29 May

6 WAYS TO GET A DOWN PAYMENT

General

Posted by: Wei Liu

When is it time to think about saving for a down payment? I would say about a year before you think about buying a home. While that’s ideal in today’s world, we often do not have much time to save for a down payment. Sometimes your landlord is planning on retiring and wants to sell the property. How do you get a down payment?

Here’s a few ways to get a down payment for your home:

  1. Save – it’s old fashioned but it works. Open a Tax Free Savings Account (TFSA) and put a set amount into it. If you don’t have the discipline arrange for automatic deposits from your bank account. How much can you save $50 a week? That’s $2,600 in a year. Not enough. How about $200 a week?
    Stay at the Mom & Dad Hotel – while your parents may not be able to help you with a down payment they often have a spare room that you can stay in. One year of not paying rent would make a good down payment even if you chip in for groceries.
  2. Extra Income – get a second job and bank every cent from it. I know of many young people who have a day job and are servers on the weekends.
  3. Home Buyer’s Plan – the federal government will allow you to pull up to $35,000 from your RRSP account. This goes for your partner. You could put down $70,000 between the two of you. These funds need to be returned to your RRSP over the next 15 years. This is a great quick source for a down payment.
  4. Take out an RRSP Loan – borrow an amount that you need for a down payment as an RRSP. Hold the funds for 90 + 1 days and you can withdraw the funds. The cons are that you now have more debt and you have to wait for 90 days. Most sellers want a possession day sooner than that.
  5. Sell an asset. I had a client sell his vintage Cadillac Fleetwood for a down payment. Be sure to get a receipt or to sign a bill of sale with the purchaser to show where the funds came from. Rare stamps or coins, another property or vehicle are all acceptable assets.
  6. The Bank of Mom and Dad – This may be the easiest way to get a down payment or it may not. Most parents are nearing retirement and trying to save funds. There can be creative ways to get a down payment. They might set up a a secured line of credit and use the equity in their home. You could make the payments over the next few years. Note: these payments must be included in your debt ratios. If they decide to gift you the funds and make the payments themselves a gift letter is all that’s needed. They could sell their home and move into a granny suite in the basement or over the garage.

Before you start it’s always a good idea to speak to your favourite Dominion Lending Centres mortgage professional.

DAVID COOKE
Dominion Lending Centres – Accredited Mortgage Professional
22 May

MAKING THE MOST OF YOUR VARIABLE MORTGAGE

General

Posted by: Wei Liu

Working with your DLC mortgage professional can save you thousands of dollars by making the most of your variable rate mortgage in a shifting market.

In the past year we have seen an increase in the prime lending rate by 1%. For those home owners with variable rate mortgages who secured a low discount, savings can be gained moving to a new higher discount variable mortgage rate even if prime is higher than before.

How is that possible you ask?

Consider this. Ed and Anna refinanced their mortgage in 2016 at prime minus .15% (2.55% at the time). The original mortgage was $556,000 with payments of $2,206 per month. Since the prime lending rate has moved up the new effective rate is currently 3.55% (3.7% minus .15) with a payment of $2,442. Of that payment there is $1,533 per month in interest and $909 goes to principal pay down.

The current best rate is 2.75% (3.7% minus .95) so the new payment would be $2,233 per month. Of that payment $1,194 per month in interest and $1,039 towards principal pay down. If Ed and Anna choose to switch their mortgage to a new lender at the better rate in the end their payment is lower by around $100 and they save $340 per month in interest. They also have that bigger rate discount of .95% for the next 5 years so it puts them in a better place as rates move.

Even with the penalty for early pay out the savings is still thousands of dollars over the next term in their mortgage.

Consider making the most of your variable rate mortgage — contact a Dominion Lending Centres mortgage professional near you.

PAULINE TONKIN
Dominion Lending Centres
15 May

DO YOU UNDERSTAND THE B-20 GUIDELINES?

General

Posted by: Wei Liu

Still, qualifying rate can vary from different lenders, although most lenders use 5-year benchmark rate.  That is why nowadays the home buyers should talk to their mortgage brokers.  Mortgage brokers can help to find the most suitable lender, despite the strict B-20 guidelines.

A new survey has emerged showing that out of 1,901 owners and would be homeowners, 43% (more than two out of five) Canadians are not confident in their knowledge of the mortgage stress tests—despite them being in place for more than a year now.

We wanted to give you a brief set of notes regarding the guidelines. This is something you can use and reference whether you are a first-time home buyer or looking to refinance underneath these new guidelines. It gives a clear picture of what/how you are impacted as a buyer or someone who is looking to refinance.

Here’s what you need to know about B-20:

The average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power under these guidelines reduced 15-25%. Here is an example of the impact the rules have on buying a home and refinancing a home.

PURCHASING A NEW HOME

When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Up To December 31 2017 After January 1 2018
Target Rate 3.34% 3.34%
Qualifying Rate 3.34% 5.34%
Maximum Mortgage Amount $560,000 $455,000
Available Down Payment $100,000 $100,000
Home Purchase Price $660,000 $555,000

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV. The maximum amount available is: $560,000 minus the existing mortgage gives you $145,000 available in the equity of the home, provided you qualify to borrow it.

Up to December 31, 2017 After January 1 2018
Target Rate 3.34% 3.34%
Qualifying Rate 3.34% 5.34%
Maximum Amount Available to Borrow $560,000 $560,000
Remaining Mortgage Balance $415,000 $415,000
Equity Able to Qualify For $145,000 $40,000

Source (TD Canada Trust)

These guidelines have been in place since January 1, 2018 and we are starting to see the full impact of them for both buyers and those looking to refinance. Stats are showing that there is a slowdown in the real estate market, however there is also a heightened struggle for many buyers to now obtain approval under these new guidelines. It’s a difficult situation as the cry for affordable housing is still ongoing as the new guidelines may slow down the market but appear to further decrease the borrowing/buying power of individuals.
Keep in mind, this is just a brief refresher course on the B-20 guidelines. As always, if you have more questions or are looking for more information, we suggest that you reach out to your Dominion Lending Centres mortgage broker to discuss and get a full and detailed look at how it will impact you personally.

GEOFF LEE
Dominion Lending Centres 
8 May

CMHC CHANGES WILL HARM, NOT HELP, THE REAL ESTATE MARKET

General

Posted by: Wei Liu

Interesting perspectives from our DLC colleagues.  Probably the best way to help first-time homebuyers is to consider less strict stress test.

来自DLC同事的博客文章,很有意思的观点。也许帮助首次置业者的最佳方式是允许他们采用不那么严格的压力测试。

CMHC CHANGES WILL HARM, NOT HELP, THE REAL ESTATE MARKET

A new program the federal government has announced to subsidize first-time homebuyers isn’t likely to help the market but more likely to harm it.

And not only is it not going to help out the market, but it’s not going to help out new homeowners.

In its recently announced budget, the government is essentially putting the weight of turning around the market on the backs of people just entering the housing market.

Part of the problem with the plan is that we only know what’s happening on the front end. People buying their first home will be eligible for a 5% top up from the from the Canada Mortgage and Housing Corporation (CMHC) to the total cost of a home. That amount increases to 10% for new constructions. To qualify, a household must have a combined income of less than $120,000, and the CMHC will only pick up a maximum of $480,000.

In exchange for this, the housing corporation gets an equity share in your home.

While we know what the government will give new homebuyers, we don’t know what it’s going to cost them down the road. Believe it or not, there’s been no announcement on what interest rates will be offered on the loans, nor what the terms of repayment would be. Complete costing isn’t expected until at least the fall, likely after the federal election.

But the real problem at the heart of this is the measures won’t do anything to help the affordability of homes. It’s not going to decrease the price of housing, and it’s just going to put the burden of propping up the market on the backs of new entrants.

In RBC’s most recent housing affordability report, released in March, the bank said a softer housing market was making houses slightly more affordable, as their national affordability index dropped 0.7 percentage points to 51.9%. (The lower the score, the more affordable homes are.)

“The fourth-quarter relief barely made a dent in Vancouver and Toronto where affordability remains at crisis levels. Owning a home in both of these markets, as well as in Victoria and increasingly Montreal, is a huge stretch for ordinary buyers,” RBC said in a press release.

In Montreal, the bank’s score is 44.5%, and RBC said the situation is not critical just yet.

“Housing affordability is eroding gradually to levels that could potentially pinch buyers—though so far they haven’t shown any sign of balking,” they said.

But with this new CMHC policy, that gradual erosion is likely to turn critical when this new wave of homebuyers crashes into the market.

One of the potential risks with this scenario is called overhang. Essentially, because a new policy has been announced, but hasn’t come into force yet, many Canadians who are likely to qualify are going to decide to put off their purchases. For now, un-bought supply will build up. But as soon as this policy goes into effect, these first-time buyers are going to suck up huge swathes of the housing market, and prices are going to skyrocket.

The new federal program is designed to lower the monthly mortgage payments of new homeowners by what amounts to a few hundred dollars a month. That can make a huge difference in the budget of a young family, but to do this, the government is putting their hands in the pockets of new homeowners for an unspecified amount, while at the same time risking further unaffordability in the housing market.

They could have had the same effect—lowering monthly payments—by re-introducing 30-year amortizations. Instead, they’ve kept the limit for CMHC-insured mortgages set to 25 years.

The shorter amortizations coupled with the continuation of the strict stress-testing rules, covered extensively in recent North East Mortgages blog posts, puts pressure on people on the lower end of the market. The stress test makes sure you can’t just handle the rate you’re signing on for, but makes sure you can handle an additional 2 percentage on top of it.

The rules the government has passed in the last few years have made it more difficult for new buyers and established buyers alike. They’ve also made it hard for people to refinance their more toxic debt, putting them into situations far riskier than the relative rarity of mortgage default.

Adjusting those rules would have a wider effect and give more people the step up they need to enter the housing market.

If the government really wanted to help with the affordability of homes, they have plenty of better options. This narrow measure is going to end up causing more harm than good.

TERRY KILAKOS
Dominion Lending Centres – Accredited Mortgage Professional