Mortgage Tips for Canadian Buyers
Buying a home should be exciting – not exhausting.
Mortgage Checklist
1. Determine your Budget
Determine what your monthly budget is for the following:
– Mortgage payment
– Property taxes and Condo fees (if applicable)
– Utilities, maintenance and repair
2. Pre- Qualification
You will be asked to provide information about yourself and whoever is going to be on the mortgage with you. All of the information that is relayed is strictly confidential. You will be provided with a Mortgage Disclosure and Consent document to review and sign. Next, your Mortgage Broker will pull your credit bureau and review your overall situation and start the document collection process so they can determine your maximum purchase price and min down payment. A rate hold can be obtained once documents have been reviewed.
3. Document Preparation
Income for Salary or Hourly Employees
– Most recent Pay Stub
– Letter of employment – must be on company letterhead and state your name, position, length of employment. Guaranteed min # of hours and rate of pay or annual salary. It also must have contact information for the lender to call to verify employment once an offer has been made.
– Last 2 years Notice of Assessments (NOAs), T1 Generals and T4 slips for any hourly overtime, commission or bonus income
Income for Self-Employed:
– Last two years Notice of Assessments and T1 generals + confirmation no CRA tax in arrears
– Last 2 years statement of business activities for Sole Proprietors
– Articles of incorporation and Last 2 years company financials for Corporations/Partnerships
Down Payment/Closing Costs
– Anti Money Laundering Laws require the lender to review your 90 day Bank or Investment account histories to verif funds in account for down payment. Any frequent or large deposits and transfers must be verified. Online statements are acceptable, but smartphone screenshots are not.
– Gift letter + gift funds deposited to account, proof of Line of Credit available or sale of existing home proceeds (if applicable)
– You are required to have 1% to 1.5% of the purchase price on top of your down payment for costs relating to the closing of your new home purchase such as home inspection, property tax adjustments, appraisal fees, title insurance, moving expenses, utility hook ups and home fire insurance.
4. Find a realtor and start looking at houses
If you do not already have one, we can highly recommended you to one of our realtor connections. You can the proceed to look for a home that is within your pre-determine price. When you have found a house that you want to purchase, make sure your realtor makes it conditional on obtaining satisfactory financing. It is best to specify 7 to 10 days. It is also recommended to include the condition of a satisfactory house inspection.
5. Mortgage Approval
Once you have a confirmed Offer to Purchase on a house, notify your Mortgage Broker right away so they can start to work on getting the mortgage approved. At this time you will need to give your Mortgage Broker the following documents:
– Updated paystub, job letter and down payment account histories if they are more than 30 days old
– Completed & signed Offer to Purchase
– MLS listing (fact sheet) of the property, if private sale – old MLS listing or appraisal to confirm details
– Lawyer Information (Including the firm and solicitor’s name, address, phone and fax)
– Copy of void cheque for mortgage payments
6. Commitment Signing
A mortgage commitment is provided to your Mortgage Broker by the lender after your deal is approved. Your Mortgage Broker will spend time to review your mortgage commitment with you and let you know about any other lender requirements that need to be fulfilled. You then need to submit those requirements in order to get a final mortgage approval.
7. House Appraisal and Inspection
If required, your Mortgage Broker will order and schedule an appraisal. The mortgage lender determines th requirement of this. This is also the time where you should arrange to have an inspection performed on the home by a certified house inspector. The main purpose of a home inspection is to determine if the home has any existing major defects or any major repairs coming up in the near future. A home inspector will determine structural and mechanical soundness, identify any problem areas, provide cost estimates for any work required and provide you with a report.
8. Condition Removal
Once the lender has confirmed they have all the required documents and the deal is approved you can contact your realtor and have the financing condition removed. At the same time, if the home inspector’s report came back satisfactory, that condition can be removed as well. Do not remove conditions until all amendments to your real estate contract have been reviewed and accepted by the lender as it could affect your financing.
9. Meet with Lawyer
Once all of the conditions for the mortgage are verified and approved, the lender will package your mortgage up and send it to your lawyer whereupon your lawyer will call you in for a meeting one to two weeks before your possession date to go over the legal matters of the mortgage. You will review and sign documents relating to the mortgage, the property you are buying, the ownership of the property and the conditions of the purchase. Your lawyer will also ask you to bring a certified cheque or bank draft to cover closing costs and any other outstanding costs. Avoid signing up for duplicate Mortgage Life/Disability insurance at lawyers.
10. Possession Day
Once the transfer of money has occurred between your lawyer and the seller’s lawyer, you will officially own your new home. Your realtor will arrange to meet with you at your new home and do a walk through to make sure everything is as it should be and also to give you the keys. Congratulations!
Creating happy homeowners by providing personal bespoke mortgages solutions with uncompromising service.
Mortgage Mark Herman
Mortgage Broker & Overall Happiness Creator
Mortgages Are Marvellous
Mark@MortgagesAreMarvellous.ca
Serving Clients In: Calgary, Okotoks, Airdrie, Strathmore, Cochrane, Lethbridge, Red Deer,= & Medicine Hat.
Also Serving: All areas of Alberta including: Edmonton, Sherwood Park, Fort Saskatchewan, Leduc, Nisku, Stony Plain, Spruce Grove, Beaumont and St. Albert. Wood Buffalo / Fort McMurray, Grande Prairie, Airdrie, Lloydminster AB, Okotoks, Cochrane, Camrose, Chestermere, Sylvan Lake, Brooks, Strathmore, High River, Wetaskiwin, Lacombe, Canmore, Morinville, Whitecourt, Hinton, Olds, Blackfalds, Taber, Coaldale, Edson, Banff, Grand Centre, Innisfail, Ponoka, Drayton Valley, Cold Lake, Devon, Drumheller, Rocky Mountain House, Slave Lake, Wainwright, Stettler, St. Paul, Vegreville, Didsbury, Bonnyville, Westlock, Barrhead.
How sudden job loss affects your mortgage pre-approval or approval
If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?
While the sudden loss of employment is always a possibility, the current uncertainty of our economy has made more people think about the stability of their income. Whether you’ve already made an offer on a home or you’ve just started looking, here is how job loss could affect your mortgage approval.
What role does employment play in mortgage approval?
In addition to ensuring you earn enough to afford a mortgage payment; mortgage lenders want to see that you have a history of consistent income and are likely to in the future. Consistent employment is the best way to demonstrate that.
To qualify for any mortgage, you’ll need proof of sufficient, reliable income. Your mortgage broker will walk you through the income documents your lender will need to verify you’re employed and earning enough income. So, if your employment situation is questionable, you may want to reconsider a home purchase until your employment is more secure.
Should you continue with your home purchase after you’ve lost your job?
What if you’ve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing. If we are aware of this change we may be able to work it out with the lender.
What if you don’t tell the lender or us – your broker – and hope the lender does not find out?
The lender will probably “pull your financing” if they find out on their own, and this can happen right up to the minute before possession, like 11:59 am on possession day.
At best, you may “close late” and there are fees for that, at worst, you could both:
· Lose your deposit that you gave and
· Be sued for “specific performance” of completing a legal and binding contract to buy the home. If the sellers need the funds to close on another house, they could “fire sale” the home for say $50,000 less and sue you for that to. And you will probably lose.
If you’ve already gone through the approval process, then you know that your lender is looking for steady income and employment.
Here are some possible scenarios where you may be able to continue with your purchase:
- If you secure another job right away and the job is in the same field as your previous employment at a direct competitor. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period (usually three months), you might not be approved.
- TIP: ask if you can have probation waived or be hired without probation.
- If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
- If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered if we have not used that income to qualify you please tell us.
Can you use your unemployment income when applying for a mortgage?
Generally, Employment Insurance income can’t be used to qualify for a mortgage. The exceptions for most financial institutions are seasonal workers or people with cyclical employment in industries such as fishing or construction. In this situation, you’ll be asked to show at least a 2-year cycle of employment followed by Employment Insurance benefits.
Also if you are in an apprenticeship, then you are on EI when you are in your “school term” and that is totally fine.
What happens if you’re furloughed (temporary leave of absence)?
Not all job losses are permanent. As we’ve seen during the COVID-19 pandemic, many workers were put on temporary leave. If you’ve already been approved for a mortgage and are closing on a house, your lender might take a “wait-and-see” approach and delay the closing if you can demonstrate you’ve only been furloughed. In these cases, you’ll need a letter from your employer that has a return-to-work date on it. Keep in mind, if you don’t return to work before your closing date, your lender will likely cancel the approval and ask for a resubmission later.
If you haven’t started the application process, it would be wise to wait until you are back to work for at least 3-months to demonstrate consistent employment.
Your credit score and debt servicing ratios may change because of lost income, which means you may no longer meet your lender’s qualifications for a mortgage. While it may not be possible, try to avoid accumulating debt or missing any payments while unemployed.
Talk to your mortgage broker.
You don’t want to get locked into a mortgage you can’t afford. You also don’t want to lose a deposit on a home because you lost your financing. When trying to assess if it’s better to move forward or walk away, we should be your first call.
Investment Mortgages WILL Be Harder to Get in 2023!
Its true! This thing called Basel 3 will make it harder to get an investment mortgage in 2023!
Lots of junk below, the short version is:
Canadian banks will need to apply more risk to investor mortgages and to lower that risk they may:
- Increase the down payment needed from 20% to a higher amount … maybe 25% or 30%
- Lend to fewer investors – which already make up 25% to 30% of the Canadian market.
- New Zealand already started 40% down payment for investment properties!
“Avoid the new rules by buying your investment property in 2022!
Mortgage Mark Herman, top Calgary, Alberta mortgage broker.”
DETAILS: Canadian Bank Regulator Confirms Investor Mortgage Reduction Coming Next Year
Canadian real estate investors are about to face higher hurdles to enter the market. The Office of the Superintendent of Financial Institutions (OSFI), Canada’s bank regulator, confirmed new rules being rolled out in Q2 2023. The rules are a part of international Basel III guidelines, designed to reduce risk in the system. One critical change for real estate will be raising the risk weight for investor mortgages. This will reduce their leverage, which OSFI cites as a key response to housing risk. It’s still early, but here’s what we could dig up.
The Basel Trilogy and Global Financial Risk Reduction
The Basel reforms are a global set of measures for prudential bank regulation. They were developed by the Basel Committee On Banking Supervision (BCBS). The BCBS is a 45-country group hosted by the Bank of International Settlements (BIS). The BIS is often called, “the central bank for central banks.” It’s also jokingly called the “final boss” by Bitcoin investors.
We know, it’s a lot of banking jargon and acronyms, but what they do is straightforward. Their job is creating non-partisan risk reduction standards for the global financial system. Since the world’s financial system is now interdependent, problems spill across borders. They stepped up their game after a housing bubble in the US caused a global financial crisis (GFC).
The Basel Accords are a trilogy of policy where the common goals were set. The original happened before many of you were born (1988), but Basel II and III occur after the 2007-2008 GFC. No, circle back. GFC doesn’t stand for Gesus F*cking Christ, we just explained it’s the Global Financial Crisis. We’re also worried about your spelling skills.
The Second Accord primarily addressed minimum capital adequacy requirements. In other words, how much financial institutions had on hand compared to what they lend. Basel III was held in 2010, and mostly just improves the recognition of risk.
A good chunk of BASEL III reforms have already been implemented. Increasing Common Equity Tier 1 (CET) to 4.5% of risk-weighted assets (RWAs) from 2% in BASEL II, is one example. It happened in 2015 and almost no one heard a sound. The measures have been gradually introduced to create as little noise as possible. Though real estate investors might make some noise with the next update.
Basel III Will Land In Q2 2023, and It Will Lower Investor Mortgage Leverage
Basel III will increase the capital requirements for investor mortgages. “as part of the domestic implementation of Basel 3 reform package” in banks’ fiscal Q2-2023, we are increasing the risk weights, and thus capital required, for investor mortgages compared to the risk weights for owner-occupied properties,” said OSFI this morning.
That only tells us a reduction in leverage by Q2 2023 is coming, but not how much. OSFI said they’ll get back to us with what that means for down payments soon. We’ll update as soon as they do, but in the meantime we can get an idea of what we’re in for, from Basel III guidelines.
New standardized credit risk assigns a 30% risk weight to residential real estate. Next year income producing properties with a loan-to-value between 60% and 80% will have a risk weight of 45%. A bank will assume 50% more risk weight for an investor mortgage than an owner occupied home. i.e. owner-occupied mortgages with 20% down have similar risk to investor mortgages with 30% down.
There’s no direct translation of how that’s mitigated. They could want 10 points more for a mortgage, or they can offset risk in various other ways. Raising the risk premium on interest or lending less would be two methods to deal with it. None of those are particularly great for investors, now between 25% and 30% of home sales in Canada. It will slow demand though, which is probably needed.
Raising the down payment is already occurring in other countries like New Zealand. Last year the country increased the minimum downpayment for investors to 40% of the value. Mortgage Professionals Canada (MPC) recently suggested a similar arrangement for Canada. Yup! The organization that represents mortgage brokers suggested it as just a cooling measure. Not even a Basel III mitigation.
The Federal Government has yet to address the issue, probably since most don’t know it’s coming. That means we don’t know if they’ll help reduce the leverage for political points or it’ll come from the banks. One thing’s for sure though — it’s coming next year.
How a job loss affects your mortgage approval
If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?
While the sudden loss of employment is always a possibility, the current uncertainty of our economy has made more people think about the stability of their income. Whether you’ve already made an offer on a home or you’ve just started looking, here is how job loss could affect your mortgage approval.
What role does employment play in mortgage approval?
In addition to ensuring you earn enough to afford a mortgage payment; mortgage lenders want to see that you have a history of consistent income and are likely to in the future. Consistent employment is the best way to demonstrate that.
To qualify for any mortgage, you’ll need proof of sufficient, reliable income. Your mortgage broker will walk you through the income documents your lender will need to verify you’re employed and earning enough income. So, if your employment situation is questionable, you may want to reconsider a home purchase until your employment is more secure.
Should you continue with your home purchase after you’ve lost your job?
What if you’ve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing.
If you’ve already gone through the approval process, then you know that your lender is looking for steady income and employment.
Here are some possible scenarios where you may be able to continue with your purchase:
- If you secure another job right away and the job is in the same field as your previous employment. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period (usually three months), you might not be approved. Consult your broker.
- If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
- If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered under the right circumstances.
Can you use your unemployment income when applying for a mortgage?
Generally, Employment Insurance income can’t be used to qualify for a mortgage. The exceptions for most financial institutions are seasonal workers or people with cyclical employment in industries such as fishing or construction. In this situation, you’ll be asked to show at least a two-year cycle of employment followed by Employment Insurance benefits.
However, it’s not the ideal situation and most lenders won’t be willing to approve your mortgage under those conditions.
What happens if you’re furloughed (temporary leave of absence)?
Not all job losses are permanent. As we’ve seen during the COVID-19 pandemic, many workers were put on temporary leave. If you’ve already been approved for a mortgage and are closing on a house, your lender might take a “wait-and-see” approach and delay the closing if you can demonstrate you’ve only been furloughed. In these cases, you’ll need a letter from your employer that has a return-to-work date on it. Keep in mind, if you don’t return to work before your closing date, your lender will likely cancel the approval and ask for a re-
submission later.
If you haven’t started the application process, it would be wise to wait until you are back to work for at least three months to demonstrate consistent employment.
Your credit score and debt servicing ratios may change because of lost income, which means you may no longer meet your lender’s qualifications for a mortgage. While it may not be possible, try to avoid accumulating debt or missing any payments while unemployed.
Talk to your mortgage broker.
“You don’t want to get locked into a mortgage you can’t afford.
You also don’t want to lose a deposit on a home because you lost your financing.
When trying to assess if it’s better to move forward or walk away, we should be your first call.”
Mortgage Mark Herman; Calgary Alberta Mortgage Broker
The Virus & Deferring: Another reason not to have your mortgage at your bank
Another reason not to have your mortgage at your main bank…
Many home owners have all their banking in one place for convenience but this is another “trap.” If everything is at your favorite bank, they can see:
- from your pay deposits if you are still working, or are receiving EI payments.
- what your debts and minimum payments are,
- your savings & checking balances, what your Line-of-credit is, and your credit score.
- they know the value of your home and the mortgage amount.
With all of this data on hand, the bank can decline your deferral and suggest that you use more funds from savings or line-of-credit to make the payments.
Mortgage Mark Herman, Top Calgary Mortgage Broker
Someone who has lost their job, or has reduced pay, due to the virus, is not going to react well to having their bank tell them to continue to make payments from savings or LOCs.
The Deferral Trap
If you have the ability to not defer and can continue to make the payments it will keep you out of the “Deferral Trap.” The “Trap” is when all the payments that were deferred, and the interest not yet paid, needs to be repaid or the lender could renew you at any rate they want; like posted rates. The only way you could change banks and/or still get a competitive rate would be to catch up all the owed funds.
Up to the Banks to allow you to defer … or not.
The mortgage insurers are leaving it to the lenders to decide if they will defer payments or not and the banks have not published any guidelines on how they are going to deal with this. Reviews so far range from, “super-easy, no questions asked, deferred for 6 months” to the other end of the spectrum with “your mortgage is too new” or if you have not been laid off, have not tested positive for Covid-19, or your credit is not good enough, or they want to redo the entire mortgage application, then it is their choice to allow the deferral. The way around this would be to contact your mortgage insurer directly to see if you can work through them if your bank is not cooperating.
UPDATE: NHBI Canada
Here is an UPDATE to the Canadian New First Time Home Buyer Incentive Program
A Calgary lawyer recently had an opportunity to review the program and attend a basic seminar. He said he would not recommend the “down payment equity share” program to a first time home buyer for the following reasons – BUT here are our replies … and the Program DOES make sense to do.
NEGATIVE POINTS and the reasons FOR the program are below:
- It will take much longer to be approved for this program than for a normal mortgage loan and sellers may not accommodate the longer condition time.
- We normally pre-approve buyers with these files and this program in advance so there is no extra time needed at the lenders for conditions.
- The math for this program is complicated and buyers that use this program need to be pre-approved as they need the mortgage to match the affordability guidelines and to shop in the right price range.
- The extra time is at closing when 2 sets of documents are needed by the lawyer. As long as this is known in advance, the closing date can be long enough to allow for the extra paperwork to be requested and completed.
- Higher legal and appraisal costs will result as two separate mortgages have to be prepared and registered (one for the lender and one for the equity share) and an extra appraisal will have to be obtained and paid for by the owner if paying out the incentive mortgage prior to the ultimate sale of the property.
- A 1st and 2nd mortgages go on title at the same time as closing.
- Appraisal on purchase is not involved as it has to be a CMHC approved mortgage (CMHC is responsible for the appraisal in this case) and the program is based on the purchase price.
- If the owner wants to pay it off / back sooner, then an appraisal is needed at buyer cost ~$350.
- This would happen if the owner wanted to do extensive renovations to the home.
- An appraisal should not be needed on a bonafide sale, to a 3rd party, via a realtor, and when listed on MLS.
- An appraisal MAY be needed – as the owners cost – if the sale if it is a “private sale” and/ or believed to be below market value.
- (This is to stop the owner from selling the home to a family member for $1.00 and then attempt to repay the loan with $0.05.)
- The buyer has already saved many times the extra costs, savings are about $100 – $150/ month, from day 1. Paying-out at 10, 15, 20 years later … they have already saved $100 x 12 x 10 years = $12,000, in the bank, already.
- A disincentive to improve/renovate the property will exist as any appreciated value is shared with the government notwithstanding that they don’t contribute to the renovation costs.
- True.
- Upon repayment, improvements will be included when determining the market value, therefore the Homebuyer will have to consider the cost and benefit of the planned renovations, and decide whether to repay the Incentive prior to making any home improvements.
- IMPORTANT: It may be beneficial to the Homebuyer to repay the Incentive prior to conducting any major renovations to the home.
- A potential trap is being created for non-permanent residents who are legally authorized to work in Canada who can qualify to buy under this program but will have extreme difficulty in selling when their work permit expires as they will not have sufficient equity to satisfy the required withholding requirements under the Income Tax Act
- We have been the largest Mortgage Alliance brokerage in Canada for 6 years in a row, and we do about 20 deals a year for 9xx SIN buyers; 99% of our customers are unaffected by this.
- Again, this program is surgical in for who it works for. The program is not for everyone.
- It may be more difficult to refinance the property (it is not clear whether the Government will permit refinancing of the first mortgage and postpone their security to the new financing)
Updated rules have been released:
- The home CAN be refinanced without triggering repayment of the incentive, however, the shared equity mortgage will only be postponed to the outstanding balance that would otherwise be owing under the first ranking mortgage (i.e. no equity take-out will be permitted ahead of the shared equity mortgage).
Note:
- The combination of all charges on a refinance must not exceed 80%.
- This program DOES allow Assumption of the mortgage. Standard rules apply: full requalification by the parties assuming the mortgage directly with the lender. The standard on-going ramifications to the seller still apply.
- This program does NOT allow a PORT of the mortgage to another property. It would have to be paid out at that time.
- If refinancing of the first mortgage will not be possible without paying out the government’s equity share, then the first mortgage lender will have a captive borrower. The lender will have no incentive to reduce posted mortgage rates on renewal resulting in substantially higher interest rates in the second and subsequent mortgage terms for the homeowner.
- As above, the rules do allow the home to be refinanced without triggering repayment of the incentive.
- The renewal rate offered by the lender is independent of the 2nd charge on title.
Side note: We see that lenders are already applying the “Stress Test” under-the-covers on renewals when calculating the renewal rates. More on my blog here: http://markherman.ca/2019/06/
We love this New Home Buyer Incentive Program – NHBI
Mortgage Mark Herman; Best, Top Calgary Mortgage Broker
Updates to CMHC First Time Buyer Incentive Program
In March the federal government unveiled changes to the budget that included an interesting opportunity for prospective first time home buyers through an enticing program that they called a “shared equity mortgage”. This program could see Canada’s housing agency (CMHC) kicking in up to 10% of the purchase price of a home if certain conditions are met, therefore bringing down the mortgage load and monthly payment for first time home buyers.
In June, the federal government released further details for the new CMHC program. Under the fine print for the First Time Home Buyer Incentive Program, which will officially launch in September, the program is limited to first time buyers who earn under $120,000 annually. The CMHC would kick in up to 10% of the purchase price of the home, as long as the borrower comes up with the minimum down payment for an insured mortgage, which is currently 5%.
An additional stipulation is that the total value of the mortgage, plus the kick in from CMHC don’t exceed $480,000. According to government officials, this means the program will really only aid those shopping for properties worth a maximum of about $565,000, regardless of whether or not they have met the other requirements.
The “loan” from CMHC would be interest free, meaning no compounding costs to pay down, like a mortgage does. In exchange for its stake, the government says CMHC would get to participate “in the upside and downside of the change in the property value” – meaning they would be entitled to any corresponding increase in the value of a home when the buyer sells. On the other hand, CMHC would also be responsible for any share of the loss if the property depreciates.
This means on a home costing $500,000, if the buyer contributes $25,000 (5% down payment) and CMHC kicks in the same amount, CMHC would own 5% of the home. If the home were to appreciate to $600,000 when the home owner wants to sell, they would have to pay 5% of the sale price – in this case, $30,000 – not the original $25,000 CMHC contributed to begin with. Therefore, there will always be a bill to pay down the line. With that said, the kick in from CMHC would reduce the mortgage load and monthly payments, therefore making it easier for first time buyers to save over the life of the loan.
This table from CBC News shows the impact of a borrower of CMHC’s program. On the left is the cost if they went it alone. On the right shows how qualifying for CMHC program makes the same house more affordable:
Savings Over Time
While many are in support of the new program because it will help first time buyers and families across Canada, some financial advisers are not so sure. Rajiv Bissessur says “the program will likely help some people, but ultimately it amounts to just another form of debt for over leveraged borrowers.” It is an interest free loan, but a loan that will need to be paid back nonetheless.
Bissessur also said the cap of $480,000 won’t do much to help people who are shopping in more expensive markets, who are ultimately the people who need it the most.
The program must be paid back within 25 years, or whenever the buyer decides to sell. There is no financial penalty for buying CMHC out of its stake at any time, however homeowners will have to pay CMHC the fair share of the value of the home at the time.
We have yet to see if this program will prove to be “worth it” or if it is election promises.Mark Herman, top Calgary Alberta mortgage broker
Why you don’t want your mortgage at your main bank
The Big-5 banks do not love you, they love your money, and now they can “trap” you in their mortgages if you fail the Stress Test.
Highlights of the last post are below. The post from January is here: http://markherman.ca/how-the-big-5-banks-trap-you-in-their-mortgages/
The new mortgage rules – called the B20 – allow the banks to renew you at almost any rate they want – or at least not a competitive one – if your credit, income, or debts should mean you can’t change banks.
If your mortgage is at your main bank they can see:
- your pay and income going into your accounts
- debt balances on your credit report
- what your credit score is
- your debt payments
- your home/ rental addresses so they can accurately guess at your home value.
ALL THIS MEANS they can calculate if you can pass the new “Stress Test.”
If you can’t pass it then they know you can’t change banks, are you are now totally locked into them for your renewal. They can renew you at POSTED RATES … 5.34%, not actual discounted rates they offer everyone, today (June 2019) about 2.99%.
The GOOD NEWS is broker banks do not do any of this … so having your mortgage at your main bank only helps them “grind you” later on. …. so how convenient is having your mortgage at your bank now?
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 an analyst. “It’s had the unintended consequence of reducing competition.”
Royal Bank of Canada (RBC), said last month that mortgage renewal rates [are up …] due in part to the B-20 regulations.
Ron Butler said, “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.
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.
Schedule of Increased Alberta Real Estate Fees
Here is a schedule of the actual increase in fees.
For my comments on what this all means see my last post here
Please contact me by phone at 403-681-4376 or my email at mark.herman@shaw.ca
Data:
- Increases are only for 5% down payment buyers.
- Clients who get submissions in prior to June 1st will be eligible for old premiums.
- Effective June 1st, (owner occupied 1 – 4 unit) mortgage loan insurance premiums will be:
| Loan-to-Value Ratio | Standard Premium (Current) |
Standard Premium (Effective June 1st, 2015 |
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | 0.75% | 0.75% |
| Up to and including 80% | 1.25% | 1.25% |
| Up to and including 85% | 1.80% | 1.80% |
| Up to and including 90% | 2.40% | 2.40% |
| Up to and including 95% | 3.15% | 3.60% |
| 90.01% to 95% — Non-Traditional Down Payment | 3.35% | 3.85% |
All this from Mortgage Mark Herman, top Calgary Alberta mortgage broker for home purchases and mortgage renewals.