Where Will Rising Interest Rates Hurt Most?.

Financial literacy Arlind Anamali 2 Sep

Rising inflation combined with a strengthening post-pandemic economy gives both reason and opportunity for the Bank of Canada (BOC) to further raise interest through to the end of 2022 and beyond.

The 1% increase to the benchmark overnight rate in early July was a wake-up call that they were not bluffing and are prepared to act aggressively. Depending on how inflation trends, we could be looking at interest rates that are 1% or 2% higher within the next year.

Before jumping into the effects of higher interest rates, we should clarify one common point of misunderstanding about the prime rate and the BOC overnight rate. The prime rate is the basis for most variable rate loans, including mortgages and lines of credit. It is determined by the major banks and currently sits at 4.7%; 2.2% higher than the BOC overnight rate. Although these two rates are different, the key takeaway is that the prime rate moves in lockstep with any changes to the BOC rate, usually within a few days.

Now that we have that out of the way, just how will future interest rate hikes affect your debts?

Variable rate mortgages
The percentage of Canadians holding a variable rate mortgage surged in 2021 and now stands at about 50%. Any rise in the BOC rate is met by an equal rise in variable rate mortgages, so the impact is very clear and takes effect quickly. A 1% increase will add around $200 to the monthly payment on a $500K mortgage. Keep in mind that the interest rate has already rose 2.25% since the beginning of 2022!

Home equity line of credit (HELOC)
HELOCs usually have a variable interest rate that will rise in conjunction with any BOC rate hikes. A $100,000 balance carried on your HELOC will cost you about $20 more in interest each month for every 0.25% increase by the BOC.

Credit card debt
The interest rate on your credit card and how it can be adjusted are outlined in your cardholder agreement. There is usually little correlation between credit cards rates and the rates set by the central bank. However, credit card rates are already so astronomically high that it is unlikely you would even notice a 1% increase! Our advice is to attack any outstanding credit card balance ASAP.

Personal lines of credit
There are fixed and variable rate options out there. If you selected the lower variable rate when you signed your agreement, expect to pay more going forward on any outstanding balance.

Car loans
Most car loans in Canada are fixed, but the average fixed rate is rising quickly and now sits about 5.25%. While not common, variable rate cars loans are loans are available and your payment could be affected by interest rate hikes.

Student loans
There are provincial and federal student loan programs with different interest options so the effect of rate hikes will vary. The default choice for Government of Canada student loans is variable interest “at prime” with a fixed rate option at “prime + 2%”. The point is mute right now as interest charges are currently suspended, but variable rate student loan holders will see a significantly higher payment when interest charges resume in April of 2023.

Most of us will be paying more interest as we move through 2022 and into 2023. A mortgage or some other debt may be inevitable and not all debt is bad, but it’s important to understand your interest expense and adjust your repayment priorities accordingly. For powerful personal finance education and training with immediate results, check out the complimentary livestreams each week from Enriched Academy. View the schedule and sign up for upcoming sessions on their events page.

How Bridge Financing Works.

Mortgage Tips Arlind Anamali 14 Jun

In life, things rarely go as planned. This is especially true when it comes to real estate! When it comes to buying a new home, in a perfect world, most of us would like to take possession of their new residence before having to move out of the old one. This makes moving a lot easier and allows you time for painting or renovations prior to moving into your new digs. Unfortunately, this is where things get complicated.

Most people need the money from the sale of their existing property to come up with the down payment for the new house. This is where bridge financing comes in. Essentially, bridge financing allows you to ‘bridge’ the financial gap between the firm sale of your current home and the firm commitment to purchasing your new home.

WHAT ARE BRIDGE LOANS?

Bridge loans are short-term solutions that range from 90 days to 12 months, with an average of six months in length. This type of financing allows you to access some of the equity in your existing property, to put towards the down payment of your new home. However, to be eligible for a bridge loan, a firm sale agreement MUST be in place on your existing home, meaning all subjects have been removed. You will also require a purchase agreement for the new home to verify the amount required.

If you have not yet sold your home, you will not be eligible for bridge financing as the lender needs that to accurately calculate how much equity you have available and if you can afford your new home.

If you are currently looking to sell, or are in the midst of selling your home and considering bridge financing, it is important to understand that unless you can qualify and pay for two mortgages, you should always sell your existing home before purchasing a new one. There are a couple reasons for this:

  • Property values are constantly changing. You won’t know how much money you have until you sell your home as a home is only worth what someone is willing to pay for it NOW. Past sales and future guesses don’t count!
  • You need the proceeds from your existing home to help pay for the down payment on your new home, as well as renovations, moving costs and (if required) the size of mortgage you qualify for.

However, if you have firm sale and purchase agreements in place and are adamant about bridge financing, there are some things you should know.

getting bridge financing

If you have sold your existing home but the closing date comes after the closing date of the new property you just purchased, then bridge financing will likely be your best option.

Remember – in order to qualify you must have a firm sale agreement for your current home and a purchase agreement for the new home. If you don’t have a firm selling date you may need to consider a private lender for the bridge loan.

If you do have firm sale and purchase agreements and want to move forward with bridge financing, you also need to consider the lender. Your new lender may not allow for bridge financing as not all lenders do. It is important to consider whether or not you think you need bridge financing so you can ensure you sign with the appropriate lender. Utilizing a Dominion Lending Centres mortgage broker can help you find a lender that provides the options you need.

COSTS OF BRIDGE FINANCING

It is important to mention that bridge financing typically costs MORE than your traditional mortgage. It is best to expect the Prime Rate plus 2, 3 or 4 percent, as well as an administration fee.

Also, in some cases, if you require a loan over $200,000 or a loan for more than 120 days, your lender may register a lien on the property until the loan is repaid. In order to remove this lien, you will need to consider the added costs of paying for a real estate lawyer.

PRIVATE FINANCING

If you have purchased your new home and are closing the deal, but your existing home has not yet sold, you would not qualify for bridge financing and would therefore need to consider a private loan.

Private financing is expensive, but it is generally a more affordable option versus lowering the asking price of your existing home and losing out on tens of thousands just to sell quickly. Seeking out a specialized mortgage broker who has access to individuals that lend money out privately to get the best rate and terms available to you.

COSTS OF PRIVATE FINANCING

Private loans are dependent on having enough equity in your current property to qualify and are more expensive than traditional mortgages. Private loans have a much higher interest rate than traditional mortgages, which averages anywhere from 7-15 percent. The costs associated with a higher interest rate is in addition to an up-front lender fee and potential broker fee. These amounts will vary based on your specific situation with consideration to: time required for the loan, the loan amount, loan-to-value ratio, credit bureau, property location, etc.

When it comes to bridge financing and selling and buying of your home, don’t waste your time trying to figure it out on your own. Give a Dominion Lending Centres mortgage broker a call and we can help you determine your best option!

Why you need a home inspection.

Mortgage Tips Arlind Anamali 25 Apr

A home inspection isn’t a legal requirement when you buy a home in Canada. Yet, it’s certainly a wise decision for the largest purchase you will likely ever make.

Here are five reasons why you should opt for a home inspection when buying a home, even if it is a brand-new build.

  1. Things unseen

The home you want to buy may have a gorgeous skylight, cathedral ceilings and a huge master bedroom.  But the home’s aesthetics can hide big problems.

When you tour a house, you aren’t climbing into the crawl space or looking at the furnace. A home inspector isn’t wowed by beautiful staging. He or she will look at what’s in your walls, not what’s on them.

  1. Realistic budget for home maintenance

Many home inspections include the items that will need to be replaced within the next five years.

Paying for a home inspection can help you come up with a realistic home maintenance budget. If you know that the windows and roof are nearing the end of their lifespan, you can plan for that.

  1. A solid negotiation tool

Getting a home inspection gives you a huge amount of leverage. You can ask the sellers to fix some or all of the issues found during the inspection. Or you can renegotiate the sale price or ask the seller to contribute more towards closing costs.

With a home inspection, you have the upper hand in the deal. This gives you a lot of power to get a better deal on the purchase. Of course, you can also choose to back out of the sale if there are big, expensive issues that you’d rather not deal with.

  1. Can be an eye-opener

A home inspection will reveal the big picture when you might be focused on the location and the open kitchen plan. You don’t want to be blind to the potentially big issues like foundation cracks or electrical problems that can lurk unseen.

  1. Peace of mind

Lastly, and most importantly, a home inspection gives you peace of mind. You’ll be able to finalize the sale of a home knowing exactly what you’re getting yourself into. That way, you don’t uncover any major surprises shortly after moving in—even new builds are subject to issues.

Understanding Your Mortgage Rate.

Financial literacy Arlind Anamali 5 Apr

When it comes to mortgages, one of the most important influencers is interest rate but do you know how this rate is determined? It might surprise you to find out that there are 10 major factors that affect the interest you will pay on your home loan!

Knowing these factors will not only prepare you for the mortgage process, but will also help you to better understand the mortgage rates available to you.

credit score

Not surprisingly, your credit score is one of the most influential factors when it comes to your interest rate. In fact, your credit score determines if you are able to qualify for financing at all – as well as how much. In order to qualify, a minimum credit score of 680 is required for at least one borrower. Having higher credit will further showcase that you are a reliable borrower and may lead to better rates.

loan-to-value (ltv) ratio

This ratio refers to the value of the amount being borrowed as a percentage of the overall home value. The main factors that impact LTV ratios include the sales price, appraised value of the property and the amount of the down payment. Putting down more on a home, especially one with a lower purchase price, will result in a lower LTV and be more appealing to lenders. As an example, if you were to buy a home appraised at $500,000 and are able to make a down payment of $100,000 (20%), then you would be borrowing $400,000. For this transaction, the LTV is 80%.

insured vs. uninsured

Depending on how much you are able to save for a down payment, you will either have an insured or uninsured mortgage. Typically, if you put less than 20% down, you will require insurance on the property. Depending on the insurer, this can affect your borrowing power as well as the interest rates.

fixed vs. variable rate

The type of rate you are looking for will also affect how much interest you will pay. While there are benefits to both fixed and variable mortgages, it is more important to understand how they affect interest rates.  Fixed rates are based on the bond market, which depends on the amount that global investors demand to be paid for long-term lending. Variable rates, on the other hand, are based on the Bank of Canada’s overnight lending rate. This ties variable rates directly to the economic state at-home, versus fixed which are influenced on a global scale.

location

Location, location, location! This is not just true for where you want to LIVE, but it also can affect how much interest you will pay. Homes located in provinces with more competitive housing markets will typically see lower interest rates, simply due to supply and demand. On the other hand, with less movement and competition will most likely have higher rates.

rate hold

A rate hold is a guarantee offered by a lender to ‘hold’ the interest rate you were offered for up to 120 days (depending on the lender). The purpose of a rate hold is to protect you from any rate increases while you are house-hunting. It also gives you the opportunity to take advantage of any decreases to your benefit. This means that, if you were pre-approved for your mortgage and worked with a mortgage broker to obtain a ‘rate hold’, you may receive a different interest rate than someone just entering the market.

refinancing

The act of refinancing your mortgage basically means that you are restructuring your current mortgage (typically when the term is up). Whether you are changing from fixed to variable, refinancing to consolidate debt, or just seeking access to built up equity, any change to your mortgage can affect the interest rate you are offered. In most cases, new buyers will be offered lower rates than refinancing, but refinancing clients will receive better rates than mortgage transfers. Regardless of why you are refinancing, it is always best to discuss your options with a mortgage broker to ensure you are making the best choice for your unique situation.

home type

Among other things, lenders assess the risk associated with your home type. Some properties are viewed as higher risk than others. If the subject property is considered higher risk, the lender may require higher rates.

secondary property (income property/vacation home)

Any secondary properties or those bought for the purpose of being an income property or vacation home, will be assessed as such. The lender may deem these as high risk investments, and you may be required to pay higher interest rates than you would on a principal residence. This is another area where a mortgage broker can help. Since they have access to a variety of lenders and various rates, they can help you find the best option.

income level

The final factor is income level. While this does not have a direct affect on the interest rate you are able to obtain, it does dictate your purchasing power as well as how much you are able to put down on a home.

It is important to understand that obtaining financing for a mortgage is a complex process that looks at many factors to ensure the lender is not putting themselves at risk of default. To ensure that you – the borrower – is getting the best mortgage product for your needs, don’t hesitate to reach out to a DLC Mortgage Broker today! Mortgage brokers are licensed professionals that live and breathe mortgages, and who have access to a variety of lenders to ensure you are getting the best rates. Mortgage brokers can also assess your unique situation and find the right mortgage for you. Their goal is to see you successfully find and afford the home of your dreams and set you up for future success!

Investment Properties.

Financial literacy Arlind Anamali 9 Mar

So, you are looking to purchase a second property! Congratulations! This is a great opportunity for you to expand your financial portfolio and ensure stability for the future. However, before you launch into this purchase there are a few things you should know, depending on which type of second property you are looking to purchase.

SECOND PROPERTY WITH INTENTION TO RENT

Buying a property for the purpose of renting it out to someone else comes with different qualifying criteria and mortgage product options than traditional home purchases. Before you look at purchasing a rental property, there are a few things to consider:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used to qualify and determine how much you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income and subtract your expenses.
  3. Interest rates usually have a premium when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

VACATION PROPERTY

While vacation properties are not always the perfect investment, they are popular options for people who want to get away from it all and build memories in! If you’re motivated to head down that road, buying a vacation property is essentially like purchasing a second home.

If you are considering buying a unit within a hotel as a vacation spot (known as “fractional ownership”), it is important to note that if there is any mention of using your vacation home to provide rental income it will be treated like an investment property.

SECONDARY PROPERTY

Most people are trained to stay out of debt and don’t tend to consider using the equity in their home to buy an investment property, but they haven’t realized the art of leveraging. If you’re using equity from your primary residence to buy a secondary property, keep in mind that the interest you’re using is tax deductible. Consider that you’re buying an appreciating asset, and if you put a real estate portfolio and a stock portfolio side-by-side, they don’t compare.

WHO IS A GOOD CANDIDATE?

You might be surprised to learn that you don’t need to make six figures to get in the game. Essentially, you just have to be someone who wants to be a little smarter with their down payment. Before taking on a secondary property remember that the minimum down payment is 5% of the purchase price – unless you are intending to rent, in which case it is 20% down.

When it comes to purchasing a secondary property, whether for investment or rental or vacation, it can be a great opportunity! As your mortgage broker I can work with to find the best solution for your unique needs.

AIR BNB ON YOUR MIND?

More and More Canadians are hopping on the short-term rental train as Air bnb’s popularity has sky-rocketed over the last few years. It’s not a bad way to earn extra money, but don’t forget there are a few things to consider:

  • Check strata/city bylaws
  • Contact your insurance provider to get correct coverage
  • Talk to your mortgage broker to see if a short-term income property can affect your approval
  • Consider tax implications, and talk to an accountant.

The more services you provide as a host, the greater the chance that your rental operation will be considered a business.

 

Staying Out of the Penalty Box.

Mortgage Tips Arlind Anamali 11 Feb

When it comes to mortgages, it is easy to focus on the rates and your current situation, but the reality is that life happens and when it does, rates won’t be the only thing that matters.

First and foremost, the most important thing to remember is that a mortgage is a contract. That means that there is a penalty involved if the contract is ever broken. This is something that every homeowner agrees to when you sign mortgage paperwork, but it can be easy to forget – until you’re paying the price.

why break your mortgage?
You’re probably wondering why you would ever break your mortgage contract? Well, you might be surprised to find out that 6 out of 10 mortgages in Canada are broken within 3 years and there are typically nine common reasons that this happens:

Sale and purchase of a new home
To utilize equity
To pay off debt
Cohabitation, marriage and/or children
Divorce or separation
Major life events (illness, unemployment, death of a partner)
Removing someone from title
To get a lower interest rate
To pay off the mortgage
It is always important to think ahead when signing a mortgage agreement, but not everything can be planned for. In that event, it is important to understand the next steps if you do indeed need to break your mortgage.

calculating penalties
Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation or the sum of three months interest to determine the penalty. You will typically be assessed the greater of the two penalties, unless your contract states otherwise.

INTEREST RATE DIFFERENTIAL (IRD)
In Canada there is no one-size-fits-all rule for how the Interest Rate Differential (IRD) is calculated and it can vary greatly from lender to lender. This is due to the various comparison rates that are used.

However, typically the IRD is based on the following:

The amount remaining on the loan
The difference between the original mortgage interest rate you signed at and the current interest rate a lender can charge today
In this case, these penalties vary greatly as they are based on the borrower’s specific mortgage and the specific rates on the agreement, and in the market today. However, let’s assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to break your mortgage as it is not always the most viable option.

THREE MONTHS DIFFERENCE
In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above – balance of $200,000 on your mortgage, an annual interest rate of 6% – then three months interest would be a $3,000 penalty. A variable-rate mortgage is typically accompanied by only the three-month interest penalty.

When it comes to making the payment, some lenders may allow you to add this penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty up front.

Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid being stuck in the penalty box. If you cannot avoid a penalty, do note that, while only calculators can be great tools for estimates, it is best to call your lender or mortgage broker directly for the accurate number in the case of determining penalties.

If you are unsure about getting the best penalty terms, reach out to a Dominion Lending Centres mortgage broker today! They can help you find the best mortgage product for you.

How to Save with a Variable Mortgage.

Mortgage Tips Arlind Anamali 19 Jan

When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.

When it comes to variable versus fixed-rate, it is important to understand what these mortgages are based off of. Fixed mortgages are so named as they are based on a fixed interest rate that is set for the duration of the term with fixed payments. On the other hand, variable-rate mortgages fluctuate with the Prime Rate. This can either mean fluctuations in your payment, or if you choose to have set payments, the interest portion of the payment.

In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of January 2022. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.

While a variable-rate mortgage is linked to the Prime Rate, which could cause fluctuations, historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

However, due to the uncertainty and potential fluctuations that can occur with a variable-rate mortgage, it comes down to the borrowers comfort. Some individuals have no wiggle room in their budget for potential changes in mortgage payments, or they do not like the uncertainty. For these clients, a fixed-rate would be the best choice.

On the other hand, clients who qualify for variable-rate mortgages have a unique opportunity to take advantage of lower interest rates. If you have a variable-rate mortgage, you can either set a fixed-payment so that, if the interest rate drops, it means you are paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance to decreases in the Prime Rate. However, since every 10% increase in payment can save three years off the amortization of a five-year term, having fixed payments provide extra benefits. After all, extra pennies towards the principle can help make a difference over the life of a 25 or 30 year mortgage.

Let’s look at the following example:

Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 1.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple years.

When reviewing this mortgage, it is more beneficial for them to keep the remaining variable-rate in place for two years. However, if they set the payments based on 3.34% or $739 bi-weekly, this allows them to pay an extra $72 on their mortgage per month. In 24 months, the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate.

Another benefit to variable-rate mortgages is that, if you choose to sell before the mortgage term is up, the penalty is typically only three months interest as opposed to much heavier interest rate differential (IRD) calculations used to determine fixed-rate mortgage penalties.

With this strategy they don’t have to feel pressure to lock-in today, plus they can continue taking advantage of the lower variable rate.

If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact a Dominion Lending Centres Mortgage Professional. Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.

Refinancing your home.

Mortgage Tips Arlind Anamali 10 Jan

One of the best parts about life is that it is ever-changing. This is one of the reasons that mortgages are available on short-term contracts (such as the standard 5-year) so that you can adjust your mortgage over time to best suit your needs. However, in some cases you cannot wait until the term is up. In fact, roughly six out of ten homeowners with the standard five-year fixed rate mortgage break their terms within three years.

There are a variety of reasons to refinance your mortgage such as wanting to leverage large increases in property value or get equity out of the home for renovations. In some cases, you may be unable to wait until the term is up due to life events such as divorce, a new relationship, kids going off to college or needing to consolidate debt.

Before you refinance, it is important to understand that if you do this during your term you will be breaking your mortgage agreement and there are penalties that come with that. If at all possible, it is best to wait until the end of the mortgage term before refinancing.

If you cannot wait, it is important to understand how your lender is going to calculate the penalty if you break a fixed-rate mortgage. Canada’s big banks calculate mortgage penalties based on the discount you were given from the posted rate at the time that you signed your mortgage agreement. The bank firstly takes their new posted rate for whatever time you have left in your mortgage – if you break a five year contract on year three, this would be two years – and apply the same discount they first gave you. The difference between the two shows them the amount of interest they would lose for the rest of the term based on your current balance. This is what then becomes the penalty for breaking your fixed-year term and, in many cases, can be quite hefty. Other lenders such as credit unions and monolines will use the interest rate differential or a flat three-month interest penalty.

Beyond the penalties, there are a few other points to consider before refinancing:

You can tap into 80 per cent of the value of your home
You cannot qualify for default insurance which can limit your lender choice
You would have to re-qualify under the current rates and rules – including passing the “stress test” again
So what can you do? There is an option to sign a fixed rate for a shorter term, such as three years, or you can also consider a variable rate as the penalties for breaking these mortgages are much lower.

Talking to a mortgage broker about refinancing can provide you access to even greater rates and mortgage plans to best suit your needs and what you are trying to accomplish through your refinancing strategy.

BENEFITS OF REFINANCING
Regardless of why you are looking to refinance, it can come with a host of great benefits when done properly!

1. A Lower Interest Rate

Depending on where you are in your mortgage term, you could refinance to get a better rate – especially when done through a mortgage broker. On average, a mortgage broker has access to 90 lenders and is able to find you the best rate versus traditional banks which only have access to their own rate.

2. Consolidating Your Debt

When it comes to debt, there are many different types from credit cards to lines of credit to school loans to mortgages. However, many types of consumer debt have much higher interest rates than those you would pay on a mortgage. Refinancing can free up cash to help you pay out these debts. While it may increase your mortgage, your overall payments could be far lower and would be a single payment versus multiple sources. Keep in mind, you need at least 20 percent equity in your home to qualify.

3. Modifying Your Mortgage

The beauty of life is that it is ever-changing and sometimes you need to pay off your mortgage faster or change your mortgage type. Maybe you came into some extra money and want to put it towards your mortgage or maybe you are weary of the market and want to lock in at a fixed-rate for security. It is always best to do this when your mortgage term is up, but talk to a mortgage specialist about potential penalties if waiting is not possible.

4. Utilize Your Home Equity
One of the biggest reasons to buy in the first place is to build up equity in your home. Consider your home equity as the difference between your property’s market value and the balance of your mortgage. If you need funds, you can refinance your mortgage to access up to 80% of your home’s appraised value in cash!

If you are considering refinancing your home, or wondering if it is the best option for you, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today for expert advice!

There’s Always an Alternative.

Mortgage Tips Arlind Anamali 26 Oct

When it comes down to getting approved for a mortgage, there are a lot of factors and not everyone will qualify. So what are your options if the banks say “no”?

When conventional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, it is important to remember that there is always an alternative! That’s where alternative lenders come in.

what is an alternative lender?
While the big banks, monolines and credit unions – or “A lenders” as they are sometimes referred – are viewed as the gold standard in the mortgage industry, some people have no choice but to consider other options for financing.

If you’re seeking a mortgage, but your credit score is damaged in some way and big institutions won’t lend you the money, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space.

Much like the A Lender space, there are various companies which operate in the B lending space. Some B lenders are known as Mortgage Investment Companies (or MICs). Like the big banks, they’re still regulated, have shareholders and a board of directors and essentially act like a typical company. Equitable Bank and Home Capital are examples of other institutions that offer alternative options.

Alternative lenders cater to individuals which lack a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance). As a result, these lenders generally have lower entry qualifications, which are offset by higher interest rates.

WHY IS ALTERNATIVE LENDING NECESSARY?
CRA arrears
Income issues such as non-traditional income as with self-employed borrowers
Credit issues such as low credit score, credit arrears, current mortgage or even bankruptcies
Unexpected liens on title
Foreclosure situations
Unique financing needs/opportunities
private or unregulated lenders
Beyond B-lenders are another alternative, which are known as Private or Unregulated lenders. These could just be individuals with money who are looking to invest. They are not regulated by any agency, and their rates and fees could be quite high.

These lenders are not required to stress test mortgage applicants, but many will abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be much easier than going through a traditional bank or credit union.

However, the same with B Lenders, it is vital to pay close attention to the deal an unregulated lender offers. Lower qualification rates tend to come with baggage in the form of high interest rates or penalties.

plan b mortgage services
Cole Hennig, president of Plan B Mortgage Services, explained his company typically deals with clients who are self-employed, have damaged credit and a score somewhere below 650. Some have difficulties proving their income. They could be looking for a second mortgage or seeking a way to keep their current home. He also noted that his clients often experienced a “trigger event”, such as a job loss or work-place injury, which forced them to take on more debt than they and can’t manage.

The point of using an alternative lender, according to Hennig, is to get back into the good books of a conventional lender. Plan B will work with their clients, offering a full assessment of their situation, and provide tools to repair their credit. However, Hennig added it’s critical his clients have a path to getting out of the B lending space.

“Usually, we’re seeing people who have hit a rough spot, and our job here is to get them an immediate solution,” he said. “But, if it doesn’t lead anywhere, it’s no good to us. We’re not going to do a deal if we don’t see how it’s going to help them get back to the best place they can be.”

At that point, Hennig said a difficult conversation with the client needs to be had, which could include advising them to sell the home to avoid foreclosure.

considerations for alternative mortgages
Due to the “B” Lender space, it is important to take a good look at the conditions for these mortgage products to ensure that you won’t get trapped with rates you can’t afford.

Before considering an alternative mortgage, there are a few things you should ask yourself:

What issue is keeping me from qualifying for a mortgage today?
How long will it take me to correct this issue and qualify for a mortgage?
How much do I currently have available as a down payment?
Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?
If you are someone who is ready to go ahead with an alternative mortgage due to heavy credit score damage, or you don’t want to wait until you’re able to qualify with a traditional lender, these are five questions you should ask when reviewing any alternative mortgage product:

How high is the interest rate?
What is the penalty for missed mortgage payments? How are they calculated? What is the cost to get out of the mortgage altogether?
Is there a prepayment privilege? For example, are you able to avoid penalties if you give the lender a higher mortgage payment once a month?
What is the cost of each monthly mortgage payment?
What is the fine print?
When it comes to the alternative lending space, things can get a bit murky. Seeking the help of a mortgage broker will ensure that you are making the best decision for you! A qualified broker can help you source out various alternative mortgage products and will review the rates and terms to ensure it is the best fit.

10 Mortgage Mistakes.

Mortgage Tips Arlind Anamali 16 Sep

Whether it is your first house or you’re moving to a new neighborhood, getting approved for a mortgage is exciting! However, even if you have been approved and are simply waiting to close, there are still some things to keep in mind to ensure your efforts are successful.

Many homeowners believe that if you have been approved for a mortgage, you are good to go. However, your lender or mortgage insurance provider will often run a final credit report before completion to ensure that nothing has changed. Changes in your credit usage and score could affect what you qualify for – or whether or not you get your mortgage at all.

To avoid having your mortgage approval status reversed or jeopardizing your financing, be sure to stay away from these 10 mortgage mistakes:

1. BEEFING UP YOUR APPLICATION
This is not a time to try and ‘beef up’ your financials; you must be honest on your mortgage application. This is especially true when seeking the advice of a mortgage professional, as their main goal is to assist you in your home buying journey. Providing accurate information surrounding your income, properties owned, debts, assets and your financial past is critical. If you have been through a foreclosure, bankruptcy or consumer proposal, disclose this right away as well. We are here to help!

2. GETTING PRE-APPROVED
With all the changes and qualifying requirements surrounding mortgages, it is a mistake to assume that you will be approved. Many things can influence whether or not you qualify for financing such as unknown changes to your credit report, mortgage product updates or rate changes. Getting pre-approved is the first step to ensuring you are on the right track and securing that mortgage! Most banks consider pre-approval to be valid for four months. So, even if you aren’t house-hunting tomorrow, getting pre-approved NOW will come in handy if a new home is in your near future.

3. SHOPPING AROUND
One of the biggest mistakes people make when signing for a mortgage is not shopping around. It is easy to simply sign up with your existing bank, but you could be paying thousands more than you need to, without even knowing it! This is where a mortgage broker can help! With access to hundreds of lenders and financial institutions, a mortgage professional can help you find a mortgage with the best rate and terms to suit YOUR needs.

4. NOT SAVING FOR A DOWN PAYMENT
Your down payment is a critical part of homeownership and a useful financial tool that you should utilize when purchasing a home. A down payment reduces the overall amount of financing you need and increases the amount of equity right from the start. Down payments also show the bank you are serious. In Canada, the minimum down payment is 5% (with mortgage insurance), with the recommended being 20% if possible.

5. CHANGING EMPLOYERS OR JOBS
As employment is one of the most important factors that determines whether or not you qualify for financing, it is important not to change employers if you are in the middle of the approval process. Banks prefer to see a long tenure with your employer, as it indicates financial stability. It is best to wait for any major career changes until after your mortgage has been approved and you have the keys to your new home!

6. APPLYING OR CO-SIGNING FOR OTHER LOANS
Applying for additional loans or financing while you are currently in the midst of finalizing a mortgage contract can drastically affect what you qualify for – it can even jeopardize your credit rating! Save any big purchases, such as a new car, until after your mortgage has been finalized.

Also, just as applying for new loans can wreak havoc on a mortgage application, so can co-signing for other loans. Co-signing signifies that you can handle the full responsibility of the debt if the other individual defaults. As a result, this will show up on your credit report and can become a liability on your application, potentially lowering your borrowing power.

7. AVOIDING CREDIT MISSTEPS
As mortgage financing is contingent on your credit score and your current debt, it is important to keep these things healthy during the course of mortgage approval. Do not go over any limits on your cards or lines of credit, or miss any payment dates during the time your finances are being reviewed. This will affect whether or not the lender sees you as a responsible borrower.

Also, although you might think an application with less debt available to use would be something a bank would favor, credit scores actually increase the longer a card is open and in good standing. Having unused available credit and cards open for a long duration with a good history of repayment is a good thing! In fact, if you lower the level of your available credit (especially in the midst of an application) it could lower your credit score.

8. HAVING TOO MUCH DEBT
Credit card debt is on the rise and overuse of lines of credit can put you at risk for debt overload. Large purchases such as new truck or boat can push your total debt servicing ratio over the limit (how much you owe versus how much you make), making it impossible to receive financing. Some homeowners have so much consumer debt that they aren’t even able to refinance their home to consolidate that debt. Before you start considering a new home, make sure your current debt is under control.

9. LARGE DEPOSITS
Just as now is not the time for new loans, it is also not the time for large deposits or “mattress money” to come into your account. The bank requires a three-month history of all down payments and funds for the mortgage when purchasing property. Any deposits outside of your employment or pension income will need to be verified with a paper trail – such as a bill of sale for a vehicle, or income tax credit receipts. Unexplained deposits can delay your mortgage financing, or put it in jeopardy if they cannot be explained.

10. MARRYING INTO POOR CREDIT
Having the financial talk before getting hitched continues to be critical for your financial future. Your partner’s credit can affect your ability to get approved for a mortgage. If there are unexpected financial issues with your partner’s credit history, make sure to have a discussion with your mortgage broker before you start shopping for a new home.

If you are currently in the midst of a mortgage application, or are looking to start the process, don’t hesitate to reach out to a Dominion Lending Centres Mortgage Professional today to ensure that you do things the RIGHT way to succeed with your home purchase.

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