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On this page you will find useful articles and tips to help make the mortgage process smoother and hassle-free. Keep watching this page as we will be adding to it on a regular basis. Click here for a handy glossary of mortgage terms. Mortgage Info
Buyer and Seller Info
Conventional Mortgage (25% down) A conventional mortgage is one that is offered on new and existing homes, for up to 75% of the purchase price. The home buyer must have at least 25% of the purchase price available for a down payment. Conventional mortgages do not have to be insured through the Canadian Mortgage and Housing Corporation (CMHC). High Ratio Mortgage One of the more popular programs available from CMHC is the "5%" program, or high-ratio mortgage. Insured through CMHC, the mortgage is guaranteed for home buyers who need a high ratio mortgage (up to 24.9%). The insurance premium that is paid to CMHC is to protect the lender in the event that the mortgage is not paid. This program is not the same as life, disability or job loss insurance. The principal benefit to the borrower, is that it allows you to purchase a home with a minimum down payment. This program is often used by first-time buyers who could not afford a conventional 25% downpayment. The 5% downpayment on a $125,000 house or condo, for example, is just $6,250. An application must be submitted on your behalf to CMHC with a $235 application fee (plus applicable taxes). Upon receipt of the application, CMHC undertakes to determine the lending value of the property, which may or may not include an actual inspection or appraisal of the property. CMHC also requires that the home-related expenses (Gross Debt Service or GDS ) must not exceed 32% of your gross household income, and that your total monthly debt load (Total Debt Service or TDS) must not exceed 40% of your gross monthly household income. You must also be able to pay closing costs equivalent to 1.5% of the purchase price. To calculate
the total debt service (TDS), use the formula below (based on a mortgage
loan of $110,000 at 8% amortized over 25 years):
For example
To calculate
your Gross Debt Service, use this formula:
For example
In some
instances, it may be necessary to insure a mortgage, even though it is
not considered high ratio. This is also reflected in the chart below.
The CMHC insurance premium may be paid in full on closing or added to the mortgage amount. If added to the mortgage amount, interest is then paid on the insurance premium over the amortization of the mortgage. Most people opt for paying over the period of the mortgage rather than being saddled with a lump sum on closing. Using the CMHC program , the maximum purchase price with a downpayment of under 10% is $250,000. If you decide to put down more than 10%, there is no maximum purchase price set by CMHC, but some of the financial institutions may impose sliding scales of their own. For more information on the CMHC's high-ratio program, click here. We have also provided some Excel worksheets - right click here and select "save link as" for our Home Purchase Costs Estimate worksheet (in Netscape) and right click here and select "save link as" for our Monthly Expenses Estimate worksheet. To download or open using Internet Explorer, just click on the links and you will be prompted for downloading or opening within the site. GST & your New Home
However, if the home is going to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price. For primary residences costing $350,000 or less, you will receive a rebate of 36% of the GST paid, to a maximum of $8,750. This equates to approximately 4.5% tax on the purchase price. For homes over $350,000 and under $450,000, the tax rebate declines to zero on a proportional basis. For each $1,000 of purchase price above $350,000 the maximum rebate of $8,750 is reduced by 1%. For example: If your purchase price is $400,000, you are $20,000 over and must reduce the maximum rebate by 50%. As such the maximum rebate of $8,750 reduced by 50% equals $4,375. Therefore the GST payable would be $23,625. For a priced at $450,000, the rebate is reduced 100%, which means that you pay the full 7% GST on the purchase price. GST & the Resale Home
GST & the Real Estate
Transaction
GST & Rent and Condo
Maintenance Fees
Land Transfer Taxes
Learn About Blends, Extends & Early Renewals Early Renewal
Increase & Blend
Keep in mind, that in many cases the lender will round this rate up to the nearest 1/8th or 1/4 of a percent i.e. 6.75%. Blend & Extend
Does the Lowest
Interest Rate Always Constitute the Best Mortgage? NO!
Better Mortgage Rates Getting
The Best Deal
Lenders offer different rates and different incentives. There is the cash back incentive, line of credit, coverage of different costs associated with a real estate transaction and so forth. It's a lot of shopping that you don't want to do, don't have the time to do, and quite frankly, can't do to the same extent as a professional. Let's take a look at an example to show a comparison of what different incentives mean. Your current mortgage is $100,000 and you have three competing offers to evaluate:
Obviously, from a purely financial perspective, 3/4% off of the posted rate is the best scenario. However, consider that you may need to purchase some goods for your home, the cash back would be considered the best scenario or the blend depending on what you require. As stated above, understanding the incentives and your personal situation will dictate what is the best-case scenario for each person. We can help you through this whole process. Should I Refinance My Mortgage? Refinancing an existing mortgage can make sense when the homeowner wants a lower interest rate than they are currently receiving on their funding. The result is a lower mortgage payment or an acceleration of the payment process. It would seem obvious that everyone would want to trade in their higher rate of interest for one that is lower, so why is this even a question? Well, in short, there are penalty costs to closing out an existing mortgage obligation, as well as incidentals such as legal, closing and even appraisal costs. The mortgage industry rule of thumb is that refinancing becomes worthwhile when your current interest rates is two percentage points or greater than the current market rate. You have to factor in all the costs incurred in refinancing, as well as how long you are going to remain in the current home, as it takes time to recoup those initial losses and then realize savings. We can help you determine whether you should refinance your mortgage or not. Mortgage
Payments Got You Down?
Canadians are in love with their homes. But the romance can quickly sour once monthly mortgage payments become a financial stretch. It can happen innocently when overtime is trimmed, a growing family puts financial demands on the household budget, or when consumer debt starts to mount. One thing is for sure ignoring the problem won't make it go away. In this article, we'll help you assess options before the mortgage monster brings you to your knees with late payments and possible foreclosure. Even though you were financially qualified by the lender's standards when you took out the loan, financial strength can change over time (as well as your perception of how much payment you can handle.) Trouble signs that the mortgage is financially stifling include making payments later each month, paying less on credit card debt in order to scrape the mortgage payment together perhaps even borrowing money from your credit cards to help fund a shortfall. Once these red flags appear, it's time to turn the mortgage monster around before it's too late. Your first step should be to determine if it's financially feasible to commit to this size mortgage payment for the long haul as well as whether the present financial crunch is short-term or long term. For example, is it likely that previous overtime could be reinstated in a few months, making the payment easier to make? Can you and/or do you want to take on a part-time job, obtain new full-time employment to substantially increase your income (without creating new debt) or make family budget cuts to make money stretch farther each month? A second part of evaluating a hefty mortgage should be whether or not you're mentally committed to making a large payment for the long haul. It's much easier for buyers to be motivated to make large mortgage payments during the "homebuyer honeymoon" phase of ownership when the blush is on the new paint and the ceramic tile still gleams. After a while, you may re-order your priorities and realize that a large house payment is not for you. If this is the case, consult with your lender about the financial pros and cons of your options before taking any action. The lender might be able to refinance the loan into a lower interest rate and/or place you in a mortgage with a longer payment term to lower your monthly payment. Don't forget the possibility of selling your current house and purchasing a more cost-effective one. And since most mortgage payments are comprised of principal, interest, property taxes and insurance, whittle down any of the components and you have potential savings. While the real estate agent would be the obvious professional to pencil this out for you, don't make the a hasty mistake of jumping from the pan into the fire. Unless the agent can show you a strong net gain in dollars and cents from the sale and repurchase, you'd be better off troubleshooting your existing problems. This is especially true if you haven't owned the house long because selling and repurchasing can deplete most of your equity in new closing and purchasing costs, leaving you with fewer financial options and less equity. One thing most lenders learned from the recession of the early 90's is that working with mortgage consumers is important for the long-term welfare of lending institutions and the economy. But it's up to borrowers to proactively contact the lender and seek alternatives at the first sign payments fall behind. (It's interesting to note that while most lenders are happy to talk with you at any time about your loan, some loan types won't allow the lender to work out payment alternatives until the borrower has missed two payments in a row.) But eventual alternatives are available to borrowers with late payments (depending on the type of loan and lender.) These could include making interest-only or partial payments for a time and/or adding late payments to the back of the loan term. When working out payment alternatives, it's to your advantage to negotiate late fees and penalties that have accrued on delinquent amounts since they can easily total several months of additional mortgage payments added back into the loan. What if payments are several months behind before you contact the lender? Do you still have a chance at payment options? Yes, but based on the time that has elapsed your options may be minimized. Don't forget that by this late date, it's likely that the lender has sent you one or more "late" notices/letters, requesting that you contact them. Ignoring these notices may indicate to the lender that you really don't take your obligations seriously and could limit work-out options on the mortgage. Be prepared to share with the lender ways you could catch up the payments. This could include any wage increases you're receiving soon, how you've restructured debt to ease cash flow, and/or other cash infusions you're expecting soon (like an income tax return.) You and the lender are looking for a long-term fix to your payment problems not a temporary one. So if a suggested repayment program won't fit in your budget, be honest. Let the lender know what amount/time frame you can handle. If a meeting of the minds isn't reached on catching up late payments now, you may be destined to repeat the delinquencies all over again. But next time, the options could be even more diminished. What if late payments mount up and it's clear that a borrower can't extract himself from the situation? Is giving the property back to the lender a solution? Known as "a quit claim" the borrower gives the lender the property via a "deed in lieu of foreclosure". This means that instead of a formal foreclosure on the courthouse steps, the lender agrees to take back the property (plus any equity held in it). While financial binds can visit
at any time, it's what the mortgagor does with the problem that counts.
Contacting the lender early, keeping in touch regarding payment options,
and being committed to pay for the long haul are trademarks of the serious
borrower. After all, it's your home and you deserve to keep it.
Mortgage Life Insurance Necessary & Essential Some may consider mortgage life insurance as an option, however it may leave a family in dire financial shape if the primary income earner dies. With the increased financial obligation arising from taking out a mortgage, mortgage life insurance protects one's family if that obligation cannot be met due to a death. Your mortgage consultant can help you find a supplier and give you peace of mind that your family's obligations will be taken care of should you die. Depending on the policy, the insurance will cover up to a maximum amount, and may cover more than one borrower. The premiums are based on age (if a joint policy, the older applicant) and amount of mortgage owing, and are usually combined with your regular mortgage payments The cost of the insurance is usually based on a set amount per thousand of mortgage owing with consideration given to the age of the applicant at the time application. This cost will differ depending on the supplier and your Mortgage Consultant can help you find the best deal. Mortgage life insurance may not always be appropriate. Obviously, if you do not have a family, no beneficiary and no one residing with you, then mortgage life insurance will not be needed. Also, you may have life insurance that will more than adequately cover any financial obligations. It is your decision, but you may want to speak to a professional to determine whether mortgage life insurance is appropriate for you. Using a Home Equity Line of Credit A home equity line of credit is available to you if you have more equity in your home than your original down payment. By using your home as equity you may be able to get cheaper financing with more flexibility. The most money that you can receive through a line of credit is 90% of the appraised value of your home, however this then becomes a 2nd mortgage on your home. A secured line of credit can be obtained up to 75% of the appraised value. Just because you have a line of credit does not mean that you have to use it. It can be considered as security in case a sudden shortfall in funds occurs. You can withdraw the money whenever you need to and can repay it either in one lump sum payment or in parts. Lenders usually do not require that payments are made on the principal, but will always require monthly interest payments be made. The interest rate on the home equity lines of credit are usually at a rate at or above prime. You can also use your line of credit in whatever manner you want. Remember, with any investments that you make using your line of credit, the interest on the monies borrowed for the investment are tax deductible against your income earned. There are also fees that come with getting a home equity line of credit appraisal fees, legal fees, disbursement fees, GST and so forth. We can help you to find the lowest cost fees out there. In conclusion a home equity
loan may be an inexpensive and flexible source of financing. However, take
caution in how you use this money do not spend it freely on that which
does not provide a long-term benefit. The benefits of this security can
become a financial burden quickly if a time comes when you need the funds
and they are hanging in your closet as not-so-trendy clothes.
How to Pay Off
Your Mortgage, Sooner!
If you're waiting to be mortgage-free in twenty-five years you're missing the opportunity of a lifetime. Let me show you why. Let's say you took out a $100,000 mortgage today, at 8.50%, amortized over 25 years. Your monthly payment will be $795.36. In 25 years, you would have paid $238,609.06 for the mortgage. If you increased your monthly payments by just $50 per month, for the lifetime of the mortgage, you will pay off your mortgage in 20 years and 8 months. You would realize a total interest savings of $27,285.36 over the life of the mortgage. Now let's take the same situation
and say you paid just $1000 once a year, against your outstanding principal.
Your mortgage will now be paid off in 16 years and 8 months; an interest
savings of a whooping $51,891.49. Imagine the savings if you could pay
more than $1000, a year against the principal! Doesn't it make sense then,
that when you take out a mortgage that you also have a mortgage reduction
plan in place?
Save Thousands Through
Biweekly Payments Instead of Monthly!
Most people get paid on a weekly or biweekly basis. Nowadays, very few individuals get paid monthly. Therefore, it makes good sense to make your mortgage payments as often as you are paid. Making weekly or biweekly payments also has a dramatic effect on how fast you pay off your mortgage. Let's say you took out a $100,000 mortgage today, at 8.50% amortized over 25 years. Your monthly payment will be $795.36. In 25 years, you would have been paid $238,609.06 for the mortgage. Now let's take the same monthly
mortgage payment, divide by two, for a biweekly payment of $397.68. By
paying biweekly you will pay off your mortgage in 19 years and 9 months
with an interest savings of $34,222.80 over the life of the mortgage. A
bonus, simply because you were smart and coordinated your mortgage payment
day with your pay day! A word of caution! Not all weekly or biweekly payments
will give you these results. Make sure that your mortgage company is calculating
your weekly or biweekly payments properly so you can start saving now.
Making Mortgage
Interest Tax-Deductible!
Can borrowers with existing mortgages make the interest on a mortgage tax-deductible? Yes, depending on their financial situation. Let's say you had a $100,000 mortgage at 8% and $100,000 in other investments. Sell your other investments and pay off your mortgage. Now, after a time lag, arrange a new mortgage for $100,000 and buy back those assets. The interest on this new loan used for investments is tax deductible. Consider the positive, financial implications of this transaction. The original interest expense on the first $100,000 mortgage was approximately $8,000. This $8,000 was paid in after tax dollars. If you were in the 50% tax bracket, you just reduced your taxable income by $8,000 and a tax saving of $4,000 for the year. The best time to consider converting to a tax deductible mortgage is when you have an open term on your existing mortgage or when the mortgage becomes due, without incurring discharge penalties. Make sure that you have written
documentation showing that the money was borrowed to earn income. Revenue
Canada will insist on it!
Programs Available To First Time Buyers There are a number of programs available to first time buyers, that aid their ability to become homeowners. One such program is the ability to buy a home with as little as 5% down. In some instances you may qualify to purchase a home with No Money Down. For more information about this program, contact Ken. These programs give people an incentive to purchase by creating an opportunity to own their own home without having to accumulate a large down payment. There are special terms and conditions attached to many of these programs. For instance, insurance fees apply if the down payment is below 25%, and at the highest end equals approximately 3.75% of the mortgage amount. Please click here for more information. There is also the federally instituted Home Buyers' Plan which allow individuals to take advantage of their RRSP without being penalized. Of course there are conditions that have to be met by the individual or individuals over time, and the property has to be a qualifying property, but nonetheless, this program is a great incentive for individuals to own their own home. Click here for detailed information on the Home Buyers' Plan and check to see if the property you are considering purchasing is a qualifying property. There
are also numerous mortgage products available from lenders that an Invis
Mortgage Consultant can explain to you. You should take into account that
the first year of owning a home is when individuals have the most difficulty
in making payments since they have apportioned large amounts of funds to
the down payment. A lot of lenders also have cash back mortgages which
give the consumer a percentage of the mortgage back in cash for their own
use closing costs, mortgage payments, furniture, incidentals arising
from moving and so forth.
Buyers Tip: Winning
the Bidding Wars
Hot real estate markets bring out the worst in everyone. Sellers become greedy and demanding. Buyers become desperate, frustrated and disillusioned. And real estate agents get caught in the middle as they try to negotiate purchase contracts that are acceptable to both sides of the transaction. Along with frayed nerves, hot markets mean multiple offers will be received for just about every for-sale home. These bidding wars are great for sellers, but they add to the "freaked out" factor for buyers. How can you buy the home of your dreams when several other people are also bidding on it? Here are five tips:
An Easy Guide to Buying Your First Home A lot of prospective homebuyers do not know where to start or what to look for when buying a new home. Here is a basic step by step guide that will help you on your way:
Negotiating Tactics & Strategies Can Make or Break the Home Sale In a perfect world, real estate closings would occur over night, sellers would keep every promise made, and both buyers and sellers would negotiate openly and fairly. Unfortunately, welcome to the real world where buyers whittle at the purchase price, closings are postponed, and both sets of players use negotiati |
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