canadian government that helps qualified first-time buyers reduce their monthly mortgage payments to better afford a home!

The Incentive: This program allows you to obtain an incentive from the government to assist with your down payment, thereby lowering your overall mortgage amount and, in turn, your monthly mortgage costs.

5% or 10% for a first-time buyer’s purchase of a newly constructed home
5% for a first-time buyer’s purchase of a resale (existing) home
5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
Qualifying for the Incentive: This program is designed to assist first-time homebuyers, therefore you must:

Have never purchased a home before
Have not occupied a home that you, your current spouse or common-law partner owned in the last 4 years
Have recently experienced a breakdown of marriage or common-law partnership
If you meet the above criteria, further qualifications are based on your income and status as follows:

Your total qualifying income is no more than $120,000 ($150,000 for homes in Toronto, Vancouver, or Victoria)
Your total borrowing is less than four times your qualifying income (four and a half times your income if you’re purchasing in Toronto, Vancouver or Victoria)
You are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
You meet the minimum down payment requirements
Additional Costs: With the incentive, there are a few additional costs to be aware of such as additional legal fees (your lawyer is closing two mortgages, the one on your behalf and that on the Government’s behalf), appraisal fees to determine the repayment value of your home when it comes due, plus other potential fees such as refinancing or switching costs if you decide to move or update your mortgage.

Repayment Process: When it comes to repayment of the incentive, the homebuyer is required to pay back after 25 years or when the property is sold, whichever comes first. They are also able to repay anytime prior to this without penalty. The repayment is based on fair market value at the time of repayment and you would pay back what you received. For instance, if you received a 5% incentive, you would repay 5% of the current home value at the time of repayment.

Keep in mind, if you choose to port your mortgage or go through a separation during the term and want to buy out your co-borrower, you will have to repay the incentive sooner.

Click here to learn more about the First Time Homebuyer Incentive and contact a DLC Mortgage Expert today to get started on your homebuying journey!

Published by DLC Marketing Team

28 Mar

What is an Uninsurable Mortgage?

General

Posted by: Mark Couto

When it comes to mortgages, insurance is necessary to protect the lender on these types of loans, which deal in large sums of money. There are three different tiers relating to insurance, which all have different minimum down payment amounts and varying premium insurance fees.

Insured mortgages typically have a less than 20% down payment and are insured with mortgage default insurance through one of Canada’s mortgage insurers: CMHC, Sagen or Canada Guaranty. In these cases, the premium is based on a percentage of the loan amount, which is added to the mortgage and paid monthly.
Insurable mortgages typically have a 20% or higher down payment and do not require mortgage insurance, though they can qualify for it. In these cases, the homeowner wouldn’t have to pay an insurance premium, but the lender can if they choose to.
Uninsurable mortgages do not meet mortgage insurer requirements; some examples of these types of mortgages can include: refinances, mortgages with an amortization longer than 25-years or mortgage files where the real estate is more than $1M in value and/or purchase price. No insurance premium required.
While insured and insurable mortgages are more common and typically more cost-effective when it comes to lending money, therefore clients who opt for these mortgages often get better rates.

When it comes to an uninsurable mortgage, this means that the lender is providing their own funds to the client without the protection of insurance, and have to commit to the loan for the entire term. Due to this, uninsurable mortgages tend to have higher interest rates as they are a higher risk loan.

Typically, uninsurable mortgages require a minimum of 20% down on the loan and are available for up to 30-year amortization. It is also important to note that an uninsurable mortgage will often require a higher Gross Debt Service (GDS) and Total Debt Service (TDS) ratio to indicate that you can carry the loan without high risk.

While some lenders may offer more flexibility when it come to an uninsurable mortgage, if you are looking to refinance or change to a longer amortization period, it is best to discuss with your DLC mortgage expert before making any changes to your mortgage.

(Courtesy DLC Our House)

24 Mar

3 Things You May Not Know About Cash-Back Mortgages

General

Posted by: Mark Couto

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.
When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.
The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!
Before signing for a cash-back mortgage it’s better to discuss your needs with your local Dominion Lending Centres mortgage expert. They can advise regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation.

(Courtesy Our House, Dominion Lending Centres)

22 Mar

Canada’s Headline Inflation Cools in February

General

Posted by: Mark Couto

Further Decline in Inflation in February Will Keep the Bank of Canada On Hold in April

All eyes will be on the Federal Reserve tomorrow when they decide whether to hold rates steady because of the banking crisis or raise the overnight rate by 25 basis points (bps). Before the run on Silicon Valley Bank, markets were betting the Fed would go a full 50 bps tomorrow, as Chairman Powell intimated to the House and Senate.

Since then, three bank failures in the US as well as the UBS absorption of troubled Credit Suisse, have caused interest rates to plummet, bank stocks to plunge, and credit conditions to tighten. Many worry that rate increases will exacerbate a volatile situation, but others believe the Fed should continue the inflation fight and use Fed lending to provide liquidity to financial institutions.

Relative calm has been restored thanks to the provision of huge sums of emergency cash by lenders of last resort–the central banks–and some of the US industry’s strongest players.

While Canadian bank stocks have also been hit, the banks themselves are in far better shape than the weaker institutions in the US. Our banks are more tightly regulated, have much more plentiful Tier 1 capital, and their outstanding loans and depositors are far more diversified.

This morning, Statistics Canada released the February Consumer Price Index (CPI). Headline inflation fell more than expected to 5.2% from 5.9% in January. This was the largest deceleration in the headline CPI since the beginning of the pandemic in April 2020.
The year-over-year deceleration in February 2023 was due to a base-year effect for the second consecutive month, which is attributable to a steep monthly increase in prices in February 2022 (+1.0%).
Excluding food and energy, prices were up 4.8% year over year in February 2023, following a 4.9% gain in January, while the all-items excluding mortgage interest cost rose 4.7% after increasing 5.4% in January.

On a monthly basis, the CPI was up 0.4% in February, following a 0.5% gain in January. Compared with January, Canadians paid more in mortgage interest costs in February, partially offset by a decline in energy prices. On a seasonally adjusted monthly basis, the CPI rose 0.1%.

While inflation has slowed in recent months, having increased by 1.2% compared with 6 months ago, prices remain elevated. Compared with 18 months ago, for example, inflation has increased by 8.3%.

Food prices continued to rise sharply–up 10.6% y/y, marking the seventh consecutive month of double-digit increases. Supply constraints amid unfavourable weather in growing regions and higher input costs such as animal feed, energy and packaging materials continue to put upward pressure on grocery prices.
Price growth for some food items such as cereal products (+14.8%), sugar and confectionary (+6.0%) and fish, seafood and other marine products (+7.4%) accelerated on a year-over-year basis in February.
Prices for fruit juices were up 15.7% year over year in February, following a 5.2% gain in January. The increase was led by higher prices for orange juice, as the supply of oranges has been impacted by citrus greening disease and climate-related events, such as Hurricane Ian.

In February, energy prices fell 0.6% year over year, following a 5.4% increase in January. Gasoline prices (-4.7%) led the drop, the first yearly decline since January 2021. The year-over-year decrease in gasoline prices is partly the result of a base-year effect, as prices began to rise rapidly in the early months of 2022 during the Russian invasion of Ukraine.

Shelter costs rose at a slower pace year-over-year for the third consecutive month, rising 6.1% in February after an increase of 6.6% in January. The homeowners’ replacement cost index, related to the price of new homes, slowed on a year-over-year basis in February (+3.3%) compared with January (+4.3%). Other owned accommodation expenses (+0.2%), which include commissions on the sale of real estate, also decelerated in February. These movements reflect a general cooling of the housing market.

Conversely, the mortgage interest cost index increased at a faster rate year over year in February (+23.9%) compared with January (+21.2%), the fastest pace since July 1982. The increase occurred amid a higher interest rate environment.

Bottom Line

The Bank of Canada is no doubt delighted that inflation continues to cool. Canada’s inflation rate is low compared to the US at 6.0% last month, the UK at 10.1%, the Euro Area at 8.5%, and Australia at 7.2%.

The Bank was already in pause mode and will likely stay there when they meet again in April

(Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres)

13 Mar

Preparing for the Spring Market

General

Posted by: Mark Couto

According to the Canadian Real Estate Association, the Spring market is anticipating a drop in home prices edging down approximately 6% from 2022, putting the average home price at $662,103 in 2023. The downward trend stems from rising interest rates and continued uncertainty in the marketplace.

In some cases, sellers have taken their homes off the market in the hopes that prices will rise again; meanwhile, potential buyers are biding their time for interest rates to drop. Due to this, home prices may continue to see reductions throughout 2023, while interest rates are not expected to drop until 2024.

While not a particularly buyer-heavy market, there are still individuals who will be looking to make a move, upgrade/downgrade or simply relocate.

For those households who think they are on the purchasing end of the Spring market this season, here are five signs from Home Trust to know if you’re ready:

Your income is stable:
For most first-time home buyers, purchasing a house indicates that you can make regular payments to service a mortgage. Accordingly, you should make sure you have a secure and steady flow of income to make these payments over the length of your home loan period. While this is often thought to mean that you work a full-time job, many self-employed Canadians also have stable incomes – and alternative lenders, such as Home Trust, are willing to listen to their unique financial situations.

You are ready with your down payment:
Having enough money on hand for a down payment is important because the amount will impact the type of house you can buy, the amount you need to borrow and the range of financing options you qualify for.

You found an area you can grow in:
Buying a house means putting down roots, so you need to make sure that you can buy a house in an area that suits your needs and lifestyle. You should also be able to envision yourself living in that area over the next five to 10 years.

You feel comfortable managing your debt:
Paying for a house involves having the discipline and commitment to stick to a budget. Take some time to track your spending habits over a couple of months to find out if you are comfortable setting aside roughly 30% of your income to pay for your mortgage debt.

You have an emergency fund on hand:
Owning a home means that unexpected home maintenance expenses, such as plumbing and electrical repairs, could eat into your budget. So having an emergency fund on hand to cover six months’ worth of expenses will allow you to cover these unforeseen costs.

If you feel that these signs point to ‘yes’ or you have more questions about purchasing (or selling) a home this Spring, don’t hesitate to reach out to me directly for expert mortgage advice!

8 Mar

The Bank of Canada Holds Rates Steady Even As the Fed Promises to Push Higher

General

Posted by: Mark Couto

As expected, the central bank held the overnight rate at 4.5%, ending, for now, the eight consecutive rate increases over the past year. The Bank is also continuing its policy of quantitative tightening. This is the first pause among major central banks.

Economic growth ground to a halt in the fourth quarter of 2022, lower than the Bank projected. “With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.” The surge in interest rates has markedly slowed housing activity. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”

In contrast, the labour market remains very tight. “Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.” Wages continue to grow at 4%-to-5%, while productivity has declined.

“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians.” With weak economic growth for the next few quarters, the Bank of Canada expects pressure in product and labour markets to ease. The central bank believes this should moderate wage growth and increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

In sum, the statement suggests the Bank of Canada sees the economy evolving as expected in its January forecasts. “Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said.

However, year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

Today’s press release says, “Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year.

In Congressional testimony yesterday and today, Federal Reserve Chair Jerome Powell said that the Fed might need to hike interest rates to higher levels and leave them there longer than the market expects. Today’s news of the Bank of Canada pause triggered a further dip in the Canadian dollar (see charts below).

Fed officials next meet on March 21-22, when they will update quarterly economic forecasts. In December, they saw rates peaking around 5.1% this year. Investors upped their bets that the Fed could raise interest rates by 50 basis points when it gathers later this month instead of continuing the quarter-point pace from the previous meeting. They also saw the Fed taking rates higher, projecting that the Fed’s policy benchmark will peak at around 5.6% this year.

Bottom Line

The widening divergence between the Bank of Canada and the Fed will trigger further declines in the Canadian dollar. This, in and of itself, raises the Canadian prices of commodities and imports from the US. This ups the ante for the Bank of Canada.

The Bank is scheduled to make its next announcement on the policy rate on April 12, just days before OSFI announces its next move to tighten mortgage-related regulations on federally supervised financial institutions.

To be sure, the Canadian economy is more interest-rate sensitive than the US. Nevertheless, as Powell said, “Inflation is coming down, but it’s very high. Some part of the high inflation that we are experiencing is very likely related to a very tight labour market.”

If that is true for the US, it is likely true for Canada. I do not expect any rate cuts in Canada this year, and the jury is still out on whether the peak policy rate this cycle will be 4.5%.

(Courtesy Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres)

7 Mar

Selling Your Home in the Spring

General

Posted by: Mark Couto

Are you looking to sell your home? We have a few tips to help you make the most of the spring season!

Hire an Experienced Realtor: Before preparing your home for the Spring market, you will want to hire an experienced realtor! A good realtor will serve as your guide through the entire sales process, helping you get your home ready for listing, showing potential buyers and finalizing the eventual sale. This is even more important given the changing landscape in relation to additional safety protocols with viewings and even virtual viewing options. Now, more than ever, the expertise of a realtor will help you navigate the sales process.

Prioritize Repairs and Improvements: Before listing your home, it is important to go through room-by-room and address any issues such as chipped paint, small holes in the wall, broken fixtures, old appliances, etc. Correcting these minor issues will help your home truly shine when buyers walk through.

Clean and Stage Your Home: Now that you have made the necessary minor repairs, you can start staging your home! Start with the exterior of your home and ensure you tidy up the yard, remove any junk and wash your windows! When it comes to the interior of your home, you will want to declutter and do a deep clean (a professional cleaning service can come in handy for this!). Once your home is decluttered and clean, your real estate agent can help you stage it so that it appears spacious and inviting.

Consider a Pre-Listing Inspection: Once you are ready to list your home, it can be a good idea to consider a pre-listing inspection. The inspector would conduct a complete visual inspection of all interior and exterior elements (including HVAC systems, wiring, ceiling, chimneys, gutters, etc.), which would help put prospective buyers at ease.

Organize The Paperwork: There is a lot of paperwork when it comes to selling your home. Having all of these documents organized and together for potential buyers will help to speed up the process and allow them to address any questions before the deal is finalized. Permits, renovation or repair receipts, warranties, rental agreements and copies of your utility bills are all good records for potential buyers.

Whether you are looking to buy or sell, it is important to work with a trusted real estate and Dominion Lending Centres mortgage expert to ensure the best outcome for you and your family!

1 Mar

Is a Reverse Mortgage Right for You?

General

Posted by: Mark Couto

A reverse mortgage is a versatile and flexible financial solution for Canadians in their retirement years. Homeowners 55+ are unlocking their home equity for tax-free funds that don’t have to be repaid until they decide to sell their homes.

Consider these four reasons Canadians 55+ turn to the CHIP Reverse Mortgage by HomeEquity Bank:

1. Alleviate the stress of debt.

You are struggling with mortgage payments and credit card bills, prefer not to tap into savings or investment portfolios, or are incurring more debt due to unavoidable expenses.

2. Pay for unplanned expenses.

You are faced with unexpected home repairs such as a leaky roof, retrofitting for mobility reasons, or need to hire in-home healthcare to assist with day-to-day.

3. Want to live life to the fullest.

You have more time to do the things you want – but not the funds. For example, you want to purchase a summer property or take your dream vacation.

4. Maintain a standard of living.

You are experiencing a shortfall in your retirement funds while trying to maintain the lifestyle you and your family are accustomed to.

If you relate to any of the above scenarios, contact your DLC Mortgage professional for details on how the CHIP Reverse Mortgage by HomeEquity Bank can help you.

(Courtesy of HomeEquity Bank)