Mortgage Rates Up Due to Inflation
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How to Get a Home Loan When You Own a Home-Based Business
AND NOW A GUEST ARTICLE BUY Derek Goodman …
How to Get a Home Loan When You Own a Home-Based Business
When your home-based business starts to grow, this is a good thing. But what if it’s growing so much that you need to purchase a larger home? This can get tricky because applying for a home loan when you own your own business is sometimes a little harder than when you are employed by a company. But don’t let this dissuade you! It is perfectly possible for a small business owner to apply for — and get approved for — a home loan. Here are some of the ways you can improve your chances.
Keep your records organized.
Staying organized is important for keeping your business running smoothly, in general, but it’s especially crucial when you’re preparing to apply for any kind of loan. All of your tax returns, payroll records, and sales records should be saved for at least three years, but holding onto them longer is advisable so that you yourself can track business progress. Other records, such as employment taxes and bad debt reduction claims, should be kept even longer. You should keep both digital and paper copies of your financial records. Having good accounting software will help you stay organized and accurate. If you are working with an accountant, ask them to help you maintain your records.
Don’t take so many write-offs.
This may sound counter-intuitive, but if you intend to apply for a home mortgage sometime in the near future, start reducing your tax deductions. Yes, typically you want those deductions for equipment, travel, and other expenses. But in this case, they could hurt your chances. Talk to your accountant about your plans to get a loan and upsize your residence. They can help you figure out how many deductions to take, so your income doesn’t look too low.
Try to get rid of some debt.
Raise your eligibility for a loan by getting rid of debt. There are several ways you can do this. See whether your loans can be consolidated into a single sum with lower interest. Pay off your higher-interest loans first, if possible. Or, try using the snowball method of debt reduction, which involves paying off debts based on the size of the balance, starting with the lowest. You may even be able to get your creditors to work with you by lowering interest rates. Reducing debt may also free you up to make a larger down payment, which is another way you can increase your purchasing power.
Find a less expensive home.
If you can find a residence that meets your needs for a lower cost, you can take out a smaller loan. Study the market to see where property prices are lower. If it’s possible for you to run your business outside city limits, rural properties are often less expensive. Or, look for homes that are being sold as-is. A house that is sold as-is means exactly what it sounds like: There will be no room for negotiations with the seller regarding needed repairs. This doesn’t necessarily mean the home will be in disrepair. Some homeowners sell as-is just to facilitate a quick transaction, which could also work in your favor. Nevertheless, consult a lawyer and have the home inspected before moving forward.
Applying for a loan as a self-employed business owner is certainly more work due to the extra documentation required. If you’ve been writing off expenses, your debt-to-income ratio may look lower than it would otherwise. But you should still be able to get a loan and upsize to house your business if you plan well and maintain good records. If you’re considering a mortgage for a home purchase in Calgary, contact Mark Herman for a customized mortgage that meets your unique needs. Call 403-681-4376.
Best,
Derek Goodman
Post-Covid Home Demand to Continue – Data
What is everyone doing with the money they saved during Covid?
- Eating out, travel, debt reduction and BUYING HOMES!
- Mortgage rates are low and home prices are close to 2005 levels!
Mortgage Mark Herman, Top Calgary Alberta Mortgage Broker
Latest Bank of Canada Survey:
As COVID-19 continues to be pushed down in Canada, consumer spending is expected to go up. The latest survey by the Bank of Canada suggests that will lead to an even greater demand for homes.
The Bank of Canada’s Survey of Consumer Expectations… indicates:
- 40% of respondents managed to save more money than usual during the pandemic.
- They expect to spend about 35% of those savings over the next 2 years on activities that have been restricted during the pandemic, such as dining out.
- Respondents plan to put 10% of their savings toward debt repayment and
- 10% toward a down payment on a home.
14% plan to buy a home soon, much of that was driven by renters, with 20% saying they want to get into the market.
80% of the respondents who have “worked from home” expect to continue with that and there is a consistent with the shift in demand for larger properties, away from city centres.
Inflation & Mortgage Interest Rates
- 5 Year fixed are going up and never getting back down to where they are now.
- Variables are also great – right now they are Prime – 1% or 2.45% – 1% = 1.45%, and as below, should stay there until 2023! Almost 20 more months!
Both of these are awesome options right now.Mortgage Mark Herman, Top Calgary Alberta mortgage broker for 1st time home buyers
Bond traders believe inflation is going to be rising over the coming months and have been demanding increased bond yields. That has led to increasing interest rates for bonds and, consequently, increasing rates for the fixed-rate mortgages that are funded by those bonds.
The traders say the COVID-19 vaccine rollout and plans for vast infrastructure spending – particularly in the U.S. – are boosting expectations of a broad recovery and an increase in inflation. Better than expected GDP growth in Canada and shrinking unemployment in the U.S. would tend to support those expectations.
This, however, puts the traders at odds with the central banks in both Canada and the United States.
The Bank of Canada and the U.S. Federal Reserve also expect inflation will climb as the pandemic fades and the economy reopens. There is a pent-up demand for goods and services, after all. The central banks see that as transitory, though, and appear to be looking past it. The U.S. Fed has gone so far as to alter its inflation target from 2% to an average of 2%, over time, thereby rolling any post-pandemic spikes into the bigger, longer-term calculations.
The Bank of Canada and the Fed have committed to keeping interest rates low, probably through 2023. Both say inflation will have to be sustained before interest rate moves are made to contain it. The integrated nature of the Canadian and American economies means it is unlikely the BoC will move on interest rates before the U.S. Fed.
$37,000 Payout Penalty at CIBC
The latest in giant payout penalties, this one was $47,291.
Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)
To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.
- Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
- Would you sign an agreement like that?
- Have you already signed an agreement like this without knowing you have?
EASY to AVOID …
You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.
Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.
Broker banks also have better Terms & Conditions than the Big-6.
Link to the article: https://toronto.ctvnews.ca/american-who-sold-home-in-toronto-shocked-by-47-000-mortgage-penalty-1.5212884
“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”
Mortgage Mark Herman, Top Rated Calgary Mortgage Broker
$47,000 Payout Penalty
“Talk to a mortgage broker before you get a mortgage; even if it is at your own bank” says Mark Herman, Top Calgary mortgage broker.
In this case the bank loved this guy’s money, and did not listen to what he wanted. Now he has a $47,000 payout penalty.
If he went with a mortgage broker bank/ lender the payout would be $5,875. Eight, yes, 8 times less. Or $41,000 LESS.
Also see our post for OUR ALMOST customer who had his bank match our rates, but not our lenders Terms and Conditions. Now he has paid a $35,000 payout penalty. If it was at the lender we recommended it would have been $5,500.
https://toronto.ctvnews.ca/american-who-sold-home-in-toronto-shocked-by-47-000-mortgage-penalty-1.5212884?fbclid=IwAR3dmveUnldnmjcMSGEVXrSvcOr4UFtnEKoNPVjFPe02mp0HZ0CuqxC6mS8
Variable rates to hold steady for 2019
Here is the latest on changes to the Prime rate for variable mortgages. The news is good as Prime is now expected to stay the same for the balance of 2019!
Remember:
- Variable rates can be locked in at any time for what the rates are on the day you lock in on.
- The maximum payout fee for is 3 months of interest
Rate hike disappears over the horizon
The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.
The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.
A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans. Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year. Now the betting is for no change until early 2020. There is virtually no expectation there will any rate cut before the end of next year.
The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks. World economies have hit a soft spot largely due to trade uncertainties between China and the United States.
This is good news for variables
Mark Herman, Top Calgary Mortgage Broker
the WORST: Mortgages @ Big-6 Banks
This blog summarizes why getting a mortgage from 1 of the Big-6 banks is the worst idea:
- Rates are higher; ranging form .25% to .55% higher
- Terms & Conditions are no where near as good:
- Collateral charges: http://markherman.ca/?s=collateral
- payout penalties: http://markherman.ca/?s=payout+penalties
Here is the article that is fully correct:
Big Banks vs. Broker Lenders:
Always talk to a mortgage broker before buying, or renewing or refinancing your mortgage
Mark Herman; Top Calgary, Alberta Mortgage Broker
Moving to YYC: How to buy ASAP
Moving to Calgary and Buying a Homes As Soon As Possible
This is a common question, and as usual, the way the banks / lenders want things done is exactly the opposite of what works in real life, for real people, like you.
You Want: To buy a home in Calgary, move the family in, get settled and then start the new job – RIGHT! That makes the most sense.
The Lenders want:
- You to have 1 full-cycle payslip BEFORE then will fund your mortgage and
- You to be completed the 90 day probation if you have a probationary clause in your new employment
Why?
PAYSLIP: The first full-cycle pay-slip – meaning 2 full weeks of pay – critically needs to match your employment letter / job offer at 40.00 hours; or whatever it is that you are guaranteed for pay. If it does not match, then your income is not guaranteed, and the lenders want to see guaranteed pay.
39.97 hours is not 40.00 hours; it means the 40 hours is not guaranteed and the lenders often decline to fund your mortgage.
PROBATION: In Alberta, you can be let go for no reason in the first 90 days of employment – even if you are NOT on probation. It does not matter if there is/not a reason, it is the law.
Obviously, if you just moved here, bought a home and are let go, the odds of you moving back are high. And the bank is left in the risky position of losing money on the home or making an early CMHC claim. Which is why they want to see either: NO probation, or a shortened & completed probation period, or a completed probation period.
Work-Arounds:
- Workaround 1: We recommend and often see new employees specifically asking for no or short probation periods. You are taking the risk moving here, the employer is often willing to waive the probation – which can be the key to speeding a home purchase.
- Workaround 2: Depending on how your math works out, you may be able to carry 2 mortgages at 1 time. There are 2nd Home Programs that can work for situations like this, but again, the math is different for everyone.
How to make the move as smooth as possible
The smoothest way to buy a home when relocating is to start the job first. Ask for the employer to waive or shorten the probation period. Then rent, stay with friends, or anything that works for the first 2 or 3 weeks. Then when you have a full-cycle pay slip you can buy a home that works for you and take possession as soon as possible is a much smoother transaction. Otherwise you are “trying to push a rope up a hill” and the bank’s don’t like that at all.
We see issues with people buying too soon all the time. Forcing the system often backfires on new home owners. The resulting brain damage is not worth trying to do the transaction backwards in the eyes of the banks.
Mark Herman; top Calgary Alberta Mortgage Broker, with best rates
How the Big-5 Banks Trap You in Their Mortgages
- what your credit score is
- your pay and income going into your accounts
- your debt payments
- other debt balances on your credit report
- your home/ rental addresses so they can accurately guess at your home value.
Highlights of the article link below are:
Canada’s biggest banks are tightening their grip … as new rules designed to cut out risky lending make it harder for borrowers to switch lenders … the country’s biggest five banks … are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.
“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said Eight Capital analyst Steve Theriault. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), the country’s biggest lender, said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations and also to improvements it has made to make it easier for customers to renew.
Ron Butler, owner of Toronto-based brokerage Butler Mortgage, said the changes leave borrowers with less choice.
“Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.
Senior Canadian bankers such as RBC … and TD … voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.
While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.
“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.
Link to the full article is here: https://business.financialpost.com/news/fp-street/canadas-big-banks-tighten-grip-on-mortgage-market-after-rule-changes
We saw the “Mortgage Renewal Trap” coming long ago when the Stress Test was announced. It is more important than ever to consider Mortgage Broker Lenders for your mortgage now.
Mark Herman, Top Calgary Alberta Mortgage Broker.